<PAGE>
As filed with the Securities and Exchange Commission on May 22, 2000
Registration No. 333-33318
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
PRE-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
INTEGRATED CIRCUIT SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 3674-100 23-2000174
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
2435 Boulevard of the Generals
Norristown, Pennsylvania 19403
Telephone: (610) 630-5300
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
Hock E. Tan
President and Chief Executive Officer
2435 Boulevard of the Generals
Norristown, Pennsylvania 19403
Telephone: (610) 630-5300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
Lance C. Balk, Esq. Mark C. Smith, Esq.
Kirkland & Ellis Skadden, Arps, Slate, Meagher & Flom
153 East 53rd Street LLP
New York, New York 10022-4675 Four Times Square
Telephone: (212) 446-4800 New York, New York 10036-6572
Telephone: (212) 735-3000
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act Registration Statement number of the earlier
effective Registration Statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until this Registration Statement shall become effective
on such date as the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
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- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+Information contained in this prospectus is not complete and may be changed. +
+We may not sell securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities, and it is not soliciting an offer to buy +
+these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 19, 2000
12,500,000 Shares
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ [LOGO OF ICS] +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Integrated Circuit Systems, Inc.
Common Stock
--------
Prior to this offering, there has been no public market for our common stock.
The initial public offering price of our common stock is expected to be between
$15.00 and $17.00 per share. We have applied to list our common stock on The
Nasdaq Stock Market's National Market under the symbol "ICST".
The underwriters have an option to purchase a maximum of 1,875,000 additional
shares from some of our shareholders to cover over-allotments of shares.
Investing in our common stock involves risks. See "Risk Factors" on page 8.
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Integrated Circuit
Public Commissions Systems, Inc.
-------- ------------- ------------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total...................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about ,
2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Credit Suisse First Boston
Robertson Stephens
Lehman Brothers
Bear, Stearns & Co. Inc.
Pennsylvania Merchant Group
The date of this prospectus is , 2000.
<PAGE>
[Description of cover art: photographs of Integrated Circuit Systems Inc.'s
integrated circuits and applications]
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 1
The Offering........................ 4
Risk Factors........................ 8
Use of Proceeds..................... 15
The Reclassification................ 16
Capitalization...................... 17
Dividend Policy..................... 18
Dilution............................ 18
Unaudited Pro Forma Consolidated
Financial Data..................... 19
Selected Historical Consolidated
Financial Data..................... 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 28
Industry Overview................... 38
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business............................ 40
Management.......................... 47
Principal and Selling Shareholders.. 56
Certain Relationships and Related
Transactions....................... 57
Description of Capital Stock........ 59
Description of Indebtedness......... 61
Shares Eligible for Future Sale..... 64
Underwriting........................ 66
Legal Matters....................... 69
Experts............................. 69
Change in Independent Accountants... 69
Where You Can Find More
Information........................ 69
Index to Financial Statements....... F-1
</TABLE>
------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
The industry statistical data presented in this prospectus, except where
otherwise noted, have been compiled from industry sources. Although we have not
independently verified the data, we believe that the information provided by
such industry sources in this prospectus is reliable. In addition, statistical
data relating to us presented in this prospectus have been compiled from our
internal surveys and schedules, which, while believed by us to be reliable,
have not been verified by any independent sources.
Dealer Prospectus Delivery Obligation
Until , 2000 (25 days after commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.
i
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary is not complete and may not contain all of the
information that you should consider before investing in our common stock. You
should read the entire prospectus, including the financial data and related
notes, carefully before making an investment decision. This prospectus contains
forward-looking statements which involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those set forth in "Risk
Factors" and elsewhere in this prospectus. Unless otherwise stated, the
information contained in this prospectus: (1) assumes no exercise of the
underwriters' over-allotment option and (2) reflects the reclassification of
all of our classes of common stock into a single class of common stock and the
1.6942-for-1 stock split of that single class, which will occur immediately
prior to the effectiveness of the registration statement of which this
prospectus forms a part.
Integrated Circuit Systems, Inc.
We are a worldwide leader in the design, development and marketing of
silicon timing devices for a number of high-growth application segments. Our
silicon timing devices are used in a variety of consumer and business
electronics such as personal computers, or PCs, digital cameras, set-top boxes,
PC peripherals and DVD players. Our products are also increasingly being used
in various communications applications including routers, switches, fiber
optics, cable modems and ADSL equipment.
Silicon timing devices are integrated circuits that emit timing signals or
pulses required to sequence and synchronize electronic operations to ensure
that information is interpreted at the right time and speed. All digital
devices require a timing signal and those with any degree of complexity require
silicon timing devices to time and synchronize their various operations.
Growth in our markets is being driven by the rapid pace of infrastructure
development for the Internet, the increasing complexity of our customers' end
products, and the transition from traditional analog devices to digital
technologies. Internet infrastructure expansion is now largely broadband based,
requiring higher operating frequencies and more complex digital equipment. This
advancement has driven the continued proliferation of technologically complex
consumer and business electronic devices that help optimize the Internet
experience. In addition, the transition from traditional analog devices to
digital devices has led to increasing consumer adoption of digital technologies
such as HDTV or DVD players. Our silicon timing devices are well suited to
these developments as they operate in analog and digital environments (i.e.,
mixed-signal) and can manage multiple frequencies, have high programmability
and generally require less power than traditional timing products such as
crystal oscillators, which are predominantly quartz based timing devices that
resonate at a single frequency.
We have developed a reputation for engineering excellence and innovative
technology in silicon timing design. We pioneered the silicon timing market in
1988, introducing silicon timing devices for video and graphics applications.
Since then, we have consistently led the industry with several technical
designs, including delivering the first silicon timing device for the PC
motherboard in 1990. Our ongoing focus on product innovation has led to the
introduction of approximately 424 new products into the marketplace over the
past three fiscal years. We are the leading supplier of silicon timing devices
to several markets, including PCs and digital set-top boxes, and we are
continuing to design and introduce new products for communications equipment
companies such as Motorola, Lucent, Nortel, Cisco Systems, Fujitsu and Alcatel.
Over 40% of our current design opportunities are for communications equipment
companies. A design opportunity reflects a request from a customer or potential
customer for a silicon timing design. In the first six months of fiscal 2000,
we converted over 80% of our design opportunities into design wins, which could
lead to future production orders.
We have developed long-standing and valuable relationships with the majority
of leading original equipment manufacturers, or OEMs, of consumer and business
electronics and communications equipment. We
1
<PAGE>
work closely with these OEMs to develop unique and often proprietary timing,
sequencing and synchronization solutions and are closely integrated into their
product design and development process. Our top OEM customers include such
companies as Asustek, Hughes Networks, Compaq, Dell, IBM, Echostar, Intel,
E-Machines, General Instruments and Hewlett Packard. In the PC market, our
research and development efforts are aligned with Intel's product and
technology road map. Intel made a $13.5 million investment in our company in
December 1999.
For the 1999 calendar year, we had revenues of approximately $150 million,
and over the past three calendar years, we have grown our core revenues at over
25% per year. With continued focus on our core silicon timing devices, our
gross profit has grown from $63.5 million, or a 46.3% gross margin, for the
1997 calendar year to $88.2 million, or a 58.8% gross margin, for the 1999
calendar year.
Industry Overview
As silicon timing devices are critical to the functioning of end-user
consumer and business electronics as well as certain communications equipment,
we expect the market for our products to experience significant growth. In
1999, the total available market for timing devices, which includes both
silicon timing solutions and crystal oscillators, was approximately $2.8
billion. We expect this market to grow 18% per year to over $3.8 billion by
2001. Silicon timing devices represent approximately $378 million, or 14% of
the overall timing market, but we expect it to grow to over $850 million, or
23% of this market, by 2001, a growth rate of approximately 50% per year. The
accelerated growth for silicon timing devices reflects not only the underlying
growth in our end markets, but also the conversion of crystal oscillators to
silicon timing devices in our customers' increasingly complex digital products.
Business Strategy
Our business strategy is to focus on our core silicon timing business and
continue to provide customized and high performance products to our expanding
and diversified customer base. We have a proprietary development process that
allows for the timely customization of our products to a specific application
and our fabless operating model allows us to focus on new product development
and customer relationships. Our specific strategies include:
. Identify and target new market opportunities where there are strong
growth prospects and where we can leverage our core silicon timing
technologies.
. Dominate these new markets by developing multiple application-specific
products to meet the needs of our customers and create a leading market
position.
. Maintain design leadership in core silicon timing technologies through
our extensive design library, patents on core technologies and
significant investments in research and development.
. Expand into new timing markets through select acquisitions of technology
and recruitment of personnel that complement our existing expertise.
Results for the Three Months Ended April 1, 2000
For the three months ended April 1, 2000, our consolidated revenue was $41.6
million, a 19% increase from the corresponding quarter last year. Our core
revenues increased 34% as compared to the same period in the prior year. Sales
growth for our silicon timing products reflected an increase in market share,
particularly in the PC industry, as well as increased shipments to the
communications industry and for digital set-top box applications. Gross margin
during the quarter increased to 61% from 58% during the same quarter a year
ago, reflecting reduced material costs and a favorable product mix for the
quarter. Traditionally, this quarter is our weakest quarter, particularly for
PC-related sales.
2
<PAGE>
The Recapitalization
Through a recapitalization effected in May 1999, Bain Capital, Inc. and its
affiliates, an affiliate of The Bear Stearns Companies Inc., or Bear Stearns,
and our senior management team acquired securities that represented
approximately 98% of our outstanding voting power at such time. We refer to
this transaction in this prospectus as the recapitalization. Our senior
management team, together with many of our other employees, own common stock
and options that together will represent approximately 18% of our common stock
on a fully diluted basis following this offering. Such equity ownership
represents a significant economic commitment to, and participation in, our
continued success.
3
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common stock offered......................... 12,500,000 shares by Integrated Circuit Systems, Inc.
</TABLE>
Common stock to be outstanding after
this offering....................... 63,492,905 shares of common stock
Use of Proceeds.......................
We intend to use the net proceeds of
this offering:
. to repurchase our outstanding senior
subordinated notes and pay
prepayment premiums thereon;
. to repay all indebtedness
outstanding under our senior credit
facility;
. to pay fees and expenses of this
offering; and
. for general corporate purposes.
Proposed Nasdaq Symbol................ ICST
The common stock to be outstanding after this offering is based on shares
outstanding as of May 1, 2000 and excludes 1,875,000 shares of common stock
that may be issued to cover over-allotments of shares, 8,786,672 shares of
common stock issuable upon exercise of outstanding stock options and
approximately 6,800,000 additional shares of common stock expected to be
reserved for future grants, awards or sale under our 2000 Long Term Equity
Incentive Plan or sale under the 2000 Employee Stock Purchase Plan. See
"Management--Management Equity Participation." The number of shares of common
stock to be outstanding after this offering assumes the conversion of our
Series A preferred stock into Class A common stock and Class L common stock
and the reclassification of our Class A common stock, Class B common stock and
Class L common stock. See "The Reclassification."
Risk Factors
Investing in our common stock involves substantial risks. See the "Risk
Factors" section of this prospectus for a description of some of the risks you
should carefully consider before investing in our common stock.
Additional Information
We were incorporated under the laws of the Commonwealth of Pennsylvania on
June 8, 1976. Our principal executive office is located at 2435 Boulevard of
the Generals, Norristown, Pennsylvania, 19403, and our telephone number is
(610) 630-5300. We maintain a website on the Internet at www.icst.com. Our
website and the information it contains shall not be deemed to be part of this
prospectus.
4
<PAGE>
Summary Historical Consolidated Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma (b)
-----------------------
Nine Months Fiscal Year Nine Months
Fiscal Year Ended (a) Ended Ended Ended
----------------------------- ----------- ----------- -----------
June 28, June 27, July 3, April 1, July 3, April 1,
1997 1998 1999 2000 1999 2000
-------- -------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue:
Core................... $ 63,280 $ 90,622 $ 107,710 $106,801 $107,710 $106,801
Non-core............... 41,079 70,012 31,353 13,710 31,353 13,710
-------- -------- --------- -------- -------- --------
Total revenue........... $104,359 $160,634 $ 139,063 $120,511 $139,063 $120,511
======== ======== ========= ======== ======== ========
Gross margin............ 45,222 71,775 74,567 71,573 74,567 71,573
Research and
development............ 13,521 19,797 21,316 18,062 16,808 18,062
Selling, general and
administrative
(including goodwill
amortization).......... 15,654 19,678 19,794 13,905 18,478 13,155
Special charges (c)..... 11,196 -- 15,051 4,004 -- 4,004
-------- -------- --------- -------- -------- --------
Operating income........ 4,851 32,300 18,406 35,602 39,281 36,352
Interest expense (d).... 63 64 2,955 13,855 96 --
Gain on sale of assets.. -- -- (10,734) -- -- --
Interest and other
expense (income), net.. 5,984 (1,984) (2,178) (792) (2,178) (792)
-------- -------- --------- -------- -------- --------
Income (loss) from
continuing operations
before income taxes.... (1,196) 34,220 28,363 22,539 41,363 37,144
Income tax expense...... 6,314 12,845 5,320 2,213 14,814 8,055
-------- -------- --------- -------- -------- --------
Income (loss) from
continuing operations.. (7,510) 21,375 23,043 20,326 $ 26,549 $ 29,089
======== ========
Loss from discontinued
operations (e)......... (909) -- -- --
Gain from extraordinary
item, net of tax....... -- -- -- 170
-------- -------- --------- --------
Net income (loss)....... $ (8,419) $ 21,375 $ 23,043 $ 20,496
======== ======== ========= ========
Net Income Per Common
Share:
Basic.................. $0.48 $0.52
Diluted................ $0.43 $0.44
Weighted Average Common
Shares Outstanding:
Basic.................. 55,454 56,036
Diluted................ 61,647 65,889
Other Financial Data:
EBITDA (excluding non-
recurring charges)
(f).................... $ 19,791 $ 36,879 $ 38,422 $ 42,977 $ 43,699 $ 43,727
Gross margin %.......... 43.3% 44.7% 53.6% 59.4% 53.6% 59.4%
Cash provided by
operating activities... 10,397 22,345 24,450 26,886
Cash provided by (used
in) investing
activities............. (19,274) (13,490) 20,675 1,731
Cash used in financing
activities............. (74) (1,940) (61,180) (6,582)
Capital expenditures.... 3,358 8,139 7,694 3,505
Depreciation and
amortization........... 3,744 4,579 4,965 3,371
Balance Sheet Data:
Cash and cash
equivalents............ $ 18,425 $ 25,340 $ 9,285 $ 31,320
Working capital......... 48,260 65,113 26,910 54,425
Total assets............ 90,622 108,009 87,795 105,291
Total debt.............. 1,709 1,523 170,030 150,620
Stockholders' equity
(deficit).............. 70,147 89,768 (106,912) (72,736)
</TABLE>
See "Notes to Summary Historical Consolidated Financial Data" on the following
page.
Our fiscal year refers to a fiscal year ending on the Saturday closest to
June 30 of such year.
Except as otherwise noted, all references throughout this prospectus to
number of shares, per share and stock option data have been restated, giving
retroactive effect to the stock split and the reclassification.
5
<PAGE>
Notes to Summary Historical Consolidated Financial Data
(a) Our fiscal year is based upon a 52/53 week operating cycle that ends on the
Saturday nearest June 30. All of the fiscal year periods presented
represent a 52-week operating cycle, except for fiscal year 1999 which
represents 53 weeks.
(b) The pro forma statement of operations and net income per share data give
pro forma effect to (1) the stock split and the reclassification of our
three classes of common stock into a single class, (2) the portion of this
offering and the application of the net proceeds therefrom necessary to
repurchase 100% of our outstanding senior subordinated notes and to repay
our senior credit facility, (3) other pro forma adjustments as summarized
in the "Unaudited Pro Forma Consolidated Statement of Operations" shown
elsewhere in this prospectus and (4) the dilutive effect of options under
the treasury stock method using a market price of $16.00 per share as if
each had occurred as of the beginning of the periods presented.
See "Unaudited Pro Forma Consolidated Financial Data."
(c) Special charges consist of the following:
<TABLE>
<CAPTION>
Year Ended Nine Months
------------------------- Ended
June 28, June 27, July 3, April 1,
1997 1998 1999 2000
-------- -------- ------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Compensation costs(1)................... -- -- $15,051 --
Write-off of in-process research and de-
velopment costs(2)..................... 11,196 -- -- --
Litigation settlement(3)................ -- -- -- 4,004
------- --- ------- ------
$11,196 -- $15,051 $4,004
======= === ======= ======
</TABLE>
- --------------------
(1) In connection with the recapitalization, we recorded a one-time
compensation charge of $15.1 million related to the accelerated
vesting, cash-out and conversion of employee stock options.
(2) We recorded a one-time charge of $11.2 million for this non-deductible
(for tax purposes) intangible write-off in connection with our
acquisition of MicroClock, Inc.
(3) In connection with the establishment of our Arizona design center, we
recorded a one-time charge of $4.0 million.
(d) On May 11, 1999, we effected the recapitalization. We issued $100.0 million
in aggregate principal amount of our senior subordinated notes in
connection with the recapitalization and entered into our $95.0 million
senior credit facility. As of April 1, 2000, $93.0 million aggregate
principal amount of our senior subordinated notes was outstanding, and
$57.6 million was outstanding under our senior credit facility.
(e) In fiscal 1995, we acquired a 51% majority interest in ARK Logic, Inc., a
developer of complex graphic accelerator chips. Subsequently, in fiscal
year 1997, we disposed of our majority interest in ARK Logic, Inc. The
disposition of ARK Logic, Inc. was accounted for as a discontinued
operation.
(f) EBITDA represents earnings from continuing operations before interest,
taxes, depreciation, amortization, other income and expense and special
charges. EBITDA is presented because we believe that it is frequently used
by security analysts in the evaluation of companies. However, EBITDA should
not be considered as an alternative to cash flow from operating activities
as a measure of liquidity, as an alternative to net income as an indicator
of our operating performance, or as an alternative to any other measures of
performance in accordance with generally accepted accounting principles.
6
<PAGE>
The following table sets forth a reconciliation of income (loss) from
continuing operations before income taxes to EBITDA (See notes to "Unaudited
Pro Forma Consolidated Statements of Operations" for additional details):
<TABLE>
<CAPTION>
Pro Forma
Year Ended As Adjusted
--------------------------- -----------------------
Nine Months Year Nine
Ended Ended Months Ended
June 28, June 27, July 3, April 1, July 3, April 1,
1997 1998 1999 2000 1999 2000
-------- -------- ------- ----------- ------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Income (loss) from
continuing operations,
before income taxes.... $ (1,196) $34,220 $28,363 $22,539 $41,363 $37,144
Depreciation and
amortization........... 3,744 4,579 4,965 3,371 4,418(1) 3,371
Interest expense........ 63 64 2,955 13,855 96 --
Interest and other
expense (income), net.. 5,984 (1,984) (2,178) (792) (2,178) (792)
Gain on sale of assets.. -- -- (10,734) -- -- --
Special charges......... 11,196 -- 15,051 4,004 -- 4,004
-------- ------- ------- ------- ------- -------
EBITDA.................. $ 19,791 $36,879 $38,422 $42,977 $43,699 $43,727
======== ======= ======= ======= ======= =======
</TABLE>
- --------------------
(1) Excludes savings from depreciation and amortization of $384 from the sale
of our data communications product group and $163 from the sale and lease-
back of our Norristown facility.
7
<PAGE>
RISK FACTORS
You should carefully consider the following factors in addition to the
other information set forth in this prospectus in analyzing an investment in
the common stock offered hereby. The risks and uncertainties described below
are not the only ones facing us. Additional risks and uncertainties that we do
not presently know about or that we currently believe are immaterial may also
inadvertently impact our business operations. If any of the following risks
actually occur, our business, financial condition or results of operations
will likely suffer. In such case, the trading price of our common stock could
fall, and you may lose all or part of the money you paid to buy our common
stock. This prospectus contains forward-looking statements that involve risks
and uncertainties. Actual results could differ materially from those discussed
herein. Factors that could cause or contribute to such differences include,
but are not limited to, those identified below, as well as those discussed
elsewhere in this prospectus.
Fluctuation of Operating Results--Our future operating results are likely to
fluctuate and therefore may fail to meet expectations which could cause our
stock price to decline.
Our operating results have varied widely in the past and are likely to do
so in the future. In addition, our operating results may not follow any past
trends. Our future operating results will depend on many factors and may fail
to meet our expectations for a number of reasons, including those set forth in
these risk factors. Any failure to meet expectations could cause our stock
price to significantly fluctuate or decline.
Factors that could cause our operating results to fluctuate that relate to
our internal operations include:
. the need for continual, rapid new product introductions;
. changes in our product mix; and
. our inability to adjust our fixed costs in the face of any declines in
sales.
Factors that could cause our operating results to fluctuate that depend on
our suppliers and customers include:
. the timing of significant product orders, order cancellations and
reschedulings;
. the availability of production capacity and fluctuations in the
manufacturing yields at third parties' facilities that manufacture our
devices; and
. the cost of raw materials and manufacturing services from our suppliers.
Factors that could cause our operating results to fluctuate that are
industry risks include:
. the cyclical nature of the semiconductor, communications, and consumer
and business electronics industries; and
. intense competitive pricing pressures.
Cyclical Industry--Downturns in the business cycle could reduce the revenues
and profitability of our business.
The semiconductor, communications, and consumer and business electronics
industries are highly cyclical. In 1998, the semiconductor industry
experienced a downturn. Our markets may experience other, possibly more severe
and prolonged, downturns in the future. We may also experience significant
changes in our operating profit margins as a result of variations in sales,
changes in product mix, price competition for orders and costs associated with
the introduction of new products.
The markets for our products depend on continued demand for communications
applications and consumer and business electronics. There can be no assurance
that these end-user markets will not experience changes in demand that will
adversely affect our business.
8
<PAGE>
We Depend on Continuous Introduction of New Products Based on the Latest
Technology--Our inability to create new products could adversely affect our
business.
The markets for our products are characterized by rapidly changing
technology, evolving industry standards and frequent new product introductions.
Product life cycles are continually becoming shorter, which may cause the gross
margins of semiconductor products to decline as the next generation of
competitive products is introduced. Therefore, our future success is highly
dependent upon our ability to continually develop new products using the latest
and most cost-effective technologies, introduce them in commercial quantities
to the marketplace ahead of the competition and have them selected for
inclusion in products of leading systems manufacturers. We cannot assure you
that we will be able to regularly develop and introduce such new products on a
timely basis or that our products, including recently introduced products, will
be selected by systems manufacturers for incorporation into their products. Our
failure to develop such new products, to have our products available in
commercial quantities ahead of competitive products or to have them selected
for inclusion in products of systems manufacturers would have a material
adverse effect on our results of operations and financial condition.
The market for communications applications is characterized by rapidly
changing technology and continuing process development. Our future success in
the communications applications market depends in part on our ability to design
and produce products that meet the changing needs of customers in this market.
We can not assure you that we will be able to regularly develop and introduce
products that will be selected by communications applications manufacturers for
incorporation into their products.
Competition--Our business is very competitive and increased competition could
adversely affect us.
The semiconductor and PC component industries are intensely competitive. Our
ability to compete depends heavily upon elements outside our control, such as
general economic conditions affecting the semiconductor and PC industries and
the introduction of new products and technologies by competitors. Many of our
competitors and potential competitors have significant financial, technical,
manufacturing and marketing resources. These competitors include major
multinational corporations possessing worldwide wafer fabrication and
integrated circuit production facilities and diverse, established product
lines. Competitors also include emerging companies attempting to obtain a share
of the existing market for our current and proposed products. To the extent
that our products achieve market acceptance, competitors typically seek to
offer competitive products or embark on pricing strategies which, if
successful, could have a material adverse effect on our results of operation
and financial condition.
We Depend on the PC Industry--Our business could be adversely affected by
decline in the PC market.
A substantial portion of the sales of our products depends largely on sales
of PCs and peripherals for PCs. The PC industry is subject to price
competition, rapid technological change, evolving standards, short product life
cycles and continuous erosion of average selling prices. Should the PC market
decline or experience slower growth, then a decline in the order rate for our
products could occur. A downturn in the PC market could also affect the
financial health of some of our customers, which could affect our ability to
collect outstanding accounts receivable from such customers.
We Depend on Outside Wafer Foundries and Assemblers--Our inability to obtain
wafers and assemblers could seriously affect our operations.
We currently depend entirely upon third-party suppliers for the manufacture
of the silicon wafers from which our finished integrated circuits are
manufactured and for the packaging of finished integrated circuits from silicon
wafers.
We cannot assure you that we will be able to obtain adequate quantities of
processed silicon wafers within a reasonable period of time or at commercially
reasonable rates. In the past, the semiconductor industry has
9
<PAGE>
experienced disruptions from time to time in the supply of processed silicon
wafers due to quality or yield problems or capacity limitations. Virtually all
of our wafers are manufactured by three outside foundries. If one or more of
these foundries is unable or unwilling to produce adequate supplies of
processed wafers on a timely basis, it could cause significant delays and
expense in locating a new foundry and redesigning circuits to be compatible
with the new manufacturer's processes and, consequently, could have a material
adverse effect on our results of operations and financial condition.
We also rely entirely upon third parties for the assembly of our finished
integrated circuits from processed silicon wafers. We currently rely on four
assemblers, two of which produce most of our finished integrated circuits.
While we believe that there is typically a greater availability of assemblers
than silicon wafer foundries, we could nonetheless incur significant delays and
expense if one or more of the assemblers upon which we currently rely are
unable or unwilling to assemble finished integrated circuits from silicon
wafers.
International Business Activities--Our business could be adversely affected by
changes in political and economic conditions abroad.
For the fiscal years 1997, 1998 and 1999, we generated approximately 60.3%,
58.8% and 68.8% of our revenue, respectively, from international markets. These
sales were generated primarily from customers in the Pacific Rim region and
included sales to foreign corporations, as well as to foreign subsidiaries of
U.S. corporations. We estimate that in fiscal year 1999, approximately one-half
of our sales in international markets were to foreign subsidiaries of U.S.
corporations, with the bulk of them being in Taiwan. In addition, certain of
our international sales are to customers in the Pacific Rim region, who in turn
sell some of their products to North America, Europe and other non-Asian
markets.
In addition, two of our wafer suppliers and all of our assemblers are
located in the Pacific Rim region. There can be no assurance that the effect of
an economic crisis on our suppliers will not impact our wafer supply or
assembly operations, or that the effect on our customers in that region will
not adversely affect both the demand for our products and the collectibility of
our receivables.
Our international business activities in general are subject to a variety of
potential risks resulting from certain political, economic and other
uncertainties including, without limitation, political risks relating to a
substantial number of our customers being in Taiwan. Certain aspects of our
operations are subject to governmental regulations in the countries in which we
do business, including those relating to currency conversion and repatriation,
taxation of our earnings and earnings of our personnel, and our use of local
employees and suppliers. Our operations are also subject to the risk of changes
in laws and policies in the various jurisdictions in which we do business,
which may impose restrictions on us. We cannot determine to what extent our
future operations and earnings may be affected by new laws, new regulations,
changes in or new interpretations of existing laws or regulations or other
consequences of doing business outside the U.S.
Our activities outside the U.S. are subject to additional risks associated
with fluctuating currency values and exchange rates, hard currency shortages
and controls on currency exchange. Additionally, worldwide semiconductor
pricing is influenced by currency fluctuations and the devaluation of foreign
currencies could have a significant impact on the prices of our products if our
competitors offer products at significantly lower prices in an effort to
maximize cash flows to finance short-term, dollar denominated obligations; such
devaluation could also impact the competitive position of our customers in
Taiwan and elsewhere, which could impact our sales. Currently, we do not engage
in currency hedging activities as all transactions are denominated in U.S.
dollars.
Risks Related to Future Acquisitions--We may make acquisitions which could
subject us to a number of operational risks.
In order to grow our business and maintain our competitive position, we may
acquire other businesses in the future. We cannot predict whether or when any
acquisitions will occur. Acquisitions commonly involve
10
<PAGE>
certain risks, and we cannot assure you that we will make any acquisitions or
that any acquired business will be successfully integrated into our operations
or will perform as we expect. Any future acquisitions could involve certain
other risks, including the assumption of additional liabilities, potentially
dilutive issuances of equity securities and diversion of management's attention
from other business concerns. Furthermore, we may issue equity securities or
incur debt to pay for any future acquisitions. If we issue equity securities,
your percentage ownership of our company would be reduced. We may also enter
into joint venture transactions. Joint ventures have the added risk that the
other joint venture partners may have economic, business or legal interests or
objectives that are inconsistent with our interests and objectives. We may also
have to fulfill our joint venture partners' economic or other obligations if
they fail to do so.
We Depend on Patents, Trade Secrets and Proprietary Technology--Our inability
to secure our intellectual property could adversely affect our business.
We hold several patents as well as copyrights, mask works and trademarks
with respect to various products and expect to continue to file applications
for them in the future as a means of protecting our technology and market
position. In addition, we seek to protect our proprietary information and know-
how through the use of trade secrets, confidentiality agreements and other
similar security measures. With respect to patents, there can be no assurance
that any applications for patent protection will be granted, or, if granted,
will offer meaningful protection. Additionally, there can be no assurance that
competitors will not develop, patent or gain access to similar know-how and
technology, or reverse engineer our products, or that any confidentiality
agreements upon which we rely to protect our trade secrets and other
proprietary information will be adequate to protect our proprietary technology.
The occurrence of any such events could have a material adverse effect on our
results of operations and financial condition.
Patents covering a variety of semiconductor designs and processes are held
by various companies. We have from time to time received, and may in the future
receive, communications from third parties claiming that we may be infringing
certain of such parties' patents and other intellectual property rights. Any
infringement claim or other litigation against or by us could have a material
adverse effect on our results of operations and financial condition.
Virtually all of our key engineers worked at other companies or at
universities and research institutions before joining us. Disputes may arise as
to whether technology developed by such engineers was first discovered when
they were employed by or associated with other institutions in a manner that
would give third parties rights to such technology superior to our rights, if
any. Disputes of this nature have occurred in the past, and are expected to
continue to arise in the future, and there can be no assurance that we will
prevail in these disputes. To the extent that consultants, vendors or other
third parties apply technological information independently developed by them
or by others to our proposed products, disputes may also arise as to the
proprietary rights to such information, which may not be resolved in our favor.
We Depend upon Key Management--Our loss of certain key members of management
could negatively impact our business prospects.
We are dependent upon our ability to attract and retain highly-skilled
technical and managerial personnel. We believe that our future success in
developing marketable products and achieving a competitive position will depend
in large part upon whether we can attract and retain skilled personnel.
Competition for such personnel is intense, and there can be no assurance that
we will be successful in attracting and retaining the personnel we require to
successfully develop new and enhanced products and to continue to grow and
operate profitably. Furthermore, retention of scientific and engineering
personnel in our industry typically requires us to present attractive
compensation packages, including stock option grants.
11
<PAGE>
Product Liability Exposure and Potential Unavailability of Insurance--Some of
our products may be subject to product liability claims.
Certain of our custom integrated circuits products are sold into medical
markets for applications which include blood glucose measurement devices and
hearing aids. In certain cases, we have provided or received indemnities with
respect to possible third-party claims arising from these products. Although we
believe that exposure to third-party claims has been minimized, there can be no
assurance that we will not be subject to third-party claims in these or other
applications or that any indemnification or insurance available to us will be
adequate to protect us from liability. A product liability claim, product
recall or other claim, as well as any claims for uninsured liabilities or in
excess of insured liabilities, could have a material adverse effect on our
results of operations and financial condition.
We expect to use a significant portion of the net proceeds of this offering to
repay indebtedness and, as a result, we may be unable to meet our future
capital and liquidity requirements.
We expect to use a significant portion of the net proceeds of this offering
to repay indebtedness. As a result, a limited amount of the net proceeds will
be available to fund future operations. We expect that our principal sources of
funds following this offering will be cash generated from operating activities
and, if necessary, borrowings under our new revolving credit facility. We
believe that these funds will provide us with sufficient liquidity and capital
resources for us to meet our current and future financial obligations, as well
as to provide funds for our working capital, capital expenditures and other
needs for the foreseeable future. No assurance can be given, however, that this
will be the case. We may require additional equity or debt financing to meet
our working capital requirements or to fund our research and development
efforts. There can be no assurance that additional financing will be available
when required or, if available, will be on terms satisfactory to us.
We cannot assure you of the price at which we will be required to repurchase a
portion of our outstanding senior subordinated notes.
We intend to use a significant portion of the net proceeds of this offering
to repurchase all of our outstanding senior subordinated notes. We have
commenced a tender offer to repurchase all of our outstanding senior
subordinated notes at a price equal to 117.50% (estimated as of April 26, 2000)
of the principal amount thereof. The tender offer is subject to conditions,
including the completion of this offering and the valid tender of at least 90%
of the outstanding principal amount of our senior subordinated notes. We cannot
assure you that any or all of the senior subordinated notes will be purchased
pursuant to the tender offer. If we do not complete the tender offer, we expect
to redeem up to $28.0 million of the $93.0 million aggregate principal amount
of our outstanding senior subordinated notes at a price equal to 111.50% of the
principal amount redeemed plus accrued and unpaid interest thereon and purchase
the remaining senior subordinated notes through open market purchases,
privately negotiated transactions, one or more tender offers or exchange offers
or otherwise. We currently do not have a contractual right to redeem the
remaining $65.0 million aggregate outstanding principal amount of the senior
subordinated notes. We cannot assure you of the price at which we will be
required to repurchase our senior subordinated notes if we do not complete the
tender offer.
Investment funds affiliated with Bain Capital will continue to have significant
influence over our business after this offering, and could delay, deter or
prevent a change of control or other business combination.
Upon completion of this offering, investment funds affiliated with Bain
Capital will hold in the aggregate approximately 42.3% of our outstanding
common stock. If the underwriters' over-allotment is exercised in full, these
funds will hold approximately 39.5% of our outstanding common stock. In
addition, one of the directors that will serve on our board following this
offering will be a representative of Bain Capital. By virtue of such stock
ownership, these investment funds will continue to have a significant influence
over all matters submitted to our shareholders, including the election of our
directors, and will continue to exercise significant control over
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<PAGE>
our business, policies and affairs. Such concentration of voting power could
have the effect of delaying, deterring or preventing a change of control of our
company or other business combination that might otherwise be beneficial to
shareholders.
Provisions of our charter documents and Pennsylvania law could discourage
potential acquisition proposals and could delay, deter or prevent a change in
control.
Provisions of our articles of incorporation and by-laws may inhibit changes
in control of our company not approved by our board of directors and would
limit the circumstances in which a premium may be paid for the common stock in
proposed transactions, or a proxy contest for control of the board may be
initiated. These provisions provide for:
. the authority of our board of directors to issue, without shareholder
approval, preferred stock with such terms as our board of directors
determines;
. classified board of directors;
. a prohibition on shareholder action through written consents;
. a requirement that special meetings of shareholders be called only by
our chief executive officer or board of directors; and
. advance notice requirements for shareholder proposals and nominations.
Subchapter F of Chapter 25 of the Pennsylvania Business Corporation Law of
1988 prohibits certain transactions with a 20% shareholder, an "interested
shareholder," for a period of five years after the date any shareholder becomes
an interested shareholder unless the interested shareholder's acquisition of
20% or more of the common stock is approved by our board of directors. This
provision may discourage potential acquisition proposals and limit the
circumstances in which a premium may be paid for our company.
You will experience an immediate and significant dilution in the book value of
your investment.
Because the initial public offering price is substantially higher than the
book value per share of common stock, purchasers of the common stock in this
offering will be subject to immediate and substantial dilution of $14.74 per
share, assuming we price our common stock at the midpoint of the range set
forth on the cover of this prospectus. In addition, the total amount of our
capital will be less than what it would have been had you and all of our
existing shareholders and option holders paid the same amount per share as you
will pay in this offering. See "Dilution."
Future sales by our existing shareholders could adversely affect the market
price of our common stock.
Future sales of the shares of common stock held by existing shareholders
could have a material adverse effect on the market price of our common stock.
Upon completion of this offering, we expect that:
. 12,500,000 shares of common stock, or 14,375,000 shares if the
underwriters' over-allotment option is exercised in full, sold in this
offering will be freely tradeable without restriction under the
Securities Act, except any such shares which may be acquired by an
"affiliate" of our company; and
. 50,992,905 shares of common stock held by our existing shareholders will
be eligible for sale into the public market, subject to compliance with
the resale volume limitations and other restrictions of Rule 144 under
the Securities Act, beginning 180 days after the date of this
prospectus.
Beginning 180 days after the completion of this offering, the holders of an
aggregate of approximately 50,992,905 shares of common stock will have limited
rights to require us to register their shares of common stock under the
Securities Act at our expense.
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<PAGE>
There may not be an active market for our common stock, making it difficult to
sell the stock you purchase.
Prior to this offering, there has been no public market for our common
stock. We cannot assure you that an active trading market for our common stock
will develop or be sustained after the offering. The initial public offering
price for our common stock will be determined by negotiations between the
underwriters and us. We cannot assure you that the initial public offering
price will correspond to the price at which our common stock will trade in the
public market subsequent to the offering or that the price of our common stock
available in the public market will reflect our actual financial performance.
Our stock price could be volatile and could drop unexpectedly following this
offering.
Historically, stock prices and trading volumes for newly public companies
fluctuate widely for a number of reasons, including some reasons that may be
unrelated to their businesses or results of operations. This type of market
volatility could depress the price of our common stock without regard to our
operating performance. In addition, our operating results may be below the
expectations of public market analysts or investors. If this were to occur, the
market price of our common stock could decrease, perhaps significantly.
The forward-looking statements contained in this prospectus are based on our
predictions of future performance. As a result, you should not place undue
reliance on these forward-looking statements.
This prospectus contains forward-looking statements, including, without
limitation, statements concerning the conditions in the semiconductor and
semiconductor capital equipment industries, our operations, economic
performance and financial condition, including in particular statements
relating to our business and growth strategy and product development efforts.
The words "believe," "expect," "anticipate," "intend" and other similar
expressions generally identify forward-looking statements. Potential investors
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of their dates. These forward-looking statements are based
largely on our current expectations and are subject to a number of risks and
uncertainties, including, without limitation, those identified under this "Risk
Factors" section and elsewhere in this prospectus and other risks and
uncertainties indicated from time to time in our filings with the SEC. Actual
results could differ materially from these forward-looking statements. In
addition, important factors to consider in evaluating such forward-looking
statements include changes in external market factors, changes in our business
or growth strategy or an inability to execute our strategy due to changes in
our industry or the economy generally, the emergence of new or growing
competitors and various other competitive factors. In light of these risks and
uncertainties, there can be no assurance that the matters referred to in the
forward-looking statements contained in this prospectus will in fact occur.
We do not undertake to update our forward-looking statements or risk factors
to reflect future events or circumstances.
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<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of 12,500,000 shares of
common stock in this offering will be approximately $179.6 million, assuming
an initial public offering price of $16.00 per share, the midpoint of the
range set forth on the cover of this prospectus. We intend to use a
significant portion of our net proceeds to repurchase our outstanding senior
subordinated notes, to pay the prepayment premiums and accrued and unpaid
interest thereon, to repay in full all outstanding obligations under our
senior credit facility and to pay fees and expenses of this offering. We will
use any remaining net proceeds, if any, for general corporate purposes,
including working capital. Pending such uses, we will invest such proceeds in
short-term, interest-bearing, investment-grade securities.
Our senior subordinated notes due 2009 in the aggregate outstanding
principal amount of $93.0 million bear interest at the rate of 11 1/2% per
annum. We have commenced a tender offer to repurchase the aggregate
outstanding principal amount of our senior subordinated notes at a price equal
to 117.50% (estimated as of April 26, 2000) of the principal amount thereof,
and as of May 15, 2000 all of the senior subordinated notes have been
tendered. The tender offer is subject to conditions, including the completion
of this offering and the valid tender of at least 90% of the outstanding
principal amount of our senior subordinated notes. If we do not complete the
tender offer, we expect to use the net proceeds from this offering to make an
offer to redeem up to $28.0 million of the aggregate outstanding principal
amount of the senior subordinated notes at a price equal to 111.50% of the
principal amount thereof plus accrued and unpaid interest thereon and purchase
the remaining senior subordinated notes through open market purchases,
privately negotiated transactions, one or more tender offers or exchange
offers or otherwise. Approximately 8% of the senior subordinated notes are
held by investment funds advised by Sankaty Advisors, Inc., an affiliate of
Bain Capital.
Our senior credit facility provides for two groups of term loans: term A
loans for $30.0 million and term B loans for $40.0 million. The senior credit
facility also provides for revolving loans for up to $25.0 million, including
letters of credit. As of April 1, 2000, we owed $57.6 million under our senior
credit facility. The different loans under the senior credit facility are due
as follows:
. the revolving loans--May 11, 2004;
. the term A loans--2.0% in 2000, 14.0% in 2001, 20.0% in 2002, 28.0% in
2003 and 36.0% in 2004; and
. the term B loans--1.0% in each of 2000, 2001, 2002, 2003 and 2004, 40.0%
in 2005 and 55.0% in 2006.
