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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 10-Q
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(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
For the Quarter ended December 26, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
For the transition period from to .
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Commission File Number: 0-19299
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INTEGRATED CIRCUIT SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2000174
(State or other jurisdiction of (Irs Employer
incorporation or organization) Identification No.)
2435 Boulevard of the Generals
Norristown, Pennsylvania 19403
(Address of principal executive offices)
(610) 630-5300
(Registrant's telephone number including area code)
------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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As of February 3, 1999, there were 12,113,500 outstanding shares of the
Registrant's Common Stock, no par value.
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1
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INTEGRATED CIRCUIT SYSTEMS, INC.
--------------------------------
INDEX
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Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets:
December 26, 1998 and June 27, 1998 3
Consolidated Statements of Operations:
Three and Six Months Ended December 26, 1998
and December 27, 1997 4
Consolidated Statements of Cash Flows:
Six Months Ended December 26, 1998 and
December 27, 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
2
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
($ and shares in thousands)
<TABLE>
<CAPTION>
December 26, June 27,
1998 1998
------------- ------------
(Unaudited)
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 19,278 $ 25,340
Marketable securities - current 17,645 16,480
Accounts receivable, net 19,555 20,335
Inventory, net 6,899 12,839
Prepaid income taxes 585 1,067
Deferred income taxes 3,085 2,069
Other current assets 2,617 2,633
------------- ------------
Total current assets 69,664 80,763
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Property and equipment, net 19,216 17,884
Deposits on purchase contracts 19,864 7,864
Other assets 1,379 1,498
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Total assets $110,123 $108,009
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long term debt $ 129 $ 143
Accounts payable 5,376 11,047
Accrued expenses and other current liabilities 6,546 4,460
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Total current liabilities 12,051 15,650
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Long-term debt, less current portion 1,318 1,380
Deferred taxes 1,291 1,211
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Total liabilities 14,660 18,241
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Shareholders' Equity:
Preferred stock, authorized 5,000 shares, none issued
Common stock, no par value, authorized 50,000 shares;
issued and outstanding 13,107 and 13,099 shares as of
December 26, 1998 and June 27, 1998, respectively 56,654 56,604
Retained earnings 58,567 49,906
Less: treasury stock, at cost (1,003 and 774 shares as of
December 26, 1998 and June 27, 1998, respectively) (19,758) (16,742)
------------- ------------
Total shareholders' equity 95,463 89,768
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Total liabilities and shareholders' equity $110,123 $108,009
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
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INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARY COMPANIES
Consolidated Statements of Operations
($ and shares in thousands, except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------ ----------------
December 26, December 27, December 26, December 27,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues: $ 35,815 $ 43,045 $ 68,015 $ 81,630
Cost and expenses:
Cost of sales 18,334 23,457 35,593 44,510
Research and development expense 5,434 5,321 10,194 9,557
Selling, general and administrative expense 5,832 5,075 10,372 10,168
Goodwill amortization 58 56 117 116
------------ ------------ ------------ ------------
Operating income 6,157 9,136 11,739 17,279
------------ ------------ ------------ ------------
Interest and other (income) (644) (515) (1,418) (1,038)
Interest expense 14 14 64 37
------------ ------------ ------------ ------------
Income before income taxes 6,787 9,637 13,093 18,280
Income taxes 2,275 3,616 4,432 7,217
------------ ------------ ------------ ------------
Net income $ 4,512 $ 6,021 $ 8,661 $ 11,063
============ ============ ============ ============
Basic:
Net income per common share $ 0.37 $ 0.48 $ 0.71 $ 0.90
============ ============ ============ ============
Diluted:
Net income per common share $ 0.37 $ 0.45 $ 0.70 $ 0.83
============ ============ ============ ============
Basic common shares 12,189 12,424 12,258 12,358
Diluted common and common equivalent shares 12,339 13,375 12,378 13,337
</TABLE>
See accompanying notes to consolidated financial statements.
4
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INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARY COMPANIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended,
-----------------
Dec. 26, Dec. 27,
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,661 $ 11,063
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,697 2,188
(Gain) loss on investments (320) 444
Loss on disposition of assets 311 -
Deferred income taxes (936) (964)
Accounts receivable, net 780 (4,637)
Inventory, net 5,940 (826)
Other assets, net 18 (530)
Accounts payable, accrued expenses and other current liabilities (3,585) 4,995
Income taxes 482 1,786
------------ ------------
Net cash provided by operating activities 14,048 13,519
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Cash flows from investing activities:
Capital expenditures (4,245) (5,331)
Sales, maturities and purchases of investments (838) (12,629)
Investment in production capacity, net (12,000) (213)
Proceeds from sales of assets 15 -
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Net cash used in investing activities (17,068) (18,173)
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Cash flows from financing activities:
Repayments of long-term debt (76) (72)
Exercise of stock options 53 3,900
Tax benefit of stock options exercised (3) 2,191
Repurchase of common stock (3,016) (5,328)
------------ ------------
Net cash provided by (used in) financing activities (3,042) 691
------------ ------------
Net decrease in cash and cash equivalents (6,062) (3,963)
Cash and cash equivalents:
Beginning of period 25,340 18,425
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End of period $ 19,278 $ 14,462
============ ============
Supplemental disclosures of cash flow information:
Cash payments during the period for:
Interest $ 64 $ 37
============ ============
Income taxes $ 4,743 $ 3,954
============ ============
Supplemental disclosure:
Marketable Securities:
Beginning of period $ 16,480 $ 7,981
End of period $ 17,645 $ 19,537
</TABLE>
See accompanying notes to consolidated financial statements.
5
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INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial Statements
(1) INTERIM FINANCIAL INFORMATION
The accompanying financial statements have not been audited. In the opinion of
the Company's management, the accompanying consolidated financial statements
reflect all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the Company's financial position at December 26,
1998 and results of operations and cash flows for the interim periods presented.
Certain items have been reclassified to conform to current period presentation.
Certain footnote information has been condensed or omitted from these financial
statements. Therefore, these financial statements should be read in conjunction
with the consolidated financial statements and related notes included in the
Company's Annual Report on Form 10-K for the year ended June 27, 1998. Results
of operations for period ended December 26, 1998 are not necessarily indicative
of results to be expected for the full year.
The accompanying consolidated financial statements include the accounts of the
Company and all of its wholly owned subsidiaries, after elimination of all
significant intercompany accounts and transactions.
(2) INVENTORY
Inventory is stated at the lower of cost, (FIFO basis), or market.
The components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
December 26, June 27,
1998 1998
---------------- ----------------
<S> <C> <C>
Work-in-process $ 4,984 $ 6,370
Finished parts 6,440 9,829
Less: Inventory reserve (4,525) (3,360)
---------------- ----------------
$ 6,899 $12,839
================ ================
</TABLE>
(3) NEW ACCOUNTING PRONOUNCEMENTS
The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income," which became effective for fiscal year
1999. Comprehensive income and net income were the same for all periods
presented.
The Company will adopt in the current fiscal year SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information", which became effective
for fiscal year 1999.
The Company has adopted SFAS No. 132, "Employers' Disclosures about Pensions and
other Post Retirement Benefits". The disclosure requirements of this statement
do not apply to the Company.
6
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In June 1998, the FASB issued SFAS No. 133, " Accounting for Derivative
Instruments and Hedging Activities". This statement is effective for all fiscal
years beginning after June 15, 1999. The Company believes that the adoption of
this statement will not have a material impact on the financial statements.
(4) EARNINGS PER SHARE
The following represents the reconciliation of basic and diluted earnings per
share in accordance with SFAS No. 128, "Earnings per Share":
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------------------ ------------------------------
Dec. 26, Dec. 27, Dec. 26, Dec. 27,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Basic
- -----
Net income $ 4,512 $ 6,021 $ 8,661 $11,063
============ ============ ============ ============
Common shares outstanding:
Weighted average common share outstanding 12,189 12,424 12,258 12,358
============ ============ ============ ============
Earnings per common share $ 0.37 $ 0.48 $ 0.71 $ 0.90
============ ============ ============ ============
Diluted
- -------
Net income $ 4,512 $ 6,021 $ 8,661 $11,063
============ ============ ============ ============
Common and common equivalent share outstanding:
Weighted average common shares outstanding 12,189 12,424 12,258 12,358
Assumed exercise of stock options 150 951 120 979
------------ ------------ ------------ ------------
12,339 13,375 12,378 13,337
============ ============ ============ ============
Earnings per common and common equivalent share $ 0.37 $ 0.45 $ 0.70 $ 0.83
============ ============ ============ ============
</TABLE>
(5) TAXES
The Company does not currently calculate deferred taxes on its investment in its
Singapore operations, as all undistributed earnings are permanently reinvested
back into the Singapore facility. If the Company were to set up a deferred
liability on its investment, the amount would result in a $1.6 million
liability.
(6) RELATED PARTIES
On January 11, 1999, the Company entered into an employment agreement with
Rudolf Gassner as the Company's Chairman of the Board. The employment period is
for one year commencing on January 1, 1999. Mr. Gassner's responsibilities
include finding a suitable candidate to serve as the Company's Chief Executive
Officer, and management of the day-to-day operations of the Company until a
suitable Chief Executive Officer is secured. The agreement provides for the
Company to pay Mr. Gassner a salary at a monthly rate of $12,000 during the
employment term. Mr. Gassner will also be entitled to participate in the
Company's incentive compensation plan.
On November 3, the Company granted Mr. Gassner an option to purchase 112,000
shares of the Company's common stock at $13.875 per share, equal to the fair
market value on the grant date. The options vest and become exercisable on a
cumulative basis at a rate of 8,000 shares per month commencing on November 30,
1998, with full vesting on December 31, 1999. On November 3, 1998, the Company
granted Mr. Gassner an
7
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option to purchase an additional 100,000 shares the Company's common stock at
$13.875, the fair market value on the grant date. These options vest and become
exercisable on a cumulative basis at the rate of 20,000 shares per year
commencing on the first anniversary of the grant date, with full vesting on
November 3, 2003, and earlier vesting in full in the event the price of the
Company's common stock exceeds $20 for 10 consecutive trading days.
(7) SUBSEQUENT EVENTS
On, January 15, 1999, the Company entered into a definitive agreement to sell
intellectual property and engineering hardware and software related to its data
communications product line to 3Com Corporation for approximately $16 million in
cash (the "Data Communications Transaction"). The transaction is subject to the
satisfaction of customary conditions and is expected to close by the end of
February 1999. Under the agreement, the Company will have certain licensing and
technical support rights, and will continue to sell and support its existing and
prospective fast ethernet 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., a Pennsylvania limited partnership, to sell the land and
building at the Company's Valley Forge location. The purchase price for the
property is $5.3 million. BET Investment III, L. P. will assign its right to
purchase the building to BET Investments IV, L. P., a Pennsylvania limited
partnership. On January 29, 1999, the Company signed a lease with BET
Investments IV, L. P. to lease back the Valley Forge property 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.
On January 20, 1999, the Company entered into a definitive merger agreement
under which an investor group comprised of the Company's senior management
together with affiliates of Bain Capital Inc. and Bear, Stearns & Co. Inc. will
acquire all of the outstanding shares of the Company at a cash price of $21.25
per share. This transaction will be financed primarily through bank financing
and debt. The merger will be voted on by the Company's shareholders at a Special
Meeting of Shareholders expected to be held in May or June 1999. In addition,
completion of the merger is subject to the receipt of funding by the investor
group under an existing financing commitment with Credit Suisse First Boston and
is subject to other customary conditions, including the receipt of certain
regulatory approvals.
On January 27, 1999, a purported class action lawsuit was filed against the
Company and Henry Boreen, as former Interim Chief Executive Officer of the
Company, with respect to the Company's recently announced merger agreement. The
Company believes that the purported class action lawsuit is without merit. The
Company intends to vigorously defend the action.
The Company was faced with a proxy contest that was waged by its former Chief
Executive Officer. As a result of the proxy contest, the Company has incurred
mailing, legal and printing costs for its annual meeting, in excess of those
historically incurred for routine annual shareholders' meetings, during both the
second and third quarters of fiscal 1999.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-Looking Statements
The statements contained or incorporated in this Form 10-Q that are not
historical facts or statements of current condition are forward-looking
statements. Such forward-looking statements may be identified by, among other
things, the use of forward-looking terminology such as "believes," "forecasts,"
"estimates," "plans," "continues," "may," "will," "should," "anticipates," " and
"intends," or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy or intentions. These forward-looking
statements, including Year 2000 matters, anticipated future new product
introductions, revenues, 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 achievement 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 and
achievements include, but are not limited to, the "Risk Factors" disclosed in
the annual report on Form 10-K for the period ending June 27, 1998, and general
economic conditions, including economic conditions related to the semiconductor
and PC industries. Given these uncertainties, current or prospective investors
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.
Results of Operations
The following table sets forth, for the periods indicated the percentage
relationship to revenue of certain cost, expense and income items. The table
and the subsequent discussion should be read in conjunction with the financial
statements and the notes thereto:
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------ ----------------
Dec. 26, Dec. 27, Dec. 26, Dec. 27,
------------ ------------ ------------ ------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0%
Cost and expenses:
Cost of sales 51.2 54.5 52.3 54.5
Research and development 15.2 12.4 15.0 11.7
Selling, general and administrative 16.3 11.8 15.3 12.5
Goodwill amortization 0.1 0.1 0.2 0.1
---------------------------- ----------------------------
Operating income 17.2 21.2 17.2 21.2
Interest and other (income) (1.8) (1.2) (2.1) (1.3)
Interest expense - - 0.1 0.1
------------ ------------ ------------ ------------
Income before income taxes 19.0 22.4 19.2 22.4
Income tax expense 6.4 8.4 6.5 8.8
------------ ------------ ------------ ------------
Net income 12.6% 14.0% 12.7% 13.6%
============ ============ ============ ============
</TABLE>
9
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SECOND QUARTER 1999 AS COMPARED TO SECOND QUARTER 1998
Consolidated revenues decreased $7.2 million or 16.8% for the second quarter
ended December 26, 1998 as compared to the prior year quarter. The decrease in
revenues was primarily due to the decline in revenue generated by fast ethernet
transceiver products.
The Company's FTG component revenues increased $0.9 million to $24.5 million for
the second quarter of fiscal 1999 as compared to the prior year quarter. The
increase reflects the strong demand from non-PC motherboard OEM customers.
Total FTG component revenues contributed 68.5% of consolidated revenues for the
second quarter in fiscal 1998 which represented an increase from the 55.0% for
the prior year quarter as a result of decreased demand in the Company's Data
Communication products and strong demand for the Company's non-PC motherboard
products.
Data Communication component revenues were $4.0 million for the second quarter
of fiscal 1999, a decrease of $7.6 million as compared to the prior year
quarter. Data Communications component revenues comprised 11.3% of
consolidated revenues for the second quarter of fiscal 1999 as compared to 27.0%
in the prior year quarter due to decreased market share from network system
suppliers of the single chip 10/100 Mb transceivers. The Company does not
expect revenues from the Data Communications component to be adversely affected
by the Data Communications Transaction (as defined below under "Subsequent
Events").
Systems Technologies revenues decreased $0.5 to $7.3 million for the second
quarter of fiscal 1999, as compared to the prior year quarter. The decrease is
the result of the decline in certain customized circuits and GENDAC products in
3-D graphic solutions slightly offset by the increase in demand for high
performance frequency generator products for various video applications.
Systems Technologies component revenues comprised 20.2% of consolidated
revenues for the second quarter of fiscal 1999 versus 18.0% for the prior year
quarter as a result of the decrease in the Data Communications product line
percentage of total revenue.
Foreign revenues (which includes shipments of ICs to offshore subsidiaries of US
multinational companies) were 70.6% of total revenues for the second quarter of
fiscal 1999 and compared to 60.1% of total revenues in the prior year quarter.
Cost of sales as a percentage of total revenues was 51.2% for the second quarter
of fiscal 1999 as compared to 54.5% in the prior year quarter. The decrease
in the cost of sales percentage was primarily the result of reduced material
costs in our major products and a favorable product mix.
Research and development expense increased $0.1 million to $5.4 million for the
second quarter of fiscal 1999, as compared to the prior year quarter. As a
percentage of revenue, research and development expenses were 15.2% in the
current quarter as compared to 12.4% in the prior year quarter. The increase
is primarily attributable to reduced revenues and increased investment in
research and development programs. Assuming completion of the Data
Communications Transaction, the Company expects that there will be savings in
research and development expenses.
Selling, general and administrative expense, as a percentage of revenue
increased from 11.8% in the prior year quarter to 16.3% in the second quarter of
fiscal 1999. This increase is primarily attributable to the decrease in revenue
and additional charges for the proxy contest relating to the Company's annual
shareholders' meeting.
10
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SIX MONTHS ENDED DECEMBER 26, 1998 AS COMPARED TO SIX MONTHS ENDED DECEMBER 27,
1997
Consolidated revenues decreased $13.6 million or 16.7% for the six months ended
December 26, 1998 as compared to the prior year period. The decrease is
primarily the result of the reduced demand for the fast ethernet transceiver
products.
The Company's FTG component revenues increased $1.9 million to $46.7 million for
the first six months of fiscal 1999 as compared to the prior year period.
Total FTG component revenues contributed 68.7% of consolidated revenue in
fiscal 1999, which represented an increase with respect to 54.9 % for the prior
year period. The increase, as a percentage of revenue, is the result of the
significant demand decrease in the Company's Data Communications product line
and the strong demand for the Company's non-PC motherboard products.
Data Communication component revenues were $7.7 million for the first six months
of fiscal 1999 as compared to $21.5 million in the prior year period. Data
Communications component revenues comprised 11.3% of consolidated revenues in
the first six months of fiscal 1999 as compared to 26.4% in the prior year
period. The decrease is the result of a significant decline in demand for the
Company's networking transceivers. The Company does not expect revenues from
the Data Communications component to be adversely affected by the Data
Communications Transaction (as defined below under "Subsequent Events").
Systems Technologies component revenues decreased to $13.6 million for the first
six months of fiscal 1999, as compared to $15.3 million in the prior year
period. The decrease reflects a slightly lower demand for GENDAC products in 3-D
graphic solution and certain customized circuits. These decreases were slightly
offset by an increase in demand for the high performance frequency generator
products for various video applications. Systems Technologies component
revenues comprised 20.1% of consolidated revenues in the first six months of
fiscal 1999 versus 18.8% for the prior year period as the result of the
significant decrease in revenue for the Company's Data Communications product
line.
Foreign revenues (which includes shipments of ICs to offshore subsidiaries of US
multinational companies) was 68.9% of total revenues for the first six months
of fiscal 1999 and compared to 64.8% of total revenues in the prior year period.
The percentage increase reflects growth in the Far East market.
Cost of sales as a percentage of total revenues was 52.3% for the first six
months of fiscal 1999 as compared to 54.5% in the prior year period. The
decrease in the cost of sales percentage was primarily the result of material
cost reduction and a favorable product mix.
Research and development expense increased to $10.2 million for the first six
months of fiscal 1999 as compared to $9.6 million in the prior year period.
Research and development spending increased because of accelerated product
development programs. Assuming completion of the Data Communications
Transaction, the Company expects that there will be savings in research and
development expenses.
Selling, general and administrative expense increased $0.2 million to $10.4
million for the first six months of fiscal 1999 as compared to the prior year
period. As a percentage of revenue, selling, general and administrative
expenses increased from 12.5% to 15.3% as a result of a decrease in revenues and
increased charges for the proxy contest relating to the Company's annual
shareholders' meeting.
11
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Income Taxes
The Company's effective income tax rate was 33.8% for the six months ended
December 26, 1998 compared to 39.5% in the prior year period. The decrease in
the tax rate is attributable to the tax benefits of the Singapore operations.
The Company does not currently calculate deferred taxes on its investment in its
Singapore operations, as all undistributed earnings are permanently reinvested
back into the Singapore facility. If the Company were to set up a deferred
liability on its investment, the amount would result in a $1.6 million
liability.
Industry Factors
The Company continues to experience pricing pressures and increased competition
in its more mature products. The Company's strategy has been to develop new
products and introduce them ahead of the competition in order to have them
selected for design into products of leading OEMs. The Company's newer
components, which include non-PC motherboard products, advanced motherboard FTG
components and LCD imaging products, are examples of this strategy. However,
there can be no assurance that the Company will continue to be successful in
these efforts or that further competitive pressures would not have a material
impact on revenue growth or profitability.
The semiconductor and personal computer industry, in which the Company
participates, is generally characterized by rapid technological change, intense
competitive pressure, and, as a result, products price erosion. The Company's
operating results can be impacted significantly by the introduction of new
products, new manufacturing technologies, rapid changes in the demand for
products, decreases in the average selling price over the life of a product and
the Company's dependence on third-party suppliers. The Company's operating
results are subject to quarterly fluctuations as a result of a number of
factors, including competitive pressures on selling prices, availability of
wafer supply, fluctuation in yields, changes in the mix of products sold, the
timing and success of new product introductions and the scheduling of orders by
customers. The Company believes that its future quarterly operating results may
also fluctuate as a result of Company-specific factors, including pricing
pressures on its more mature FTG components as well as the competitive pressure,
continuing demand for its custom ASIC products and acceptance of the Company's
newly introduced ICs and board level products and market acceptance of its
customers' products. Due to the effect of these factors on future operations,
past performance may be a limited indicator in assessing potential future
performance.
LIQUIDITY AND CAPITAL RESOURCES
At December 26, 1998, the Company's principal sources of liquidity included cash
and cash equivalents of $19.3 million as compared to $25.3 million at June 27,
1998. Net cash provided operating activities were $14.0 million for the six
months of fiscal 1999, as compared to $13.6 million in prior year period. This
increase primarily represents improved inventory utilization and accounts
receivable turns. The Company's days sales outstanding was decreased from 52
days at June 27, 1998 to 50 days in the six months of fiscal 1999, while
inventory turns increased from 6.7 times in fiscal 1998 to 7.4 times in the six
months of fiscal 1999.
Expenditures for property and equipment were $4.2 for the first six months of
fiscal 1999 as compared to $5.3 in the prior year period. The decrease in
expenditures is primarily attributable to the start up of the Singapore
Facility, which occurred in the prior year. Net purchases of marketable
securities were $0.8 million for the current period as compared to a net
purchase of marketable securities of $12.6 million in the prior year period.
12
<PAGE>
On October 7, 1998, the Company entered into an additional wafer purchase
contract with Chartered Semiconductor Manufacturing PTE Ltd. ("CSM"). The
agreement required the Company to advance $12.0 million as part of a mutual
commitment for CSM to supply and the Company to purchase an agreed minimum
quarterly quantity of wafers over a two-year period from October 1, 1998 to
December 31, 2000. The agreement requires CSM to refund the deposit to the
Company in progressive installments based upon the volume of purchases made by
the Company. On October 21, 1998, the Company funded the $12.0 million required
by this agreement.
During the first six months of fiscal 1999, the Company has repurchased, using
the cost method, 229,000 of its outstanding shares valued at $3.0 million versus
212,000 shares valued at $5.3 million in the prior year comparable period. As a
result of the exercise of stock options by various employees, common stock
capital increased $0.1 million in fiscal 1999, as compared to $3.9 million in
the prior year period.
The Company did not draw on its $20.0 million unsecured revolving line of credit
during the first six months of fiscal 1999. The facility is subject to certain
covenants, including the maintenance of certain financial ratios, minimum
tangible net worth requirements, restrictions on the magnitude of stock
repurchases and payment of cash dividends. The facility is subject to a
commitment fee equal to 1/8% on the unused portion due and payable quarterly in
arrears, and expires on December 31, 1999.
The Company believes that existing sources of liquidity and funds expected to be
generated from operations will provide adequate cash to fund the Company's
anticipated working capital needs over the short term. Further expansion of the
Company's business or the completion of any material strategic acquisitions may
require additional funds which, to the extent not provided by internally
generated sources, could require the Company to seek access to debt or equity
market. (See "Subsequent Events" below)
SUBSEQUENT EVENTS
On January 15, 1999, the Company entered into a definitive agreement to sell
intellectual property and engineering hardware and software related to its data
communications product line to 3Com Corporation for approximately $16 million in
cash. (the "Data Communications Transaction"). The Data Communications
Transaction is subject to the satisfaction of customary conditions and is
expected to close by the end of February 1999. Under the agreement, the Company
will have certain licensing and technical support rights, and will continue to
sell and support its existing and prospective fast ethernet 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., a Pennsylvania limited partnership, to sell the land and
building at the Company's Valley Forge location. The purchase price for the
property is $5.3 million. BET Investment III, L. P. will assign its right to
purchase the building to BET Investments IV, L. P., a Pennsylvania limited
partnership. On January 29, 1999, the Company signed a lease with BET
Investments IV, L. P. to lease back the Valley Forge property 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.
13
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On January 20, 1999, the Company entered into a definitive merger agreement
under which an investor group comprised of the Company's senior management
together with affiliates of Bain Capital Inc. and Bear, Stearns & Co. Inc. will
acquire all of the outstanding shares of the Company at a cash price of $21.25
per share. This transaction will be financed primarily through bank financing
and debt. The merger will be voted on by the Company's shareholders at a
Special Meeting of Shareholders expected to be held in May or June 1999. In
addition, completion of the merger is subject to the receipt of funding by the
investor group under an existing financing commitment with Credit Suisse First
Boston and is subject to other customary conditions, including receipt of
certain regulatory approvals. For more complete information regarding the
merger, refer to the Company's Current Reports on Form 8-K dated January 20,
1999 and January 22, 1999, the contents of which are incorporated by reference
herein.
On January 27, 1999, a purported class action lawsuit was filed against the
Company and Henry Boreen, as former interim Chief Executive Officer of the
Company, with respect to the Company's recently announced merger agreement. The
Company believes that the purported class action lawsuit is without merit. The
Company intends to vigorously defend the action.
The Company was faced with a proxy contest that was waged by its former Chief
Executive Officer. As a result of the proxy contest, the Company has incurred
mailing, legal and printing costs for its annual meeting, in excess of those
historically incurred for routine annual shareholders' meetings, during both the
second and third quarters of fiscal 1999.
YEAR 2000
The Year 2000 ("Y2K") issue is the result of computer programs being written
using two digits rather than four digits to define the applicable year.
Computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, a temporarily
inability to process transactions, send invoices, or engage in normal business
activities.
Currently, the Company has a formal program in process that includes analysis of
potentially affected business and process systems and replacement or correction
of all non-compliant critical business and process systems it will need in the
new millenium. In concert with this effort, all suppliers that are critical to
the function of the Company are being surveyed to insure readiness and non-
disruption to the Company supply chain. The Company intends to have their
internal application systems, infrastructure and procedures, and manufacturing
and control processes Y2K compliant by mid-1999. At this time, the Company is
approximately 70% compliant. The Company has set up a Y2K Action Team
consisting of employees from various departments. This team is responsible for
testing and follows up of any Y2K issues that have been found.
The Company is required and is modifying or replacing certain portions of its
internal systems. The Company is using internal resources to reprogram or
replace and test the software for Y2K changes. If these changes or conversions
to new systems are not made in time, the Y2K issue could have a material adverse
impact on the operations of the Company.
The Company relies on subcontractors for wafer manufacture, assembly and testing
of its products. The Company has sent questionnaires to these suppliers to
determine the extent at which the Company's operations are exposed to failure
from Y2K issues. The Company has received approximately 50% of the responses and
14
<PAGE>
has formed a list of critical subcontractors. The Company plans to mail an
audit review questionnaire in the third quarter of 1999, which will determine
whether the Company needs to audit any of the critical subcontractors. There
can be no assurance that the Company will be successful in its efforts to
resolve any Y2K issues and continue receiving products from these suppliers.
The failure to resolve these issues could result in a shutdown of some or all
the Company's operations, which would have a material adverse effect on the
Company.
The Company utilizes third-party network equipment and software products, which
may or may not be Y2K compliant. The Company has begun formal communications,
through questionnaires, with critical suppliers of products and services to
determine that the suppliers' operations and the products and services they
provide are Y2K capable. The Company has begun receiving responses to these
questionnaires. The Company does not currently have any information concerning
the Y2K compliance status of its customers. If any of the Company's significant
customers and suppliers do not successfully and in a timely manner achieve Y2K
compliance, the Company's business or operations could be adversely affected.
There can be no assurance that another company's failure to ensure Y2K
capability would not have an adverse effect on the Company. The products that
the Company sells are not date-sensitive, and therefore product related
exposures are low.
The total expense of the Y2K project is currently estimated at approximately
$100,000, which is not material to the Company's business operations or
financial condition. If required modifications to existing software and
conversions to new software are not made, or are not completed in a timely
manner, the Y2K could have a material impact on the operations of the Company.
While delays in the implementation of the Y2K solutions, or failure of any
critical technology components to operate properly in the year 2000, could
affect the Company's operations, the Company believes that resolution of the Y2K
issue will not require material additional costs and will not have a material
adverse effect on the Company's results of operations. There can be no assurance
that these costs will not be material to the Company or that the Company will be
able to resolve these issues in a timely manner. The expense of the Y2K project
is being funded through operating cash flows.
The Company has not yet fully developed a comprehensive contingency plan to
address situations that may result if the Company is unable to achieve Y2K
readiness of its critical operations. There can be no assurance that the
Company will be able to develop a contingency plan that will adequately address
issues that may arise in the year 2000. The failure of the Company to
successfully resolve such issues could result in shutdown of some or all of the
Company's operations, which would have a material adverse effect on the Company.
The costs of the plan and the date on which the Company believes it will
complete the Y2K modification are based on management's best estimates, which
were derived utilizing numerous assumptions regarding future events, including
the continued availability of certain resources, third-party modification plans
and other factors. There can be no assurance that these estimates will be
achieved and actual results could differ materially from those anticipated.
NEW ACCOUNTING PRONOUNCEMENTS
The Company has adopted Statement of Financial Accounting Standards ("SFAS")No.
130, "Reporting Comprehensive Income", which became effective for fiscal year
1999. Comprehensive income and net income were the same for the periods
presented.
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<PAGE>
The Company will adopt, in the current fiscal year, SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information", which became effective
for fiscal year 1999.
The Company has adopted SFAS No. 132, "Employers' Disclosures about Pensions and
other Post Retirement Benefits". The disclosure requirements of this statement
do not apply to the Company.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999. The Company
believes that the adoption of this statement will not have a material impact on
the financial statements.
16
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
3.1 Amended and Restated By-Laws (amended effective January 18,
1999)
10.1 Amendment Agreement (No. 1) dated September 27, 1998 to
Deposit Agreement between Chartered Semiconductor
Manufacturing LTD and Integrated Circuit Systems, Inc.;
Second Deposit Agreement dated October 7, 1998 between
Chartered Semiconductor Manufacturing LTD and Integrated
Circuit Systems, Inc.; and Amendment and Assignment
Agreement dated October 7, 1998 among Intel Corporation,
Chartered Semiconductor Manufacturing LTD, Integrated
Circuit Systems, Inc. and Chips and Technologies, Inc.
10.2 Asset Purchase Agreement dated January 15, 1999 among
Integrated Circuit Systems, Inc., ICS Technologies Inc. and
3Com Corporation. In accordance with the instructions to
Item 601(b)(2) of Regulation S-K, the Schedules and
Exhibits to the Asset Purchase Agreement are not being
filed as a part of this Exhibit 10-2. The Company agrees to
furnish supplementally a copy of any such Schedules and
Exhibits to the Securities Exchange Commission upon
request.
10.3 Employment Agreement dated January 11, 1999 between
Integrated Circuit Systems and Rudolf Gassner
*10.4 Agreement and Plan of Merger dated January 20, 1999 between
Integrated Circuit Systems, Inc. and ICS Merger Corp.
(Exhibit 2.1 to the Company Current Report on Form 8-K
dated January 20, 1999)
10.5 Master Lease dated January 29, 1999, between BET
Investments IV and Integrated Circuit Systems, Inc.
27 Financial Data Schedule
*Incorporated by Reference
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(b) Reports on Form 8-K:
The Company filed a current report on Form 8-K on October 23, 1998 to
report that: (1) a management-led proposal to acquire the Company at a per
share price of $17.50 had been rejected by a special committee of the
Company's Board of Directors formed to consider the proposal; and (2) the
Company's Annual Meeting of Shareholders had been scheduled for December
30, 1998 with a record date of November 23, 1998.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 9, 1999 INTEGRATED CIRCUIT SYSTEMS, INC.
By: /S/ Rudolf Gassner
---------------------
Rudolf Gassner
Chairman of the Board
(The principal executive officer)
Date: February 9, 1999
By: /S/ Hock E. Tan
---------------
Hock E. Tan
Senior Vice President, COO and CFO
(The principal financial and accounting officer)
19
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INTEGRATED CIRCUIT SYSTEMS, INC.
Exhibit Index
Number Description
------ ------------
3.2 Amended and Restated By-Laws (amended effective January 18,
1999)
10.1 Amendment Agreement (No. 1) dated September 27, 1998 to
Deposit Agreement between Chartered Semiconductor
Manufacturing LTD and Integrated Circuit Systems, Inc.;
Second Deposit Agreement dated October 7, 1998 between
Chartered Semiconductor Manufacturing LTD and Integrated
Circuit Systems, Inc.; and Amendment and Assignment
Agreement dated October 7, 1998 among Intel Corporation,
Chartered Semiconductor Manufacturing LTD, Integrated
Circuit Systems, Inc. and Chips and Technologies, Inc.
10.2 Asset Purchase Agreement dated January 15, 1999 among
Integrated Circuit Systems, Inc., ICS Technologies Inc. and
3Com Corporation. In accordance with the instructions to
Item 601(b)(2) of Regulation S-K, the Schedules and
Exhibits to the Asset Purchase Agreement are not being
filed as a part of this Exhibit 10-2. The Company agrees to
furnish supplementary a copy of any such Schedules and
Exhibits to the Securities Exchange Commission upon
request.
10.3 Employment Agreement dated January 11, 1999 between
Integrated Circuit Systems and Rudolf Gassner
*10.4 Agreement and Plan of Merger dated January 20, 1999 between
Integrated Circuit Systems, Inc. and ICS Merger Corp.
(Exhibit 2.1 to the Company Current Report on Form 8-K
dated January 20, 1999)
10.5 Master Lease dated January 29, 1999, between BET
Investments IV and Integrated Circuit Systems, Inc.
27 Financial Data Schedule
*Incorporated by Reference
20
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EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
INTEGRATED CIRCUIT SYSTEMS, INC.
<PAGE>
TABLE OF CONTENTS
Page
Article 1 CORPORATION OFFICE.....................................1
Article 2 SHAREHOLDER MEETINGS...................................1
Article 3 QUORUM OF SHAREHOLDERS.................................5
Article 4 VOTING RIGHTS..........................................6
Article 5 PROXIES................................................7
Article 6 RECORD DATE............................................7
Article 7 SHAREHOLDER LIST.......................................9
Article 8 JUDGES OF ELECTION.....................................9
Article 9 CONSENT OF SHAREHOLDERS IN LIEU OF MEETING............10
Article 10 BOARD OF DIRECTORS....................................10
Article 11 REMOVAL OF DIRECTORS..................................12
Article 12 VACANCIES ON BOARD OF DIRECTORS.......................13
Article 13 POWERS OF BOARD.......................................13
Article 14 MEETINGS OF THE BOARD OF DIRECTORS....................14
Article 15 ACTION BY WRITTEN CONSENT.............................16
Article 16 COMPENSATION OF DIRECTORS.............................16
Article 17 OFFICERS..............................................16
Article 18 THE PRESIDENT.........................................17
Article 19 THE SECRETARY.........................................18
Article 20 THE TREASURER.........................................19
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Article 21 THE CHAIRMAN OF THE BOARD.............................19
Article 22 OTHER OFFICERS........................................20
Article 23 LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION
OF OFFICERS, DIRECTORS, AND OTHER PERSONS.............20
Article 24 SHARES: SHARE CERTIFICATES............................25
Article 25 TRANSFER OF SHARES....................................27
Article 26 LOST CERTIFICATES.....................................28
Article 27 FINANCIAL REPORTS TO SHAREHOLDERS.....................28
Article 28 FISCAL YEAR...........................................28
Article 29 MANNER OF GIVING WRITTEN NOTICE: WAIVERS OF NOTICE....28
Article 30 AMENDMENTS............................................30
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AMENDED AND RESTATED BYLAWS
OF
INTEGRATED CIRCUIT SYSTEMS, INC.
Article 1
CORPORATION OFFICE
Section 1.1 The Corporation shall have and continuously
maintain in the Commonwealth of Pennsylvania a registered office at an address
to be designated from time to time by the Board of Directors which may, but need
not, be the same as its place of business.
Section 1.2 The Corporation may also have offices at such
other places as the Board of Directors may from time to time designate or the
business of the Corporation may require.
Article 2
SHAREHOLDER MEETINGS
Section 2.1 All meetings of the shareholders shall be held at
such time and place, within or without the Commonwealth of Pennsylvania, as may
be determined from time to time by the Board of Directors and need not be held
at the registered office of the Corporation.
Section 2.2 An annual meeting of the shareholders for the
election of directors and the transaction of such other business as may properly
be brought before the meeting shall be held in each calendar year at such time
and place as may be determined by the Board of Directors.
<PAGE>
Section 2.3 Special meetings of the shareholders may be
called at any time by (i) the Chairman of the Board, if any, if such officer is
serving as the chief executive officer of the Corporation, and otherwise the
President or (ii) the Board of Directors. The request of any person who has
called a special meeting of shareholders shall be addressed to the Secretary of
the Corporation, shall be signed by the persons making the request and shall
state the general nature of the business to be transacted at the meeting. Upon
receipt of any such request it shall be the duty of the Secretary to fix the
time and provide written notice of the special meeting of shareholders, which,
if called pursuant to a statutory right, shall be held not more than 60 days
after the receipt of the request. If the Secretary shall neglect or refuse to
fix the time or provide written notice of the special meeting, the person or
persons making the request may fix the time and provide written notice of the
special meeting.
Section 2.4 Written notice of each meeting other than an
adjourned meeting of shareholders, stating the place and time, and, (i) in the
case of a special meeting of shareholders, the general nature of the business to
be transacted, and, (ii) in the case of a meeting of shareholders called for the
purpose, or one of the purposes, of considering the amendment or repeal of the
Bylaws, written notice of such proposed action, shall be provided to each
shareholder of record entitled to vote at the meeting at such address as appears
on the books of the Corporation. Such notice shall be given, in accordance with
the provisions of Article 29 of these Bylaws, at least (i) ten days prior to the
day named for a meeting to consider a fundamental change under Chapter 19 of the
Pennsylvania Business Corporation Law of 1988 (the "BCL") or (ii) five days
prior to the day named for the meeting in any other case.
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Section 2.5 (a) Whenever the Corporation has been unable to
communicate with a shareholder for more than 24 consecutive months because
communications to the shareholder are returned unclaimed or the shareholder has
otherwise failed to provide the Corporation with a current address, the giving
of notice to such shareholder pursuant to Section 2.4 of these Bylaws shall not
be required. Any action or meeting that is taken or held without notice or
communication to that shareholder shall have the same validity as if the notice
or communication had been duly given. Whenever a shareholder provides the
Corporation with a current address, this Subsection 2.5(a) shall cease to be
applicable to such shareholder.
(b) Corporation shall not be required to give
notice to any shareholder pursuant to Section 2.4 hereof if and for so long as
communication with such shareholder is unlawful.
Section 2.6 The Board of Directors may provide by resolution
with respect to a specific meeting or with respect to a class of meetings that
one or more shareholders may participate in such meeting or meetings of
shareholders by means of conference telephone or other communications equipment
by means of which all persons participating in the meeting can hear one another.
Participation in the meeting by such means shall constitute presence in person
at the meeting. Any notice otherwise required to be given in connection with any
meeting at which participation by conference telephone or other communications
equipment is permitted shall so specify.