As of April 1, 2000, the interest rates for outstanding indebtedness under
our senior credit facility were:
. the term A loans--8.4%; and
. the term B loans--9.1%.
We will use some of the net proceeds of this offering to repay all
outstanding indebtedness under our senior credit facility. We will then
terminate the senior credit facility, and after this offering, we intend to
enter into a new revolving credit facility to meet our working capital and
general corporate needs. Approximately 12% of the indebtedness outstanding
under our senior credit facility is owed to an investment fund advised by
Sankaty Advisors, Inc., an affiliate of Bain Capital. Approximately 15% of the
indebtedness outstanding under our senior credit facility is owed to Credit
Suisse First Boston, an affiliate of Credit Suisse First Boston Corporation,
one of our underwriters. See "Certain Relationship and Related Transactions."
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<PAGE>
THE RECLASSIFICATION
Prior to this offering, we had three classes of common stock, designated as
Class A common stock, Class B common stock and Class L common stock. The Class
A common stock and Class B common stock were identical, except that the Class B
common stock was non-voting and was convertible on a share-for-share basis into
Class A common stock at any time so long as, after giving effect to the
conversion, the converting Class B common shareholders and their affiliates did
not own more than 49.9% of the outstanding shares of Class A common stock. The
Class A common stock was also convertible at any time on a share-for-share
basis into Class B common stock. The Class L common stock was identical to the
Class A common stock and the Class B common stock, except that (1) each share
of Class L common stock was entitled to a preferential payment upon any
distribution by us to holders of Class A common stock and Class B common stock,
whether by dividend, liquidating distribution or otherwise, equal to the
original cost of such share ($18.00) plus an amount which accrued on a daily
basis at a rate of 9.0% per annum, compounded on a calendar quarter, and (2)
the Class L common stock and the Class B common stock were non-voting. This
preferential amount is referred to herein as the "Preference Amount." On May
22, 2000, the estimated effective date of this offering, the Preference Amount
will be $19.72 per share of Class L common stock issued at the time of the
recapitalization.
We also had one class of preferred stock, designated Series A preferred
stock. The Series A preferred stock had a liquidation preference of $4.00 per
share, plus all accrued and unpaid dividends thereon at a rate of 7.5% per
annum, and each share was convertible at any time into 0.9 share of Class A
common stock and 0.1 share of Class L common stock.
Prior to the effectiveness of the registration statement of which this
prospectus is a part our articles of incorporation will be amended to provide
that:
. each share of our Series A preferred stock will be converted into shares
of Class A common stock and Class L common stock, as described above;
. each share of outstanding Class A common stock and Class B common stock
will be reclassified into a single class of common stock on a share-for-
share basis; and
. each share of outstanding Class L common stock will be reclassified into
one share of common stock plus an additional number of shares of common
stock determined by dividing the Preference Amount by the value of a
share of common stock based on the initial public offering price.
The foregoing is referred to in this prospectus as the "reclassification."
None of these newly converted shares will be sold at the time of the offering
unless the underwriters exercise their option to purchase up to 1,875,000
shares of common stock to cover over-allotments.
Assuming an initial public offering price of $16.00 per share, the midpoint
of the range set forth on the cover page of this prospectus, a Preference
Amount of $19.72 per share on Class L common stock, and an effective date of
May 22, 2000 for this offering, an aggregate of 4,636,791 shares of common
stock will be issued in exchange for the outstanding shares of Class L common
stock in connection with the reclassification (prior to the stock-split). The
actual number of shares of common stock that will be issued as a result of the
reclassification is subject to change based on the actual offering price and
the effectiveness of the registration statement of which this prospectus forms
a part. Fractional shares otherwise issuable as a result of the
reclassification will be rounded to the nearest whole number. See "Description
of Capital Stock."
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CAPITALIZATION
The following table sets forth the cash and cash equivalents and the
capitalization of our company as of April 1, 2000, on an actual basis and on an
adjusted basis to reflect: (1) the reclassification and a 1.6942-for-1 stock
split and (2) the sale by us of 12,500,000 shares of common stock pursuant to
this offering and the application of the net proceeds therefrom as described in
Note 1 below, assuming an offering price of $16.00 per share, the midpoint of
the range set forth on the cover of this prospectus. This table should be read
in conjunction with the "Selected Historical Financial Data" included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
April 1, 2000
--------------------
Actual As Adjusted
------- -----------
(in millions)
<S> <C> <C>
Cash and cash equivalents................................. $ 31.3 $ 43.3
======= =======
Long-term obligations (including current portion):
Senior credit facility(1)............................... $ 57.6 --
Senior subordinated notes(1)............................ 93.0 --
Other long-term obligations............................. -- --
------- -------
Total long-term obligations........................... 150.6 --
Stockholders' equity (deficit):
Common stock, $0.01 par value, no shares authorized or
issued on an actual basis and 63,492,905 shares issued
and outstanding on an as adjusted basis................ -- 0.6
Series A preferred stock, $4.00 par value, 3,367,000
shares authorized, issued and outstanding and no shares
authorized, issued and outstanding on an as adjusted
basis.................................................. 13.5 --
Class A common stock, $0.01 par value, 52,520,000 shares
authorized; 28,425,426 shares issued and outstanding on
an actual basis and no shares authorized, issued and
outstanding on an as adjusted basis.................... 0.3 --
Class B common stock, $0.01 par value, 52,520,000 shares
authorized; 9,577,446 shares issued and outstanding on
an actual basis and no shares authorized, issued and
outstanding on an as adjusted basis.................... 0.1 --
Class L common stock, $0.01 par value, 6,777,000 shares
authorized; 3,997,808 shares issued and outstanding on
an actual basis and no shares authorized, issued and
outstanding on an as adjusted basis.................... 0.0 --
Additional paid-in capital.............................. 34.6 227.5
Accumulated deficit(2).................................. (120.9) (138.3)
Other................................................... (0.3) (0.3)
------- -------
Total stockholders' equity (deficit).................. (72.7) 89.5
------- -------
Total capitalization.................................. $ 77.9 $ 89.5
======= =======
</TABLE>
- ---------------------
(1) The "As Adjusted" amounts assume a portion of the net proceeds are used to
(a) repurchase the outstanding aggregate principal amount of our senior
subordinated notes at an assumed price of approximately 117.50% (as of
April 26, 2000) (plus accrued and unpaid interest thereon) through a tender
offer that we have recently commenced; and (b) repay all of the outstanding
obligations under our senior credit facility. As of May 15, 2000 all of the
senior subordinated notes have been tendered. We currently do not have a
contractual right to redeem $65.0 million of the aggregate outstanding
principal amount of the senior subordinated notes. A 1.0% increase or
decrease in the price required to repurchase the senior subordinated notes
would change "As Adjusted Total Capitalization" by $0.9 million.
(2) The "As Adjusted" accumulated deficit balance at April 1, 2000 includes an
extraordinary charge of $17.4 million (net of tax) relating to (a) a
prepayment penalty, totaling $10.2 million (net of tax), associated with
the repurchase of the aggregate outstanding principal amount of our senior
subordinated notes and (b) the elimination of the deferred financing costs,
totaling $7.1 million (net of tax) associated with the repayment of our
senior subordinated notes and the retirement of our senior credit facility.
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DIVIDEND POLICY
We have not in the past paid, and do not expect for the foreseeable future
to pay, dividends on our common stock. Instead, we anticipate that all of our
earnings in the foreseeable future will be used for working capital and other
general corporate purposes. The payment of dividends by us to holders of our
common stock is prohibited by our senior credit facility and is restricted by
our indenture relating to the senior subordinated notes. After this offering,
we will enter into a new revolving credit facility that may restrict our
ability to pay dividends. Any future determination to pay dividends will be at
the discretion of our board of directors and will depend upon, among other
factors, our results of operations, financial condition, capital requirements
and contractual restrictions.
DILUTION
Our pro forma net tangible book value, as of April 1, 2000, was $(85.6)
million, or $(1.68) per share of common stock. Pro forma net tangible book
value per share is determined by dividing our tangible net capital by the
aggregate number of shares of common stock outstanding, assuming the
reclassification had taken place on April 1. For purposes of the foregoing, we
calculated our net capital by subtracting our intangible assets and total
liabilities from our total assets. After giving effect to (1) the sale of the
shares of common stock offered hereby, at an assumed offering price of $16.00
per share, the midpoint of the range set forth on the cover of this prospectus,
(2) the receipt and application of the net proceeds therefrom as described in
"Use of Proceeds," and (3) the net change in our diluted outstanding common
stock between January 1, 2000 and May 1, 2000, pro forma net tangible book
value as of April 1, 2000 would have been approximately $88.6 million, or $1.40
per share. This represents an immediate increase in pro forma net tangible book
value of $3.08 per share to the current shareholders and an immediate dilution
in pro forma net tangible book value of $14.60 per share to purchasers of
common stock in the offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share........................ $16.00
Pro forma net tangible book value per share at April 1,
2000........................................................ $(1.68)
Increase per share attributable to new investors............. 3.08
------
Pro forma net tangible book value per share after this
offering...................................................... 1.40
------
Net tangible book value dilution per share to new
investors(1).................................................. $14.60
======
</TABLE>
- ---------------------
(1) Dilution is determined by subtracting pro forma net tangible book value per
share after the offering from the offering price per share.
The following table summarizes, on a pro forma basis, as of May 1, 2000, the
number of shares purchased, the total consideration paid (or to be paid) and
the average price per share paid (or to be paid) by the existing shareholders
and the purchasers of common stock in the offering, at an assumed offering
price of $16.00 per share, the midpoint of the range set forth on the cover of
this prospectus, before deducting the estimated offering expenses and
underwriting discounts and commissions:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ---------------------
Average Price
Number Percent Amount Percent Per Share
---------- ------- ------------- ------- -------------
(in millions)
<S> <C> <C> <C> <C> <C>
Existing shareholders... 50,992,905 80.3% $ 63.3 24.0% $ 0.81
New investors........... 12,500,000 19.7 200.0 76.0 $16.00
---------- ----- ------ -----
Total................. 63,492,905 100.0% $263.3 100.0%
========== ===== ====== =====
</TABLE>
On a pro forma basis, as of May 1, 2000, there were an aggregate of: (1)
8,786,672 shares of common stock issuable upon the exercise of outstanding
options granted under our stock plans, of which 373,965 were then exercisable
at an exercise price of $2.12 per share; and (2) approximately 6,800,000
additional shares of common stock expected to be reserved for grants, awards or
sale under our 2000 Long-Term Equity Incentive Plan or sale under our 2000
Employee Stock Purchase Plan.
18
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The unaudited pro forma consolidated statement of operations for the year
ended July 3, 1999 and the nine months ended April 1, 2000 give effect to (1)
the stock split and the reclassification and (2) the consummation of this
offering and the application of the net proceeds therefrom, as described under
"Use of Proceeds" and (3) the adjustments described in the accompanying notes
as if each had occurred on June 28, 1998.
The unaudited pro forma consolidated balance sheet as of April 1, 2000 gives
pro forma effect to (1) the stock split and the reclassification, (2) the
consummation of this offering and the application of the net proceeds therefrom
as described in this prospectus and (3) the adjustments described in the
accompanying notes.
The unaudited pro forma consolidated financial data are provided for
informational purposes only and are not necessarily indicative of the results
of our operations or financial position had the transactions assumed therein
occurred, nor are they necessarily indicative of the results of operations
which may be expected to occur in the future. Furthermore, the unaudited pro
forma consolidated financial data are based upon assumptions that we believe
are reasonable and should be read in conjunction with the consolidated
financial statements and the accompanying notes thereto included elsewhere in
this prospectus.
The unaudited pro forma consolidated statements of operations do not reflect
extraordinary losses on the early extinguishments of debt resulting from the
write-off of debt issuance costs and the incurrence of prepayment penalties
(including accrued interest and related fees and expenses) in connection with
the prepayment of debt upon completion of the offering estimated at $11.9
million and $17.0 million, respectively. The unaudited pro forma consolidated
balance sheet, however, does reflect such charges and the related tax benefits
of $4.8 million and $6.8 million, respectively.
19
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended April 1, 2000
(in thousands, except per share data)
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Revenue..................................... $120,511 $120,511
Cost of sales............................... 48,938 48,938
-------- --------
Gross margin.............................. 71,573 71,573
Expenses:
Research and development.................. 18,062 18,062
Selling, general and administrative....... 17,159 17,159
Management fee............................ 750 (750)(a) --
-------- ------- --------
Operating income........................ 35,602 750 36,352
Interest expense............................ 13,855 (13,855)(b) --
Interest and other income................... (792) (792)
-------- ------- --------
Pretax income from continuing operations
and before extraordinary items........... 22,539 14,605 37,144
Income tax expense...................... 2,213 5,842 (g) 8,055
-------- ------- --------
Income from continuing operations before
extraordinary items........................ $ 20,326 $ 8,763 $ 29,089
======== ======= ========
Net income per common share (h):
Basic..................................... $ 0.52
========
Diluted................................... $ 0.44
========
Weighted average common shares outstanding:
Basic..................................... 56,036
========
Diluted................................... 65,889
========
</TABLE>
See "Notes to Unaudited Pro Forma Consolidated Statement of Operations."
20
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For Fiscal Year Ended July 3, 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Revenue.................................... $139,063 $139,063
Cost of sales.............................. 64,496 64,496
-------- --------
Gross margin............................. 74,567 74,567
Expenses:
Research and development................. 21,316 (4,508)(c) 16,808
Selling, general and administrative...... 19,794 (413)(d) 18,478
(903)(e)
Compensation costs....................... 15,051 (15,051)(f) --
-------- ------- --------
Operating income....................... 18,406 20,875 39,281
Interest expense........................... 2,955 (2,859)(b) 96
Interest and other income.................. (2,178) (2,178)
(Gain) on sale of assets................... (10,734) 10,734(c) --
-------- ------- --------
Income before income taxes from
continuing operations................... 28,363 13,000 41,363
Income tax expense..................... 5,320 9,494(g) 14,814
-------- ------- --------
Income from continuing operations before
extraordinary items....................... $ 23,043 $ 3,506 $ 26,549
======== ======= ========
Net income per common share(h):
Basic.................................... $ 0.48
========
Diluted.................................. $ 0.43
========
Weighted average common shares outstanding:
Basic.................................... 55,454
========
Diluted.................................. 61,647
========
</TABLE>
See "Notes to Unaudited Pro Forma Consolidated Statement of Operations" on the
following page.
21
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(a) Reflects elimination of management fees incurred in connection with our
management agreements with each of Bain Capital and Bear Stearns which will
be terminated in connection with this offering by mutual consent of the
parties. We will pay an aggregate fee of $2.7 million to terminate these
agreements. Such termination fees have not been reflected in our pro forma
consolidated statement of operations.
(b) Reflects the decrease in interest expense in connection with the use of net
proceeds from the offering to repurchase our senior subordinated notes and
repay our senior credit facility.
(c) On February 18, 1999, we sold certain intellectual property and equipment
of our non-core data communications product group to 3Com Corporation for
approximately $16.0 million in cash, resulting in a $10.7 million non-
taxable gain. Because we retain the right to sell certain of our existing
and next generation transceiver products, no adjustments have been made to
eliminate the historical revenue of non-core data communications product
group, which was approximately $7.5 million in the nine months ended April
1, 2000 and $15.2 million in fiscal 1999.
The adjustment reflects the impact on income from operations resulting from
the sale of the assets of our non-core data communications product group,
as summarized in the table below:
<TABLE>
<S> <C>
Research and development costs, net.................................. $4,244
Sublease rental income............................................... 264
------
Impact on income from operations..................................... $4,508
======
</TABLE>
(d) On April 13, 1999, we sold our corporate headquarters located in
Norristown, PA. Concurrent with the sale, we entered into an operating
lease arrangement for the property with the buyer.
The adjustment reflects the impact on income from operations resulting from
the sale and leaseback of the facility, as summarized in the table below:
<TABLE>
<S> <C>
Operating lease payments............................................. $(576)
Building depreciation................................................ 163
-----
Impact on income from operations..................................... $(413)
=====
</TABLE>
(e) The pro forma adjustment represents non-recurring investment banking, legal
and other fees incurred in connection with the recapitalization and proxy
contest relating to our February 1, 1999 shareholder meeting.
(f) In fiscal 1999, we recorded a $15.1 million charge related to the
accelerated vesting, cash-out and conversion of employee stock options that
occurred upon the consummation of the recapitalization.
(g) Represents the income tax adjustments required to result in a pro forma
income tax provision based on: (i) our historical tax provision using
historical tax amounts and (ii) the direct tax effect of the pro forma
adjustments described above at an estimated 40% effective tax rate.
(h) Pro forma net income per share and weighted average shares outstanding have
been adjusted to reflect the reclassification of all classes of common
stock into one class of common stock and reflects the 1.6942-to-1 stock-
split that will occur as of the pricing date of this offering. In addition,
shares being sold in this offering have been included in weighted average
shares outstanding because the proceeds will be used to repay outstanding
indebtedness.
22
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
April 1, 2000
(in thousands)
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............. $ 31,320 $ 179,600 (a) $ 43,323
(150,597)(a)
(17,000)(b)
Marketable securities................. 278 278
Accounts receivable, net.............. 18,389 18,389
Inventories, net...................... 8,829 8,829
Prepaid expenses and other current
assets............................... 12,529 12,529
Prepaid income taxes.................. -- 6,745 (e) 6,745
Deferred income taxes................. 8,209 8,209
--------- --------- ---------
Total current assets................ 79,554 18,748 98,302
--------- --------- ---------
Property and equipment, net ............ 12,335 12,335
Debt issue costs, net................... 11,947 (11,947)(c) --
Other assets............................ 1,455 1,455
--------- --------- ---------
$ 105,291 $ 6,801 $112,092
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT):
Current liabilities:
Current portion of long term
obligations.......................... $ 23 $ 23
Accounts payable...................... 11,093 11,093
Income tax payable.................... 4,834 (6,800)(b)
(4,779)(c)
6,745 (e) --
Accrued expenses and other............ 9,179 9,179
--------- --------- ---------
Total current liabilities........... 25,129 (4,834) 20,295
--------- --------- ---------
Senior credit facility.................. 57,597 (57,597)(a) --
Senior subordinated notes............... 93,000 (93,000)(a) --
Deferred income taxes................... 928 928
Other liabilities....................... 1,373 1,373
--------- --------- ---------
Total liabilities................... 178,027 $(155,431) 22,596
--------- --------- ---------
Stockholders' equity (deficit)
New common stock...................... -- 635 (a) 635
Series A preferred stock.............. 13,467 (13,467)(d) --
Class A common stock.................. 285 (285)(d) --
Class B common stock.................. 96 (96)(d) --
Class L common stock.................. 40 (40)(d) --
Additional paid in capital............ 34,579 178,965 (a) 227,432
13,888 (d)
Accumulated deficit................... (120,923) (10,200)(b) (138,291)
(7,168)(c)
Notes receivable...................... (280) (280)
--------- --------- ---------
Total stockholders' equity (deficit).... (72,736) 162,232 89,496
--------- --------- ---------
$ 105,291 $ 6,801 $ 112,092
========= ========= =========
</TABLE>
See "Notes to Unaudited Pro Forma Consolidated Balance Sheet" on the following
page.
23
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
April 1, 2000
(a) Reflects our sale of 12,500,000 shares of common stock generating gross
proceeds of $200.0 million and the use of the estimated net proceeds of
$179.6 million, net of the estimated underwriting discount and the offering
expenses totaling $20.4 million, to (i) repurchase our senior subordinated
notes, (ii) repay our senior credit facility and (iii) pay prepayment
premiums (including accrued interest and related fees and expenses) of
$17.0 million related to our senior subordinated notes. See "Use of
Proceeds" and "Description of Indebtedness."
(b) Reflects the prepayment premiums of $17.0 million, before $6.8 million of
related income tax benefit (at a 40% effective tax rate), on our senior
subordinated notes resulting from the repayment of the debt in connection
with the offering.
(c) Represents the write-off of $11.9 million in deferred financing costs,
before $4.8 million of related income tax benefit (at a 40% effective tax
rate), resulting in an extraordinary loss of $7.1 million in connection
with the paydown of outstanding debt in connection with the offering.
Amounts will differ based on the effective date of the offering.
(d) Adjusted to give effect to the stock split and the reclassification.
(e) Reclass the income tax benefit to prepaid income taxes.
24
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth our selected historical consolidated
financial data as of the dates and for the periods indicated. Our selected
historical consolidated statements of operations data for the fiscal years
ended July 3, 1999, June 27, 1998, June 28, 1997 and the selected historical
consolidated balance sheet data as of July 3, 1999 and June 27, 1998 were
derived from our historical consolidated financial statements that were audited
by KPMG LLP, whose report appears elsewhere in this prospectus. Our selected
historical statements of operations data for the fiscal years ended June 29,
1996 and June 30, 1995 and the selected historical balance sheet data as of
June 28, 1997, June 29, 1996 and June 30, 1995 were derived from our audited
financial statements that are not included in this prospectus. Our selected
historical consolidated statements of operations for the nine months ended
March 27, 1999 and April 1, 2000, and the selected historical balance sheet
data as of March 27, 1999, and April 1, 2000, were derived from our unaudited
interim consolidated financial statements that appear elsewhere in this
prospectus. The selected historical consolidated financial data set forth below
should be read in conjunction with "Management's Discussion and Analysis of the
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and the notes accompanying them included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
Year Ended(a) Nine Months Ended
------------------------------------------------- -------------------
June 30, June 29, June 28, June 27, July 3, March 27, April 1,
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- --------- --------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue:
Core................... $56,844 $52,714 $ 63,280 $ 90,622 $ 107,710 $ 78,612 $106,801
Non-core............... 40,901 38,616 41,079 70,012 31,353 24,383 13,710
------- ------- -------- -------- --------- -------- --------
Total revenue.......... $97,745 $91,330 $104,359 $160,634 $ 139,063 $102,995 $120,511
======= ======= ======== ======== ========= ======== ========
Gross margin............ 52,096 36,482 45,222 71,775 74,567 52,820 71,573
Research and
development............ 10,995 10,547 13,521 19,797 21,316 16,435 18,062
Selling, general and
administrative......... 20,450 18,653 15,654 19,678 19,794 15,086 13,905
Special charges (b)..... 7,428 3,257 11,196 -- 15,051 -- 4,004
------- ------- -------- -------- --------- -------- --------
Income from operations.. 13,223 4,025 4,851 32,300 18,406 21,299 35,602
Interest expense (c).... 715 403 63 64 2,955 78 13,855
Gain on sale of assets.. -- -- -- -- (10,734) (10,580) --
Interest and other
expense (income), net.. (1,126) (2,390) 5,984 (1,984) (2,178) (1,917) (792)
------- ------- -------- -------- --------- -------- --------
Income (loss) from
continuing operations
before income taxes.... 13,634 6,012 (1,196) 34,220 28,363 33,718 22,539
Income tax expense...... 5,151 1,376 6,314 12,845 5,320 8,547 2,213
------- ------- -------- -------- --------- -------- --------
Income (loss) from
continuing operations.. 8,483 4,636 (7,510) 21,375 23,043 25,171 20,326
Loss from discontinued
operations (d)......... (3,560) (721) (909) -- -- -- --
Gain from extraordinary
item................... -- -- -- -- -- -- 170
------- ------- -------- -------- --------- -------- --------
Net income (loss)....... $ 4,923 $ 3,915 $ (8,419) $ 21,375 $ 23,043 $ 25,171 $ 20,496
======= ======= ======== ======== ========= ======== ========
Diluted income per share
(e).................... $ 0.26 $ 0.20 $ (0.43) $ 0.96 $ 0.86 $ 1.19 $ 0.41
Weighted average shares
outstanding
(diluted) (e).......... 18,712 19,639 19,439 22,264 26,278 21,111 43,104
Other Financial Data:
EBITDA (excluding non-
recurring
charges) (f)........... $23,690 $10,411 $ 19,791 $ 36,879 $ 38,422 $ 24,904 $ 42,977
Gross margin %.......... 53.3% 39.9% 43.3% 44.7% 53.6% 51.3% 59.4%
Cash provided by
operating activities... 16,019 11,476 10,397 22,345 24,450 23,993 26,886
Cash provided by (used
in) investing
activities............. (8,792) 6,109 (19,274) (13,490) 20,675 (2,662) 1,731
Cash provided by (used
in) financing
activities............. (1,468) 3,145 (74) (1,940) (61,180) (2,288) (6,582)
Capital expenditures.... 3,508 4,390 3,358 8,139 7,694 6,618 3,505
Depreciation and
amortization........... 3,039 3,129 3,744 4,579 4,965 3,605 3,371
Balance Sheet Data:
Cash and cash
equivalents............ $ 9,960 $27,376 $ 18,425 $ 25,340 $ 9,285 $ 44,383 $ 31,320
Working capital......... 45,470 48,023 48,260 65,113 26,910 82,823 54,425
Total assets............ 77,691 87,570 90,622 108,009 87,795 132,007 105,291
Total debt.............. 3,774 4,063 1,709 1,523 170,030 1,411 150,620
Stockholders' equity
(deficit).............. 62,484 69,164 70,147 89,768 (106,912) 114,197 (72,736)
</TABLE>
See "Notes to Selected Historical Consolidated Financial Data" on the
following page.
25
<PAGE>
Notes to Selected Historical Consolidated Financial Data
(in thousands)
(a) Our fiscal year is based upon a 52/53 week operating cycle that ends on the
Saturday nearest June 30. All of the fiscal year periods presented
represent a 52-week operating cycle, except for fiscal year 1999 which
represents 53 weeks.
(b) Special charges consist of the following:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
------------------------------------------ ------------------
June
June 30, June 29, 28, June 27, July 3, March 27, April 1,
1995 1996 1997 1998 1999 1999 2000
-------- -------- ------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Compensation cost(1).... -- -- -- -- $15,051 -- --
Change in business
strategy(2)............ 3,822 -- -- -- -- -- --
Discontinued product
lines(2)............... 3,606 -- -- -- -- -- --
Facility closings(3).... -- 1,757 -- -- -- -- --
Write-off of in-process
research and
development
costs(3)(4)............ -- 1,500 11,196 -- -- -- --
Litigation
settlement(5).......... -- -- -- -- -- -- 4,004
------ ------ ------- --- ------- --- ------
$7,428 $3,257 $11,196 -- $15,051 -- $4,004
====== ====== ======= === ======= === ======
</TABLE>
- ---------------------
(1) In connection with the recapitalization, the Company recorded a one-time
compensation charge of $15.1 million related to the accelerated vesting,
cash-out and conversion of employee stock options.
(2) We recorded charges of $3.8 million and $3.6 million in connection with the
severance and other exit costs associated with the redirection of our
multimedia strategy and the transfer of our test operations to offshore
subcontractors.
(3) We recorded a one-time charge of $1.8 million for a facility closing and a
$1.5 million charge for the non-deductible intangible write-off incurred in
connection with the acquisition of Value Media.
(4) We recorded a one-time charge of $11.2 million for the non-deductible
intangible write-off incurred in connection with our acquisition of
MicroClock, Inc.
(5) In connection with the establishment of our Arizona design center, we
recorded a one-time charge of $4.0 million.
(c) On May 11, 1999, we effected the recapitalization. We issued $100.0 million
in aggregate principal amount of our senior subordinated notes in
connection with the recapitalization and entered into our $95.0 million
senior credit facility. As of April 1, 2000, $93.0 million aggregate
principal amount of our senior subordinated notes was outstanding, and
$57.6 million was outstanding under our senior credit facility.
(d) In fiscal 1995, we acquired a 51% majority interest in ARK Logic, Inc., a
developer of complex graphic accelerator chips. Subsequently, in fiscal
year 1997, we disposed of our majority interest in ARK Logic, Inc. The
disposition of ARK Logic, Inc. was accounted for as a discontinued
operation and all periods prior to the disposition have been restated to
reflect this presentation.
(e) Diluted income per share and weighted average shares outstanding-diluted
have been adjusted to reflect the 1.6942-to-1 common stock-split that will
occur as of the pricing date of this offering.
(f) EBITDA represents earnings from continuing operations before interest,
taxes, depreciation, amortization, other income and expense and special
charges. EBITDA is presented because we believe that it is frequently used
by security analysts in the evaluation of companies. However, EBITDA should
not be considered as an alternative to cash flow from operating activities
as a measure of liquidity, as an alternative to net income, as an indicator
of our operating performance, or as an alternative to any other measures of
performance in accordance with generally accepted accounting principles.
26
<PAGE>
The following table sets forth a reconciliation of income (loss) from
continuing operations before income taxes to EBITDA (See notes to "Unaudited
Pro Forma Consolidated Statements of Operations" for additional details):
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
--------------------------------------------- ------------------
June June June
30, 29, June 28, 27, July 3, March 27, April 1,
1995 1996 1997 1998 1999 1999 2000
------- ------- -------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from
continuing operations,
before income taxes.... $13,634 $ 6,012 $ (1,196) $34,220 $ 28,363 $33,718 $22,539
Depreciation and
amortization........... 3,039 3,129 3,744 4,579 4,965 3,605 3,371
Interest expense........ 715 403 63 64 2,955 78 13,855
Interest and other
expense (income), net.. (1,126) (2,390) 5,984 (1,984) (2,178) (1,917) (792)
Gain on sale of assets.. -- -- -- -- (10,734) (10,580) --
Special charges......... 7,428 3,257 11,196 -- 15,051 -- 4,004
------- ------- -------- ------- -------- ------- -------
EBITDA.................. $23,690 $10,411 $ 19,791 $36,879 $ 38,422 $24,904 $42,977
======= ======= ======== ======= ======== ======= =======
</TABLE>
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
We are a worldwide leader in the design, development and marketing of
silicon timing devices for a number of high-growth application segments. Our
silicon timing devices are used in a variety of consumer and business
electronics such as personal computers, or PCs, digital cameras, set-top boxes,
PC peripherals and DVD players. Our products are increasingly being used in
various communications applications including routers, switches, fiber optics,
cable modems and ADSL equipment.
Silicon timing devices are integrated circuits that emit timing signals or
pulses required to sequence and synchronize electronic operations to ensure
that information is interpreted at the right time and speed. All digital
devices require a timing signal and those with any degree of complexity require
silicon timing devices to time and synchronize their various operations.
We currently operate through two product groups: our core silicon timing
business, which includes products sold to the consumer and business electronics
and communications equipment industries, and our non-core business, which
includes integrated circuits called transceivers used primarily to receive and
transmit electronic data between PCs in networking applications and custom
mixed-signal integrated circuits that combine analog and digital technology.
While our core silicon timing business continues to grow, we expect that the
contribution from our non-core business will decline over time. Substantially
all of our research and development investment, as well as our marketing and
sales efforts, are focused, and will continue to focus, on our core silicon
timing business.
Prices for our products are predominantly a function of their position in
the product life cycle, design complexity, competitive environment, the price
of alternative solutions such as crystal oscillators and overall market demand.
We recognize revenue upon shipment, and substantially all of our sales are made
on the basis of purchase orders rather than long-term agreements.
After this offering and the use of the proceeds as previously described, we
expect an increase in our effective income tax rate from 18.8% for fiscal 1999
and 9.8% for the first nine months of fiscal 2000. Had this offering occurred
at the beginning of our fiscal year, we estimate that our effective tax rate
for the nine six months of fiscal 2000 would have been 19.2% due to the
elimination of interest expense. Our tax rate reflects the revenue we recognize
through our testing facility in Singapore. Because of this investment in
Singapore, we have been granted a tax holiday through 2003, which reduces our
overall tax expense. We intend to apply for an extension of this tax holiday
when it expires.
We incurred, in connection with a recently settled lawsuit involving the
establishment of our Phoenix Design Center, an additional charge of
approximately $0.9 million. We do not anticipate any further charges for this
settlement. We expect to incur in the fourth quarter of fiscal 2000 a non-
recurring extraordinary charge for early debt extinguishment of approximately
$17.4 million, net of tax, relating primarily to the premium on the redemption
and repurchase of our senior subordinated notes and the elimination of deferred
financing costs associated with the repayment of our senior subordinated notes
and the retirement of our senior credit facility.
28
<PAGE>
Recent Developments and Outlook
Our results for the three months ended April 1, 2000, the third quarter of
fiscal 2000, are summarized below and are compared to the quarter ended March
27, 1999:
<TABLE>
<CAPTION>
Three Months Ended
----------------------
March 27, April 1,
1999 2000
--------- --------
(dollars in
millions)
<S> <C> <C> <C>
Revenue:
Core................................................. $27.6 $37.0
Non-core............................................. 7.4 4.6
----- -----
Total Revenue........................................ $35.0 $41.6
===== =====
Gross Margin.......................................... 20.4 25.5
Gross Margin %........................................ 58.3% 61.4%
Operating Profit...................................... $ 9.6 $13.0
Operating Margin %.................................... 27.3% 31.3%
</TABLE>
Our revenue for the third quarter of fiscal 2000 was $41.6 million, an 18.9%
increase over the corresponding quarter in fiscal 1999. Our core revenues
increased 34.0% over the corresponding quarter in 1999, and increased as a
proportion of total revenues to 88.9% from 78.9% over this period. The growth
in our core revenues reflected an increase in market share for our silicon
timing products in the PC industry, as well as sharply increased sales to the
communications industry and digital set-top box applications.
Gross margin increased from $20.4 million in the third quarter of fiscal
1999 to $25.5 million in the third quarter of fiscal 2000, an increase of
25.0%. The trend to higher margin products and material cost reductions
increased gross margin as a percentage of sales to 61.3% from 58.3% in the
similar period a year ago.
We believe that a number of current initiatives and recent product
introductions will make an increasing contribution to our financial performance
throughout the next 12 to 18 months. Some of these initiatives are highlighted
below.
. We have introduced a broad product family for the communications
industry, where growth and new broadband technologies are being driven
by the rapid pace of Internet infrastructure development. We have
numerous new design wins at communication OEMs including Motorola,
Lucent, Nortel, Cisco Systems, Fujitsu and Alcatel.
. We are currently involved in the design of silicon timing devices for
the next generation of PC motherboards. We are well positioned to
deliver significant volume for the Intel's Solano(R) and AMD's K7
motherboards this year. In particular, our new generation silicon timing
devices under development are targeted for the Timna and Willamette
processors, both of which are planned for mass production in calendar
2001.
. Since 1998 we have increased revenues from silicon timing devices for
digital set-top boxes and have developed substantial market share in
this rapidly growing market. As conversion into digital set-top box
applications accelerates, we have seen rapid growth in revenues from
set-top box OEMs such as Hughes, General Instruments and Scientific
Atlanta.
. We continue to realize cost savings, particularly in our manufacturing
and assembly processes. These cost savings have helped to improve our
gross margin from 58.3% during the three months ended March 27, 1999 to
61.4% in the three months ended April 1, 2000.
29
<PAGE>
Company History and Significant Transactions
We were founded in 1976 as a mixed-signal (analog/digital) circuit design
house, and we pioneered the silicon timing market in 1988, introducing products
for video and graphics applications.
The Recapitalization
In the recapitalization on May 11, 1999, affiliates of Bain Capital, an
affiliate of Bear Stearns and Co., Inc. and certain members of management made
an aggregate equity investment in our company of approximately $50 million as
part of agreements to redeem and purchase all of our outstanding shares of
common stock and vested options for consideration (including fees and expenses)
totaling $294.4 million.
Sale of Certain Assets from our Non-Core Business
On February 18, 1999, we sold certain intellectual property and equipment of
our non-core data communications business to 3Com Corporation for $16.0 million
in cash. We decided to reduce our ongoing investment in this business in order
to focus on our core silicon timing business.
We believe our core product groups will continue to experience stronger
growth and higher margins, as well as represent a more favorable risk profile
than our non-core business. Most importantly, we believe we have several
competitive advantages in our core product groups which will enable us to
sustain our leadership positions in these markets.
The sale of certain assets from our non-core business benefits us by
permanently eliminating certain costs associated with research and development
while at the same time allowing us to retain the right to sell certain of our
existing transceiver products over their remaining product life cycles. While
revenue from this product group will decline over the next few years, this sale
allows us to optimize this product group's cost structure and profit
contribution while these products continue to be sold.
Quarterly Results
The following table sets forth the unaudited historical quarterly revenue,
gross margins and gross profit percentage for our core and non-core product
groups:
<TABLE>
<CAPTION>
Fiscal Year
---------------------------------------------------------------------------
1998 1999 2000
-------------------------- -------------------------- -------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Core.................. $22.8 $25.1 $23.3 $19.4 $24.1 $26.9 $27.6 $29.1 $32.4 $37.4 $37.0
Non-core.............. 15.8 17.9 20.2 16.1 8.1 8.9 7.4 7.0 5.4 3.7 4.6
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total............... $38.6 $43.0 $43.5 $35.5 $32.2 $35.8 $35.0 $36.1 $37.8 $41.1 $41.6
Gross Margin:
Core.................. $10.2 $12.1 $11.2 $ 8.5 $11.0 $13.2 $16.5 $17.9 $18.8 $21.9 $22.7
Non-core.............. 7.3 7.5 8.4 6.6 3.9 4.3 3.9 3.9 3.2 2.1 2.8
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total............... $17.5 $19.6 $19.6 $15.1 $14.9 $17.5 $20.4 $21.8 $22.0 $24.0 $25.5
Gross Margin %:
Core.................. 44.7% 48.2% 48.1% 43.8% 45.6% 49.1% 59.8% 61.5% 58.0% 58.6% 61.4%
Non-core.............. 46.2 41.9 41.6 41.0 48.1 48.3 52.7 55.7 59.3 56.8 60.9
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total............... 45.3% 45.6% 45.1% 42.5% 46.3% 48.9% 58.3% 60.4% 58.2% 58.4% 61.3%
</TABLE>
Growth in our business is being driven by our core silicon timing business.
Recent successes in the consumer and business electronics market, particularly
with our PC motherboards and digital set-top boxes, as well as our emerging
presence in communications equipment products, have helped drive this growth.
Our gross margin improvement in fiscal 1999 reflects our increasing volumes,
sales of higher margin products, cost savings at our third party fabrication
and assembly facilities and savings achieved by taking our testing procedures
in-house at our Singapore testing facility.
30
<PAGE>
Results of Operations
The following table sets forth statement of operations line items as a
percentage of total revenue for the periods indicated and should be read in
conjunction with the Consolidated Financial Statements and notes thereto.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
-------------------------- ------------------
June 28, June 27, July 3, March 27, April 1,
1997 1998 1999 1999 2000
-------- -------- ------- --------- --------
(expressed as a percentage of total revenue)
<S> <C> <C> <C> <C> <C>
Revenues........................ 100.0% 100.0% 100.0% 100.0% 100.0%
Core.......................... 60.6 56.4 77.5 76.3 88.6
Non-core...................... 39.4 43.6 22.5 23.7 11.4
Gross margin.................... 43.3 44.7 53.6 51.3 59.4
Research and development
expense........................ 13.0 12.3 15.3 16.0 15.0
Selling, general and
administrative expense......... 15.0 12.3 14.3 14.6 11.6
Non-recurring special charge.... 10.6 -- 10.8 -- 3.3
----- ----- ----- ----- -----
Operating income................ 4.7 20.1 13.2 20.7 29.5
Other expense (income).......... 5.8 (1.2) (1.6) (1.8) (0.7)
Gain on sale of DataCom......... -- -- (7.7) (10.3) --
Interest expense................ 0.1 -- 2.1 0.1 11.5
----- ----- ----- ----- -----
Income (loss) before income
taxes from continuing
operations..................... (1.2) 21.3 20.4 32.7 18.7
Income tax expense.............. (6.0) (8.0) (3.8) (6.5) (1.8)
----- ----- ----- ----- -----
Income (loss) from continuing
operations..................... (7.2) 13.3 16.6 24.4 16.9
Loss from discontinued
operations..................... (0.9) -- -- -- --
Extraordinary item.............. -- -- -- -- 0.1
----- ----- ----- ----- -----
Net income (loss)............... (8.1)% 13.3% 16.6% 24.4% 17.0%
===== ===== ===== ===== =====
</TABLE>
Nine Months Ended April 1, 2000, as Compared to Nine Months Ended March 27,
1999
Total revenue for the nine months ended April 1, 2000, increased by $17.5
million to $120.5 million as compared to the similar period in the previous
year. The increase is primarily due to the increase in revenue generated by our
core silicon timing business.
The core silicon timing revenue increased by $28.2 million to $106.8 million
for the nine months ended April 1, 2000, as compared to the prior year period.
The increase is principally attributable to strong demand from PC motherboard
and set-top box products. We were successful in the sale of products to the
communications equipment industry. Core revenue contributed approximately 88.6%
of consolidated revenue for the nine months of fiscal 2000, which represented
an increase from 76.3% for the prior year period.
Non-core revenue decreased by $10.7 million to $13.7 million for the nine
months ended April 1, 2000, as compared to the prior year period. Non-core
revenue represented approximately 11.4% of total revenue in the nine months of
fiscal year 2000, as compared to 23.7% in the prior year period. This is
primarily due to shifting the focus to the core silicon timing business. We
sold intellectual property and equipment of its non-core business to 3Com
Corporation on February 18, 1999, and continue to sell and support existing and
next generation Fast Ethernet transceiver products.
Foreign revenue (which includes shipments of integrated circuits to foreign
companies as well as offshore subsidiaries of US multinational companies) was
70.3% of total revenue for the nine months of fiscal 2000 as compared to 69.0%
of total revenue in the prior year period. While the percentage increase
reflected growing sales to the Pacific Rim markets, certain of our
international sales were to customers in the Pacific Rim which in turn sold
some of their products to North America, Europe and other non-Asian markets.
31
<PAGE>
Despite an increase in total revenues, cost of sales decreased $1.3 million
to $48.9 million for the nine months ended April 1, 2000, as compared to the
prior year period, due to material cost savings in the manufacturing processes,
cost savings from our in-house testing and favorable product mix trends. Cost
of sales as a percentage of total revenue was 40.6% for the first nine months
of fiscal 2000 as compared to 48.7% in the prior year period.
Research and development, or R&D, expense increased $1.7 million to $18.1
million for the first nine months of fiscal 2000 from $16.4 million in the
prior year period. As a percentage of revenue, research and development
decreased to 15.0% as compared to 16.0% in the nine months of fiscal 1999.
Continued emphasis on R&D has contributed to the increase in expense with
greater spending in research and development for the core silicon timing
business. This increase is slightly offset by the decreased expenses for the
non-core business. This increased expense represented a lower percentage of
revenue due to the significant increase in sales during fiscal 2000.
Selling, general and administrative expense increased $2.8 million to $17.9
million for the nine months of fiscal 2000 as compared to the prior year
period. The increase is primarily due to a $2.3 million payment in connection
with a recently settled lawsuit involving the establishment of our Phoenix
design center. As a party to a consulting agreement with both Bain Capital and
Bear Stearns, we incurred a management fee for the nine months ended April 1,
2000 equal to $0.8 million, or 0.6% of revenue. There was no management fee in
the prior year period. As a percentage of total revenue, selling, general and
administrative expenses increased to 15.4% of revenue as compared to 14.6% in
the prior year period. Goodwill amortization remained flat at $0.2 million for
both periods presented.
In dollar terms, operating income was $35.6 million in the nine months of
fiscal 2000 compared to $21.3 million in the prior year period. Expressed as a
percentage of revenue, operating income was 29.5% and 20.7% in the nine months
of fiscal 2000 and the prior year period, respectively.
Interest and other income was $0.7 million for the nine months ended April
1, 2000 and $12.5 million in the prior year period. Interest income decreased
as a result of lower cash balances available for investing.
Interest expense was $13.9 million in the nine months of fiscal 2000 and
$0.1 million in the nine months of fiscal 1999. The increase in interest
expense is attributable to the financing obtained in connection with our May
1999 recapitalization.
Gain on the early retirement of bonds, net of taxes, was $0.2 million for
the nine months of fiscal 2000. There was no gain on retirement of bonds during
the prior year period.
Our effective income tax rate was 9.8% for the nine months of fiscal 2000 as
compared to 25.3% in the prior year period. The decrease in the tax rate is
primarily attributable to the tax benefits of our Singapore operations and
additional interest expense. As our Singapore facility becomes more profitable,
it causes our consolidated tax rate to decrease due to Singapore's tax holiday,
in which operating income is not taxable for five years ending in fiscal 2003.
Fiscal Year 1999 as compared to Fiscal Year 1998
We achieved revenue of $139.1 million in fiscal year 1999, as compared to
$160.6 million in fiscal year 1998. This decrease in fiscal year 1999 revenue
was attributable to a decrease in revenue from the non-core product lines.
Our core component revenue increased $17.1 million to $107.7 million for
fiscal year 1999 as compared to the prior year. The increase is attributable to
strong demand from PC motherboard OEM customers.
32
<PAGE>
Core products contributed approximately 77.5% and 56.4% of total revenue in
fiscal years 1999 and 1998, respectively. In fiscal 1999 we were involved in
the design of frequency timing generators, or FTGs, a form of silicon timing
device, for the next generation of PC motherboards. In particular, our FTGs are
being used for the Pentium(R) III (high-end motherboard), Whitney (sub-$1,000
PC motherboard) and Mobile BX (new notebook motherboard) platforms, all of
which were released in calendar 1999. We continue to develop products for our
existing clients and expand into high performance timing solutions supporting
networking, communication, workstation and server applications.
Our non-core component revenue represented approximately 22.5% of total
revenue in fiscal year 1999, as compared to 43.6% in fiscal year 1998. This is
due to the decreased market share from network system suppliers of the single
chip 10/100-Mb transceivers. In fiscal year 1998, we shifted our focus away
from the transceiver market to our core business. We sold certain intellectual
property and equipment of our non-core business to 3Com Corporation on February
18, 1999, but will still continue to sell and support existing and the next
generation Fast Ethernet transceiver products.
Foreign revenue, which resulted primarily from sales to offshore customers
was 68.8% and 58.8% of total revenue in fiscal years 1999 and 1998,
respectively. While the percentage increase reflected growing sales to the
Pacific Rim markets, certain of our international sales were to customers in
the Pacific Rim region who in turn sold some of their products to North
America, Europe and other non-Asian markets. Our sales are denominated in U.S.
dollars.
Cost of sales as a percentage of total revenue was 46.4% in fiscal year
1999, as compared to 55.3% in fiscal year 1998. We have continued to realize
material cost savings in the manufacturing processes. We have received price
reductions from their subcontractors and are also realizing savings from our
internal testing site in Singapore. These cost savings and favorable product
mix trends have helped to improve our gross margin.
Research and development expense expressed as a percentage of revenue was
15.3% in fiscal year 1999, as compared to 12.3% in fiscal year 1998. In dollar
terms, research and development spending increased 7.7% from fiscal year 1998
to 1999. The increase is attributable to a compensation charge of $1.3 million
arising from the modifications of stock options owned by certain employees
affected by the sale of assets to 3Com. As a result of the sale of assets to
3Com, we expect that there will be savings in research and development
expenses, which will be offset by additional expenses incurred to support our
expansion into high performance clocking solutions supporting networking,
communication, workstation and server applications.
Selling, general and administration expense was 14.3% and 12.3% of total
revenues in fiscal years 1999 and 1998, respectively. In monetary terms,
expenses have increased 0.6% from fiscal year 1998 to fiscal year 1999. The
increase from 1998 to 1999 represents increased charges for the proxy contest
relating to our annual shareholders' meeting. We were faced with a proxy
contest that was waged by our former Chief Executive Officer. As a result of
the proxy contest, we incurred mailing, legal and printing costs of
approximately $0.8 million for our annual meeting, in excess of those
historically incurred for routine and annual shareholders' meetings, during
both the second and third quarters of fiscal year 1999. This was offset by the
decrease in variable selling expenses as a result of decreased revenues.
In connection with the recapitalization, we recorded a compensation charge
of $15.1 million related to the accelerated vesting, cash-out and conversion of
employee stock options.
Expressed as a percentage of revenue, operating income was 13.2% and 20.1%
in fiscal years 1999 and 1998, respectively. In dollar terms, operating income
was $18.4 million in fiscal year 1999 compared to $32.3 million in fiscal year
1998. Fiscal year 1999 includes a special charge of $15.1 million relating to
the vesting of outstanding options arising from the recapitalization.
Accordingly, operating income before special charges was 24.0% of revenue in
fiscal year 1999 as compared to 20.1% in fiscal year 1998.
33
<PAGE>
In the third quarter of fiscal year 1999, we sold intellectual property and
engineering hardware and software from our non-core product line to 3Com
Corporation for $16.0 million in cash. We recognized $10.7 million as the gain
on the sale.
Interest and other income was $2.2 million in fiscal year 1999 and $2.0
million in fiscal year 1998. Interest income increased as a result of higher
cash balances available for investing.
Interest expense was $3.0 million in fiscal year 1999 and $0.1 million in
fiscal year 1998. The increase in interest expense is attributable to the
financing obtained in connection with the recapitalization.
After adjusting for minority interest and equity investment, our effective
tax rate related to income from continuing operations was 18.8% and 37.5% for
fiscal years 1999 and 1998, respectively. The effective tax rate for fiscal
years 1999 and 1998 reflects the tax-exempt status of our Singapore operation,
which has been given pioneer status, or exemption of taxes on non-passive
income for five years. The significant decrease from fiscal years 1998 to 1999
is the result of the profitability of the Singapore operations being larger
than the domestic operations. We do not currently calculate deferred taxes on
our investment in our Singapore operations, as all undistributed earnings are
permanently reinvested back into the Singapore facility. If we were to record
deferred taxes on our investment, the amount would be a $4.3 million
liability.
Fiscal year 1999 reflects a net income of $23.0 million as compared to a
net income of $21.4 million for fiscal year 1998. Excluding special charges,
however, net income for fiscal year 1999 would have been $32.8 million. The
changes in income are disclosed in the previous paragraphs.
Fiscal Year 1998 as compared to Fiscal Year 1997
We achieved revenue of $160.6 million and $104.4 million in fiscal years
1998 and 1997, respectively.
Our core component revenue increased $27.3 million to $90.6 million for
fiscal year 1998 as compared to the prior year. The acquisition of MicroClock,
Inc. in the third quarter of fiscal year 1997 accounted for $14.1 million of
the increase with the remaining amount attributable to strong demand from PC
motherboard OEM customers. The acquisition of MicroClock, Inc. allowed us to
penetrate the market for silicon timing devices outside of our existing PC
customer base.
Core silicon timing devices contributed approximately 56.4% and 60.6% of
total revenue in fiscal years 1998 and 1997, respectively. Although the
silicon timing markets for motherboard and PC peripheral applications are
expected to continue to be major sources of revenue, we intend to increase our
presence in non-PC applications which comprised approximately 6% of total
silicon timing component revenue in fiscal year 1997.
Our non-core component revenue represented approximately 43.6% in fiscal
year 1998 and 39.4% of total revenue in fiscal year 1997. Increases in fiscal
year 1998 revenue were due to increased penetration of our transceiver
products within network system suppliers and revived demand for PC video
graphics products. In fiscal year 1999, we shifted our focus away from the
non-core transceiver market to our silicon timing device product group. We
sold certain intellectual property and equipment of our non-core product group
to 3Com Corporation on February 18, 1999, but still continue to sell and
support existing and next generation Fast Ethernet transceiver products.
As a result of the merger of Turtle Beach and Voyetra, Turtle Beach was de-
consolidated commencing November 30, 1996. Our 35% share of net losses at
Voyetra was recorded under the equity method of accounting during the
remainder of fiscal year 1997. Revenues were 6.5% of total revenue in fiscal
year 1997.
During the fourth quarter of fiscal year 1997, we determined that, due to
significant events and changes in circumstances, it was probable that our
investment in Voyetra would not be recoverable. Accordingly, we recorded an
impairment loss of approximately $7.1 million on our investment in Voyetra in
the fourth quarter of 1997.
34
<PAGE>
Foreign revenue, which resulted primarily from sales to offshore customers,
was 58.8% and 60.3% of total revenue in fiscal years 1998 and 1997,
respectively. The decrease in fiscal year 1998 reflected a substantial increase
of transceiver shipments in North America. Certain of our international sales
were to customers in the Pacific Rim who in turn sold some of their products to
North America, Europe and other non-Asian markets. Our sales are denominated in
U.S. dollars.
Cost of sales consists of costs related to the purchase of processed wafers,
assembly and testing services provided by third-party suppliers, as well as
costs arising from in-house product testing, shipping, quality control and
manufacturing support operations. Cost of sales as a percentage of total
revenue was 55.3% in fiscal year 1998 and 56.7% in fiscal year 1997. The
decrease in cost of sales in fiscal year 1998 reflected reduced material costs,
conversion to in-house testing in Singapore and favorable product mix trends.
These cost savings have helped to improve our gross margin.
Research and development expense expressed as a percentage of revenue was
12.3% in fiscal year 1998, as compared to 13.0% in fiscal year 1997. In dollar
terms, research and development spending increased 46.4% from fiscal year 1997
to 1998, primarily as a result of the hiring of additional engineering
personnel, investment in new design tools and increased activity related to new
product development and enhancement programs for existing standards products.
Selling, general and administration expense was 12.3% and 15.0% of total
revenues in fiscal years 1998 and 1997, respectively. In monetary terms,
expenses increased 28.6% from fiscal year 1997 to fiscal year 1998. The
increase from fiscal year 1997 to fiscal year 1998 primarily represents
increases in variable costs associated with revenue growth, including $0.5
million for bad debt reserves.
Fiscal year 1997 included a special charge of $11.2 million as a result of
the write-off of in-process research and development costs arising from the
acquisition of MicroClock.
Expressed as a percentage of revenue, operating income was 20.1% and 4.7% in
fiscal years 1998 and 1997, respectively. In dollar terms, operating income was
$32.3 million in fiscal year 1998 as compared $4.9 million in fiscal year 1997.
Fiscal year 1997 includes a special charge of $11.2 million as a result of the
write-off of in-process research and development costs arising from the
acquisition of MicroClock. Accordingly, operating income before special charges
was 20.1% of revenue in fiscal year 1998, as compared to 15.3% in fiscal year
1997.
Interest and other income was $2.0 million in fiscal year 1998 as compared
to $1.8 million in fiscal year 1997. Interest income increased as yields on our
investments improved.
Interest expense was $0.1 million in fiscal year 1998 and in fiscal year
1997. Interest related to the PIDA loan on the Valley Forge building.
After adjusting for minority interest and equity investment, our effective
tax rate related to income from continuing operations was 37.5% and 95.8% for
fiscal years 1998 and 1997, respectively. The effective tax rate for fiscal
year 1998 reflects the tax-exempt status of our Singapore operation, which has
been given pioneer status, or exemption of taxes on non-passive income for five
years. The effective tax rate for fiscal year 1997 includes $11.2 million for
the non-deductible intangible write-off related to the acquisition of
MicroClock, Inc. and a $7.1 million capital loss for the impairment of the
Voyetra investment.
Fiscal year 1998 reflects a net income of $21.4 million as compared to a
loss of $8.4 million for fiscal year 1997. Excluding special charges, equity
investment related charges and minority interest, however, net income for
fiscal year 1997 was $10.6 million. The changes in income are disclosed in the
previous paragraphs.
35
<PAGE>
Discontinued Operations
During the third quarter of fiscal year 1997, we implemented a plan, with
approval of the Board of Directors, to dispose of our majority interest in our
subsidiary, ARK Logic, within a 12-month period. Unlike our core business of
developing mixed-signal components, ARK Logic uses different design tools and
technology to engineer complex digital circuits. Accordingly, we have presented
ARK Logic as discontinued operations and all prior periods have been restated
to reflect this presentation. We recorded a charge of $1.5 million in the third
quarter of fiscal year 1997, including severance and other exit costs.
Subsequently, on June 17, 1997, we sold approximately 80% of our holdings in
ARK Logic to Vision 2000 Ventures, Ltd. for which a gain of $2.4 million,
including the reversal of severance and facility termination accruals, was
recorded. Our remaining ownership interest in ARK Logic of approximately 11%
was written off in the fourth quarter of fiscal year 1997.
Liquidity and Capital Resources
At April 1, 2000, our principal sources of liquidity included cash and
investments of $31.6 million as compared to the July 3, 1999 balance of $9.6
million. Net cash provided by operating activities was $26.9 million in the
first nine months of fiscal 2000, as compared to $24.0 million in the prior
year period. The cash provided by operating activities in the first nine months
of fiscal 2000 consisted mainly of earnings before interest, taxes,
depreciation and amortization expenses, or EBITDA, of $43.0 million offset by
changes in operating assets of $2.0 million, interest payments of $9.9 million
and income tax payments of $1.0 million. EBITDA increased $18.1 million over
the same period in 1999 primarily due to the increases in gross margin, as
discussed above. Our days sales outstanding decreased from 49 days in fiscal
1999 to 40 days in fiscal 2000, while inventory turns increased from 7.28 times
in fiscal 1999 to 7.40 times in the first nine months of fiscal 2000.
Purchases for property and equipment were $3.5 million in the first nine
months of fiscal 2000 as compared to $6.6 million in the prior year period. The
decrease is primarily due to our relocation into our new facility in San Jose
during the second quarter of fiscal 1999. Purchases of property and equipment
during fiscal 2000 in the amount of $1.3 million were invested in the start-up
of our new Arizona facility.
In the third quarter of 2000, Chartered Semiconductor PTE repaid $4.3
million, extinguishing the balance outstanding for the purchase commitment made
during fiscal 1997 and 1998. The purchase commitment made during fiscal 1999
ends December 31, 2000, and accordingly, the remaining balance of $10.2 million
is recorded as a current asset.
We purchased $2.0 million of our senior subordinated notes below par in
September, resulting in a gain of $36,000 net of income taxes, and $5.0 million
below par in November, resulting in a gain of $134,000 net of income taxes. In
the first nine months of fiscal 2000, we have paid $12.4 million in principal
on our long term debt (term A and B loans), as well as $9.9 million in interest
during the first nine months of fiscal year 2000. Certain of the our loan
agreements require the maintenance of specified financial ratios and impose
financial limitations. At April 1, 2000, we were in compliance with the senior
credit facility covenants.
Immediately following this offering, we will repay all outstanding
obligations under our senior credit facility and terminate it, and we intend to
enter into a new revolving credit facility. The new revolving credit facility
will be used for working capital and general corporate purposes.
We believe that the net proceeds from this offering, together with funds
expected to be generated from our operations and borrowings under our new
revolving credit facility will be sufficient to meet our anticipated cash needs
for working capital and capital expenditures for the foreseeable future.
Thereafter, we may need to raise additional funds in future periods to fund our
operations and potential acquisitions, if any. Any such additional financing,
if needed, might not be available on reasonable terms or at all. Failure to
raise capital when needed could seriously harm our business and results of
operations. If additional funds were raised through the issuance of equity
securities or convertible debt securities, the percentage of ownership of our
shareholders would be reduced. Furthermore, such equity securities or
convertible debt securities might have rights, preferences or privileges senior
to our common stock.
36
<PAGE>
Inflation
Inflation has not had a significant impact on our results of operations.
Year 2000
Computer systems and software must accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, many software and
computer systems that accepted only two digit entries needed to be upgraded in
order to accept date beginning January 1, 2000. To date, we have not
experienced any date-related problems with our software. In addition, we have
not been made aware of, nor have we experienced, date related problems with any
third-party software. In addition, we do not believe that we will incur
material costs in the future because of date related problems.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." In June 1999, the FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities," which
defers the effective date of SFAS No. 133 to all fiscal quarters of all fiscal
years beginning after June 15, 2000. We will adopt the requirements of this
statement in our first fiscal quarter in fiscal year 2001.
Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Exposures. Our sales are denominated in U.S. dollars,
accordingly, we do not use forward exchange contracts to hedge exposures
denominated in foreign currencies or any other derivative financial instruments
for trading or speculative purposes. The effect of an immediate 10% change in
exchange rates would not have a material impact on our future operating results
or cash flows.
Interest Rate Risk. Because our obligations under our senior credit facility
bear interest at variable rates, our results of operations are sensitive to
changes in prevailing interest rates. We currently do not engage in interest
rate hedging activities. We manage our interest rate risk by keeping variable
rate instruments at less than 50% of total debt instruments.
37
<PAGE>
INDUSTRY OVERVIEW
Overview
Semiconductors, also referred to as integrated circuits, are the basic
building blocks used to create an increasing variety of electronic products and
systems. Since the invention of the transistor in 1948, continuous improvements
in semiconductor process and design technologies have led to smaller, more
complex and more reliable devices at a lower cost per function. The two basic
functional technologies for semiconductor products are analog and digital.
Analog (or linear) devices monitor, amplify or transform analog signals.
Analog signals vary continuously over a wide range of values. Analog circuits
provide a critical interface between electronic systems and a variety of real-
world phenomena such as sound, light, temperature, pressure, weight and speed.
Digital devices perform binary arithmetic functions on data represented by a
series of on/off states mathematically represented by "1s" and "0s".
Historically, the digital integrated circuit market has been primarily focused
on the fast growing markets for computing and information technology systems.
Increasing demands for high-throughput computing and networking in recent years
have led to drastic improvements in digital device performance. An example of
these improvements is subsequent generations of ever-faster microprocessors
that power personal computers.
Electronic systems continuously translate analog signals into digital data
and digital data into analog signals. Mixed-signal integrated circuits combine
analog and digital circuitry on the same chip to process both analog signals
and digital data. Historically, analog and digital circuitry has been developed
separately given the technical difficulties associated with combining analog
and digital circuitry onto a single integrated circuit. As a result, system
manufacturers have generally addressed mixed-signal requirements using printed
circuit boards containing many separate analog and digital circuits acquired
from multiple suppliers. However, in an effort to improve performance, decrease
system size and reduce costs, system designers are increasingly requiring the
integration of both analog and digital functions onto a single chip.
Silicon Timing Devices
Every microprocessor and, in fact, all electronic devices must incorporate a
means to time and synchronize their various operations. Silicon timing devices
are mixed-signal integrated circuits, usually on a single chip that, like
miniature "clocks," emit timing signals or pulses used to sequence and
synchronize electronic operations.
Growth in our markets is being driven by the rapid pace of infrastructure
development for the Internet, the increasing complexity of our customers' end
products, and the transition from traditional analog devices to digital
technologies. Internet infrastructure expansion is now largely broadband based,
requiring higher operating frequencies and more complex digital equipment. This
advancement has driven the continued proliferation of technologically complex
consumer and business electronic devices that help optimize the Internet
experience. In addition, the transition from traditional analog devices to
digital devices has led to increasing consumer adoption of digital technologies
such as HDTV or DVD players. Our silicon timing devices are well suited to
these developments as they operate in analog and digital environments (i.e.,
mixed-signal) and can manage multiple frequencies, have high programmability
and generally require less power than traditional timing products such as
crystal oscillators, which are predominantly quartz based crystals that
resonate at a single frequency.
Silicon timing devices are an indispensable part of the electronic world as
they ensure the smooth flow of data along crowded electronic pathways by
integrating and sequencing multiple functions within complex systems. As each
new generation of electronic devices becomes faster, adds more functions and
accommodates more peripheral equipment, the task of designing "clocks" to
control, sequence and synchronize their
38
<PAGE>
operations grows more complex and critical. Silicon timing devices perform
critical timing control, sequence and synchronization functions for a wide
variety of application markets, including: (1) computing systems, such as PCs,
workstations, Internet appliances, disk drives and printers; (2) digital
multimedia electronics, such as set-top boxes, DVDs, digital cameras and game
machines; (3) Internet backbone equipment, such as switches, routers and
framers; (4) Internet access equipment, such as cable and ADSL modems; and (5)
network systems, such as servers and storage devices.
The timing device market, including crystal oscillators, was approximately
$2.8 billion in 1999. Given the growth in electronics, communications and the
Internet, industry sources expect this market to grow to over $3.8 billion by
2001, an 18% per year growth rate. We expect, however, that silicon timing
devices will grow at a much faster rate. In 1999, the total market for silicon
timing devices was approximately $378 million, or 14% of the total market for
timing devices, and is expected to grow to over $850 million, or 23% of the
total market, by 2001, a growth rate of approximately 50% per year. Growth
tends to be driven by the continued conversion of analog devices to digital
systems and the increasing complexity of our customers' products, particularly
given the demands of the Internet for bandwidth and speed.
Silicon timing devices emerged through the design of frequency timing
generators, or FTGs, predominantly for PCs. This began in 1990, when we
designed the first FTG for a PC, and gathered momentum when our design was used
with the Intel(R) Pentium(R) processor in 1993. In 1999, the worldwide market
for silicon timing devices for PC FTGs, including notebook computers, was
approximately $150 million, and we estimate that we have a 55% market share.
Industry sources estimate that this market will grow to approximately $212
million by 2001, a 19% per annum growth rate. This growth is being driven by
two primary factors: (1) growth in the global PC market resulting largely from
the advent of the inexpensive (sub-$1,000) PC and the increasing popularity of
the Internet, and (2) the increasing number of FTGs per PC motherboard, known
as clock density. Industry sources estimate that clock density will continue to
increase from current levels. The causes of increasing clock density include:
(a) higher microprocessor speeds requiring the separation of frequencies onto
multiple clocks to function efficiently; (b) increasing CPU power and functions
requiring more frequencies; and (c) the ongoing growth of peripheral
applications.
Historically, the silicon timing market and the market for FTGs for PC
motherboards, in particular, have provided stable average prices and consistent
margins. This market is less susceptible to downward pricing pressures and
commoditization as silicon timing devices are specifically tailored to certain
architectures and are highly sophisticated and differentiated products. Given
their customized and specialized nature, individual silicon timing device
products tend to be produced in small volume.
We believe silicon timing devices have limited technological substitution
risk. There are numerous technological, cost and design barriers that limit the
functional integration of silicon timing devices into other chips such as:
. Yield issues: The defect rate of silicon timing devices would adversely
impact the production yield of more expensive chips;
. Performance issues: Noise from the microprocessor would materially
degrade the tight performance requirements of silicon timing devices;
. Customized nature of silicon timing devices: Silicon timing devices are
specifically tailored for memory type, microprocessor speed, and
architecture. Supporting all configurations significantly increases cost
and complexity;
. Unique design issues: The complexity of silicon timing device designs
could negatively affect the product time-to-market due to design and
debug time;
. Technological barriers: The analog component of a mixed-signal
integrated circuit does not operate efficiently at the low voltage
levels of high speed digital cores; and
. Pin count restraint: Additional timing signal functions would add
several "input/output" pins to a chip adding significant packaging and
die costs as well as exacerbating severe space constraints.
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<PAGE>
BUSINESS
We are a worldwide leader in the design, development and marketing of
silicon timing devices for a number of high-growth application segments. Our
products are used in a variety of computing systems (e.g., PCs, workstations,
Internet appliances, disk drives and printers) and digital multimedia
electronic devices (e.g., set-top boxes, DVDs, digital cameras and game
machines). We are also increasingly designing and producing silicon timing
devices for Internet backbone equipment (e.g., switches, routers and framers),
Internet access equipment (e.g., cable and ADSL modems) and network systems
(e.g., servers and storage devices).
Silicon timing devices are integrated circuits that emit timing signals or
pulses required to sequence and synchronize electronic operations to ensure
that information is interpreted at the right time and speed. All digital
devices require a timing signal and those with any degree of complexity require
silicon timing devices to time and synchronize their various operations.
We have developed a reputation for engineering excellence and innovative
technology in silicon timing design. We pioneered the silicon timing market in
1988, introducing silicon timing devices for video and graphics applications.
Since then, we have consistently led the industry with several technical
designs, including delivering the first silicon timing device for the PC
motherboard in 1990. Our ongoing focus on product innovation has led to the
introduction of approximately 424 new products into the marketplace over the
past three fiscal years. We are the leading supplier of silicon timing devices
to several markets, including PCs and digital set-top boxes, and we are
continuing to design new products for communications equipment companies such
as Motorola, Lucent, Nortel, Cisco Systems, Fujitsu and Alcatel. Over 40% of
our current design opportunities are for communications equipment companies. A
design opportunity reflects a request from a customer or potential customer for
a silicon timing device. In the first six months of fiscal 2000, we converted
over 80% of our design opportunities into design wins, which could lead to
future production orders.
We have developed long-standing and valuable relationships with the majority
of leading original equipment manufacturers, or OEMs, of consumer and business
and communications equipment electronics. We work closely with these OEMs to
develop unique and proprietary timing, sequencing and synchronization solutions
and are closely integrated into their product design and development process.
Our top OEM customers include such companies as Asustek, Hughes Networks,
Compaq, Dell, IBM, Echostar, Intel, E-Machines, General Instruments and Hewlett
Packard.
Competitive Strengths
Worldwide Leadership Position. We pioneered the market for silicon timing
devices in 1988, shipped the first standard silicon timing device for desktop
PC motherboards in 1990, and we believe we were the first to meet Intel's
silicon timing device specifications for its Pentium(R) microprocessor series
in 1993. We believe that we currently hold the leadership position in the
largest market for silicon timing devices within desktop PC and notebook
motherboards, with an estimated worldwide market share of 55%. In addition, we
believe we have leadership positions in other markets for silicon timing
devices, including set-top boxes and disk drives.
Defensible Technology and Design Expertise. For over twenty years, we have
developed libraries of proprietary and patented mixed-signal integrated circuit
designs and have invested in extensive computer-aided design and engineering
resources specifically designed to support the increasing complexity and
customized nature of silicon timing devices. Our focus on product innovation
and leading technology has resulted in the introduction of approximately 424
new products into the marketplace over the past three fiscal years. We work
closely with OEMs to develop unique timing, sequencing and synchronization
solutions and are highly integrated into their product design and development.
As device attributes and system speeds continue to increase, silicon timing
device designs become more complex. As a result, our combination of analog and
digital expertise is an important core competency and a significant barrier to
entry.
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Industry First Designs
. 1988--First to develop frequency timing generator
. 1993--First to develop silicon timing for Pentium(R) motherboard
. 1996--First to develop Fast Ethernet transceiver
. 1997--First to incorporate EMI reduction into motherboard clocks
. 1998--First to develop 1 gigahertz fiber channel clocks
. 1998--First to develop pixel clock for flat panel displays
. 1999--First to develop 3.3 volt multiple VCXO in set-top box industry
. 2000--First to develop fully programmable clock for PCs
Superior Product Performance and Attributes. We believe that we have the
leading position in key timing performance measures. Industry research suggests
that the technical capabilities of our products are, on average, superior to
those of our major competitors. The combination of these performance attributes
allows our products to operate faster than those of our competitors and
improves overall system performance. Industry sources measured the products of
the major competitors across five performance criteria including jitter (error
in signal shape), skew (error in signal repetition), number of frequencies,
breadth of products and EMI (electromagnetic interference). We ranked first in
4 of the 5 categories and second in the fifth.
<TABLE>
<CAPTION>
No. of
Company Jitter Skew Frequencies Breadth EMI
------- ------ ---- ----------- ------- ---
<S> <C> <C> <C> <C> <C>
Integrated Circuit Systems.................. 1 1 1 1 2
Cypress..................................... 2 2 2 2 1
IMI......................................... 3 3 3 3 3
</TABLE>
Low Cost Provider. We believe that we are one of the lowest cost producers
of silicon timing devices because of our ability to leverage research and
development costs over a broad product line, our close relationship with
suppliers and our position as one of the largest providers to the silicon
timing device market. In addition, we use third-party manufacturers to supply
silicon wafers and assemble our products. Therefore, we do not incur the
significant fixed costs of building, operating and upgrading a wafer foundry or
assembly house. As a result of our leadership position, extensive product
portfolio and highly variable cost structure, we are able to offer a compelling
value proposition to customers of high performance, quality products at
competitive prices.
Superior Time-to-Market Capabilities. Minimizing the time new products take
to reach the market is an important purchase criterion for our customers who
are increasingly trying to improve inventory and supply chain management to
meet rapidly growing demand forecasts. We believe that our close relationships
with leading third-party manufacturers, in-house testing capabilities, leading
design expertise, large platform of existing designs, and close involvement
with customer design teams allow us to anticipate customers' needs and provide
faster product solutions than other competitors. Several examples illustrate
our competitive advantage in this area. First, we developed the first chip in
the industry whose timing signals can be pre-set from 1 to 160 MHZ by the user
without additional external devices, software or programmers, thereby
eliminating the high cost and long lead times associated with certain
customized silicon timing devices. Second, we established our own testing and
quality assurance facility in Singapore near a major third-party manufacturer
in order to shorten delivery times to customer assembly facilities. Third, we
have developed unique relationships with certain third-party manufacturers to
store work-in-process chips (i.e., wafer banks) that are ready to be finished
in half the normal production time upon order. Finally, we have a substantial
portfolio of designs or building blocks from which we can draw upon to develop
customized solutions quickly. We believe that the resulting time-to-market is
substantially less than those of our competitors, thereby creating a
significant competitive advantage with OEM customers.
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Broad and Diversified Product Line. We have a broad product line consisting
of unique, customized solutions for a wide variety of application and customer
segments, including consumer electronics, communications systems, medical
devices and computer systems. Our ability to provide OEM customers with silicon
timing technology and design expertise across their entire product line (e.g.,
desktop PCs, mobile PCs, servers and workstations) is a significant competitive
advantage. For example, we have the ability to produce an unusually wide range
of frequencies for our customers, from 66.6 megahertz silicon timing devices
for older generation motherboard systems to 133 megahertz silicon timing
devices for new generation Intel(R) Pentium(R) III processors to 460 megahertz
silicon timing devices for very high performance workstations. In addition, our
wide breadth of products helps to diversify our revenue base so that we are not
dependent on the success of any single product. In fact, for the year ended
July 3, 1999, the average product represented less than $300,000 of revenue. We
believe that our broad and diversified product line will continue to provide
significant value for our customers and enable us to expand our leadership
position.
Blue Chip Customer Base. We have long-standing and valuable relationships
with most of the major OEMs of personal computers, peripherals and
communications equipment. Certain systems architects, including Intel, Texas
Instruments and Broadcom, reference our frequency timing components on their
data sheets. We are closely integrated with the design teams of our system
manufacturer customers and often are afforded the opportunity to solve their
timing requirements early in their development cycle. The risk and cost to OEMs
of certifying new vendors, our worldwide leadership position and continuing
product innovation all provide significant competitive advantages and switching
barriers versus smaller competitors.
Experienced Management Team with Significant Equity Ownership. We are led by
a team of eleven senior managers who average nearly eight years of experience
with us and collectively possess over 200 years of experience in the
semiconductor industry. Our management has demonstrated its ability to develop
leading market share positions in several application segments, develop
innovative core technology and achieve strong financial performance. After the
offering, the senior management team and many other employees will own new
common stock and options together representing up to approximately 18% of our
common stock on a fully-diluted basis.
Business Strategy
Our business strategy is to focus on our core silicon timing business and
provide customized and increasingly complex products to our expanding and
diversified customer base. We have developed a set of strong design systems and
business processes that have enabled us to achieve a leading market position
and a strong track record of profitable growth. We intend to continue this
business strategy and strengthen our competitive position through the following
initiatives:
. Identify and target new market opportunities where there are strong
growth prospects and where we can leverage our core silicon timing
technologies. Just as we targeted the PC industry in the early 1990s, we
have identified several other high-growth markets where we can market
our silicon timing devices. These industries are being driven by the
Internet and its users' demand for speed and bandwidth. Many of our
customers are designing equipment to meet this need, and we already have
several design wins on their existing and next generation products.
. Dominate these new markets by developing multiple application specific
products to meet the needs of our customers and create a leading market
position. Many of our customers require unique or customized timing
solutions for their products. Over the last three years, we have
introduced more than 424 new products, and we continue to leverage our
extensive library of designs and key process patents to meet these
needs.
. Maintain design leadership in core silicon timing technologies through
our exclusive design library, patents on core technologies and
significant investments in research and development. We believe that our
strong market share is a function of our ability to continue to produce
new designs within
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short time-to-market requirements. We have led the industry with many
technical designs, including delivering one of the first silicon timing
device for the Intel(R) Pentium(R) processor in 1993 and the Digital
Alpha microprocessor in 1994. We are currently involved in the design of
new and existing products for applications which only recently began
using silicon timing devices, such as Internet access equipment (e.g.,
cable and ADSL modems), Internet backbone equipment (e.g., switches,
routers and framers) and network systems (e.g., servers and storage
devices). We are also involved in the next generation of our long-
standing existing product portfolio for consumer and business
electronics such as PCs and digital set-top boxes.
. Expand into new timing markets through select acquisitions of technology
and recruitment of personnel that complement our existing expertise. In
1997, we acquired Microclock, which allowed us to expand our silicon
timing product portfolio outside the PC market. In 1999, we recruited a
group of engineers for our Arizona design facility, which allowed us to
penetrate several communications companies with our reference designs.
We will continue to make similar investments when they can be done cost
effectively and are consistent with our overall business strategy.
Product Overview
Silicon Timing Devices. Our silicon timing devices product group represents
our core business. We supply a broad line of products for use in the consumer
and business electronics industries and increasingly supply products for the
communications equipment industry. These silicon timing devices control
multiple processes by providing and synchronizing the timing of the computer
system, including signals from the microprocessor, video screen, graphics
controller, memory, keyboard, disk drives and communication ports.
Individual silicon timing products are used in a variety of application
markets, including: (1) computing systems, such as PCs, workstations, Internet
appliances, disk drives and printers; (2) digital multimedia electronics, such
as set-top boxes, DVDs, digital cameras and game machines; (3) Internet
backbone equipment, such as switches, routers and framers; (4) Internet access
equipment, such as cable and ADSL modems; and (5) network systems, such as
servers and storage devices. The timing requirements of these products have
traditionally been served by crystal oscillators. Crystal oscillators are
components manufactured from quartz that resonate at a single set frequency.
In situations where a single silicon timing device can replace multiple
crystal oscillators, silicon timing devices have emerged as both more cost-
effective and technologically superior solutions to the crystal-based
standard. We view the $2.4 billion crystal-based oscillator market as a future
growth opportunity, as our silicon timing device products provide viable
alternatives to the present crystal-based standard. Several application
segments are leading the conversion from crystal oscillators to silicon timing
devices, including set-top boxes, complex communications equipment and mass
storage systems.
Custom Mixed-Signal and Data Communications. This product group represents
our non-core business. Our custom mixed-signal (analog and digital) integrated
circuit products are customized to the specific requirements of a broad range
of customers and applications. Custom mixed-signal products are used in
medical, consumer and industrial applications such as glucose measurement
devices, hearing aids, burglar alarm systems and caller ID boxes. These
products are typically sold through development and product contracts of five
years or more, which generally provide a minimum purchase commitment by the
customer.
Our data communications product group includes a portfolio of transceiver
integrated circuits that transmit and receive electronic data between various
PC systems. Our transceivers are utilized in a wide variety of networking
protocols, including Fast Ethernet, Asynchronous Transfer Mode and SONET
applications. Our flagship product, the ICS1890, was the industry's first
single-chip integrated circuit transceiver for the Fast Ethernet protocol.
On February 18, 1999, we sold certain intellectual property and equipment
of our non-core data communications product group to 3Com Corporation for
$16.0 million in cash. We decided to reduce our ongoing investment in this
product group in order to focus on our core silicon timing product group.
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The sale of certain assets of our non-core product group benefits us by
permanently eliminating certain fixed costs associated with research and
development while at the same time allowing us to retain the right to sell
certain of our existing transceiver products over their remaining product life
cycles. While revenue from this product group will eventually decline over the
next few years, the sale allows us to optimize this product group's cost
structure and profit contribution while these products continue to be sold.
We believe our core product groups will continue to experience stronger
growth and higher margins, as well as represent a more favorable risk profile
than our non-core product group. Most importantly, we believe we have several
competitive advantages in our core product groups which will enable us to
sustain our leadership positions in these relevant markets.
Manufacturing Relationships
We qualify and utilize third-party suppliers for the manufacture of silicon
wafers. All of our wafers currently are manufactured by outside suppliers, two
of which supply the substantial majority of our wafers. These manufactured
wafers are packaged at two primary assemblers. We agree with our suppliers on
production schedules based on order backlog and demand forecasts for the
approaching three month period.
Top Suppliers
<TABLE>
<CAPTION>
Length of
Relationship
------------
<S> <C>
Wafer Fabs:
Chartered Semiconductor......................................... 5 years
United Microelectronics Corporation............................. 13 years
Assemblers:
Amkor/Anam International........................................ 18 years
AMT............................................................. 9 years
Orient Semiconductor............................................ 5 years
ChipPAC......................................................... 1 year
</TABLE>
During the fourth quarter of fiscal year 1997, we set up a test and drop-
ship facility in Singapore's Kolam Ayer Industrial Park to achieve faster
delivery of our products to customers throughout the Pacific Rim region. The
Singapore facility handles wafer probe and final testing for over 95% of our
silicon timing products. The facility began testing devices in the first
quarter of fiscal year 1998 and shipments began in the second quarter of fiscal
year 1998.
Sales Support and Customers
We market our products through a direct sales force that manages a worldwide
network of independent sales representatives and distributors. We direct our
sales efforts through our offices in Norristown (PA), San Jose (CA), Houston
(TX) and Taipei (Taiwan).
We believe that our customers' purchase decisions are based on performance,
time-to-market, service and cost. Many customers have long relationships with
us based on our success in meeting these criteria. We believe that our ability
to rapidly respond to changes in demand for new or modified designs with
consistent high quality is a major factor in our success at sustaining customer
relationships. Reflecting these strong relationships, we are currently in the
process of developing the next generation of timing devices to support the
leading systems architects in personal computing and Internet services, as well
as the communications broadband technologies.
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We currently have more than 400 customers, with no single customer
accounting for 10% or more of our revenue in the fiscal year ended July 3, 1999
other than Maxtek Technology, which accounted for 12% of our fiscal year 1999
total revenue. We do not consider Maxtek Technology a single customer because
they purchase our products to distribute to numerous OEMs.