Section 2.7 Except as otherwise provided by law (including
but not limited to Rule 14a-8 of the Securities and Exchange Act of 1934, as
amended or any successor provision thereto), or in these Bylaws, or except as
permitted by the presiding officer of the meeting in the
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exercise of such officer's sole discretion in any specific instance, the
business which shall be conducted at any meeting of the shareholders shall (a)
have been specified in the written notice of the meeting (or any supplement
thereto) given by the Corporation, or (b) be brought before the meeting at the
direction of the Board of Directors or the presiding officer of the meeting, or
(c) have been specified in a written notice (a "Shareholder Meeting Notice")
given to the Corporation, in accordance with all of the following requirements,
by or on behalf of any shareholder who shall have been a shareholder of record
on the record date for such meeting and who shall continue to be entitled to
vote thereat. Each Shareholder Meeting Notice must be delivered personally to,
or be mailed to and received by, the Corporation, addressed to the attention of
the President at the principal executive offices of the Corporation not less
than 50 days nor more than 75 days prior to the meeting; provided, however, that
in the event that less than 65 days notice or prior public disclosure (including
but not limited to mailing of the meeting notice) of the date of the meeting is
given or made to shareholder, notice by the shareholder to be timely must be so
received not later than the close of business on the 10th day following the date
on which such public disclosure was made. Each Shareholder Meeting Notice shall
set forth a general description of each item of business proposed to be brought
before the meeting, the name and address of the shareholder proposing to bring
such item of business before the meeting and a representation that the
shareholder intends to appear in person or by proxy at the meeting. The
presiding officer of the meeting may refuse to consider any business that shall
be brought before any meeting of shareholders of the Corporation otherwise than
as provided in this Section 2.7.
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<PAGE>
Article 3
QUORUM OF SHAREHOLDERS
Section 3.1 Except as provided in Sections 3.3 and 3.5, a
meeting of shareholders duly called shall not be organized for the transaction
of business unless a quorum is present.
Section 3.2 The presence, in person or by proxy, of
shareholders entitled to cast at least a majority of the votes that all
shareholders are entitled to cast on a particular matter to be acted upon at the
meeting shall constitute a quorum for purposes of consideration and action on
such matter.
Section 3.3 The shareholders present at a duly organized
meeting can continue to do business until adjournment notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
Section 3.4 If a meeting of shareholders cannot be organized
because a quorum is not present, those present in person or by proxy, may,
except as otherwise provided by statute or unless the Board fixes a new record
date for the adjourned meeting, adjourn the meeting to such time and place as
they may determine, without notice other than an announcement at the meeting,
until the requisite number of shareholders for a quorum shall be present in
person or by proxy.
Section 3.5 Notwithstanding the provisions of Sections 3.1,
3.2, 3.3 and 3.4 of these Bylaws:
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(a) Any meeting, including one at which directors
are to be elected, may be adjourned for such period as the shareholders present
and entitled to vote shall direct.
(b) Those shareholders entitled to vote who attend
a meeting called for election of directors that has been previously adjourned
for lack of a quorum, although less than a quorum as fixed in these Bylaws,
shall nevertheless constitute a quorum for the purpose of electing directors.
(c) Those shareholders entitled to vote who attend
a meeting that has been previously adjourned for one or more periods aggregating
at least 15 days because of an absence of a quorum, although less than a quorum
as fixed in these Bylaws, shall nevertheless constitute a quorum for the purpose
of acting upon any matter set forth in the notice of the meeting if the notice
states that those shareholders who attend the adjourned meeting shall
nevertheless constitute a quorum for the purpose of acting upon the matter.
Article 4
VOTING RIGHTS
Section 4.1 Except as may be otherwise provided by the
Corporation's Articles of Incorporation, at every meeting of shareholders, every
shareholder entitled to vote thereat shall be entitled to one vote for every
share having voting power standing in his name on the books of the Corporation
on the record date fixed for the meeting.
Section 4.2 Except as otherwise provided by statute, the
Articles of Incorporation or these Bylaws, at any duly organized meeting of
shareholders the vote of the holders of a majority of the votes cast shall
decide any question brought before such meeting.
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<PAGE>
Unless the BCL permits otherwise, this Section 4.2 may be modified only by a
Bylaw amendment adopted by the shareholders.
Section 4.3 Unless demand is made before the voting begins by
a shareholder entitled to vote at any election for directors, the election of
such directors need not be by ballot.
Article 5
PROXIES
Section 5.1 Every shareholder entitled to vote at a meeting
of shareholders, or to express consent or dissent to corporate action in writing
without a meeting, may authorize another person or persons to act for him by
proxy. Every proxy shall be executed in writing by the shareholder or his duly
authorized attorney-in-fact and filed with the Secretary of the Corporation. A
proxy, unless coupled with an interest, shall be revocable at will,
notwithstanding any other agreement or any provision in the proxy to the
contrary, but the revocation of a proxy shall not be effective until written
notice thereof has been given to the Secretary of the Corporation. An unrevoked
proxy shall not be valid after three years from the date of its execution unless
a longer time is expressly provided therein. A proxy shall not be revoked by the
death or incapacity of the maker, unless before the vote is counted or the
authority is exercised, written notice of such death or incapacity is given to
the Secretary of the Corporation.
Article 6
RECORD DATE
Section 6.1 The Board of Directors may fix a time prior to
the date of any meeting of shareholders as a record date for the determination
of the shareholders entitled to
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<PAGE>
notice of, or to vote at, the meeting, which time, except in the case of an
adjourned meeting, shall not be more than 90 days prior to the date of the
meeting of shareholders. Only shareholders of record on the date so fixed shall
be entitled to notice of, or to vote at, such meeting, notwithstanding any
transfer of shares on the books of the Corporation after any record date fixed
as aforesaid. The Board of Directors may similarly fix a record date for the
determination of shareholders of record for any other purpose, such as the
payment of a distribution or a conversion or exchange of shares.
Section 6.2 The Board of Directors may by resolution adopt a
procedure whereby a shareholder of the Corporation may certify in writing to the
Corporation that all or a portion of the shares registered in such shareholder's
name are held for the account of a specified person or persons. Such resolution
may set forth: (a) the classification of shareholder who may certify; (b) the
purpose or purposes for which the certification may be made; (c) the form of
certification and information to be contained therein; (d) if the certification
is with respect to a record date, the time after the record date within which
the certification must be received by the Corporation; and (e) such other
provisions with respect to the procedure as are deemed necessary or desirable.
Upon receipt by the Corporation of a certification complying with the procedure,
the persons specified in the certification shall be deemed, for the purposes set
forth in the certification, to be the holders of record of the number of shares
specified in place of the shareholder making the certification.
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<PAGE>
Article 7
SHAREHOLDER LIST
Section 7.1 The officer or agent having charge of the share
transfer books of the Corporation shall make a complete alphabetical list of the
shareholders entitled to vote at any meeting, with their addresses and the
number of shares held by each. The list shall be produced and kept open at the
time and place of the meeting for inspection by any shareholder during the
entire meeting except that if the Corporation has 5,000 or more shareholders, in
lieu of the making of the list the Corporation may make the information
available at the meeting by other means.
Section 7.2 Failure to comply with the provisions of Section
7.1 of these Bylaws shall not affect the validity of any action taken at a
meeting prior to a demand at the meeting by any shareholder entitled to vote
thereat to examine the list.
Section 7.3 The original transfer books for shares of the
Corporation, or a duplicate thereof kept in the Commonwealth of Pennsylvania,
shall be prima facie evidence as to who are the shareholders entitled to examine
the list or transfer books for shares or to vote at any meeting.
Article 8
JUDGES OF ELECTION
Section 8.1 Prior to any meeting of shareholders, the Board
of Directors may appoint judges of election, who may but need not be
shareholders and who will have such duties as provided in the BCL, to act at
such meeting or any adjournment thereof. If judges of election are not so
appointed, the presiding officer of any such meeting may, and on the request of
any
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<PAGE>
shareholder or his proxy shall, make such appointment at the meeting. The number
of judges shall be one or three. No person who is a candidate for an office to
be filled at the meeting shall act as a judge of election.
Section 8.2 In case any person appointed as a judge of
election fails to appear or fails or refuses to act, the vacancy so created may
be filled by appointment made by the Board of Directors in advance of the
convening of the meeting or at the meeting by the presiding officer thereof.
Section 8.3 Unless the BCL permits otherwise, this Article 8
may be amended only by a Bylaw amendment.
Article 9
CONSENT OF SHAREHOLDERS IN LIEU OF MEETING
Section 9.1 Any action required or permitted to be taken at a
meeting of the shareholders may be taken without a meeting if, prior or
subsequent to the action, a written consent or consents thereto signed by all of
the shareholders who would be entitled to vote at a meeting for such purpose
shall be filed with the Secretary of the Corporation.
Article 10
BOARD OF DIRECTORS
Section 10.1 The number of directors shall not be less than
three nor more than 12, as shall from time to time (a) be determined by the
Board of Directors or (b) be set forth in a notice of a meeting of shareholders
called for the election of the Board of Directors. The Chairman of the Board of
Directors shall preside at all meetings of shareholders and directors.
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Section 10.2 Each director shall be a natural person of full
age and need not be a resident of the Commonwealth of Pennsylvania or a
shareholder of the Corporation.
Section 10.3 Except as otherwise provided in Article 12 of
these Bylaws, directors shall be elected by the shareholders. The candidates
receiving the highest number of votes from the shareholders or each class or
group of classes, if any, entitled to elect directors separately up to the
number of directors to be elected by the shareholders, or class or group of
classes, if any, shall be elected. Each director shall be elected for a term of
one year and until his successor has been elected and qualified or until his
earlier death, resignation or removal. A decrease in the number of directors
shall not have the effect of shortening the term of any incumbent director.
Section 10.4 Notwithstanding the provisions of Section 2.7
(dealing with the business at shareholders meetings), nominations for the
election of directors may be made by the Board of Directors or a committee
appointed by the Board of Directors or by any shareholder of record entitled to
vote in the election of Directors generally at the record date of the meeting
and also on the date of the meeting at which directors are to be elected.
However, any shareholder entitled to vote in the election of directors generally
may nominate one or more persons for election as directors at a meeting only if
written notice of such shareholder's intention to make such nomination or
nominations has been delivered personally to, or been mailed to and received by
the Corporation at, the principal executive offices of the Corporation addressed
to the attention of the President not less than 50 days nor more than 75 days
prior to the meeting; provided, however, that in the event that less than 65
days notice or prior public disclosure (including but not limited to mailing of
the meeting notice) of the date of the meeting is given or
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made to shareholders, notice by the shareholder to be timely must be so received
not later than the close of business on the 10th day following the day on which
such public disclosure was made. Each such notice shall set forth: (a) the name
and address of the shareholder intending to make the nomination and of the
person or persons to be nominated; (b) a representation that the shareholder
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice; (c) the address and principal occupation for
the past five years of each nominee and such other information regarding each
nominee as would have been required to included in a proxy statement filed
pursuant to Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended, had proxies been solicited with respect to such nominee by
management of the Corporation; and (d) the written consent of each nominee to
serve as a director of the Corporation if so elected. The presiding officer of
the meeting may declare invalid any nomination not made in compliance with the
foregoing procedure.
Article 11
REMOVAL OF DIRECTORS
Section 11.1 The entire Board of Directors or a class of the
Board, or any individual director may be removed from office without assigning
any cause by the vote of shareholders, or the holders of a class or series of
shares, entitled to elect directors, or the class of directors. In case the
Board or class of the Board or any one or more directors are so removed, new
directors may be elected at the same meeting.
Section 11.2 The Board of Directors may declare vacant the
office of a director who has been judicially declared of unsound mind or who has
been convicted of an offense punishable by imprisonment for a term of more than
one year.
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Article 12
VACANCIES ON BOARD OF DIRECTORS
Section 12.1 Vacancies on the Board of Directors, including
vacancies resulting from an increase in the number of directors, shall be filled
by a majority vote of the remaining members of the Board of Directors, though
less than a quorum, or by a sole remaining director, and each person so selected
shall be a director to serve for the balance of the unexpired term.
Section 12.2 When one or more directors resign from the Board
of Directors effective at a future date, the directors then in office, including
those who have so resigned, shall have the power by a majority vote to fill the
vacancies, the vote thereon to take effect when the resignations become
effective.
Article 13
POWERS OF BOARD
Section 13.1 The business and affairs of the Corporation
shall be managed under the direction of the Board of Directors, which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are directed or required to be exercised and done by statute, the
Articles of Incorporation or these Bylaws.
Section 13.2 The Board of Directors may, by resolution
adopted by a majority of the directors in office, establish one or more
committees consisting of one or more directors as may be deemed appropriate or
desirable by the Board of Directors to serve at the pleasure of the Board. Any
committee, to the extent provided in the resolution of the Board of Directors
pursuant to which it was created, shall have and may exercise all of the powers
and authority of
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the Board of Directors, except that no committee shall have any
power or authority as to the following:
(a) The submission to shareholders of any action requiring
approval of shareholders;
(b) The creation or filling of vacancies in the Board of
Directors;
(c) The adoption, amendment or repeal of these Bylaws;
(d) The amendment or repeal of any resolution of the Board
of Directors that by its terms is amendable or repealable only by the Board of
Directors; and
(e) Action on matters committed by the Bylaws or resolution
of the Board of Directors to another committee of the Board of Directors.
Article 14
MEETINGS OF THE BOARD OF DIRECTORS
Section 14.1 Meetings of the Board of Directors shall be held
at such times and places within or without the Commonwealth of Pennsylvania as
the Board of Directors may from time to time appoint or as may be designated in
the notice of the meeting. One or more directors may participate in any meeting
of the Board of Directors, or of any committee thereof, by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear one another, provided that the use of such
conference telephone or similar communications equipment shall be at the
discretion of the Board of Directors. Participation in a meeting by such means
shall constitute presence in person at the meeting.
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Section 14.2 A regular meeting of the Board of Directors
shall be held annually, immediately following the annual meeting of the
shareholders, at the place where such meeting of the shareholders is held or at
such other place and time as a majority of the directors in office after the
annual meeting of shareholders may designate. At such meeting, the Board of
Directors shall elect officers of the Corporation. In addition to such regular
meeting, the Board of Directors shall have the power to fix by resolution the
place and time of other regular meetings of the Board.
Section 14.3 Special meetings of the Board of Directors may
be called by the Chairman of the Board, if any, by the President, or by a
majority of the directors in office on one day's notice to each director, either
by telephone, or, if in writing, in accordance with the provisions of Article 29
of these Bylaws.
Section 14.4 At all meetings of the Board of Directors a
majority of the directors in office shall constitute a quorum for the
transaction of business, and the acts of a majority of the directors present and
voting at a meeting at which a quorum is present shall be the acts of the Board
of Directors, except as may be otherwise specifically provided by statute or by
the Articles of Incorporation or by these Bylaws.
Article 15
ACTION BY WRITTEN CONSENT
Section 15.1 Any action required or permitted to be taken at
a meeting of the Board of Directors, or at any committee of the Board of
Directors, may be taken without a meeting if, prior or subsequent to the action,
a consent or consents thereto signed by all of the
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directors (or members of the committee with respect to committee action) is
filed with the Secretary of the Corporation.
Article 16
COMPENSATION OF DIRECTORS
Section 16.1 Directors, as such, may receive a stated salary
for their services or a fixed sum and expenses for attendance at regular and
special meetings, or any combination of the foregoing as may be determined from
time to time by resolution of the Board of Directors, and nothing contained
herein shall be construed to preclude any director from receiving compensation
for services rendered to the Corporation in any other capacity.
Article 17
OFFICERS
Section 17.1 The Corporation shall have a President, a
Secretary and a Treasurer, or persons who shall act as such, regardless of the
name or title by which they may be designated, elected or appointed and may have
as additional officers a Chairman of the Board, one or more Vice Chairman of the
Board, one or more Vice Presidents and such other officers and assistant
officers as the Board of Directors may authorize from time to time. The
President and Secretary shall be natural persons of full age. The Treasurer may
be a corporation, but if a natural person shall be of full age. It shall not be
necessary for the officers to be directors. Any number of offices may be held by
the same person. Each officer shall hold office at the pleasure of the Board of
Directors and until his successor has been selected and qualified or until his
earlier death, resignation or removal. Any officer may resign at any time upon
written notice to the Corporation. The resignation shall be effective upon
receipt thereof by the Corporation or at
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such subsequent time as may be specified in the notice of resignation. The
Corporation may secure the fidelity of any or all of the officers by bond or
otherwise.
Section 17.2 Any officer or agent of the Corporation may be
removed by the Board of Directors with or without cause. The removal shall be
without prejudice to the contract rights, if any, of any person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights. If the office of any officer becomes vacant for any reason, the
vacancy may be filled by the Board of Directors.
Article 18
THE PRESIDENT
Section 18.1 Unless otherwise determined by the Board of
Directors, the President shall have the usual duties of an executive officer
with general supervision over and direction of the affairs of the Corporation.
The President shall be the chief executive officer of the Corporation unless the
Chairman of the Board is serving as chief executive officer, in which event the
President shall be chief operating officer of the Corporation. In the exercise
of these duties and subject to the actions of the Board of Directors, the
President may appoint, suspend and discharge employees, agents and assistant
officers and fix the compensation of all officers and assistant officers. In the
event the Chairman of the Board is not present or the office of Chairman of the
Board is vacant, the President shall preside at all meetings of the
shareholders. The President shall also do and perform, such other duties as from
time to time may be assigned to the President by the Board of Directors.
Unless otherwise determined by the Board of Directors, the
President shall have full power and authority on behalf or the Corporation to
attend and to act and to vote at any
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meeting of the shareholders of any corporation in which this Corporation may
hold stock and, at any such meeting, shall possess and may exercise any and all
the rights and powers incident to the ownership of such stock and which, as the
owner thereof, the Corporation might have possessed and exercised. The President
shall also have the right to delegate such power.
Article 19
THE SECRETARY
Section 19.1 Unless otherwise determined by the Board of
Directors, the Secretary shall be responsible for the keeping of the minutes of
all meetings of the Board of Directors and the shareholders, in books provided
for that purpose, and for the giving and serving of all notices for the
Corporation. The Secretary shall perform all other duties ordinarily incident to
the office of the Secretary and shall have such other powers and perform such
other duties as may be assigned to the Secretary by the Board of Directors. The
minute books of the Corporation may be held by a person other than the
Secretary.
Article 20
THE TREASURER
Section 20.1. Unless otherwise determined by the Board of Directors, the
Treasurer shall have charge of all the funds and securities of the Corporation
which may come into such officer's hands. When necessary or proper, unless
otherwise determined by the Board of Directors, the Treasurer shall endorse for
collection on behalf of the Corporation checks, notes and other obligations, and
shall deposit the same to the credit of the Corporation to such banks or
depositories as the Board of Directors may designate and may sign all receipts
and vouchers for payments made to the Corporation. The Treasurer shall sign all
checks made by the Corporation,
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except when the Board of Directors shall otherwise direct. The Treasurer shall
sign all checks made by the Corporation. The Treasurer shall be responsible for
the regular entry in books of the Corporation to be kept for such purpose of a
full and accurate account of all funds and securities received and paid by the
Treasurer on account of the Corporation. Whenever required by the Board of
Directors, the Treasurer shall render a statement of the financial condition of
the Corporation. The Treasurer shall have such other powers and shall perform
the duties as may be assigned to such officer from time to time by the Board of
Directors. The Treasurer shall give such bond, if any, for the faithful
performance of the duties of such office as shall be required by the Board of
Directors.
Article 21
THE CHAIRMAN OF THE BOARD
Section 21.1 Unless otherwise determined by the Board of
Directors, the Chairman of the Board, if any, shall preside at all meetings of
shareholders and directors. The Chairman of the Board shall have such other
powers and perform such further duties as may be assigned to such officer by the
Board of Directors, including, without limitation, acting as chief executive
officer of the Corporation. To be eligible to serve, the Chairman of the Board
must be a director of the Corporation.
Article 22
OTHER OFFICERS
Section 22.1 Unless otherwise determined by the Board of
Directors, each Vice Chairman, Vice President and each assistant officer shall
have the powers and perform the duties of his or her respective superior
officer. Vice Presidents and assistant officers may be designate
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as having responsibility for a specific area of the Corporation's affairs, in
which event such Vice President shall be superior to the other Vice Presidents
in relation to matters within his or her area. The President shall be the
superior officer of the Vice Presidents. The Chairman of the Board shall be the
superior officer of the Vice Chairman. The Treasurer and Secretary shall be the
superior officers of the Assistant Treasurers and Assistant Secretaries,
respectively.
Article 23
LIMITATION OF DIRECTORS' LIABILITY AND
INDEMNIFICATION OF OFFICERS, DIRECTORS, AND OTHER PERSONS
Section 23.1 No director of the Corporation shall be
personally liable, as such, for monetary damages for any action taken unless:
(a) the director has breached or failed to perform the duties of his or her
office, and (b) the breach or failure to perform constitutes self-dealing,
willful misconduct or recklessness; provided, however, that the provisions of
this Section 23.1 shall not apply to the responsibility or liability of a
director pursuant to any criminal statute, or to the liability of a director for
the payment of taxes pursuant to local, Pennsylvania or federal law.
Section 23.2 The Corporation shall indemnify and hold
harmless to the fullest extent permitted by Pennsylvania law any director or
officer, and may indemnify any other employee or Agent, who was or is a party
to, or is threatened to be made a party to, or who is called as a witness in
connection with, any threatened, pending, or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, including
an action by or in the right of the Corporation (collectively, for purposes of
this Article 23, "Proceeding"), by reason of the fact that he is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
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another domestic or foreign corporation for profit or not-for-profit,
partnership, joint venture, trust or other enterprise, against expenses,
liability and loss including, without limitation, attorneys' fees and
disbursements, punitive and other damages, judgments, fines, penalties, amounts
paid or to be paid in settlement and costs and expenses of any nature incurred
by him in connection with such Proceeding and any appeal therefrom; provided
that such indemnification shall not be made where the act or failure to act
giving rise to the claim for indemnification is determined by a court in a final
binding adjudication to have constituted willful misconduct or recklessness.
Section 23.3 The indemnification and advancement of expenses
provided by, or granted pursuant to, this Article 23 shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any Bylaw, agreement, contract,
vote of shareholders or directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office. It is the policy of the Corporation that indemnification of, and
advancement of expenses to, directors and officers of the Corporation shall be
made to the fullest extent permitted by law. To this end, the provisions of this
Article 23 shall be deemed to have been amended for the benefit or directors and
officers of the Corporation effective immediately upon any modification of the
BCL or any modification, or adoption of any other law that expands or enlarges
the power or obligation of corporations organized under the BCL to indemnify, or
advance expenses to, directors and officers of corporations.
Section 23.4 The Corporation shall pay expenses incurred by
an officer or director, and may pay expenses incurred by any other employee or
agent, in defending a
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Proceeding, in advance of the final disposition of such action or proceeding
provided that if required by the BCL or other applicable law, the payment of
such expenses shall be made only upon receipt of an undertaking by or on behalf
of such person to repay such amount if it shall ultimately be determined that he
is not entitled to be indemnified by the Corporation.
Section 23.5 The indemnification and advancement of expenses
provided by, or granted pursuant to, this Article 23 shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such person.
Section 23.6. The Corporation shall have the authority to
create a fund of any nature, which may, but need not be, under the control of a
trustee, or otherwise secure or insure in any manner, its indemnification
obligations, whether arising under these Bylaws or otherwise. This authority
shall include, without limitation, the authority to: (a) deposit funds in trust
or in escrow; (b) establish any form of self-insurance; (c) secure its indemnity
obligation by grant of a security interest, mortgage or other lien on the assets
of the Corporation; or (d) establish a letter of credit, guaranty or surety
arrangement for the benefit of such persons in connection with the anticipated
indemnification or advancement of expenses contemplated by this Article 23. The
provisions of this Article 23 shall not be deemed to preclude the
indemnification of, or advancement of expenses to, any person who is not
specified in Section 23.1 of this Article 23 but whom the Corporation has the
power or obligation to indemnify, or to advance expenses for, under the
provisions of the BCL, other applicable law or otherwise. The authority granted
by this Section 23.6 shall be exercised by the Board of Directors of the
Corporation.
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Section 23.7 The Corporation shall have the authority to
enter into a separate indemnification agreement with any officer, director,
employee or agent of the Corporation or any subsidiary providing for such
indemnification of such person as the Board of Directors shall determine up to
the fullest extent permitted by law.
Section 23.8 The termination of any Proceeding by judgment,
order, settlement, conviction, or upon a plea of guilty or nolo contendere, or
its equivalent, shall not, of itself, create a presumption that the person's
conduct constituted willful misconduct or recklessness.
Section 23.9 The indemnification provisions of this Article
23 shall constitute a contract between the Corporation and each of its
directors, officers, employees and agents who are or may be entitled to
indemnification hereunder and who serve in any such capacity at any time while
such provisions are in effect. Any repeal or modification of the indemnification
provisions of this Article 23 shall not limit any such person's rights to
indemnification (including the advancement of expenses) then existing or arising
out of events, acts or omissions occurring prior to such repeal or modification,
including, without limitation, the right to indemnification with respect to
Proceedings commenced after such repeal or modification based in whole or in
part upon any such event, act or omission.
Section 23.10 The Corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another domestic or foreign corporation for profit or not-for-profit,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss asserted against him and incurred by him or on his behalf in
any such capacity, or arising out of his status as such, whether
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or not the Corporation would have the power to indemnify him against such
liability under the provisions of this Article 23 or under any provision of the
BCL or other applicable law.
Section 23.11 Notwithstanding any other provision of these
Bylaws relating to their amendment generally, any repeal or amendment of this
Article 23 which is adverse to any director or officer shall apply to such
director or officer only on a prospective basis, and shall not reduce any
limitation on the personal liability of a director of the Corporation, or limit
the rights of any person entitled under Article 23 to indemnification or to the
advancement of expenses with respect to any action or failure to act occurring
prior to the time of such repeal or amendment. Notwithstanding any other
provision of these Bylaws, no repeal or amendment of these Bylaws shall affect
any or all of this Article so as either to reduce the limitation of directors'
liability or limit indemnification or the advancement of expenses in any manner
unless adopted by the affirmative vote of the shareholders entitled to cast at
least a majority of the votes that all shareholders are entitled to cast in the
election of directors; provided that no such amendment shall have retroactive
effect inconsistent with the preceding sentence. The provisions of this Article
23 were adopted by the shareholders of the Corporation on May 15, 1991.
Section 23.12 References in this Article 23 to Pennsylvania
law or to any provision thereof shall be to such law as it existed on the date
this Article 23 was adopted or as such law thereafter may be changed; provided
that (a) in the case of any change which expands the liability of directors or
limits the indemnification rights or the rights to advancement of expenses which
the Corporation may provide, the rights to limited liability, to indemnification
and to the advancement of expenses which the Corporation may provide, the rights
to limited
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liability, to indemnification and to the advancement of expenses
provided in this Article shall continue as theretofore to the extent permitted
by law; and (b) if such change permits the Corporation without the requirement
of any further action by shareholders or directors to limit, further the
liability of directors (or limit the liability of officers) or to provide
broader indemnification rights or rights to the advancement of broader
indemnification rights or rights to the advancement of expenses than the
Corporation was permitted to provide prior to such change, then liability
thereupon shall be so limited and the rights to indemnification and the
advancement of expenses shall be so broadened to the extent permitted by law.
Article 24
SHARES: SHARE CERTIFICATES
Section 24.1 Except as otherwise provided in Section 24.2,
the shares of the Corporation shall be represented by certificates. Unless
otherwise provided by the Board of Directors, every share certificate shall be
signed by two officers and sealed with the corporate seal, which may be a
facsimile, engraved or printed, but where such certificate is signed by a
transfer agent or a registrar, the signature of any corporate officer upon such
certificate may be a facsimile, engraved or printed. In case any officer who has
signed, or whose facsimile signature has been placed upon, any share certificate
shall have ceased to be such officer because of death, resignation or otherwise,
before the certificate is issued, it may be issued with the same effect as if
the officer had not ceased to be such at the date of its issue. The provisions
of this Section 24.1 shall be subject to any inconsistent or contrary agreement
at the time between the Corporation and any transfer agent or registrar. To the
extent the Corporation is authorized to issue shares of more than one class or
series, every certificate shall set forth upon the face or back
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of the certificate (or shall state on the face or back of the certificate that
the Corporation will furnish to any shareholder upon request and without charge)
a full or summary statement of the designation, voting rights, preferences,
limitations and special rights of the shares of each class or series authorized
to be issued so far as they have been fixed and determined and the authority of
the Board of Directors to fix and determine the designations, voting rights,
preferences, limitations and special rights of the classes and series of shares
of the Corporation.
Section 24.2 Notwithstanding anything herein to the contrary,
any or all classes and series of shares, or any part thereof, may be represented
by uncertificated shares to the extent determined by the Board of Directors,
except that shares represented by a certificate that is issued and outstanding
shall continue to be represented thereby until the certificate is surrendered to
the Corporation. Within a reasonable time after the issuance or transfer of
uncertificated shares, the Corporation shall send to the registered owner
thereof, a written notice containing the information required to be set forth or
stated on certificates. The rights and obligations of the holders of shares
represented by certificates and the rights and obligations of the holders of
uncertificated shares of the same class and series shall be identical.
Notwithstanding anything herein to the contrary, the provisions of Section 24.1
shall be inapplicable to uncertified shares and in lieu thereof the Board of
Directors shall adopt alternative procedures for registration of transfers.
Article 25
TRANSFER OF SHARES
Section 25.1 Upon surrender to the Corporation of a share
certificate duly endorsed by the person named in the certificate or with duly
executed stock powers attached and
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otherwise in proper form for transfer, or by attorney duly appointed in writing
and accompanied where necessary by proper evidence of succession, assignment or
authority to transfer, a new certificate shall be issued to the person entitled
thereto and the old certificate canceled and the transfer recorded on the share
register of the Corporation. Except as otherwise provided pursuant to Section
6.2 hereof, a transferee of shares of the Corporation shall not be a record
holder of such shares entitled to the rights and benefits associated therewith
unless and until the share transfer has been recorded on the share transfer
books of the Corporation. No transfer shall be made if it would be inconsistent
with the provisions of Article 8 of the Pennsylvania Uniform Commercial Code.
Article 26
LOST CERTIFICATES
Section 26.1 Unless waived in whole or in part by the Board
of Directors, any person requesting the issuance of a new certificate in lieu of
an alleged lost, destroyed, mislaid or wrongfully taken certificate shall (a)
give to the Corporation his or her bond of indemnity with an acceptable surety,
and (b) satisfy such other requirements as may be imposed by the Corporation.
Thereupon, a new share certificate shall be issued to the registered owner or
his or her assigns in lieu of the alleged lost, destroyed, mislaid or wrongfully
taken certificate, provided that the request therefor and issuance thereof have
been made before the Corporation has notice that such shares have been acquired
by a bona fide purchaser.
Article 27
FINANCIAL REPORTS TO SHAREHOLDERS
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Section 27.1 To the extent permitted by the BCL, the
Corporation shall not be required to furnish financial reports to its
shareholders.
Article 28
FISCAL YEAR
Section 28.1 The fiscal year of the Corporation shall be as
determined by the Board of Directors.
Article 29
MANNER OF GIVING WRITTEN NOTICE: WAIVERS OF NOTICE
Section 29.1. Whenever written notice is required to be given
to any person under the provisions of these Bylaws, it may be given to the
person either personally or by sending a copy thereof by first class or express
mail, postage prepaid, or by telegram (with messenger service specified), telex
or TWX (with answerback received) or courier service, charges prepaid, or by
telecopier, to his address (or to his telex, TWX, telecopier or telephone
number) appearing on the books of the Corporation or, in the case of written
notice to directors, supplied by each director to the Corporation for the
purpose of the notice. If the notice is sent by mail, telegraph or courier
service, it shall be deemed to have been given to the person entitled thereto
when deposited in the United States mail or with a telegraph office or courier
service for delivery to that person or, in the case of telex or TWX, when
dispatched.
Section 29.2 Any written notice required to be given to any
person under the provisions of statute, the Corporation's Articles of
Incorporation or these Bylaws may be waived in a writing signed by the person
entitled to such notice whether before or after the time stated therein. Except
as otherwise required by statute, and except in the case of a special meeting,
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neither the business to be transacted at, nor the purpose of, a meeting need be
specified in the waiver of notice. In the case of a special meeting of
shareholders, the waiver of notice shall specify the general nature of the
business to be transacted. Attendance of any person, whether in person or by
proxy, at any meeting shall constitute a waiver of notice of such meeting,
except where a person attends a meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting was not lawfully called or convened.
Article 30
AMENDMENTS
Section 30.1 Except as provided in Section 23.11 hereof,
these Bylaws may be amended or repealed, and new Bylaws adopted, by the
affirmative vote of a majority of the votes cast by the shareholders at any
regular or special meeting duly convened after written notice to the
shareholders that the purpose, or one of the purposes, of the meeting is to
consider the amendment or repeal of these Bylaws and the adoption of new Bylaws.
There shall be included in, or enclosed with, the notice, a copy of the proposed
amendment or a summary of the changes to be effected thereby.
Section 30.2 Except as provided in Section 23.11 hereof, and
except as provided in Section 1504(b) of the BCL, these Bylaws may be amended or
repealed, and new Bylaws adopted, by the affirmative vote of a majority of the
members of the Board of Directors (but not a committee thereof) at any regular
or special meeting duly convened, regardless of whether the shareholders have
previously adopted the Bylaw being amended or repealed, subject to the power of
the shareholders to change such action of the Board of Directors, provided that
the Board of
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Directors shall not have the power to amend these Bylaws on any subject that is
expressly committed to the shareholders by the express terms hereof, by Section
1504 of the BCL or otherwise.
Amended on September 24, 1993 (Section 11.1)
Amended on January 18, 1999 (Sections 18.1 and 21.1)
<PAGE>
EXHIBIT 10.1
DATED THIS 27TH DAY OF SEPTEMBER 1996
BETWEEN
CHARTERED SEMICONDUCTOR MANUFACTURING LTD
And
INTEGRATED CIRCUIT SYSTEMS, INC.
______________________________________________________
AMENDMENT AGREEMENT (NO.1)
TO
DEPOSIT AGREEMENT DATED 8 NOVEMBER 1995
______________________________________________________
<PAGE>
AMENDMENT AGREEMENT (NO.1)
THIS AMENDMENT AGREEMENT (NO. 1) is made the 27th day of September 1996, by and
between:-
(1) CHARTERED SEMICONDUCTOR MANUFACTURING LTD (formerly known as Chartered
Semiconductor Manufacturing Pte Ltd), a Singapore corporation having a
place of business at 60 Woodlands Industrial Park D, Street 2, Singapore
738406 ("CSM"); and
(2) INTEGRATED CIRCUIT SYSTEMS, INC., a company incorporated in Pennsylvania
and having its place of business at 2435 Blvd of the Generals, Valley
Forge, PA 19482, United States of America ("Customer").
WHEREAS
(A) CSM and Customer had entered into a Deposit Agreement dated 8 November
1995, as amended by a Letter of Amendment dated 23 April 1996 (the Deposit
Agreement and the Letter of Amendment shall be hereinafter collectively
known as the "Deposit Agreement") for the purpose of Customer depositing
certain funds with CSM and to procure CSM to make available to Customer
certain wafer manufacturing capacity.
(B) CSM and Customer hereto are entering into this Amendment Agreement to vary
the Deposit Agreement with effect from the date hereof.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein, the parties agree as follows:-
1. INTERPRETATION
All terms and references used in the Deposit Agreement and which are
defined or construed in the Deposit Agreement but are not defined or
construed in this Amendment Agreement shall have the same meaning and
construction in this Amendment Agreement.
1
<PAGE>
2. AMENDMENT TO THE DEPOSIT AGREEMENT
The Parties agree that with effect from the date of this Amendment
Agreement, the Deposit Agreement shall be amended as follows:-
2.1 CLAUSE 1 (THE DEPOSIT)
----------------------
The provisions of CLAUSE 1 shall be amended as follows:-
(i) The figure "US$20,000,000" appearing at the beginning of the
third line of CLAUSE 1.1 shall be deleted and replaced by the
figure "US$10,000,000".
(ii) CLAUSES 1.2 AND 1.3 shall be deleted in their entirety and
replaced with the following new Clauses 1.2, 1.3 and 1.4:-
"1.2 The Deposit shall be paid by telegraphic transfer to an account
designated by CSM and such Deposit shall be maintained by
Customer to the full amount of US$10,000,000 during the term of
this Agreement, less such amounts that may have been refunded by
CSM to Customer pursuant to Clause 4.4 below.
1.3 Upon the expiry of the term of this Agreement or the earlier
termination thereof in accordance with Clause 5 or Clause 6.2,
CSM will return to Customer the Deposit, without interest and
subject to any deductions or refunds made by CSM pursuant to the
terms of this Agreement.
1.4 Customer shall have the option to increase the Deposit to the
sum of US Dollars Twenty Million (US$20,000,000.00), provided
that:-
(a) Customer shall give CSM at least six (6) to twelve (12)
months' written notice of such intention to increase the
Deposit, such period to be mutually agreed by the parties;
(b) CSM has the right to request Customer to increase the
Deposit by a date ("Expiry Date") to be determined by CSM
in its sole discretion, provided that CSM shall give
Customer at least six (6) to twelve (12) months notice. In
the event Customer does not increase the Deposit to
US$20,000,000 by the determined Expiry Date, Customer's
option to increase the Deposit shall expire;
2
<PAGE>
(c) in the event Customer increases the Deposit to US$20,000,000.00
before the Expiry Date, CSM's Supply Commitment shall be
calculated in accordance with the formula set out in Annex B;
and
(d) the terms and conditions of such increase shall be mutually
agreed between the parties.
2.2 CLAUSE 2 (CSM SUPPLY COMMITMENT)
--------------------------------
The provisions of CLAUSE 2 shall be amended as follows:-
(i) By deleting CLAUSE 2.1 in its entirety and replacing it with the
following new Clause 2.1:-
"2.1 In consideration of the payment of the Deposit by Customer and
Customer's maintenance of the full deposit amount of
US$10,000,000 with CSM, less such amounts that may have been
refunded by CSM to Customer pursuant to Clause 4.4 or Clause 4.5
below, CSM will make available to Customer, wafer manufacturing
capacity for 8-inch wafers (based on 15 mask level wafers) in
each calendar year commencing the year 1997 until the expiry or
the earlier termination of the term of this Agreement, in such
quantities as set out in Annex B (the "CSM supply Commitment").
(ii) The word "Clause 8.6" appearing at the third line of CLAUSE 2.4 shall
be deleted and the word "Clause 7.6" substituted therefor.
2.3 CLAUSE 3 (CUSTOMER LOADING COMMITMENT)
--------------------------------------
The provisions of Clause 3 shall be amended as follows:-
(i) The word "quarters" appearing in the second line of CLAUSE 3.1 shall
be deleted and replaced by the word "years" and the words "Annex B"
appearing in the third line shall be deleted and replaced with the
words "Annex C".
(ii) The word "quarter" appearing in the first line of CLAUSE 3.2 shall be
deleted and replaced by the word "year".
3
<PAGE>
(iii) CLAUSE 3.3 shall be deleted in its entirety.
2.4 CLAUSE 4 (LIQUIDATED DAMAGES)
-----------------------------
The heading 4. and Clauses 4.1, 4.2, 4.3, 4.4 and 4.5 shall be deleted in
their entirety.
2.5 CLAUSE 5 (SET OFF AND MAINTENANCE OF DEPOSIT)
---------------------------------------------
The provisions of CLAUSE 5 shall be amended as follows:-
(i) by renumbering the heading 5. as "4.".
(ii) by deleting Clauses 5.1 and 5.2 in their entirety and replacing them
with the following new Clauses 4.1 and 4.2:-
"4.1 CSM shall be entitled to deduct from and set-off against the
Deposit, any payment falling due and remaining unpaid by
Customer under the Foundry Agreement.
4.2 At the end of each calender quarter, CSM shall issue a written
notice to Customer stating the amount of the overdue payments
and Customer shall pay the relevant sum to CSM within 30 days
of the date of such notice, so as to maintain the Deposit at
US$10,000,000.00 less such amounts that may have been refunded
by CSM to Customer pursuant to Clause 4.4 or Clause 4.5
below."
(iii) by renumbering Clause 5.3 as Clause "4.3"; by deleting the word
"Clause 5.2" appearing in the first line and substituting the word
"Clause 4.2" therefor; and by deleting the words "liquidated damages
and" appearing in the second line.
(iv) by inserting the following new Clause 4.4:-
"4.4 For the period 1 January 1997 to the expiry of this Agreement
or to such time as the Deposit balance remaining with CSM is
reduced to zero (whichever is earlier), :-
(a) provided that (i) the Customer Actual Loading quantity
for each calendar year is between 80% and 125% (both
percentages inclusive) of the quantity for such calendar
4
<PAGE>
year specified in Annex C, (the Customer Loading Commitment), AND
(ii) Customer pays the Deposit instalments in accordance with the
Payment Schedule set out in Annex A, then for every 8-inch wafer
that CSM ships to Customer, Customer is entitled to a refund of
US$300 per wafer from the Deposit. CSM will refund such amount to
Customer on 1 January of the year immediately following the year
in which Customer has fulfilled both conditions stated in Clause
4.4(a)(i) and (ii) above.
By way of illustration, if Customer (i) purchases 80% of the
quantity for the calendar year of 1997 as set out in Annex C and
(ii) has paid the Deposit instalments of US$3,000,000.00 within 5
days of the date of the Amendment Agreement, US$3,000,000.00 on 1
March 1997 and US$2,000,000.00 on 1 September 1997, then CSM will
refund US$1,080,000.00 to Customer on 1 January 1998.
(b) provided that (i) the Customer Actual Loading quantity for each
calendar year exceeds 125% of the quantity specified in Annex C
(the Customer Loading Commitment) for such calendar year, AND
(ii) Customer pays the Deposit instalments in accordance with the
Payment Schedule set out in Annex A, then for every 8-inch wafer
that CSM ships to Customer, Customer is entitled to (x) a refund
of US$300 per wafer from the Deposit, and (y) a refund of
US$500,000. CSM will refund such amounts referred to in (x) and
(y) to Customer on 1 January of the year immediately following
the year in which Customer has fulfilled both conditions stated
in Clause 4.4(b)(i) and (ii) above.
By way of illustration, if Customer (i) purchases 130% of the
quantity for the calendar year of 1997 as set out in Annex C and
(ii) has paid the Deposit instalments of US$3,000,000.00 within 5
days of the date of the Amendment Agreement, US$3,000,000.00 on 1
March 1997 and US$2,000,000.00 on 1 September 1997, then CSM will
refund US$2,255,000 to Customer on 1 January 1998."
5
<PAGE>
2.6 CLAUSE 6 (TERM AND TERMINATION)
-------------------------------
The provisions of CLAUSE 6 shall be amended as follows:-
(i) By renumbering the heading 6. as "5.".
(ii) By renumbering CLAUSE 6.1 as Clause "5.1"; by deleting the words "31
December 2000" appearing in the first line and replacing them with
the words "30 June 2002 or such date on which the Deposit balance
remaining with CSM is reduced to zero (whichever is earlier),"; and
by deleting the word "termination" appearing in the second line and
replacing it with the word "terminated".
(iii) By deleting SUB-CLAUSE 6.1(a) in its entirety.
(iv) By renumbering SUB-CLAUSE 6.1(b) as sub-clause 5.1 "(a)".
(v) By renumbering SUB-CLAUSES 6.1(c) as sub-clauses 5.1 "(b)" and by
deleting the words "Customer Actual Loading" appearing in the second
line and replacing it with the words "CSM Supply Commitment".
(vi) By renumbering SUB-CLAUSE 6.1 (d) as sub-clauses 5.1 "(c)".
(vii) By renumbering Clause 6.2 as Clause "5.2"; and by deleting the word
"Clause 6.1" appearing in the first line and substituting the word
"CLAUSE 5.1" therefor.
2.7 CLAUSE 7 (FORCE MAJEURE)
------------------------
(i) The HEADING 7. AND CLAUSE 7.1 shall be renumbered as "6." and Clause
"6.1" respectively.
(ii) CLAUSE 7.2 shall be renumbered as CLAUSE "6.2"; and the word "Clause
7" appearing in the first line shall be deleted and the word "Clause
6" substituted therefor.
2.8 CLAUSE 8 (WARRANTY AND INDEMNITY)
---------------------------------
6
<PAGE>
The heading 8. and Clauses 8.1, 8.2, 8.3, 8.4, 8.5 and 8.6 shall be
renumbered as "7." and Clauses "7.1", "7.2", "7.3", "7.4", "7.5" and "7.6
respectively.
2.9 CLAUSE 9 (CONFIDENTIALITY)
--------------------------
The heading 9. and Clauses 9.1, 9.2 and 9.3 shall be renumbered as "8.",
and Clauses "8.1", "8.2" and "8.3" respectively.
2.10 CLAUSE 10 (NOTICES)
-------------------
By amending Clause 10 as follows:-
(i) By renumbering the heading 10. and "9.".
(ii) By renumbering Clause 10.1 as Clause "9.1" and by deleting the
address and facsimile number for CSM in its entirety and replacing
it with the following:-
"CSM
---
60 Woodlands Industrial Park D, Street 2
Singapore 738406
Facsimile no: (65) 3622908
Attn: Mr. Tan Bock Seng
President"
(iii) By renumbering Clause 10.2 as Clause "9.2".
2.11 CLAUSE 11 (WAIVER AND REMEDIES)
-------------------------------
The heading 11. and Clauses 11.1, and 11.2 shall be renumbered as "10."
and Clauses "10.1" and "10.2" respectively.
2.12 CLAUSE 12 (SEVERANCE)
---------------------
The heading 12. shall be renumbered as "11.".
2.13 CLAUSE 13 (ENTIRE AGREEMENT)
----------------------------
The heading 13. shall be renumbered as "12.".
7
<PAGE>
2.14 CLAUSE 14 (GOVERNING LAW)
-------------------------
The heading 14. shall be renumbered as "13.".
2.15 ANNEX A (PAYMENT SCHEDULE)
--------------------------
ANNEX A shall be deleted in its entirety and replaced by the Annex A
(PAYMENT SCHEDULE) attached hereto.
------------------
2.16 ANNEX B (CSM SUPPLY COMMITMENT/CUSTOMER LOADING COMMITMENT)
-----------------------------------------------------------
ANNEX B shall be deleted in its entirety and replaced by the Annex B
(CSM SUPPLY COMMITMENT) attached hereto.
-----------------------
2.17 The new ANNEX C (CUSTOMER LOADING COMMITMENT) attached hereto shall
-----------------------------
be inserted.
3. SAVING AND INCORPORATION
3.1 Save as expressly amended by this Amendment Agreement, the terms and
conditions of the Deposit Agreement shall continue to be in full force and
effect in all other respects.
3.2 The Deposit Agreement and this Amendment Agreement shall be construed as
one document and this Amendment Agreement shall be deemed to be part of the
Deposit Agreement. Where the context so permits, references in the Deposit
Agreement and in this Amendment Agreement to "the Deposit Agreement" or
"this Agreement" shall be read and construed as references to the Deposit
Agreement as amended and supplemented by this Amendment Agreement.
4. GOVERNING LAW
This Amendment Agreement shall be governed by and construed in accordance
with the laws of Singapore. The parties hereby irrevocably submit to the
non-exclusive jurisdiction of the courts of Singapore.
8
<PAGE>
IN WITNESS WHEREOF the Parties have hereunto entered into this Agreement the
date first above written.
Signed by Tom Gurnee, )
Chief Operating Officer, )
CHARTERED SEMICONDUCTOR )
MANUFACTURING LTD )
in the presence of:- )___________________________
/s/
- ---------------------------
Name:
Signed by /s/ Henry I. Boreen
---------------------------
INTEGRATED CIRCUIT SYSTEMS, INC.
in the presence of:- ) /s/ Henry I. Boreen
-----------------------------
/s/ Hock E. Tan
- ---------------------------
Name: HOCK E. TAN
9
<PAGE>
ANNEX A
PAYMENT SCHEDULE
----------------
1. Paid to date US$ 2 million
2. Within 5 days of signing Amendment Agreement US$ 3 million
3. 1 March 1997 US$ 3 million
4. 1 September 1997 US$ 2 million
-------------
Total amount of Deposit US$10 million
-------------
10
<PAGE>
ANNEX B
CSM SUPPLY COMMITMENT
---------------------
CSM Supply Commitment per month = (D x 0.00006) 8-inch wafers
where D = the amount of Deposit then remaining with CSM
11
<PAGE>
ANNEX C
CUSTOMER LOADING COMMITMENT
---------------------------
=========================================================================
Year 1997 1998 through 30 June 2002
- -------------------------------------------------------------------------
Number of 8-inch wafers per year 4500 7200
=========================================================================
12
<PAGE>
EXHIBIT 10.1
DATED THIS 7TH DAY OF OCTOBER 1998
BETWEEN
CHARTERED SEMICONDUCTOR MANUFACTURING LTD
AND
INTEGRATED CIRCUIT SYSTEMS INC.
----------------------------------------------------
SECOND DEPOSIT AGREEMENT
----------------------------------------------------
<PAGE>
SECOND DEPOSIT AGREEMENT
THIS SECOND DEPOSIT AGREEMENT (the "Agreement") is made the 7th day of October
1998, by and between :-
(1) CHARTERED SEMICONDUCTOR MANUFACTURING LTD (formerly known as Chartered
Semiconductor Manufacturing Pte Ltd), a Singapore corporation having a
place of business at 60 Woodlands Industrial Park D, Street 2, Singapore
738406 ("CSM"); and
(2) INTEGRATED CIRCUIT SYSTEMS, INC., a Pennsylvania corporation and having its
place of business at 2435 Boulevard of the Generals, Valley Forge, PA
19482, United States of America ("ICS").
WHEREAS
(A) CSM and ICS had entered into a Deposit Agreement dated 8 November 1995, as
amended by a Letter of Amendment dated 23 April 1996 and an Amendment
Agreement (No. 1) dated 27 September 1996 (together called the "First
Deposit Agreement") for the purpose of ICS depositing certain funds with
CSM to enable CSM to make available to ICS certain wafer manufacturing
capacity.
(B) Chips and Technology, Inc. ("C&T") and CSM had entered into a Deposit
Agreement dated 16 November 1995, amended by Amendment Agreement (No. 1)
dated 17 October 1996 (together called the "C&T Deposit Agreement")
pursuant to which C&T had a deposit balance of US$15,000,000 ("C&T
Deposit") with CSM.
(C) C&T has transferred to Intel all its rights and obligations under the C&T
Deposit Agreement and Intel desires to obtain a refund of US$12,000,000 of
the C&T Deposit from CSM.
C&T, Intel, ICS and CSM has by a separate agreement superseded the C&T
Deposit Agreement and the terms of such agreement governs Intel's balance
US$3,000,000 deposit with CSM as well as the refund of US$12,000,000 of the
C&T Deposit.
(D) ICS desires to maintain the said deposit of US$12,000,000 with CSM (in
addition to the deposit maintained by ICS with CSM under the First Deposit
Agreement) to enable CSM to make available certain wafer manufacturing
capacity to Customer (as hereinafter defined) on the terms and conditions
of this Agreement.
CSM-ICS CONFIDENTIAL
1
<PAGE>
IT IS HEREBY AGREED as follows:-
1. THE DEPOSIT
1.1 In consideration of CSM agreeing to make available to Customer certain
wafer manufacturing capacity as set out herein, ICS agrees to place a
deposit with CSM of the sum of US$12,000,000 (the "Deposit") by paying in
full the sum of US$12,000,000 being CSM's refund of the C&T Deposit to
Intel on behalf of CSM. Such payment shall be made by ICS to Intel within
14 days from the date of this Agreement. For the avoidance of doubt, such
Deposit shall be separate from and not in lieu of the deposit maintained by
ICS with CSM under the First Deposit Agreement.
1.2 Such Deposit shall be maintained by ICS to the full amount of US$12,000,000
during the term of this Agreement, less such amounts that may have been
refunded by CSM to ICS pursuant to Clause 3.5 below.
1.3 Upon the expiry of the term of this Agreement or the earlier termination
thereof in accordance with Clause 4 or Clause 5.2, CSM will return to ICS
the Deposit, without interest and subject to any deductions or refunds made
by CSM pursuant to the terms of this Agreement.
2. SUPPLY AND PURCHASE OF WAFERS
2.1 In consideration of the payment of the Deposit by ICS and ICS's maintenance
of the full deposit amount of US$12,000,000 with CSM, CSM will make
available to ICS and ICS' majority owned subsidiaries (together known as
"Customer"), wafer manufacturing capacity for 8-inch wafers in each
calendar year commencing on 1 January 1999 until the expiry or the earlier
termination of the term of this Agreement in accordance with Clause 4.1
below, in such quantities as set out in Annex B (the "CSM" Supply
Commitment").
2.2 Unless otherwise expressly provided in this Agreement, the sale of wafers
by CSM to Customer shall be governed by the terms and conditions of the
Manufacturing Agreement dated 29 September 1995 between ICS and CSM (the
"Manufacturing Agreement").
2.3 CSM reserves the right to adjust the pricing of wafers to be supplied by
CSM from time to time depending on prevailing market conditions and/or
subject to the provisions of Clause 6.6, provided however that CSM shall
give ICS not less than 3 months' prior written notice of such adjustment.
In any event, the price of wafers supplied to Customer shall be no more
than 5% above CSM's pricing for similar products and processes and similar
quantities available to CSM's equity investors.
2.4 ICS agrees to place and agrees to procure ICS' majority owned subsidiaries
to place purchase orders with CSM for such quantity of 8-inch wafers for
delivery during the calendar years set out in Annex C (the "Customer
Loading Commitment"). The quantity of wafers for which orders are placed by
Customer is hereinafter referred to as the "Customer Actual Loading". ICS
CSM-ICS CONFIDENTIAL
2
<PAGE>
agrees to guarantee the payment obligations of any of ICS' majority
subsidiaries who place purchase orders with CSM under this Agreement.
2.5 The Customer Actual Loading for each calendar year during the term of the
Agreement shall be equal to the Customer Loading Commitment. In addition,
the month to month variation in the Customer Actual Loading shall not
exceed 20% without the prior written approval of CSM.
3. SET OFF AND MAINTENANCE OF DEPOSIT
3.1 CSM shall be entitled to deduct from and set-off against the Deposit, any
payment falling due and remaining unpaid by Customer under the
Manufacturing Agreement.
3.2 At the end of each calendar quarter, CSM shall issue a written notice to
Customer stating the amount of the overdue payments and Customer shall pay
the relevant sum to CSM within 30 days of the date of such notice, so as to
maintain the Deposit at US$12,000,000.00 less such amounts that may have
been refunded by CSM to ICS pursuant to Clause 3.5 or Clause 3.6 below.
3.3 CSM's right of deduction and set-off pursuant to Clause 3.2 shall be in
addition to CSM's right to claim the aforesaid overdue payments separately
as a debt due from Customer and shall not in any way prejudice such right
or any other rights or remedies which CSM may have at law or in equity.
3.4 For the purposes of this Agreement, the following definitions apply:-
(a) "Incremental Intel Wafers" shall mean the wafers which (1) CSM ships
to Customer in each calendar quarter; (2) Customer directly sells to
Intel Corporation ("Intel"); and (3) exceed the first 400 wafers that
is shipped by CSM to Customer in that calendar quarter which Customer
directly sells to Intel.
(b) "Associated Intel Reference Wafers" shall mean the wafers which CSM
ships to Customer in each calendar quarter, and which are sold by
Customer to other non-Intel parties, based on products that are on the
Intel reference designs and are designed-in by non-Intel parties.
(c) "Non-Intel Wafers" shall mean wafers which CSM ships to Customer in
each calendar quarter and which exclude Associated Intel Reference
Wafers, Incremental Intel Wafers and the first 400 wafers referred to
in Clause 3.4(a)(3) above.
3.5 For the period 1 October 1998 to the expiry of this Agreement or to such
time as the Deposit balance remaining with CSM is reduced to zero
(whichever is earlier),:-
(a) For every Incremental Intel Wafer that CSM ships to Customer in a
calendar quarter, ICS is entitled to a refund of the higher of (1)
US$300
CSM-ICS CONFIDENTIAL
3
<PAGE>
per Incremental Intel Wafer; or (2) 35% of CSM's wafer price to
Customer for the Incremental Intel Wafer, from the Deposit; and
(b) provided that the cumulative total number of Non-Intel Wafers shipped
by CSM to Customer as at the end of any calendar quarter is equal to
or more than the Threshold Volume (as defined in Clause 3.5(d) below)
relevant to that quarter, then for every Associated Intel Reference
Wafer that CSM ships to Customer that quarter, ICS is entitled to a
refund of the higher of (1) US$300 per Associated Intel Reference
Wafer; or (2) 35% of CSM's wafer price to Customer for the Associated
Intel Reference Wafer, from the Deposit; subject to the provisions of
Clause 3.4(c) below;
(c) in the event that the cumulative total number of Non-Intel Wafers
shipped by CSM to Customer as at the end of any calendar quarter is
less than the Threshold Volume relevant to that quarter, then:-
(1) the Non-Intel Wafers shipped by CSM to Customer in such calendar
quarter shall be deemed to be Customer Actual Loading (as defined
in the First Deposit Agreement) and ICS shall be refunded
according to the provisions of the First Deposit Agreement for
such loading;
(2) the Associated Intel Reference Wafers shipped by CSM to Customer
in such calendar quarter shall be deemed to be Customer Actual
Loading and ICS shall be refunded according to the provisions of
the First Deposit Agreement for such Associated Intel Reference
Wafers, subject to a maximum of the difference between the
Threshold Volume and number the Non-Intel Wafers shipped in such
calendar quarter;
(3) ICS shall be refunded in accordance to Clause 3.5(b) above for
the balance (if any) of Associated Intel Reference Wafers shipped
in such calendar quarter that was not subject to refund under
Clause 3.5(c)(2) above; and
(4) and if in a subsequent quarter, the number of Non-Intel wafers
Threshold Volume is met, then provided that 35% of CSM's wafer
price to Customer for the Associated Intel Reference Wafers
deemed to be Customer Actual Loading under Clause 3.5(c)(2) above
(the "Relevant Wafers") is more than US$300 per wafer, ICS shall
be refunded:-
the number of Relevant wafers multiplied by an amount equal to
(35% of CSM's wafer price to Customer for the Relevant Wafers -
US$300);
(d) "Threshold Volume" referred to in Clause 3.5 (b) above shall mean the
following:-
CSM-ICS CONFIDENTIAL
4
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------
Calendar quarter Threshold Volume (on a cumulative
basis based on 2,100 per quarter)
-------------------------------------------------------
<S> <C>
1Q 2,100 wafers
2Q 4,200 wafers (ie. 2,100 x 2)
3Q 6,300 wafers (ie. 2,100 x 3)
4Q 8,400 wafers (ie. 2,100 x 4)
-------------------------------------------------------
</TABLE>
Annex A sets out examples for the purposes of illustrating the refunds in
this Clause 3.5.; and
(e) Wafers which CSM ships to Customer during a calendar year for which
Customer is not entitled to a refund under this Agreement shall be
deemed to be Customer Actual Loading (as defined in the First Deposit
Agreement) and ICS shall be refunded according to the provisions of
the First Deposit Agreement for such loading.
3.6 ICS shall within 7 days after the end of each calendar quarter provide CSM
with an invoice stating the amount of refund payable to ICS pursuant to
Clause 3.5 above. After receipt of such invoice, CSM shall within 30 days
from the end of such calendar quarter refund such amounts to ICS.
4. TERM AND TERMINATION
4.1 The term of this Agreement shall expire on 31 December 2000 and may be
earlier terminated in the following events:-
(a) when the Deposit balance remaining with CSM is reduced to zero;
(b) at the option of CSM, in the event that the Customer Actual Loading is
in aggregate less than 50% of the Customer Loading Commitment for 12
consecutive calendar months;
(c) at the option of ICS, in the event that CSM fails to deliver to
Customer in aggregate at least 50% of the Customer Actual Loading for
12 consecutive calendar months; or
CSM-ICS CONFIDENTIAL
5
<PAGE>
(d) at the option of either party, in any of the following events:
(i) the inability of the other Parties to pay its debts in the
normal course of business; or
(ii) the other Parties ceasing or threatening to cease wholly or
substantially to carry on its business, otherwise than for the
purpose of a reconstruction or amalgamation without insolvency;
or
(iii) any encumbrancer taking possession of or a receiver, manager,
trustee or judicial manager being appointed over the whole or
any substantial part of the undertaking, property or assets of
the other Parties; or
(iv) the making of an order by a court of competent jurisdiction or
the passing of a resolution for the winding-up of the other
Parties or any company controlling the other Parties, otherwise
than for the purpose of a reconstruction or amalgamation
without insolvency.
4.2 Termination of the Agreement pursuant to Clause 4.1 shall take effect
immediately upon the issue of a written notice to that effect by the Party
terminating the Agreement to the other. The termination of this Agreement
howsoever caused shall be without prejudice to any obligation or rights of
any Party which have accrued prior to such termination and shall not affect
any provision of this Agreement which is expressly or by implication
provided to come into effect on or to continue in effect after such
termination.
5. FORCE MAJEURE
5.1 CSM's obligation to provide wafer manufacturing capacity and Customer's
obligation to place purchase orders for wafers in accordance with the terms
of this Agreement shall be suspended upon the occurrence of a force majeure
event such as act of God, flood, earthquake, fire, explosion, act of
government, war, civil commotion, insurrection, embargo, riots, lockouts,
labor disputes affecting CSM or Customer as the case may be, for such
period as such force majeure event may subsist. Upon the occurrence of a
force majeure event, the affected Party shall notify the other Party in
writing of the same and shall by subsequent written notice after the
cessation of such force majeure event inform the other Party of the date on
which that Party's obligation under this Agreement shall be reinstated.
5.2 Notwithstanding anything in this Clause 5, upon the occurrence of a force
majeure event affecting either Party, and such force majeure event
continues for a period exceeding 6 consecutive months without a prospect of
a cure of such event, the other Party shall have the option, in its sole
discretion, to terminate this Agreement. Such termination shall take effect
immediately upon the written notice to that effect from the other Party to
the Party affected by the force majeure event.
CSM-ICS CONFIDENTIAL
6
<PAGE>
6. WARRANTY AND INDEMNITY
6.1 ICS warrants that it has the right to use and license the use of the design
provided by Customer and processes provided by Customer and hereby grants
to CSM the right to use the aforesaid design and processes for the
performance of its obligations under this Agreement and the Manufacturing
Agreement.
6.2 ICS shall indemnify, hold harmless and defend CSM against any claims that
Customer's products or a process or design licensed from or otherwise
provided by Customer and used by CSM for the performance of its obligations
under this Agreement is an infringement of any letters patent or other
intellectual property rights, including, without limitation, any
infringement based on specifications furnished by Customer or resulting
from the use of any equipment or process specified by Customer.
6.3 CSM shall notify ICS of any claim of infringement or of commencement of any
suit, action, or proceedings alleging infringement of any intellectual
property rights of any third party forthwith after receiving notice
thereof. ICS shall have the right in its sole discretion and at its expense
to participate in the defence of any such claim, suit, action or
proceedings and in any and all negotiations with respect thereto.
6.4 CSM shall indemnify, hold harmless and defend ICS against any claims that
the wafers manufactured by CSM pursuant to this Agreement using
manufacturing processes provided by CSM for the performance of its
obligations under this Agreement is an infringement of any letters patent
or other intellectual property rights of any third party.
6.5 ICS shall notify CSM of any claim of infringement or of commencement of any
suit, action, or proceedings alleging infringement of any intellectual
property rights of any third party forthwith after receiving notice
thereof. CSM shall have the right in its sole discretion and at its expense
to participate in the defence of any such claim, suit, action or
proceedings and in any and all negotiations with respect thereto.
6.6 ICS hereby agrees that in the event that CSM is required to make any
payments, including without limitation, licence fees or royalty payments,
to any third party in respect of any of CSM's manufacturing processes used
by CSM in the performance of its obligations under this Agreement, CSM
shall be entitled to adjust the pricing of the wafers supplied to Customer
accordingly. Such adjustment shall be effective upon CSM giving to ICS not
less than 3 months' prior written notice thereof.
7. CONFIDENTIALITY
7.1 All Confidential Information shall be kept confidential by the recipient
unless or until the recipient Party can reasonably demonstrate that any
such Confidential Information is, or part of it is, in the public domain
through no
CSM-ICS CONFIDENTIAL
7
<PAGE>
fault of its own, whereupon to the extent that it is in the public domain
or is required to be disclosed by law this obligation shall cease. For the
purposes of this Agreement, "Confidential Information" shall mean all
communications between the Parties, and all information and other materials
supplied to or received by either of them from the other (a) prior to or on
the date of this Agreement whether or not marked confidential; (b) after
the date of this Agreement which is marked confidential with an appropriate
legend, marking, stamp or other obvious written identification by the
disclosing Party, and (c) all information concerning the business
transactions and the financial arrangements of the Parties with any person
with whom any of them is in a confidential relationship with regard to the
matter in question coming to the knowledge of the recipient.
7.2 The Company and the Parties and shall take all reasonable steps to minimise
the risk of disclosure of Confidential Information, by ensuring that only
they themselves and such of their employees and directors whose duties will
require them to possess any of such information shall have access thereto,
and will be instructed to treat the same as confidential.
7.3 The obligation contained in this Clause shall endure, even after the
termination of this Agreement, for a period of 5 years from the date of
receipt of the Confidential Information except and until such Confidential
Information enters the public domain as set out above.
8. NOTICES
8.1 Addresses
---------
All notices, demands or other communications required or permitted to be
given or made under or in connection with this Agreement shall be in
writing and shall be sufficiently given or made (a) if delivered by hand or
commercial courier or (b) sent by pre-paid registered post or (c) sent by
legible facsimile transmission (provided that the receipt of such facsimile
transmission is confirmed and a copy thereof is sent immediately thereafter
by pre-paid registered post) addressed to the intended recipient at its
address or facsimile number set out below. A Party may from time to time
notify the others of its change of address or facsimile number in
accordance with this Clause.
CSM
---
60 Woodlands Industrial Park D, Street 2
Singapore 738406
Facsimile no: (65) 3622909
Attn: The Legal Department
ICS
---
2435 Boulevard of the Generals
Valley Forge, PA 19482,
United States of America
Facsimile no: ________________
Attn: ________________________
CSM-ICS CONFIDENTIAL
8
<PAGE>
8.2 Deemed Delivery
---------------
Any such notice, demand or communication shall be deemed to have been duly
served (a) if delivered by hand or commercial courier, or sent by pre-paid
registered post, at the time of delivery; or (b) if made by successfully
transmitted facsimile transmission, at the time of dispatch (provided that
the receipt of such facsimile transmission is confirmed and that
immediately after such dispatch, a copy thereof is sent by pre-paid
registered post.
9. WAIVER AND REMEDIES
9.1 No delay or neglect on the part of either Party in enforcing against the
other Party any term or condition of this Agreement or in exercising any
right or remedy under this Agreement shall either be or be deemed to be a
waiver or in any way prejudice any right or remedy of that Party under this
Agreement.
9.2 No remedy conferred by any of the provisions of this Agreement is intended
to be exclusive of any other remedy which is otherwise available at law, in
equity, by statute or otherwise and each and every other remedy shall be
cumulative and shall be in addition to every other remedy given hereunder
or now or hereafter existing at law, in equity, by statute or otherwise.
The election of any one or more of such remedies by either of the Parties
hereto shall not constitute a waiver by such Party of the right to pursue
any other available remedy.
10. SEVERANCE
If any provision or part of this Agreement is rendered void, illegal or
unenforceable in any respect under any enactment or rule of law, the
validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
11. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between CSM and ICS and
shall supersede all previous agreements and undertakings between Parties
with respect to the subject matter hereof, provided however that the First
Deposit Agreement shall remain in full force and effect in accordance with
the terms therein.
12. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of Singapore. The Parties hereby irrevocably submit to the non-
exclusive jurisdiction of the courts of Singapore.
IN WITNESS WHEREOF the Parties have hereunto entered into this Agreement the
date first above written.
CSM-ICS CONFIDENTIAL
9
<PAGE>
/s/ Robert Baxter
- -------------------------------
Robert Baxter
Senior Vice President, Business Operations
CHARTERED SEMICONDUCTOR MANUFACTURING LTD
/s/ Hock E. Tan
- -------------------------------
Name: HOCK E. TAN
Title: Chief Financial Officer
INTEGRATED CIRCUIT SYSTEMS INC.
CSM-ICS CONFIDENTIAL
10
<PAGE>
ANNEX A
The following set out examples of the refunds in Clause 3.5 :-
<TABLE>
Example 1(Clause 3.5(a)) :
- --------------------------------------------------------------------------------
(A) Total no. of wafers (B) Incremental Intel Refund
shipped by CSM to Customer Wafer
which Customer ships to Intel
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1Q99 500 100 (1) 400 of (A) to be
refunded per First
Deposit Agreement
(2) 100 of (B) to be
refunded per CL.
3.5(a) above
- --------------------------------------------------------------------------------
2Q99 300 0 All 300 of (A) to be
refunded per First
Deposit Agreement
- --------------------------------------------------------------------------------
<CAPTION>
Example 2(Clauses 3.5(b) and (c)) :
- --------------------------------------------------------------------------------
(A) Associated (B) Non-Intel Refund
Intel Reference Wafers
Wafers
- --------------------------------------------------------------------------------
1Q99 1000 2000 (1) refund for only 900 of (A) per
CL. 3.5(b) above because Threshold
Volume of 2,100 Non-Intel Wafers not
met
(2) refund for 2,000 of (B) and 100
of (A)* per First Deposit Agreement
- --------------------------------------------------------------------------------
2Q99 1000 3000 (1) refund for 1000 of (A) per CL.
(cumulatively, (cumulatively 3.5(b) above because Threshold Volume
2,000) 5,000) of 4,200 Non-Intel Wafers is met
(2) refund for 3000 of (B) per First
Deposit Agreement
(3) refund for 100 wafers* per CL.
3.5(c)(4) above (provided 35% of ASP
is higher than US$300)
- --------------------------------------------------------------------------------
3Q99 1000 500 (1) refund for only 200 of (A) per
(cumulatively (cumulatively CL. 3.5(b) above because Threshold
3,000) 5,500) Volume of 6,300 Non-Intel Wafers not
met
(2) refund of 500 of (B) and 800 of
(A)** per First Deposit Agreement
- --------------------------------------------------------------------------------
4Q99 2000 5000 (1) refund for 2000 of (A) per CL.
(cumulatively (cumulatively 3.5(b) above because Threshold Volume
5,000) 10,500) of 8,400 Non-Intel Wafers is met
(2) refund for 5000 of (B) per First
Deposit Agreement
(3) refund for 800 wafers** per CL.
3.5(c)(4) above (provided 35% of ASP
is higher than US$300)
- --------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
Example 3 (Clauses 3.5(b) and (c)) :
- --------------------------------------------------------------------------------
(A) Associated (B) Non-Intel Refund
Intel Reference Wafers
Wafers
- --------------------------------------------------------------------------------
1Q99 0 0 (1) no refund for (A) per CL. 3.5(b)
above because Threshold Volume of
2,100 Non-Intel Wafers not met
(2) no refund for (B)
- --------------------------------------------------------------------------------
2Q99 0 0 (1) no refund for (A) per CL. 3.5(b)
above because Threshold Volume of
4,200 Non-Intel Wafers not met
(2) no refund for (B)
- --------------------------------------------------------------------------------
3Q99 1000 5000 (1) no refund for (A) per CL.
(cumulatively (cumulatively 3.5(b) above because Threshold Volume
1,000) 5,000) of 6,300 Non-Intel Wafers not met
(2) refund of 5000 of (B) and 1000 of
(A) per First Deposit Agreement
- --------------------------------------------------------------------------------
4Q99 1000 1000 (1) no refund for (A) per CL. 3.5(b)
(cumulatively (cumulatively above because Threshold Volume of
2,000) 6,000) 8,400 Non-Intel Wafers not met
(2) refund for 1000 of (B) and 1000 of
(A) per First Deposit Agreement
- --------------------------------------------------------------------------------
12
<PAGE>
ANNEX B
CSM SUPPLY COMMITMENT
---------------------
CSM Supply Commitment per month = (D x 0.00006) 8-inch wafers
where D = the amount of Deposit then remaining with CSM
CSM-ICS CONFIDENTIAL
13
<PAGE>
ANNEX C
CUSTOMER LOADING COMMITMENT
---------------------------
================================================================================
Year 1 January 1999 through 30 June 2002
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Number of 8-inch wafers per year 7200
================================================================================
CSM-ICS CONFIDENTIAL
14
<PAGE>
CHARTERED SEMICONDUCTOR 60 WOODLANDS INDUSTRIAL PARK D
MANUFACTURING LTD STREET 2 SINGAPORE 738406
TELEPHONE: (65) 3622838
FACSIMILE: (65) 3622937
7 October 1998
Integrated Circuit Systems
2435 Boulevard of the Generals
Valley Forge
PA 19482
Attention: Mr Hock Tan, President
Dear Mr Tan,
DEPOSIT AGREEMENT BETWEEN CHARTERED SEMICONDUCTOR MANUFACTURING LTD ("CSM") AND
INTEGRATED CIRCUIT SYSTEMS, INC. ("ICS")
We refer to the Deposit Agreement between CSM and ICS dated 8 November 1995 as
amended by a Letter of Amendment dated 23 April 1996 and an Amendment Agreement
(No. 1) dated 27 September 1996 (the "Deposit Agreement").
This is to confirm and set out CSM and ICS' agreement that purchase orders for
wafers placed by any of ICS' majority owned subsidiaries with CSM shall count
towards the Customer Actual Loading (as defined in the Deposit Agreement) and
shall be entitled to the refunds in accordance with Clause 4.4 of the Deposit
Agreement. Such refund shall be payable by CSM to ICS.
ICS agrees to guarantee the payment obligations of any of ICS's majority
subsidiaries who place purchase orders with CSM under the Deposit Agreement.
Except as expressly amended by this letter, the terms and conditions of the
Deposit Agreement shall continue to be in full force and effect in all other
respects.
Kindly signify your acceptance of this letter by signing and returning one
original of this letter to the undersigned. Thank you.
Yours sincerely,
/s/ Robert Baxter
- ----------------------
Robert Baxter
Senior Vice President
Business Operations
Agreed and accepted this 7th day of October 1998 by
/s/ Hock E. Tan
- ----------------------
Name: Hock E. Tan
Title: Chief Financial Officer
<PAGE>
AMENDMENT AND ASSIGNMENT AGREEMENT BETWEEN
INTEL CORPORATION, CHARTERED SEMICONDUCTOR MANUFACTURING LTD,
INTEGRATED CIRCUIT SYSTEMS INC. AND CHIPS AND TECHNOLOGIES, INC.
This Addendum to the Deposit Agreement dated November 16, 1995 together with an
Amendment thereto dated October 17, 1996, shall become effective October 7,
1998, as is entered into by and between (1) Intel Corporation, a Delaware
corporation having its principal place of business at 2200 Mission College
Blvd., Santa Clara, California 95052, USA, (2) Chartered Semiconductor
Manufacturing Ltd, a Singapore corporation having a place of business at 60
Woodlands Industrial Park D, Street 2, Singapore 738406 ("CSM"), (3) Integrated
Circuit Systems Inc., a Pennsylvania corporation and having its place of
business at 2345 Boulevard of the Generals, Valley Forge, PA 19482, USA ("ICS"),
and (4) Chips and Technologies, Inc., a former Californian corporation having
its principal place of business at 2950 Zanker Road, San Jose, California 95134,
USA ("C&T"), and now a wholly owned subsidiary of Intel.
WHEREAS CSM and C&T entered into that certain Deposit Agreement dated November
16, 1995 together with an Amendment thereto dated October 17, 1996 (hereinafter
collectively the "Deposit Agreement"), and
WHEREAS Intel has acquired all rights and obligations to C&T, including the
rights and obligations under the Deposit Agreement, and
WHEREAS Intel and ICS entered into a Purchase Agreement - Goods and are desirous
of entering into an Addendum to that Purchase Agreement - Goods to be dated
October 7, 1998 between ICS and Intel, and
WHEREAS ICS and CSM are desirous of entering into a new deposit agreement to be
dated October 7, 1998 (hereinafter the "New Deposit Agreement").
NOW THEREFORE in consideration of the mutual covenants and promises, the parties
agree to amend and assign the Deposit Agreement as follows:
A. C&T assigns to Intel, and Intel agrees to assume all rights, privileges and
obligations to the Deposit (as defined in the Deposit Agreement) of fifteen
million U.S dollars (US$15,000,000).
B. With effect from the date of this Amendment and Assignment Agreement
("Agreement"), C&T hereby releases and discharges CSM from all obligations,
liabilities, claims and demands of C&T in respect of the Deposit Agreement
and CSM hereby releases and discharges C&T from all obligations,
liabilities, claims and demands of CSM in respect of the Deposit Agreement.
C. Within fourteen days from the date of this Agreement, CSM hereby agrees to
refund to Intel twelve million U.S. dollars (US$12,000,000) of the Deposit
(as defined in the Deposit Agreement), which payment ICS hereby undertakes
to make in full on behalf of CSM in satisfaction of ICS' obligation under
the New Deposit Agreement between ICS and CSM ("Refund").
Page 1 of 3
<PAGE>
D. Provided that the Refund is made to Intel in accordance with Clause C.
above, with effect from the date the Refund:
(i) this Agreement shall supersede the Deposit Agreement and the
Deposit Agreement shall be null and void and cease to have any
force or effect;
(ii) Intel releases and discharges CSM from all rights, claims and
demands of Intel in respect of the said twelve million U.S.
dollars (US$12,000,000) and CSM releases and discharges Intel
from all rights, claims and demands of CSM in respect of the
said twelve million U.S. dollars US$12,000,000; and
(iii) Intel agrees to pursue qualification activities on the CSM 0.25
and 0.35 micron logic wafer processes. Intel does not guarantee
successful qualification but does agree to put forth its
commercially reasonable efforts in pursuit of process
qualification at CSM. Intel and CSM shall mutually agree on and
determine whether such qualification activities have been
completed. Within 30 days after completion of the qualification
activities, CSM shall refund and deliver to Intel the sum of
three million U.S. dollars (US$3,000,000). If in the event Intel
is unable to pursue qualification activities at CSM, Intel shall
retain its right to receive full refund of the remaining three
million U.S. dollars (US$3,000,000) deposit on December 31,
2000.
AGREED TO:
INTEL CHARTERED
CORPORATION SEMICONDUCTOR
/s/ Gidu Shroff /s/ Rob Baxter
- ------------------------- ---------------------
Signature Signature
Gidu K. Shroff Rob Baxter
- ------------------------- ---------------------
Printed Name Printed Name
Vice President, Materials Senior Vice President, Business Operations
- ------------------------- ------------------------------------------
Title Title
10/7/98
- ------------------------- ---------------------
Date Date
INTEL/CSM/ICS/Chips & Tech Confidential
Page 2 of 3
<PAGE>
INTEGRATED CIRCUIT CHIPS AND TECHNOLOGIES INC.
SYSTEMS INC.
/s/ Hock Tan /s/ Patrice C. Scatena
- ----------------------- ---------------------------
Signature Signature
Hock Tan Patrice C. Scatena
- ----------------------- ---------------------------
Printed Name: Printed Name:
Chief Financial Officer Secretary
- ----------------------- ---------------------------
Title Title
10-7-98 10-7-98
- ----------------------- ---------------------------
Date Date
INTEL/CSM/ICS/Chips & Tech Confidential
Page 3 of 3
<PAGE>
EXHIBIT 10.2
ASSET PURCHASE AGREEMENT
AMONG
3COM CORPORATION
AND
INTEGRATED CIRCUIT SYSTEMS, INC.
AND
ICS TECHNOLOGIES, INC.