Top OEM Customers in Each Product Area
<TABLE>
<CAPTION>
Custom Mixed-
Communications Infrastructure Consumer and Business Electronics Signal and Data Communications
- ----------------------------- --------------------------------- ------------------------------
<S> <C> <C>
Cisco Asustek Hewlett Packard
Samsung Hughes Networks Xircom
Scientific
Atlanta Compaq Fujitsu
Nortel
Networks Dell Newbridge
Intergraph IBM Lucent
Hitachi Echostar Microtouch
Marconi Intel Lifescan
Hitachi E-Machines KDI
Seiko-Epson General Instrument GE
SGI Gateway Cochlear
</TABLE>
Research and Development
The design process for our products is extremely complex, involving the
development of a prototype through computer-aided design, the use of simulation
methodology, the generation of photo masks for the manufacturing process, the
fabrication of wafers and the characterization of the prototype on test systems
before submission to customers for qualification. Research and development
efforts concentrate on the design and development of new leading-edge products
for our markets and the continual enhancement of our design capabilities.
Over the last three fiscal years, we have developed and introduced to market
approximately 424 new products. For over twenty years, we have developed
libraries of proprietary mixed-signal integrated circuit designs and have
invested in extensive computer-aided design and engineering resources
specifically designed to support the increasing complexity and customized
nature of FTGs and silicon timing devices. Investments in research and
development were approximately $13.5 million, $19.8 million and $21.3 million
in fiscal years 1997, 1998 and 1999, respectively. Such expenses typically
include costs for engineering personnel, prototype and wafer mask costs, and
investment in design tools and support overhead related to new and existing
product development. As of April 1, 2000, our research and development staff
comprised 86 people. We will continue to invest in research and new product
development within our core product group. We believe our ability to
consistently develop and market new generations of silicon timing devices has
become a key competitive advantage and has contributed significantly to our
leading market share.
Patents/Trademarks
We hold several patents, as well as copyrights, mask works and trademarks
with respect to our various products and expect to continue to file
applications for additional intellectual property rights in the future as a
means of protecting our technology and market position. These patents generally
have a 17-year life and begin expiring in fiscal year 2009. In addition, we
seek to protect our proprietary information and know-how through the use of
trade secrets, confidentiality agreements and other security measures. To
augment product feature sets or accelerate development schedules, we also
license certain technologies. We do not consider any single patent or license
to be material to our business. In certain instances, we have performed design
services for OEM customers pursuant to an agreement by which we provide certain
of our intellectual property rights with the final product to our customers.
Such transfers are also not deemed material to our business. See "Risk
Factors--We Depend on Patents, Trade Secrets and Proprietary Technology."
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Employees
As of April 1, 2000, we had 258 full-time employees, 86 of whom were engaged
in research and development, 25 in sales, 17 in marketing and technical
support, 36 in finance and administration and 94 in manufacturing support and
operations. We have incentive programs to retain our key research and
development staff. After this offering, the senior management team and many
other employees will own new common stock and options, together representing up
to approximately 18% of our common stock on a fully-diluted basis.
Facilities
Our corporate headquarters, covering 61,000 square feet, is located in
Norristown, Pennsylvania. We purchased this property in September 1992. On
January 18, 1999, we entered into an agreement of sale with BET Investments
III, L.P. to sell the land and property of our Norristown location for $5.5
million. The sale transaction was completed on April 13, 1999. On January 29,
1999, we signed a lease with BET Investments IV, L.P., the assignee of BET
Investments III, L.P., to lease back the Norristown building for a term of
eight years commencing upon the closing of the sale, 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. We also have
a renewal option of three or more years after the initial eight-year term.
We opened a 10,000 square foot design facility in Tempe, Arizona in January
2000. The lease term for this facility is five years with annual lease payments
of $111,600, increasing $2,400 each year during the term of the lease.
We utilize a sales office located in Taipei, Taiwan, which consists of 1,300
square feet of office space leased pursuant to an agreement which expires in
November 2000. We also utilize a facility located in Singapore for testing,
warehousing, sales and administration, which consists of 16,000 square feet of
space leased pursuant to an agreement which expires in August 2000.
In November 1998, we relocated our San Jose operations to a new facility in
San Jose with 70,000 square feet of office space pursuant to a new lease
agreement which will expire in December 2008. We believe that this new facility
is adequate to meet our requirements going forward.
Legal Proceedings
From time to time, various inquiries, potential claims and charges and
litigation are made, asserted or commenced by or against us, principally
arising from or related to contractual relations and possible patent
infringement. We believe that any of these claims currently pending,
individually and in the aggregate, have been adequately reserved and will not
have any material adverse effect on our consolidated financial position or
results of operations, although no assurance can be made in this regard.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information about our directors and
the executive officers.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Chief Executive Officer, President and
Hock E. Tan.......................... 48 Director
Vice President and Chief Financial
Justine F. Lien...................... 37 Officer
Lewis C. Eggebrecht.................. 56 Vice President and Chief Scientist
Henry I. Boreen...................... 73 Director
David Dominik........................ 44 Director
Michael A. Krupka.................... 35 Director
Prescott Ashe........................ 33 Director
John Howard.......................... 48 Director
</TABLE>
Hock E. Tan began serving as Chief Executive Officer and President after the
recapitalization in May 11, 1999. Mr. Tan joined us in August 1994 and was
appointed as Senior Vice President and Chief Financial Officer in February
1995. In April 1996, Mr. Tan was appointed to the additional post of Chief
Operating Officer. Before joining our company, Mr. Tan was Vice President of
Finance of Commodore International, Ltd. from 1992 to 1994. Mr. Tan has served
as Managing Director of Pacven Investment, Ltd. from 1988 to 1992 and was
Managing Director of Hume Industries (M) Ltd. from 1983 to 1988. His career
also includes senior financial positions with PepsiCo, Inc. and General Motors
Corporation. Mr. Tan holds an M.B.A. from Harvard Business School and an M.S.
in Mechanical Engineering from Massachusetts Institute of Technology.
Justine F. Lien was appointed Chief Financial Officer after the
recapitalization on May 11, 1999 and has been with us since 1993. She has held
titles including Director of Finance and Administration and Assistant
Treasurer. Prior to joining us, Ms. Lien was employed by Smith Industries in
various finance capacities. Ms. Lien holds a B.A. degree in Accounting and
Economics from Immaculata College and is a Certified Management Accountant.
Lewis C. Eggebrecht was appointed Vice President and Chief Scientist in 1998
and possesses over 30 years of experience in the integrated circuit and
personal computer industries. Prior to his employment with us, Mr. Eggebrecht
was Chief Architect for the Multimedia Products Group at Philips Semiconductor
from 1996 to 1998. Mr. Eggebrecht was a senior engineer at S3 in 1996 and was a
Vice President and Chief Scientist at our company from 1994 to 1996. Mr.
Eggebrecht also held senior engineering positions at Commodore International,
Franklin Computer and IBM. Mr. Eggebrecht holds numerous patents and industry
awards and has authored over 25 articles for a variety of technical
publications. Mr. Eggebrecht holds a B.S.E.E. degree from the Michigan
Technological University and has accomplished advanced degree work at the
University of Minnesota.
Henry I. Boreen has been a director since December 1984 and chairman of the
board of directors since April 1995. He served as Interim Chief Executive
officer from March 1998 through October 1998. Since 1984, Mr. Boreen has been a
principal of HIB International. From 1989 to January 1998, Mr. Boreen has also
served as chairman of AM Communications, Inc., a manufacturer of
telecommunications equipment. Mr. Boreen has over 35 years of experience in the
integrated circuits industry and was the founder and chairman of Solid State
Scientific, a semiconductor manufacturer.
David Dominik is a co-founder and managing director of Convergence Capital
Group and a special limited partner of Bain Capital, Inc. He was a managing
director of Bain Capital, Inc. from 1990 until March 2000. Previously, Mr.
Dominik was a general partner of Zero Stage Capital, a venture capital firm
focused on early-stage companies, and assistant to the chairman of Genzyme
Corporation, a biotechnology firm. From 1982 to 1984, he worked as a management
consultant at Bain & Company. Mr. Dominik also serves as a director of ChipPAC,
Inc., DDi Corp. and OneSource.
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Michael A. Krupka joined Bain Capital in 1991 and has been a Managing
Director since 1997. Prior to joining Bain Capital, Mr. Krupka spent several
years as a management consultant at Bain & Company where he focused on
technology and technology-related companies. In addition, he has served in
several senior operating roles at Bain Capital portfolio companies. Mr. Krupka
currently serves on the board of directors of Sealy Corporation.
Prescott Ashe is a co-founder and managing director of Convergence Capital
Group. He was a principal at Bain Capital, Inc. from June 1998 until March
2000. He was an associate at Bain Capital, Inc. from 1992 until 1998. Prior to
that, he was an analyst at Bain Capital, Inc. and a consultant at Bain &
Company. Mr. Ashe also serves as a director of ChipPAC, Inc., DDi Corp. and
SMTC Corporation.
John D. Howard joined Bear Stearns in March of 1997 to develop and build its
Merchant Banking business. He is a Senior Managing Director of Bear Stearns and
Head of Merchant Banking. Prior to joining Bear Stearns, Mr. Howard founded
Gryphon Capital Partners, a private investment firm. From 1990 to 1996, he was
co-Chief Executive Officer of Vestar Capital Partners, Inc., a private
investment firm specializing in management buyouts. In addition, Mr. Howard was
a Senior Vice President and partner of Wesray Capital Corporation, one of the
foremost private equity sponsors and a pioneer of leveraged buyouts, from 1985
to 1990. Formerly, Mr. Howard was a Vice President in the mergers and
acquisitions group of Bear Stearns.
Upon completion of the offering, we expect to appoint at least two
additional independent directors.
Compensation of Directors
Directors serving on the board of directors are currently not entitled to
receive any compensation for serving on the board. Directors are reimbursed for
their out-of-pocket expenses incurred in connection with such services.
Following this offering, directors who are not employees of our company or who
are not otherwise affiliated with us or our principal shareholders will receive
compensation that is commensurate with arrangements offered to directors of
companies that are similar to our company. Compensation arrangements for
independent directors established by our board could be in the form of cash
payments and/or option grants.
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<PAGE>
Executive Compensation
Summary Compensation Table
The following table sets forth, for the fiscal years ended July 3, 1999,
June 27, 1998 and June 28, 1997, the compensation paid to those persons who
were, at any time during fiscal year 1999, our chief executive officer and our
next most highly compensated executive officers whose total annual salary and
bonus was in excess of $100,000 for fiscal year 1999.
<TABLE>
<CAPTION>
Long-Term Compensation
-------------------------
Annual Compensation Securities
---------------------- Underlying All Other
Fiscal Salary Bonus Options/SARS Compensation
Year ($) ($)(1) (#) ($)(2)
------ ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Hock E. Tan(3)............... 1999 232,565 70,560 1,195,206 107,340
Chief Executive Officer and
President 1998 209,997 168,000 -- 5,254
(since May 1999) 1997 166,273 112,660 84,710 5,182
Justine F. Lien(4)........... 1999 103,931 39,403 525,202 45,457
Chief Financial Officer 1998 89,803 38,610 6,777 5,158
(since May 1999) 1997 84,437 26,052 31,766 6,271
Lewis C. Eggebrecht.......... 1999 180,560 80,490 677,680 64,214
Vice President and Chief
Scientist 1998 78,923 84,857 169,420 454
Henry I. Boreen(5)........... 1999 72,262 26,880 64,380 364
Chief Executive Officer 1998 66,923 -- 98,264 --
(May 1998--November 1998) 1997 96,923 40,020 127,065 --
Rudolf S. Gassner(6)......... 1999 74,031 -- 359,170 14,788
Chairman of the Board
(January 1999--May 1999)
</TABLE>
- --------
(1) Includes cash bonuses for services rendered in the applicable fiscal year.
(2) Includes amounts contributed by the Company (i) under the Company's 401(k)
Plan as follows: Mr. Tan--$4,750 for 1999, $4,750 for 1998 and $4,750 for
1997; Mr. Eggebrecht--$3,821 for 1999 and $0 for 1998; and Ms. Lien--$5,245
in 1999, $4,931 in 1998 and $6,057 in 1997; (ii) for premiums for a life
insurance policy as follows: Mr. Tan--$504 for 1999, $504 for 1998, and
$432 for 1997; Mr. Eggebrecht--$454 for 1999 and $454 for 1998; and Ms.
Lien--$252 for 1999, $227 for 1998 and $214 for 1997; (iii) for deferred
compensation agreements as follows: Mr. Tan--$102,086 for 1999, Ms. Lien--
$39,960 and Mr. Eggebrecht--$59,940 for 1999; (iv) for car allowance for
Mr. Gassner--$7,938; and (v) for lawyer fees for Mr. Gassner--$6,850.
(3) Mr. Tan was appointed Chief Executive Officer and President at the close of
the recapitalization on May 11, 1999.
(4) Ms. Lien was appointed Chief Financial Officer effective May 11, 1999.
(5) Mr. Boreen resigned as Chief Executive Officer effective December 31, 1998.
(6) Effective January 1999, Mr. Gassner was elected chairman of the board of
directors and assigned the responsibilities of chief executive officer. Mr.
Gassner's employment terminated pursuant to the terms of his employment
agreement at the close of the recapitalization on May 11, 1999.
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<PAGE>
The following table sets forth the option grants during the fiscal year
ended July 3, 1999 for the individuals named in the Summary Compensation table
after giving effect to the reclassification and the 1.6942-for-1 stock split,
assuming an offering price of $16.00 per share and an effective date of May 22,
2000.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential
Realizable
Value at
Assumed Annual
Individual Grants Rates of Stock
- ----------------------------------------------------------------------------- Price
% of Total Appreciation
Options Exercise Grant for Option
Granted to or Base Date Term
Options Employees in Price Market Expiration --------------
Name Granted Fiscal Year ($/SH) Price($) Date 5%($) 10%($)
---- --------- ------------ -------- -------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Hock E. Tan............. 389,534(1) 3.3% 0.0260 0.1299 05/11/09 72,278 121,082
43,282(1) 0.4% 2.1249 10.6243 05/11/09 57,839 146,575
508,260(2) 4.3% 0.1299 0.1299 05/11/09 41,507 105,187
254,130(2) 2.2% 1.7530 0.1299 05/11/09 -- --
Justine F. Lien......... 152,478(1) 1.3% 0.0260 0.1299 05/11/09 28,292 47,396
16,942(1) 0.1% 2.1249 10.6243 05/11/09 22,640 57,375
225,893(2) 1.9% 0.1299 0.1299 05/11/09 18,448 46,750
112,947(2) 1.0% 1.7530 0.1299 05/11/09 -- --
16,942(3) 0.1% 7.4886 7.4886 08/03/03 -- --
Lewis C. Eggebrecht..... 228,717(1) 2.0% 0.0260 0.1299 05/11/09 42,438 71,094
25,413(1) 0.2% 2.1249 10.6243 05/11/09 33,960 86,062
33,884(3) 0.3% 7.4886 7.4886 08/03/03 -- --
282,367(2) 2.4% 0.1299 0.1299 05/11/09 23,060 58,437
141,183(2) 1.2% 1.7530 0.1299 05/11/09 -- --
Henry I. Boreen......... 50,826(3) 0.4% 5.8655 5.8655 09/11/03 -- --
13,554(3) 0.1% 10.8456 10.8456 02/02/04 -- --
Rudolf S. Gassner....... 359,170(3) 3.1% 8.1896 8.1896 11/03/03 -- --
</TABLE>
- ---------------------
(1) In-the-money options granted in exchange for the rollover of options
outstanding at the time of the recapitalization.
(2) Granted under the Company's 1999 Stock Option Plan. Grants under the 1999
Stock Option Plan may not be comparable to previous plans due to the
recapitalization of the Company.
(3) Granted under the Company's 1997 Equity Compensation Plan. In connection
with the recapitalization we paid the holders the following amounts with
respect to the cancellation of such options: Mr. Eggebrecht--$171,250; Mr.
Boreen--$362,375; and Mr. Gassner--$1,297,248.
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<PAGE>
The following table sets forth information concerning stock option exercises
during our last year and options outstanding at the end of the last year after
giving effect to the reclassification and the 1.6942-for-1 stock split,
assuming an offering price of $16.00 per share and an effective date of May 22,
2000.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
<TABLE>
<CAPTION>
Number of
Securities
Underlying
Unexercised Value of Unexercised
Options at In-the-Money
Fiscal Year End Options at
(#) FY-End ($)
Shares Value --------------- --------------------
Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
---- ------------ ---------- --------------- --------------------
<S> <C> <C> <C> <C>
Hock E. Tan............. 169,420 $1,021,875 432,816/762,390 6,822,958/11,686,727
Justine F. Lien......... 54,743 $ 281,039 169,420/338,840 2,663,818/5,194,100
Lewis C. Eggebrecht..... 76,239 $ 341,563 254,130/423,550 4,006,133/6,492,627
Henry I. Boreen......... 149,090 $ 621,750 0/0 0/0
Rudolf S. Gassner....... 398,137 $1,726,625 0/0 0/0
</TABLE>
Executive Employment and Severance Arrangements
As a part of the recapitalization, we entered into an employment agreement
with Hock E. Tan, as CEO and President with a base salary of $250,000 per year.
In addition to his salary, Mr. Tan is eligible to earn an annual bonus of up to
120% of his base salary based upon our attaining certain performance targets
established annually by the board of directors. During his term of employment,
Bain Capital has agreed to nominate and vote for Mr. Tan to serve as a member
of the board of directors.
Qualified 401(k) and Profit Sharing Plan
We maintain a qualified 401(k) and profit sharing plan. Employees are
permitted to contribute up to 12% of their annual compensation. Under the plan,
we make matching contributions equal to 150% of the first 1% contributed, 125%
of the second 1% contributed, 100% of the third 1% contributed, 75% of the
fourth 1% contributed and 50% of the next 2% contributed up to a maximum of 6%
of annual compensation, subject to the IRS limits. The amounts we contributed
and charged to expense were $0.5 million in both fiscal years 1999 and 1998 and
$0.3 million in fiscal year 1997.
Deferred Compensation Arrangements
As part of the recapitalization, we entered into deferred compensation
arrangements with certain members of our senior management team. The
arrangements expire on May 11, 2009, at which time we will pay the executives
the entire deferred compensation amount regardless of their employment status
at our company. If a sale of our company occurs prior to the expiration of the
arrangements, the executives will receive the full benefit amount at that date.
On the date of this offering, the executives will receive 50% of the benefit
under these arrangements, and the remaining 50% will be paid on the first
anniversary of this offering. The amount of deferred compensation as of April
1, 2000 was $0.5 million.
Management Equity Participation
The Recapitalization. Some of the shares of our existing common stock held
by some members of management before the recapitalization were converted into
shares of our new common stock after the recapitalization. In addition, some of
the existing stock options held by some of the members of our
51
<PAGE>
management before the recapitalization were converted into options to purchase
shares of our new common stock after the recapitalization and deferred
compensation agreements. Fifteen members of management participated in the
rollover of common stock and stock options, including Messrs. Henry I. Boreen,
Hock E. Tan and Lewis C. Eggebrecht. These members of management invested an
aggregate of $9.8 million in the recapitalization, consisting primarily of the
fair value of certain common stock and vested stock options.
1999 Stock Option Plans. In order to provide additional financial incentives
to certain of our executives and other key employees, in May 1999 we adopted
the 1999 Stock Option Plan, or the "1999 Plan" under which we will periodically
grant options to purchase our new common stock. These options will vest upon
the fulfillment of certain conditions, the passage of a specified period of
time and our achievement of certain performance goals, as determined by our
board of directors. All of the unvested options of any terminated employee will
expire upon termination, and the exercise period of all vested options will be
reduced to sixty days following the date of termination. We and certain
investors have the right to repurchase shares of our common stock issued upon
the exercise of options granted under the 1999 Plan if any employee ceases to
be employed by us. Following this offering, the senior management team and many
other employees will own common stock and options, together representing
approximately 18% of our common stock on a fully-diluted basis. No future
grants will be made under the 1999 Plan upon the effectiveness of the 2000
Plan.
2000 Long-Term Equity Incentive Plan. Prior to the closing of the offering,
we will adopt the 2000 Long-Term Equity Incentive Plan. The equity incentive
plan provides for grants of stock options, stock appreciation rights,
restricted stock and performance awards. Directors, officers and other
employees of our company and its subsidiaries and persons who engage in
services for us are eligible for grants under the plan. The purpose of the
equity incentive plan is to provide these individuals with incentives to
maximize shareholder value and otherwise contribute to our success and to
enable us to attract, retain and reward the best available persons for
positions of responsibility.
Approximately 6,300,000 shares of common stock after this offering will be
available for issuance under the equity incentive plan, subject to adjustment
in the event of a reorganization, stock split, merger or similar change in our
corporate structure or the outstanding shares of common stock. In the event of
any of these occurrences, we may make any adjustments we consider appropriate
to, among other things, the number and kind of shares, options or other
property available for issuance under the equity incentive plan or covered by
grants previously made under the plan. The shares available for issuance under
the equity incentive plan may be, in whole or in part, authorized and unissued
or held as treasury shares.
The compensation committee of our board of directors will administer the
equity incentive plan. Our board also has the authority to administer the plan
and to take all actions that the compensation committee is otherwise authorized
to take under the plan.
The following is a summary of the material terms of the equity incentive
plan, but does not include all of the provisions of the plan. For further
information about the plan, we refer you to the equity incentive plan, which we
have filed as an exhibit to the registration statement of which this prospectus
is a part.
Directors, officers and employees of our company and its subsidiaries, as
well as other individuals performing significant services for us, or to whom we
have extended an offer of employment, will be eligible to receive grants under
the equity incentive plan. However, only employees may receive grants of
incentive stock options. In each case, the compensation committee will select
the actual grantees. As of April 1, 2000, there were approximately 190
employees expected to be eligible to participate in the equity incentive plan.
Under the equity incentive plan, the compensation committee or the board may
award grants of incentive stock options conforming to the provisions of Section
422 of the Internal Revenue Code of 1986, as amended, or the "Internal Revenue
Code," and other, non-qualified stock options. The compensation committee may
not, however, award to any one person in any calendar year options to purchase
common stock equal to more than 10% of the total number of shares authorized
under the plan, and it may not award incentive options first exercisable in any
calendar year whose underlying shares have a fair market value greater than
$100,000, determined at the time of grant.
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<PAGE>
The compensation committee will determine the exercise price of any option
in its discretion. However, the exercise price of an incentive option may not
be less than 100% of the fair market value of a share of common stock on the
date of grant, and the exercise price of an incentive option awarded to a
person who owns stock constituting more than 10% of our company's voting power
may not be less than 110% of such fair market value on such date.
Unless the compensation committee determines otherwise, the exercise price
of any option may be paid in any of the following ways:
. in cash,
. by delivery of shares of common stock with a fair market value equal to
the exercise price,
. by simultaneous sale through a broker of shares of common stock acquired
upon exercise, and/or
. by having us withhold shares of common stock otherwise issuable upon
exercise.
If a participant elects to deliver or withhold shares of common stock in
payment of any part of an option's exercise price, the compensation committee
may in its discretion grant the participant a "reload option." The reload
option entitles its holder to purchase a number of shares of common stock equal
to the number so delivered or withheld. The reload option may also include, if
the compensation committee chooses, the right to purchase a number of shares of
common stock equal to the number delivered or withheld in satisfaction of any
tax withholding requirements of our company in connection with the exercise of
the original option. The terms of each reload option will be the same as those
of the original exercised option, except that the grant date will be the date
of exercise of the original option, and the exercise price will be the fair
market value of the common stock on the date of exercise.
The compensation committee will determine the term of each option in its
discretion. However, no term may exceed ten years from the date of grant or, in
the case of an incentive option granted to a person who owns stock constituting
more than 10% of the voting power of our company, five years from the date of
grant. In addition, all options under the equity incentive plan, whether or not
then exercisable, generally cease vesting when a grantee ceases to be a
director, officer or employee of, or to otherwise perform services for, our
company or its subsidiaries. Options generally expire 30 days after the date of
cessation of service, so long as the grantee does not compete with us during
the 30-day period.
In the event of death, disability or retirement, a grantee's vested options
will remain exercisable for up to 90 days after the date of retirement, while
his or her unvested options may become fully vested and exercisable in the
discretion of the compensation committee. Upon termination for cause, all
options will terminate immediately. And if there is a change in control of our
company and a grantee is terminated from service with our company and its
subsidiaries within one year thereafter, all options will become fully vested
and exercisable and remain so for up to one year after the date of termination.
In addition, the compensation committee has the authority to grant options that
will become fully vested and exercisable automatically upon a change in control
of our company, whether or not the grantee is subsequently terminated.
The compensation committee may grant stock appreciation rights, or SARs,
alone or in tandem with stock options, subject to the terms and conditions it
determines under the equity incentive plan. SARs granted in tandem with options
become exercisable only when, to the extent and on the conditions that the
related options are exercisable, and they expire at the same time the related
options expire. The exercise of an option results in the immediate forfeiture
of any related SAR to the extent the option is exercised, and the exercise of
an SAR results in the immediate forfeiture of any related option to the extent
the SAR is exercised.
Upon exercise of an SAR, the grantee will receive an amount in cash and/or
shares of common stock or other securities equal to the difference between the
fair market value of a share of common stock on the date of exercise and the
exercise price of the SAR or, in the case of an SAR granted in tandem with
options, of the option to which the SAR relates, multiplied by the number of
shares as to which the SAR is exercised.
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<PAGE>
Under the equity incentive plan, the compensation committee may award
restricted stock subject to the conditions and restrictions, and for the
duration, which will generally be at least six months, that it determines in
its discretion. A grantee will be required to pay to us at least the aggregate
par value of any shares of restricted stock within ten days of the date of
grant, unless the shares are treasury shares. Unless the compensation committee
determines otherwise, upon death, disability or termination of employment or
service, all of a grantee's restricted stock as to which the applicable
restrictions have not lapsed will be forfeited immediately.
Under the equity incentive plan, the compensation committee may grant
performance awards contingent upon achievement by the grantee, our company
and/or its subsidiaries or divisions of set goals and objectives regarding
specified performance criteria, such as return on equity, over a specified
performance cycle, as designated by the compensation committee. Performance
awards may include specific dollar-value target awards, performance units, the
value of which is established by the compensation committee at the time of
grant, and/or performance shares, the value of which is equal to the fair
market value of a share of common stock on the date of grant. The value of a
performance award may be fixed or fluctuate on the basis of specified
performance criteria. A performance award may be paid out in cash and/or shares
of common stock or other securities.
Unless the compensation committee determines otherwise, if a grantee ceases
to be a director, officer or employee of, or to otherwise perform services for,
our company and its subsidiaries prior to completion of a performance cycle,
because of termination within one year after a change in control of our company
or due to death, disability or retirement, the grantee will receive the portion
of the performance award payable to him or her based on achievement of the
applicable performance criteria over the elapsed portion of the performance
cycle. If termination of employment or service occurs for any other reason
prior to completion of a performance cycle, the grantee will become ineligible
to receive any portion of a performance award.
The terms and conditions of each award made under the equity incentive plan,
including vesting requirements, will be set forth consistent with the plan in a
written agreement with the grantee. Except in limited circumstances, no award
under the equity incentive plan may vest and become exercisable within six
months of the date of grant, unless the compensation committee determines
otherwise.
Unless the compensation committee determines otherwise, a participant may
elect to deliver shares of common stock, or to have us withhold shares of
common stock otherwise issuable upon exercise of an option or SAR or upon grant
or vesting of restricted stock, in order to satisfy our withholding obligations
in connection with any such exercise, grant or vesting.
Unless the compensation committee determines otherwise, no award made under
the equity incentive plan will be transferable other than by will or the laws
of descent and distribution or to a grantee's family member
by gift or a qualified domestic relations order, and each award may be
exercised only by the grantee, his or her qualified family member transferee,
or his or her executor, administrator, guardian, or legal representative.
The board may amend or terminate the equity incentive plan in its
discretion, except that no amendment will become effective without prior
approval of our shareholders if such approval is necessary for continued
compliance with the performance-based compensation exception of Section 162(m)
of the Internal Revenue Code or any stock exchange listing requirements.
Furthermore, any termination may not materially and adversely affect any
outstanding rights or obligations under the equity incentive plan without the
affected participant's consent. If not previously terminated by the board, the
equity incentive plan will terminate on the tenth anniversary of its adoption.
The Revenue Reconciliation Act of 1993 limits the annual deduction a
publicly held company may take for compensation paid to its chief executive
officer or any of its four other highest compensated officers in excess of
$1,000,000 per year, excluding for this purpose compensation that is
"performance-based" within the meaning of Internal Revenue Code Section 162(m).
We intend that compensation realized upon the exercise of
54
<PAGE>
an option or SAR granted under the plan be regarded as "performance-based"
under Section 162(m) and that such compensation be deductible without regard to
the limits imposed by Section 162(m) on compensation that is not "performance-
based."
Compensation paid under the equity incentive plan will not qualify as
performance-based except to the extent paid pursuant to grants made under the
plan following the approval of the plan by our shareholders in accordance with
Internal Revenue Code Section 162(m)(4)(c) and the related Treasury
Regulations, and except to the extent that certain other requirements are
satisfied. However, based on a special rule contained in regulations issued
under Section 162(m), the $1 million deduction limitation described above
should not apply to any options, SARs or restricted stock granted, or cash-
based compensation paid, under the equity incentive plan prior to our annual
meeting of shareholders in the calendar year following the close of the third
year calendar year after this offering.
Employee Stock Purchase Plan. The 2000 Employee Stock Purchase Plan, or the
"Stock Purchase Plan," will be adopted by our board of directors and our
shareholders prior to the completion of this offering. The Stock Purchase Plan
will be established to give employees desiring to do so a convenient means of
purchasing shares of common stock through payroll deductions or lump sum cash
payments. The Stock Purchase Plan provides an incentive to participate by
permitting purchases at a discounted price. We believe that ownership of stock
by employees will foster greater employee interest in the success, growth and
development of our Company.
Compensation Committee Interlocks and Insider Participation
Currently, our board of directors does not have a compensation committee.
Consequently, the entire board of directors participates in deliberations
concerning executive officer compensation. Mr. Tan is a member of the board of
directors and is our President and Chief Executive Officer. Mr. Boreen is a
member of the board of directors and is a former officer of the Company. Mr.
Gassner was a member of the board of directors and an officer of the Company
prior to the recapitalization.
On May 11, 1999, we entered into a consulting agreement with Henry Boreen, a
board member, for consulting services. The agreement provides for us to pay Mr.
Boreen $350,000 per year in monthly installments. This consulting agreement
will be terminated by mutual consent of the parties in connection with this
offering, and we will use some of the proceeds of this offering to pay Mr.
Boreen a fee of $350,000.
Committees of the Board of Directors
Upon the closing of this offering, the board of directors will have an audit
committee and a compensation committee. The audit committee will report to the
board regarding the appointment of our independent public accountants, the
scope and results of our annual audits, compliance with our accounting and
financial policies and management's procedures and policies relative to the
adequacy of our internal accounting controls. Upon the completion of the
initial public offering, the audit committee will consist of a majority of
directors not otherwise affiliated with us. The compensation committee of the
board of directors will review and make recommendations to the board regarding
our compensation policies and all forms of compensation to be provided to our
executive officers. In addition, the compensation committee will review bonus
and stock compensation arrangements for all of our other employees. Upon the
completion of the initial public offering, the compensation committee will
consist of at least two nonemployee directors (as defined in Rule 16b-3 under
the Exchange Act), and we expect to appoint at least two additional independent
directors.
55
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information, as of May 1, 2000, regarding the
beneficial ownership of shares of the single class of common stock that will be
outstanding after the reclassification and the 1.6942-for-1 stock split,
assuming an offering price of $16.00 per share and an effective date of May 22,
2000, by each person or entity known by us to own more than 5% of any class of
outstanding voting securities, by each of our directors, named executive
officers and directors and executive officers as a group. The actual number of
shares of common stock to be issued to each holder of Class L common stock in
the reclassification is subject to change based on the changes to the initial
public offering price and the completion of this offering. See "The
Reclassification." Beneficial ownership of the securities listed in the table
has been determined in accordance with the applicable rules and regulations
promulgated under the Securities Exchange Act of 1934. Unless otherwise noted,
to our knowledge, each of the following shareholders has sole voting and
investment power as to the shares shown. Several of our shareholders have
granted the underwriters an option to purchase up to 1,875,000 shares of common
stock to cover over-allotments, if any.
<TABLE>
<CAPTION>
Shares Beneficially Owned* Shares Beneficially Owned*
Prior to the Offering After the Offering
------------------------------ ------------------------------ Shares Offered in
Name and Address Number Percent Number Percent Over-allotment
---------------- ---------------- ------------- ---------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Principal Shareholders:
Bain Capital Funds(1)... 26,865,286 52.7% 26,865,286 42.3% 1,237,169
c/o Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts
02116
The Bear Stearns
Companies Inc.......... 8,955,097 17.6% 8,955,097 14.1% 412,390
245 Park Avenue
New York, New York 10167
Intel Corporation....... 6,082,669 11.9% 6,082,669 9.6% --
2200 Mission College
Boulevard
Santa Clara, California
95052
Integrated Circuit
Systems................ 454,378 ** 454,378 ** 20,924
Equity Investors, L.L.C.
(2)
11 Madison Avenue
New York, New York 10010
Randolph Street
Partners............... 272,626 ** 272,626 ** 12,555
200 East Randolph Drive
Chicago, Illinois 60601
Directors and Executive
Officers:
Henry I. Boreen......... 4,168,476 8.1% 4,168,476 6.5% 191,962
Hock E. Tan(3).......... 924,791 1.8% 924,791 1.4% --
Justine F. Lien(4)...... 265,384 ** 265,384 ** --
Lewis C. Eggebrecht(5).. 376,899 ** 376,899 ** --
Michael A. Krupka(6).... 7,109,711 13.9% 7,109,711 11.2% 327,355
David Dominik(6)........ 7,109,711 13.9% 7,109,711 11.2% 327,355
Prescott Ashe(7)........ 7,109,711 13.9% 7,109,711 11.2% 327,355
John Howard(8).......... 8,955,097 17.6% 8,955,097 14.1% 412,390
Directors and executive
officers as a group
(8 persons)............ 21,800,356 41.6% 21,800,356 33.6% 931,707
</TABLE>
- -------------------
* The number of shares of common stock outstanding on May 1, 2000 after giving
effect to the reclassification and the stock-split with respect to a person
of group includes (a) shares of common stock outstanding on such date and
(b) all options that are currently exercisable or will become exercisable
within 60 days of May 1, 2000 by any such person or group.
** represents less than 1%
(1) Includes shares of common stock owned by Bain Capital Fund VI, L.P. ("Fund
VI"), BCIP Associates II ("BCIP II"), BCIP Trust Associates II ("BCIP
Trust II"), BCIP Associates II-B ("BCIP II-B"), BCIP Trust Associates II-B
("BCIP Trust II-B"), BCIP Associates II-C ("BCIP II-C" and, collectively
with BCIP II, BCIP Trust II, BCIP Trust II-B and BCIP II-B, the "BCIPs"),
and PEP Investment PTY Ltd. ("PEP"). The BCIPs, PEP and Fund VI are
collectively referred to as the "Bain Capital Funds."
(2) An affiliate of Credit Suisse First Boston Corporation.
(3) Includes 190,601 shares of common stock issuable upon exercise of options.
(4) Includes 84,212 shares of common stock issuable upon exercise of options.
(5) Includes 105,889 shares of common stock issuable upon exercise of options.
(6) Mr. Krupka is a Managing Director of Bain Capital, Inc., which is the
managing general partner of each of the BCIPs and has voting and
investment power with respect to the shares owned by PEP. In addition, (i)
Messrs. Krupka and Dominik (or affiliated entities) are general partners
of BCIP Trust II, BCIP Trust II-B, BCIP II and/or BCIP II-B, and (ii) Bain
Investors VI is a general partner of BCIP II-C. Accordingly, each of Mr.
Krupka and Mr. Dominik may be deemed to beneficially own some or all of
the shares owned by the Bain Capital Funds. Each of Mr. Krupka and
Mr. Dominik disclaims beneficial ownership of any such shares.
(7) Mr. Ashe (or an affiliated entity) is a principal of Bain Capital, Inc.
and is a general partner of BCIP Trust II, BCIP Trust II-B, BCIP II and/or
BCIP II-B. Accordingly, Mr. Ashe may be deemed to beneficially own some or
all of the shares owned by BCIP II, BCIP II-B, BCIP Trust and BCIP Trust
II-B. Mr. Ashe disclaims beneficial ownership of any shares.
(8) Mr. Howard is a Senior Managing Director of Bear, Stearns & Co. Inc.
Accordingly, Mr. Howard may be deemed to beneficially own some or all of
the shares owned by The Bear Stearns Companies Inc. Mr. Howard disclaims
beneficial ownership of any such shares.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Recapitalization
In the recapitalization, affiliates of Bain Capital, an affiliate of Bear
Stearns and certain members of management made an aggregate equity investment
in our company of approximately $50 million as part of an agreement to redeem
and purchase all of our outstanding shares of common stock and vested options
for consideration (including fees and expenses) totaling $294.4 million.
Shareholders Agreement, Voting Agreement and Other Agreements
In connection with the recapitalization, we, each of Bain Capital and Bear
Stearns and all of our other equity holders have entered into agreements that,
among other things, provide for tag-along rights, drag-along rights,
registration rights, restrictions on the transfer of shares and certain
preemptive rights. The shareholders agreement provides that in certain
circumstances various specified actions, including among others, major
corporate transactions such as acquisitions, divestitures, financings,
recapitalizations and mergers, as well as other actions such as hiring and
firing senior managers, setting management compensation and establishing
capital and operating budgets and business plans, require the approval of a
majority of the shares of common stock held by Bain Capital. Pursuant to a
voting agreement, our board of directors is comprised of three representatives
designated by Bain Capital, one representative designated by Bear Stearns, our
chief executive officer so long as he is employed by us as chief executive
officer and Mr. Boreen so long as he owns at least 50% of the common stock he
owns at the closing of the recapitalization.
Advisory Agreements
In connection with the recapitalization, we entered into an advisory
agreement with each of Bain Capital and Bear Stearns pursuant to which they
agreed to provide financial advisory and consulting services. In exchange for
such services, Bain Capital and Bear Stearns were entitled to an aggregate
annual shareholder advisory fee of $1 million and their out-of-pocket expenses.
Each advisory agreement will be terminated by mutual consent of the parties in
connection with this offering, and we will use some of the proceeds of this
offering to pay Bain Capital and Bear Stearns a fee of $2.0 million and $0.7
million, respectively. Each advisory agreement includes customary
indemnification provisions in favor of each of Bain Capital and Bear Stearns.
During fiscal year 1999, the Company paid Bain Capital and Bear Stearns and its
affiliates fees of $3.4 million and $4.9 million, respectively.
Loans to Executive Officers
On May 11, 1999, certain members of the management team entered into stock
purchase agreements. In exchange for the purchase of Class A common shares and
Class L common shares, the executives delivered to us a promissory note. The
notes accrue interest at 8% per annum and mature on May 11, 2006. The
executives may prepay the notes at any time, in full or increments of $1,000.
If the executives receive a bonus from us, the executives have the obligation
to prepay their notes in an amount equal to 50% of the amount of such bonus,
net of the amount of any customary withholding taxes and such amount paid to
us. The total amount outstanding as of April 1, 2000 was $0.3 million, of which
$0.2 million was owed by Mr. Tan.
Consulting Agreement
On May 11, 1999, we entered into a consulting agreement with Henry Boreen, a
board member, for consulting services. The agreement provides for us to pay Mr.
Boreen $350,000 per year in monthly installments. The consulting agreement will
be terminated by mutual consent of the parties in connection with this
offering, and we will use some of the proceeds of this offering to pay Mr.
Boreen a fee of $350,000.
Senior Subordinated Notes and Senior Credit Facility
Sankaty High Yield Asset Partners, L.P., and Brant Point CBO 1999-1 Ltd.,
affiliates of Bain Capital, will receive a portion of the net proceeds of this
offering from the redemption and repurchase of the senior
57
<PAGE>
subordinated notes and Great Point CLO 1999-1 Ltd., also an affiliate of Bain
Capital, will receive a portion of the net proceeds of the offering from the
repayment of some of our indebtedness under our senior credit facility.
Orders Placed with Affiliate of Major Shareholders
Investment funds associated with Bain Capital are also shareholders of
ChipPAC, Inc., one of our production vendors. Our orders to ChipPAC totaled
approximately $3.5 million in fiscal 2000 and were on market terms.
Interests of Experts and Underwriters
Randolph Street Partners owns 272,626 shares of common stock acquired in the
recapitalization. In connection therewith, Randolph Street Partners entered
into the stockholders agreement and is considered part of the Bain Group under
the stock agreements and the registration agreement. Some partners of Kirkland
& Ellis are partners in Randolph Street Partners. Some partners of Skadden,
Arps, Slate, Meagher and Flom LLP, counsel to the underwriters, are members in
a limited liability company that is an investor in one of the Bain Capital
funds. Kirkland & Ellis has provided legal services to our company and to Bain
Capital from time to time and expects to continue to do so in the foreseeable
future.