JANUARY 15, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I DEFINITIONS............................................... 1
ARTICLE II PURCHASE AND SALE TRANSACTION ............................ 8
2.1 Purchase and Sale of Assets .............................. 8
2.2 No Assumption of Liabilities ............................. 8
2.3 Purchase Price ........................................... 8
2.4 The Closing .............................................. 9
2.5 Deliveries at the Closing ................................ 10
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER AND ICS ......... 10
3.1 Organization of the Sellers .............................. 10
3.2 Sub Capital Structure .................................... 11
3.3 ICS Options .............................................. 11
3.4 Authorization of Transaction ............................. 11
3.5 Noncontravention.......................................... 12
3.6 Consents.................................................. 12
3.7 Financial Statements...................................... 12
3.8 [INTENTIONALLY OMITTED]................................... 13
3.9 Absence of Changes........................................ 13
3.10 Taxes, Tax Returns and Audits............................. 15
3.11 Restrictions on Business Activities....................... 15
3.12 Title of Properties; Absence of Liens and Encumbrances;
Condition of Equipment................................... 15
3.13 Intellectual Property..................................... 16
3.14 Contracts................................................. 20
3.15 Governmental Authorization................................ 21
3.16 Litigation................................................ 22
3.17 No Liquidation, Insolvency, Winding-Up.................... 22
3.18 [INTENTIONALLY OMITTED]................................... 23
3.19 Environmental Matters..................................... 23
3.20 Brokers' and Finders' Fees; Third Party Expenses.......... 23
3.21 Employee Matters and Benefit Plans........................ 24
3.22 Affiliated Transactions................................... 26
3.23 Government Contracts...................................... 26
3.24 Suppliers................................................. 26
3.25 [INTENTIONALLY OMITTED]................................... 26
3.26 Insurance................................................. 26
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
3.27 Compliance with Laws...................................... 26
3.28 Product Warranties; Defects; Liability.................... 26
3.29 Import/Export............................................. 27
3.30 Complete Copies of Materials.............................. 27
3.31 Representations Complete.................................. 27
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER................... 27
4.1 Organization of Buyer..................................... 27
4.2 Authority for Agreement................................... 27
4.3 Adequate Resources........................................ 28
4.4 Noncontravention.......................................... 28
4.5 Consents.................................................. 28
4.6 Brokers' and Finders' Fees; Third Party Expenses.......... 28
4.7 Representations Complete.................................. 28
ARTICLE V CONDUCT PRIOR TO THE CLOSING DATE......................... 28
5.1 Conduct of Business of Seller............................. 28
5.2 No Solicitation........................................... 30
ARTICLE VI ADDITIONAL AGREEMENTS..................................... 31
6.1 Access to Information..................................... 31
6.2 Confidentiality........................................... 31
6.3 Expenses.................................................. 31
6.4 Public Disclosure......................................... 32
6.5 Consents.................................................. 32
6.6 Reasonable Efforts........................................ 32
6.7 Notification of Certain Matters........................... 32
6.8 Tax Returns............................................... 33
6.9 Bulk Sales Laws........................................... 33
6.10 Registered Intellectual Property Activities............... 33
6.11 HSR Act Filings........................................... 33
6.12 Covenant Not to Solicit................................... 33
6.13 Employment Offers......................................... 34
6.14 COBRA..................................................... 34
6.15 401(k) Plan............................................... 34
6.16 Agreement with Respect to Retained Employee's Stock Options 35
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
6.17 ICS Lease................................................. 35
6.18 Additional Documents and Further Assurances............... 35
ARTICLE VII CONDITIONS TO OBLIGATION TO CLOSE......................... 35
7.1 Conditions to Obligations of Each Party to Effect the
Acquisition.............................................. 35
7.2 Additional Conditions to Obligations of the Sellers....... 36
7.3 Additional Conditions to the Obligations of Buyer......... 37
ARTICLE VIII SURVIVAL OF REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION 38
8.1 Survival of Representations and Warranties................ 38
8.2 Indemnity by Sellers...................................... 38
8.3 Indemnity by Buyer........................................ 38
8.4 Officer's Certificate..................................... 38
8.5 Resolution of Conflicts; Arbitration...................... 39
8.6 Third-Party Claims........................................ 39
8.7 Indemnification Limitations............................... 40
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER......................... 41
9.1 Termination............................................... 41
9.2 Effect of Termination..................................... 42
9.3 Amendment................................................. 42
9.4 Extension; Waiver......................................... 42
ARTICLE X GENERAL PROVISIONS........................................ 42
10.1 Notices................................................... 42
10.2 Interpretation............................................ 43
10.3 Counterparts.............................................. 43
10.4 Entire Agreement; Assignment.............................. 43
10.5 Severability.............................................. 44
10.6 Other Remedies............................................ 44
10.7 Governing Law............................................. 44
10.8 Rules of Construction..................................... 44
10.9 No Third Party Beneficiaries.............................. 45
</TABLE>
-iii-
<PAGE>
EXHIBITS AND SCHEDULES
EXHIBITS
A-1 Bill of Sale
A-2 Copyright Assignment
A-3 Patent Assignment
A-4 Trademark Assignments
B Form of License and Services Agreement
C Retained Employees
D Short Term Occupancy Arrangements
E Form of Legal Opinion of Counsel to Seller
SCHEDULES
2.1(a) Acquired Assets
2.1(b) Excluded Assets
3.1 Directors and Officers of Sellers
3.3 ICS Options
3.5 Noncontravention
3.6 Required Consents
3.9 Material Adverse Effects since Most Recent Balance Sheet
3.12(a) Real Property Leases
3.12(d) Inclusion of All Seller Intellectual Property
3.13(a) Seller's Registered Intellectual Property
3.13(d) Transfers of Intellectual Property
3.13(f) Intellectual Property Contracts
3.13(g) Indemnification Agreements in Connection with Intellectual Property
3.13(q) Transferability of Intellectual Property
3.14 General Contracts
3.15 Governmental Authorizations
3.21(a) Employee Plans and Agreements
3.21(g) Effect of Transaction
3.21(i) Labor Disputes
3.24 Suppliers
3.26 Insurance
3.28 Product Warranties
5.1 Conduct of Business of Seller
-iv-
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is entered into on January
---------
15, 1999 by and among 3Com Corporation, a Delaware corporation whose principal
place of business is at 5400 Bayfront Plaza, Santa Clara, CA 95052-8145,
California ("Buyer"), Integrated Circuit Systems, Inc., a Pennsylvania
-----
corporation whose principal place of business is at 2435 Boulevard of the
Generals, Norristown, Pennsylvania 19403 ("ICS"), and ICS Technologies, Inc., a
---
wholly-owned subsidiary of ICS, organized under the laws of Delaware whose
principal place of business is in the State of Delaware and whose mailing
address is at 2435 Boulevard of the Generals, Norristown, Pennsylvania 19403
("Sub" and together with ICS, the "Sellers").
- ----- -------
RECITALS
WHEREAS, Buyer desires to purchase from the Sellers, and Sellers desire to
sell to Buyer, certain assets of the Sellers used in the business of designing,
developing and selling silicon microchips for use in networking applications as
conducted or contemplated to be conducted by the Sellers, including without
limitation the making, having made, using, selling, offering for sale,
importing, exporting, copying, modifying, distributing, publicly displaying and
performing and otherwise exploiting such assets (such business, the "Business"),
--------
without limitation all Intellectual Property (as defined below) of Sub, free and
clear of all Liens (as defined below) in consideration of the Purchase Price (as
defined below) on the terms and conditions set forth herein (the "Acquisition").
-----------
WHEREAS, in connection with the Acquisition, Buyer and the Sellers, desire
to make certain representations, warranties, covenants and other agreements.
WHEREAS, Sub is a wholly-owned subsidiary of ICS, established to own the
intellectual property used in Seller's business, including the Business.
NOW, THEREFORE, in consideration of the mutual promises herein made, and in
consideration of the warranties, and covenants herein contained, the parties
hereto agree as follows.
ARTICLE I
DEFINITIONS
"AAA" shall mean the American Arbitration Association.
---
"Accountant" shall have the meaning set forth in Section 2.3(c).
----------
"Accountant Report" shall have the meaning set forth in Section 2.3(c).
-----------------
"Acquired Assets" shall have the meaning set forth in Section 2.1.
---------------
<PAGE>
"Acquisition" shall have the meaning set forth in the recitals above.
-----------
"Affiliate" shall have the meaning set forth in Rule 12b-2 of the
---------
regulations promulgated under the Securities Exchange Act of 1934, as amended,
of the United States.
"Agreement" shall have the meaning set forth in the preamble above.
---------
"Allocation Notice" shall have the meaning set forth in Section 2.3(c).
-----------------
"Basis" shall mean any past or present fact, situation, circumstance,
-----
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could reasonably form the
basis for any specified consequence.
"Bill of Sale" shall mean that certain document in form and substance as
------------
shall be acceptable to the parties hereto to be set forth as Exhibit A-1
-----------
attached hereto prior to Closing.
"Bulk Sales Laws" shall have the meaning set forth in Section 6.9.
---------------
"Business" shall have the meaning set forth in the Recitals above.
--------
"Buyer" shall have the meaning set forth in the preamble above.
-----
"Buyer's 401(k) Plan" shall have the meaning set forth in Section 6.15.
-------------------
"Cash" shall mean cash and cash equivalents within the meaning of GAAP.
----
"Closing" shall have the meaning set forth in Section 2.4.
-------
"Closing Date" shall have the meaning set forth in Section 2.4.
------------
"Closing Payment" shall mean an amount of Cash equal to Fourteen Million
---------------
Four Hundred Thousand Dollars ($14,400,000).
"COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act of
-----
1985, as amended.
"Code" shall mean the Internal Revenue Code of 1986, as amended, of the
----
United States.
"Confidentiality Agreement" shall mean the Confidential Disclosure
-------------------------
Agreement between Buyer, ICS and ICS Networking, Inc., a wholly owned subsidiary
of Sub, dated December 2, 1998, as amended.
"Conflict" shall have the meaning set forth in Section 3.5.
--------
-2-
<PAGE>
"Contingency Amount" shall mean an amount of Cash equal to One Million Six
------------------
Hundred Thousand Dollars ($1,600,000).
"Contract" shall have the meaning set forth in Section 3.14.
--------
"Copyright Assignment" shall mean that certain document in form and
--------------------
substance as shall be reasonably acceptable to the parties hereto to be set
forth as Exhibit A-2 attached hereto prior to Closing.
-----------
"Disagreement Notice" has the meaning set forth in Section 2.3(c).
-------------------
"DOL" shall mean the Department of Labor.
---
"Employee" shall mean any current, former, or retired employee, consultant,
--------
officer or director of the Sellers or any Affiliate who works or worked
primarily in the Business.
"Employee Agreement" shall mean each management, employment, severance,
------------------
consulting, relocation, repatriation, expatriation, visas, work permit or other
agreement, contract or similar agreement or contract and any amendments
thereto, whether written or oral, between a Seller or any Affiliate and any
Employee.
"Employee Plan" shall mean any plan, program, policy, practice, contract,
-------------
agreement or other arrangement providing for compensation, severance,
termination pay, deferred compensation, pensions, profit sharing, performance
awards, stock or stock-related awards, fringe benefits or other employee
benefits or remuneration of any kind, whether written or otherwise, funded or
unfunded, including each "employee benefit plan," within the meaning of Section
3(3) of ERISA which is or has been maintained, contributed to, or required to be
contributed to, by the Sellers or any ERISA Affiliate for the benefit of any
Employee, or with respect to which the Sellers or any ERISA Affiliate has or may
have any liability or obligation, contingent or otherwise.
"Environmental Permits" shall have the meaning set forth in Section
---------------------
3.19(c).
"Equipment" shall have the meaning set forth in Section 3.12.
---------
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
amended.
"ERISA Affiliate" shall mean any entity which, with the Sellers, comprises
---------------
a controlled group of corporations described in Section 414(b) of the Code or a
commonly-controlled group of entities described in Section 414(c) of the Code.
"Excluded Assets" shall mean those assets of the Sellers set forth on
---------------
Schedule 2.1(b).
- ---------------
"FMLA" shall mean the Family Medical Leave Act of 1993, as amended.
----
-3-
<PAGE>
"GAAP" shall mean generally accepted accounting principles as in effect
----
from time to time in the United States.
"Governmental Entity" shall have the meaning set forth in Section 3.6.
-------------------
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvement Act of
-------
1976, as amended.
"HSR Clearance" shall have the meaning set forth in Section 6.11.
-------------
"Hazardous Material" shall have the meaning set forth in Section 3.19(a).
------------------
"ICS" shall have the meaning set forth in the preamble above.
---
"ICS Common Stock" shall mean the Common Stock of ICS.
----------------
"ICS Lease" shall have the meaning set forth in Section 6.17.
---------
"ICS Option Plans" shall mean collectively, the ICS 1992 Stock Option Plan
----------------
and the ICS 1997 Equity Compensation Plan.
"ICS Options" shall mean all options, warrants or other rights held by
-----------
consultants, employees, officers or directors of Sub, to purchase ICS Common
Stock (whether or not vested) pursuant to a ICS Option Plan, issued and
outstanding at the Closing.
"Imported Goods" shall have the meaning set forth in Section 3.29.
--------------
"INS" shall mean the U.S. Immigration and Naturalization Service.
---
"Intellectual Property" shall mean any or all of the following and all
---------------------
statutory and/or common law rights throughout the world in, arising out of, or
associated therewith: (i) all patents and applications therefor and all
reissues, divisions, renewals, extensions, provisionals, continuations,
reexaminations and continuations-in-part thereof; (ii) all inventions (whether
patentable or not), invention disclosures and improvements, all trade secrets,
proprietary information, know how and technology; (iii) all works of authorship,
"moral rights," copyrights, mask works, copyright and mask work registrations
and applications; (iv) all industrial designs and any registrations and
applications therefor; (v) all trade names, logos, trademarks and service marks;
trademark and service mark registrations and applications; (vi) all databases
and data collections (including customer lists); (vii) all computer software
including all source code, object code, firmware, development tools, files,
records and data, all media on which any of the foregoing is recorded; (viii)
URLs, Web site addresses and domain names; (ix) any similar, corresponding or
equivalent rights to any of the foregoing; (x) all documentation related to any
of the foregoing; and (xi) all goodwill associated with any of the foregoing.
"Interim Financials" shall have the meaning set forth in Section 3.7.
------------------
-4-
<PAGE>
"IRS" shall mean the Internal Revenue Service of the United States.
---
"Lease" shall have the meaning set forth in Section 3.12.
-----
"Liability" shall mean any liability or obligation (whether known or
---------
unknown, whether asserted or unasserted, whether absolute or contingent, whether
accrued or unaccrued, whether liquidated or unliquidated, whether incurred or
consequential and whether due or to become due), including any liability for
Taxes.
"License and Services Agreement" shall have the meaning set forth in
------------------------------
Section 7.2(b).
"Lien" shall mean any mortgage, pledge, lien, security interest, charge,
----
claim, equity, encumbrance, restriction on transfer, conditional sale or other
title retention device or arrangement (including a capital lease), transfer for
the purpose of subjection to the payment of any indebtedness, or restriction on
the creation of any of the foregoing, whether relating to any property or right
or the income or profits therefrom.
"Loss" and "Losses" shall have the respective meanings set forth in Section
---- ------
8.2.
"Material Adverse Effect" shall mean a material adverse effect or change on
-----------------------
the business, assets (including intangible assets), condition (financial or
otherwise), or results of operations or of a specified party or a business.
"Most Recent Balance Sheet" shall have the meaning set forth in Section
-------------------------
3.7.
"Multiemployer Plan" shall mean any "Pension Plan" (as defined below) which
------------------
is a "multiemployer plan," as defined in Section 3(37) of ERISA.
"Occupancy Agreement" shall have the meaning set forth in Section 6.17.
-------------------
"Officer's Certificate" shall have the meaning set forth in Section 8.4.
---------------------
"Ordinary Course of Business" shall mean the ordinary course of business
---------------------------
consistent with past custom and practice (including with respect to quantity and
frequency).
"Patent" shall mean any: (i) patent, patent application, patent disclosure
------
or other patent right in any jurisdiction of the world; (ii) any division,
continuation, continuation-in-part, reissuance, reexamination, or extension of a
Patent; and (iii) any future patent or other patent right that issues or is
based upon a patent disclosure or upon an application that is a Patent.
"Patent Assignment" shall mean that certain document in form and substance
-----------------
as shall be reasonably acceptable to the parties hereto to be set forth as
Exhibit A-3 attached hereto prior to Closing.
- -----------
-5-
<PAGE>
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
----
"Pension Plan" shall mean each Employee Plan which is an "employee pension
------------
benefit plan," within the meaning of Section 3(2) of ERISA.
"Person" shall mean an individual, a partnership, a corporation, an
------
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"PTO" shall mean the United States Patent and Trademark Office.
---
"Purchase Price" shall have the meaning set forth in Section 2.3.
--------------
"Registered Intellectual Property" shall mean all United States,
--------------------------------
international and foreign Seller Intellectual Property consisting of: (i)
patents, patent applications (including provisional applications); (ii)
registered trademarks, service marks or trade names, applications to register
trademarks, service marks or trade names, intent-to-use applications, or other
registrations or applications related to trademarks, service marks or trade
names; (iii) registered copyrights and applications for copyright registration;
(iv) any mask work registrations and applications to register mask works; (v)
URLs, Web site addresses and domain names and (vi) any other Seller Intellectual
Property that is the subject of an application, certificate, filing,
registration or other document issued by, filed with, or recorded by, any state,
government or other public legal authority.
"Related Agreements" shall mean all such ancillary agreements required in
------------------
this Agreement to be executed and delivered in connection with the transactions
contemplated hereby, including the License and Services Agreement.
"Requesting Party" shall have the meaning set forth in Section 2.3(d).
----------------
"Required Consents" shall mean those consents, waivers or approvals set
-----------------
forth under the caption "Required Consents" on Schedule 3.6.
"Retained Employees" shall mean those employees set forth on Exhibit C.
------------------ ---------
"Returns" shall have the meaning set forth in Section 3.10.
-------
"Schedules" shall have the meaning set forth in the preamble of Article
---------
III.
"Sellers" shall have the meaning set forth in the preamble above.
-------
"Seller Authorizations" shall have the meaning set forth in Section 3.15.
---------------------
-6-
<PAGE>
"Seller Intellectual Property" shall mean any Intellectual Property that is
----------------------------
(i) owned by, (ii) exclusively licensed to or (iii) was developed or created by
either Seller and used primarily in the Business; provided, however, that
"Seller Intellectual Property" shall not include any trade name, logo,
trademark, service mark, trade dress or corporate name which includes the name
"Integrated Circuit Systems" or "ICS," any registrations or applications
therefor, any translations, adaptations, derivations, and combinations thereof,
or any goodwill associated therewith.
"Seller Registered Intellectual Property" shall have the meaning set forth
---------------------------------------
in Section 3.13.
"Sellers' Knowledge" shall mean the knowledge of Seller or ICS, and the
------------------
officers and directors of each of Seller and ICS, including facts of which such
officers and directors, in the reasonably prudent exercise of their duties,
should be aware.
"Sellers' Retained Environmental Liabilities" shall mean any liability,
-------------------------------------------
obligation, judgment, penalty, fine, cost or expense, of any kind or nature, or
the duty to indemnify, defend or reimburse any Person with respect to: (i) the
presence on or before the Closing Date of any Hazardous Materials in the soil,
groundwater, surface water, air or building materials of the Premises or any
other property owned, leased or used at any time (including both land and
improvements thereon) by either Seller or in connection with the Assets ("Pre-
---
Existing Contamination"); (ii) the migration at any time prior to or after the
- ----------------------
Closing Date of Pre-Existing Contamination to any other real property, or the
soil, groundwater, surface water, air or building materials thereof; (iii) any
transportation, transfer, recycling, storage, use, handling, treatment,
manufacture, removal, investigation, remediation, release, emission, sale,
disposal or distribution of any Hazardous Materials, or any product or waste
containing Hazardous Materials conducted on the Premises prior to the Closing
Date or otherwise occurring prior to the Closing Date in connection with the
Assets or the Business ("Pre-Closing Hazardous Materials Activities"); (iv) the
------------------------------------------
exposure of any person to Pre-Existing Contamination or to Hazardous Materials
in the course of or as a consequence of any Pre-Closing Hazardous Materials
Activities, without regard to whether any health effect of the exposure has been
manifested as of the Closing Date; (v) the violation of any environmental laws
by either Seller or its agents, employees, predecessors in interest,
contractors, invitees or licensees prior to the Closing Date or in connection
with any Pre-Closing Hazardous Materials Activities prior to the Closing Date;
(vi) any actions or proceedings brought or threatened by any third party with
respect to any of the foregoing; and (vii) any of the foregoing to the extent
they continue after the Closing Date.
"Seller 401(k) Plan" shall have the meaning set forth in Section 6.15.
------------------
"Sub" shall have the meaning set forth in the preamble above.
---
"Sub Common Stock" shall mean issued and outstanding shares of the Common
----------------
Stock of Sub.
"Tax" or, collectively, "Taxes" shall mean any and all federal, state,
-----------------------------
local and foreign taxes, assessments and other governmental charges, duties,
impositions, and liabilities, including taxes based upon or measured by gross
receipts, income, profits, sales, use and occupation, and value added, ad
valorem, transfer, franchise, withholding, payroll, recapture, employment,
excise and property taxes,
-7-
<PAGE>
together with all interest, penalties and additions imposed with respect to such
amounts and any obligations under any agreements or arrangements with any other
Person with respect to such amounts and including any liability for taxes of a
predecessor entity.
"Trademark Assignments" shall mean those certain agreements with respect to
---------------------
each registered trademark of the Sellers in form and substance as shall be
reasonably acceptable to the parties hereto to be set forth as Exhibit A-4
-----------
attached hereto prior to Closing.
"Trademarks" shall mean any trademarks, service marks, trade dress, logos,
----------
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith.
"Transfer Documents" shall mean the Bill of Sale, the Trademark
------------------
Assignments, the Copyright Assignment and the Patent Assignment, in the forms
attached hereto, collectively.
"Transfer Taxes" shall have the meaning set forth in Section 2.3(d).
--------------
"Year-End Financials" shall have the meaning set forth in Section 3.7.
-------------------
ARTICLE II
PURCHASE AND SALE TRANSACTION
2.1 Purchase and Sale of Assets. On the terms and subject to the
---------------------------
conditions set forth in this Agreement at the Closing, the Sellers will sell,
convey, transfer, assign and deliver to Buyer, and Buyer will purchase and
acquire from the Sellers on the Closing Date, all right, title and interest in
and to the assets and properties of the Sellers as of the Closing Date which are
set forth in Schedule 2.1(a) (the "Acquired Assets") free and clear of all
--------------- ---------------
Liens; provided, however, that the Acquired Assets shall not include any
Excluded Assets set forth in Schedule 2.1(b) (the "Excluded Assets").
--------------- ---------------
2.2 No Assumption of Liabilities. Except as contemplated by Section
----------------------------
2.5(d), Buyer shall not assume any of the Sellers' Liabilities, including any
accounts payable, accrued compensation or other ordinary course Liabilities.
2.3 Purchase Price. Buyer severally agrees to pay to Sellers, allocated
--------------
between ICS and Sub as designated prior to Closing by ICS, on the Closing Date
the purchase price (the "Purchase Price"), as follows:
--------------
(a) Closing Payment. At the Closing, the Closing Payment shall be
---------------
paid in cash by Buyer to Seller by wire transfer upon such wire instructions
delivered by Seller to Buyer at least two (2) business days prior to the
Closing.
-8-
<PAGE>
(b) Contingency Amount. As soon as practicable, and in no event more
------------------
than the sixtieth (60th) day following the Closing Date, if, and only if, the
Sellers have complied with, and are in compliance with, the covenants of the
Sellers set forth in Section 6.16 hereto, as certified in writing by Seller
within such sixty (60) day period Buyer shall pay to the Sellers by wire
transfer upon such wire instructions delivered by ICS to Buyer at least two (2)
business days prior to such anniversary, the Contingency Amount.
(c) Allocation of Purchase Price. Within thirty (30) days after
----------------------------
Closing, ICS shall submit to Buyer in writing the allocation of the Purchase
Price among all of the Acquired Assets, in accordance with the provisions of
Section 1060 of the Code and regulations promulgated thereunder (the "Allocation
----------
Notice"). Buyer shall be deemed to have accepted the Allocation Notice, and it
- ------
shall be deemed final, unless Buyer provides written notice of disagreement to
ICS within thirty (30) days of receipt of the Allocation Notice (the
"Disagreement Notice"). If Buyer provides a Disagreement Notice, the parties
- --------------------
shall negotiate in good faith to resolve the differences. If the disagreements
cannot be resolved within thirty (30) days of Sellers receipt of the
Disagreement Notice, ICS shall engage a national independent accounting firm
(the "Accountant"), acceptable to the Buyer, to resolve the differences. The
---------
Accountant will be requested to resolve the dispute and determine the correct
allocation in accord with Section 1060 of the Code, and issue its report within
30 days of engagement, in writing to ICS and Buyer (the "Accountant Report").
-----------------
One-half of the fees of the Accountant shall be borne by the Buyer, and one-half
of such fees shall be borne by ICS. No party will take a position on any Tax
Return, before any governmental Tax agency or in a judicial proceeding that is
inconsistent with the Allocation Notice, if final, or the Accountant Report,
except as required by law. To the extent required by Section 1060, the
Allocation Notice or Accountant Report, as appropriate, will be revised to
reflect any adjustment of the Purchase Price.
(d) Transfer Taxes; Property Taxes. The Sellers, on the one hand, and
------------------------------
the Buyer, on the other hand, shall each bear one-half of any and all excise,
sales, value-added, use, registration, stamp, transfer and other like Taxes
("Transfer Taxes"), imposed or levied by reason of, in connection with or
--------------
attributable to this Agreement and the transactions contemplated hereby. Each
party shall promptly pay and discharge when due the entire amount of any such
Transfer Taxes for which it is primarily liable in accordance with applicable
law. Each party shall reimburse the other party (the "Requesting Party") for
----------------
its share of such Transfer Taxes paid by the Requesting Party within fifteen
(15) business days of receipt of reasonable evidence that the Requesting Party
has paid the Transfer Tax that is the subject of the request for reimbursement.
The parties shall cooperate with each other to the extent reasonably requested
and legally permitted to minimize any Transfer Taxes. Any personal property
taxes payable in respect of the Acquired Assets shall be apportioned at the
Closing, based on current tax bills if available; and if not available, based on
the most recent tax bills available with appropriate subsequent adjustment when
bills for the current year are received.
2.4 The Closing. The closing of the transactions contemplated by this
-----------
Agreement (the "Closing") shall take place at the offices of Wilson Sonsini
-------
Goodrich & Rosati, Professional Corporation, in Palo Alto, California,
commencing at 10:00 a.m., two (2) business days following the
-9-
<PAGE>
satisfaction or written waiver of the last of the conditions of Closing as set
forth in Article VII hereof, or such other date as the parties hereto may
mutually determine (the "Closing Date").
------------
2.5 Deliveries at the Closing. At the Closing, the following shall
-------------------------
occur:
(a) Buyer will deliver to the Sellers the various certificates,
instruments and documents referred to in Section 7.2;
(b) The Sellers will deliver to Buyer the various certificates,
instruments, and documents referred to in Section 7.3;
(c) The Sellers will execute, acknowledge (if appropriate), and
deliver to Buyer (i) the deeds relating to any of the Acquired Assets, properly
endorsed, (ii) assignments of the Sellers' permits (including Seller
Authorizations), Leases, Intellectual Property and Contracts (including
Intellectual Property transfer documents), in each case to the extent included
in the Acquired Assets, and will deliver to Buyer true and correct copies of any
Required Consents received on or before the Closing Date, (iii) the Transfer
Documents, (iv) the License and Services Agreement, and (v) such other
instruments of sale, transfer, conveyance, and assignment as Buyer and its
counsel may reasonably request, and will use its best efforts and take all other
action that may be reasonably necessary to put Buyer in ownership, possession
and operating control of the Acquired Assets; and
(d) Buyer will (i) deliver to the Sellers the Closing Payment as
specified in Section 2.3 and (ii) execute and deliver to Sellers such
instruments of assumption with regard to any contracts included in the Acquired
Assets as the Sellers and its counsel may reasonably request.
(e) To the extent Sellers shall not have already done so, Sellers
shall deliver to Buyer all of the Acquired Assets.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER AND ICS
The Sellers hereby, jointly and severally, represent and warrant to Buyer,
subject to such exceptions as are specifically set forth in the schedules
(referencing the appropriate section and paragraph numbers) supplied by the
Sellers to Buyer (the "Schedules") and dated as of the date hereof, as follows:
---------
3.1 Organization of the Sellers. Sub is a corporation duly organized,
---------------------------
validly existing and in good standing under the laws of the State of Delaware,
and ICS is a corporation duly organized, validly existing and in good standing
under the laws of the State of Pennsylvania. Each of ICS and Sub has the
corporate power to own its properties and to carry on its business as now being
conducted and as proposed to be conducted. Each of ICS and Sub is duly qualified
to do business and in good standing as a foreign corporation in each
jurisdiction in which the failure to be so qualified could have a Material
Adverse Effect on ICS or Sub, as the case may be. Each of ICS and Sub has
delivered to Buyer a true
-10-
<PAGE>
and correct copy of its charter documents and Bylaws, each as amended to date.
Schedule 3.1 lists the directors and officers of each of ICS and Sub. The
- ------------
Business as being conducted by the Sellers has not been conducted under any
other name.
3.2 Sub Capital Structure.
---------------------
(a) The authorized capital stock of Sub consists of Common Stock,
all of issued and outstanding shares of which are owned by ICS. Sub has no other
capital stock authorized, issued or outstanding.
(b) There are no options, warrants, calls, rights, commitments or
agreements of any character, written or oral, to which Sub is a party or by
which Sub is bound obligating Sub to issue, deliver, sell, repurchase or redeem,
or cause to be issued, delivered, sold, repurchased or redeemed, any shares of
Sub Common Stock or obligating Sub to grant, extend, accelerate the vesting of,
change the price of, otherwise amend or enter into any such option, warrant,
call, right, commitment or agreement. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation, or other similar rights
with respect to Sub.
3.3 ICS Options. The Retained Employees are eligible to participate in
-----------
the ICS Option Plans. Schedule 3.3 sets forth for each outstanding ICS Option
------------
held by Retained Employees the name of the holder of such option, the domicile
address of such holder, the number of shares of ICS Common Stock subject to such
option, the exercise price of such option and the vesting schedule for such
option, including the extent vested to date. ICS has never accelerated the
vesting schedule of any of the outstanding ICS Options held by Retained
Employees and no ICS Options held by Retained Employees will be accelerated and
become exercisable by the transactions contemplated by this Agreement, except as
provided in Section 6.16 hereof.
3.4 Authorization of Transaction. Each of Sub and ICS has all
----------------------------
requisite power and authority to enter into this Agreement and any Related
Agreements to which it is a party and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and any Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Sub and ICS, and no further action is
required on the part of Sub or ICS, to authorize the Agreement, any Related
Agreements to which it is a party or the transactions contemplated hereby and
thereby. Without limiting the generality of the foregoing, the Board of
Directors of each of Sub and ICS, and ICS, as the sole shareholder of Sub, have
duly authorized the execution, delivery and performance of this Agreement by Sub
and ICS, as the case may be. This Agreement has been, and when duly executed and
delivered by Sub and ICS at the Closing, the Related Agreements to which Sub or
ICS is a party will have been duly executed and delivered by Sub or ICS, as the
case may be, and, assuming the due authorization, execution and delivery by the
other parties hereto and thereto, constitute or will constitute, as the case may
be, the valid and binding obligations of Sub or ICS, as the case may be,
enforceable in accordance with their respective terms, subject to the laws of
general application relating to bankruptcy, insolvency,
-11-
<PAGE>
fraudulent conveyances and the relief of debtors and to rules of law governing
specific performance, injunctive relief or other equitable remedies.
3.5 Noncontravention. Except as disclosed on Schedule 3.5:
---------------- ------------
(a) The execution and delivery of this Agreement and any Related
Agreements to which Sub or ICS is a party, as the case may be, do not, and, the
consummation of the transactions contemplated hereby and thereby (including the
assignments referred to in Article II above) will not (i) violate any provision
of the charter documents or Bylaws (or like document) of Sub or ICS or (ii)
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation, modification or acceleration of any obligation or loss of any
benefit under (any such event, a "Conflict"), (1) any mortgage, indenture,
--------
lease, contract or other agreement or instrument, permit, concession, franchise
or license to which Sub or ICS is a party or any of their respective properties
or assets are subject, or (2) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Sub or ICS or their respective
properties or assets, to the extent that any such Conflict under (1) or (2)
above would have a Material Adverse Effect on the Acquired Assets or would
prevent the consummation of the transactions contemplated hereby; and
(b) The execution and delivery of this Agreement and any Related
Agreements to which Sub or ICS is a party, by Sub or ICS, as the case may be, do
not, and the consummation of the transactions contemplated hereby and thereby
(including the assignments referred to in Article II above) will not require any
notice under any agreements, contract, lease, license, instrument or other
arrangement to which Sub or ICS is a party or by which Sub or ICS is bound or to
which any of their assets are subject (or result in the imposition of any Lien
upon any of the Acquired Assets), other than any notice, the failure to give
which would not have a Material Adverse Effect on the Acquired Assets or prevent
the consummation of the transactions contemplated hereby.
3.6 Consents. No consent, waiver, approval, order or authorization of, or
--------
registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or other foreign governmental
authority, instrumentality, agency or commission ("Governmental Entity") or any
-------------------
third party, including a party to any agreement with either Seller (so as not to
trigger any Conflict), is required by or with respect to either Seller in
connection with the execution and delivery of this Agreement and any Related
Agreements to which either Seller is a party or the consummation of the
transactions contemplated hereby and thereby (including the effective assignment
to Buyer of any of the Acquired Assets, including any permits, Leases and
Intellectual Property included therein), except for compliance with the
notification requirements of the HSR Act and except as described on Schedule 3.6
------------
which sets forth a true, correct and complete list of the identities of any
Person whose consent or approval is so required and the matter, agreement or
contract to which such consent relates in connection with the transfer,
assignment or conveyance by Seller of any of the Acquired Assets.
3.7 Financial Statements. ICS's audited consolidated balance sheet as
--------------------
of June 27, 1998 and the related audited consolidated statements of income and
cash flows for the year ended June 27, 1998 (collectively, the "Year-End
--------
Financials") and ICS's unaudited consolidated balance sheet as of
- ----------
12
<PAGE>
September 27, 1998 (the "Most Recent Balance Sheet") and the related unaudited
-------------------------
statements of income and cash flow for the quarter then ended included in ICS's
Annual Report on Form 10-K or Quarterly Report on Form 10-Q (collectively, the
"Interim Financials") have been prepared in accordance with GAAP applied on a
------------------
basis consistent throughout the periods indicated and consistent with each other
(except that the Interim Financials do not contain all the notes that may be
required by GAAP). The Year-End Financials and Interim Financials present fairly
the consolidated financial condition, operating results and cash flows of ICS as
of the dates and during the periods indicated therein, subject in the case of
the Interim Financials to normal year-end adjustments.
3.8 [INTENTIONALLY OMITTED]
3.9 Absence of Changes. Since the date of the Most Recent Balance
------------------
Sheet and except as disclosed on Schedule 3.9, there has not been a Material
Adverse Effect on the Acquired Assets or any event which would prevent the
consummation of the transactions contemplated hereby. Without limiting the
generality of the foregoing, since such date there has not been, occurred or
arisen any of the following events which would have a Material Adverse Effect on
the Acquired Assets or which would prevent the consummation of the transactions
contemplated hereby:
(a) transaction by either Seller relating to the Business
except in the Ordinary Course of Business;
(b) amendments or changes to the charter documents, Bylaws (or
like document), shareholder agreements or other organizational documents of
either Seller relating to the Business;
(c) capital expenditure or commitment by either Seller relating
to the Acquired Assets in an amount in excess of $10,000 (in any one case) or
$25,000 (in the aggregate);
(d) destruction of, damage to or loss of any material assets,
business or customer of either Seller (whether or not covered by insurance)
related to the Business;
(e) through the date of this Agreement but not through the
Closing Date, any labor trouble or claim of wrongful discharge or other unlawful
labor practice or action involving Employees of either Seller directly or
indirectly working in the Business;
(f) revaluation by either Seller of any of the Acquired Assets;
(g) declaration, setting aside or payment of a dividend or
other distribution with respect to the Sub Common Stock, or any direct or
indirect redemption, purchase or other acquisition by Sub of its Common Stock;
(h) any agreement, contract, covenant, instrument, lease,
license or commitment to which either Seller is a party and by which any of the
Acquired Assets is bound or relating primarily to the Business;
13
<PAGE>
(i) any termination, extension, amendment or modification to the
terms of any agreement, contract, covenant, instrument, lease, license or
commitment to which a Seller is a party and by which the Acquired Assets are
bound or primarily relating to the Business;
(j) any material inbound license agreement with respect to the
Intellectual Property of any third party or any outbound license agreement in
connection with the Business with respect to the Seller Intellectual Property
with any third party, except for nonexclusive outbound license agreements
entered into in the Ordinary Course of Business;
(k) sale, lease or other disposition of any of the assets or
properties of the Sellers used in the Business except in the Ordinary Course of
Business, or any creation of any Lien in such assets or properties, except for a
sale-leaseback transaction involving the Building (as defined in Exhibit D)
---------
whereby ICS sells the Building to a third party and leases the building back for
a period of at least two (2) years (the "Sale Lease-Back");
---------------
(l) the commencement or notice or, to the Seller's Knowledge, threat
of commencement of any lawsuit or Basis therefor, or proceeding or investigation
against either Seller, any officer or director of a Seller (by reason of such
Person's status as an officer or director of such Seller) or their Affiliates
relating to the Business or the Acquired Assets;
(m) notice of any claim or potential claim of ownership by any Person
other than Seller of the Seller's Intellectual Property owned by or developed or
created by Seller or of infringement by Seller of any other Person's
Intellectual Property rights;
(n) issuance or sale, or contract to issue or sell, by Sub of any
shares of Sub Common Stock, or securities exchangeable, convertible or
exercisable therefor, or any securities, warrants, options or rights to purchase
any of the foregoing;
(o) change in pricing or royalties set or charged by Persons who have
licensed Intellectual Property to either Seller in connection with the Business,
other than any such change made in accordance with Contracts in existence on the
date hereof or routine increases made in the Ordinary Course of Business;
(p) any event or condition of any character that has had a Material
Adverse Effect on the Acquired Assets (other than any labor trouble, claim of
wrongful discharge or other unlawful labor practice or action involving any
Retained Employees or any resignation by or termination of any Retained
Employees); or
(q) negotiation or agreement by Seller or any director, officer or
employee thereof to do any of the things described in the preceding clauses (a)
through (p) (other than negotiations with Buyer and its representatives
regarding the transactions contemplated by this Agreement).
14
<PAGE>
3.10 Taxes, Tax Returns and Audits.
-----------------------------
(a) To the extent the failure to do so would adversely affect either
Sellers' ability to deliver free and clear title to the Acquired Assets or
Buyer's ability to hold, own or use the Acquired Assets, Seller has filed within
the time period for filing or any extension granted with respect thereto all
federal, state, local, foreign and other returns, estimates and reports
("Returns") which it is required to file relating or pertaining to any and all
-------
Taxes attributable to, levied or imposed upon, or incurred in connection with
the Acquired Assets and each portion of any Tax Return pertaining or related to
the Acquired Assets is true and correct and has been completed in accordance
with applicable law. The Sellers have paid all Taxes relating to all the
Acquired Assets which are required to be paid prior to the Closing and have
withheld with respect to the Retained Employees who have worked in the Business
and paid to the appropriate taxing authority all federal, state and local income
taxes, FICA, FUTA and any other Taxes required to be withheld with respect to
such employees.
(b) There are (and, as of immediately following the Closing there
will be) no Liens on the Acquired Assets relating to or attributable to Taxes,
other than Liens which arise by operation of law with respect to Taxes that are
not required to be paid prior to Closing.
(c) There is no contract, agreement, plan or arrangement to which
either Seller or any of its Affiliates is a party, including the provisions of
this Agreement, covering any Retained Employee, which individually or
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to Sections 280G, 404 or 162(m) of the Code.
3.11 Restrictions on Business Activities. There is no agreement (noncompete
-----------------------------------
or otherwise), commitment, judgment, injunction, order or decree to which either
Seller is a party or otherwise binding upon either Seller which would have the
effect of prohibiting either Seller from selling the Acquired Assets to Buyer.
3.12 Title of Properties; Absence of Liens and Encumbrances; Condition of
--------------------------------------------------------------------
Equipment.
- ---------
(a) Schedule 3.12(a) sets forth a list of all real property currently
----------------
owned, leased, subleased or otherwise occupied by either Seller in connection
with the Business or included in the Acquired Assets, the name of the lessor,
the date of the lease, sublease or other occupancy agreement (each a "Lease"),
and each amendment thereto. Seller shall have delivered to Buyer correct and
complete copies of the Leases listed on Schedule 3.12(a). ICS is currently
----------------
negotiating for the sale and leaseback of the real property which will be the
subject of the ICS Lease. With respect to each property listed on Schedule
--------
3.12(a):
-------
(i) as to property subject to a Lease, the Lease (and, as to a
sublease or other similar occupancy agreement, the master Lease) is in full
force and effect, is valid and effective in accordance with its terms, and there
is not, under such Lease or master Lease, any existing default or event of
default (or event which with notice or lapse of time, or both, would constitute
a default) by either Seller, or, to the Seller's Knowledge, any other party
thereto;
-15-
<PAGE>
(ii) as to property held subject to a Lease, upon obtaining any required
consents of the landlord, the Lease will continue to be legal, valid, binding
and enforceable against the Seller that is a party thereto and against the other
party thereto, and is in full force and effect on identical terms following the
consummation of the transactions contemplated hereby (including the assignments
and assumptions referred to in Article II above);
(iii) as to property subject to a Lease, to Seller's Knowledge, no third
party to the Lease has repudiated any provisions thereof;
(iv) neither Seller has assigned, transferred, conveyed, mortgaged, deeded
in trust or encumbered any interest in the property or the leasehold, except as
described in Schedule 3.12(a) hereto;
----------------
(v) all facilities used by either Seller thereunder have received all
material approvals of governmental authorities (including licenses and permits)
required in connection with the operation thereof as conducted by either Seller
and have been operated and maintained in accordance with applicable laws, rules
and regulations in all material respects, except to the extent that any such
violation would neither have a Material Adverse Effect on the Acquired Assets
nor prevent the consummation of the transactions contemplated hereunder; and
(vi) all facilities used thereunder are supplied with utilities and other
services necessary for the operation of said facilities.
(b) Each Seller has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, in each case to the extent
included in the Acquired Assets, and, assuming the receipt of the Required
Consents and the consummation of the transactions contemplated hereby, the
Acquired Assets will be sold to Buyer at the Closing free and clear of any
Liens.
(c) All material items of equipment owned or leased by either
Seller used in the Business (the "Equipment") which are included in the Acquired
-----------
Assets are in good operating condition, regularly and properly maintained,
subject to normal wear and tear.
(d) Except as set forth on Schedule 3.12(d), the Acquired Assets
----------------
comprise all of the Seller Intellectual Property used by the Sellers in the
conduct of the Business.
3.13 Intellectual Property.
---------------------
(a) Schedule 3.13(a) lists all of Sellers' Registered
----------------
Intellectual Property owned by, or filed in the name of either Seller (the
"Seller Registered Intellectual Property"), and lists any proceedings or actions
before any court, tribunal (including the PTO or equivalent authority anywhere
in the world) related to any of the Seller Registered Intellectual Property.
-16-
<PAGE>
(b) Each item of Seller Intellectual Property, including all Seller
Registered Intellectual Property listed in Schedule 3.13(a), is free and clear
----------------
of any Liens. Sellers (i) are the exclusive owner of all trademarks, service
marks, trade dress and trade names used in connection with the conduct of the
Business, including the sale of any products or technology or the provision of
any services by Seller and (ii) own exclusively, and have good title to, all
works of authorship and all associated copyrights that are or are part of or
related to Sellers' products sold, licensed or otherwise provided in the
Business or other works of authorship that Sellers otherwise purport to own in
connection with the conduct of the Business.
(c) To the extent that any Intellectual Property has been developed
by any Person other than Sellers for use in the conduct of the Business for
which either Seller has, directly or indirectly, paid, such Seller has a written
agreement with such Person with respect thereto and such Seller thereby has
obtained ownership of, and is the exclusive owner of, all such developed
Intellectual Property by operation of law or by valid assignment. All employees
of each Seller have entered into a valid and binding written agreement with such
Seller sufficient to vest title in such Seller of all Intellectual Property
created by such employee in the scope of his or her employment with such Seller.
(d) Except as set forth in Schedule 3.13(d), neither Seller has
----------------
transferred ownership of or granted any license of or right to use or authorized
the retention of any rights to use any Intellectual Property that is or was
Seller Intellectual Property, to any other Person, other than transfers to the
other Seller, and (ii) implied non-exclusive licenses granted in connection with
the sale of inventory in the Ordinary Course of Business.
(e) The Acquired Assets include all Intellectual Property used in
and/or necessary to the conduct of the Business as it currently is conducted or
is reasonably contemplated to be conducted, including the design, development,
manufacture, use, import and sale of the products, technology and services in
the Business (including products, technology or services currently under
development in the Business).
(f) Other than "shrink-wrap" and similar widely available
commercial end-user licenses, the contracts, licenses and agreements listed in
Schedule 3.13(f) include all contracts, licenses and agreements, to which Seller
- ----------------
is a party with respect to any Intellectual Property of any Person other than
either Seller related to the conduct of the Business. No Person other than
either Seller has ownership rights to improvements made by either Seller in
Intellectual Property which has been licensed to either Seller and exploited in
the conduct of the Business.
(g) Schedule 3.13(g) lists all contracts, licenses and agreements
----------------
between either Seller and any other Person wherein or whereby either Seller has
agreed to, or assumed, any obligation or duty to warrant, indemnify, reimburse,
hold harmless, guaranty or otherwise assume or incur any obligation or liability
or provide a right of rescission with respect to the infringement or
misappropriation by either Seller or such other Person of the Intellectual
Property of any Person other than either Seller, in any such case arising out of
the Business.
-17-
<PAGE>
(h) The operation of the Business as is currently conducted or is
contemplated to be conducted, including the design, development, use, import,
manufacture and sale of the products related to the Acquired Assets, does not,
and will not, when conducted by Buyer in substantially the same manner following
the closing, infringe or misappropriate the Intellectual Property of any Person,
violate the rights of any Person (including rights to privacy or publicity), or
constitute unfair competition or trade practices under the laws of any
jurisdiction, and neither Seller has received notice from any Person claiming
that such operation or any act, product, technology or service (including
products, technology or services currently under development) of either Seller
infringes or misappropriates the Intellectual Property of any Person or
constitutes unfair competition or trade practices under the laws of any
jurisdiction (nor is either Seller aware of any Basis therefor).
(i) Each item of Seller Registered Intellectual Property is valid
and subsisting. All necessary registration, maintenance and renewal fees in
connection with such Seller Registered Intellectual Property have been paid and
all necessary documents and certificates in connection with such Seller
Registered Intellectual Property have been filed with the relevant patent,
copyright, trademark or other authorities in the United States or foreign
jurisdictions, as the case may be, for the purposes of maintaining such
Registered Intellectual Property. For each portion of the Acquired Assets that
constitutes or includes a copyrightable work, a Seller has registered the
copyright in the latest version of such work with the U.S. Copyright Office. In
each case in which a Seller has acquired any Intellectual Property rights from
any Person, such Seller has obtained a valid and enforceable assignment
sufficient to irrevocably transfer all rights in such Intellectual Property
(including the right to seek past and future damages with respect to such
Intellectual Property) to such Seller and, to the maximum extent provided for
by, and in accordance with, applicable laws and regulations, such Seller has
recorded each such assignment with the relevant governmental authorities,
including the PTO, the U.S. Copyright Office, or their respective equivalents in
any relevant foreign jurisdiction, as the case may be. The Sellers have not
claimed "Small Business Status", or other particular status in the application
for any Seller Registered Intellectual Property, which claim of status was, at
the time made, or which has since become, inaccurate or false or that will no
longer be true and accurate as a result of the Closing.
(j) There are no contracts, licenses or agreements between a Seller
and any other Person with respect to Seller Intellectual Property under which
there is any dispute, or, to Sellers' Knowledge, any threatened dispute
regarding the scope of such agreement or performance under such agreement,
including with respect to any payments to be made or received by either Seller
thereunder.
(k) To the Sellers' Knowledge, no Person is infringing or
misappropriating any Seller Intellectual Property.
(l) Each Seller has taken all commercially reasonable steps that
are required to protect Sellers' rights in confidential information and trade
secrets of either Seller relating to the Business or provided by any other
Person to either Seller relating to the Business. Without limiting the
foregoing, each Seller has, and enforces, a policy requiring each employee,
consultant and contractor working in the Business to execute adequate
proprietary information, confidentiality and assignment
-18-
<PAGE>
agreements, and all current and former employees, consultants and contractors of
each Seller have executed such an agreement.
(m) No Seller Intellectual Property or product, technology or
service of either Seller used, licensed, sold or otherwise provided in the
conduct of the Business is subject to any proceeding or outstanding decree,
order, judgment, agreement or stipulation that restricts in any manner the use,
transfer or licensing thereof by either Seller or may affect the validity, use
or enforceability of the Seller Intellectual Property.
(n) No (i) product, technology, service or publication of Seller
relating to the Business or (ii) material published or distributed by Seller
relating to the Business constitutes obscene material, a defamatory statement or
material, false advertising or otherwise violates any law or regulation.
(o) All of each Seller's products related to the Business will
record, store, process, calculate and present calendar dates falling on and
after (and if applicable, spans of time including) January 1, 2000, and will
calculate any information dependent on or relating to such dates in the same
manner, and with the same functionality, data integrity and performance, as the
products record, store, process, calculate and present calendar dates on or
before December 31, 1999, or calculate any information dependent on or relating
to such dates, because the products do not record, store, process, calculate or
present calendar dates whatsoever. All of each Seller's products related to the
Business (i) will lose no functionality with respect to the introduction of
records containing dates falling on or after January 1, 2000 and (ii) will be
interoperable with other products used by Buyer that may deliver records to
Seller's products or receive records from such products of either Seller, or
interact with such products, including back-up and archived data.
(p) All Acquired Assets were written and created solely by either
(i) employees of either Seller acting within the scope of their employment or
(ii) by third parties who have validly assigned all of their rights, including
Intellectual Property rights therein to either Seller, and no third party owns
or has any rights to any of the Acquired Assets or any Intellectual Property
rights therein.
(q) Except as set forth in Schedule 3.13(q), all Acquired Assets
---------------
and all portions thereof will be fully, transferable, alienable or licensable by
Buyer without restriction and without payment of any kind to any third party.
(r) The contracts, licenses and agreements listed on Schedule
--------
3.13(f) include all material contracts, licenses and agreements pursuant to
- -------
which any Person, including any Affiliate of either Seller, has licensed any
Intellectual Property to either Seller for use in the Business. Neither Seller
is in breach of or has failed to perform under, any of the foregoing contracts,
licenses or agreements and, to the Sellers' Knowledge, no other party to any
such contract, license and agreement is in breach thereof or has failed to
perform thereunder.
(s) Neither this Agreement nor the transactions hereby
contemplated, including without limitation the assignment to Buyer of any
contract, license or agreement to which either Seller
-19-
<PAGE>
is a party, will result in the Buyer's granting to any third party any right to
or with respect to any Intellectual Property owned by or licensed to Buyer, or
will result in the Buyer's being bound by or subject to any non-compete or other
restriction on the operation or scope of Buyer's business.
3.14 Contracts. Schedule 3.14 attached hereto lists the following
--------- -------------
contracts and other agreements to which either Seller is a party to or bound by
as of the date hereof which relate primarily to the Business or the Acquired
Assets:
(a) any agreement (or group of related agreements) for the lease of
personal property to or from any Person (including any Affiliate of either
Seller),
(b) any agreement (or group of related agreements) for the purchase
of raw materials, commodities, supplies, products, or other personal property,
or for the furnishing or receipt of services;
(c) any agreement concerning a partnership or joint venture;
(d) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of money
or extension of credit, or any capitalized lease obligation;
(e) any agreement concerning confidentiality or any agreement,
contract or commitment containing any covenant limiting the freedom of either
Seller to engage in any line of business or to compete with any Person;
(f) any agreement involving any Affiliate of ICS or Sub (other than
Sub or ICS) that affects the Business or the Acquired Assets in any material
respect;
(g) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or arrangement for
the benefit of its current or former directors, officers, and employees;
(h) any collective bargaining agreement;
(i) any employment or consulting agreement, contract or commitment
with an employee or individual consultant or salesperson or consulting or sales
agreement, contract or commitment with a firm or other organization;
(j) any agreement under which it has advanced or loaned any amount
to any of its directors, officers, and employees other than business travel
advances in the Ordinary Course of Business;
(k) any agreement pursuant to which either Seller has an obligation
to pay royalties or make other payments in connection with the Business or the
sale of products or services by either
-20-
<PAGE>
Seller in the Ordinary Course of Business, listing the parties thereto and the
duration of and amount of such royalties or other payment;
(l) any fidelity or surety bond or completion bond;
(m) any agreement, contract or commitment relating to capital
expenditures;
(n) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the Ordinary Course of Business;
(o) any purchase order or contract for the purchase of materials;
(p) any construction contracts;
(q) any distribution, joint marketing or development agreement; and
(r) any other agreement, contract or commitment that involves in
excess of $10,000 (in any one case) or $25,000 (in the aggregate) or is not
cancelable without penalty within thirty (30) days.
The Sellers have delivered to Buyer a correct and complete copy of each
written contract listed on Schedule 3.14 and a written summary setting forth the
-------------
terms and conditions of each oral agreement referred to on Schedule 3.14 (each a
-------------
"Contract"). Each Seller is in compliance with and has not breached, violated
--------
or defaulted under, or received notice that it has breached, violated or
defaulted under, any of the terms or conditions of any Contract to which such
Seller is a party or by which it is bound and which is included in the Acquired
Assets, nor, to Sellers' Knowledge is there any event that has occurred that
would constitute such a breach, violation or default with the lapse of time,
giving of notice or both. Each Contract is in full force and effect and, except
as otherwise disclosed in Schedule 3.14, to the Sellers' Knowledge, is not
-------------
subject to any default thereunder by any party obligated to either Seller
pursuant thereto. No provision in any of the contracts would prevent the Buyer,
following the Closing Date, from exercising all of the Sellers' rights under the
Contracts included in the Acquired Assets without the payment of any additional
amounts or consideration other than ongoing fees, royalties or payments which
the Seller that is a party thereto would otherwise be required to pay had the
transactions contemplated by this Agreement not occurred.
3.15 Governmental Authorization. Schedule 3.15 accurately lists each
-------------------------- -------------
material consent, license, permit, grant or other authorization issued to either
Seller by a Governmental Entity pursuant to which either Seller currently
operates or holds any interest in any of its properties or assets used in the
Business (herein collectively called "Seller Authorizations"). The Seller
---------------------
Authorizations are in full force and effect and constitute all Seller
Authorizations required to permit the Sellers to operate or conduct the Business
or hold any interest in its properties or assets used in the Business, except to
the extent that the failure to obtain any required consent, license, permit,
grant or authorization would not
-21-
<PAGE>
have a Material Adverse Effect on the Acquired Assets or would not prevent the
consummation of the transactions contemplated hereby.
3.16 Litigation. There is no action, suit or proceeding of any nature
----------
pending, or, to Sellers' Knowledge, threatened (nor is either Seller aware of a
Basis therefor), against either Seller, its properties or any of its officers or
directors which, if not resolved in favor of the Sellers, its properties or any
of its officers or directors, as the case may be, would have a Material Adverse
Effect on the Acquired Assets or would prevent the consummation of the
transactions contemplated hereby. There is no investigation pending or, to
Sellers' Knowledge threatened, against either Seller, its properties or any of
its officers or directors (nor, to Sellers' Knowledge, is there any Basis
therefor) relating to or affecting the Business by or before any Governmental
Entity which, if not resolved in favor of the Sellers, its properties or any of
its officers or directors, as the case may be, would have a Material Adverse
Effect on the Acquired Assets or would prevent the consummation of the
transactions contemplated hereby. No Governmental Entity has at any time
challenged or questioned the legal right of the Sellers to conduct the Business
as presently or previously conducted.
3.17 No Liquidation, Insolvency, Winding-Up.
--------------------------------------
(a) No order has been made, or petition presented, or resolution
passed for the winding-up of either Seller and there is not outstanding:
(i) any petition or order for the winding-up of either Seller;
(ii) any appointment of a receiver over the whole or part of
the undertaking of assets of either Seller;
(iii) to Sellers' Knowledge, any petition or order for
administration of either Seller;
(iv) any voluntary arrangement between either Seller and any of
its creditors;
(v) to Sellers' Knowledge, any distress or execution or other
process levied in respect of either Seller which remains undischarged; and
(vi) to Sellers' Knowledge, any unfulfilled or unsatisfied
judgment or court order against either Seller.
(b) To Sellers' Knowledge, there are no circumstances which would
entitle any Person to present a petition for the winding-up or administration of
Seller or to appoint a receiver over the whole or any part of the undertaking or
assets of either Seller.
(c) Neither Seller is deemed unable to pay its debts within the
meaning of applicable law.
-22-
<PAGE>
3.18 [INTENTIONALLY OMITTED]
3.19 Environmental Matters.
---------------------
(a) Hazardous Material. Neither Seller has: (i) operated any
------------------
underground storage tanks at any property that such Seller has at any time
owned, operated, occupied or leased in connection with the conduct of the
Business; or (ii) illegally released in the conduct of the Business, or from any
facilities where the Business is conducted, any substance that has been
designated by any Governmental Entity or by applicable federal, state or local
law to be radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, PCBs, asbestos, petroleum, and urea-formaldehyde and all
substances listed as hazardous substances pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended, or
defined as a hazardous waste pursuant to the United States Resource Conservation
and Recovery Act of 1976, as amended, and the regulations promulgated pursuant
to said laws (a "Hazardous Material"), but excluding office and janitorial
-------------------
supplies properly and safely maintained. No Hazardous Materials are present as a
result of the actions of either Seller or, to Sellers' Knowledge, as a result of
any actions of any other Person or otherwise, in, on or under any property,
including the land and the improvements, ground water and surface water thereof,
that either Seller has at any time owned, operated, occupied or leased in
connection with the conduct of the Business.
(b) Certain Activities. To Seller's Knowledge, neither Seller has
------------------
transported, stored, used, manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials in violation of any law in effect on
or before the Closing in connection with the conduct of the Business, nor to
Seller's Knowledge, has either Seller disposed of, transported, sold, used or
manufactured any product containing a Hazardous Material in connection with the
conduct of the Business in violation of any rule, regulation, treaty or statute
promulgated by any Governmental Entity in effect prior to or as of the date
hereof to prohibit, regulate or control Hazardous Materials.
(c) Permits. Each Seller currently holds all environmental
-------
approvals, permits, licenses, clearances and consents (the "Environmental
--------------
Permits") necessary for the conduct of the Business as such Business is
- --------
currently being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
-------------------------
proceeding, amendment procedure, writ, injunction or claim is pending, or to
Sellers' Knowledge, threatened concerning any Environmental Permit held or
Hazardous Material disposed of, used or manufactured, in each case in connection
with the conduct of the Business. Neither Seller is aware of any fact or
circumstance which could involve either Seller in any environmental litigation
or impose upon either Seller any environmental liability with respect to the
Business.
3.20 Brokers' and Finders' Fees; Third Party Expenses. Neither Seller
------------------------------------------------
has incurred, nor will it incur, directly or indirectly, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with the Agreement or any transaction contemplated hereby, other than
-23-
<PAGE>
any fees or commissions for which the Sellers will be liable and with respect to
which Buyer will not incur any liability.
3.21 Employee Matters and Benefit Plans.
----------------------------------
(a) Schedules. Schedule 3.21(a) contains an accurate and complete
--------- ----------------
list of each material Employee Plan and each material Employee Agreement
covering any of the Retained Employees. Neither Seller has any plan or
commitment to establish any new Employee Plan or Employee Agreement with respect
to the Retained Employees, to modify any such Employee Plan or Employee
Agreement (except to the extent required by law or to conform any such Employee
Plan or Employee Agreement to the requirements of any applicable law), or to
enter into any such Employee Plan or Employee Agreement, in each case with
respect to any of the Retained Employees.
(b) Documents. The Sellers have provided, or will, prior to the
---------
Closing, provide, to Buyer: (i) correct and complete copies of all material
documents embodying each material Employee Plan and material Employee Agreement
covering the Retained Employees including all amendments thereto and all related
trust documents; (ii) the most recent annual actuarial valuations, if any,
prepared for each such Employee Plan; (iii) the three (3) most recent annual
reports (Form Series 5500 and all schedules and financial statements attached
thereto), if any, required under ERISA or the Code in connection with each such
Employee Plan; (iv) the most recent summary plan description together with the
summary(ies) of material modifications thereto, if any, required under ERISA
with respect to each such Employee Plan; and (v) all IRS determination, opinion,
notification and advisory letters, with respect to any such Employee Plan.
(c) Employee Plan Compliance. Each Employee Plan covering the
------------------------
Retained Employees has been established and maintained in all material respects
in accordance with its terms and in compliance with all applicable laws,
statutes, orders, rules and regulations, including ERISA or the Code; and (ii)
to each such Employee Plan intended to qualify under Section 401(a) of the Code
and each trust intended to qualify under Section 501(a) of the Code has received
a favorable determination letter from the IRS with respect to each such Plan as
to its qualified status under the Code, including all amendments to the Code
effected by the Tax Reform Act of 1986 and subsequent legislation, or has
remaining a period of time under applicable Treasury regulations or IRS
pronouncements in which to apply for such a letter and make any amendments
necessary to obtain a favorable determination as to the qualified status of each
such Employee Plan.
(d) Pension Plan. Neither Seller nor any ERISA Affiliate of either
------------
Seller has previously or currently maintains, sponsors, participates in or
contributes to a Pension Plan covering any of the Retained Employees which is
subject to Title IV of ERISA or Section 412 of the Code.
(e) Multiemployer Plans. At no time has either Seller or any ERISA
-------------------
Affiliate contributed to or been obligated to contribute to any Multiemployer
Plan.
-24-
<PAGE>
(f) No Post-Employment Obligations. No Employee Plan provides, or
------------------------------
reflects or represents any liability to provide, retiree life insurance, retiree
health or other retiree employee welfare benefits to any Retained Employee for
any reason, except as may be required by COBRA or other applicable statute, and
neither Seller has ever represented, promised or contracted (whether in oral or
written form) to any Retained Employee (either individually or to the Retained
Employees as a group) or any other person that such Retained Employee(s) or
other person would be provided with retiree life insurance, retiree health or
other retiree employee welfare benefit, except to the extent required by
statute.
(g) Effect of Transaction. Except as set forth on Schedule
--------------------- --------
3.21(g), the execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the occurrence
of any additional or subsequent events) constitute an event under any Employee
Plan, Employee Agreement, trust or loan that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Retained Employee.
(h) Employment Matters. Each Seller: (i) is in compliance in all
------------------
material respects with all applicable foreign, federal, state and local laws,
rules and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with respect to the
Retained Employees; (ii) has withheld and reported all amounts required by law
or by agreement to be withheld and reported with respect to wages, salaries and
other payments to the Retained Employees; (iii) is not liable for any arrears of
wages or any taxes or any penalty for failure to comply with any of the
foregoing; and (iv) is not liable for any payment to any trust or other fund
governed by or maintained by or on behalf of any governmental authority, with
respect to unemployment compensation benefits, social security or other benefits
or obligations for the Retained Employees (other than routine payments to be
made in the normal course of business and consistent with past practice). There
are no pending, threatened or reasonably anticipated claims or actions against
either Seller under any worker's compensation policy or long-term disability
policy relating to any Retained Employee.
(i) Labor. As of the date of this Agreement; (i) no work stoppage
-----
or labor strike against either Seller is pending, threatened or reasonably
anticipated involving the Retained Employees; (ii) to Seller's Knowledge, there
are no activities or proceedings of any labor union to organize any Retained
Employees; and (iii) except as set forth in Schedule 3.21(i), there are no
----------------
actions, suits, claims, labor disputes or grievances pending, or, to the
Sellers' Knowledge, threatened or reasonably anticipated relating to any labor,
safety or discrimination matters involving any Retained Employee, including
charges of unfair labor practices or discrimination complaints, which, if
adversely determined, would, individually or in the aggregate, result in any
material liability to either Seller. From the most Recent Balance Sheet Date
through the date of this Agreement, neither Seller nor any of their subsidiaries
has engaged in any unfair labor practices within the meaning of the National
Labor Relations Act with respect to the Retained Employees. Except as set forth
in Schedule 3.21(i), neither Seller is presently, nor has it been in the past,
----------------
a party to, or bound by, any collective bargaining agreement or union contract
with respect to any Retained Employees and no collective bargaining agreement is
being negotiated by either Seller with respect to any Retained Employees.
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<PAGE>
(j) Compensation Issues. Since the Most Recent Balance Sheet Date,
-------------------
there has not been any increase in the salary or other compensation payable or
to become payable by either Seller to any of the Retained Employees, or the
declaration, payment or commitment or obligation of any kind for the payment by
either Seller of a bonus or other additional salary or compensation to a
Retained Employee, except as contemplated by Section 6.16 hereof.
3.22 Affiliated Transactions. No Affiliate of either Seller owns any
-----------------------
Acquired Asset.
3.23 Government Contracts. Neither Seller has been or is a party to any
--------------------
contract or arrangement with any government agency relating to the Business.
3.24 Suppliers. Schedule 3.24 sets forth a complete and accurate list
--------- -------------
of the top suppliers of significant materials or services to either Seller for
use in the Business.
3.25 [INTENTIONALLY OMITTED]
3.26 Insurance. Schedule 3.26 lists all insurance policies and fidelity
--------- -------------
bonds covering in any manner the Acquired Assets, the Business or the Retained
Employees. There is no claim by either Seller or any Affiliate pending under any
of such policies or bonds relating to the Acquired Assets, the Business or the
Retained Employees as to which coverage has been questioned, denied or disputed
by the underwriters of such policies or bonds. All premiums due and payable
under all such policies and bonds have been paid, and each Seller and its
Affiliates are otherwise in compliance with the terms of such policies and bonds
(or other policies and bonds providing substantially similar insurance
coverage). To the Sellers' Knowledge, there is no threatened termination of, or
premium increase with respect to, any of such policies, other than routine,
ordinary course increases in premiums.
3.27 Compliance with Laws. Each Seller has complied with, is not in
--------------------
violation of, and has not received any notices of violation with respect to, any
foreign, federal, state or local statute, law or regulation, except to the
extent that any such violation would neither have a Material Adverse Effect on
the Acquired Assets nor prevent the consummation of the transactions
contemplated hereby.
3.28 Product Warranties; Defects; Liability. Except as set forth on
--------------------------------------
Schedule 3.28, each product manufactured, sold, leased, or delivered by each
- -------------
Seller in the conduct of the Business has been in conformity with all applicable
contractual commitments and all express and implied warranties, and neither
Seller has any Liability (and, to Sellers' Knowledge, there is no Basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against either Seller giving rise to any Liability)
for replacement or repair thereof or other damages in connection therewith,
subject only to the reserve for product warranty claims set forth on the face of
the Most Recent Balance Sheet. No product manufactured, sold, leased, or
delivered by either Seller is subject to any guaranty, warranty, or other
indemnity beyond the applicable standard terms and conditions of sale or lease
or beyond that implied or imposed by applicable law. Schedule 3.28 includes
-------------
copies of the standard terms and conditions of sale, lease or license for each
Seller used in the Business.
-26-
<PAGE>
3.29 Import/Export. Except to the extent that failure of the following
-------------
statements to be true would not have a Material Adverse Effect on the Acquired
Assets and would not prevent the consummation of the transactions contemplated
hereby: (i) all goods imported into the United States or any other country by
the Sellers in connection with the Business ("Imported Goods") have been
--------------
properly valued and classified in accordance with applicable tariff laws, rules
and regulations and all proper duties, tariffs or excise taxes have been paid
with respect to the Imported Goods; (ii) no penalties have been assessed,
asserted or claimed with respect to any Imported Goods; (iii) all Imported Goods
have been properly marked as to country of origin, content and material; and
(iv) each Seller has complied with all applicable import and export laws, rules
and regulations of the United States and any foreign government, including the
rules and regulations promulgated by the United States Bureau of Export
Administration of the United States Department of Commerce in the conduct of the
Business.
3.30 Complete Copies of Materials. The Sellers shall have delivered or
----------------------------
made available to Buyer true and complete copies of each document (or summaries
of same) that has been reasonably requested by Buyer or its counsel.
3.31 Representations Complete. None of the representations or warranties
------------------------
made by the Sellers (as modified by the Schedules), nor any statement made in
any Schedule or certificate furnished by the Sellers pursuant to this Agreement
contains or will contain at the Closing, any untrue statement of a material
fact, or omits or will omit at the Closing to state any material fact necessary
in order to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Sellers as follows:
4.1 Organization of Buyer. Buyer is duly organized, validly existing, and
---------------------
in good standing under the laws of the jurisdiction of the State of Delaware.
Buyer has the corporate power to own its properties and to carry on its business
as now being conducted and as proposed to be conducted.
4.2 Authority for Agreement. Buyer has all requisite corporate power and
-----------------------
and authority to enter into this Agreement and the Related Agreements to which
it is a party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the Related Agreements
and the consummation of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action on the part of Buyer, and
no further action is required on the part of Buyer to authorize this Agreement,
any Related Agreements to which it is a party or the transactions contemplated
hereby and thereby. This Agreement has been duly executed and delivered by Buyer
and constitutes, and the Related Agreements, when duly executed and delivered by
Buyer, will constitute the valid and binding obligations of Buyer, enforceable
in accordance with their
-27-
<PAGE>
terms, except as such enforceability may be limited by principles of public
policy and subject to the laws of general application relating to bankruptcy,
insolvency, fraudulent conveyance and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies.
4.3 Adequate Resources. Buyer has adequate financial resources to
------------------
discharge its financial obligations set forth in this Agreement.
4.4 Noncontravention. Neither the execution and the delivery of this
----------------
Agreement, nor the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in Article II above),
will (i) violate any provision of the respective charters or bylaws of Buyer or
(ii) give rise to a Conflict with (1) any material agreement, contract, lease,
license, instrument, or other arrangement to which Buyer is a party or by which
it is bound or to which any of its assets is subject or (2) any judgement,
order, decree, statute, law, ordinance, rule or regulation applicable to Buyer
or its properties or assets, except for such Conflicts which would not have a
Material Adverse Effect on Buyer.
4.5 Consents. No consent, waiver, approval, order or authorization of, or
--------
registration, declaration or filing with, any Governmental Entity or any third
party, is required by or with respect to Buyer in connection with the execution
and delivery of this Agreement and any Related Agreements to which Buyer is a
party or the consummation of the transactions contemplated hereby and thereby,
except for compliance with the notification requirements of the HSR Act.
4.6 Brokers' and Finders' Fees; Third Party Expenses. Buyer has not
------------------------------------------------
incurred, nor will it incur, directly or indirectly, any liability for brokerage
or finders' fees or agents' commissions or any similar charges in connection
with the Agreement or any transaction contemplated hereby.
4.7 Representations Complete. None of the representations or warranties
------------------------
made by the Buyer nor any certificate furnished by the Buyer pursuant to this
Agreement contains or will contain at the Closing, any untrue statement of a
material fact, or omits or will omit at the Closing to state any material fact
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which made, not misleading.
ARTICLE V
CONDUCT PRIOR TO THE CLOSING DATE
5.1 Conduct of Business of Seller. During the period from the date of
-----------------------------
this Agreement and continuing until the earlier of the termination of this
Agreement or the Closing, the Sellers agree (except to the extent Buyer shall
otherwise consent in writing), to carry on the Business in the usual, regular
and ordinary course in substantially the same manner as heretofore conducted, to
pay the debts and Taxes of the Sellers when due, to pay or perform other
obligations when due, and, to the extent consistent with the Business, use their
reasonable best efforts consistent with past practice and policies to preserve
intact the Sellers' present business organizations and keep available the
services of the Retained Employees
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<PAGE>
and preserve Sellers' relationships with suppliers, licensors and licensees of,
and others having business dealings with, the Business, all with the goal of
preserving unimpaired the Acquired Assets and the Business. During the period
from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Closing, the Sellers shall promptly notify
Buyer of any event or occurrence or emergency not in the Ordinary Course of
Business of Sellers involving the Business or the Acquired Assets, and any event
which has had or could have a Material Adverse Effect on the Business or the
Acquired Assets. During the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement or the
Closing, except as expressly contemplated by this Agreement as set forth in
Schedule 5.1, or with the prior written consent of Buyer, neither Seller will
- ------------
with respect to the Business or the Acquired Assets, if such action would have a
Material Adverse Effect on the Acquired Assets or would prevent consummation of
the transactions contemplated hereby:
(a) Enter into any commitment or transaction not in the Ordinary
Course of Business or any commitment or transaction of the type described in
Section 3.9 hereof;
(b) Enter into any license agreement with respect to the Seller
Intellectual Property with any Person or entity or with respect to the
Intellectual Property of any Person or entity other than in connection with the
sale of inventory in the Ordinary Course of Business;
(c) Transfer to any Person or entity any rights to the Seller
Intellectual Property other than in connection with the sale of inventory in the
Ordinary Course of Business;
(d) Enter into or amend any contract or other agreement inconsistent
with or that would materially adversely affect the use of the Acquired Assets by
Buyer after Closing;
(e) Commence or settle any litigation that affects the Acquired
Assets;
(f) Issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any shares of Sub's capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue or purchase any such shares
or other convertible securities;
(g) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the Business;
(h) Sell, lease, license or otherwise dispose of any of its
properties or assets used in the Business, except in the Ordinary Course of
Business and except for a sale-leaseback transaction involving the Building (as
defined in Exhibit D) whereby ICS sells the Building to a third party and leases
---------
the building back for a period of at least two (2) years on terms reasonably
approved in writing by Buyer (the "Sale Lease-Back");
---------------
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<PAGE>
(i) With respect to the Sub, incur any indebtedness for borrowed
money or guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others;
(j) With respect to the Sub, grant any loans to others or purchase
debt securities of others or amend the terms of any outstanding loan agreement,
except in the Ordinary Course of Business;
(k) Grant any severance or termination pay to any Retained Employee,
except payments made pursuant to standard written agreements outstanding or the
employee policies of either Seller in effect on the date hereof and as
contemplated by Section 6.16 hereof;
(l) Adopt or amend any employee benefit plan, or enter into any
employment contract covering any Retained Employee, pay or agree to pay any
special bonus or special remuneration to any Retained Employee, or increase the
salaries or wage rates of any Retained Employees or accelerate the vesting of
any outstanding ICS Options subject to vesting held by any Retained Employee,
other than as contemplated by Section 6.16 hereof;
(m) Revalue any of the Acquired Assets;
(n) Enter into any strategic or joint marketing arrangement or
agreement; or
(o) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 5.1(a) through (n) above, or any other action that
would prevent Seller from performing or cause Seller not to perform its
covenants hereunder.
In addition, Buyer agrees that it will not take any action, or
omit to take any action, that would result in either Seller engaging in any of
the actions set forth in this Section 5.1.
5.2 No Solicitation. Until the earlier of the Closing or the date of
---------------
termination of this Agreement pursuant to the provisions of Section 9.1 hereof,
ICS will (nor will ICS permit any of its officers, directors, agents,
representatives or Affiliates to) directly or indirectly, take any of the
following actions with any party other than Buyer and its designees: (a)
solicit, encourage, initiate, conduct discussions with or engage in negotiations
with any Person, relating to any offer or proposal with respect to the possible
acquisition of the Acquired Assets (whether by way of merger, purchase of
capital stock, purchase of assets, tender offer or otherwise) or assist or
cooperate with any Person to make any proposal with respect to any of the
foregoing, (b) disclose or provide any information with respect to the the
Acquired Assets, or afford access to its properties, books or records related to
the Acquired Assets, to any Person, other than Buyer, relating to the possible
acquisition of the Acquired Assets (whether by way of merger, purchase of
capital stock, purchase of assets, tender offer or otherwise) or any portion of
the Acquired Assets, or which is not provided or afforded in the Ordinary Course
of Business, (c) enter into an agreement with any Person, other than Buyer,
providing for the acquisition of the Acquired Assets (whether by way of merger,
purchase of capital stock, purchase of assets, tender offer or otherwise) or any
portion of the Acquired Assets, or (d) make or authorize any statement,
-30-
<PAGE>
recommendation or solicitation in support of any possible acquisition of the
Acquired Assets (whether by way of merger, purchase of capital stock, purchase
of assets, tender offer or otherwise) or any portion of the Acquired Assets by
any Person, other than by Buyer; provided, however, that nothing in this Section
5.2 shall restrict the ability of ICS to conduct any of the aforementioned
actions with respect to the acquisition or possible acquisition of ICS (whether
by way of merger, purchase of capital stock, purchase of assets, tender offer or
otherwise) unless such acquisition or possible acquisition will prevent the
Sellers from consummating the transactions contemplated hereby. In addition to
the foregoing, if either Seller receives prior to the Closing or the termination
of this Agreement any offer, proposal or request relating to any of the above,
such Seller shall immediately notify Buyer thereof, including information as to
the identity of the offeror or the party making any such offer or proposal and
the specific terms of such offer or proposal, as the case may be, and such other
information related thereto as Buyer may reasonably request.
ARTICLE VI
ADDITIONAL AGREEMENTS
The parties hereto agree as follows:
6.1 Access to Information. The Sellers shall afford Buyer and its
---------------------
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Closing to (a) all of Seller's
properties, books, contracts, commitments and records related to the Business or
the Acquired Assets, (b) all other information concerning the Business, the
Acquired Assets and the Retained Employees as Buyer may reasonably request and
(c) the Retained Employees. Each Seller agrees to provide to Buyer and its
accountants, counsel and other representatives copies of internal financial
statements (including Returns and supporting documentation) relating to the
Business, the Acquired Assets or the Retained Employees promptly upon request.
Buyer shall provide the Sellers with copies of such publicly available
information about Buyer as the Sellers may request and shall provide the Sellers
with reasonable access to appropriate members of its management in this regard.
No information or knowledge obtained in any investigation pursuant to this
Section 6.1 shall affect or be deemed to modify any representation or warranty
contained herein or the conditions to the obligations of the parties to
consummate the Acquisition.
6.2 Confidentiality. Each of the parties hereto hereby agrees that the
---------------
information obtained in any investigation pursuant to Section 6.1, or pursuant
to the negotiation and execution of this Agreement or the effectuation of the
transaction contemplated hereby shall be governed by the terms of the
Confidentiality Agreement.
6.3 Expenses. Whether or not the Acquisition is consummated, all fees
--------
and expenses incurred in connection with this Agreement and the Acquisition
including all legal, accounting, financial advisory, consulting and all other
fees and expenses of third parties incurred by a party in connection with the
negotiation and effectuation of the terms and conditions of this Agreement and
the transactions
-31-
<PAGE>
contemplated hereby, shall be the obligation of the respective party incurring
such fees and expenses; provided, however, that the foregoing shall not apply in
the event of a material breach of this Agreement by a party, in which case the
non-breaching party may seek to recover such fees and expenses from the
breaching party.
6.4 Public Disclosure. Except to a limited number of customers and
-----------------
suppliers who are advised of the confidentiality of the matters, unless
otherwise required by law, or the rules and regulations of the Nasdaq Stock
Market, Inc., until the first public disclosure of the subject matter of this
Agreement is approved by Buyer and Sellers, no disclosure (whether or not in
response to an inquiry) of the subject matter of this Agreement shall be made by
any party hereto unless approved by Buyer and the Sellers prior to release,
provided that such approval shall not be unreasonably withheld.
6.5 Consents. The Sellers shall use all commercially reasonable efforts
--------
to obtain the Required Consents. In the event the Sale Lease-Back occurs prior
to the Closing, the Sellers shall use commercially reasonable efforts to obtain
from the lessor thereunder, and its lenders (if any), (a) consent to the ICS
Lease or the Occupancy Agreement (as the case may be) to the extent required by
such lender or lessor, in order for ICS and Buyer to become bound by the ICS
Lease or the Occupancy Agreement, as the case may be, and (b) consent to Buyer's
proposed alterations to the Building, to the extent required by such lessor or
lender in order for Seller and Buyer to construct such alterations. In addition,
in such event, the Sellers shall request and use commercially reasonable efforts
in attempting to obtain for Buyer a non-disturbance agreement reasonably
acceptable to Buyer from the lessor thereunder and its lenders (if any). Such
efforts shall not require the expenditure of more than a nominal sum.
6.6 Reasonable Efforts. Until the earlier of the termination of this
------------------
Agreement or the Closing, subject to the terms and conditions provided in this
Agreement, each of the parties hereto shall use commercially reasonable efforts
to take promptly, or cause to be taken, all actions, and to do promptly, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated hereby, to obtain all necessary waivers, consents and approvals and
to effect all necessary registrations and filings and to remove any injunctions
or other impediments or delays, legal or otherwise, in order to consummate and
make effective the transactions contemplated by this Agreement for the purpose
of securing to the parties hereto the benefits contemplated by this Agreement;
provided that Buyer shall not be required to agree to any divestiture by either
Seller or any of its Affiliates of shares of capital stock or of any business,
assets or property of either Seller or its Affiliates, or the imposition of any
material limitation on the ability of any of them to conduct their businesses or
to own or exercise control of such assets, properties and stock.
6.7 Notification of Certain Matters. The Sellers shall give prompt notice
-------------------------------
to Buyer of (i) the occurrence or non-occurrence of any event, the occurrence or
non-occurrence of which is likely to cause any representation or warranty of
either Seller contained in this Agreement to be untrue or inaccurate at or prior
to the Closing and (ii) any failure of either Seller, 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 the delivery of any notice
pursuant to this Section 6.7 shall not limit or otherwise affect any remedies
available to the party receiving such notice.