ICST Acquisition Corp., an affiliate of Bear, Stearns & Co. Inc., one of the
underwriters of this offering, owns 8,955,097 shares of common stock acquired
in the recapitalization and will receive some of the proceeds of this offering
as a selling shareholder. Integrated Circuit Systems Equity Investors, L.L.C.,
an affiliate of Credit Suisse First Boston Corporation, one of the underwriters
of this offering, owns 454,378 shares of common stock acquired in the
recapitalization and will receive some of the proceeds of this offering as a
selling shareholder. Credit Suisse First Boston, an affiliate of Credit Suisse
First Boston Corporation, as a lender under our senior credit facility, will
receive a portion of the proceeds of this offering used to repay our
outstanding indebtedness under our senior credit facility.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
General Matters
Upon completion of this offering, the total amount of our authorized capital
stock will consist of 300,000,000 shares of common stock and 5,000,000 shares
of preferred stock. After giving effect to this offering, assuming an initial
public offering price of $16.00 per share, the midpoint of the range set forth
on the cover of this prospectus and a Preference Amount of $19.72 per share on
Class L common stock, we will have 63,492,905 shares of common stock and no
other shares of any series of preferred stock outstanding. As of April 1, 2000,
we had 34 shareholders of record with respect to our three classes of common
stock and one shareholder of record with respect to our Series A preferred
stock. The following summary of provisions of our capital stock describes all
material provisions of, but does not purport to be complete and is subject to,
and qualified in its entirety by, our restated certificate of incorporation and
our amended and restated by-laws, which are included as exhibits to the
registration statement of which this prospectus forms a part, and by the
provisions of applicable law.
The restated certificate and by-laws contain provisions that are intended to
enhance the likelihood of continuity and stability in the composition of the
board of directors and which may have the effect of delaying, deferring or
preventing a future takeover or change in control of our company unless such
takeover or change in control is approved by our board of directors.
Common Stock
The issued and outstanding shares of common stock are, and the shares of
common stock to be issued by us in connection with the offering will be,
validly issued, fully paid and nonassessable. Subject to the prior rights of
the holders of any series of preferred stock, the holders of outstanding shares
of common stock are entitled to receive dividends out of assets legally
available therefor at such time and in such amounts as the board of directors
may from time to time determine. See "Dividend Policy." The shares of common
stock are not convertible and the holders thereof have no preemptive or
subscription rights to purchase any of our securities. Upon liquidation,
dissolution or winding up of our company, the holders of common stock are
entitled to receive pro rata our assets which are legally available for
distribution, after payment of all debts and other liabilities and subject to
the prior rights of any holders of any series of preferred stock then
outstanding. Each outstanding share of common stock is entitled to one vote on
all matters submitted to a vote of shareholders. There is no cumulative voting.
Except as otherwise required by law or the restated certificate, the holders of
common stock vote together as a single class on all matters submitted to a vote
of shareholders.
The common stock will be included on the Nasdaq National Market under the
symbol "ICST."
Preferred Stock
Our board of directors may, without further action by our shareholders, from
time to time, direct the issuance of shares of preferred stock in a series and
may, at the time of issuance, determine the rights, preferences and limitations
of each series. Satisfaction of any dividend preferences of outstanding shares
of preferred stock would reduce the amount of funds available for the payment
of dividends on shares of common stock. Holders of shares of preferred stock
may be entitled to receive a preference payment in the event of any
liquidation, dissolution or winding-up of our company before any payment is
made to the holders of shares of common stock. The issuance of shares of
preferred stock may render more difficult or tend to discourage a merger,
tender offer or proxy contest, the assumption of control by a holder of a large
block of our securities or the removal of incumbent management. Upon the
affirmative vote of a majority of the total number of directors then in office,
the board of directors, without shareholder approval, may issue shares of
preferred stock with voting and conversion rights which could adversely affect
the holders of shares of common stock. There are no other shares of preferred
stock outstanding, and we have no present intention to issue any additional
shares of preferred stock.
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<PAGE>
Other Provisions of the Restated Articles of Incorporation and By-laws
The restated articles of incorporation provide for the board to be divided
into two classes, as nearly equal in number as possible, serving staggered
terms. Approximately one-half of the board will be elected each year. The
provision for a classified board could prevent a party who acquires control of
a majority of the outstanding voting stock from obtaining control of the board
until the second annual shareholders meeting following the date the acquiror
obtains the controlling stock interest. The classified board provision could
have the effect of discouraging a potential acquiror from making a tender offer
or otherwise attempting to obtain control of our company and could increase the
likelihood that incumbent directors will retain their positions.
The restated articles of incorporation provides that shareholder action can
be taken only at an annual or special meeting of shareholders and cannot be
taken by written consent in lieu of a meeting. The restated articles of
incorporation and the by-laws provide that, except as otherwise required by
law, special meetings of the shareholders can only be called pursuant to a
resolution adopted by a majority of the board of directors or by our chief
executive officer. Shareholders will not be permitted to call a special meeting
or to require the board to call a special meeting.
The by-laws establish an advance notice procedure for shareholder proposals
to be brought before an annual meeting of our shareholders, including proposed
nominations of persons for election to the board. Shareholders at an annual
meeting may only consider proposals or nominations specified in the notice of
meeting or brought before the meeting by or at the direction of the board or by
a shareholder who was shareholder of record on the record date for the meeting,
who is entitled to vote at the meeting and who has given to our secretary
timely written notice, in proper form, of such shareholder's intention to bring
that business before the meeting. Although the by-laws do not give the board
the power to approve or disapprove shareholder nominations of candidates or
proposals regarding other business to be conducted at a special or annual
meeting, the by-laws may have the effect of precluding the conduct of business
at a meeting if the proper procedures are not followed or may discourage or
defer a potential acquiror from conducting a solicitation of proxies to elect
its own slate of directors or otherwise attempting to obtain control of our
company.
Provisions of Pennsylvania Law Governing Business Combinations
Subchapter F of Chapter 25 of the Pennsylvania Business Corporation Law of
1988 prohibits, subject to certain exceptions, a "business combination" with a
shareholder or group of shareholders (and certain affiliates and associates of
such shareholders) from beneficially owning more than 20% of the voting power
of a public corporation, an "interested shareholder," for a five-year period
following the date on which the holder became an interested shareholder unless
the interested shareholder's acquisition of 20% or more of the common stock is
approved by our board of directors. This provision may discourage open market
purchases of our stock or a non-negotiated tender or exchange offer for our
stock and, accordingly, may be considered disadvantageous by a shareholder who
would desire to participate in any such transaction.
Under Section 1715 of the Pennsylvania Business Corporation Law, our
directors are not required to regard the interests of the shareholders as being
dominant or controlling in considering our best interests. The directors may
consider, to the extent they deem appropriate, such factors as:
. the effects of any action upon any group affected by such action,
including our shareholders, employees, suppliers, customers and
creditors, and communities in which we have stores, offices or other
establishments;
. our short-term and long-term interests, including benefits that may
accrue to us from our long-term plans and the possibility that these
interests may be best served by our continued independence;
. the resources, intent and conduct of any person seeking to acquire
control of us; and
. all other pertinent factors.
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<PAGE>
Section 1715 further provides that any act of our board of directors, a
committee of the board or an individual director relating to or affecting an
acquisition or potential or proposed acquisition of control to which a majority
of our disinterested directors have assented will be presumed to satisfy the
standard of care set forth in the Pennsylvania Business Corporation Law, unless
it is proven by clear and convincing evidence that our disinterested directors
did not consent to such act in good faith after reasonable investigation. As a
result of this and the other provisions of Section 1715, our directors are
provided with broad discretion with respect to actions that may be taken in
response to acquisitions or proposed acquisitions of corporate control.
Section 1715 may discourage open market purchases of our common stock or a
non-negotiated tender or exchange offer for our common stock and, accordingly,
may be considered disadvantageous by a shareholder who would desire to
participate in any such transaction. As a result, Section 1715 may have a
depressive effect on the price of our common stock.
Limitations on Liability and Indemnification of Officers and Directors
The restated articles limit the liability of directors to the fullest extent
permitted by the Pennsylvania Business Corporation Law. In addition, the
restated articles provide that we will indemnify our directors and officers to
the fullest extent permitted by such law. We expect to enter into
indemnification agreements with our current directors and executive officers
prior to the completion of the offering and expect to enter into a similar
agreement with any new directors or executive officers.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is StockTrans Inc.
DESCRIPTION OF INDEBTEDNESS
Senior Credit Facility
The senior credit facility provides for two groups of term loans: the term A
loans for $30.0 million and the term B loans for $40.0 million. The senior
credit facility also provides for revolving loans for up to $25.0 million,
including letters of credit. Subject to certain restrictions, we may use the
senior credit facility in the future for our working capital and general
corporate purposes.
In connection with this offering, we will repay all outstanding indebtedness
under our senior credit facility and terminate it. We then intend to enter into
a new revolving credit facility to support our working capital and general
corporate needs.
Senior Subordinated Notes
The senior subordinated notes were issued pursuant to an indenture, dated as
of May 11, 1999, by and between us, certain of our subsidiaries, and Chase
Manhattan Trust Company, National Association, as trustee. The senior
subordinated notes are limited in aggregate principal amount to $100,000,000
and will mature on May 15, 2009. Interest on the senior subordinated notes
accrues at the rate of 11 1/2% per annum and is payable semiannually in cash on
each May 15 and November 15, to the persons who are registered holders of the
senior subordinated notes at the close of business on the May 1 and November 1,
respectively, immediately preceding the applicable interest payment date. The
senior subordinated notes are not entitled to the benefit of any mandatory
sinking fund. The senior subordinated notes are general obligations of ours and
are subordinated in right of payment to all of our current and future senior
debt. The subordinated notes rank pari passu in right of payment with all other
senior unsecured obligations of our company.
The senior subordinated notes are redeemable, at our option, in whole at any
time or in part from time to time, on and after May 15, 2004, upon not less
than 30 nor more than 60 days' notice, at the following
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<PAGE>
redemption prices, expressed as percentages of the principal amount thereof, if
redeemed during the twelve- month period commencing on May 15 of the year set
forth below, plus, in each case, accrued interest to the date of redemption:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2004.............................. 105.750%
2005.............................. 103.833%
2006.............................. 101.916%
2007 and thereafter............... 100.000%
</TABLE>
At any time, or from time to time, on or prior to May 15, 2002, we may, at
our option, use the net cash proceeds of one or more equity offerings to redeem
up to 35% of the aggregate principal amount of senior subordinated notes
originally issued at a redemption price equal to 111.50% of the principal
amount thereof plus accrued and unpaid interest thereon, if any, to the date of
such redemption; provided that at least $65.0 million aggregate principal
amount of senior subordinated notes originally issued remains outstanding
immediately after any such redemption.
The indenture provides that, upon the occurrence of a change of control,
each holder will have the right to require that we purchase all or a portion of
such senior subordinated notes, at a purchase price equal to 101% of the
principal amount thereof plus accrued interest thereon to the date of purchase.
The term "change of control" is defined under the indenture to include one or
more of the following events:
. any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of our assets
to any person or group of related persons, together with any affiliates
thereof;
. the approval by the holders of our capital stock of any plan or proposal
for the liquidation or dissolution of our company (whether or not
otherwise in compliance with the provisions of the indenture);
. any person or group of related person, other than Bain Capital and Bear
Stearns or their respective related parties, shall become the owner,
directly or indirectly, beneficially or of record, of shares representing
more than 50% of the aggregate ordinary voting power represented by our
issued and outstanding capital stock; or
. the first day within any two-year period on which a majority of the
members of the board of directors are not continuing directors.
The following events are defined in the indenture as "events of default":
. the failure to pay interest on any senior subordinated notes and such
default continues for a period of 30 days;
. the failure to pay the principal on any senior subordinated notes;
. a default in the observance or performance of any other covenant or
agreement contained in the Indenture which default continues for a period
of 30 days after we receive written notice specifying the default;
. the failure to pay at final stated maturity the principal amount of any
of our indebtedness or any restricted subsidiary of ours and such failure
continues for a period of 10 days or more, if the aggregate principal
amount of such indebtedness, together with the principal amount of any
other such indebtedness in default for failure to pay principal at final
maturity or which has been accelerated, aggregates $7.5 million or more
at any time;
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. one or more judgments in an aggregate amount in excess of $7.5 million
shall have been rendered against us or any of our significant
subsidiaries and such judgments remain undischarged, unpaid or unstayed
for a period of 60 days after such judgment or judgments become final and
non-appealable;
. except as permitted by the indenture, any note guarantee of one of our
significant subsidiaries shall be held in any judicial proceeding to be
unenforceable, invalid, or shall cease for any reason to be in full force
and effect or any of our subsidiary guarantors shall deny or disaffirm
its obligations under its note guarantee; and
. events of bankruptcy affecting us or any of our significant subsidiaries.
The indenture contains covenants for the benefit of the holders of the
senior subordinated notes that, among other things, limit our ability and any
of our restricted subsidiaries to:
. enter into transactions with affiliates;
. pay dividends or make other restricted payments;
. consummate asset sales;
. incur indebtedness that is senior in right of payment to the senior
subordinated notes;
. incur liens;
. impose restrictions on the ability of a subsidiary to pay dividends or
make payments to us and our subsidiaries;
. merge or consolidate with any other person; or
. sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of our assets.
The foregoing summary of the material provisions of our senior credit
facility and the indenture is qualified in its entirety by reference to all of
the provisions of the senior credit facility and the indenture, respectively,
previously filed with the SEC. See "Where You Can Find More Information."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there was no market for our common stock. We can
make no predictions as to the effect, if any, that sales of shares or the
availability of shares for sale will have on the market price prevailing from
time to time. Nevertheless, sales of significant amounts of our common stock in
the public market, or the perception that such sales may occur, could adversely
affect prevailing market prices.
Sale of Restricted Shares
Upon completion of this offering, we will have, assuming an initial public
offering price of $16.00 per share, the midpoint of the range set forth on the
cover of this prospectus and a Preference Amount of $19.72 per share on Class L
common stock, 63,492,905 shares of common stock outstanding. In addition, upon
the completion of this offering, 2,011,770 shares of common stock are issuable
upon the exercise of currently exercisable outstanding stock options. Of the
shares outstanding after the offering, 12,500,000 shares of common stock, or
14,375,000 shares if the underwriters' over-allotment is exercised in full, are
freely tradeable without restriction under the Securities Act, except for any
such shares which may be held or acquired by an "affiliate" of our company, as
that term is defined in Rule 144 promulgated under the Securities Act, which
shares will be subject to the volume limitations and other restrictions of Rule
144 described below. An aggregate of 50,992,905 shares of common stock held by
our existing shareholders upon completion of the offering will be "restricted
securities," as that phrase is defined in Rule 144, and may not be resold in
the absence of registration under the Securities Act or pursuant to an
exemption from such registration, including among others, the exemptions
provided by Rule 144 under the Securities Act.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, if a period of at least one year has elapsed since
the later of the date the "restricted securities" were acquired from us or the
date they were acquired from an affiliate, then the holder of such restricted
securities, including an affiliate, is entitled to sell in the public market a
number of shares within any three-month period that does not exceed the greater
of 1% of the then outstanding shares of the common stock or the average weekly
reported volume of trading of the common stock on the Nasdaq National Market
during the four calendar weeks preceding such sale. The holder may only sell
such shares through "brokers' transactions" or in transactions directly with a
"market maker," as such terms are defined in Rule 144. Sales under Rule 144 are
also subject to requirements regarding providing notice of such sales and the
availability of current public information concerning us. Affiliates may sell
shares not constituting restricted securities in accordance with the foregoing
volume limitations and other requirements but without regard to the one-year
holding period.
Under Rule 144(k), if a period of at least two years has elapsed between the
later of the date restricted securities were acquired from us or the date they
were acquired from an Affiliate, as applicable, a holder of such restricted
securities who is not an Affiliate at the time of the sale and has not been an
Affiliate for at least three months prior to the sale would be entitled to sell
the shares in the public market without regard to the volume limitations and
other restrictions described above.
Securities issued in reliance on Rule 701, such as shares of common stock
acquired upon exercise of options granted under our stock plans, are also
restricted and, beginning 90 days after the effective date of this prospectus,
may be sold by shareholders other than our affiliates, subject only to the
manner of sale provisions of Rule 144, and by affiliates under Rule 144 without
compliance with its one-year holding period requirement.
Options
We intend to file registration statements on Form S-8 under the Securities
Act to register approximately 15,600,000 shares of common stock issuable under
our stock plans. These registration statements are expected to be filed within
six months of the effective date of the registration statement of which this
prospectus is a part and will be effective upon filing. Shares issued upon the
exercise of stock options after the effective date of the Form S-8 registration
statements will be eligible for resale in the public market without
restriction, subject to Rule 144 limitations applicable to Affiliates and the
lock-up agreements described below.
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Lock-Up Agreements
Our officers and directors and substantially all of the holders of our
common stock have agreed that they will not offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, any shares of our
common stock or securities convertible into or exchangeable or exercisable for
any shares of our common stock, enter into a transaction which would have the
same effect, or enter into any swap, hedge or other arrangement that transfers,
in whole or in part, any of the economic consequences of ownership of our
common stock, whether any such aforementioned transaction is to be settled by
delivery of our common stock or such other securities, in cash or otherwise, or
publicly disclose the intention to make any such offer, sale, pledge or
disposition, or enter into any such transaction, swap, hedge or other
arrangement, without, in each case, the prior written consent of Credit Suisse
First Boston Corporation for a period of 180 days after the date of this
prospectus.
Registration Agreement
Pursuant to the recapitalization, our company, Bain Capital, Bear Stearns,
and our other equity holders entered into a registration agreement (as amended
on December 23, 1999). Under the registration agreement, prior to an initial
public offering, the holders of a majority of the Class A common stock have the
right, and, at any time after an initial public offering, the holders of a
majority of the registrable securities owned by Bain Capital, Bear Stearns or
Intel, subject to conditions, to require us to register any or all of their
shares of common stock under the Securities Act on Form S-1, a "Long-Form
Registration." The holders of a majority of the Bain registrable securities
have the right to request three Long-Form Registrations, and the holders of a
majority of the Bear Stearns registrable securities and the Intel registrable
securities have the right to request one Long-Form Registration, in each case,
at our expense. The holders of a majority of the Bain registrable securities,
the Bear Stearns registrable securities and the Intel registrable securities
have the right to require us to register any or all of their shares of common
stock under the Securities Act on Form S-2 or Form S-3, a "Short-Form
Registration," on an unlimited number of, and three, occasions, respectively,
at our expense. We are not required, however, to effect any Short-Form
Registration requested by the holders of a majority of the Bear Stearns
registrable securities or the holders of a majority of the Intel registrable
securities within six months after the effective date of a prior demand
registration. We may postpone the filing of such registration for up to 90 days
if we and the holders of a majority of the registrable securities requesting
registration agree that such a registration would reasonably be expected to
have an adverse effect on any proposal or plan by us or any of our subsidiaries
to engage in an acquisition, merger or similar transaction.
In addition, all holders of registrable securities are entitled to request
the inclusion of any shares of common stock subject to the registration
agreement in any registration statement at our expense whenever we propose to
register any of our securities under the Securities Act. Such right to request
inclusion of shares is not permitted:
. in connection with a public offering, unless any holders of registrable
securities are permitted to participate in the public offering;
. pursuant to a demand registration; or
. pursuant to a registration on Form S-4 or S-8.
In connection with all such registrations, we have agreed to indemnify all
holders of registrable securities against liabilities set forth in the
registration agreement, including liabilities under the Securities Act. In
addition, all the parties to the registration agreement have agreed not to make
any public sales of their registrable securities for 180 days after the
effective date of any registration statement. Beginning 180 days after the
completion of the offering, the holders of an aggregate of 50,992,905 shares of
common stock, assuming an initial public offering price of $16.00 per share,
the midpoint of the range set forth on the cover of this prospectus, and a
Preference Amount of $19.72 per share on Class L common stock, will have
limited rights to require us to register their shares of common stock under the
Securities Act at our expense.
65
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement, dated , 2000, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, FleetBoston Robertson
Stephens Inc., Lehman Brothers Inc., Bear, Stearns & Co. Inc. and Pennsylvania
Merchant Group are acting as representatives, the following respective numbers
of shares of common stock:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ----------
<S> <C>
Credit Suisse First Boston Corporation..........................
FleetBoston Robertson Stephens Inc..............................
Lehman Brothers Inc.............................................
Bear, Stearns & Co. Inc.........................................
Pennsylvania Merchant Group.....................................
----------
Total......................................................... 12,500,000
==========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
Several of our shareholders have granted to the underwriters a 30-day option
to purchase on a pro rata basis up to 1,875,000 additional shares from them at
the initial public offering price less the underwriting discounts and
commissions. The option may be exercised only to cover any over-allotments of
common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus, and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
and the selling shareholders will pay.
<TABLE>
<CAPTION>
Per Share Total
----------------------------- -----------------------------
Without With Without With
Over-Allotment Over-Allotment Over-Allotment Over-Allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts
and
Commissions paid by
us................... $ $ $ $
Expenses payable by us.. $ $ $ $
Underwriting Discounts
and
Commissions paid by
selling
shareholders......... $ $ $ $
Expenses payable by
selling shareholders... $ $ $ $
</TABLE>
Bear, Stearns & Co. Inc., one of our underwriters, is an affiliate of our
company. The offering, therefore, is being conducted in accordance with the
applicable provisions of Rule 2720 of the National Association of Securities
Dealers, Inc. Conduct Rules. Rule 2720 requires that the initial public
offering price of the shares of common stock not be higher than that
recommended by a "qualified independent underwriter" meeting certain standards.
Accordingly, FleetBoston Robertson Stephens, Inc. is assuming the
responsibilities of acting as the qualified independent underwriter in pricing
the offering and conducting due diligence. The initial public offering price of
the shares of common stock is no higher than recommended by FleetBoston
Robertson Stephens, Inc.
66
<PAGE>
Credit Suisse First Boston Corporation, Bear, Stearns & Co. Inc. and
Pennsylvania Merchant Group and their respective affiliates have performed and
expect to continue to perform financial advisory and investment and commercial
banking services for us for which they have received and will receive customary
compensation. We intend to use a portion of the net proceeds to repay in full
all outstanding obligations under our senior credit facility. Credit Suisse
First Boston, an affiliate of Credit Suisse First Boston Corporation, is a
lender and the administrative agent under the senior credit facility and will
receive some of the proceeds of this offering used to repay our outstanding
indebtedness under our senior credit facility. In addition, Credit Suisse First
Boston Corporation and Bear, Stearns & Co. Inc. were the initial purchasers in
the offering of our senior subordinated notes. Integtrated Circuit Systems
Equity Investors, L.L.C., an affiliate of Credit Suisse First Boston
Corporation and ICST Acquisition Corp., an affiliate of Bear, Stearns & Co.
Inc., each own common stock of the company and each is a selling shareholder in
the offering. John D. Howard, a director of our company, is a senior managing
director of Bear, Stearns & Co. Inc.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any shares of common stock or securities convertible into or exchangeable
or exercisable for any of our common stock, or publicly disclose the intention
to make any such offer, sale, pledge, disposition or filing, without the prior
written consent of Credit Suisse First Boston Corporation for a period of 180
days after the date of this prospectus.
Our officers and directors and substantially all of the holders of our
common stock have agreed that they will not offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, any shares of our
common stock or securities convertible into or exchangeable or exercisable for
any shares of our common stock, enter into a transaction which would have the
same effect, or enter into any swap, hedge or other arrangement that transfers,
in whole or in part, any of the economic consequences of ownership of our
common stock, whether any such aforementioned transaction is to be settled by
delivery of our common stock or such other securities, in cash or otherwise, or
publicly disclose the intention to make any such offer, sale, pledge or
disposition, or enter into any such transaction, swap, hedge or other
arrangement, without, in each case, the prior written consent of Credit Suisse
First Boston Corporation for a period of 180 days after the date of this
prospectus.
The underwriters have reserved for sale, at the initial public offering
price up to 625,000 shares of common stock for employees, directors and certain
other persons associated with us who have expressed an interest in purchasing
common stock in the offering. The number of shares available for sale to the
general public in the offering will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the
other shares.
We and the selling shareholders have agreed to indemnify the underwriters
against liabilities under the Securities Act, or contribute to payments which
the underwriters may be required to make in that respect.
We have applied to list the shares of common stock on The Nasdaq Stock
Market's National Market under the symbol "ICST."
Prior to this offering, there has been no public market for our common
stock. The initial public offering price for the common stock will be
negotiated among us, the selling shareholders and the representatives. Among
the principal factors to be considered in determining the initial public
offering price will be:
.market conditions for initial public offerings
.the history of and prospects for our business
.our past and present operations
.our past and present earnings and current financial position
67
<PAGE>
.an assessment of our management
.the market of securities of companies in businesses similar to ours
.the general condition of the securities markets.
There can be no assurance that the initial public offering price will
correspond to the price at which the common stock will trade in the public
market subsequent to the offering or that an active trading market will develop
and continue after the offering.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Exchange Act.
. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by such
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
A prospectus in electronic form will be available on the web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters
for sale to their online brokerage account holders. Internet distributions will
be allocated by the underwriters that will make Internet distributions on the
same basis as other allocations.
68
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Pepper Hamilton LLP, Philadelphia, Pennsylvania, and certain other matters
will be passed upon for us by Kirkland & Ellis (a partnership that includes
professional corporations), New York, New York. Some partners of Kirkland &
Ellis are partners in Randolph Street Partners, which owns 272,626 shares of
common stock. Some legal matters in connection with this offering will be
passed upon for the underwriters by Skadden, Arps, Slate, Meagher & Flom LLP,
New York, New York. Kirkland & Ellis and Skadden, Arps, Slate, Meagher & Flom
LLP have, from time to time, represented, and may continue to represent, some
of the underwriters in connection with various legal matters and Bain Capital
and some of their affiliates (including our company) in connection with legal
matters.
EXPERTS
The consolidated financial statements and schedule of our company and its
subsidiaries as of July 3, 1999 and June 27, 1998, and for each of the fiscal
years in the three-year period ended July 3, 1999 have been included herein and
in the registration statement in reliance upon the report of KPMG LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of KPMG LLP as experts in accounting and auditing.
CHANGE IN INDEPENDENT ACCOUNTANTS
Effective August 10, 1999, we dismissed KPMG LLP as our independent
accountants. Concurrent with such dismissal, we engaged PricewaterhouseCoopers
LLP as our independent accountants. The decision to dismiss KPMG LLP as our
independent accountants was approved by our board of directors.
The reports of KPMG LLP on our consolidated financial statements for each of
the fiscal years in the three year period ended July 3, 1999 did not contain an
adverse opinion or a disclaimer of opinion and were not qualified or modified
as to uncertainty, audit scope or accounting principles.
In connection with the audits of our consolidated financial statements for
each of the fiscal years in the three year period ended July 3, 1999, and
through August 10, 1999, there were no disagreements between us and KPMG LLP on
any matters of accounting principles or practices, financial statement
disclosure, or auditing scope and procedures which, if not resolved to the
satisfaction of KPMG LLP, would have caused them to make reference to the
matter in their reports.
WHERE YOU CAN FIND MORE INFORMATION
We are currently subject to the informational requirements of the Exchange
Act, and in accordance therewith we are required to file periodic reports and
other information with the SEC. The reports and other information filed by us
with the SEC may be inspected and copied at the public reference facilities
maintained by the SEC as described below.
We have filed with the SEC a registration statement on Form S-1 (the
"Registration Statement," which term shall encompass all amendments, exhibits,
annexes and schedules thereto) pursuant to the Securities Act, and the rules
and regulations promulgated thereunder, with respect to the shares of common
stock offered hereby. This prospectus, which constitutes part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement, parts of which are omitted in accordance with the rules
and regulations of the SEC. For further information with respect to us and the
common stock offered hereby, reference is made to the Registration Statement.
Statements made in this prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such
69
<PAGE>
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the document or matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
The Registration Statement, including the exhibits thereto, can be inspected
and copied at the public reference facilities maintained by the SEC at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 (telephone number: 1-800-
SEC-0330), at the Regional Offices of the SEC at 7 World Trade Center, 13th
Floor, New York, New York 10048 and at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be
obtained from the Public Reference Section of the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The SEC maintains a website
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. The address of
such site is http://www.sec.gov.
We intend to furnish our shareholders with annual reports containing
financial statements audited by an independent accounting firm, and to make
available quarterly reports containing unaudited financial information for the
first three quarters of each fiscal year.
70
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Annual Financial Statements:
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheets as of July 3, 1999, and June 27, 1998....... F-3
Consolidated Statements of Operations for the years ended July 3, 1999,
June 27, 1998, and
June 28, 1997.......................................................... F-4
Consolidated Statements of Shareholders' Equity (Deficit) as of July 3,
1999, June 27, 1998, and June 28, 1997................................. F-5
Consolidated Statements of Cash Flows for the years ended July 3, 1999,
June 27, 1998, and
June 28, 1997.......................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
Consolidated Interim Financial Statements:
Consolidated Balance Sheets as of April 1, 2000 (unaudited) and July 3,
1999................................................................... F-37
Consolidated Statements of Operations for the three and nine months
ended April 1, 2000 and
March 27, 1999 (unaudited)............................................. F-38
Consolidated Statements of Cash Flows for the nine months ended April 1,
2000 and
March 27, 1999 (unaudited)............................................. F-39
Notes to Consolidated Financial Statements.............................. F-40
</TABLE>
F-1
<PAGE>
When the stock-split referred to in Note 24 of the Notes to the Consolidated
Financial Statements has been consummated, we will be in a position to render
the following report.
/s/ KPMG LLP
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Integrated Circuit Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Integrated
Circuit Systems, Inc. and subsidiaries as of July 3, 1999 and June 27, 1998,
and the related consolidated statements of operations, shareholders' equity
(deficit), and cash flows for each of the years in the three-year period ended
July 3, 1999. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Integrated
Circuit Systems, Inc. and subsidiaries as of July 3, 1999 and June 27, 1998,
and the results of their operations and their cash flows for each of the years
in the three-year period ended July 3, 1999, in conformity with generally
accepted accounting principles.
Philadelphia, Pennsylvania
August 4, 1999, except as to
Note 24, which is as of March 27, 2000
F-2
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
July 3, June 27,
1999 1998
--------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................... $ 9,285 $ 25,340
Marketable securities................................... 288 16,480
Accounts receivable, net................................ 18,120 20,335
Inventory, net.......................................... 8,736 12,839
Deferred income taxes................................... 8,644 2,069
Prepaid income taxes.................................... -- 1,067
Prepaid assets.......................................... 797 590
Other assets............................................ 523 2,043
Current portion of deposit on purchase contracts........ 3,973 --
--------- --------
Total current assets.................................. 50,366 80,763
Property and equipment, net............................... 12,127 17,884
Deferred financing costs, net............................. 12,767 --
Deposits on purchase contracts............................ 11,348 7,864
Other assets.............................................. 1,187 1,498
--------- --------
Total assets.......................................... $ 87,795 $108,009
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current portion of long-term debt....................... $ 1,030 $ 143
Accounts payable........................................ 10,258 11,047
Accrued salaries and bonuses............................ 2,056 1,788
Accrued expenses and other current liabilities.......... 5,639 2,672
Income taxes payable.................................... 4,473 --
--------- --------
Total current liabilities............................. 23,456 15,650
Long-term debt, less current portion...................... 169,000 1,380
Deferred income taxes..................................... 789 1,211
Other liabilities......................................... 1,462 --
--------- --------
Total liabilities..................................... 194,707 18,241
--------- --------
Commitments and contingencies (See Notes 4, 5, 11 and 21)
Shareholders' Equity (Deficit):
Preferred stock, authorized 5,000 shares, none issued... -- --
Common stock, no par value, authorized 84,710: issued
22,192 shares as of June 27, 1998...................... -- 56,604
Class A common stock, $0.01 par, authorized 45,743;
issued and outstanding 26,452 shares................... 264 --
Class B common stock, $0.01 par, authorized 11,859;
issued and outstanding 9,577 shares.................... 96 --
Class L common stock, $0.01 par, authorized 5,083;
issued and outstanding 4,003 shares.................... 40 --
Additional paid in capital.............................. 34,556 --
Less treasury stock, at cost (1,311 shares at June 27,
1998).................................................. -- (16,742)
(Accumulated deficit)/retained earnings................. (141,413) 49,906
Notes receivable (see Note 19).......................... (455) --
--------- --------
Total shareholders' equity (deficit).................. (106,912) 89,768
--------- --------
Total liabilities and shareholders' equity (deficit).. $ 87,795 $108,009
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended
----------------------------
July 3, June 27, June 28,
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenue.......................................... $139,063 $160,634 $104,359
Cost and expenses:
Cost of sales.................................. 64,496 88,859 59,137
Research and development....................... 21,316 19,797 13,521
Selling, general and administrative............ 19,560 19,444 15,118
Special charges:
Compensation costs (see Note 15)............. 15,051 -- --
Write-off of in-process research and
development costs........................... -- -- 11,196
Goodwill amortization.......................... 234 234 536
-------- -------- --------
Operating income............................. 18,406 32,300 4,851
Gain on sale of assets (see Note 3).............. (10,734) -- --
Interest and other income........................ (2,178) (1,984) (1,800)
Interest expense................................. 2,955 64 63
Impairment in equity investment.................. -- -- 7,072
Minority interest................................ -- -- (154)
Equity loss of investee.......................... -- -- 866
-------- -------- --------
Income (loss) before income taxes from
continuing operations......................... 28,363 34,220 (1,196)
Income tax expense............................... 5,320 12,845 6,314
-------- -------- --------
Income (loss) from continuing operations....... 23,043 21,375 (7,510)
-------- -------- --------
Discontinued operations:
Loss from operations........................... -- -- (1,773)
Gain on disposal............................... -- -- 864
-------- -------- --------
Loss from discontinued operations................ -- -- (909)
-------- -------- --------
Net income (loss)................................ $ 23,043 $ 21,375 $ (8,419)
======== ======== ========
Basic income (loss) per share:
Income (loss) from continuing operations......... $ 0.87 $ 1.02 $ (0.38)
Loss from discontinued operations................ -- -- (0.09)
Gain on disposal................................. -- -- 0.04
-------- -------- --------
$ 0.87 $ 1.02 $ (0.43)
======== ======== ========
Diluted income (loss) per share:
Income (loss) from continuing operations......... $ 0.86 $ 0.96 $ (0.38)
Loss from discontinued operations................ -- -- (0.09)
Gain on disposal................................. -- -- 0.04
-------- -------- --------
$ 0.86 $ 0.96 $ (0.43)
======== ======== ========
Weighted average shares outstanding--basic....... 25,812 20,912 19,439
======== ======== ========
Weighted average shares outstanding--diluted..... 26,277 22,264 19,439
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Notes
Receivable
Common Common From Additional
Stock Stock Class A Class A Class B Class B Class L Class L Certain Paid-In Treasury Treasury
Shares Amount Shares Amounts Shares Amounts Shares Amounts Management Capital Stock Shares
------- -------- ------- ------- ------- ------- ------- ------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June
29, 1996......... 19,295 $ 32,674 -- $-- -- $-- -- $-- $ -- $ -- $ (460) (35)
Shares issued
upon exercise of
stock options... 1,789 10,807 -- -- -- -- -- -- -- -- -- --
Tax benefits
related to stock
options......... -- 2,039 -- -- -- -- -- -- -- -- -- --
Purchase of
common stock.... -- -- -- -- -- -- -- -- -- -- (10,466) (792)
Acquisition of
MicroClock,
Inc............. -- 34 -- -- -- -- -- -- -- -- 7,966 609
Sale of Galaxy
Power........... -- -- -- -- -- -- -- -- -- -- (789) (68)
Subsidiaries
equity
transactions.... -- (188) -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- -- --
------- -------- ------ ---- ----- ---- ----- ---- ----- ------- -------- -----
Balance at June
28, 1997......... 21,084 45,366 -- -- -- -- -- -- -- -- (3,749) (286)
Shares issued
upon exercise of
stock options... 1,108 7,014 -- -- -- -- -- -- -- -- -- --
Tax benefits
related to stock
options......... -- 4,224 -- -- -- -- -- -- -- -- -- --
Purchase of
common stock.... -- -- -- -- -- -- -- -- -- -- (12,993) (488)
Net income...... -- -- -- -- -- -- -- -- -- -- -- --
------- -------- ------ ---- ----- ---- ----- ---- ----- ------- -------- -----
Balance at June
27, 1998......... 22,192 56,604 -- -- -- -- -- -- -- -- (16,742) (774)
Shares issued
upon exercise of
stock options... 159 1,105 -- -- -- -- -- -- -- -- -- --
Tax benefits
related to stock
options......... -- 234 -- -- -- -- -- -- -- -- -- --
Purchase of
common stock.... -- -- -- -- -- -- -- -- -- -- (3,016) (229)
Recapitalization.. (13,193) (57,943) 15,613 156 5,653 57 2,363 24 (455) 34,719 19,758 1,003
Effect of stock
split........... (9,158) -- 10,839 108 3,924 39 1,640 16 -- (163) -- --
Net income...... -- -- -- -- -- -- -- -- -- -- -- --
------- -------- ------ ---- ----- ---- ----- ---- ----- ------- -------- -----
Balance at July
3, 1999.......... -- $ -- 26,452 $264 9,577 $ 96 4,003 $ 40 $(455) $34,556 $ -- --
======= ======== ====== ==== ===== ==== ===== ==== ===== ======= ======== =====
<CAPTION>
(Accumulated Total
Deficit/) Shareholders'
Retained Equity
Earnings (Deficit)
------------ -------------
<S> <C> <C>
Balance at June
29, 1996......... $ 36,950 $ 69,164
Shares issued
upon exercise of
stock options... -- 10,807
Tax benefits
related to stock
options......... -- 2,039
Purchase of
common stock.... -- (10,466)
Acquisition of
MicroClock,
Inc............. -- 8,000
Sale of Galaxy
Power........... -- (789)
Subsidiaries
equity
transactions.... -- (188)
Net loss........ (8,419) (8,419)
------------ -------------
Balance at June
28, 1997......... 28,531 70,148
Shares issued
upon exercise of
stock options... -- 7,014
Tax benefits
related to stock
options......... -- 4,224
Purchase of
common stock.... -- (12,993)
Net income...... 21,375 21,375
------------ -------------
Balance at June
27, 1998......... 49,906 89,768
Shares issued
upon exercise of
stock options... -- 1,105
Tax benefits
related to stock
options......... -- 234
Purchase of
common stock.... -- (3,016)
Recapitalization.. (214,362) (218,046)
Effect of stock
split........... -- --
Net income...... 23,043 23,043
------------ -------------
Balance at July
3, 1999.......... $(141,413) $(106,912)
============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended
-----------------------------
July 3, June 27, June 28,
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................. $ 23,043 $ 21,375 $ (8,419)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization.................. 4,965 4,579 3,744
Amortization of deferred finance charge........ 203 -- --
Amortization of bond premiums.................. (78) (2) (85)
Minority interest and charges related to equity
investment.................................... -- -- 7,492
(Gain) loss on sale of assets.................. (10,374) 633 (356)
Purchase of trading securities................. (23,313) (12,930) (834)
Sale of trading securities..................... 23,669 11,911 845
Loss from discontinued operations.............. -- -- 909
Deferred income taxes.......................... (6,995) (712) 1,541
Write-off of in-process research & development
costs......................................... -- -- 11,196
Stock compensation............................. -- -- 84
Accounts receivable............................ 2,215 355 (8,808)
Inventory...................................... 4,103 703 2
Other assets, net.............................. 794 (235) (686)
Accounts payable, accrued expenses and other
liabilities................................... 678 81 3,480
Income taxes payable........................... 5,540 (3,413) 292
--------- -------- --------
Net cash provided by operating activities..... 24,450 22,345 10,397
--------- -------- --------
Cash flows from investing activities:
Capital expenditures........................... (7,694) (8,139) (3,358)
Proceeds from sale of fixed assets............. 200 10 107
Proceeds from sale of Datacom.................. 16,000 -- --
Proceeds from sale of building................. 3,801 -- --
Proceeds from sales of marketable securities... 18,450 1,358 --
Proceeds from sale of discontinued operations.. -- -- 1,925
Proceeds from maturities of marketable
securities.................................... 29,347 21,069 10,499
Purchases of marketable securities............. (31,973) (30,499) (18,371)
Deposits on purchase contracts, net............ (12,000) (2,000) (6,000)
Refunds on purchase contracts.................. 4,544 4,711 1,998
Investment in subsidiary, net of cash
acquired...................................... -- -- (6,074)
--------- -------- --------
Net cash provided by (used in) investing
activities................................... 20,675 (13,490) (19,274)
--------- -------- --------
Cash flows from financing activities:
Net borrowings (repayments) under line of
credit agreement.............................. -- -- (2,315)
Repayments of long-term debt................... (114) (186) (138)
Proceeds from exercise of stock options........ 1,105 7,015 10,807
Tax benefit of stock option exercise........... 234 4,224 2,038
Proceeds from long-term debt................... 170,030 -- --
Recapitalization............................... (247,104) -- --
Investment from equity investors............... 30,655 -- --
Deferred financing charges..................... (12,970) -- --
Purchase of treasury stock..................... (3,016) (12,993) (10,466)
--------- -------- --------
Net cash used in financing activities......... (61,180) (1,940) (74)
--------- -------- --------
Net increase (decrease) in cash................. (16,055) 6,915 (8,951)
Cash and cash equivalents:
Beginning of year.............................. 25,340 18,425 27,376
--------- -------- --------
End of year.................................... $ 9,285 $ 25,340 $ 18,425
========= ======== ========
Supplemental disclosures of cash information:
Cash payments during the period for:
Interest....................................... $ 151 $ 65 $ 58
========= ======== ========
Income taxes................................... $ 6,408 $ 11,840 $ 2,336
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Consolidation Policy
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, after elimination of all
significant intercompany accounts and transactions.