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<PAGE>
6.8 Tax Returns. The Sellers shall be responsible for and shall pay when
-----------
due (i) all Taxes attributable, levied or imposed upon or incurred in connection
with the Acquired Assets (pertaining to the period (or any portion of any
period) ending on or prior to the Closing Date) and (ii) all Taxes incurred in
connection with or attributable to the Business. The Sellers agrees to continue
to timely file within the time period for filing, or any extension granted with
respect thereto, all Returns relating to any and all Taxes required to be filed
by them and such Returns shall be true and correct and completed in accordance
with applicable laws.
6.9 Bulk Sales Laws. The Sellers shall take all actions necessary to
---------------
comply with all applicable laws concerning bulk sales or bulk transfers or any
similar law ("Bulk Sales Laws"), including the filing and publication of notices
---------------
of the transactions contemplated hereunder as required by the Uniform Commercial
Code and the applicable laws of the states of Pennsylvania and California. Buyer
shall cooperate with the Sellers with respect to compliance with Bulk Sales
Laws.
6.10 Registered Intellectual Property Activities. Prior to the Closing,
-------------------------------------------
the Sellers shall provide a list of all actions that must be taken by a Seller
within sixty (60) days of the Closing Date, including the payment of any
registration, maintenance or renewal fees or the filing of any documents,
applications or certificates for the purposes of maintaining, perfecting or
preserving or renewing any Seller Intellectual Property included within the
Acquired Assets.
6.11 HSR Act Filings. Both Buyer and Seller shall (i) take promptly all
---------------
actions necessary to prepare and file the applicable notices required, if any,
to be filed under the HSR Act, which filings will comply in all material
respects with the requirements of the HSR Act, (ii) promptly comply at the
earliest practicable date with any requests for additional information from the
Federal Trade Commission or United States Department of Justice, and (iii)
request early termination of the applicable waiting period (collectively, "HSR
---
Clearance").
- ---------
6.12 Covenant Not to Solicit.
-----------------------
(a) For a period commencing on the Closing Date and ending on the
third anniversary of the Closing Date, neither ICS nor Seller (and their
successors and assigns) shall (nor shall either Seller permit any of its
officers, directors, employees, representatives or Affiliates) solicit,
encourage, hire or take any other action which is intended to induce or
encourage, or has the effect of inducing or encouraging any Retained Employee to
terminate his or her employment with Buyer (or its consolidated subsidiaries).
(b) For a period commencing on the Closing Date and ending on the
first anniversary of the Closing Date, neither ICS nor Seller (and their
successors and assigns) shall (nor shall either Seller permit any of its
officers, directors, employees, representatives or Affiliates) solicit,
encourage, hire or take any other action which is intended to induce or
encourage, or has the effect of inducing or encouraging any employee of Buyer
other than the Retained Employees to terminate his or her employment with Buyer
(or its consolidated subsidiaries).
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<PAGE>
(c) If, in any judicial proceeding, a court refuses to enforce the
covenants (or any part thereof) set forth above, then such unenforceable
covenant (or such part) shall be eliminated from this Agreement to the extent
necessary to permit the remaining separate covenants (or portions thereof) to be
enforced. In the event that the provisions of this Section 6.12 are deemed to
exceed the time, geographic or scope limitations permitted by applicable law,
then such provisions shall be reformed to the maximum time, geographic or scope
limitations, as the case may be, permitted by applicable laws.
(d) The Sellers acknowledge that their agreements as set forth herein
are necessary to preserve the value of the Acquired Assets for Buyer following
the Acquisition. Each Seller also acknowledges that the limitations of time, and
scope of activity agreed to in this Agreement are reasonable because, among
other things, (i) the Sellers and Buyer are engaged in a highly competitive
industry, and (ii) the Sellers are receiving significant consideration in
connection with the Acquisition.
(e) Each Seller agrees that it would be impossible or inadequate to
measure and calculate Buyer's damages from any breach of the covenants set forth
in this Section 6.12. Accordingly, each Seller agrees that if either of them
breaches any provision of this Section 6.12, Buyer will have available, in
addition to any other right or remedy otherwise available, the right to obtain
an injunction from a court of competent jurisdiction restraining such breach or
threatened breach and to specific performance of any such provision of this
Agreement. Each Seller further agrees that no bond or other security shall be
required in obtaining such equitable relief, nor will proof of actual damages be
required for such equitable relief. Each Seller hereby expressly consents to the
issuance of such injunctive relief, whether in the form of a temporary
restraining order or otherwise, and to the ordering of such specific
performance.
6.13 Employment Offers.
-----------------
(a) Buyer shall make offers to each of the Retained Employees whose
background and reference checks are deemed acceptable in the discretion of
Buyer, to enter into "at-will" employment arrangements reasonably satisfactory
to Buyer; provided, however, that nothing in this Section 6.13 shall affect in
any manner whatsoever the right or power of Buyer to terminate any such
employment relationship, for any reason, with or without cause.
(b) In the event, after the Closing, a Retained Employee accepts
and enters into such an "at-will" employment arrangement with Buyer, such
employee shall receive salary and benefits consistent with Buyer's current
practice, including the right to participate in Buyer's stock option plan.
6.14 COBRA. The Sellers, shall continue to make available COBRA
-----
continuation coverage to all of their Employees working in the Business who are
qualified beneficiaries (as such term is defined in COBRA), including Retained
Employees.
6.15 401(k) Plan. Unless Buyer and Sellers otherwise agree, as soon as
-----------
administratively practicable after the Closing, the Sellers, if applicable,
shall take any and all actions reasonably necessary and appropriate under the
Code Section 401(k) plan in which Seller is currently a participating
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<PAGE>
employer ("Seller 401(k) Plan") to permit a transfer of the account balance(s)
------------------
which are attributable to the Retained Employees, from Seller 401(k) Plan to the
3Com Corporation 401(k) Plan ("Buyer's 401(k) Plan").
-------------------
6.16 Agreement with Respect to Retained Employee's Stock Options. No later
-----------------------------------------------------------
than the Closing, ICS will offer to each optionee under an ICS Option to amend
each ICS Option such that (i) the vested portion of each ICS Option shall remain
exercisable until September 30, 1999, provided that in order to exercise such
vested portion after three months following the Closing, the optionee must be an
employee of Buyer or any of its subsidiaries, and (ii) the unvested portion of
each ICS Option shall (1) continue to vest until September 30, 1999 to the same
extent that such ICS Option would have vested had the optionee remained employed
with ICS or its subsidiaries and (2) be exercisable at any time or from time to
time from October 1, 1999 through October 31, 1999, to the extent then vested,
if at the time of any such exercise the optionee is an employee of Buyer or any
of its subsidiaries. The form and substance of such amendment is subject to the
review and approval of the Buyer.
6.17 ICS Lease. Promptly following the date of this Agreement and
---------
continuing until the earlier of the termination of this Agreement or the
Closing, ICS and Buyer will negotiate in good faith the terms of a lease (the
"ICS Lease") for premises reasonably required by Buyer in the Building (as
---------
defined in Exhibit D hereto). In the event the parties do not come to agreement
---------
on the terms of the ICS Lease on or before the Closing Date, the Short Term
Occupancy Agreement set forth on Exhibit D (the "Occupancy Agreement") shall go
--------- -------------------
into effect upon the Closing and shall govern the landlord-tenant relationship
between ICS and Buyer, and the terms of the Occupancy Agreement shall constitute
a contract between ICS and Buyer. If ICS completes the Sale Lease-Back prior to
the Closing, then (a) the ICS Lease or Occupancy Agreement, as the case may be,
shall become a sublease in which ICS is the sublessor and Buyer is the
sublessee, with such additional modifications as shall be necessary and
reasonably acceptable to ICS and Buyer, (b) ICS shall immediately provide to
Buyer a true and complete copy of such lease and a certificate certifying that
the representations set forth in Section 3.12 with respect to such lease are
true and (c) Schedule 3.12(a) shall be modified to include such lease. This
Section 6.17 shall survive for one (1) year following the Closing.
6.18 Additional Documents and Further Assurances. Each party hereto, at
-------------------------------------------
the request and expense of another party hereto, shall execute and deliver such
other instruments and do and perform such other acts and things as may be
necessary or desirable for effecting completely the consummation of this
Agreement and the transactions contemplated hereby.
ARTICLE VII
CONDITIONS TO OBLIGATION TO CLOSE
7.1 Conditions to Obligations of Each Party to Effect the Acquisition. The
-----------------------------------------------------------------
respective obligations of each party to this Agreement to effect the Acquisition
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
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(a) No Injunctions or Restraints; Illegality. 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 Acquisition or claiming ownership of any of
the Acquired Assets shall be in effect, nor shall any proceeding brought by a
Governmental Entity or third party, seeking any of the foregoing be pending or
overtly threatened; nor shall there be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Acquisition, which makes the consummation of the Acquisition illegal.
(b) Governmental Approval. Approvals from Governmental Entities (if
---------------------
any) necessary in order to permit consummation of the transactions contemplated
hereby shall have been timely obtained, including all approvals under the HSR
Act and the expiration or early termination of all antitrust review periods
under the HSR Act, and other applicable antitrust laws shall have occurred;
provided, however, that neither party may rely on the condition set forth in
this sentence if the failure to obtain HSR Clearance for the Acquisition is a
result of such party's failure to take all necessary actions set forth in
Section 6.11 above.
7.2 Additional Conditions to Obligations of the Sellers. The obligations
---------------------------------------------------
of the Sellers to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing of each of the following conditions, any of which may be waived, in
writing, exclusively by ICS:
(a) Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of Buyer in this Agreement shall be true and correct in all
material respects on and as of the Closing as though such representations and
warranties were made on and as of such time and Buyer shall have performed and
complied in all material respects with all covenants and obligations of this
Agreement required to be performed and complied with by it as of the Closing.
(b) License and Services Agreement. Buyer shall have executed and
------------------------------
delivered a license and services agreement substantially in the form attached
hereto as Exhibit B (the "License and Services Agreement").
------------------------------
(c) Required Consents. The Required Consents shall have been
-----------------
obtained.
(d) Certificate of Buyer. The Sellers shall have been provided with a
--------------------
certificate executed on behalf of Buyer by a Vice President to the effect that,
as of the Closing:
(i) all representations and warranties made by Buyer in this
Agreement are true and correct in all material respects; and
(ii) all covenants and obligations of this Agreement to be
performed by Buyer on or before such date have been so performed in all material
respects.
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7.3 Additional Conditions to the Obligations of Buyer. The obligations of
-------------------------------------------------
Buyer to consummate and effect this Agreement and the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Closing of each
of the following conditions, any of which may be waived, in writing, exclusively
by Buyer:
(a) Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of the Sellers in this Agreement shall be true and correct on and
as of the Closing as though such representations and warranties were made on and
as of the Closing and the Sellers shall have performed and complied in all
material respects with all covenants and obligations of this Agreement required
to be performed and complied with by them as of the Closing.
(b) Required Consents. The Required Consents shall have been
-----------------
obtained and if the Sale Lease-Back occurs before the Closing Date, the consent
as to the ICS Lease or the Occupancy Agreement (as the case may be) shall have
been received from the lessor and its lenders (if any) to the extent required by
such lessor or lenders in order for ICS and Buyer to become bound by the ICS
Lease or the Occupancy Agreement, as the case may be.
(c) License of Third Party Software. With respect to all software
-------------------------------
licenses included in the Acquired Assets for which consents to assign such
licenses to Buyer have not been obtained by the Sellers on or prior to the
Closing, the Sellers shall have obtained replacement licenses, at their expense,
covering the same technology to allow Buyer to exercise the same rights with
respect to such technology that the Seller had been able to exercise prior to
the Closing.
(d) Reference Check. Each the Retained Employees will have
---------------
submitted to Buyer's standard employee background and reference check.
(e) Legal Opinion. Buyer shall have received a legal opinion from
-------------
Pepper Hamilton LLP, legal counsel to Sellers, opining on the matters set forth
in Exhibit E hereto.
---------
(f) License and Services Agreement. ICS shall have executed and
------------------------------
delivered the License and Services Agreement.
(g) No Material Adverse Effect. There shall not have occurred any
--------------------------
Material Adverse Effect on the Acquired Assets since the date of this Agreement
(other than any labor trouble, claim of wrongful discharge or other unlawful
labor practice or action involving any Retained Employees or any resignation by
or termination of any Retained Employees).
(h) Absence of Disasters. The Acquired Assets shall not have
--------------------
been, and to the Sellers' Knowledge shall not be threatened to be, materially
adversely affected in any way as a result of fire, explosion, disaster,
accident, labor dispute, any action by the United States or any other government
or Governmental Entity, domestic or foreign, flood, act of war, civil
disturbance or act of nature.
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(i) Certificate of Sub and ICS. Buyer shall have been provided
--------------------------
with a certificate executed on behalf of Sub by the President of Sub and on
behalf of ICS signed by a Vice President of ICS, to the effect that, as of the
Closing:
(i) all representations and warranties made by the Sellers in
this Agreement are true and correct;
(ii) all covenants and obligations of this Agreement to be
performed by the Sellers on or before such date have been so performed in all
material respects; and
(iii) the provisions set forth in Sections 7.3 (g) and (h) have
been satisfied.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION
8.1 Survival of Representations and Warranties. All of the
------------------------------------------
representations and warranties contained herein or in any document certificate
or other instrument required to be delivered hereunder shall survive the Closing
Date and continue in full force and effect until 5:00 p.m., P.S.T. on the date
twenty-four (24) months after the Closing Date, except with respect to
Liabilities of the Sellers not assumed by Buyer, and representations and
warranties (i) in Section 3.10 regarding Tax matters, and (ii) in Section 3.12
regarding Seller's Title to the Acquired Assets, which representations and
warranties shall survive until the expiration of the applicable statute of
limitations with respect thereto.
8.2 Indemnity by Sellers. The Sellers hereby agree, severally and
--------------------
jointly, to indemnify, defend and hold harmless Buyer and its employees,
directors, officers and Affiliates against and in respect of all Liabilities,
judgments, Liens, injunctions, charges, orders, decrees, rulings, damages,
deficiencies, assessments, Taxes, losses, fines, penalties, expenses, fees,
costs, amounts paid in settlement (including reasonable attorneys' and expert
witness fees and disbursements in connection with investigating, defending or
settling any action or threatened action), (individually a "Loss" and
----
collectively, the "Losses") that result from (i) the breach or inaccuracy of any
------
representation or warranty made by another Seller contained herein, (ii) any
failure by either Seller to perform or comply with any covenant contained herein
or (iii) any failure of either Seller to pay any Liability of the Sellers not
assumed by Buyer hereunder.
8.3 Indemnity by Buyer. Buyer hereby agrees to indemnify, defend and hold
------------------
harmless Sellers and their respective employees, directors, officers and
Affiliates against and in respect of all Losses that result from (i) the breach
or inaccuracy of any representation or warranty made by Buyer contained herein
or (ii) any failure by Buyer to perform or comply with any covenant contained
herein.
8.4 Officer's Certificate. In the event any party hereto (an "indemnified
---------------------
party") shall have incurred any Losses for which indemnification pursuant to
this Article VIII is sought, the indemnified
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party shall promptly deliver to the party or parties from whom such
indemnification is sought (an "indemnifying party") a certificate signed by any
officer of the indemnified party (an "Officer's Certificate"): (A) stating the
---------------------
grounds for recovery by the indemnified party in sufficient detail to permit the
Sellers to understand the general basis for the claim, (B) stating that the
indemnified party has paid or properly accrued or reasonably anticipates that it
will have to pay or accrue Losses, (C) specifying in reasonable detail the
individual items of Losses included in the amount so stated, the date each such
item was paid or properly accrued, or the basis for such anticipated liability.
8.5 Resolution of Conflicts; Arbitration.
------------------------------------
(a) In case an indemnifying party shall object in writing to any
claim or claims made in any Officer's Certificate within thirty (30) days after
delivery of such Officer's Certificate, the indemnifying party and indemnified
party shall attempt in good faith to agree upon the rights of the respective
parties with respect to each of such claims. If the indemnifying party and
indemnified party should so agree, a memorandum setting forth such agreement
shall be prepared and signed by all such parties.
(b) If no such agreement can be reached after good faith
negotiation, either the indemnifying party or the indemnified party may demand
arbitration of the matter unless the amount of the damage or loss is at issue in
pending litigation with a third party, in which event arbitration shall not be
commenced until such amount is ascertained or both parties agree to arbitration;
and in either such event the matter shall be settled by arbitration as provided
in Section 10.7. Within thirty (30) days of any entry of a decision of the
arbitrator(s) requiring payment by an indemnifying party to an indemnified party
pursuant to this Article VIII and Section 10.7, the indemnifying party shall
make the payment to indemnified party.
8.6 Third-Party Claims. In the event an indemnified party becomes aware
------------------
of a third-party claim which it believes will be covered by the indemnification
and/or defense obligation contained in this Article VIII, it shall notify the
indemnifying party of such claim, and the indemnifying party shall be entitled,
at its expense, to participate in the defense of such action and to assume
control of such defense; provided, however, that:
(a) the indemnified party shall be entitled to participate in the
defense of such claim and to employ counsel at its own expense to assist in the
handling of such claim;
(b) the indemnifying party shall obtain the prior written approval of
the indemnified party before entering into any settlement of such claim or
ceasing to defend against such claim, if, pursuant to or as a result of such
settlement or cessation, injunctive or other equitable relief would be imposed
against the indemnified party;
(c) the indemnifying party shall not consent to the entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by the claimant or
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<PAGE>
plaintiff to each indemnified party of a release from liability in respect of
such claim without the prior written consent of the indemnifying party, which
consent shall not be unreasonably withheld;
(d) the indemnified party shall not admit any liability with respect
thereto or settle, compromise, pay or discharge the same without the prior
written consent of the indemnifying party, which consent shall not be
unreasonably withheld;
(e) the indemnified party shall cooperate with the indemnifying party
in the contest or defense thereof; and
(f) the indemnifying party shall not be entitled to control but shall
be entitled to participate at its own expense in the defense of, and the
indemnified party shall be entitled to have sole control at its own expense
over, the defense or settlement of any claim to the extent the claim seeks an
order, injunction or other equitable relief against the indemnified party which,
if successful, could materially interfere with the business, operations, assets,
condition or prospects of the indemnified party.
After written notice by the indemnifying party to the indemnified
party of its election to assume control of the defense of any such action, the
indemnifying party shall not be liable to such indemnified party hereunder for
any legal fees and expenses subsequently incurred by such indemnified party in
connection with the defense thereof. If the indemnifying party does not assume
control of the defense of such claims as provided in this Section 8.5, the
indemnified party shall have the right to defend such claim in such manner as it
may deem appropriate at the reasonable cost and expense of the indemnifying
party.
8.7 Indemnification Limitations. Notwithstanding anything to the
---------------------------
contrary in this Agreement, (a) there shall be no liability for indemnification
by the Sellers, on the one hand, or by the Buyer, on the other hand, under this
Article VIII unless and to the extent that the aggregate amount of damages
claimed for Losses against Sellers or Buyer, as the case may be, exceeds
$400,000; and (b) the aggregate liability of the Sellers or Buyer, as the case
may be, in respect of indemnifiable Losses shall not exceed the total amount of
the Purchase Price paid to Sellers hereunder. Indemnification pursuant to this
Article VIII shall be the exclusive remedy for any Losses for which
indemnification may be sought under Section 8.2 or 8.3. For purposes of
calculating the amount of Losses incurred by Buyer arising out of any breach or
inaccuracy of any representation or warranty made by either Seller contained
herein, the reference to a "Material Adverse Effect" or materiality (or other
correlative terms) shall be disregarded.
8.8 Computation of Losses. Anything in this Agreement to the contrary
---------------------
notwithstanding, the amount of any Losses otherwise payable to an indemnified
party shall be reduced by the amount of net insurance proceeds received by the
indemnified party (giving effect to deductible or self-insured or co-insurance
payments made and the costs, if any, of obtaining such insurance proceeds by the
indemnified party) as compensation for the damage or Losses caused by the act,
omission, fact or circumstance giving rise to the Losses; provided, however,
that no indemnified party shall be obligated to seek such insurance proceeds.
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ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. Except as provided in Section 9.2, this Agreement may be
-----------
terminated and the Acquisition abandoned at any time prior to the Closing:
(a) by mutual consent of the Sellers and Buyer;
(b) by Buyer or Sellers if (i) the Closing has not occurred by March
31, 1999; (ii) there shall be a final nonappealable order of a federal or state
court in effect preventing consummation of the Acquisition; or (iii) there shall
be any statute, rule, regulation or order enacted, promulgated or issued or
deemed applicable to the Acquisition by any Governmental Entity that would make
consummation of the Acquisition illegal;
(c) by Buyer or Sellers if there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Acquisition by any Governmental Entity, which would: (i)
prohibit Buyer's ownership or operation of any portion of the Acquired Assets or
the Business or (ii) compel Buyer or either Seller to dispose of or hold
separate all or a portion of the Acquired Assets, the Business or other assets
of either Seller or Buyer as a result of the Acquisition;
(d) by Buyer if it is not in material breach of its obligations under
this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of
either Seller and such breach has not been cured within ten (10) calendar days
after written notice to the Sellers, as appropriate; provided, however, that, no
cure period shall be required for a breach which by its nature cannot be cured;
(e) by the Sellers if neither Seller is in material breach of their
respective obligations under this Agreement and there has been a material breach
of any representation, warranty, covenant or agreement contained in this
Agreement on the part of Buyer and such breach has not been cured within ten
(10) calendar days after written notice to Buyer; provided, however, that no
cure period shall be required for a breach which by its nature cannot be cured;
or
(f) by Buyer if an event having a Material Adverse Effect on the
Acquired Assets shall have occurred.
Where action is taken to terminate this Agreement pursuant to this Section
9.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
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<PAGE>
9.2 Effect of Termination. In the event of termination of this Agreement
---------------------
as provided in Section 9.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Buyer or the Sellers, or
their respective officers, directors or shareholders, provided that each party
shall remain liable for any breaches of this Agreement prior to its termination;
provided further that, the provisions of Sections 6.2, 6.3 and 6.4, Article X,
and this Section 9.2 shall remain in full force and effect and survive any
termination of this Agreement.
9.3 Amendment. This Agreement may be amended by the parties hereto at any
---------
time by execution of an instrument in writing signed on behalf of each of the
parties hereto.
9.4 Extension; Waiver. At any time prior to the Closing, Buyer, on the
-----------------
one hand, and the Sellers, on the other hand, may, to the extent legally
allowed, (i) extend the time for the performance of any of the obligations of
the other party hereto, (ii) waive any inaccuracies in the representations and
warranties made to such party contained herein or in any document delivered
pursuant hereto, and (iii) waive compliance with any of the agreements or
conditions for the benefit of such party contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
ARTICLE X
GENERAL PROVISIONS
10.1 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice), provided, however,
that notices sent by mail will not be deemed given until received:
(a) if to Buyer, to:
3Com Corporation
5400 Bayfront Plaza
Santa Clara, California 95052-8145
Attention:
Telephone No.:
Facsimile No:
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<PAGE>
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Attention: Aaron J. Alter, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 496-7556
(b) if to either Seller, to:
Integrated Circuits System, Inc.
2435 Boulevard of the Generals
Norristown, Pennsylvania 19403
Telephone No.: (610) 630-5300
Facsimile No.: (610) 630-3385
Attention: Rudolph Gassner, Chairman
with a copy to:
Pepper Hamilton, LLP
3000 Two Logan Square
Eighteenth and Arch Streets
Philadelphia, Pennsylvania 19103-2799
Telephone No: (215) 981-4000
Facsimile No.: (215) 981-4750
Attention: Robert A. Friedel, Esq.
10.2 Interpretation. The words "include," "includes" and "including" when
--------------
used herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.3 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
10.4 Entire Agreement; Assignment. This Agreement, the Exhibits hereto,
----------------------------
the Schedules, the Confidentiality Agreement, the Related Agreements (upon their
execution and delivery), and the documents and instruments and other agreements
among the parties hereto referenced herein: (a) constitute the entire agreement
among the parties with respect to the subject matter hereof and
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<PAGE>
supersede all prior agreements and understandings both written and oral, among
the parties with respect to the subject matter hereof; (b) are not intended to
confer upon any other Person any rights or remedies hereunder; and (c) shall not
be assigned by operation of law or otherwise, except that Buyer may assign its
respective rights and delegate its respective obligations hereunder to any of
its Affiliates; provided that any such assignment shall not relieve Buyer of its
obligations hereunder.
10.5 Severability. In the event that any provision of this Agreement or
------------
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other Persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
10.6 Other Remedies. Except as otherwise provided herein, any and all
--------------
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
10.7 Governing Law; Arbitration. This Agreement shall be governed by and
--------------------------
construed in accordance with the laws of the State of California, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof. Any claim or dispute arising out of or related to this Agreement,
or the interpretation, making, performance, breach or termination thereof, shall
be finally settled by binding arbitration in Santa Clara County, California
under the rules of the American Arbitration Association then in effect by a
single arbitrator mutually agreeable to Buyer, Seller and ICS. In the event that
within forty-five (45) days after the submission of any dispute to arbitration,
Buyer, Seller and ICS cannot mutually agree on a single arbitrator, Buyer, on
the one hand, and Seller and ICS, on the other hand, shall each select one
arbitrator and the AAA shall select a third arbitrator. The arbitrator(s) shall
have the authority to grant any equitable and legal remedies that would be
available in any judicial proceeding instituted to resolve a dispute. Judgment
on the award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. The arbitrator(s) may award to the prevailing party, if
any, as determined by the arbitrator(s), all of its costs and fees, including
AAA administrative fees, arbitrator fees, attorney's fees, expert fees, witness
fees, travel expenses and out-of-pocket expenses (including such expenses as
copying, telephone, facsimile, postage and courier fees). The parties to the
arbitration may apply to any court of competent jurisdiction for a temporary
restraining order, preliminary injunction or other interim or conservatory
relief, as necessary, without breach of this arbitration provision and without
any abridgement of the powers of the arbitrator(s). The parties agree that, any
provision of applicable law notwithstanding, they will not request and the
arbitrator(s) shall have no authority to award punitive or exemplary damages
against any party.
10.8 Rules of Construction. The parties hereto agree that they have been
---------------------
represented by counsel during the negotiation and execution of this Agreement
and, therefor, waive the application of
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<PAGE>
any law, regulation, holding or rule of construction providing that ambiguities
in an agreement or other document will be construed against the party drafting
such agreement or document.
10.9 No Third Party Beneficiaries. This Agreement shall not confer any
----------------------------
rights or remedies upon any Person other than the parties hereto and their
respective successors and permitted assigns.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have executed this Asset Purchase
Agreement on the date first above written.
3COM CORPORATION
By /s/ E. Benhamou
-------------------------------
Name E. Benhamou
-----------------------------
Title Chairman & CEO
----------------------------
ICS TECHNOLOGIES, INC.
By /s/ Hock E. Tan
-------------------------------
Name Hock E. Tan
----------------------------
Title President
----------------------------
INTEGRATED CIRCUIT SYSTEMS, INC.
By /s/ Rudolf Gassner
-------------------------------
Name Rudolf Gassner
-----------------------------
Title Chairman of the Board
----------------------------
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<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT (the "Agreement") dated January 11, 1999 by and between
INTEGRATED CIRCUIT SYSTEMS, INC., a Pennsylvania corporation (the "Company") and
RUDOLF GASSNER ("Employee").
1. Employment. The Company's Board of Directors (the "Board") has elected
Employee to the position of Chairman of the Board effective January 1, 1999. The
Company hereby employs Employee as Chairman of the Board (the "Position")
effective January 1, 1999, and Employee hereby accepts such employment and
agrees to perform Employee's duties and responsibilities hereunder, in
accordance with the terms and conditions hereinafter set forth; provided,
however, that the Position will be changed to that of the Company's Vice
President -- Corporate Development if: (i) the Board selects another Chairman of
the Board, or (ii) Employee resigns as or otherwise ceases to be a member of the
Board.
1.1 Employment Term. The period of Employee's employment by the Company
pursuant to this Agreement (the "Employment Term") shall commence on January 1,
1999 and shall continue for one-year period thereafter, ending December 31,
1999, provided, however, that the Employment Term shall be automatically
extended for successive one-year periods ending on December 31 of each
successive year unless the Employment Term is terminated by written notice from
the Company to Employee or from Employee to the Company no later than October 1
of the year immediately preceding any one-year extension period (in which event
the Employment Term shall expire on December 31 of the year in which such
termination notice is given). The Employment Term shall also terminate in
accordance with Section 5 hereof.
1.2 Duties and Responsibilities.
(a) During the Employment Term, Employee shall serve in the previously
identified Position and shall perform all duties and accept all responsibilities
incident to such Position or as may be assigned to him by the Company's Board of
Directors. In particular, Employee shall be responsible to lead the Company's
search for a suitable candidate to serve as the Company's Chief Executive
Officer, and Employee shall have responsibility for management of the day-to-day
operations of the Company until a suitable Chief Executive Officer is secured.
(b) Employee represents to the Company that Employee is not subject to
or party to (and except for the present Agreement and any other agreement with
the Company, Employee agrees during the Employment Term not to become subject to
or a party to) any employment agreement, non-competition covenant, non-
disclosure agreement or other agreement, covenant, understanding or restriction
of any nature which would prohibit Employee from executing this Agreement and
performing fully Employee's duties and responsibilities hereunder, or which
would in any manner, directly or indirectly, limit or affect the duties and
responsibilities which may now or in the future be assigned to Employee by the
Company, including without limitation any duties and responsibilities relating
to the business in which the Company (including its subsidiaries) is engaged
during the Employment Term or for which Employee has notice during such
Employment Term that the Company is planning to be engaged within the six (6)
month
-1-
<PAGE>
period following any expiration or termination of this Agreement (the
"Business" of the Company).
1.3 Extent of Service. During the Employment Term, Employee agrees to
use best efforts to carry out the duties and responsibilities under Section 1.2
hereof and to devote full time, attention and energy thereto. Employee further
agrees not to work either on a part time or independent contracting basis, or
serve as a director, officer or in any other capacity, or to otherwise become
engage in any business activity or enterprise (including any material investment
therein) during the Employment Term without the prior disclosure to and consent
of the Company in accordance with its policies. The foregoing shall not,
however, be construed as prohibiting the ownership of not more than 5% of any
class of securities registered pursuant to the Securities Exchange Act of 1934,
as amended, provided that such ownership represents solely a passive investment
and the Employee does not in any way manage, control, perform services for or
otherwise take any role therein which may create a conflict of interest or
otherwise interfere with Employee's ability to discharge Employee's duties and
responsibilities to the Company.
1.4 Base Compensation.
(a) For all the services rendered by Employee hereunder, the Company
shall pay Employee a salary at a monthly rate of Twelve Thousand ($12,000.00)
dollars per month during the Employment Term.
(b) During the Employment Term, Employee shall also be entitled to
participate in such vacation pay, retirement, other fringe benefit plans and
prerequisites, if any, as may be duly authorized from time to time by the
Company, in its sole discretion, the terms and provisions of which plans and
prerequisites shall also be in the sole discretion of the Company, which terms
and provisions shall be controlling with respect to the manner in which any such
benefit or prerequisite is earned, accrued, vested, paid or otherwise available.
1.5 Incentive Compensation. In addition to the compensation set forth
in Section 1.4 hereof, Employee shall be entitled to participate in such
incentive compensation plans, if any, as may be applicable to its management
level employees, and as may be duly established from time to time in respect to
the Employment Term by the Company in its sole discretion, which terms and
provisions shall be controlling with respect to the manner in which any such
incentive compensation is earned, accrued, vested, paid or otherwise made
available to its participants.
2. Expenses. Employee shall be reimbursed for the reasonable business
expenses incurred by Employee in connection with Employee's performance of
services hereunder during the Employment Term upon presentation of an itemized
account and written proof of such expenses in accordance with policies duly
established by the Company. Employee shall also be reimbursed for his legal
expenses and disbursements incurred in connection with the negotiation of this
Agreement. Termination of Employee's Employment Term in accordance with Section
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5 of this Agreement shall not terminate the obligation to reimburse expenses
properly incurred prior to the date of such termination in accordance with the
Company's policies.
3. Confidential Information; Non-solicitation and Non-competition.
Employee acknowledges and agrees that (i) Employee has executed or will execute
the Company's standard agreements regarding confidential information (the
"Confidentiality Agreements"), (ii) during Employee's employment and for a
period of eighteen (18) months after the employment of Employee by Company has
ended (or for such other period as may be specified in Section 5.4 or 5.5),
Employee will not, directly or indirectly, solicit the employment of any person
who was employed by the Company or any of its subsidiaries during Employee's
employment, unless such person was (1) involuntarily discharged by the Company
or such subsidiary or (2) voluntarily terminated his or her relationship with
the Company prior to Employee's termination, and (iii) during Employee's
employment and for a period of twelve (12) months after the employment of
Employee by Company has ended (or for such other period as may be specified in
Section 5.4 or 5.5), Employee will not, without the prior written consent of the
Company, directly or indirectly engage in, participate in, have any interest in,
or permit his name to be used by any corporation or other entity or enterprise
which competes with the Business in the geographical areas where the Company
conducts such Business, whether as an employee, officer, director, agent,
consultant, investor, security holder, creditor, guarantor, partner, joint
venturer or beneficiary under a trust (subparagraphs (ii) and (iii) are
collectively the "Restrictive Covenants").
4. Arbitration and Equitable Relief.
(a) Employee acknowledges that the restrictions contained in the
Confidentiality Agreements and Restrictive Covenants are reasonable and
necessary to protect the legitimate interests of the Company and its affiliates,
that the Company would not have entered into this Agreement in the absence of
such restrictions, and that any violation of any provision of the
Confidentiality Agreements or Restrictive Covenants will result in irreparable
injury to the Company. Employee represents that Employee's experience and
capabilities are such that the restrictions contained in the Confidentiality
Agreements and Restrictive Covenants will not prevent Employee from obtaining
employment or otherwise earning a living at the same general level of economic
benefit as anticipated by this Agreement. Employee further represents and
acknowledges that (i) as a condition of entering into this Agreement, Employee
has reconfirmed, and does hereby reconfirm that all of the provisions of the
Confidentiality Agreements and Restrictive Covenants are and will continue to be
valid and binding upon Employee, and enforceable against Employee to the full
extent set forth therein, (ii) Employee has been advised by the Company to
consult Employee's own legal counsel in respect of this Agreement and the
statements set forth herein and in respect of the Confidentiality Agreements and
Restrictive Covenants, and (iii) that Employee has, prior to execution of this
Agreement and the Confidentiality Agreements, reviewed this Agreement, the
Confidentiality Agreements and the Restrictive Covenants with Employee's
counsel.
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(b) Except as provided in Section 4(c) below, Employee and the Company
agree that any dispute or controversy arising out of or relating to any
interpretation, construction, performance or breach of this Agreement, shall be
exclusively settled by arbitration to be held in the county and state set forth
in the following paragraph, in accordance with the National Rules for the
Resolution of Employment Disputes as then in effect of the American Arbitration
Association. A panel of three arbitrators shall be chosen in accordance with
such rules to conduct the arbitration, unless Employee and the Company agree in
writing to have such disputes settled by a single arbitrator. The arbitrators
may grant injunctions or other relief in such dispute or controversy, but shall
have no authority to set aside or review any decision of the board of directors
or its compensation committee which under the terms of this Agreement or the
controlling Company benefit plan or policy are discretionary with the Company,
unless such decisions are shown by clear and convincing evidence to have been
made in bad faith. The decision of the arbitrators shall be final, conclusive
and binding on the parties to the arbitration. Judgment may be entered on the
arbitrators' decision in any court having jurisdiction. The Company and Employee
shall each pay one-half of the costs and expenses of such arbitration, and each
of the Company and Employee shall separately pay its counsel fees and expenses,
subject, however, to the right of the arbitrators to assess costs and expenses
in circumstances where such arbitrators deem it appropriate to do so. If a party
shall attempt to vacate or appeal from an arbitration award or obtain an order
staying the arbitration, and such party (the "non-prevailing party") is
unsuccessful in obtaining such judicial relief, then the non-prevailing party
will be responsible for all attorney's fees and costs incurred by the other
party in connection therewith.
(c) Employee agrees that the Company shall be entitled (in addition to
seeking relief pursuant to an arbitration pursuant to (b) above) to preliminary
and permanent injunctive relief, without the necessity of proving actual
damages, as well as an equitable accounting of all earnings, profits and other
benefits arising from any violation of the Confidentiality Agreements or
Restrictive Covenants, which rights shall be cumulative and in addition to any
other rights or remedies to which the Company may be entitled as set forth in
the Confidentiality Agreements or otherwise. Employee irrevocably and
unconditionally (i) agrees that any such suit, action or other legal proceeding
commenced by the Company may be brought in the United States District Court for,
or in any court of general jurisdiction in the county of Montgomery,
Commonwealth of Pennsylvania, (ii) consents to the non-exclusive jurisdiction of
any such court in any such suit, action or proceeding, and (iii) waives any
objection which Employee may have to the laying of venue of any such suit,
action or proceeding in any such court. Employee also irrevocably and
unconditionally consents to the service of any process, pleadings, notices or
other papers in a manner permitted by the notice provisions of Section 10
hereof.
(d) In the event that any of the provisions of the Confidentiality
Agreements or Restrictive Covenants should ever be held or adjudicated to exceed
the time, geographic, product or service, or other limitations permitted by
applicable law in any jurisdiction, then such provisions shall be deemed
reformed in such jurisdiction to the maximum time, geographic, product or
service, or other limitations permitted by applicable law.
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(e) Employee agrees that Employee will provide, and that the Company may
similarly provide, a copy of the Confidentiality Agreements and Restrictive
Covenants to any business or enterprise (i) which Employee may directly or
indirectly own, manage, operate, finance, join, control or participate in the
ownership, management, operation, financing, control or control of, or (ii) with
which Employee may be connected with as an officer, director, employee, partner,
principal, agent, representative, consultant or otherwise, or in connection with
which Employee may use or permit Employee's name to be used.
5 Termination. The Employment Term shall terminate prior to its
expiration as set forth in Section 1.1 above, and Employee's employment by the
Company shall be terminated, upon the occurrence of any of the following events
(and in accordance with the following provisions associated with such events):
5.1. Disability. In the event that Employee is unable fully to perform
Employee's duties and responsibilities hereunder to the full extent required by
the board of directors of the Company by reason of illness, injury or incapacity
for more than ninety (90) days, Employee will continue to be compensated as
provided in Section 1.4 (less any payments due Employee under any disability
benefit program, including Social Security, worker's compensation and disability
retirement benefits). After the expiration of such ninety (90) day period, the
Employment Term may be terminated immediately by the Company, and the Company
shall have no further liability or obligation to Employee for compensation
hereunder; provided, however, that Employee will be entitled to receive the
payments prescribed under any disability benefit plan maintained by the Company
and in which Employee participated at the date of such disability; and provided
further that Employee will be entitled to a pro-rata portion to the date of
disability of any earned incentive compensation referred to in Section 1.5 with
respect to the fiscal year during which Employee first became disabled. In the
event of any dispute under this Section 5.1, Employee shall submit to a physical
examination by a licensed physician selected by the Company.
5.2. Death. In the event that Employee dies during the Employment Term, the
Company shall pay to Employee's executors, legal representatives or
administrators an amount equal to the installment of Employee's Monthly Salary
set forth in Section 1.4 hereof for the month in which Employee dies and a pro-
rata portion to the date of death of any earned incentive compensation referred
to in Section 1.5 with respect to the fiscal year during which Employee died,
and thereafter the Company shall have no further liability or obligation
hereunder to Employee's executors, legal representatives, administrators, heirs
or assigns or any other person claiming under or through him; provided, however,
that Employee's estate or designated beneficiaries shall be entitled to receive
the payments prescribed for such recipients under any death benefit plan
maintained by the Company and in which Employee participated at the date of such
death.