Reporting Periods
In fiscal year 1996 the Company changed its fiscal year to a 52/53 week
operating cycle that ends on the Saturday nearest June 30. Fiscal year 1999
represents a 53-week operating cycle. Fiscal years 1998 and 1997 represent a
52-week operating cycles.
Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash and
cash equivalents at July 3, 1999 consist of cash, overnight retail repurchase
agreements (collateralized by U.S. Treasury obligations), money market funds
and commercial paper.
Marketable Securities
Marketable securities at July 3, 1999 consist of debt securities. Under
Statement No. 115, the Company classifies all of its debt securities as held
to maturity, which are recorded at amortized cost. In prior years, the
Company's equity securities were classified as trading securities and
unrealized holding gains and losses are included in earnings. Trading
Securities were carried at the present market value, with realized gains or
losses recorded in interest income on the statement of operations. As a result
of the restrictions imposed by the senior credit facility (see Note 10), the
Company no longer invests in equity securities.
Inventory
Inventory is stated at the lower of standard cost, which approximates
actual cost (FIFO basis) or market.
Property, Plant and Equipment
Property and equipment are stated at cost. Depreciation is computed on the
straight-line method over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Machinery and equipment........................................ 3 to 10 years
Furniture and fixtures......................................... 5 to 10 years
</TABLE>
Leasehold improvements are amortized over the shorter of the lease term or
the estimated useful life.
Deferred Financing Costs
Costs incurred in connection with the issuance of the senior credit
facility and the senior subordinated notes (see Note 10), which are amortized
over the average term of the related debt instruments, approximately 8 years
at July 3, 1999. Accumulated amortization was $0.2 million as of July 3, 1999.
F-7
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Goodwill
The purchase price in excess of the fair value of net assets acquired is
amortized on a straight-line basis over 7 years. Accumulated amortization was
$0.5 million and $0.3 million as of July 3, 1999 and June 27, 1998,
respectively. Goodwill is recorded in other assets on the consolidated balance
sheet.
Carrying Value of Long-Term Assets
In accordance with SFAS 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be disposed of," the Company periodically
evaluates the carrying value of long-term assets when events and circumstances
warrant such review. The carrying value of a long lived asset is considered
impaired when the anticipated undiscounted cash flows from such asset is
separately identifiable and is less than the carrying value. In that event a
loss is recognized based on the amount by which the carrying value exceeds the
fair market value of the long-lived asset. Fair market value is determined by
reference to quoted market prices, if available, or the utilization of certain
valuation techniques such as using the anticipated cash flows discounted at a
rate commensurate with the risk involved. See Note 3 for a discussion of an
impairment charge recognized on the Voyetra Technologies Inc. ("Voyetra")
investment, which was recorded in the fourth quarter of fiscal year 1997.
Revenue Recognition
Product sales are recognized as revenue upon shipment to the customer. The
Company offers a right of return to certain customers. Allowances are
established to provide for estimated returns at the time of sale. The Company
recognizes sales to these customers, in accordance with the criteria of FASB
No. 48, at the time of the sale based on the following: the selling price is
fixed at the date of sale, the buyer is obligated to pay the Company, title of
the property transfers at the Company's loading dock, the buyer has economic
substance apart from the Company, the Company does not have further obligations
to assist the buyer in the resale of the product and the returns can be
reasonably estimated at the time of sale.
Concentration of Credit Risk
The Company sells its products primarily to original equipment manufacturers
and distributors in North America, Europe and the Pacific Rim. The Company
performs ongoing credit evaluations of its customers and maintains reserves for
potential credit losses. Concentrations of credit risk with respect to trade
accounts receivable from specific customers is limited due to the large number
of customers, however, there is a substantial concentration in the personal
computer industry. Refer to Note 18 for geographic information.
Income Taxes
Income taxes are computed in accordance with Statement of Financial
Accounting Standards No. 109. The Company files a consolidated federal tax
return with its 80% or more owned subsidiaries, which included Turtle Beach for
the first five months of fiscal year 1997.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities, revenues and expense, and the disclosure of contingent
assets and liabilities at
F-8
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the date of the financial statements. In addition, they affect the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from these estimates and assumptions.
Accounting for Stock-based Compensation
The Company has adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), and continues to apply APB 25 and related interpretation in accounting
for its stock options to employees and directors. Refer to Note 15 for pro
forma disclosures.
Reclassification of Accounts
Certain reclassifications have been made to conform prior year's balances
to the current year presentation.
Other Comprehensive Income
The Company's reported net income (loss) for all periods presented is the
same as it's comprehensive income or loss since there were no items of other
comprehensive income or loss for any of the periods covered by these financial
statements.
New Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." In June 1999, the FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities," which
defers effective date of SFAS No. 133 to fiscal years beginning after June 15,
2000. The Company will adopt the requirements of this statement in fiscal
2001.
(2) Acquisitions/Mergers
On May 11, 1999, the Company merged with ICS Merger Corp., a transitory
merger company formed and wholly owned by certain affiliates of Bain Capital
Inc. and Bear, Stearns and Company Inc. (the "Equity Investors"). The
following events, which collectively are referred to as our recapitalization,
provided the consideration for the redemption and purchase of the Company's
outstanding shares of common stock and vested options, together with the
redemption and purchase of our outstanding shares of common stock and vested
options, together with the payment of fees and expenses, totaling $294.4
million that took place on May 11, 1999:
--An equity investment of $30.6 million made by the Equity Investors and
certain other investors in ICS Merger Corp.;
--Direct purchases by Bain Capital of our common stock from certain
existing shareholders for $9.6 million;
--A rollover and new equity investment by certain members of our senior
management team of $9.8 million, consisting primarily of:
--Certain existing common stock ($6.6 million) that was converted into
our new common stock after the merger; and
--Certain existing stock options that were converted into new stock
options after the merger ($2.2 million) and deferred compensation
agreements ($0.5 million);
--Purchases of new common stock ($0.5 million) in exchange for
promissory notes;
F-9
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
--Borrowing of $70.0 million in term loans and $3.9 million under a $25.0
million revolving line of credit;
--The offering of $100.0 million in senior subordinated notes (the
"Notes"); and
--The use of cash on-hand of $70.5 million.
The merger was approved by the Company's previous board of directors and the
board of directors of ICS Merger Corp., and was also approved by the previous
shareholders at a meeting held on May 10, 1999.
Since the recapitalization, the Company's common stock is no longer traded
on the Nasdaq National Market or any exchange, price quotations are no longer
available and the registration of the Company's common stock under the
Securities Exchange Act of 1934 has been terminated.
On February 28, 1997, the Company acquired all the capital stock of
MicroClock, Inc. ("MicroClock"), a producer of clock synthesizer integrated
circuits for multimedia applications, for approximately $16.4 million,
consisting of $6.4 million in cash and 1,030,928 shares of ICS common stock.
The Company's shares exchanged in the transaction were restricted from sale for
one year, therefore, the shares were valued at a 20% discount from the closing
price on the date of issuance based on an independent valuation. The
acquisition was accounted for under the purchase method of accounting and
resulted in a charge of $11.2 million related to the write-off of in-process
research and development costs and the recording of goodwill of $1.7 million,
which is being amortized over 7 years. In determining the write-off of in-
process research and development expenses, MicroClock was valued as a whole,
and then the portion of the value attributable to technology, which had not
reached technical and/or commercial feasibility, was identified. This was
determined to be in-process research and development, and the residual portion
of the purchase consideration after assigning values to the net tangible assets
and in-process research and development was recorded as goodwill. The method
used in making the determination was the discounted probable future cash flows
on a product by product basis. The assumptions used in the appraisal were:
three-year net cash flow on a product with no material changes from historical
pricing, margins and expense levels. The amount attributable to goodwill was
included as an amortizable item on the Company's balance sheet, and the amount
attributable to in-process research and development was written off as not
being sufficiently evolved to be commercialized or to readily ascertain the
future commercial value of the same as of the date of acquisition. Revenues and
results of operations of MicroClock were not significant to the Company's
consolidated statement of operations for the year ended June 28, 1997, and
accordingly, pro forma information as if the transaction had occurred on June
29, 1996, has not been presented.
The in-process research and development projects included applications such
as communications, desktop, notebook, set-top boxes and oscillators. These
projects enabled the Company to reach a customer base in which it had not been
able to reach, penetrate a new market with the consumer electronics
applications and offered additional future returns. The risks associated with
their timely completion included technical issues relating to the projects,
ability to retain its employee base after the merger and ability to obtain
project materials from third party vendors. Management assigned approximately
87% of MicroClock's total product value to the in-process research and
development projects at the time of acquisition. The Company has spent an
additional $885,000 on these projects and had taken six months to complete
these projects. The Company used its working capital to fund the completion of
these projects.
On November 29, 1996 the Company signed an Agreement and Plan of Merger,
(the "Merger Agreement") to sell its approximately 87% interest in Turtle Beach
Systems, Inc. ("Turtle Beach") to Voyetra
F-10
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
in exchange for an approximately 35% equity interest in Voyetra. Voyetra is a
supplier of music and audio software. No gain or loss was initially recorded on
this transaction. The Company's proportionate share of underlying equity in
Voyetra was approximately $3.5 million. The excess of the Company's carrying
value over their proportionate share of underlying equity was approximately
$4.3 million. Subsequent to the transaction, the Company accounted for its
investment in Voyetra under the equity method of accounting. In connection with
the merger, the Company also entered into a Revolving Credit Agreement and Note
Arrangement (the "Revolving Credit Agreement") with Voyetra, pursuant to which
the Company agreed to make loans to Voyetra up to an aggregate of $3.5 million,
subject to certain covenants. The Company recorded an impairment loss on this
investment in the fourth quarter of fiscal year 1997. (See
Dispositions/Impairment Note 3).
(3) Dispositions/Impairment
In the third quarter of fiscal year 1999, the Company sold intellectual
property and engineering hardware and software related to its data
communications product line to 3Com Corporation for approximately $16.0 million
in cash, resulting in a gain of approximately $10.7 million. 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.
During the fourth quarter of fiscal year 1997, the Company determined that
significant events and changes in circumstances had occurred subsequent to the
Voyetra transaction that indicated it was probable that its investment in
Voyetra would not be recoverable. In the opinion of the Company's management,
Voyetra was experiencing an adverse shift in the fundamentals of its business,
which resulted in deteriorating gross profit margins and a substantial increase
in operating losses. In addition, during the fourth quarter of fiscal year
1997, the Company notified Voyetra that they had violated certain covenants and
were in default under the Revolving Credit Agreement. As such, the Company
concluded that it was under no obligation to provide financing under the
Revolving Credit Agreement. As a result of these significant events in the
fourth quarter of fiscal year 1997, management of the Company estimated that
the undiscounted cash flows anticipated for Voyetra would not be sufficient to
recover the carrying value of the Company's investment and a write-down to fair
value was required. Consequently, in the fourth quarter of fiscal year 1997,
the Company recorded an impairment loss of $7.1 million on its investment in
Voyetra, which is included in the Statement of Operations as Impairment in
equity investment. In the second quarter of fiscal year 1998, Voyetra filed a
complaint in the Supreme Court of the State of New York against the Company. At
the end of the second quarter, the Company and Voyetra reached a settlement.
Voyetra released the Company from all claims and all obligations with respect
to the Voyetra/Turtle Beach merger agreement in exchange for assumption of
certain liabilities of Turtle Beach, a $200,000 cash payment and return of
Voyetra stock held by the Company. During fiscal year 1998, the Company settled
these obligations and returned the Voyetra stock.
During the third quarter of fiscal year 1997, the Company implemented a
plan, with approval by the Board of Directors, to dispose of its majority
interest in its subsidiary, ARK Logic, within a 12-month period. Accordingly,
the Company presented ARK Logic as a discontinued operations. In connection
with these events, the Company recorded a charge of $1.5 million in the third
quarter fiscal year 1997, including severance and facility termination costs.
Subsequently, the Company sold approximately 80% of its holdings in ARK Logic
to Vision 2000 Ventures, Ltd. ("Vision 2000") for which a gain of $0.9 million,
including the reversal of severance and facility termination accruals, was
recorded. The sale and purchase agreement required 20% of the sales price to be
held in escrow for two years. The Company received the escrow amount plus
interest $0.5 million in June 1999. The amounts from discontinued operations
are not tax effected, as ARK Logic was not consolidated for tax purposes and
ARK Logic has net operating loss carryforwards, for which no tax benefits had
been recorded by the Company. Revenues from ARK Logic for fiscal years 1997 and
1996 were $1.8 million and $10.2 million, respectively.
F-11
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In the first quarter of fiscal year 1997, the Company sold its Galaxy
Power, Inc. subsidiary, which owned the assets related to the battery charge
controller product line, for $0.8 million to Edward H. Arnold, former Chairman
and CEO of the Company. The purchase consideration was satisfied by
reacquisition of 115,861 shares of the Company's stock held by Arnold and was
based on a valuation made by an independent appraiser.
(4) Purchase Commitments
During fiscal year 1998, under an existing wafer supply contract with
Chartered Semiconductor PTE ("CSM"), the Company advanced the final $2.0
million installment of its deposit with CSM whereby CSM would supply an agreed
minimum quarterly quantity of wafers April 1996 through June 2002 at specified
prices. This non-interest bearing deposit is recorded as a long-term asset
under the caption "Deposits on purchase contract" and will be progressively
repaid from January 1, 1998, as wafers are purchased. On October 7, 1998, the
Company assumed a third party's wafer purchase contract with 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 upon
minimum quarterly quantity of wafers over a twenty-seven month period from
October 1, 1998 to December 31, 2000. The agreement requires CSM to refund the
deposit to the Company in progressive quarterly installments based upon the
volume of purchases made by the Company, and it is contractually required for
all of the deposit to be returned. On October 21, 1998, the Company funded the
$12.0 million required by this agreement. As of July 3, 1999, CSM has repaid
$6.7 million of the Company's deposit. As of July 3, 1999 and June 27, 1998
amounts on deposit with CSM were $15.3 million and $7.9 million respectively.
The Company had previously entered into a similar agreement with American
Microsystems, Inc., ("AMI") by which it placed a $5.5 million deposit, which
has been progressively repaid as wafer purchases were made. The Company
received $2.6 million from AMI in fiscal 1998 extinguishing the balance of any
outstanding deposit at AMI.
The following table summarizes activity relating to the purchase commitment
from CSM (in thousands):
<TABLE>
<S> <C>
Balance 6/28/97..................................................... $ 8,000
Deposits made..................................................... 2,000
Payments received................................................. (2,136)
-------
Balance 6/27/98..................................................... 7,864
Deposits made..................................................... 12,000
Payments received................................................. (4,543)
-------
Balance 7/03/99..................................................... 15,321
Less: current portion............................................. 3,973
-------
Long term portion of deposit...................................... $11,348
=======
</TABLE>
(5) Other Agreements
In fiscal year 1998, the Company entered into a non-transferable and non-
exclusive license with Philips Electronics to the Company to use their
technical information for data transmission systems. In consideration of the
licenses and rights granted, the Company, during fiscal year 1999 and fiscal
year 1998, has expensed and paid approximately $0.5 million in royalty fees
and expects to continue to make ongoing payments. The expense is included in
the Company's cost of sales amount on the Statement of Operations.
In fiscal year 1999, the Company entered into a non-exclusive and non-
revocable license with PhaseLink Laboratories to use of their technical data.
In return, in July 1999, the Company paid a one-time fee of $200,000, which
will be amortized over the useful life of the technology (5 years).
F-12
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(6) Marketable Securities
The Company invests in debt securities, which are classified as held to
maturity. The estimated fair value of each investment approximates the cost,
and therefore, there were no unrealized gains or losses as of July 3, 1999 and
June 27, 1998. Historically, the Company invested in equity securities, which
were classified as trading securities and recorded at market value. The Company
recorded unrealized losses of approximately $0.1 million in the statement of
operations for fiscal year 1998 and $0 for fiscal year 1999. Proceeds from the
sale or maturity of the investments were $71.5 million and $34.3 million in
fiscal year 1999 and fiscal year 1998, respectively. All investments are due
within 90 days and therefore, are classified as cash and cash equivalents at
July 3, 1999. As a result of the restrictions imposed by the senior credit
facility (see Note 10), the Company no longer invests in equity securities.
(7) Accounts Receivable
The components of accounts receivable are as follows (in thousands):
<TABLE>
<CAPTION>
June
July 3, 27,
1999 1998
------- -------
<S> <C> <C>
Accounts receivable........................................ $20,270 $22,128
Less: reserves for returns and doubtful accounts........... (2,150) (1,793)
------- -------
$18,120 $20,335
======= =======
</TABLE>
(8) Inventory
The components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
June
July 3, 27,
1999 1998
------- -------
<S> <C> <C>
Work-in-process............................................ $ 8,211 $ 6,370
Finished parts............................................. 5,665 9,829
Less: obsolescence reserve................................. (5,140) (3,360)
------- -------
Inventory, net............................................. $ 8,736 $12,839
======= =======
</TABLE>
(9) Property and Equipment
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
July 3, June 27,
1999 1998
-------- --------
<S> <C> <C>
Land and building........................................ $ -- $ 5,562
Machinery and equipment.................................. 17,377 25,918
Furniture and fixtures................................... 2,036 1,630
Leasehold improvements................................... 3,735 308
-------- --------
23,148 33,418
Less: accumulated depreciation and amortization.......... (11,021) (15,534)
-------- --------
Property and equipment, net.............................. $ 12,127 $ 17,884
======== ========
</TABLE>
Depreciation and amortization expense related to property and equipment was
$4.7 million, $4.3 million and $3.3 million in 1999, 1998 and 1997,
respectively.
F-13
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(10) Debt
On May 10, 1999, the shareholders of the Company voted to approve the
management-led buyout, which was completed on May 11, 1999. In connection with
the recapitalization, the Company obtained financing consisting of: $100.0
million of senior subordinated notes (the "Notes"), term A loans for $30.0
million and the term B loans for $40.0 million and $3.9 million from a
revolving credit facility. The term loans and revolving credit facility
combined make up the Senior Credit Facility.
The term A loan is payable over varying quarterly installments beginning
September 30, 1999 through May 11, 2004. The term B loan is payable in varying
quarterly installments beginning September 30, 1999 through May 11, 2006. The
revolving loans can be repaid without paying a premium or penalty, other than
payment of breakage costs and reimbursement of the lenders' actual re-
employment costs under certain circumstances through May 30, 2004. The
revolving credit facility permits total availability of $25.0 million. At the
Company's option, the interest rates under the senior credit facility will be
either (1) the base rate, which is the higher of the prime lending rate or 0.5%
in excess of the Federal funds effective rate, plus a margin or (2) adjusted
LIBOR plus a margin. The margins of the different loans under the senior credit
facility will initially be set and then will vary according to a pricing grid
based upon the consolidated leverage ratio as follows: the initial margin on
the term A loan and revolving loans will be 2.0% over the base rate or 3.0%
over adjusted LIBOR, and then on each of the term A and revolving loans the
margins will range from 1.75%-0.75% for base rate or from 2.75%-1.75% for
adjusted LIBOR; and the initial margin on the term B loan will be 2.5% over the
base rate or 3.5% over adjusted LIBOR, and then on the term B loans the margins
will range from 2.25%-2.00% for base rate or from 3.25%-3.00% for adjusted
LIBOR.
The $100.0 million of senior subordinated notes are due May 15, 2009.
Interest on the notes will accrue at the rate of 11.5% per annum and will be
payable semi-annually on May 15 and November 15 of each year, commencing on
November 15, 1999, to holders of record on the immediately preceding May 1 and
November 1. Except in the case of certain equity offerings by the Company and
certain kinds of changes of control, the Company can not choose to redeem the
Notes until May 15, 2004. At anytime before May 15, 2002, the Company can
choose to redeem up to 35% of the outstanding Notes with money that the Company
raises in one or more equity offerings, as long as the Company's pays 111.5% of
the principal amount of the Notes plus accrued interest and at least $65.0
million of the Notes originally issued remain outstanding afterwards. All of
the Company's domestic subsidiaries guarantee the Notes with unconditional
guarantees of payment that will rank below their senior indebtedness, but will
rank equal to their other senior subordinated indebtedness in right of payment.
The Notes contain covenants that limit what the Company may do, such as paying
dividends, incurring additional indebtedness, transferring or selling assets
and consolidating, merging or selling all or substantially all of the Company's
assets of subsidiaries.
Certain of the Company's loan agreements require the maintenance of
specified financial ratios and impose financial limitations. At July 3, 1999,
the Company was in compliance with its senior credit facility covenants. The
debt is secured by substantially all assets from the Company and its domestic
subsidiaries.
On April 13, 1999, the Company sold the land and building at the Company's
Norristown location to BET Investments III, L.P., a Pennsylvania limited
partnership. The purchase price for the property was $3.9 million and included
the buyer's assumption of the Company's PIDA loan. BET Investments III, L.P.
assigned 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 Norristown property for a
term of eight years, which went into effect upon closing of the sale of the
property by the Company. The Company leased back the entire building 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
F-14
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
renewal option of three more years subsequent to the initial eight-year term.
The Company recorded a $0.9 million deferred gain from this transaction. The
Company will recognize the gain over the original term of the lease. In fiscal
year 1999, the Company received $0.2 million in sublease income from this
property.
Senior debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
July 3, June 27,
1999 1998
-------- --------
<S> <C> <C>
Term A loans payable in varying installments through 2004
at LIBOR plus 3 (8.295% at July 3, 1999)................ $ 27,500 $ --
Term A loans payable in varying installments through 2004
at LIBOR plus 3 (8.1% at July 3, 1999).................. 2,500 --
Term B loans payable in varying installments through 2006
at LIBOR plus 3.5 (8.795% at July 3, 1999).............. 37,500 --
Term B loans payable in varying installments through 2006
at LIBOR plus 3.5 (8.6% at July 3, 1999)................ 2,500 --
11.5% exchangeable subordinated debentures due 2009...... 100,000 --
PIDA second mortgage, payable in monthly installments,
interest at 2%.......................................... -- 1,503
Lease obligations and other.............................. 30 20
-------- ------
170,030 1,523
Less current portion..................................... 1,030 143
-------- ------
Long-term debt, less current portion..................... $169,000 $1,380
======== ======
</TABLE>
Aggregate annual maturities of long-term debt as of July 3, 1999 (in
thousands):
<TABLE>
<S> <C>
2000................................................................ $ 1,030
2001................................................................ 4,600
2002................................................................ 6,400
2003................................................................ 8,800
2004................................................................ 11,200
2005 and beyond..................................................... 138,000
--------
$170,030
========
</TABLE>
(11) Lease Obligations
The Company leases certain of its facilities under operating lease
agreements, some of which have renewal options.
Rental expense under operating lease agreements, net of sublease income, was
$0.9 million, $0.6 million and $0.3 million in 1999, 1998 and 1997,
respectively.
F-15
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Future minimum lease commitments under the Company's operating leases are as
follows as of July 3, 1999 (in thousands):
<TABLE>
<S> <C>
2000................................................................. $ 2,277
2001................................................................. 2,048
2002................................................................. 2,002
2003................................................................. 2,004
2004 and after....................................................... 10,770
-------
$19,101
=======
</TABLE>
(12) Fair Value of Financial Instruments
Estimated fair value of financial instruments is provided in accordance with
the requirements of SFAS No. 107, "Disclosures About Fair Value of Financial
Instruments." The estimated fair value amounts have been determined by the
Company using available market information and appropriate methodologies.
However, considerable judgment is necessarily required in interpreting market
data to develop the estimates of fair value.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and cash equivalents, accounts receivable and accounts payable--The
carrying amounts of these items approximate their fair values at July 3, 1999
due to the short-term maturities of these instruments.
Marketable securities--The estimated fair value of each held to maturity
investment approximates the amortized cost and as such no unrealized gain or
loss has been recorded.
Long-term debt--Interest rates that are currently available to the Company
for issuance of debt with similar terms and remaining maturities are used to
estimate fair value for debt issues for which quoted market prices are not
available. The carrying value of this item is not materially different from its
fair value on July 3, 1999.
(13) Income Taxes
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended
--------------------------
June
July 3, 27, June 28,
1999 1998 1997
------- ------- --------
<S> <C> <C> <C>
Current tax expense:
Federal......................................... $10,549 $11,685 $4,248
State........................................... 1,571 1,837 525
Foreign......................................... 195 35 --
------- ------- ------
Total current................................. $12,315 $13,557 $4,773
------- ------- ------
Deferred tax expense (benefit):
Federal......................................... $(6,907) $ (627) $1,299
State........................................... (88) (85) 242
------- ------- ------
Total deferred................................ (6,995) (712) 1,541
------- ------- ------
Total income tax expense...................... $ 5,320 $12,845 $6,314
======= ======= ======
</TABLE>
F-16
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows
(in thousands):
<TABLE>
<CAPTION>
Year Ended
-------------------------
July 3, June 27, June 28,
1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
Deferred tax assets:
Accounts receivable allowances...................... $ 759 $ 664 $ 171
Inventory valuation................................. 1,843 1,208 744
Disqualified disposition exercises of options....... 6,141 -- --
Net operating loss carry forward.................... 195 195 195
Capital loss carry forward.......................... 1,894 2,137 2,136
Basis in equity investment.......................... -- 692 692
Accrued expenses and other.......................... 529 318 291
------- ------ ------
Gross deferred tax assets......................... 11,361 5,214 4,229
Less: valuation allowance......................... 2,717 3,145 3,090
------- ------ ------
Deferred tax asset.................................. 8,644 2,069 1,139
Deferred tax liabilities:
Depreciation........................................ 501 1,018 899
Other............................................... 288 193 94
------- ------ ------
Deferred tax liabilities.......................... 789 1,211 993
------- ------ ------
Net deferred tax asset................................ $ 7,855 $ 858 $ 146
======= ====== ======
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which temporary differences representing net future deductible amounts become
deductible.
Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, potential limitations with respect to the
utilization of loss carry forwards, and tax planning strategies in making this
assessment. Based upon the projections for future taxable income over the
periods which deferred tax assets are deductible and the potential limitations
of loss and credit carry forwards, management believes it is more likely than
not the Company will realize these deductible differences, net of existing
valuation allowances (both federal and state) at July 3, 1999. The Company
periodically reassesses and re-evaluates the status of its recorded deferred
tax assets.
F-17
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The actual tax expense differs from the "expected" tax expense computed by
applying the statutory Federal corporate income tax rate of 35% in all fiscal
years to income before income taxes as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
---------------------------
July 3, June 27, June 28,
1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
Computed expected tax expense (benefit)........ $ 9,927 $11,977 $ (736)
State taxes (net of federal income tax
benefit)...................................... 964 1,248 228
Effect of lower foreign tax rates.............. (3,086) (1,012) --
Capital contribution........................... -- 346 --
Tax-exempt interest and dividends.............. -- (13) (29)
In-process research and development write-off.. -- -- 3,904
Loss in equity investments..................... -- -- 2,778
Loss from discontinued operations.............. -- -- 318
Gain from sale of Galaxy Power................. -- -- (174)
Utilization of capital loss carryforwards...... (3,233) -- --
Intangible amortization........................ 185 82 --
Other.......................................... 563 217 25
------- ------- ------
$ 5,320 $12,845 $6,314
======= ======= ======
</TABLE>
As of July 3, 1999, the Company has state operating loss carry forwards of
approximately $3.0 million expiring through 2008. The Company also has a
capital loss carry forward of approximately $4.9 million expiring in 2003. 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 record deferred taxes
on its investment, the amount would be a $4.3 million liability.
(14) Employee Benefit Plans
The Company has a bonus plan, which covers permanent full-time employees
with at least six months of service. Bonuses under this plan are based on the
Company achieving specified revenue and profit objectives and on individuals
meeting specified performance objectives. Amounts charged to expense for the
plan were $3.9 million, $3.6 million and $1.9 million in fiscal years 1999,
1998 and 1997, respectively.
The Company has a 401(k) employee savings plan, which provides for
contributions to be held in trust by corporate fiduciaries. Employees are
permitted to contribute up to 12 percent of their annual compensation. Under
the plan, the Company makes matching contributions equal to 150% of the first
1% contributed, 125% of the second 1% contributed, 100% of the third 1%
contributed, 75% of the fourth 1% contributed and 50% of the next 2% up to a
maximum of 6 percent of annual compensation, subject to IRS limits. The amounts
contributed by the Company and charged to expense were $0.5 in fiscal year
1999, $0.5 million in fiscal year 1998, and $0.3 million in fiscal year 1997.
(15) Stock Option Plans
Non-qualified stock options are granted at prices not less than the fair
market value at the date of grant, as determined by directors of the Company,
and become exercisable as determined by the Company's stock option committee,
generally over five years. Options can be granted for terms of up to ten years.
Incentive stock options have also previously been granted at fair market value.
F-18
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pre-Recapitalization
The Company had various stock option plans (the "Plans") under which key
employees and non-employee directors and consultants were granted incentive
stock options and non-qualified options.
The Company's 1997 Equity Compensation Plan ("the 1997 Plan") was approved,
ratified and adopted by shareholders at the Shareholders' Meeting on October
23, 1997.
Stock option transactions pre-recapitalization during fiscal years 1999,
1998 and 1997 are summarized as follows (in thousands, except price per share):
<TABLE>
<CAPTION>
Options Available Weighted
For Grant Under Options Average
Plans The Plans Outstanding Exercise Price
----- ----------------- ----------- --------------
<S> <C> <C> <C>
Balance June 29, 1996.......... 517 4,181 $6.27
Shares reserved.............. 508 -- --
Granted...................... (1,638) 1,638 7.21
Exercised.................... -- (1,784) 6.04
Terminated................... 679 (679) 6.54
------ ------ -----
Balance June 28, 1997.......... 66 3,356 $6.84
Additional shares reserved... 3,388 -- --
Granted...................... (715) 715 13.92
Exercised.................... -- (1,086) 6.33
Terminated................... 683 (681) 8.39
------ ------ -----
Balance June 27, 1998.......... 3,422 2,304 $8.74
Additional shares reserved... -- -- --
Granted...................... (1,166) 1,166 7.91
Exercised.................... -- (2,912) 7.56
Cancelled.................... (2,814) -- 9.96
Terminated................... 558 (558) 13.17
------ ------ -----
Balance July 3, 1999........... 0 0 $ 0
====== ====== =====
</TABLE>
During fiscal years 1998 and 1997, 1.02 million stock options were granted
to employees outside the plans described above at weighted exercise price of
$10.13, the fair market value at grant date, for terms of five years. Such
options are non-qualified and are not included in the above table but are
included in SFAS No. 123 pro forma disclosure that appears below.
Post-Recapitalization
The above plans were replaced on May 11, 1999. The 1999 Stock Option Plan
("the 1999 Plan") was approved, ratified and adopted at this time. These
options vest over five years and expire in May 11, 2009.
F-19
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock option transactions post-recapitalization during fiscal 1999 are
summarized as follows (in thousands, except price per share):
<TABLE>
<CAPTION>
Options Available Weighted
For Grant Under Options Average
1999 Plans The Plans Outstanding Exercise Price
---------- ----------------- ----------- --------------
<S> <C> <C> <C>
Common A Shares:
Balance June 27, 1998........... -- -- $ --
Shares reserved............... 11,070 -- --
Granted....................... (10,328) 10,328 0.54
Terminated.................... 47 (47) 0.67
------- ------ -----
Balance July 3, 1999............ 789 10,281 $0.54
======= ====== =====
Common L Shares:
Balance June 27, 1998........... -- -- $ --
Shares reserved............... 232 -- --
Granted....................... (232) 232 2.12
Terminated.................... -- -- --
------- ------ -----
Balance July 3, 1999............ -- 232 $2.12
======= ====== =====
</TABLE>
As of July 3, 1999, options for 2.4 million shares were exercisable at
weighted average exercise prices ranging from $0.026 to $2.12 at an aggregate
exercise price of $0.3 million. Income tax benefits attributable to non-
qualified stock options exercised and disqualifying dispositions of incentive
stock options are credited to equity when realized.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------------------------------------------------
Outstanding Weighted Average Exercisable
Range of as of Remaining Weighted Average as of Weighted Average
Exercise Price 07/3/1999 Contractual Life Exercise Price 07/3/1999 Exercise Price
-------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.05--$0.21............ 7,551 9.9 $0.10 2,091 $0.02
$1.70--$1.91............ 2,729 9.9 $1.75 -- $ --
$1.91--$2.12............ 232 9.9 $2.12 232 $2.12
------ --- ----- ----- -----
10,512 9.9 $0.57 2,323 $0.24
====== === ===== ===== =====
</TABLE>
The Company applies APB 25 and related interpretations in accounting for
stock option plans. In connection with the recapitalization, the Company
recorded a compensation charge of $15.1 million relating to the acceleration of
the vesting period of employee outstanding stock options under the Company's
previous option plans.
Had compensation cost been recognized consistent with SFAS No. 123, the
Company's consolidated net earnings (loss) and earnings (loss) per share would
have been as follows (in thousands except per share data):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net income (loss) as reported.................. $ 23,043 $ 21,375 $ (8,419)
Pro forma...................................... 19,449 16,868 (10,405)
Net income (loss) per diluted share as
reported...................................... 0.86 0.96 (0.43)
Pro forma diluted net income (loss) per share.. 0.43 0.76 (0.54)
</TABLE>
The per share weighted-average fair value of stock options issued by the
Company was $1.30, $8.72, and $3.88 for fiscal years 1999, 1998 and 1997
respectively.
F-20
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following assumptions were used by the Company to determine the fair
value of stock options granted using the Black-Scholes option-pricing model:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------ -------------
<S> <C> <C> <C>
Dividend yield.................. 0% 0% 0%
Expected volatility............. Minimal value 60-81% 60-65%
Average expected option life.... 5 years 4 years 4 years
Risk-free interest rate......... 6.0% 5.34% to 6.4% 5.34% to 6.71%
</TABLE>
Pro forma net income (loss) reflects only options granted in fiscal years
1999, 1998 and 1997. Therefore, the full impact of calculating compensation
cost for stock options under SFAS No.123 is not reflected in the pro forma net
income (loss) amounts presented above because compensation cost is reflected
over an option's vesting period, and compensation cost for options granted
prior to July 1, 1995 is not considered.
(16) Net Income (Loss) Per Share
The Company had adopted the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS No. 128"). SFAS No. 128 requires
the Company to report both basic net income (loss) per share, which is based on
the weighted-average number of common shares outstanding excluding contingently
issuable or returnable shares that contingently convert into Common Stock upon
certain events, and diluted net income (loss) per share, which is based on the
weighted average number of common shares outstanding and diluted potential
common shares outstanding. Class A Stock, Class B Stock and Class L Stock share
ratably in the net income (loss) remaining after giving effect to the 9% yield
on Class L Stock. Net income (loss) for year ended July 3, 1999 used in the net
income (loss) per share calculation represents the income (loss) attributable
to the weighted average number of shares of Class A Stock, Class B Stock and
Common Stock outstanding after giving effect to the 9% yield on Class L Stock.
The following tables set forth the computation of net income (numerator) and
shares (denominator) for earnings per share:
<TABLE>
<CAPTION>
Year Ended
-------------------------
July 3, June 27, June 28,
1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
Numerator (in thousands):
Net Income (loss)................................... $23,043 $21,375 $(8,419)
Less: Income attributable to Class L Stock.......... 530 -- --
------- ------- -------
$22,513 $21,375 $(8,419)
======= ======= =======
Denominator (in thousands):
Common Stock........................................ 20,690 20,912 19,439
Class A Stock....................................... 3,758 -- --
Class B Stock....................................... 1,364 -- --
------- ------- -------
Weighted average shares outstanding used for basic
income per share................................... 25,812 20,912 19,439
Common Stock Options................................ 465 1,352 --
------- ------- -------
Weighted average shares outstanding used for diluted
income per share................................... 26,277 22,264 19,439
======= ======= =======
</TABLE>
(17) Stockholders' Equity
The shares of Class A common stock entitle the holder to one vote per share
on all matters to be voted upon by shareholders. The Class B common stock and
Class L common stock are non-voting. The Class L common stock is identical to
the Class A common stock and Class B common stock except that the Class L
F-21
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
common stock will be entitled preference over the Class A common stock and the
Class B common stock, with respect to any distribution to holders of our common
stock, equal to the original cost of such share ($10.62) plus an amount which
accrues at a rate of 9% per annum, compounded quarterly. The Class L common
stock is convertible into Class A common stock upon an initial public offering.
Class A common stock is convertible into Class B common stock at any time, and
Class B common stock is convertible into Class A common stock at any time so
long as after giving effect to the conversion the converting Class B common
stock holders and their affiliates do not own more than 49.9% of the
outstanding shares of Class A common stock.
(18) Business Segment and Geographic Information
The Company has adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," which became effective for fiscal year
1999. The Company adopted the requirements of this statement in fiscal year
1999.
Revenue and long-lived assets by the Company's geographic locations are as
follows:
<TABLE>
<CAPTION>
Revenues by Geographic
Location
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
North America.................................. $ 46,702 $ 71,473 $ 48,100
Asia Pacific................................... 35,228 37,619 20,149
Europe......................................... 5,636 9,311 11,132
Taiwan......................................... 51,497 42,231 24,978
-------- -------- --------
$139,063 $160,634 $104,359
======== ======== ========
<CAPTION>
Long-Lived Assets
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
United States.................................. $ 9,099 $ 15,742 $ 13,692
Singapore...................................... 3,944 2,846 412
Elimination of Intercompany.................... (916) (704) --
-------- -------- --------
$ 12,127 $ 17,884 $ 14,104
======== ======== ========
</TABLE>
The Company has two reportable segments, core products and non-core
products. The core segment represents parts that synchronize the timing signals
in electronic devices. The non-core products included data communication
transceivers and custom components.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies (see Note 1). The Company
evaluates the performance of these two segments based on their contribution to
operating income, excluding non-recurring gains or losses.
The Company's reportable segments are strategic product lines that differ in
nature and have different end uses, as such these product lines are managed and
reported to the chief operating decision maker separately.
Core products are standard application specific products that are sold into
a variety of applications. The Company's average selling prices tend to be
stable, gross margins are higher than commodity products, and the volumes
higher than the non-core segment. Two types of products characterize the non-
core segment. Data communications are transceivers used in network
applications. The custom parts are for different applications using varied
technologies. Each component in the custom product line is developed
specifically for one customer for their specific application.
F-22
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue, operating profit, depreciation and amortization and capital
expenditures by business segment were as follows:
<TABLE>
<CAPTION>
Business Segment Net
Revenue
-----------------------------
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Core......................................... $ 107,710 $ 90,622 $ 63,280
Non-core..................................... 31,353 70,012 41,079
--------- -------- --------
Total net revenues......................... $ 139,063 $160,634 $104,359
========= ======== ========
<CAPTION>
Business Segment Profit
(Loss)
-----------------------------
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Core......................................... $ 22,783 $ 11,733 $ (1,835)
Non-core..................................... 10,674 20,567 6,686
Special charge............................... (15,051) -- --
--------- -------- --------
Total operating profit..................... 18,406 32,300 4,851
Reconciliation to statements of operations:
Gain on sale of Datacom...................... 10,734 -- --
Interest and other income.................... 2,178 1,984 1,800
Interest expense............................. (2,955) (64) (63)
Impairment on equity investment.............. -- -- (7,072)
Minority interest............................ -- -- 154
Equity loss of investee...................... -- -- (866)
--------- -------- --------
Net income (loss) before income taxes...... $ 28,363 $ 34,220 $ (1,196)
========= ======== ========
</TABLE>
The Company does not allocate items below operating income to specific
segments. The core and non-core profit is calculated as revenues less cost of
sales, research and development and selling, general and administrative
expenses for that segment. In addition, the Company does not allocate most of
its assets to specific segments, with the exception of certain property and
equipment, and accordingly has not presented a breakdown of assets by segments.