5.3. Cause. Nothing in this Agreement shall be construed to prevent
termination of the Employment Term by the Company at any time for "cause." For
purposes of this Agreement, "cause" shall mean (a) dishonesty, wanton or willful
misconduct, commission of a crime involving moral turpitude, substance abuse,
misappropriation of funds, disparagement of the
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Company (or its management or employees), or (b) failure of Employee to perform,
observe and fully comply during the Employment Term with any of the terms or
provisions of this Agreement or the lawful directives of the Company, or at any
time any of the terms or provisions of the Confidentiality Agreements or
Restrictive Covenants, or any other proper cause determined in good faith by the
Company; provided, however, that Employee's conduct shall not constitute "cause"
within the meaning of (b)above unless and until (i) the Company shall have
provided Employee with notice setting forth with specificity (1) the conduct
deemed to constitute such "cause," (2) reasonable action, if any, that would
remedy the objectionable conduct, and (3) a reasonable time within which
Employee may take such remedial action (provided, however, that the Company
shall not be required to provide additional time for remedial action in the
event of repeated instances of the conduct deemed to constitute cause for which
it has already given prior notice and time for remedial action in accordance
with the provisions of this Agreement), and (ii) Employee shall not have taken
and accomplished such specified remedial action within such specified reasonable
time. The Company's liability, if any, for payments to Employee by virtue of any
wrongful termination of Employee's employment pursuant to this Agreement shall
be reduced by and to the extent of any earnings received by or accrued for the
benefit of Employee during any unexpired part of the Employment Term.
5.4. Without Cause. The Company shall have the right to terminate the
Employment Term without cause at any time by giving Employee written notice of
such termination. Under such circumstances, Employee shall be entitled to
receive, for a period (the "Severance Period") equal to the balance of the
unexpired Employment Term (which, in accordance with Section 1.1 hereof, shall
be December 31 of the current year if notice of termination is given on or prior
to October 1, or December 31 of the following year if notice of termination is
given after October 1, continued coverage under any group health plan(s)
maintained by the Company and in which Employee participated immediately prior
such termination, subject to any deductibles, limitations, exclusions, co-
payments and other cost sharing features applicable to active employees of the
Company covered under such plan(s) (or, at the Company's option, an amount in
cash equal, on an after-tax basis, to the "applicable premium" for such
coverages, as described in 29 U.S.C. ss. 1164). The foregoing notwithstanding,
any obligation to provide medical insurance (or payment in lieu thereof) shall
expire when Employee is employed by a new employer that provides health
insurance to its employees on a cost-sharing basis comparable to that provided
by the Company. In addition, if the Company terminates the Employment Term
without Cause, Employee will be entitled to receive an amount in cash equal to
the sum of the salary payments he would have received for the balance of the
unexpired Employment Term (assuming the rate of salary in effect at the time of
his termination), but for such termination. Employee shall only have the right
to receive payment for incentive compensation, if any, referred to in Section
1.5 hereof to which Employee would have been entitled in accordance with and
subject to the provisions of the applicable plans or programs as duly adopted by
the Company. Except as expressly stated in this paragraph, upon the termination
of this Agreement Employee shall not be entitled to any payments or benefits
which may be provided to employees of the Company. Payments and benefits to be
provided hereunder shall in all respects be conditioned upon (1) the prior
receipt by the Company from Employee of a general release of all claims of any
nature whatsoever which Employee had, has or may have against the Company and
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related parties relating to Employee's employment by the Company (other than
Employee's entitlement under any employee benefit plan or program sponsored by
the Company in which Employee participated and under which Employee has accrued
a benefit) or the termination thereof, such release and covenant to be in form
and substance reasonably satisfactory to counsel for the Company, and (2)
continued compliance by Employee with the Confidentiality Agreements and, for
the duration of the Severance Period, the Restrictive Covenants.
5.5 Resignation for Good Reason. Employee shall have the right to
terminate the Employment Term at any time for Good Reason, by giving the Company
ninety (90) days' prior written notice of such termination. For purposes of this
Agreement "Good Reason" shall mean, exclusively, a resignation based upon (a) a
failure of the Company to observe or perform any of the material terms or
provisions of this Agreement (including, for example, any reduction in the
Monthly Salary other than a reduction which is a concurrent reduction on a
comparable basis of the other management level employees), or (b) a material
reduction in Employee's level of responsibility, position (including office and
title, but not including reporting relationships), authority or duties
(including changes resulting from the assignment to Employee of any duties and
responsibilities inconsistent with Employee's Position as in effect on the date
of this Agreement), in each case as determined by Employee acting reasonably and
in good faith. Employee's notice of termination hereunder shall specify the
basis for Employee's determination of "Good Reason"; provided, however, that the
Company's conduct shall not constitute "Good Reason" unless and until (i)
Employee shall have given the Company written notice setting forth with
specificity (1) the conduct deemed to constitute "Good Reason," (2) reasonable
action that would remedy the objectionable conduct, and (3) a reasonable time
within which the Company may take such remedial action, and (ii) the Company
shall not have taken and accomplished such specified remedial action within such
specified reasonable time. Under such circumstances, the Company shall continue
for the Severance Period (as defined in the previous paragraph) continued
coverage under any group health plan(s) maintained by the Company and in which
Employee participated immediately prior such termination, subject to any
deductibles, limitations, exclusions, co-payments and other cost sharing
features applicable to active employees of the Company covered under such
plan(s) (or, at the Company's option, an amount in cash equal, on an after-tax
basis, to the "applicable premium" for such coverages, as described in 29 U.S.C.
ss. 1164). The foregoing notwithstanding, any obligation to provide medical
insurance (or payment in lieu thereof) shall expire when Employee is employed by
a new employer that provides health insurance to its employees on a cost-sharing
basis comparable to that provided by the Company. In addition, if Employee
terminates the Employment Term for Good Reason, Employee will be entitled to
receive an amount in cash equal to the sum of the salary payments he would have
received for the balance of the unexpired Employment Term (assuming the rate of
salary in effect at the time of his termination), but for such termination.
Employee shall only have the right to receive payment for incentive
compensation, if any, referred to in Section 1.5 hereof to which Employee would
have been entitled in accordance with and subject to the provisions of the
applicable plans or programs as duly adopted by the Company. Except as expressly
stated in this paragraph, upon the termination of this Agreement Employee shall
not be entitled to any payments or benefits which may be provided to employees
of the Company. Payments and benefits to be provided hereunder shall in all
respects be
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<PAGE>
conditioned upon (1) the prior receipt by the Company from Employee of a general
release of all claims of any nature whatsoever which Employee had, has or may
have against the Company and related parties relating to Employee's employment
by the Company (other than Employee's entitlement under any employee benefit
plan or program sponsored by the Company in which Employee participated and
under which Employee has accrued a benefit) or the termination thereof, such
release and covenant to be in form and substance reasonably satisfactory to
counsel for the Company, and (2) continued compliance by Employee with the
Confidentiality Agreements and, for the duration of the Severance Period, the
Restrictive Covenants.
5.6. Employment of a New Chief Executive. Notwithstanding any other
provision of this Agreement, the Employment Term will terminate automatically if
the Company hires a new Chief Executive Officer. In that event, Employee will be
entitled to receive any accrued but unpaid Monthly Salary and a pro-rata portion
to the date of termination of employment of any earned incentive compensation
referred to in Section 1.5 with respect to the fiscal year during which Employee
terminates, and thereafter the Company shall have no further liability or
obligation hereunder.
5.7. Change in Control. Notwithstanding any other provision of this
Agreement, the Company may upon written notice terminate the Employment Term at
any time following a Change in Control (as defined below). In that event,
Employee will be entitled to receive any accrued but unpaid Monthly Salary and a
pro-rata portion to the date of termination of employment of any earned
incentive compensation referred to in Section 1.5 with respect to the fiscal
year during which Employee terminates, and thereafter the Company shall have no
further liability or obligation hereunder. For purposes of this Agreement,
"Change in Control" will have the same meaning as defined in the Integrated
Circuit Systems, Inc. 1997 Equity Compensation Plan.
6. Coordination of Benefits; No Set-off. Other severance plans generally,
or policies or agreements, if any, applicable to Employee or to employees of the
Company generally, and any other severance payments required by applicable
statutes or provided under government programs, may provide compensation and
benefits to Employee upon events which would also require the Company pursuant
to this Agreement to provide compensation or continue benefits. In such event,
Employee shall be entitled only to the largest cash compensation provided for
under any of such agreements, plans, policies, statutes or programs, including
this Agreement, and the maximum benefit continuance provided for under any of
such agreements, plans, policies, statutes or programs, including this
Agreement.
7. Certain Reduction of Payments.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event that it shall be determined as set forth herein that any payment or
distribution by, or benefit provided by, the Company to or for the benefit of
Employee, whether paid or payable, made available to or distributed or
distributable pursuant to the terms of this Agreement or otherwise (a
"Payment"), would constitute an "excess parachute payment" within the meaning of
Section 280G of the
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Internal Revenue Code of 1986, as amended (the "Code"), and that it would be
economically advantageous to the Company to reduce the Payment to avoid the
limitation of the Company's deduction for such excess parachute payments under
Section 280G of the Code, the aggregate present value of amounts payable or
distributable to or for the benefit of Employee pursuant to this Agreement (such
payments, benefits or distributions pursuant to this Agreement are hereinafter
referred to as "Agreement Payments") shall be reduced (but not below zero) to
the Reduced Amount. The "Reduced Amount" shall be an amount expressed in present
value which maximizes the aggregate present value of Agreement Payments without
causing any Payment not to be deductible by the Company under Section 280G of
the Code. For purposes of this Section 7, present value shall be determined in
accordance with Section 280G(d)(4) of the Code.
(b) All determinations to be made under this Section 7 shall be made by
the Company's firm of independent public accountants (the "Accounting Firm"),
which firm shall use its best efforts to provide its determinations and any
supporting calculations both to the Company and Employee within fifteen (15)
days of any termination for which payment under Section 5 is required hereunder.
Any such determination by the Accounting Firm shall be final and binding upon
the Company and Employee. Employee shall in Employee's sole discretion determine
which and how much of the Agreement Payments shall be eliminated or reduced
consistent with the requirements of this Section 7. Within ten (10) days after
the Company's determination, the Company shall pay (or cause to be paid) or
distribute (or cause to be distributed) to or for the benefit of Employee such
amounts as are then due to Employee under this Agreement.
(c) As a result of the uncertainty in the application of Section 280G of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Agreement Payments, as the case may be, will have
been made by the Company which should not have been made ("Overpayment") or that
additional Agreement Payments which have not been made by the Company could have
been made ("Underpayment"), in each case, consistent with the calculations
required to be made hereunder. Within two years after the applicable termination
of employment, the Accounting Firm shall review the determination made by it
pursuant to the preceding paragraph. In the event that the Accounting Firm
determines that an Overpayment has been made, any such Overpayment shall be
treated for all purposes as a loan to Employee which Employee shall repay to the
Company together with interest at the applicable Federal rate provided for in
Section 7872(f)(2) of the Code (the "Federal Rate"); provided, however, that no
amount shall be payable by Employee to the Company if and to the extent such
payment would not affect the limitations on the amount which is not deductible
under Section 280G of the Code. In the event that the Accounting Firm determines
that an Underpayment has occurred, any such Underpayment shall be promptly paid
by the Company to or for the benefit of Employee together with interest at the
Federal Rate.
(d) All of the fees and expenses of the Accounting Firm in performing the
determinations referred to in subsections (b) and (c) above shall be borne
solely by the Company. The Company agrees to indemnify and hold harmless the
Accounting Firm of and from any and all claims, damages and expenses of any
nature resulting from or relating to its determinations
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pursuant to subsections (b) and (c) above, except for claims, damages or
expenses resulting from the gross negligence or willful misconduct of the
Accounting Firm.
8. Survival. Notwithstanding expiration or termination of the
Employment Term and except as is expressly set forth herein, Employee's
obligations under the Confidentiality Agreements and Restrictive Covenants shall
survive and remain in full force and effect for the periods therein provided,
and Employee's agreements, covenants and representations under Sections 1.2(b)
and 3 of this Agreement, the provisions for arbitration and equitable relief
under Section 4 of this Agreement, the provisions for certain payments after the
Employment Term in Sections 5, 6 and 7 of this Agreement, and Sections 9, 10,
11, 12, 13 and 14 of this Agreement shall survive and continue to remain in full
force and effect.
9. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED
UNDER THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA WITHOUT GIVING EFFECT TO ANY
CONFLICT OF LAWS PROVISIONS.
10. Notices. All notices and other communications required or permitted
hereunder or necessary or convenient in connection herewith shall be in writing
and shall be deemed to have been given when hand delivered or mailed by
registered or certified mail, as follows (provided that notice of change of
address shall be deemed given only when received):
If to the Company, to:
Integrated Circuit Systems, Inc.
2435 Blvd. of the Generals
P.O. Box 968
Valley Forge, PA 19482-0968
Attention: Chief Financial Officer and Chief Operating Officer
With a copy to the Company's Legal Department.
If to Employee, to:
Mr. Rudolf Gassner
523 Bridgeview Drive
Lemoine, PA 17043
or to such other names or addresses as the Company or Employee, as the case may
be, shall designate by notice to each other person entitled to receive notices
in the manner specified in this Section.
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11. Contents of Agreement; Amendment and Assignment.
(a) This Agreement (including the Restrictive Covenants) and the
Confidentiality Agreements supersede all prior agreements and set forth the
entire understanding among the parties hereto with respect to the subject matter
hereof or thereof and cannot be changed, modified, extended or terminated except
upon written amendment approved by the parties and executed on their behalf by a
duly authorized officer in the case of the Company and Employee in the case of
Employee. Without limitation of the foregoing, Employee acknowledges that the
effect of this provision is that no oral modifications of any nature whatsoever
to this Agreement or the Confidentiality Agreements shall be permitted. In
addition, nothing in this Agreement or in the Confidentiality Agreements shall
be construed as giving Employee any right to be retained in the employ of the
Company beyond the expiration of the Employment Term, and Employee specifically
acknowledges that if Employee's employment by the Company continues beyond the
expiration of the Employment Term, Employee shall be an employee-at-will of the
Company, and thus subject to discharge at any time by the Company with or
without cause and without compensation of any nature hereunder.
(b) Employee acknowledges that from time to time, the Company may
establish, maintain and distribute employee manuals or handbooks or personnel
policy manuals, and officers or other representatives of the Company may make
written or oral statements relating to personnel policies and procedures. Such
manuals, handbooks and statements are intended only for general guidance. No
policies, procedures or statements of any nature by or on behalf of the Company
(whether written or oral, and whether or not contained in any employee manual or
handbook or personnel policy manual), and no acts or practices of any nature,
shall be construed to modify this Agreement or the Confidentiality Agreements or
to create express or implied obligations of any nature to Employee.
(c) All of the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
heirs, executors, administrators, legal representatives, successors and assigns
of the parties hereto, except that the duties and responsibilities of Employee
hereunder are of a personal nature and shall not be assignable or delegable in
whole or in part by Employee.
12. Severability. If any provision of this Agreement or application
thereof to anyone or under any circumstances is held to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provision or application of this Agreement which can be given
effect without the invalid or unenforceable provision or application and shall
not invalidate or render unenforceable such provision or application in any
other jurisdiction.
13. Remedies Cumulative; No Waiver. No remedy conferred upon the
Company by this Agreement is intended to be exclusive of any other remedy, and
each and every such remedy shall be cumulative and shall be in addition to any
other remedy given hereunder or now or
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hereafter existing at law or in equity. No delay or omission by the Company in
exercising any right, remedy or power hereunder, under the Confidentiality
Agreements, or existing at law or in equity shall be construed as a waiver
thereof, and any such right, remedy or power may be exercised by the Company
from time to time and as often as may be deemed expedient or necessary by the
Company in it sole discretion.
14. Miscellaneous. All section headings are for convenience only. This
Agreement may be executed in several counterparts, each of which is an original.
It shall not be necessary in marking proof of this Agreement or any counterpart
hereof to produce or account for any of the other counterparts.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound,
have executed this Agreement as of January 11, 1999.
INTEGRATED CIRCUIT SYSTEMS, INC.
By:/s/ Hock E. Tan
-------------------------------------
Hock E. Tan, Senior Vice President,
Chief Operating Officer
and Chief Financial Officer
EMPLOYEE:
/s/ Rudolf Gassmer
-------------------------------------
RUDOLF GASSNER
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EXHIBIT 10.5
MASTER LEASE
between
BET INVESTMENTS IV
a Pennsylvania limited partnership
("Landlord")
and
INTEGRATED CIRCUIT SYSTEMS, INC.
a Pennsylvania corporation
("Tenant")
__________________
January 29, 1999
______________________
<PAGE>
TABLE OF CONTENTS
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<TABLE>
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Page(s)
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<S> <C>
ARTICLE I: Leased Premises..................................................... 1
ARTICLE II: Term................................................................ 2
ARTICLE III: Rent, Lease Security............................................... 2
ARTICLE IV: Taxes, Assessments, and Utilities................................... 4
ARTICLE V: Alterations and Improvements to Premises............................. 6
ARTICLE VI: Title to Property and Fixtures...................................... 7
ARTICLE VII: Quiet Enjoyment of the Premises.................................... 7
ARTICLE VIII: Use of Premises: Compliance With Laws............................. 8
ARTICLE IX: Inspection.......................................................... 9
ARTICLE X: Maintenance of Premises.............................................. 9
ARTICLE XI: Damage to Premises.................................................. 9
ARTICLE XII: Insurance on Premises.............................................. 10
ARTICLE 13: Liability and Indemnification....................................... 11
ARTICLE XIV: Mechanics' and Other Liens......................................... 12
ARTICLE XV: Signage............................................................. 13
ARTICLE XVI: Brokerage Commission............................................... 13
ARTICLE XVII: Environmental Compliance.......................................... 13
ARTICLE XVIII: Assignment or Subletting of Premises............................. 15
</TABLE>
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<CAPTION>
<S> <C>
ARTICLE XIX: Holding Over....................................................... 15
ARTICLE XX: Surrender of Premises............................................... 16
ARTICLE XXI: Condemnation....................................................... 16
ARTICLE XXII: Waiver of Landlord................................................ 17
ARTICLE XXII: Events of Default by Tenant....................................... 17
ARTICLE XXIV: Landlord's Remedies............................................... 18
ARTICLE XXV: Landlord's Cure of Default by Tenant; Reimbursement of Expenses.... 21
ARTICLE XXVI: Subordination..................................................... 21
ARTICLE XXVII: Estoppel Certificates............................................ 22
ARTICLE XXIII: Succession....................................................... 22
ARTICLE XXIX: Notices........................................................... 23
ARTICLE XXX: No Partnership..................................................... 23
ARTICLE XXXI: No Representations by Landlord.................................... 23
ARTICLE XXXII: Necessary Approvals and Lease Modifications...................... 24
ARTICLE XXXIII: Miscellaneous................................................... 24
EXHIBIT "A-1": Premises......................................................... 27
EXHIBIT "A-2": Land............................................................. 28
</TABLE>
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BASIC LEASE INFORMATION
The Basic Lease Information is set forth below for the convenience of the
Landlord and Tenant and shall not be deemed to be incorporated into or made a
part of the attached Lease for any reason. In the event of any conflict between
the Basic Lease Information set forth below and the Lease, the Lease shall
control.
<TABLE>
<CAPTION>
<S> <C>
Landlord: BET Investments IV, a Pennsylvania limited partnership
Landlord's Address: 2600 Philmont Avenue, Suite 212
Huntingdon Valley, PA 19006
Tenant: Integrated Circuit Systems, Inc., a Pennsylvania corporation
Tenant's Address: 2435 Boulevard of the Generals, Norristown, PA
Building Address: 2435 Boulevard of the Generals, Norristown, PA
Premises: An Office Building/Laboratory Facility
County: Montgomery
Term: Eight Years
Estimated Commencement Date: March 1, 1999
Actual Commencement Date:
Expiration Date: February 28, 2007 Renewal Option:
Annual Base Rent: Year 1: $610,000 per annum; $50,833.33 per month
Year 2: $628,300 per annum; $52,358.33 per month
Year 3: $647,149 per annum; $53,929.08 per month
Year 4: $666,563 per annum; $55,546.92 per month
Year 5: $686,560 per annum; $57,213.33 per month
Year 6: $707,157 per annum; $58,929.75 per month
Year 7: $728,372 per annum; $60,697.67 per month
Year 8: $750,223 per annum; $62,518.58 per month
Security Deposit: $101,666.66
Rentable Area of the Premises: Approximately 6l,000 Square Feet
</TABLE>
<PAGE>
MASTER LEASE
This MASTER LEASE (the "Lease") is made this 29th day of January, 1999
between BET Investments IV, a Pennsylvania limited partnership (the "Landlord")
and INTEGRATED CIRCUIT SYSTEMS, Inc. a Pennsylvania corporation (the "Tenant").
BACKGROUND
A. The Landlord and Tenant are parties to an Agreement of Sale
dated January 15, 1999, for a certain office building containing approximately
sixty one thousand (61,000) rentable square feet of building, as more
particularly described in Exhibit "A-1" attached hereto (the "Building"),
located on certain real property more particularly described on Exhibit "A-2 "
attached hereto (the "Land"). The Land and the Building are collectively
referred to herein as the "Premises".
B. Tenant has proposed to lease back the Premises from the Landlord so
that the Tenant may at its election (but subject to the terms set forth herein)
occupy a portion thereof and, subject to the terms of Article 18, sublease
portions of the Premises to other tenants.
C. Landlord and Tenant have agreed to enter into this Lease which
will set forth the rights and obligations of Landlord and Tenant regarding the
use and occupancy of the Premises as of the date hereof.
AGREEMENT
NOW THEREFORE, in consideration of the rent hereafter to be paid and
the mutual covenants and agreements contained herein, Landlord and Tenant,
intending
to be legally bound, hereby covenant and agree as follows:
ARTICLE I: Leased Premises
Section 1.1. Landlord does hereby lease and demise unto Tenant and
------------
Tenant does hereby rent from Landlord, subject to the terms and conditions of
this Lease, the Premises, together with all rights, privileges, easements,
existing leasehold interests and appurtenances thereto, including, but not
limited to, the right to use at all times the common entrance ways, lobbies and
elevators, and all of the improvements, fixtures, and equipment therein located
and the right to collect rent from existing leases and subleases of the Premises
and otherwise master lease the Premises in accordance with the terms set forth
herein.
Section 1.2. Tenant and Tenant's agents, employees and invitees shall
------------
have the right to use at all times, in common with all others granted such
rights by Landlord or Tenant, pursuant to a sublease executed by Tenant, in a
proper and lawful manner, the common sidewalks, access roads and parking
facilities located upon the Land.
<PAGE>
ARTICLE II: Term
Section 2.1. This Lease shall be for a term of eight (8) years
------------
commencing on the Commencement Date (as defined below) and ending on that date
which is the last day of the ninety sixth (96th) month following the
Commencement Date (the "Termination Date"), unless sooner terminated or extended
in accordance with the terms of this Lease (the "Initial Term"). The Initial
Term shall commence the later of March 1, 1999 or the settlement date of the
Agreement of Sale for the Premises dated January 15, 1999, between the parties
(the "Commencement Date"). In the event the Agreement or Sale is terminated or
breached by either party so as to preclude closing of the Agreement of Sale,
this Lease shall also terminate simultaneously.
Section 2. 2. Upon the expiration of the Initial Term, provided that
-------------
Tenant is not then in default beyond any applicable cure period under this
Lease, Tenant may renew the Initial Term for one (1) renewal term of three (3)
years (the "Renewal Term"). Tenant may exercise its option to renew the Initial
Term by giving Landlord written notice of Tenant's intent to renew not more than
twelve (12) months and not less than nine (9) months prior to the Termination
Date. The Renewal Term shall be on the same terms and conditions set forth
herein, except that Base Rent (as defined below) for the Renewal Term shall be
as set forth in Section 3.2 hereof. The Initial Term and the Renewal Term are
hereinafter collectively referred to as the "Term."
Upon the commencement of the Renewal Term (if any), Landlord shall, at
its expense, provide new paint and carpet for the Premises (of the same or
similar quality to that which presently exists in the Premises). The new carpet
installed by Landlord pursuant to the preceding sentence shall remain the
property of Landlord and shall not be removable by Tenant at the expiration of
the Term.
ARTICLE III: Rent, Lease Security
Section 3.1. During the Initial Term, Tenant shall pay annual base
------------
rent ("Base Rent") as follows:
(a) During the first year of the Initial Term, Tenant shall pay to
Landlord the Base Rent of Year 1: $610,000 per annum; $50,833.33 per month;
(b) During the second year of the Initial Term, Tenant shall pay to
Landlord the Base Rent of $628,300 per annum; $52,358.33 per month.
(c) During the third year of the Initial Term, Tenant shall pay to
Landlord the Base Rent of $647,149 per annum; $53,929.08 per month.
(d) During the fourth year of the Initial Term, Tenant shall pay to
Landlord the Base Rent of $666,563 per annum; $55,546.92 per month.
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(e) During the fifth year of the Initial Term, Tenant shall pay to
Landlord the Base Rent of $686,560 per annum; $57,213.33 per month.
(f) During the sixth year of the Initial Term, Tenant shall pay to
Landlord the Base Rent of $707,157 per annum; $58,929.75 per month.
(g) During the seventh year of the Initial Term, Tenant shall pay to
Landlord the Base Rent of $728,372 per annum; $60,697.67 per month.
(h) During the eighth year of the Initial Term, Tenant shall pay to
Landlord the Base Rent of $750,223 per annum; $62,518.58 per month.
Section 3.2. The Base Rent during the Renewal Term shall be as follows:
------------
(a) During the first year of the Renewal Term, Tenant shall pay to
Landlord the Base Rent of: $772,729.69 per annum; $64,394.14 per month;
(b) During the second year of the Renewal Term, Tenant shall pay to
Landlord the Base Rent of $795,911.58 per annum; $66,325.97 per month.
(c) During the third year of the Renewal Term, Tenant shall pay to
Landlord the Base Rent of $819,788.93 per annum; $68,315.74 per month.
Section 3.3. Each monthly installment of Base Rent shall be due and
------------
payable, without notice or demand, in advance on or before the first day of each
calendar month during the Term. The Base Rent for any portion of a calendar
month at the commencement of the Term shall be prorated and paid on the
Commencement Date. Base Rent for any partial month shall be prorated at the rate
of one thirtieth of the monthly minimum annual rent per day.
Section 3.4. In addition to the Base Rent to be paid by Tenant to
------------
Landlord as provided above, Tenant shall pay to Landlord as additional rent
hereunder all such sums as are due and payable by Tenant to Landlord pursuant to
the terms of this Lease, and the failure of Tenant to pay any sums to Landlord
required hereunder shall be deemed as a failure to pay Base Rent and shall
entitle Landlord to pursue such remedies as are hereafter provided with regard
to the failure to pay Base Rent.
Section 3.5. Tenant shall, upon execution of this Lease, deposit with
------------
Landlord as security for the performance of all the terms, covenants, and
conditions of this Lease, the sum of One Hundred One Thousand Six Hundred Sixty
Six and 66/100 Dollars ($101,666.66). This deposit is to be retained by Landlord
until the expiration or earlier termination of this Lease and shall be
returnable to Tenant within sixty (60) days after the expiration of the Lease,
without interest, provided that (a) the Premises have been vacated, (b)
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Landlord shall have inspected the Premises after such vacation and found the
Premises to be in a broom-clean and orderly condition, (c) Tenant shall have
complied with all the terms, covenants and conditions of this Lease and (d)
Tenant shall have notified Landlord, in writing, of its forwarding address. If
any of the conditions of the preceding sentence have not been satisfied by
Tenant, the sum deposited hereunder or any part thereof, up to the amount of the
actual loss, may be retained by Landlord at its option, or may be applied by
Landlord against any actual loss, damage or injury chargeable to Tenant
hereunder or otherwise, if Landlord determines that such loss, damage or injury
exceeds said sum deposited. It is understood by the parties that the said
deposit is not to be considered as a prepayment of the Base Rent or a limit on
Tenant's liability under the Lease or liquidated damages.
Section 3.6 (a) Landlord requires as a condition to its execution of
-----------
the Lease, that Tenant provide to Landlord a current financial statement of
Tenant available to the pubic (if applicable) prepared and certified by an
independent certified accountant in accordance with generally accepted
accounting principles, consistently applied, including a balance sheet and
income and expense statement in reasonable detail and stating in comparative
form the figures as at the end of and for the previous fiscal year. Tenant shall
maintain a minimum "Liquidity Ratio" (Cash and Accounts Receivable divided by
Accounts Payable) of 1.2:1 as reported on a quarterly basis. As reported on a
yearly basis, the Tenant shall maintain a ratio or EBIDA to interest charges of
2:1.
(b) From time to time during the Term of the Lease, Tenant shall
furnish financial statements to Landlord in accordance with the following
provisions:
(i) Within sixty (60) days after the fiscal year, Tenant shall
provide to Landlord the current financial statement of Tenant available to the
pubic (if applicable) prepared and certified by an independent certified
accountant in accordance with generally accepted accounting principles,
consistently applied, including a balance sheet and income and expense statement
in reasonable detail and stating in comparative form the figures as at the end
of and for the previous fiscal year.
ARTICLE IV: Taxes, Assessments, and Utilities
Section 4.1. Except as otherwise provided herein, Tenant shall pay
-------------
when due (a) all charges for all utilities (including gas and electricity)
furnished to and consumed in the operation and use of the Premises ("Utility
Charges"); (b) water rents or rates and sewerage charges ("Water Charges"); and
(c) similar charges of all kinds levied, assessed, or imposed or to be levied,
assessed, or imposed on or against the Premises. In the event that any Utility
Charges or Water Charges are billed directly to the Landlord, or collection or
payment of such charges is to be made by Landlord, Tenant shall pay Such Utility
Charges or Water Charges within ten (10) days of written demand of Landlord. The
Tenant shall have the right to request copies of all back-up documentation in
such case supporting the charge.
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<PAGE>
Section 4.2. Tenant shall pay all personal property taxes, and all
------------
business taxes, use and occupancy taxes, licenses and fees now or hereafter
levied or imposed by any governmental authority upon the Premises or the
business operations and activities of Tenant. In the event that any such taxes
are enacted, changed or altered so that any of such taxes are levied against
Landlord, or the mode of payment of such taxes is changed so that Landlord is
responsible for collection or payment of such taxes, Tenant shall pay such taxes
within fifteen (15) days of written demand from Landlord.
Section 4.3. Tenant shall pay as additional rent all taxes,
------------
assessments, levies and other charges which are assessed, levied or charged upon
the Premises (including the Land), less any abatement ("Real Estate Taxes').
Real Estate Taxes shall not include (a) any interest or penalties caused by the
acts or omissions of the Landlord or Landlord's partners, agents or employees;
(b) any capital levy, estate, succession, inheritance, transfer, sales, use or
franchise taxes, or any income, profits, or revenue tax, assessment or charge
imposed upon the rent received as such by the Landlord under this Lease. Tenant
shall promptly reimburse Landlord for payment of such Real Estate Taxes within
fifteen (15) days of written demand, and receipt of payment, from Landlord.
Section 4.4. Landlord shall in no event be liable for any interruption
------------
or failure of utility services or other services on the Premises unless such
interruption or failure is due to the negligence or willful act or omission of
Landlord or Landlord's partners, agents or employees. Tenant shall furnish all
replacement electric light bulbs and tubes.
Section 4.5. Subject to the conditions and provisions hereafter stated,
------------
Tenant may, at the sole cost and expense of Tenant, contest in good faith the
validity of any Real Estate Taxes, Utility Charges, Water Charges or other
similar charges, assessments, or public dues and, subject to the conditions and
provisions hereafter stated, may defer the payment of such of them as may be so
contested until such contest is finally determined; provided however, that in
any and all such proceedings Tenant shall protect and save harmless Landlord
from all attorneys' fees, costs, and damages resulting from any such proceedings
or from the failure of Tenant to make any such payments, and Tenant shall
immediately, upon the termination of such proceedings, pay all such Real Estate
Taxes, Utility Charges, Water Charges or other similar charges or public dues,
and any and all damages, interest, penalties, costs, and expenses arising
therefrom that may be adjudged to be a charge against the Premises. During the
time that any such Real Estate Taxes, Utility Charges, Water Charges or other
similar charges, assessments or public dues are being so contested in good faith
by Tenant, and provided Landlord is notified in writing thereof and is
thereafter kept fully informed as to the outcome of the various stages of any
such contest, Landlord shall have no right, except as hereafter stated, to pay
the same; provided, however, that if Landlord shall so request, Tenant shall pay
such Real Estate Taxes, Utility Charges, Water Charges or other similar charges,
assessments or public dues prior to the imposition of interest or penalty
thereon. Landlord agrees to cooperate with Tenant to such extent as Tenant shall
reasonably request in any such contested proceeding.
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<PAGE>
Section 4.6. Notwithstanding anything contained or implied in this
------------
Article 4 to the contrary, Tenant shall not permit the Premises, or any part
thereof, to be sold, offered for sale, or advertised for sale because of
nonpayment of any such Real Estate Taxes, Utility Charges, Water Charges or
other similar charges, assessments or public dues, even though the foregoing may
then be in course of being contested as aforesaid. In the event of any such
offering for sale or advertisement of sale of the Premises, by reason of any
such nonpayment thereof, Tenant shall forthwith pay said Real Estate Taxes,
Utility Charges, Water Charges or other similar charges, assessments or public
dues, together with interest, penalties, and costs, and such other acts as are
reasonably necessary to have the offering for sale or advertisement of sale
withdrawn and terminated. In the event Tenant fails to comply with Tenant's
obligations as set forth herein, then Landlord may upon written notice to Tenant
pay said Real Estate Taxes, Utility Charges, Water Charges or other similar
charges, assessments or public dues, together with interest, penalties, and
costs, and do whatever else may be necessary to have the offering for sale or
advertisement of sale withdrawn and terminated, all without any duty or
obligation on the part of Landlord to inquire into the validity or legality
hereof, and Tenant shall immediately reimburse Landlord forthwith upon demand
for the amount so paid by Landlord and for all other costs, reasonable attorney
fees, expenses, and damages incurred by Landlord in connection therewith, all of
which shall be additional rent due by Tenant to Landlord.
Section 4.7. Nothing contained in this Lease shall require Tenant to
------------
pay any franchise tax or any income, profit, estate, inheritance, succession, or
capital levy assessed against or payable by Landlord, which taxes shall be the
responsibility of Landlord.
ARTICLE V: Alterations and Improvements to Premises
Section 5.1. Tenant shall accept the Premises in their current "as
-------------
is", "where is", with all faults condition, Landlord having no obligation to
make any improvements to the Premises of any kind whatsoever, subject to the
provisions of Article X.
Section 5.2. During the Term, Tenant may make interior improvements,
------------
alterations or additions to the Premises (hereinafter collectively referred to
as the "Leasehold Improvements") without the consent of the Landlord (including,
but not limited to, the installation of furniture, fixtures and equipment),
provided that exterior or structural improvements, alterations and additions
shall be made only with the prior written consent of Landlord, which consent
shall not be unreasonably withheld, conditioned or delayed. For purposes hereof,
"structural improvements" shall include replacements, alterations or additions
to the Premises materially affecting the roof, exterior walls, bearing walls,
support beams and foundation columns. If Tenant makes any Leasehold
Improvements, Tenant agrees to:
(a) comply with all insurance requirements and all
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<PAGE>
laws, ordinances, rules and regulations of all governmental authorities,
provided that Landlord shall cooperate with Tenant in securing any necessary
permits, the cost for such permits to be borne by Tenant;
(b) discharge by payment, bond or otherwise (determined in Tenant's
sole discretion), any mechanics' lien filed against the Premises (of which
Tenant has written notice) for work, labor, services or materials performed at
or furnished to the Premises on behalf of Tenant; and
(c) furnish Landlord with plans of such improvements, alterations or
additions.
Section 5.3. At Tenant's sole cost and expense, Tenant shall have the
------------
right to introduce into the Premises such other utilities as Tenant might
require and Tenant shall pay the cost of such other utilities directly to the
applicable utility companies.
ARTICLE VI: Title to Property and Fixtures
Section 6.1. All non-real estate fixtures, equipment and apparatus
-------------
of any kind or nature whatsoever installed by Tenant in the Premises shall
remain the property of Tenant and shall be removable from time to time prior to
the expiration of the Term. Any damage done to the Premises by the removal of
such property shall be repaired prior to the Termination Date at Tenant's cost
and expense.
Section 6.2. All personal property in the Premises shall be and remain
------------
at Tenant's sole risk. Landlord shall not be liable for loss or damage to
personal property of Tenant or others arising from theft, fire, explosion,
bursting, overflowing, or leaking of the roof or of water, sewer, or steam
pipes, or from heating or plumbing fixtures or from electric wires or fixtures
or from any other cause whatsoever, unless such damage shall be caused by the
negligence or willful act or omission of Landlord or Landlord's agents or
employees.
ARTICLE VII: Quiet Enjoyment of the Premises
Section 7.1. Landlord represents and warrants that Landlord is the
------------
owner of the Premises and that Landlord has the full right and authority to
lease such Premises. So long as Tenant is not in default of Tenant's obligations
under this Lease for which it has received written notice, Tenant shall enjoy
the peaceful and quiet use and possession of the Premises, and Landlord shall
warrant and defend Tenant in such peaceful and quiet use and possession against
the claims of all persons claiming by, through, or under Landlord.
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<PAGE>
ARTICLE VIII: Use of Premises: Compliance With Laws
Section 8.1. The Premises shall be used only for general office,
------------
laboratory, research and light manufacturing uses and for such related uses
consistent with the provisions hereof and the applicable zoning and use
regulations.
Section 8.2. Tenant shall, at Tenant's sole expense, subject to the
------------
provisions of Article X promptly comply with all governmental laws, ordinances,
and regulations applicable to the use of the Premises and Tenant shall obtain,
at Tenant's own expense, all permits, licenses, and approvals required by any
federal, state or local governmental authority, relating to the Premises.
Tenant shall indemnify and hold Landlord harmless from all penalties, claims, or
demands by any governmental authority resulting from Tenant's failure to comply
with this section.
Section 8.3. Tenant shall not permit any objectionable or unpleasant
------------
odors, smoke, dust, gas, noise, or vibrations to emanate from the Premises, nor
take any action that would constitute a nuisance to occupants of neighboring
property or unreasonably interfere with their use of their premises or property.
Tenant shall not permit the Premises to be used for any purpose or in any manner
(including, without limitation, any method of storage) that would (a) violate
any local fire laws or regulations or (b) render the insurance thereon void, or
(c) increase the premiums payable for insurance, unless Tenant agrees and
actually pays for such increased premiums. Tenant shall be fully liable for any
increase in insurance premiums or voiding of insurance caused by Tenant's acts.
Landlord shall be fully liable for any increase in insurance premiums or voiding
of insurance caused by Landlord's acts. Landlord hereby acknowledges that the
Tenant's intended use of the Premises as an office/lab/light manufacturing space
using non-combustible materials, does not violate subsections (a), (b) or (c) of
this section.
Section 8.4. Tenant shall have the right to contest the legality of laws,
------------
ordinances, rules, regulations, and requirements (including, but not limited to,
the right to seek a zoning variance or change in zoning) affecting the Premises
and to postpone compliance with the same provided such contest shall be prompt
and diligently prosecuted by and at the expense of Tenant, and Tenant shall
protect and save Landlord harmless from any liability and claims for any such
noncompliance or postponement of compliance.
Section 8.5. Without limiting the generality of the foregoing, Tenant
------------
shall, at Tenant's expense, subject to the Provisions of Article X, (i) maintain
the common areas of the Premises and construct all alteration and improvements
in compliance with the Americans with Disabilities Act of 1990 (as amended), the
Federal Occupational Safety and Health Act of 1970 (as amended) and all
regulations or standards as are or may be promulgated thereunder; and (ii)
procure each and every permit, license, certificate, or other authorization now
or hereafter required in connection with the lawful and proper use of the
Premises in connection with its business.
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<PAGE>
ARTICLE IX: Inspection
Section 9.1. Landlord or any agents or employees of Landlord shall have
------------
the right to enter and inspect the Premises at any reasonable time during
business hours for the purpose of ascertaining the condition of the Premises. In
making any entry or inspection provided hereunder, Landlord shall use all
commercially reasonable efforts to protect Tenant's property and personnel from
loss and injury and to avoid interfering with the conduct of Tenant's business.
Except in the case of an emergency, the Landlord shall give the Tenant twenty
four (24) hours notice prior to entering the Premises and Landlord shall be
accompanied by a representative of the Tenant during such inspection. Landlord
shall not reveal any trade secrets disclosed during such inspection.