<TABLE>
<CAPTION>
Business Segment
Depreciation/Amortization
--------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Core............................................ $ 1,595 $ 1,494 $ 1,269
Non-core........................................ 326 529 478
Corporate and other............................. 3,044 2,556 1,997
-------- -------- --------
Total consolidated depreciation and
amortization................................. $ 4,965 $ 4,579 $ 3,744
======== ======== ========
<CAPTION>
Business Segment Capital
Expenditures
--------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Core............................................ $ 1,029 $ 1,509 $ 418
Non-core........................................ 279 760 299
Corporate and other............................. 6,386 5,870 2,641
-------- -------- --------
Total consolidated capital expenditures....... $ 7,694 $ 8,139 $ 3,358
======== ======== ========
</TABLE>
F-23
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(19) Related Party Transactions
On May 11, 1999, the Company entered into an advisory agreement with Bain
Capital Inc., a shareholder, for consulting services. The agreement provides
for the Company to pay Bain Capital Inc. $750,000 per year plus any reasonable
out of pocket expenses on a quarterly basis. The term of this agreement ends
May 11, 2009. In connection with the merger and recapitalization, the Company
paid $3.4 million to Bain Capital.
On May 11, 1999, the Company entered into an advisory agreement with Bear,
Stearns & Co. Inc., a shareholder, for consulting services. The agreement
provides for the Company to pay Bear, Stearns & Co. Inc. $250,000 per year plus
any reasonable out of pocket expenses on a quarterly basis. The term of this
agreement ends May 11, 2009. In connection with the merger and
recapitalization, the Company paid $4.9 million to Bear, Stearns & Co.
On May 11, 1999, certain members of our senior management team entered into
deferred compensation agreements with the Company. The agreements expire on May
11, 2009 upon which time the Company will pay the executives the entire
deferred compensation regardless of their employment status at the Company. If
a sale of the Company is consummated prior to expiration of the agreements, the
executives will receive full benefit amount at that date. If there is a
consummation of a Qualified Initial Public Offering ("QIPO date") prior to
expiration the executive will receive 50% of the benefit on that date and the
remaining 50% is payable on the date one year after the QIPO date. The amount
of deferred compensation as of July 3, 1999 was $0.5 million.
On May 11, 1999, the Company entered into an employment agreement with Hock
E. Tan, as CEO and President with a base salary of $250,000 per year. In
addition to his salary, Mr. Tan is eligible to earn an annual bonus of up to
120% of his base salary based upon the Company attaining certain performance
targets established annually by the board of directors.
On May 11, 1999, certain members of the management team entered into stock
purchase agreements. In exchange for the purchase of Class A common shares and
Class L common shares the executives delivered to the Company a promissory
note. The notes accrue interest at 8% per annum and mature on May 11, 2006. The
executives may prepay the notes at any time, in whole or increments of $1,000.
If the executives receive a bonus from the Company, the executives have the
obligation to pay the Company an amount equal to 50% of the amount of such
bonus, net of the amount of any customary withholding taxes and such amount
paid to the Company shall first reduce accrued interest and any remaining
amount paid to the Company shall reduce the principal amount. The outstanding
amounts as of July 3, 1999 was $0.5 million.
On May 11, 1999, the Company entered into a consulting agreement with Henry
Boreen, a board member, for consulting services. The agreement provides for the
Company to pay Mr. Boreen $350,000 per year in monthly installments. The term
of the consulting agreement ends on May 11, 2002.
The Company previously entered into an employment agreement with Henry
Boreen on May 6, 1998 to serve as the Company's interim CEO until September 11,
1998. Mr. Boreen's base compensation was $10,000 per month, plus a grant of
84,710 stock options at an exercise price at fair market price at date of
grant, which immediately vested. On September 14, 1998, the Company made an
amendment to this agreement to extend the term to December 31, 1998. The
amendment also increased Mr. Boreen's base compensation to $12,000 per month
plus a grant of 50,826 stock options at an exercise price of fair value at the
date of grant. Those options vested immediately. Also, in the first quarter of
fiscal year 1997, the Company and Henry I. Boreen, Chairman of the Board,
entered into an employment agreement as Interim Chief Executive Officer. For
his services in this
F-24
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
capacity, Mr. Boreen received a grant of 127,065 stock options at an exercise
price of $6.13 per share which was equal to the closing price on the date of
grant, and which option had a term of ten years and became exercisable in
monthly installments over the six month period following the date of grant.
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
was for one year commencing on January 1, 1999. Mr. Gassner's responsibilities
included finding a suitable candidate to serve as the Company's Chief Executive
Officer, and management of day-to-day operations of the Company until a
suitable Chief Executive Officer is secured. The agreement provided for the
Company to pay Mr. Gassner a salary at a monthly rate of $12,000 during the
employment term. Mr. Gassner was also entitled to participate in the Company's
incentive compensation plan. This agreement terminated May 11, 1999.
On November 3, 1998, the Company granted Mr. Gassner an option to purchase
189,750 shares of the Company's common stock at $8.19 per share, equal to fair
market value on the grant date. The options vest and become exercisable on a
cumulative basis at a rate of 13,554 shares per month commencing on November
30, 1998, with vesting on December 31, 1999. On November 3, 1998 the Company
granted Mr. Gassner an option to purchase an additional 169,420 shares of the
Company's common stock at $8.19, the fair market value on the grant date. These
options vest and become exercisable on a cumulative basis at the rate of 33,884
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 $11.80 for 10 consecutive trading
days. This agreement terminated May 11, 1999.
In the third quarter of fiscal 1998, the Company entered into a severance
agreement with Stavro Prodromou, the former President and Chief Executive
Officer. Dr. Prodromou received $135,000 in cash severance and health benefits
at the time of his departure, and was granted up to a one-year period to
exercise 211,775 of his stock options. His remaining options were canceled.
On May 11, 1998, each non-employee director entered into a consulting
agreement with the Company for management consulting services. The term of each
of the consulting agreement ended on December 31, 1998, and to the extent
service (not to exceed ten days per month) of any such director were to be
retained, he would receive cash compensation of $2,000 per day. There were no
expenses incurred under this agreement in fiscal year 1999.
In the first quarter of fiscal year 1997, the Company and David Sear, the
former President and Chief Executive Officer, entered into a severance
agreement. The Company recorded a charge of $0.3 million in connection with
this agreement.
(20) Financial Information for Guarantor Subsidiaries and Non-Guarantor
Subsidiaries
The Company conducts substantially all of its business through its domestic
and foreign subsidiaries. On May 11, 1999, the Company issued $100.0 million
principal amount of Notes bearing interest at a rate of 11.5%. The proceeds
from the issuance of the Notes together with borrowings under a senior credit
facility were used to pay transaction costs associated with the
recapitalization of the Company and fund a portion of the cash consideration
payable in connection with the merger.
Presented below is condensed consolidating financial information for
Integrated Circuit Systems, Inc., which includes the activities of the
guarantor subsidiaries and the wholly owned foreign subsidiary (the "Non-
Guarantor Subsidiary") as of July 3, 1999 and June 27, 1998 and for the fiscal
years ended July 3, 1999, June 27, 1998 and June 28, 1997. The condensed
consolidating financial information has been presented to show the nature of
the assets held, results of operations and cash flows of the Parent Company,
Guarantor subsidiaries
F-25
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and the Non-Guarantor subsidiary assuming the guarantee structure of the Notes
was in effect as the beginning of the periods presented. Separate financial
statements for Guarantor Subsidiaries are not presented based on management's
determination that they would not provide additional information that is
material to investors.
The condensed consolidating financial information reflects the investments
of the Parent Company in the Guarantor and Non-Guarantor Subsidiaries using the
equity method of accounting. In addition, corporate interest has not been
allocated to the subsidiaries.
F-26
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
July 3, 1999
(In thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
--------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash
equivalents............ $ 3,034 $ 2,661 $ 3,590 $ -- $ 9,285
Accounts receivable,
net.................... 12,730 -- 5,390 -- 18,120
Inventory............... 3,033 3,419 2,284 -- 8,736
Other current assets.... 10,858 2,938 429 -- 14,225
Property and equipment,
net.................... 1,261 7,838 3,944 (916) 12,127
Deferred financing
charges................ 12,767 -- -- -- 12,767
Investment in
subsidiaries........... 58,828 -- -- (58,828) --
Intercompany
receivables............ 5,920 45,238 -- (51,158) --
Other assets............ 6,433 1,152 4,950 -- 12,535
--------- ------- ------- --------- ---------
Total assets.......... $ 114,864 $63,246 $20,587 $(110,902) $ 87,795
========= ======= ======= ========= =========
Liabilities and
shareholders' equity
(deficit):
Current liabilities,
exclusive of debt...... $ 5,715 $14,811 $ 1,900 $ -- $ 22,426
Current portion of long-
term debt.............. 1,000 30 -- -- 1,030
Long-term debt less
current................ 169,000 -- -- -- 169,000
Other non-current
liabilities............ 1,648 603 -- -- 2,251
Intercompany payable.... 44,413 968 5,777 (51,158) --
Shareholders' equity
(deficit).............. (106,912) 46,834 12,910 (59,744) (106,912)
--------- ------- ------- --------- ---------
Total liabilities and
shareholders' equity
(deficit)............ $ 114,864 $63,246 $20,587 $(110,902) $ 87,795
========= ======= ======= ========= =========
</TABLE>
F-27
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
June 27, 1998
(In thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
-------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash
equivalents............ $ 4,573 $ 16,413 $ 4,354 $ -- $ 25,340
Accounts receivable,
net.................... 17,242 -- 3,093 -- 20,335
Inventory............... 4,320 5,741 2,778 -- 12,839
Other current assets.... 2,237 18,814 131 1,067 22,249
Property and equipment,
net.................... 11,804 3,938 2,846 (704) 17,884
Investment in
subsidiaries........... 90,591 -- -- (90,591) --
Intercompany
receivables............ 16,057 3,677 -- (19,734) --
Other assets............ 7,975 1,387 -- -- 9,362
-------- -------- ------- --------- --------
Total assets.......... $154,799 $ 49,970 $13,202 $(109,962) $108,009
======== ======== ======= ========= ========
Liabilities and
shareholders' equity
(deficit):
Current liabilities,
exclusive of debt...... $ (1,016) $ 13,525 $ 2,830 $ 168 $ 15,507
Current portion of long-
term debt.............. 123 20 -- -- 143
Other non-current
liabilities............ 2,138 453 -- -- 2,591
Intercompany payable.... 63,786 (51,717) 6,775 (18,844) --
Shareholders' equity
(deficit).............. 89,768 87,689 3,597 (91,286) 89,768
-------- -------- ------- --------- --------
Total liabilities and
shareholders' equity
(deficit)............ $154,799 $ 49,970 $13,202 $(109,962) $108,009
======== ======== ======= ========= ========
</TABLE>
F-28
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS
Year Ended July 3, 1999
(In thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
-------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues................ $ 29,653 $89,936 $36,771 $(17,297) $139,063
Cost of sales........... 11,188 47,240 20,129 (14,061) 64,496
Research and
development............ 4,588 11,934 2,813 1,981 21,316
Selling, general and
administrative......... 12,950 7,513 4,675 (5,344) 19,794
Compensation costs...... 15,051 -- -- -- 15,051
-------- ------- ------- -------- --------
Operating income
(loss)................. (14,124) 23,249 9,154 127 18,406
Sale of Datacom......... (7,734) (3,000) -- -- (10,734)
Other (income) expense.. 1,224 (3,381) (232) 211 (2,178)
Interest expense........ 2,934 3 18 -- 2,955
-------- ------- ------- -------- --------
Income (loss) before
income taxes........... (10,548) 29,627 9,368 (84) 28,363
Income tax expense
(benefit).............. (6,032) 11,159 56 137 5,320
-------- ------- ------- -------- --------
Net income (loss)..... $ (4,516) $18,468 $ 9,312 $ (221) $ 23,043
======== ======= ======= ======== ========
</TABLE>
F-29
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS
Year Ended June 27, 1998
(In thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues................ $52,977 $105,397 $15,753 $(13,493) $160,634
Cost of sales........... 28,948 58,913 9,002 (8,004) 88,859
Research and
development............ 5,829 10,852 1,328 1,788 19,797
Selling, general and
administrative......... 14,579 9,905 2,485 (7,291) 19,678
------- -------- ------- -------- --------
Operating income........ 3,621 25,727 2,938 14 32,300
Other (income) expense.. (117) (2,577) 6 704 (1,984)
Interest expense........ 63 1 -- -- 64
------- -------- ------- -------- --------
Income (loss) before
income taxes........... 3,675 28,303 2,932 (690) 34,220
Income tax expense...... 1,779 11,051 10 5 12,845
------- -------- ------- -------- --------
Net income (loss)..... $ 1,896 $ 17,252 $ 2,922 $ (695) $ 21,375
======= ======== ======= ======== ========
</TABLE>
F-30
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS
Year Ended June 28, 1997
(In thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues................ $32,917 $67,179 $6,801 $(2,538) $104,359
Cost of sales........... 16,224 36,590 6,196 127 59,137
Research and
development............ 4,108 8,196 287 930 13,521
Selling, general and
administrative......... 11,166 7,145 1,558 (4,215) 15,654
Write-off of in process
research and
development............ -- 11,196 -- -- 11,196
------- ------- ------ ------- --------
Operating income
(loss)................. 1,419 4,052 (1,240) 620 4,851
Other (income) expense.. 7,249 (1,148) 37 (154) 5,984
Interest expense........ 61 2 -- -- 63
------- ------- ------ ------- --------
Income (loss) before
income taxes........... (5,891) 5,198 (1,277) 774 (1,196)
Income tax expense
(benefit).............. 152 6,607 (445) -- 6,314
------- ------- ------ ------- --------
Income (loss) from
continuing operations.. (6,043) (1,409) (832) 774 (7,510)
Loss from discontinued
operations............. (909) -- -- -- (909)
------- ------- ------ ------- --------
Net income (loss)..... $(6,952) $(1,409) $ (832) $ 774 $ (8,419)
======= ======= ====== ======= ========
</TABLE>
F-31
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED STATEMENT OF CASH FLOWS
July 3, 1999
(In thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
--------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net income (loss)....... $ (4,516) $ 18,468 $ 9,312 $ (221) $ 23,043
Depreciation and
amortization......... 2,001 2,156 903 (95) 4,965
Other non-cash items.. (13,388) (3,856) -- -- (17,244)
Working capital
changes.............. (1,081) 18,497 (3,740) 10 13,686
--------- -------- ------- ------- ---------
Net cash flows from
operating activities... (16,984) 35,265 6,475 (306) 24,450
Capital expenditures.. (912) (6,301) (2,009) 1,528 (7,694)
Sales, maturities &
purchases of
investments.......... -- 16,112 (288) -- 15,824
Other investing
activities........... 18,225 484 (4,942) (1,222) 12,545
--------- -------- ------- ------- ---------
Net cash flows from
investing activities... 17,313 10,295 (7,239) 306 20,675
Proceeds from long-
term debt............ 170,000 30 -- -- 170,030
Recapitalization...... (187,782) (59,322) -- -- (247,104)
Investments from
equity investors..... 30,655 -- -- -- 30,655
Payments of long term
debt................. (93) (21) -- -- (114)
Purchase of treasury
stock................ (3,016) -- -- -- (3,016)
Other financing
activities........... (11,631) -- -- -- (11,631)
--------- -------- ------- ------- ---------
Net cash flows from
financing activities... (1,867) (59,313) -- -- (61,180)
--------- -------- ------- ------- ---------
Change in cash.......... (1,538) (13,753) (764) -- (16,055)
Beginning balance....... 4,572 16,414 4,354 -- 25,340
--------- -------- ------- ------- ---------
Ending balance........ $ 3,034 $ 2,661 $ 3,590 $ -- $ 9,285
========= ======== ======= ======= =========
</TABLE>
F-32
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED STATEMENT OF CASH FLOWS
June 27, 1998
(In thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
-------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net income (loss)....... $ 1,221 $ 17,927 $ 2,922 $(695) $ 21,375
Depreciation and
amortization......... 2,437 1,762 467 (87) 4,579
Other non-cash items.. (162) 81 -- -- (81)
Working capital
changes.............. 1,106 (8,347) 3,723 (10) (3,528)
-------- -------- ------- ----- --------
Net cash flows from
operating activities... 4,602 11,423 7,112 (792) 22,345
Capital expenditures.. (3,945) (2,225) (2,905) 936 (8,139)
Sales, maturities &
purchases of
investments.......... -- (8,072) -- -- (8,072)
Other investing
activities........... 2,833 29 3 (144) 2,721
-------- -------- ------- ----- --------
Net cash flows from
investing activities... (1,112) (10,268) (2,902) 792 (13,490)
Payments of long term
debt................. (141) (45) -- -- (186)
Purchase of treasury
stock................ (12,993) -- -- -- (12,993)
Exercise of stock
options.............. 7,015 -- -- -- 7,015
Other financing
activities........... 4,224 -- -- -- 4,224
-------- -------- ------- ----- --------
Net cash flows from
financing activities... (1,895) (45) -- -- (1,940)
-------- -------- ------- ----- --------
Change in cash.......... 1,595 1,110 4,210 -- 6,915
Beginning balance....... 2,977 15,304 144 -- 18,425
-------- -------- ------- ----- --------
Ending balance.......... $ 4,572 $ 16,414 $ 4,354 $ -- $ 25,340
======== ======== ======= ===== ========
</TABLE>
F-33
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED STATEMENT OF CASH FLOWS
June 28, 1997
(In thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
-------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net income (loss)....... $ (6,932) $ (259) $(846) $(382) $ (8,419)
Depreciation and
amortization......... 2,491 1,172 81 -- 3,744
Other non-cash items.. 9,706 11,300 83 (308) 20,781
Working capital
changes.............. 8,339 (14,749) 11 690 (5,709)
-------- -------- ----- ----- --------
Net cash flows from
operating activities... 13,604 (2,536) (671) -- 10,397
Capital expenditures.. (1,680) (1,261) (417) -- (3,358)
Sales, maturities &
purchases of
investments.......... -- (7,872) -- -- (7,872)
Other investing
activities........... (8,583) 37 502 -- (8,044)
-------- -------- ----- ----- --------
Net cash flows from
investing activities... (10,263) (9,096) 85 -- (19,274)
Payments of long term
debt................. (136) (2) -- -- (138)
Purchase of treasury
stock................ (10,466) -- -- -- (10,466)
Exercise of stock
options.............. 10,807 -- -- -- 10,807
Other financing
activities........... (277) -- -- -- (277)
-------- -------- ----- ----- --------
Net cash flows from
financing activities... (72) (2) -- -- (74)
-------- -------- ----- ----- --------
Change in cash.......... 3,269 (11,634) (586) -- (8,951)
Beginning balance....... (292) 26,938 730 -- 27,376
-------- -------- ----- ----- --------
Ending balance.......... $ 2,977 $ 15,304 $ 144 $ -- $ 18,425
======== ======== ===== ===== ========
</TABLE>
F-34
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(21) Litigation
On January 27, 1999, Harbor Finance Partners and John P. McCarthy Money
Purchase Plan filed a complaint on behalf of a purported class of our
shareholders in the Court of Common Pleas of Montgomery County, Pennsylvania
against the Company and Mr. Henry I. Boreen in the capacity as our interim
Chief Executive Officer alleging that the consideration to be paid in the
merger is inadequate and seeking to enjoin the merger as well as unspecified
compensatory damages. In March 1999, the plaintiffs amended their complaint to
add Mr. Hock E. Tan as a defendant in his capacity as our Senior Vice
President, Chief Financial Officer and Secretary. In September 1999, the
plaintiffs dismissed their complaints without requiring any payments or other
consideration from the Company or any of the other defendants.
On July 31, 1998, Lemelson Medical, Education & Research Foundation, L.P.
("Lemelson") filed a patent infringement action in the U.S. District Court for
the District of Arizona against over 20 companies, including the Company. This
litigation involves 16 patents, all derived from an original 1954 filing.
Lemelson claims that the patents cover a number of aspects of semiconductor
chip manufacturing, in particular optical imaging using alignment marks on the
semiconductor chips, on assembly of the chips into packages, as well as bar-
coding for inventory control. The liability of the Company is alleged under the
U.S. Process Patent Act, which makes a seller of goods liable for a process
abroad that would infringe a U.S. patent if made here. A few of ICS' foundries
are already licensed under the patents, thus reducing the potential liability
of the Company. Some of the defendants have settled with Lemelson, and the
Company is currently in settlement discussions with Lemelson.
On July 2, 1999, Motorola, Inc. filed an action against the Company and four
former employees of Motorola in the Superior Court of Arizona, Maricopa County,
for unfair competition, breach of contract, misappropriation of trade secrets
and intentional interference with contractual relations. The four former
employees left Motorola and began employment with the Company in May 1999.
Motorola is seeking an injunction to prevent the Company from employing the
former Motorola employees for a reasonable period of time and to enjoin the
Company from using Motorola's trade secrets. Motorola is also suing to recover
its attorneys' fees, unspecified damages and other relief in this matter.
In addition to the foregoing, from time to time, various inquiries,
potential claims and charges and litigation (collectively "claims") are made,
asserted or commenced by or against the Company, principally arising from or
related to contractual relations and possible patent infringement. The Company
believes that any such claims currently pending, and the other litigation
matters discussed above, individually and in the aggregate, have been
adequately reserved and will not have any material adverse effect on the
Company's consolidated financial position or results of operations, although no
assurance can be made in this regard.
(22) Major Customers
During fiscal year 1999, Maxtek Technology represented 12% of the Company's
revenues. During fiscal years 1998 and 1997, no customer represented 10% or
more of the Company's revenues.
(23) Quarterly Data (Unaudited)
The following is a summary of the unaudited quarterly results of operations
for the years ended July 3, 1999 and June 27, 1998 (in thousands):
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------------------------------
September 26 December 26 March 27 July 3 September 27 December 27 March 28 June 27
1998 1998 1999 1999 1997 1997 1998 1998
------------ ----------- -------- ------- ------------ ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $32,200 $35,815 $34,980 $36,068 $38,585 $43,045 $43,545 $35,459
Cost of sales........... 17,259 18,334 14,582 14,321 21,052 23,457 23,977 20,373
Research and
development............ 4,760 5,434 6,241 4,881 4,236 5,321 5,540 4,700
Operating income
(loss)................. 5,582 6,157 9,493 (2,826) 8,143 9,137 9,070 5,950
Net income (loss)....... $ 4,149 $ 4,512 $16,510 $(2,128) $ 5,042 $ 6,021 $ 6,208 $ 4,104
</TABLE>
F-35
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC..
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(24) Subsequent Event
On March 27, 2000, the Company's Board of Directors authorized the filing of
a Registration Statement on Form S-1 in connection with a planned initial
public offering of the Company's common stock. The Company intends to
reclassify all of its classes of common stock into a single class of common
stock and effect a stock split in the form of a stock dividend in the amount of
1.6942 shares for every one share outstanding as of the pricing date of the
initial public offering. All share and per share information in the
accompanying consolidated financial statements have been retroactively adjusted
to give effect to the planned modification of the Company's capital structure.
F-36
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
April 1, July 3,
2000 1999
----------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................. $ 31,320 $ 9,285
Marketable securities................................. 278 288
Accounts receivable, net.............................. 18,389 18,120
Inventory, net........................................ 8,829 8,736
Deferred income taxes................................. 8,209 8,644
Prepaid assets........................................ 1,645 797
Other current assets.................................. 707 523
Current portion of deposit on purchase contracts...... 10,177 3,973
--------- ---------
Total current assets................................ 79,554 50,366
--------- ---------
Property and equipment, net............................. 12,335 12,127
Deferred financing costs, net........................... 11,947 12,767
Deposits on purchase contracts.......................... -- 11,348
Other assets............................................ 1,455 1,187
--------- ---------
Total assets........................................ $ 105,291 $ 87,795
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term obligations.............. $ 23 $ 1,030
Accounts payable...................................... 11,093 10,258
Income tax payable.................................... 4,834 4,473
Accrued payroll and bonus............................. 1,309 2,056
Accrued interest...................................... 4,556 2,108
Accrued expenses and other current liabilities........ 3,314 3,531
--------- ---------
Total current liabilities........................... 25,129 23,456
--------- ---------
Long-term debt, less current portion.................... 150,597 169,000
Other liabilities....................................... 1,373 1,462
Deferred income taxes................................... 928 789
--------- ---------
Total liabilities................................... 178,027 194,707
========= =========
Shareholders' deficit: (Note 10)
Series A preferred stock, $4.00 par, authorized 3,367;
Issued and outstanding
3,367 shares as of April 1, 2000..................... 13,467 --
Class A common stock, $0.01 par, authorized 52,520;
Issued and outstanding 28,425 and 26,452 shares as of
April 1, 2000 and July 3, 1999, respectively......... 285 264
Class B common stock, $0.01 par, authorized 52,520;
Issued and outstanding 9,577 shares as of April 1,
2000 and July 3, 1999, respectively.................. 96 96
Class L common stock, $0.01 par, authorized 6,777;
Issued and outstanding
3,998 and 4,003 shares as of April 1, 2000 and July
3, 1999, respectively ............................... 40 40
Additional paid in capital............................ 34,579 34,556
Accumulated deficit................................... (120,923) (141,413)
Notes receivable...................................... (280) (455)
--------- ---------
Total shareholders' deficit......................... (72,736) (106,912)
--------- ---------
Total liabilities and shareholders' deficit......... $ 105,291 $ 87,795
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-37
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months
ended Nine months ended
------------------ ------------------
March
April 1, 27, April 1, March
2000 1999 2000 27, 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:............................. $41,613 $ 34,980 $120,511 $102,995
Cost and expenses:
Cost of sales....................... 16,068 14,582 48,938 50,175
Research and development expense.... 6,341 6,241 18,062 16,435
Selling, general and administrative
expense............................ 5,856 4,538 16,983 14,910
Management fee...................... 250 -- 750 --
Goodwill amortization............... 59 59 176 176
------- -------- -------- --------
Operating income.................. 13,039 9,560 35,602 21,299
------- -------- -------- --------
Interest and other (income)........... (423) (498) (792) (1,917)
Gain on Sale of Datacom............... -- (10,580) -- (10,580)
Interest expense...................... 4,543 13 13,855 78
------- -------- -------- --------
Income before income taxes........ 8,919 20,625 22,539 33,718
Income taxes.......................... 810 4,115 2,213 8,547
------- -------- -------- --------
Income before extraordinary items... 8,109 16,510 20,326 25,171
Extraordinary gain on early retirement
of bonds, net of taxes............... -- -- 170 --
------- -------- -------- --------
Net income........................ $ 8,109 $ 16,510 $20,496 $ 25,171
======= ======== ======== ========
Income per common share:
Basic income per common share....... $ 0.19 $ 0.80 $ 0.48 $ 1.22
Diluted income per common share..... $ 0.42 $ 0.77 $ 0.41 $ 1.19
Shares used to compute income per
common share
Basic............................... 37,748 20,569 36,473 20,701
Diluted............................. 49,836 21,415 43,104 21,111
</TABLE>
See accompanying notes to consolidated financial statements.
F-38
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
------------------
March
April 1, 27,
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 20,496 $ 25,171
Adjustments to reconcile net income to net Cash provided
by operating activities:
Depreciation and amortization.......................... 3,371 3,605
Amortization of deferred financing charge.............. 1,215 --
Loss (gain) on sale of fixed assets.................... 60 262
(Gain) loss on sale of building........................ (78) --
(Gain) loss on sale of DataCom......................... -- (10,580)
Sale (purchase) of trading securities.................. -- 454
Stock compensation..................................... -- 1,280
Tax benefit from the exercise of stock options......... 219 154
Deferred income taxes.................................. 573 (894)
Accounts receivable.................................... (269) (540)
Inventory.............................................. (93) 5,843
Other assets, net...................................... (1,289) (930)
Accounts payable, accrued expenses and other current
liabilities........................................... (127) (2,701)
Accrued interest expense............................... 2,448 --
Income taxes........................................... 360 2,869
-------- --------
Net cash provided by operating activities.................. 26,886 23,993
-------- --------
Cash flows from investing activities:
Purchase of investments.................................. -- (31,685)
Proceeds from sale/maturities of marketable securities... -- 27,246
Capital expenditures..................................... (3,505) (6,618)
Change in deposits on purchase contracts................. 5,143 (7,739)
Proceeds from sale of fixed assets....................... 93 16,134
-------- --------
Net cash used in investing activities................ 1,731 (2,662)
-------- --------
Cash flows from financing activities:
Exercise of stock options................................ 60 840
Investment into the Company.............................. 13,467 --
Repayments of long-term debt............................. (19,463) (112)
Repurchase of common stock............................... -- (3,016)
Deferred financing charges............................... (395) --
Other.................................................... (251) --
-------- --------
Net cash used in financing activities................ (6,582) (2,288)
-------- --------
Net increase in cash and cash equivalents.................. 22,035 19,043
Cash and cash equivalents:
Beginning of period...................................... 9,285 25,340
-------- --------
End of period............................................ $ 31,320 $ 44,383
======== ========
Supplemental disclosures of cash flow information:
Cash payments during the period for:
Interest............................................... $ 9,927 $ 64
======== ========
Income taxes........................................... $ 1,024 $ 4,743
======== ========
Non-cash disclosures:
Capital lease of equipment............................. $ 53 $ --
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-39
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Interim Accounting Policy
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 accruals)
necessary to present fairly the Company's financial position at April 1, 2000
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
appearing elsewhere herein. Results of operations for the three and nine months
ended April 1, 2000 are not necessarily indicative of results to be expected
for the full year.
(2) Consolidation Policy
The accompanying consolidated financial statements include the accounts of
the Company and all of its subsidiaries (wholly and majority-owned), after
elimination of all significant intercompany accounts and transactions.
(3) The Recapitalization
In the recapitalization on May 11, 1999, affiliates of Bain Capital, an
affiliate of Bear Stearns and Co., Inc. and certain members of management made
an aggregate equity investment in the Company of approximately $50 million as
part of agreements to redeem and purchase all of our outstanding shares of
common stock and vested options for consideration (including fees and expenses)
totaling $294.4 million.
(4) Inventory
Inventory is valued at the lower of market or standard cost, which
approximates actual costs using the first-in, first-out (FIFO) method.
The components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
April 1, July 3,
2000 1999
-------- -------
<S> <C> <C>
Work-in-process........................................... $ 7,297 $ 8,211
Finished parts............................................ 6,072 5,665
Less: Obsolescence reserve................................ (4,540) (5,140)
------- -------
$ 8,829 $ 8,736
======= =======
</TABLE>
(5) Purchase Commitments
In the third quarter of fiscal 2000, Chartered Semiconductor PTE repaid the
$4.3 million, extinguishing the balance outstanding under the first deposit.
The second deposit commitment period ends December 31, 2000 and accordingly,
the remaining balance of $10.2 million is recorded as a current asset.
(6) Debt
The Company purchased $2.0 million of its 11 1/2% senior subordinated notes
below par in September, resulting in a gain of $36,000 net of income taxes, and
$5.0 million below par in November, resulting in a gain of $134,000 net of
income taxes. In addition, the Company has paid $12.4 million of principal on
the term A and term B loans, as well as $9.9 million in interest during the
first nine months of fiscal year 2000.
F-40
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Certain of the Company's loan agreements require the maintenance of
specified financial ratios and impose financial limitations. At April 1, 2000,
the Company was in compliance with the senior credit facility covenants.
(7) Net Income Per Share
The Company had adopted the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS No. 128"). SFAS No. 128 requires
the Company to report both basic net income per share, which is based on the
weighted-average number of common shares outstanding excluding contingently
issuable or returnable shares that contingently convert into Common Stock upon
certain events, and diluted net income per share, which is based on the
weighted average number of common shares outstanding and diluted potential
common shares outstanding. Class A Stock, Class B Stock and Class L Stock share
ratably in the net income (loss) remaining after giving effect to the 9% yield
on Class L Stock. Net income for the three and nine months ended April 1, 2000
used in the net income per share calculation represents the income attributable
to the weighted average number of shares of Class A Stock, Class B Stock and
Common Stock outstanding after giving effect to the 9% yield on Class L Stock.
The following tables set forth the computation of net income (numerator) and
shares (denominator) for earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ ------------------
April 1, March 27, April 1, March 27,
2000 1999 2000 1999
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Numerator (in thousands):
Net Income.............................. $ 8,109 $16,510 $ 20,496 $25,171
Less: Income attributable to Class L
Stock.................................. 995 -- 2,950 --
------- ------- -------- -------
7,114 16,510 17,546 25,171
Denominator (in thousands):
Common Stock............................ -- 20,569 -- 20,701
Class A Stock........................... 28,170 -- 26,896 --
Class B Stock........................... 9,577 -- 9,577 --
------- ------- -------- -------
Weighted average shares outstanding used
for basic income per share............. 37,747 20,569 36,473 20,701
Common Stock Options.................... 6,955 846 4,844 410
Series A Preferred Stock................ 5,134 -- 1,787 --
------- ------- -------- -------
Weighted average shares outstanding used
for diluted income per share........... 49,836 21,415 43,104 21,111
======= ======= ======== =======
</TABLE>
(8) Equity
During December 1999, the Company received $13.5 million in exchange for 3.4
million shares of $4.00 par value preferred stock from a strategic corporate
investor.
(9) Business Segment Information
The Company has adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information", which became effective for fiscal year
1999. The Company adopted the requirements of this statement in fiscal year
1999.
F-41
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has two reportable segments, core products and non-core
products. The core segment represents parts that synchronize the timing signals
in electronic devices. The non-core products include data communication
transceivers and custom components.
The Company's reportable segments are strategic product lines that differ in
nature and have different end uses. As such these product lines are managed and
reported to the chief operating decision-maker separately.
Core products are standard application specific products that are sold into
a variety of applications. The average selling prices (ASP's) tend to be
stable, gross margins are higher than commodity products, and the volumes
higher than the non-core segment. The non-core segment is made up of custom
parts using varied technologies for different applications such as
transceivers. Each component in the custom product line is developed
specifically for one customer for their specific application.
Revenue and operating profit by business segment were as follows:
<TABLE>
<CAPTION>
Business Segment Net Revenue
---------------------------------------
Three months ended Nine months ended
------------------- -------------------
April 1, March 27, April 1, March 27,
2000 1999 2000 1999
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Core............................... $36,968 $27,553 $106,801 $ 78,612
Non-core........................... 4,645 7,427 13,710 24,383
------- ------- -------- --------
Total net revenues............... $41,613 $34,980 $120,511 $102,995
======= ======= ======== ========
<CAPTION>
Business Segment Profit (Loss)
---------------------------------------
Three months ended Nine months ended
------------------- -------------------
April 1, March 27, April 1, March 27,
2000 1999 2000 1999
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Operating Profit:
Core............................... $11,224 $ 8,717 $ 31,113 $ 17,721
Non-core........................... 2,065 843 5,239 3,578
Management fee..................... (250) -- (750) --
------- ------- -------- --------
Total operating profit........... 13,039 9,560 35,602 21,299
Reconciliation to statements of
operations:
Interest & other income............ 423 11,078 792 12,497
Interest expense................... (4,543) (13) (13,855) (78)
------- ------- -------- --------
Net income (loss) before Income
taxes............................. $ 8,919 $20,625 $ 22,539 $ 33,718
======= ======= ======== ========
</TABLE>
The Company does not allocate items below operating income to specific
segments. The core and Non-core profit is calculated as revenues less cost of
sales, research and development and selling, general and administrative
expenses for that segment.
(10) Initial Public Offering
On March 27, 2000, the Company announced that it had filed with the
Securities and Exchange Commission, a registration statement relating to a
proposed initial public offering of its common stock. The net cash proceeds of
the offering to be received by the Company, will be used to redeem or
repurchase outstanding senior subordinated notes, repay in full all outstanding
obligations under the Company's senior bank credit facility, pay fees and
expenses of the offering, and fund general corporate requirements. The proposed
offering will be underwritten by a group led by Credit Suisse First Boston,
Inc. There can be no assurance that the Company will complete its initial
public offering on the terms proposed or at all.
F-42
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(11) New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." In June 1999, the FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities," which
defers the effective date of SFAS No. 133 to fiscal years beginning after
June 15, 2000. The Company will adopt the requirements of this statement in
fiscal year 2001.
(12) Legal
On July 2, 1999, Motorola, Inc. filed an action against the Company and four
former employees of Motorola in the Superior Court of Arizona, Maricopa County,
for unfair competition, breach of contract, misappropriation of trade secrets
and intentional interference with contractual relations. Motorola is suing to
recover its attorneys' fees, unspecified damages and other relief in this
matter. Independent of the lawsuit, a restraining order for the Company's
Phoenix design center was put in place. A $0.5 million payment was made during
the second quarter of fiscal 2000 in conjunction with the placement of the
restraining order, allowing the Phoenix design center to move forward with
research and development. Both parties entered into a settlement agreement in
the third quarter of fiscal 2000, wherein, Motorola received a payment of $2.3
million from the Company and the case has been dismissed. The Company also
incurred $1.4 million in legal fees in conjunction with this lawsuit, $0.9
million of which was expensed during the quarter ended April 1, 2000.
(13) Subsequent Event
All share and per share amounts have been retroactively adjusted to reflect
a 1.6942 to 1 stock split which will occur with the Company's initial public
offering.
F-43
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses to be incurred in
connection with the issuance and distribution of the securities being
registered, other than underwriting discounts and commissions, to be paid by
the Registrant.
<TABLE>
<S> <C>
SEC registration fee................................................ $ 132,000
National Association of Securities Dealers, Inc. filing fee......... 30,500
Nasdaq National Market listing fee.................................. 5,000
Printing and engraving fees......................................... 300,000
Legal fees and expenses............................................. 1,000,000
Accounting fees and expenses........................................ 500,000
Blue Sky fees and expenses.......................................... 5,000
Transfer agent and Registrar fees................................... 3,500
Management and consulting fees...................................... 3,200,000
Miscellaneous....................................................... 1,724,000
----------
Total............................................................... 6,900,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers.
The Registrant and its subsidiary ICST, Inc. are incorporated under the laws
of the Commonwealth of Pennsylvania. Sections 1741 through 1750 of Chapter 17,
Subchapter D, of the Pennsylvania Business Corporation Law of 1988, as amended
(the "BCL") contain provisions for mandatory and discretionary indemnification
of a corporation's directors, officers and other personnel, and related
matters.
Under Section 1741, subject to certain limitations, a corporation has the
power to indemnify directors and officers under certain prescribed
circumstances against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred in connection
with an action or proceeding, whether civil, criminal, administrative or
investigative, to which any of them is a party by reason of his being a
representative, director or officer of the corporation or serving at the
request of the corporation as a representative of another corporation,
partnership, joint venture, trust or other enterprise, if he acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the corporation and, with respect to any criminal proceeding,
had no reasonable cause to believe his conduct was unlawful. Under Section
1743, indemnification of expenses actually and reasonably incurred is mandatory
to the extent that the officer or director has been successful on the merits or
otherwise in defense of any action or proceeding.
Section 1742 provides for indemnification in derivative actions except in
respect of any claim, issue or matter as to which the person has been adjudged
to be liable to the corporation unless and only to the extent that the proper
court determines upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for the expenses that the court deems proper.
Section 1744 provides that, unless ordered by a court, any indemnification
under Section 1741 or 1742 shall be made by the corporation only as authorized
in the specific case upon a determination that the representative met the
applicable standard of conduct, and such determination will be made by the
board of directors (i) by a majority vote of a quorum of directors not parties
to the action or proceeding; (ii) if a quorum is not obtainable, or if
obtainable and a majority vote of a quorum of disinterested directors so
directs, by independent legal counsel; or (iii) by the shareholders.
II-1
<PAGE>
Section 1745 provides that expenses incurred by an officer, director,
employee or agent in defending a civil or criminal action or proceeding may be
paid by the corporation in advance of the final disposition of such action or
proceeding upon receipt of an undertaking by or on behalf of such person to
repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the corporation.
Section 1746 provides generally that, except in any case where the act or
failure to act giving rise to the claim for indemnification is determined by a
court to have constituted willful misconduct or recklessness, the
indemnification and advancement of expenses provided by Subchapter 17D of the
BCL shall not be deemed exclusive of any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under any bylaw,
agreement, vote of shareholders of disinterested directors or otherwise, both
as to action in his or her official capacity and as to action in another
capacity while holding that office.
Section 1747 also grants to a corporation the power to purchase and maintain
insurance on behalf of any director or officer against any liability incurred
by him or her in his or her capacity as officer or director, whether or not the
corporation would have the power to indemnify him or her against the liability
under Subchapter 17D of the BCL.
Section 1748 and 1749 extend the indemnification and advancement of expenses
provisions contained in Subchapter 17D of the BCL to successor corporations in
fundamental changes and to representatives serving as fiduciaries of employee
benefit plans.
Section 1750 provides that the indemnification and advancement of expenses
provided by, or granted pursuant to, Subchapter 17D of the BCL, 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 and personal representative of such person.
For information regarding provisions under which a director or officer of
the Registrant may be insured or indemnified in any manner against any
liability which he or she may incur in his or her capacity as such, reference
is made to Article 23 of the Registrant's Bylaws, which provides in general
that the Registrant shall indemnify its officers and directors to the fullest
extent permitted by Pennsylvania law. Article 23 further provides that no
director of the Registrant shall be personally liable, as such, for monetary
damages for any action taken unless the director has breached or failed to
perform the duties of his or her office, and the breach or failure to perform
constitutes self-dealing, wilful misconduct or recklessness, except with
respect 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.