ARTICLE X: Maintenance of Premises
Section 10.1. Tenant shall keep the entire Premises and Land, including
-------------
all improvements thereon, together with all electrical, plumbing, and other
mechanical installations therein, in good order and repair at Tenant's own
expense. Tenant shall maintain the Premises at Tenant's own expense in a clean,
orderly, and sanitary condition and free of insects, rodents, vermin, and other
pests. Tenant shall not permit undue accumulation of garbage, trash, rubbish,
and refuse, and shall remove the same at Tenant's own expense. Tenant shall keep
the Land in a neat, orderly fashion (including, without limitation, upkeep of
the landscaping, sidewalks and parking areas, if any, on the Land) and shall
remove all snow and ice therefrom. Tenant acknowledges that any and all costs
relating to the maintenance, cleaning, operation and use of the Premises and the
Land shall be at Tenant's own expense.
Section 10.2. Notwithstanding the provisions of section 10.1 above,
-------------
Landlord shall be responsible for maintaining the structure of the Premises.
ARTICLE XI: Damage to Premises
Section 11.1. In the event that any portion of the Premises is
-------------
damaged by fire or other casualty, then, except as provided below, the damage
shall be promptly repaired by and at the expense of Tenant; and the Base Rent
and additional rent, as appropriate, shall abate for any portion of the Premises
which is rendered uninhabitable.
Section 11.2. If such damage occurs during the last twelve (12) months
-------------
of the Term or if Landlord obtains a reasonable professional estimate that the
cost of restoring the building would exceed twenty (20%) of the full insurable
value of the Building immediately prior to suck fire or other casualty, then
either Landlord or Tenant may, by giving notice to the other within sixty (60)
days after such fire or other casualty, terminate this Lease without incurring
any liability to the other. Landlord shall inform Tenant within thirty (30)
days of such fire or other casualty of any decision by a mortgagee that such
mortgagee will not permit insurance proceeds
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to be used to repair all or any portion of the damage. In the event that such
mortgagee will not permit insurance proceeds to be used to repair the damage,
and Landlord does not intend to use its own funds to repair such damage, either
Landlord or Tenant may, by giving notice to the other within thirty (30) days
after Landlord has informed tenant of such mortgagee's position and the
Landlord's position, terminate this Lease without incurring any liability to the
other, except that Tenant shall pay all insurance proceeds in connection with
the Building over to the Landlord or the Landlord's mortgagee as the case may
be. If neither party so terminates this Lease, Tenant shall use reasonable
efforts to repair the Building (and the Premises, if damaged) with reasonable
dispatch, allowing for the adjustment and settlement of insurance claims, the
preparation of plans and specifications, the obtaining of governmental approvals
and certificates, the obtaining of contractors and laborers and any other daily.
Section 11.3. Tenant shall be entitled to a rent abatement only to the
------------
extent that a portion of the Premises is rendered untenantable because of a fire
or Other casualty and only until Landlord notifies tenant that the damages
thereto have Been substantially repaired.
Section 11.4. Landlord and Tenant do each hereby release and discharge
-------------
the other party and any partner, officer, agent, employee or representative of
such party from any liability for loss or damage to property on the Premises
caused by fire or other casualty for which insurance (containing waiver of
subrogation) is required to be carried by either party under the terms of this
Lease.
ARTICLE XII: Insurance on Premises
Section l2.1. Tenant shall maintain, at its expense, with an insurer(s)
-------------
reasonably acceptable to Landlord:
(a) standard Commercial General Liability Insurance. The limits of
liability of such insurance shall be an amount not less than Two Million Dollars
($2,000,000) per occurrence, Personal Injury including death and dismemberment
of not less than Two Million Dollars ($2,000,000) per occurrence, Property
Damage Liability of not less than Two Million Dollars ($2,000,000) combined
single limit for Personal Injury and Property Damage Liability. Such policies
shall name Landlord and any mortgagee as additional insured;
(b) "all risk" property insurance on the Premises insuring one
hundred percent (100%) of the replacement value thereof; and
(c) "all risk" property insurance on Tenant's personal property
including furniture and furnishings or any fixtures or equipment removable by
Tenant under this Lease. This insurance shall include fire and extended coverage
perils.
Section 12.2. At Tenant's option, Tenant may provide the coverages
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required
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under this Article 12 through blanket policies of insurance covering Tenant's
other properties or Tenant may self-insure. Tenant shall deliver a certificate
of insurance evidencing the coverages (or such other evidence as Landlord may
reasonably request) on or prior to the Commencement Date, and at such other
time, within thirty (30) days of Landlord's written request. Each policy shall
provide that Landlord and any mortgage holder shall receive at least ten (10)
days prior written notice of cancellation, material alteration or non-renewal of
the policy.
Section 12.3. The property to be insured by Tenant pursuant to Section
-------------
12.1(b) shall also include all improvements in the Premises, but shall not
include Tenant's furniture and furnishings or any fixtures or equipment
removable by Tenant under the provisions of this Lease. Such policies shall name
Landlord as an additional insured as its interests appear and shall, at the
written request of Landlord, name any mortgage holder as additional loss payee,
as its interests may appear.
ARTICLE 13: Liability and Indemnification
Section 13.1. Tenant shall defend and indemnify Landlord and save
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Landlord harmless from and against any and all losses, claims, liability,
expenses and damages (other than consequential damages) which, either directly
or indirectly, in whole or in part, arise out of or result from (i) the
negligence or willful misconduct of Tenant, or Tenant's agents, contractors or
employees; (ii) any act or occurrence in the Premises, unless caused by the
negligence or willful misconduct of Landlord, its agents, contractors or
employees; (iii) judgments, citations, fines or other penalties rendered or
assessed against Landlord (with the exception of any claims under any worker's
compensation laws) as a result of Tenant's failure to comply with all federal,
state and local laws, safety and health regulations relating to Tenant's
specific use of the Premises, provided that Landlord agrees to give Tenant
prompt notice of any such violation asserted by any government agency; and (iv)
the breach of any provision of this Lease by Tenant, its agents, contractors or
employees.
Section 13.2. Landlord shall defend and indemnify Tenant and save
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Tenant harmless from and against any and all losses, claims, liability, expenses
and damages (other than consequential damages) which, either directly or
indirectly, in whole or in part, arise out of or result from (i) the negligence
or willful misconduct of Landlord, or Landlord's agents, contractors or
employees; (ii) judgments, citations, fines or other penalties rendered or
assessed against Tenant (with the exception of any claims under any worker's
compensation laws) as a result of Landlord's failure to comply with all federal,
state and local laws, safety and health regulations relating to Landlord's
specific use of the building of which the Premises are a part, provided that
Tenant agrees to give Landlord prompt notice of any such violation asserted by
any government agency; and (iii) the breach of any provision of this Lease by
Landlord, its agents, contractors or employees.
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Section 13.3. The liability of Landlord and/or Landlord's Affiliates to
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Tenant or anyone claiming by or through Tenant shall be limited to Landlord's
interest in the Premises. The foregoing shall be absolute and without exception
whatsoever. The term "Landlord's Affiliates" shall mean any entity affiliated
with Landlord through common ownership, Landlord's property manager and their
respective partners, officers, directors, equity members, employees, agents,
contractors and subcontractors. Without limiting the generality of the
foregoing, in no event shall the Landlord or Tenant be liable to the other for
indirect or consequential damages or for loss of business or loss of profits.
Under no circumstances shall any of the partners, directors, officers, employees
or shareholders of Landlord or Tenant, from time to time, have any personal
liability whatsoever hereunder.
Section 13.4. Nothing in this Article 13 is intended to require
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indemnification for any property claim for which insurance is required to be
maintained under the terms of this Lease. The rights and obligations of Landlord
and Tenant under this Article 13 shall survive the expiration or earlier
termination of this Lease.
ARTICLE XIV: Mechanics' and Other Liens
Section 14.1. Tenant covenants and agrees to keep all of the Premises
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and every part there and the building and other improvements thereon free and
clear of and from any and all mechanics', materialmens', and other liens for
work or labor done, services performed , materials, appliances, or power
contributed, used, or furnished to be used in or about the Premises for or in
connection with any operations of Tenant, any alteration, improvement, or
repairs or additions that Tenant may make or permit or cause to be made, or any
work or construction by, for, or permitted by Tenant on or about the Premises,
and at all times reasonably promptly and fully to pay and discharge any and all
claims, upon which any such lien may or could be based, and to save and hold
Landlord and all of the Premises free and harmless of and from any and all such
liens and claims of liens and suits or other proceedings pertaining thereto.
Section 14.2. Landlord covenants and agrees to keep the building of
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which the Premises are a part and other improvements thereon free and clear of
and from any and all mechanics', materialmens', and other liens for work or
labor done, services performed, materials, appliances, or power contributed,
used, or furnished to be used in or about the building for or in connection with
any operations of Landlord, any alteration, improvement, or repairs or additions
that Landlord may make or permit or cause to be made, or any work or
construction by, for, or permitted by Landlord on or about the building, and at
all times promptly and fully to pay and discharge any and all claims, upon which
any such lien may or could be based, and to save and hold Tenant and the
building free and harmless of and from any and all such liens and claims of
liens and suits or other proceedings pertaining thereto.
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ARTICLE XV: Signage
Section 15.1. Tenant shall have the right to make such changes in the
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signage identifying the Premises as Tenant deems necessary in Tenant's
reasonable discretion.
ARTICLE XVI: Brokerage Commission
Section 16.1. Tenant and Landlord each represents and warrants to
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the other that it has not dealt with any broker or agent in the negotiation for
or the obtaining of this Lease. Tenant and Landlord each agrees to indemnify,
defend and hold the other harmless from any and all cost (including, without
limitation, all attorneys' fees and related costs) or liability for compensation
arising from a breach of the above representation.
ARTICLE XVII: Environmental Compliance
Section 17.1. Tenant shall comply with any applicable federal,
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state, county, regional or local statutes, laws, regulations, rules, ordinances,
codes, standards, orders, licenses and permits of any governmental authorities
relating to environmental, health or safety matters (including, without
limitation, Hazardous Materials, as defined in Section 17.2 below)
(collectively, "Environmental Laws"). Tenant shall, at its own expense, promptly
observe and comply with all present and future Environmental Laws relating to
its past ongoing or future activities on the Premises.
Section 17.2. Without limiting the generality of Section 17.1, Tenant
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shall not transport, use, store, maintain, generate, manufacture, handle,
dispose, release or discharge any "Hazardous Materials" (as defined below) upon
or about the Premises, nor permit Tenant's employees, agents, contractors, and
other occupants of the Premises to engage in such activities upon or about the
Property. However, the foregoing provisions shall not prohibit the
transportation to and from, and use, storage, maintenance and handling within,
the Premises of substances customarily used in offices (or such other business
or activity expressly permitted to be undertaken in the Premises under Article
8); provided that such substances shall be used and maintained only in such
quantities as are reasonably necessary for such permitted use of the Premises,
strictly in accordance with applicable law and the manufacturers' instructions
thereto, and any remaining such substances shall be completely, properly and
lawfully removed from the Premises upon expiration or earlier termination of
this Lease.
Tenant shall promptly notify Landlord of (a) any enforcement, cleanup or
other regulatory action taken or threatened by any governmental or regulatory
authority with respect to the presence of any Hazardous Materials on the
Premises or the migration thereof from or to other property, (b) any demands or
claims made or threatened by any party against Tenant or the Premises relating
to any loss or injury resulting from any Hazardous Materials, (c) any release,
discharge or non-routine, improper or unlawful
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disposal or transportation of any Hazardous Materials on or from the Premises,
and (d) any matters where Tenant is required by law to give a notice to any
governmental regulatory authority respecting any Hazardous Materials on the
Premises. Landlord shall have the right (but not the obligation) to join and
participate, as a party, in any legal proceedings or actions affecting the
Premises initiated in connection with any environmental, health or safety law.
At such times as Landlord may reasonably request, Tenant shall provide Landlord
with a written list identifying any Hazardous Materials then used, stored, or
maintained upon the Premises, the use and approximate quantity of each such
material, a copy of any material safety data sheet ("MSDS") issued by the
manufacturer therefor, written information concerning the removal,
transportation and disposal of the same, and such other information as Landlord
may reasonably require or as may be required by law. The term "Hazardous
Materials" as used herein, means any chemical, substance, material or waste or
component thereof which is now or hereafter listed, defined or regulated as a
hazardous toxic chemical, substance, material or waste or component thereof by
any federal, state or local governing or regulatory body having jurisdiction, or
which would trigger any employee or community "right-to-know" requirements
adopted by any such body, for which any such body has adopted any requirements
for the preparation or distribution of an MSDS.
If any Hazardous Materials are released, discharged or disposed of by
Tenant or any other occupant of the Premises, or their employees, agents or
contractors, on or about the Premises in violation of the foregoing provisions,
Tenant shall immediately, properly and in compliance with applicable laws clean
up and remove the Hazardous Materials from the Premises and any other affected
property and clean or replace any affected personal property (whether or not
owned by Landlord), at Tenant's expense. Such clean up and removal work shall be
subject to Landlord's prior written approval (except in emergencies), and shall
include, without limitation, any testing, investigation, and the preparation and
implementation of any remedial action plan required by any governmental body
having jurisdiction or reasonably required by Landlord. If Tenant shall fail to
comply with the provisions of this Article within five (5) days after written
notice by Landlord, or such shorter time as may be required by law or in order
to minimize any hazard to persons or property, Landlord may (but shall not be
obligated to) arrange for such compliance directly or as Tenant's agent through
contractors or other parties selected by Landlord, at Tenant's expense (without
limiting Landlord's other remedies under this Lease or applicable law).
Section 17.3. The parties shall indemnify, defend and hold harmless
-------------
each other and their respective partners, employees and agents, and any
successors interest in the Premises, their directors, officers, employees and
agents from and against any and all loses, claims, damages, penalties and
liability, including all out-of-pocket litigation costs and reasonable
attorneys' fees arising out of the use, generation, storage, release or disposal
of Hazardous Materials by either party.
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Section 17.4. The representations contained in this Article 17 shall
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survive the expiration or earlier termination of this Lease.
ARTICLE XVIII: Assignment or Subletting of Premises
Section 18.1. Subletting. Tenant shall have the right to sublet all or
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any portion of the Premises or grant licenses therein, without the consent of
Landlord, provided (i) Tenant is not in default of the Lease beyond any
applicable cure period; (ii) Tenant provides Landlord with prior written notice
of the sublease or license, at least thirty (30) days prior to the commencement
date of the proposed sublease or license; (iii) Tenant delivers to Landlord an
executed copy of the sublease or license within fifteen days (15) of the
commencement date of the sublease or license; and (iv) Tenant remains liable to
Landlord for the obligations of Tenant under the Lease.
Section 18.2. Assignment. Tenant shall not be permitted to assign this
-------------
Lease, without the prior written consent of Landlord, which consent shall not be
unreasonably withheld or conditioned. For purposes of this Lease, an assignment
shall not include any assignment to a parent, subsidiary or affiliate of Tenant,
or a transfer by merger, acquisition, sale, or transfer of substantially all of
its assets or operation of laws, provided that the surviving entity meets the
requirements set forth in Section 3.6 of the Lease and Tenant is not in default
of the Lease.
Section 18.3. Estoppels and Nondisturbance for Subtenant. Landlord shall,
-------------
at Tenant's reasonable request, within twenty (20) days of such request, (i)
provide Tenant with an estoppel certificate stating whether Landlord knows of
any defaults under this Lease at the time of any proposed subletting or
assignment; and (ii) provide to any subtenant to Tenant an agreement in
recordable form stating that Landlord will not disturb the possession of such
subtenant due to an early termination of this Lease.
ARTICLE XIX: Holding Over
Section 19.1. If Tenant shall hold over after the expiration of the
-------------
Term, the tenancy shall be (i) on a month-to-month basis and shall be subject to
all of the terms, conditions, provisions and obligations of this Lease, except
that, commencing immediately following the expiration of the Term, each monthly
installment of Base Rent shall be one hundred twenty five percent (125%) of the
monthly Base Rent installment that applied to the last month of the Term and
(ii) deemed on Event of Default hereunder. In the event that the Tenant gives
the Landlord six (6) months prior written notice, it shall be permitted to hold
over for six (6) months after the expiration of the Term at a rental rate equal
to one hundred ten percent (110%) of the rent that is in effect prior to the
expiration of the Term.
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ARTICLE XX: Surrender of Premises
Section 20.1. Upon the expiration or earlier termination of this Lease,
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Tenant shall surrender the Premises in substantially as good condition as on the
Commencement Date except for loss or damages resulting from casualty,
condemnation, acts of God, ordinary wear and tear and such improvements,
alterations or additions made to the Premises as Tenant shall elect to
surrender. In the event any damage is done to the Premises in the removal of
Tenant's personal property from the Premises, Tenant shall promptly reimburse
Landlord for the reasonable cost of such repairs as are necessary to restore the
Premises to their original condition. Any furniture, fixtures, and machinery not
so removed upon expiration of this Lease or any extension thereof shall be
deemed to have been abandoned by Tenant and shall become Landlord's property.
ARTICLE XXI: Condemnation
Section 21.1. In the event that the whole or a substantial portion of
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the Premises shall be taken under the power of eminent domain by any public or
quasi-public authority so as to preclude the use of the said Premises by Tenant
in the conduct of Tenant's business (in Tenant's reasonable judgment), then this
Lease shall terminate on the day that Tenant is required to transfer possession
of the Premises.
Section 21.2. In the event that a portion of the Premises shall be
-------------
taken under the power of eminent domain by a public or quasi-public authority,
and such taking does not substantially impair the usefulness of the Premises for
the purposes for which the same are hereby demised, (in Tenant's reasonable
judgment) Landlord shall make such repairs and alterations that may be necessary
in order to restore the Premises to a useful condition to Tenant, provided that
the total cost of such repairs, alterations, and restoration to be performed by
Landlord shall not exceed the amount of compensation awarded to Landlord in
connection with the taking under the power of eminent domain of the portion of
the Premises as hereinbefore provided. The Base Rent shall be reduced in
proportion to the portion of the Premises so taken until and unless subsequently
restored or repaired. The adjustment of rent to be made hereunder shall be made
as of the date Tenant is required to yield possession of a portion of the
Premises as hereinbefore provided.
Section 21.3. All compensation awarded for any such taking of the fee and
-------------
the leasehold shall belong to and be the property of the Landlord; provided,
however, that the Tenant shall be entitled to any portion of the award made to
the Landlord or Tenant for loss of business and for the cost of removal of stock
and fixtures or any equipment installed at the cost and expense of Tenant or the
unamortized cost of any leasehold improvement made prior to the date of this
Lease.
Section 21.4. Notwithstanding anything herein to the contrary, in the
-------------
event the holder of any indebtedness secured by a mortgage or deed of trust
covering the Premises
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requires that the condemnation proceeds be applied to such indebtedness, then
Landlord shall have the right to terminate this Lease by delivering written
notice of termination to Tenant within thirty (30) days after written notice of
such requirement is delivered by any such holder, whereupon all rights and
obligations under this Lease shall terminate.
ARTICLE XXII: Waiver of Landlord
Section 22.1. If any action or proceeding is instituted or if other
-------------
measures are taken by Landlord and a compromise, part payment, or settlement
thereof shall be made, either before or after judgment, the same shall not
constitute or operate as a waiver by Landlord of any right, covenant, or
provision of or under this Lease or of any subsequent breach or breaches thereof
nor of the Lease itself Non-waiver of any default under or breach or violation
of any provision or covenant of this Lease shall constitute or operate as a
waiver of such provisions or covenant or of any subsequent default thereunder or
breach or violation thereof, and no delay, failure, or omission in exercising or
enforcing any right, privilege, or option under this Lease shall constitute a
waiver, abandonment, or relinquishment thereof or prohibit or prevent any
election under or enforcement or exercise of any provision, right, privilege, or
option herein contained or granted. No waiver of any provision hereof by
Landlord shall be deemed to have been made unless and until such waiver shall
have been reduced to writing and signed by Landlord. The receipt by Landlord of
Base Rent with knowledge of any breach or violation of or default under this
Lease shall not constitute or operate as a waiver of such breach, violation, or
default. Payment by Tenant or receipt by Landlord of a lesser amount than the
Base Rent or other sums due the Landlord shall operate only as a payment on
account of Base Rent or other sums. No endorsement or statement on any check or
other remittance or in any communication accompanying or relating to such
payment shall operate as a compromise or accord and satisfaction unless the same
is approved in writing by Landlord, and Landlord may accept such check,
remittance, or payment without prejudice to Landlord's right to recover the
balance of said rent or other sums due by Tenant and pursue any other remedy
allowable by law or under this Lease.
ARTICLE XXII: Events of Default by Tenant
Section 23.1. The following events shall be deemed to be events of
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default (each, an "Event of Default') by Tenant under this Lease:
(a) If Tenant shall fail to pay any installment of the rent, or any
other payment or reimbursement to Landlord required herein, and shall not cure
such failure to make payment within ten (10) days after written notice from
landlord.
(b) If Tenant shall file a voluntary petition in bankruptcy or shall
be adjudicated a bankrupt or insolvent or, in any action or proceeding, if
Tenant shall file any petition or answer seeking any reorganization,
arrangement, composition, readjustment,
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liquidation, dissolution or similar relief under any present or future
applicable federal, state or other statute or law, or if Tenant shall seek or
consent to or acquiesce in the appointment of any trustee, receiver or
liquidator of Tenant or of all or substantially all of its properties;
(c) If, within sixty (60) days after the commencement of any
proceeding against Tenant seeking any reorganization, readjustment, liquidation,
dissolution or similar relief under any present or future federal bankruptcy act
or any other present or future applicable federal, state or other statute or
law, such proceeding shall not have been dismissed, or if, within sixty (60)
days after the appointment, without consent or acquiescence of Tenant, of any
trustee, receiver or liquidator of Tenant or of all or substantially all of its
properties, such appointment shall not have been vacated or stayed on appeal or
otherwise or if, within sixty (60) days after the expiration of any such stay,
such appointment shall not have been vacated;
If Tenant shall fail to comply with any term, provision, or covenant
of this Lease, other than the payment of rent and other charges, and shall not
cure such failure within thirty (30) days after written notice thereof from
Landlord, or if cure cannot be made within thirty (30) days, if Tenant shall
fail to begin curing such failure within the thirty (30) days and shall fail to
pursue diligently the cure of such failure; and
If Tenant fails to provide a financial statement to Landlord as
required by Section 3.6 or if Tenant's Liquidity ratio is less than 1.2:1 as
reported on a quarterly basis or if Tenant fails to maintain a ratio of EBIDA to
interest charges of 2.1 as reported on a yearly basis.
ARTICLE XXIV: Landlord's Remedies
Section 24.1. If an Event of Default shall have occurred and shall be
-------------
continuing, then or at any time thereafter:
(a) The present worth of the Base Rent for the entire unexpired
balance of the term of this Lease, as well as all other charges, payments, costs
and expenses herein agreed to be paid by Tenant, or at the option of Landlord
any part thereof, and also all costs and brokerage commissions (if any) shall,
in addition to any and all installments of Base Rent already due and payable and
in arrears and/or any other charge or payment therein reserved, included or
agreed to be treated or collected as Base Rent and/or any other charge, expense
or cost herein agreed to be paid by Tenant which may be due and payable and in
arrears, be taken to be due and payable and in arrears as if by the terms and
provisions of this Lease the whole balance of unpaid Base Rent and other
charges, payments, impositions, costs and expenses were on that date payable in
advance. "Present worth" shall be computed by discounting the amount of the Base
Rent which would have become due during the remainder of the Term to present
value at a rate equal to one percentage point above the discount rate then in
effect at the Federal Reserve Bank;
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(b) Landlord may give Tenant notice of Landlord's intention to terminate
this Lease, without any right by Tenant to reinstate its rights by payment of
Base Rent due or other performance of the terms and conditions hereof, on a date
specified in such notice, which date shall not be less than fifteen (15) days
after the date of giving of such notice, and upon the giving of such notice, the
Term and the estate hereby granted shall expire on the date so specified in said
notice with the same effect is if the date specified in said notice were the
date hereinbefore fixed for the expiration of the Lease Term.
(c) With or without terminating the Lease, the Landlord may reenter and
repossess the Premises, or any part thereof, and lease them to any other person
or entity upon such terms as Landlord shall deem reasonable, for a term within
or beyond the term of this Lease; provided, that any such reletting prior to
termination shall be for the account of Tenant, and Tenant shall remain liable
for (a) all Base Rent, reasonable out-of-pocket or other sums which would be
payable under this Lease by Tenant in the absence of such expiration,
termination or representation, less (b) the net proceeds, if any, of any
reletting effected for the account of Tenant after deducting from such proceeds
all of Landlord's reasonable out-of-pocket expense in connection with such
reletting (including, without limitation, all repossession costs, brokerage
commissions, legal expenses, attorneys' fees and expenses, reasonable alteration
costs, and expenses of preparation of such reletting).
(d) In addition to, and not in lieu of any of the foregoing rights granted
to Landlord;
(i) When this Lease or Tenant's right of possession shall be terminated
by covenant or condition broken, or for any other reason, either during the
Initial Term of this Lease or any renewal or extension thereof, and also when
and as soon as the term hereby created or any extension thereof shall have
expired, and upon twenty (20) days prior written notice to Tenant by Landlord,
it shall be lawful for any attorney as attorney for Tenant to file an agreement
for entering in any competent Court an action to confess judgment in ejectment
against Tenant and all persons claiming under Tenant, whereupon, if Landlord so
desires, a writ of Execution or of Possession may issue forthwith, without any
prior writ of proceedings, whatsoever, and provided that if for any reason after
such action shall have been commenced the same shall be determined and the
possession of the Premises hereby demised remain in or be restored to Tenant,
Landlord shall have the right upon any subsequent default or defaults, or upon
the termination of this Lease as hereinbefore set forth, to bring one or more
action or actions as hereinbefore set forth to recover possession of the said
Premises.
In any action to confess judgment in ejectment, Landlord shall first
cause to be filed in such action an affidavit made by it or someone acting for
it setting forth the facts necessary to authorize the entry of judgment, of
which facts such affidavit shall be conclusive evidence, and if a true copy of
this Lease (and of the truth of the copy
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such affidavit shall be sufficient evidence) be filed in such action, it shall
not be necessary to file the original as a warrant of attorney, any rule of
Court, custom or practice to the contrary notwithstanding.
________(INITIAL). TENANT WAIVER. TENANT SPECIFICALLY ACKNOWLEDGES THAT
TENANT HAS VOLUNTARILY, KNOWINGLY AND INTELLIGENTLY WAIVED CERTAIN DUE PROCESS
RIGHTS TO A PREJUDGMENT HEARING BY AGREEING TO THE TERMS OF THE FOREGOING
PARAGRAPHS REGARDING CONFESSION OF JUDGMENT. TENANT FURTHER SPECIFICALLY AGREES
THAT IN THE EVENT OF DEFAULT, LANDLORD MAY PURSUE MULTIPLE REMEDIES INCLUDING
OBTAINING POSSESSION PURSUANT TO A JUDGMENT BY CONFESSION. FURTHERMORE, TENANT
SPECIFICALLY WAIVES ANY CLAIM AGAINST LANDLORD AND LANDLORD'S COUNSEL FOR
VIOLATION OF TENANT'S CONSTITUTIONAL RIGHTS IN THE EVENT THAT JUDGMENT IS
CONFESSED PURSUANT TO THIS LEASE.
Section 24.2. If this Lease is assigned or if the Premises, or any part
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thereof, are at the time of default sublet or leased by Tenant to others,
Landlord may, as Tenant's agent, collect rents due from any subtenant or other
tenant and apply such rents to the Rent, and other amounts due hereunder without
in any way affecting Tenant's obligation to Landlord hereunder. Such agency,
being given for security, is hereby declared to be irrevocable.
Section 24.3. No expiration or termination of this Lease Term pursuant to
-------------
subsection 24. 1 (b) above or by operation of law or otherwise (except as
expressly provided herein), and no repossession of the Premises or any part
thereof pursuant to subsection 24. 1 (b) above or otherwise shall relieve Tenant
of its liabilities and obligations hereunder, all of which shall survive such
expiration, termination or repossession, and Landlord may, at its option,
institute an action to collect Base Rent and other charges due hereunder at any
time and from time to time as and when such charges accrue.
Section 24.4. With respect to any portion of the Premises which is vacant
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or which is physically occupied by Tenant, Landlord may remove all persons and
property therefrom, and store such property in a public warehouse or elsewhere
at the cost of and for the account of Tenant (all of which Tenant expressly
waives) and without being deemed guilty of trespass or becoming liable for any
loss or damage which may be occasioned thereby.
Section 24.5. Upon the occurrence of any Event of Default, Landlord shall
-------------
have the option to pursue any and all rights and remedies available hereunder or
at law or in equity. All remedies available to Landlord hereunder and otherwise
available at law or in equity shall be cumulative and concurrent. No
determination of this Lease nor taking or recovering possession of the Premises
shall deprive Landlord of any remedies or actions
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against Tenant for rent, for charges, or for damages for the breach of any term,
covenant or condition herein contained, nor shall the bringing of any such
action for rent, charges or breach of term, covenant or condition, nor the
resort to any other remedy or right for the recovery of rent, charges or damages
for such breach be construed as a waiver or release of the right to insist upon
the forfeiture and to obtain possession.
Section 24.6. Any Base Rent or additional rent (including charges
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collectible as Real Estate Taxes) which is overdue for a period of more than
twenty (20) days and for which Tenant has received written notice and
opportunity to cure, shall bear interest at the rate of ten (10%) per annum
until paid.
Section 24.7. With respect to an exercise of Landlord's rights hereunder,
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Landlord shall use all commercially reasonable efforts to mitigate its damage.
Section 24.8. Notwithstanding anything contained herein to the contrary,
------------
the Landlord Shall give Tenant twenty (20) days prior written notice before
exercising any self-help remedies.
ARTICLE XXV: Landlord's Cure of Default by Tenant; Reimbursement of Expenses
Section 25.1. If Tenant defaults in making any payment or in doing any
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act herein required, then Landlord may, but need not, make such payment or do
such act. If Landlord makes any such payment or incurs any charge or expense on
behalf of Tenant under the terms of this Lease, the amount of the payment or
expense, with interest thereon at ten percent (IO%) per annum, beginning thirty
(3 0) days after a written invoice therefor is sent by Landlord, shall be paid
by Tenant to Landlord, shall constitute additional rent hereunder, and shall be
due and payable immediately when Landlord sends a written invoice therefor;
provided, however, that the making of any such payment or the doing of such act
by Landlord shall not cure such default by Tenant, or estop Landlord from
pursuing any remedy to which Landlord would otherwise be entitled, provided
however, that the payment of such invoice hereunder by Tenant shall cure such
default.
ARTICLE XXVI: Subordination
Section 26.1. Tenant shall subordinate this Lease to any recorded
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existing or future first mortgage or first deed of trust (which terms shall
include both construction and permanent financing) that now or hereafter
encumber the Premises, and to all renewals, extensions, modifications,
consolidations, replacements, recastings, and/or refinancings thereof by
executing and delivering to Landlord a non-disturbance, subordination and
attornment agreement in recordable form and otherwise in form and substance
reasonably satisfactory to Tenant.
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Section 26.2. Tenant agrees that in the event that any proceedings are
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brought for the foreclosure of such mortgage or deed of trust, Tenant shall
attorn to the purchaser at such foreclosure sale, if requested to do so by the
purchaser, and to recognize the purchaser as Landlord under this Lease.
Section 26.3. Notwithstanding the foregoing, Landlord shall cause any
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trustee or mortgagee to execute a non-disturbance, subordination and attornment
agreement granting unto Tenant the right to continue peacefully in possession of
the Premises in the event of foreclosure under any such deed of trust or
mortgage so long as Tenant is not in default under this Lease, for which it has
received written notice. Such agreement shall be contingent upon Tenant's (or
Tenant's successor or assigns) agreement to atom to and recognize any such
trustee, mortgagee, or purchaser in foreclosure, as the successor in interest to
the Landlord in the event of such foreclosure.
ARTICLE XXVII: Estoppel Certificates
Section 27.1. Tenant agrees, upon no less than thirty (30) days written
-------------
notice by Landlord, to execute, acknowledge, and deliver to Landlord, a
statement in writing certifying (i) that this Lease is unmodified and in full
force and effect, or, if there have been modifications, that this Lease is in
full force and effect as modified, and stating any such modifications; (ii)
certifying that Tenant has accepted possession of the Premises, and that any
improvements required by the terms of this Lease to be made by Landlord have
been completed to the satisfaction of Tenant; (iii) that no rent under this
Lease has been paid more than thirty (30) days in advance of its due date; (iv)
the address to which notices to Tenant should be sent; (v) certifying that
Tenant, as of the date of any such certification, has no charge, lien, or claim
of set-off under this Lease, or otherwise, against rents or other charges due or
to become due hereunder; and (vi) stating whether or not, to the best of
Tenant's knowledge, Landlord is in default in the performance of any covenant,
agreement, or condition contained in this Lease, and if so, specifying each such
default of which Tenant may have knowledge. Any such statement delivered
pursuant hereto may be relied upon by any owner of the Premises, any prospective
purchaser of the Premises, any mortgagee or prospective mortgagee of the
Premises or of Landlord's interest, or any prospective assignee of any such
mortgagee.
ARTICLE XXIII: Succession
Section 28.1. This Lease and all of the covenants, agreements,
-------------
conditions, and provisions herein contained shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, successors, and
assigns, as the case may be. The term "Landlord" as used herein shall include
the heirs, successors, and assigns of Landlord and assigns of the reversionary
estate under this Lease. The term "Tenant" as used herein shall include the
permitted successors of Tenant and the permitted assigns of the entire leasehold
estate under this Lease.
-22-
<PAGE>
ARTICLE XXIX: Notices
Section 29.1. Any notices required or permitted by this Lease to be given
--------------
by either party to the other shall be in writing and shall be either personally
delivered or sent by registered or certified mail properly addressed, or by
nationally recognized overnight courier such as Federal Express, to the said
parties, their agents, representatives, successors, or assigns, at the last
known address of such addressee, and the date of so depositing in the U.S. mail,
personal delivery, or delivery by such common carrier shall be deemed the date
of giving such notices. Until further notice in writing to the contrary, all
notices to Landlord and Tenant shall be sent to the following addresses:
If to Landlord: BET Investments IV, Inc.
2600 Philmont Avenue, Suite 212
Huntingdon Valley, PA 19006
Attn: Mr. Bruce E. Toll
With a copy to: Michael P. Markman, Esquire
(at the same address)
If to Tenant: Integrated Circuit Systems, Inc.
2435 Boulevard of the Generals
Norristown, PA
With a copy to: Scott J. Ciocco, Esquire
Pepper Hamilton LLP
Liberty View Building, Suite 500
457 Haddonfield Road
Cherry Hill, NJ 08002
ARTICLE XXX: No Partnership
Section 30.l. Nothing contained in this Lease shall be construed to
-------------
create a partnership or joint venture of or between Landlord and Tenant, or
create any other relationship between those parties other than that of Landlord
and Tenant.
ARTICLE XXXI: No Representations by Landlord
Section 31.1. Neither Landlord nor any agent or employee of Landlord has
-------------
made any representations or promises with respect to the Premises except as
herein expressly set forth, and no rights, privileges, easements, or licenses
are acquired by Tenant except as herein set forth.
-23-
<PAGE>
ARTICLE XXXII: Necessary Approvals and Lease Modifications
Section 32.1. Should any of Landlord's present or future mortgagees
-------------
require modification of this Lease's terms in connection with any financing of
any portion of the Premises or improvements thereto, Tenant agrees, at no cost
to Landlord and without demand for consideration of any kind, except as offered
by Landlord, to execute an amendment to this Lease incorporating such reasonable
mortgagee's modifications provided, however, that Tenant shall not be required
to modify any provision of this Lease increasing the sums payable by Tenant
under this Lease, reducing or extending the Term, reducing or increasing the
area of the Premises or increasing any of Tenant's material obligations under
the Lease, or materially affecting Tenant's use of the Premises or rights
hereunder.
ARTICLE XXXIII: Miscellaneous
Section 33.1. Words of any gender used in this Lease shall be construed
-------------
to include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires.
Section 33.2. Each party agrees to furnish to the other, promptly upon
-------------
demand, both appropriate documentation evidencing the valid creation and
existence of such party and a corporate resolution, proof of due authorization
by partners, or other appropriate documentation evidencing the due authorization
of such party to enter into this Lease.
Section 33.3. The captions inserted in this Lease are for convenience only
-------------
and in no way define, limit, or otherwise describe the scope or intent of any
provision hereof.
Section 33.4. Within ten (10) days following any transfer by Landlord of
-------------
its ownership interest in the Property, Landlord shall provide Tenant with
written notice of such transfer of the Property and the name and address of the
successor Landlord to whom Tenant should send future rent payments and notices
(the "Transfer Notice"). In the event that a predecessor Landlord fails to
provide the Transfer Notice, (a) Tenant shall not be liable to any successor
Landlord for any rent payments paid to a predecessor Landlord; and (b) any
successor Landlord shall be bound by any notice sent to a predecessor Landlord.
Section 33.5. This Lease may be executed in several counterparts, all of
-------------
which constitute one and the same instrument.
Section 33.6. The language of this Lease shall be construed according to
-------------
its normal and usual meaning and not strictly for or against either Landlord or
Tenant. The rule of construction which allows a court to construe a document
more strictly against its author shall not govern the interpretation of this
Lease.
-24-
<PAGE>
Section 33.7. No right or remedy herein conferred upon or reserved to
-------------
either party is intended to be exclusive of any other right or remedy, and every
right and remedy shall be cumulative and in addition to any other right or
remedy given by this Lease or now or hereafter existing at law or in equity. The
failure of either party to insist upon the strict performance of any obligation
shall not be deemed a waiver thereof.
Section 33.8. If any provision of this Lease, or its application to any
-------------
situation, shall be invalid or unenforceable to any extent, the remainder of
this Lease, or the application thereof to situations other than as to which it
is invalid or unenforceable, shall not be affected thereby, and every provision
of this Lease shall be valid and enforceable to the fullest extent permitted by
law.
Section 33.9. This Lease constitutes the entire agreement between the
-------------
parties and may be amended only by written agreement of the parties. No
representations, inducements, promises or agreements, oral or otherwise, between
Landlord and Tenant or any of their respective brokers, employees or agents, not
embodied herein, shall be of any force or effect.
Section 33.10. Landlord and Tenant agree that in fulfilling all terms and
--------------
conditions of this Lease, time is of the essence.
Section 33.11. This Lease shall be governed and construed under the laws
--------------
of the Commonwealth of Pennsylvania. The parties acknowledge that this Lease has
been drafted, negotiated, made, delivered and consummated in the Commonwealth of
Pennsylvania. The parties hereby waive any objection to the venue of any action
filed in any state or federal court of Montgomery or Philadelphia County in the
Commonwealth of Pennsylvania and waive any claim of forum non convenience or for
transfer of any such action to any other court.
[SIGNATURE PAGE FOLLOWS]
-25-
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant, intending to be legally
bound hereby, have signed this Lease as of the day and year first above written.
LANDLORD
BET INVESTMENTS IV, L.P.
By its sole general partner
BET INVESTMENTS IV, INC.
By: /s/ Michael Markman
Name: Michael Markman
Title: Executive Vice President
TENANT
INTEGRATED CIRCUIT SYSTEMS, INC.
By: /s/ Hock E. Tan
Name: Hock E. Tan
Title: Senior Vice President, Chief Financial
Officer and Chief Operating Officer
-26-
<PAGE>
EXHIBIT "A-1": Premises
A one and two story building containing
approximately 61,000 square feet.
-27-
<PAGE>
EXHIBIT "A-2": Land
The property known as 2435 Boulevard of the
Generals, Norristown, PA
known as West Norriton Township, Block 38, Unit 88
-28-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-03-1999
<PERIOD-START> JUN-28-1998
<PERIOD-END> DEC-26-1998
<CASH> 19,278
<SECURITIES> 17,645
<RECEIVABLES> 21,419
<ALLOWANCES> 1,864
<INVENTORY> 6,899
<CURRENT-ASSETS> 69,664
<PP&E> 34,087
<DEPRECIATION> 14,871
<TOTAL-ASSETS> 110,123
<CURRENT-LIABILITIES> 12,051
<BONDS> 1,318
0
0
<COMMON> 56,654
<OTHER-SE> 38,809
<TOTAL-LIABILITY-AND-EQUITY> 110,123
<SALES> 68,015
<TOTAL-REVENUES> 68,015
<CGS> 31,972
<TOTAL-COSTS> 35,593
<OTHER-EXPENSES> 20,683
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64
<INCOME-PRETAX> 13,093
<INCOME-TAX> 4,432
<INCOME-CONTINUING> 8,661
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,661
<EPS-PRIMARY> .71
<EPS-DILUTED> .70
</TABLE>