It is the policy of the Registrant that indemnification of, and advancement
of expenses to, directors and officers of the Registrant shall be made to the
fullest extent permitted by law.
The Registrant shall pay expenses incurred by an officer or director, and
may pay expenses incurred by any other employee or agent, in defending a
proceeding, in advance of the final disposition of such action or proceeding.
The Registrant has 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 the
Registrant's Bylaws or otherwise.
The Registrant has the authority to enter into a separate indemnification
agreement with any officer, director, employee or agent of the Registrant 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.
The Registrant has the power to purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Registrant, whether or not the Registrant would have the power to indemnify him
against such liability under the provisions of the Bylaws or under any
provision of the BCL or other applicable law.
II-2
<PAGE>
The Registrant currently provides insurance coverage to its directors and
officers for up to $20 million.
In connection with the recapitalization, Bain Capital Fund VI, L.P. and
Bear Stearns Merchant Fund Corp., equity investors in the Registrant after the
recapitalization, have agreed to severally and not jointly, indemnify and hold
harmless Rudolf S. Gassner, John L. Pickitt and Edward M. Esber, Jr.,
directors of the Registrant who will not continue to be directors after the
recapitalization, and their respective heirs, personal representatives and
administrators, from and against any and all liabilities that any of them may
incur solely to the extent incurred directly as a result of their approval of
(i) the Confidential Information Memorandum ("Memorandum") dated February 1999
relating to proposed $145 million credit facilities ("Facilities"), (ii) a
letter from the Registrant to Credit Suisse First Boston relating to the
Memorandum, a copy of which is included in the Memorandum, (iii) the Rule 144A
Offering Circular of the Registrant relating to an offering of $100,000,000 of
Senior Subordinated Notes ("Notes"), (iv) the incurrence of any indebtedness
under the Facilities or the Notes, and (v) the engagement of Murray, Devine &
Co., Inc. to provide a solvency opinion in connection with the
recapitalization.
For information regarding provisions under which a director or officer of
ICST, Inc. may be insured or indemnified in any manner against any liability
which he or she may incur in his or her capacity as such, reference is made to
Article 23 of ICST's bylaws, which provides in general that ICST shall
indemnify its officers and directors to the fullest extent permitted by
Pennsylvania law.
The Registrant's subsidiaries, ICS Technologies, Inc. and MicroClock, Inc.,
are incorporated under the laws of the State of Delaware. Section 145 of the
General Corporation Law of the State of Delaware ("Section 145"), inter alia,
provides that a Delaware corporation may indemnify any persons who were, are
or are threatened to be made, parties to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation),
by reason of the fact that such person is or was an officer, director,
employee or agent of such corporation, or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses, such as
attorneys' fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such person acted in good faith and in a manner he or she
reasonably believed to be or not opposed to the corporation's best interests
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe that his or her conduct was illegal. A Delaware corporation
may indemnify any persons who are, were or are threatened to be made, party to
any threatened, pending or completed action or suit by or in the right of the
corporation by reasons of the fact that such person was a director, officer,
employee or agent of such corporation, or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnify may include expenses, including
attorneys' fees, actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit, provided such person
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the corporation's best interests, provided that no
indemnification is permitted without judicial approval if the officer,
director, employee or agent is adjudged to be liable to the corporation. Where
an officer, director, employee or agent is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him or her against the expenses which such officer or director has
actually and reasonably incurred.
Section 145 further authorizes a corporation 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 corporation
or enterprise, against any liability asserted against him and incurred by him
or her in any such capacity, arising out of his or her status as such, whether
or not the corporation would otherwise have the power to indemnify him or her
under Section 145.
For information regarding provisions under which a director or officer of
ICS Technologies, Inc. may be insured or indemnified in any manner against any
liability which he or she may incur in his or her capacity as such, reference
is made to Article VI of ICS Technologies' bylaws, which provides in general
that ICS Technologies shall indemnify its officers and directors to the
fullest extent permitted by and under Section 145.
II-3
<PAGE>
For information regarding provisions under which a director or officer of
MicroClock, Inc. may be insured or indemnified in any manner against any
liability which he or she may incur in his or her capacity as such, reference
is made to Article VII of MicroClock's bylaws, which provides in general that
MicroClock shall indemnify its officers and directors and authorized
representatives who was or is a party, or is threatened to be made a party to
any third party proceeding or any corporate proceeding by reason of the fact
that such person is or was an authorized representative of the MicroClock
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such proceeding if such
person acted in good faith and in a manner such person reasonably believed to
be in the best interests of MicroClock.
Item 15. Recent Sales of Unregistered Securities.
On May 11, 1999, as part of a recapitalization of the Registrant, the
Registrant issued Class A common stock, Class B common stock and Class L common
stock to affiliates of Bain Capital Inc., an affiliate of The Bear Sterns
Companies, Inc. and certain members of management of the Registrant for
consideration totaling approximately $50 million pursuant to an exemption from
registration provided by Section 4(2) of the Securities Act.
On December 23, 1999, the Registrant issued 3,366,670 Series A Cumulative
Convertible Preferred Stock to Intel Corporation pursuant to an exemption from
registration provided by Section 4(2) of Securities Act.
Item 16. Exhibits and Financial Statement Schedules.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of the Registrant.
3.2 Amended and Restated By-laws of the Registrant.
*4.1 Indenture, dated as of May 11, 1999, between the Company and Chase
Manhattan Trust Company, National Association, as Trustee with respect
to the 11 1/2% Senior Subordinated Notes (including the form of 11
1/2% Senior Subordinated Notes).
4.2 Form of certificate representing shares of common stock.
5.1 Opinion of Pepper Hamilton LLP.
*10.1 Purchase Agreement, dated as of May 5, 1999, among the Company, Bear
Stearns & Co. Inc. and Credit Suisse First Boston Corporation.
*10.2 Registration Rights Agreement, dated as of May 11, 1999, among the
Company, each of the three Guarantor Subsidiaries, Bear, Stearns &
Co., Inc. and Credit Suisse First Boston Corporation.
*10.3 Consulting Agreement, dated as of May 11, 1999, between the Company
and Henry I. Boreen.
*10.4 Integrated Circuit Systems, Inc. 1999 Stock Option Plan.
*10.5 Credit Agreement, dated as of May 11, 1999, among the Company, Credit
Suisse First Boston as Administrative Agent, Sole Lead Arranger and
Collateral Agent, and the various lending institutions party thereto.
*10.6 Lease, dated as of January 29, 1999 between BET Investments IV and the
Company.
*10.7 Agreement and Plan of Merger as of January 20, 1999, between the
Company and ICS Merger Corp. (the "Recapitalization Agreement").
*10.8 Amendment No. 1 to the Recapitalization Agreement, dated as of
February 16, 1999.
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
*10.9 Executive Stock and Option Agreement, dated as of May 11, 1999,
between the Company and Hock E. Tan.
*10.10 Deferred Compensation Agreement, dated as of May 11, 1999, between the
Company and Hock E. Tan.
*10.11 Stockholders Agreement, dated as of May 11, 1999, among the Company,
Bain Capital Fund VI, L.P., BCIP Associates II, BCIP Trust Associates
II, BCIP Associates II-B, BCIP Trust Associates II-B, BCIP Associates
II-C, PEP Investments PTY Ltd., Randolph Street Partners II, Randolph
Street Partners 1998 DIF, L.L.C., ICST Acquisition Corp. and
Integrated Circuit Systems Equity Investors, L.L.C.
10.12 Amendment No. 1 to Stockholders Agreement, dated December 23, 1999.
10.13 Amendment No. 2 to Stockholders Agreement, dated , 2000.
*10.14 Employee Agreement, dated August 1, 1994, between the Company and Hock
E. Tan.
*10.15 Consultant Stock Agreement, dated as of May 11, 1999, between the
Company and Henry I. Boreen.
*10.16 Registration Agreement, dated as of May 11, 1999, among the Company,
Bain Capital Fund VI, L.P., BCIP Trust Associates II, BCIP Trust
Associates II-B, BCIP Associates II, BCIP Associates II-B, BCIP
Associates II-C, PEP Investments PTY Ltd., Randolph Street Partners
II, Randolph Street Partners 1998 DIF, L.L.C., ICST Acquisition Corp.,
Hock E. Tan, Lewis C. Eggebrecht and Integrated Circuit Systems Equity
Investors, L.L.C.
10.17 Amendment No. 1 to Registration Statement, dated December 23, 1999.
*10.18 Executive Stock Purchase Agreement, dated as of May 11, 1999, between
the Company and
Hock E. Tan.
*10.19 Promissory Note, dated as of May 11, 1999, executed by Hock E. Tan.
*10.20 Pledge Agreement, dated as of May 11, 1999, between the Company and
Hock E. Tan.
*10.21 Voting Agreement, dated as of May 11, 1999, among the Company, Bain
Capital Fund VI, L.P., BCIP Associates II, BCIP Trust Associates II,
BCIP Associates II-B, BCIP Trust Associates II-B, BCIP Associates II-
C, PEP Investments PTY Ltd., Randolph Street Partners II, Randolph
Street Partners 1998 DIF, L.L.C., ICST Acquisition Corp., Henry I.
Boreen, Christopher J. Bland and Barry E. Olsen.
*10.22 Employment Agreement, dated as of May 11, 1999, between the Company
and Hock E. Tan.
*10.23 Non-Compete Agreement, dated as of May 11, 1999, between the Company
and Hock E. Tan.
*10.24 Advisory Agreement, dated as of May 11, 1999, between the Company and
Bain Capital Partners VI, L.P.
*10.25 Advisory Agreement, dated as of May 11, 1999, between the Company and
ICST Acquisition Corp.
10.26 Lease Agreement, dated June 13, 1988, between VLSI Design Associates
and The Sobrato Group (Incorporated by reference to Exhibit 10.27 to
the Registrant's registration statement, No. 33-54142, on Form S-4,
filed November 3, 1992).
10.27 Lease between Turtle Beach Systems, Inc. and Winship Land Associates
III, dated May 28, 1993 (Incorporated by reference to Exhibit 10.27 to
the Registrant's 1993 Annual Report on Form 10-K).
10.28 First Amendment to lease, dated as of May 13, 1993, between the
registrant and The Sobrato Group (Incorporated by reference to Exhibit
10.28 to the Registrant's 1993 Annual Report on Form 10-K).
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <S>
10.29 Wafer purchase contract, dated as of October 12, 1994, between the
Company and American Microsystems, Inc. (Exhibit 10 to the
Registrant's Form 10-Q for the quarter ended September 30, 1994).
10.30 Agreement, dated as of November 21, 1994, between the Company and
Edward H. Arnold (Incorporated by reference to Exhibit 10.1 to the
Registrant's Form 10-Q for the quarter ended December 31, 1994).
10.31 Wafer purchase contract, dated as of November 8, 1995, between the
Company and Chartered Semiconductor Manufacturing Pte. Ltd.
(Incorporated by reference to Exhibits 10(a) and 10(b) to the
Registrant's Form 10-Q for the quarter ended December 30, 1995).
10.32 2000 Long Term Equity Incentive Plan
10.33 Series A Cumulative Convertible Preferred Stock Purchase Agreement by
the Registrant and Intel Corporation dated December 23, 1999.
10.34 Employee Stock Purchase Plan.
*16.1 Letter from KPMG LLP re: Change in Certifying Accountant.
21.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP.
23.2 Consent of Pepper Hamilton LLP (included in Exhibit 5.1).
24.1 Power of Attorney (included in Part II of the Registration Statement).
27.1 Financial Data Schedule.
</TABLE>
- ---------------------
* Incorporated by reference to the Registrant's Form S-4, as amended, filed
October 7, 1999.
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to provisions described in Item 14 above, or otherwise, the
Registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Pre-effective Amendment No. 2 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Norristown, Pennsylvania, on this 19th day of May, 2000.
Integrated Circuit Systems, Inc.
/s/ Hock E. Tan
By: _________________________________
Name:Hock E. Tan
Title:President and Chief
Executive Officer
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Pre-effective Amendment No. 2 to the Registration Statement on Form S-1 and
Power of Attorney have been signed by or on behalf of the following persons in
the capacity and on the date indicated.
Integrated Circuit Systems, Inc.
<TABLE>
<CAPTION>
Signature Title(s) Date
--------- -------- ----
<S> <C> <C>
/s/ Hock E. Tan President and Chief May 19, 2000
______________________________________ Executive Officer
Hock E. Tan (Principal Executive
Officer) and Director
/s/ Justine F. Lien Chief Financial Officer May 19, 2000
______________________________________ (Principal Financial and
Justine F. Lien Accounting Officer)
* Director May 19, 2000
______________________________________
Henry I. Boreen
* Director May 19, 2000
______________________________________
David Dominik
* Director May 19, 2000
______________________________________
Michael A. Krupka
* Director May 19, 2000
______________________________________
Prescott Ashe
* Director May 19, 2000
______________________________________
John D. Howard
</TABLE>
- ---------------------
* By Justine F. Lien, attorney-in-fact.
II-8
<PAGE>
SCHEDULE II
INTEGRATED CIRCUIT SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
Years ended July 3, 1999, June 27, 1998 and June 28, 1997
(in thousands)
<TABLE>
<CAPTION>
Balance at Additions Charged
Beginning of to Costs and Balance at
Description Period Expenses Deductions End of Period
- ------------------------ ------------ ----------------- ---------- -------------
<S> <C> <C> <C> <C>
Year ended July 3, 1999:
Valuation reserves:
Doubtful Accounts..... $ 627 $ 430 $ 116 $ 941
Returns and
Allowances........... 1,166 43 -- 1,209
Inventory............. 3,360 2,380 600 5,140
Deferred tax
valuation............ 3,145 -- 428 2,717
Year ended June 27,
1998:
Valuation reserves:
Doubtful Accounts..... $ 212 $ 543 $ 128 $ 627
Returns and
Allowances........... 231 935 -- 1,166
Inventory............. 2,373 2,687 1,700(1) 3,360
Deferred tax
valuation............ 3,090 55 -- 3,145
Year ended June 28,
1997:
Valuation reserves:
Doubtful Accounts..... $ 230 $ 172 $ 190 $ 212
Returns and
Allowances........... 1,849 -- 1,618(1) 231
Inventory............. 2,001 372 -- 2,373
Deferred tax
valuation............ 911 2,179 -- 3,090
</TABLE>
- ----------
(1) Reflects the de-consolidation of Turtle Beach.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
----------- ----------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of the
Registrant.
3.2 Amended and Restated By-laws of the Registrant.
*4.1 Indenture, dated as of May 11, 1999, between the Company and
Chase Manhattan Trust Company, National Association, as Trustee
with respect to the 11 1/2% Senior Subordinated Notes (including
the form of 11 1/2% Senior Subordinated Notes).
4.2 Form of certificate representing shares of common stock.
5.1 Opinion of Pepper Hamilton LLP.
*10.1 Purchase Agreement, dated as of May 5, 1999, among the Company,
Bear Stearns & Co. Inc. and Credit Suisse First Boston
Corporation.
*10.2 Registration Rights Agreement, dated as of May 11, 1999, among
the Company, each of the three Guarantor Subsidiaries, Bear,
Stearns & Co., Inc. and Credit Suisse First Boston Corporation.
*10.3 Consulting Agreement, dated as of May 11, 1999, between the
Company and Henry I. Boreen.
*10.4 Integrated Circuit Systems, Inc. 1999 Stock Option Plan.
*10.5 Credit Agreement, dated as of May 11, 1999, among the Company,
Credit Suisse First Boston as Administrative Agent, Sole Lead
Arranger and Collateral Agent, and the various lending
institutions party thereto.
*10.6 Lease, dated as of January 29, 1999 between BET Investments IV
and the Company.
*10.7 Agreement and Plan of Merger as of January 20, 1999, between the
Company and ICS Merger Corp. (the "Recapitalization Agreement").
*10.8 Amendment No. 1 to the Recapitalization Agreement, dated as of
February 16, 1999.
*10.9 Executive Stock and Option Agreement, dated as of May 11, 1999,
between the Company and Hock E. Tan.
*10.10 Deferred Compensation Agreement, dated as of May 11, 1999,
between the Company and Hock E. Tan.
*10.11 Stockholders Agreement, dated as of May 11, 1999, among the
Company, Bain Capital Fund VI, L.P., BCIP Associates II, BCIP
Trust Associates II, BCIP Associates II-B, BCIP Trust Associates
II-B, BCIP Associates II-C, PEP Investments PTY Ltd., Randolph
Street Partners II, Randolph Street Partners 1998 DIF, L.L.C.,
ICST Acquisition Corp. and Integrated Circuit Systems Equity
Investors, L.L.C.
10.12 Amendment No. 1 to Stockholders Agreement, dated December 29,
1999.
10.13 Amendment No. 2 to Stockholders Agreement, dated February, 2000.
*10.14 Employee Agreement, dated August 1, 1994, between the Company
and Hock E. Tan.
*10.15 Consultant Stock Agreement, dated as of May 11, 1999, between
the Company and Henry I. Boreen.
</TABLE>
<PAGE>
<TABLE>
Exhibit No. Description Page
----------- ----------- ----
<C> <S> <C>
*10.16 Registration Agreement, dated as of May 11, 1999, among the
Company, Bain Capital Fund VI, L.P., BCIP Trust Associates II,
BCIP Trust Associates II-B, BCIP Associates II, BCIP Associates
II-B, BCIP Associates II-C, PEP Investments PTY Ltd., Randolph
Street Partners II, Randolph Street Partners 1998 DIF, L.L.C.,
ICST Acquisition Corp., Hock E. Tan, Lewis C. Eggebrecht and
Integrated Circuit Systems Equity Investors, L.L.C.
10.17 Amendment No. 1 to Registration Statement, dated December 29,
1999.
*10.18 Executive Stock Purchase Agreement, dated as of May 11, 1999,
between the Company and
Hock E. Tan.
*10.19 Promissory Note, dated as of May 11, 1999, executed by Hock E.
Tan.
*10.20 Pledge Agreement, dated as of May 11, 1999, between the Company
and Hock E. Tan.
*10.21 Voting Agreement, dated as of May 11, 1999, among the Company,
Bain Capital Fund VI, L.P., BCIP Associates II, BCIP Trust
Associates II, BCIP Associates II-B, BCIP Trust Associates
II-B, BCIP Associates II-C, PEP Investments PTY Ltd., Randolph
Street Partners II, Randolph Street Partners 1998 DIF, L.L.C.,
ICST Acquisition Corp., Henry I. Boreen, Christopher J. Bland
and Barry E. Olsen.
*10.22 Employment Agreement, dated as of May 11, 1999, between the
Company and Hock E. Tan.
*10.23 Non-Compete Agreement, dated as of May 11, 1999, between the
Company and Hock E. Tan.
*10.24 Advisory Agreement, dated as of May 11, 1999, between the
Company and Bain Capital Partners VI, L.P.
*10.25 Advisory Agreement, dated as of May 11, 1999, between the
Company and ICST Acquisition Corp.
*10.26 Lease Agreement, dated June 13, 1988, between VLSI Design
Associates and The Sobrato Group (Incorporated by reference to
Exhibit 10.27 to the Registrant's registration statement,
No. 33-54142, on Form S-4, filed November 3, 1992).
*10.27 Lease between Turtle Beach Systems, Inc. and Winship Land
Associates III, dated May 28, 1993 (Incorporated by reference to
Exhibit 10.27 to the Registrant's 1993 Annual Report on Form 10-
K).
*10.28 First Amendment to lease, dated as of May 13, 1993, between the
registrant and The Sobrato Group (Incorporated by reference to
Exhibit 10.28 to the Registrant's 1993 Annual Report on Form
10-K).
*10.29 Wafer purchase contract, dated as of October 12, 1994, between
the Company and American Microsystems, Inc. (Incorporated by
reference to Exhibit 10 to the Registrant's Form 10-Q for the
quarter ended September 30, 1994).
*10.30 Agreement, dated as of November 21, 1994, between the Company
and Edward H. Arnold (Incorporated by reference to Exhibit 10.1
to the Registrant's Form 10-Q for the quarter ended December 31,
1994).
*10.31 Wafer purchase contract, dated as of November 8, 1995, between
the Company and Chartered Semiconductor Manufacturing Pte. Ltd.
(Incorporated by reference to Exhibits 10(a) and 10(b) to the
Registrant's Form 10-Q for the quarter ended December 30, 1995).
10.32 2000 Long Term Equity Incentive Plan.
10.33 Series A Cumulative Convertible Preferred Stock Purchase
Agreement by the Registrant and
Intel Corporation, dated December 23, 1999.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description Page
------- ----------- ----
<C> <S> <C>
10.34 Employee Stock Purchase Plan.
*16.1 Letter from KPMG LLP re: Change in Certifying Accountant.
21.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP.
23.2 Consent of Pepper Hamilton LLP (included in Exhibit 5.1).
24.1 Power of Attorney (included in Part II of the Registration
Statement).
27.1 Financial Data Schedule.
</TABLE>
- ---------------------
* Incorporated by reference to the Registrant's Form S-4, as amended, filed
October 7, 1999.
<PAGE>
EXHIBIT 1.1
12,500,000 Shares
INTEGRATED CIRCUIT SYSTEMS, INC.
Common Stock, Par Value $.01 Per Share
UNDERWRITING AGREEMENT
----------------------
May , 2000
CREDIT SUISSE FIRST BOSTON CORPORATION
FLEETBOSTON ROBERTSON STEPHENS INC.
LEHMAN BROTHERS INC.
BEAR, STEARNS & CO. INC. and
PENNSYLVANIA MERCHANT GROUP
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Dear Sirs:
1. Introductory. Integrated Circuit Systems, Inc., a Pennsylvania
corporation ("Company"), proposes to issue and sell 12,500,000 shares of its
Common Stock, par value $.01 per share ("Securities") (such 12,500,000 shares of
Securities being hereinafter referred to as the "Firm Securities") and the
stockholders listed in Schedules A-1, A-2, A-3, A-4 and A-5 hereto ("Selling
Stockholders") propose severally to sell to the Underwriters, at the option of
the Underwriters, an aggregate of not more than 1,875,000 additional outstanding
shares of the Company's Securities, as set forth below (such 1,875,000
additional shares being hereinafter referred to as the "Optional Securities").
The Firm Securities and the Optional Securities are herein collectively called
the "Offered Securities". As part of the offering contemplated by this
Agreement, Credit Suisse First Boston Corporation ("CSFBC") (the "Designated
Underwriter") has agreed to reserve out of the Firm Securities purchased by it
under this Agreement, up to 625,000 shares, for sale to the Company's directors,
officers, employees and other parties associated with the Company (collectively,
"Participants"), as set forth in the Prospectus (as defined herein) under the
heading "Underwriting" (the "Directed Share Program"). The Firm Securities to be
sold by the Designated Underwriter pursuant to the
1
<PAGE>
Directed Share Program (the "Directed Shares") will be sold by the Designated
Underwriter pursuant to this Agreement at the public offering price. Any
Directed Shares not subscribed for by the end of the business day on which this
Agreement is executed will be offered to the public by the Underwriters as set
forth in the Prospectus. The Company and the Selling Stockholders hereby agree
with the several Underwriters named in Schedule B hereto ("Underwriters") as
follows:
2. Representations and Warranties of the Company and the Selling
Stockholders.
(a) The Company represents and warrants to, and agrees with, the
several Underwriters that:
(i) A registration statement (No. 333-33318) relating to the
Offered Securities, including a form of prospectus, has been filed
with the Securities and Exchange Commission ("Commission") and either
(A) has been declared effective under the Securities Act of 1933, as
amended ("Act") and is not proposed to be amended or (B) is proposed
to be amended by amendment or post-effective amendment. If such
registration statement (the "initial registration statement") has been
declared effective, either (A) an additional registration statement
(the "additional registration statement") relating to the Offered
Securities may have been filed with the Commission pursuant to Rule
462(b) ("Rule 462(b)") under the Act and, if so filed, has become
effective upon filing pursuant to such Rule and the Offered Securities
all have been duly registered under the Act pursuant to the initial
registration statement and, if applicable, the additional registration
statement or (B) such an additional registration statement is proposed
to be filed with the Commission pursuant to Rule 462(b) and will
become effective upon filing pursuant to such Rule and upon such
filing the Offered Securities will all have been duly registered under
the Act pursuant to the initial registration statement and such
additional registration statement. If the Company does not propose to
amend the initial registration statement or if an additional
registration statement has been filed and the Company does not propose
to amend it, and if any post-effective amendment to either such
registration statement has been filed with the Commission prior to the
execution and delivery of this Agreement, the most recent amendment
(if any) to each such registration statement has been declared
effective by the Commission or has become effective upon filing
pursuant to Rule 462(c) ("Rule 462(c)") under the Act or, in the case
of the additional registration statement, Rule 462(b). For purposes
of this Agreement, "Effective Time" with respect to the initial
registration statement or, if filed prior to the execution and
delivery of this Agreement, the additional registration statement,
means (A) if the Company has advised the Representatives that it does
not propose to amend such
2
<PAGE>
registration statement, the date and time as of which such
registration statement, or the most recent post-effective amendment
thereto (if any) filed prior to the execution and delivery of this
Agreement, was declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c), or (B) if the Company
has advised the Representatives that it proposes to file an amendment
or post-effective amendment to such registration statement, the date
and time as of which such registration statement, as amended by such
amendment or post-effective amendment, as the case may be, is declared
effective by the Commission. If an additional registration statement
has not been filed prior to the execution and delivery of this
Agreement but the Company has advised the Representatives that it
proposes to file one, "Effective Time" with respect to such additional
registration statement means the date and time as of which such
registration statement is filed and becomes effective pursuant to Rule
462(b). "Effective Date" with respect to the initial registration
statement or the additional registration statement (if any) means the
date of the Effective Time thereof. The initial registration
statement, as amended at its Effective Time, including all information
contained in the additional registration statement (if any) and deemed
to be a part of the initial registration statement as of the Effective
Time of the additional registration statement pursuant to the General
Instructions of the Form on which it is filed and including all
information (if any) deemed to be a part of the initial registration
statement as of its Effective Time pursuant to Rule 430A(b) ("Rule
430A(b)") under the Act, is hereinafter referred to as the "Initial
Registration Statement". The additional registration statement, as
amended at its Effective Time, including the contents of the initial
registration statement incorporated by reference therein and including
all information (if any) deemed to be a part of the additional
registration statement as of its Effective Time pursuant to Rule
430A(b), is hereinafter referred to as the "Additional Registration
Statement". The Initial Registration Statement and the Additional
Registration Statement are hereinafter referred to collectively as the
"Registration Statements" and individually as a "Registration
Statement". The form of prospectus relating to the Offered Securities,
as first filed with the Commission pursuant to and in accordance with
Rule 424(b) ("Rule 424(b)") under the Act or (if no such filing is
required) as included in a Registration Statement, is hereinafter
referred to as the "Prospectus". No document has been or will be
prepared or distributed in reliance on Rule 434 under the Act.
(ii) If the Effective Time of the Initial Registration Statement
is prior to the execution and delivery of this Agreement: (A) on the
Effective Date of the Initial Registration Statement, the Initial
Registration Statement conformed in all respects to the requirements
of the Act and the rules and regulations of the
3
<PAGE>
Commission ("Rules and Regulations") and did not include any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, (B) on the Effective Date of the Additional
Registration Statement (if any), each Registration Statement conformed
or will conform, in all respects to the requirements of the Act and
the Rules and Regulations and did not include, or will not include,
any untrue statement of a material fact and did not omit, or will not
omit, to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and (C) on
the date of this Agreement, the Initial Registration Statement and, if
the Effective Time of the Additional Registration Statement is prior
to the execution and delivery of this Agreement, the Additional
Registration Statement each conforms, and at the time of filing of the
Prospectus pursuant to Rule 424(b) or (if no such filing is required)
at the Effective Date of the Additional Registration Statement in
which the Prospectus is included, each Registration Statement and the
Prospectus will conform, in all respects to the requirements of the
Act and the Rules and Regulations, and neither of such documents
includes, or will include, any untrue statement of a material fact or
omits, or will omit, to state any material fact required to be stated
therein or necessary to make the statements therein not misleading. If
the Effective Time of the Initial Registration Statement is subsequent
to the execution and delivery of this Agreement: on the Effective Date
of the Initial Registration Statement, the Initial Registration
Statement and the Prospectus will conform in all respects to the
requirements of the Act and the Rules and Regulations, neither of such
documents will include any untrue statement of a material fact or will
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and no
Additional Registration Statement has been or will be filed. The two
preceding sentences do not apply to statements in or omissions from a
Registration Statement or the Prospectus based upon written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and
agreed that the only such information is that described as such in
Section 7(c) hereof.
(iii) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the Commonwealth of
Pennsylvania, with power and authority (corporate and other) to own
its properties and conduct its business as described in the
Prospectus; and the Company is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions in
which its ownership or lease of property or the conduct of its
business requires such qualification, except where the failure to be
so qualified and in good standing would not reasonably be expected to
4
<PAGE>
individually or in the aggregate (x) result in a material adverse
effect on the properties, business, result of operations, condition
(financial or other), affairs or prospects of the Company and its
subsidiaries taken as a whole, (y) interfere with or adversely affect
the issuance or marketability of the Offered Securities or (z) in any
manner draw into question the validity of this Agreement (any of the
events set forth in clauses (x), (y) or (z), a "Material Adverse
Effect").
(iv) Each subsidiary of the Company that (A) generates 5% or
more of the revenues, (B) generates 5% or more of the operating
income, or (C) holds 5% or more of the assets, in each case, of the
Company and its subsidiaries on a consolidated basis as reflected in
the financial statements included in the Prospectus under the heading
"Unaudited Pro Forma Consolidated Financial Data" (each, a
"Significant Subsidiary") of the Company has been duly incorporated
and is an existing corporation in good standing under the laws of the
jurisdiction of its incorporation, with power and authority (corporate
and other) to own its properties and conduct its business as described
in the Prospectus; and each Significant Subsidiary of the Company is
duly qualified to do business as a foreign corporation in good
standing in all other jurisdictions in which its ownership or lease of
property or the conduct of its business requires such qualification,
except where the failure to be so qualified and in good standing could
not reasonably be expected, individually or in the aggregate, to have
a Material Adverse Effect; all of the issued and outstanding capital
stock of the Company and of each Significant Subsidiary has been duly
authorized and validly issued and is fully paid and nonassessable; and
except for pledges in favor of Credit Suisse First Boston, as
collateral agent, under the secured global credit facility consisting
of an aggregate of $70 million of term loan facilities and an
aggregate $25 million revolving credit facility, the capital stock of
each Significant Subsidiary owned by the Company, directly or through
subsidiaries, is owned free from liens, encumbrances and defects.
(v) The Offered Securities and all other outstanding shares of
capital stock of the Company have been duly authorized by all
necessary corporate action and validly issued, fully paid and
nonassessable and conform to the description thereof contained in the
Prospectus; and the stockholders of the Company have no preemptive
rights with respect to the Securities.
(vi) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person that would give rise to a valid claim against the Company or
any Underwriter for a brokerage commission, finder's fee or other like
payment in connection with this offering.
5
<PAGE>
(vii) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of
the Company owned or to be owned by such person or to require the
Company to include such securities in the securities registered
pursuant to a Registration Statement or in any securities being
registered pursuant to any other registration statement filed by the
Company under the Act, and to the extent any such rights are
applicable in respect of a Registration Statement, such rights have
been fully satisfied or waived in accordance with their terms.
(viii) The Offered Securities have been approved for listing
subject to notice of issuance on The Nasdaq Stock Market's National
Market (the "Nasdaq National Market").
(ix) No consent, approval, authorization, or order of, or
filing with, any governmental agency or body or any court or other
person is required to be obtained or made by the Company for the
execution and delivery of this Agreement and consummation of the
transactions contemplated by this Agreement in connection with the
sale of the Offered Securities (including the reclassification (the
"Reclassification") and stock-split (the "Stock-Split"), as described
in the Prospectus under the caption "The Reclassification"), except
such as have been obtained and made under the Act and such as may be
required under state securities or "Blue Sky" laws.
(x) The execution, delivery and performance of this Agreement,
and the consummation of the transactions herein contemplated
(including the Reclassification and the Stock-Split) will not result
in a breach or violation of any of the terms and provisions of, or
constitute a default under, (A) any statute, any rule, regulation or
order of any governmental agency or body or any court, domestic or
foreign, having jurisdiction over the Company or any subsidiary of the
Company or any of their properties, (B) any agreement or instrument to
which the Company or any of its subsidiaries is a party or by which
the Company or any of its subsidiaries is bound or to which any of the
properties of the Company or any of its subsidiaries is subject, or
(C) or the charter or by-laws of the Company or any of its
subsidiaries, except (1) in each case, that any rights to indemnity
and contribution may be limited by federal and state securities laws
and public policy considerations and (2) in the case of clauses (A)
and (B) for such breaches, violations or defaults as would not
reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect; and the
6
<PAGE>
Company has full corporate power and authority to authorize, issue and
sell the Offered Securities as contemplated by this Agreement, and the
Company has full corporate power and authority to execute, deliver and
perform this Agreement.
(xi) This Agreement has been duly authorized, executed and
delivered by the Company.
(xii) Except as disclosed in the Prospectus, the Company and its
subsidiaries have good and marketable title to all real properties and
all other properties and assets owned by them that are material to the
Company and its subsidiaries taken as a whole, in each case free from
liens, encumbrances and defects that would materially affect the value
thereof or materially interfere with the use made or proposed to be
made thereof by them; and except as disclosed in the Prospectus, the
Company and its subsidiaries hold any leased real or personal property
that is material to the Company and its subsidiaries taken as a whole
under valid and enforceable leases with no exceptions that would
materially interfere with the use made or proposed to be made thereof
by them.
(xiii) The Company and its subsidiaries possess all certificates,
authorities or permits issued by appropriate governmental agencies or
bodies necessary to conduct the business now operated by them and have
not received any notice of proceedings relating to the revocation or
modification of any such certificate, authority or permit that, if
determined adversely to the Company or any of its subsidiaries, would
reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect.
(xiv) No labor strike, slowdown, stoppage or dispute with the
employees of the Company or any of its subsidiaries exists or, to the
knowledge of the Company, is imminent that would reasonably be
expected, individually or in the aggregate, to have a Material Adverse
Effect. None of the Company or any of its subsidiaries has violated
(A) any federal, state or local law or foreign law relating to
discrimination in hiring, promotion or pay of employees, (B) any
applicable wage or hour laws of, or (C) any provision of the Employee
Retirement Income Security Act of 1974, as amended, or the rules and
regulations thereunder, except those violations that could not
reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect.
(xv) The Company and its subsidiaries own, possess, have the
right to use or can acquire on reasonable terms, adequate trademarks,
trade names and other rights to inventions, know-how, patents,
copyrights, confidential information and other intellectual property
(collectively, "intellectual property
7
<PAGE>
rights") used in the conduct the business now operated by them, or
presently employed by them, and have not received any notice of
infringement of or conflict with asserted rights of others with
respect to any intellectual property rights that, if determined
adversely to the Company or any of its subsidiaries, would reasonably
be expected, individually or in the aggregate, to have a Material
Adverse Effect. To the knowledge of the Company after due inquiry, the
use of the intellectual property rights in connection with the
business and operations of the Company or any of its subsidiaries does
not infringe on the rights of any person, except such infringements as
would not reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect.
(xvi) Neither the Company nor any of its subsidiaries (A) is in
violation of any statute, any rule, regulation, decision or order of
any govern mental agency or body or any court, domestic or foreign,
relating to the use, disposal or release of hazardous or toxic
substances or relating to the protection or restoration of the
environment or human exposure to hazardous or toxic substances
(collectively, "environmental laws"), (B) owns or operates any real
property contaminated with any substance that is subject to any
environmental laws, (C) is liable for any off-site disposal or
contamination pursuant to any environmental laws, or (D) is subject to
any claim relating to any environmental laws, in each case, which
violation, contamination, liability or claim would reasonably be
expected, individually or in the aggregate, to have a Material Adverse
Effect; and the Company is not aware of any pending investigation
which might lead to such a claim.
(xvii) Except as disclosed in the Prospectus, there are no
pending actions, suits or proceedings against or affecting the
Company, any of its subsidiaries or any of their respective properties
that, if determined adversely to the Company or any of its
subsidiaries, would reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect, or would materially and
adversely affect the ability of the Company to perform its obligations
under this Agreement, or which are otherwise material in the context
of the sale of the Offered Securities; and no such actions, suits or
proceedings are, to the Company's knowledge, threatened or
contemplated.
(xviii) The financial statements included in each Registration
Statement and the Prospectus present fairly the financial position of
the Company and its consolidated subsidiaries as of the dates shown
(subject in the case of interim financial statements to the normal
year-end adjustments) and their results of operations and cash flows
for the periods shown, and such financial statements have been
prepared in conformity with the generally accepted accounting
8
<PAGE>
principles in the United States applied on a consistent basis and the
schedules included in each Registration Statement present fairly the
information required to be stated therein. The assumptions used in
preparing the pro forma financial data included in each Registration
Statement and the Prospectus provide a reasonable basis for presenting
the significant effects directly attributable to the transactions or
events described therein, the related pro forma adjustments give
appropriate effect to those assumptions, and the pro forma columns
therein reflect the proper application of those adjustments to the
corresponding historical financial statement amounts.
(xix) Except as disclosed in the Prospectus, since the date of
the latest audited financial statements included in the Prospectus
there has been (A) no material adverse change, nor any development or
event involving a prospective material adverse change, in the
condition (financial or other), business, properties or results of
operations of the Company and its subsidiaries taken as a whole, (B)
except as disclosed in or contemplated by the Prospectus, there has
been no dividend or distribution of any kind declared, paid or made by
the Company on any class of its capital stock, (C) none of the Company
or any of its subsidiaries has incurred any liabilities or
obligations, direct or contingent, which are material, individually or
in the aggregate, to the Company and its subsidiaries, taken as a
whole, nor entered into any transaction not in the ordinary course of
business, and (D) none of the Company or any of its subsidiaries has
incurred any liabilities or obligations, direct or contingent, that
are material, individually or in the aggregate, to the Company and its
subsidiaries, taken as a whole, and that are required to be disclosed
on a balance sheet or notes thereto in accordance with generally
accepted accounting principles and are not disclosed on the latest
balance sheet or notes thereto included in the Prospectus.
(xx) The Company is not an open-end investment company, unit
investment trust or face-amount certificate company that is or is
required to be registered under Section 8 of the United States
Investment Company Act of 1940 (the "Investment Company Act"); and the
Company is not and, after giving effect to the offering and sale of
the Offered Securities and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as
defined in the Investment Company Act.
(xxi) Each of the Company and its subsidiaries maintains a
system of internal accounting controls sufficient to provide
reasonable assurance that: (A) transactions are executed in accordance
with management's general or specific authorizations; (B) transactions
are recorded as necessary to permit
9
<PAGE>
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (C) access to assets is permitted only in accordance with
management's general or specific authorization; and (D) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect
thereto.
(xxii) Each of the Company and its subsidiaries maintains
insurance covering its properties, operations, personnel and
businesses, insuring against such losses and risks as are consistent
with industry practice to protect the Company and its subsidiaries and
their respective businesses. None of the Company or any of its
subsidiaries has received notice from any insurer or agent of such
insurer that substantial capital improvements or other expenditures
will have to be made in order to continue such insurance.
(xxiii) The statistical and market-related data included in the
Prospectus are based on or derived from sources that the Company
believes to be accurate and reliable in all material respects.
(xxiv) The Company has not, directly or indirectly, (A) taken
any action designed to cause or to result in, or that has constituted
or which might reasonably be expected to constitute, the stabilization
or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities or (B) since the
filing of the Registration Statement (1) sold, bid for, purchased, or
paid anyone any compensation for soliciting purchases of, the
Securities or (2) paid or agreed to pay to any person any compensation
for soliciting another to purchase any other securities of the Company
(except for the sale of Securities by the Selling Stockholders under
this Agreement).
(xxv) Each certificate signed by any officer of the Company or
any of its subsidiaries and delivered to the Underwriters or counsel
for the Underwriters shall be deemed to be a representation and
warranty by the Company or such subsidiary to the Underwriters as to
the matters covered thereby.
(xxvi) The Company represents and warrants to the Underwriters
that (i) the Registration Statement, the Prospectus and any
preliminary prospectus comply, and any further amendments or
supplements thereto will comply, with any applicable laws or
regulations of foreign jurisdictions in which the Prospectus or any
preliminary prospectus, as amended or supplemented, if applicable, are
distributed in connection with the Directed Share Program, and that
(ii) no authorization, approval, consent, license, order, registration
or
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<PAGE>
qualification of or with any government, governmental instrumentality
or court, other than such as have been obtained, is necessary under
the securities law and regulations of foreign jurisdictions in which
the Directed Shares are offered outside the United States.
(xxvii) The Company has not offered, or caused the Underwriters
to offer, any offered Securities to any person pursuant to the
Directed Share Program with the specific intent to unlawfully
influence (i) a customer or supplier of the Company to alter the
customer's or supplier's level or type of business with the Company or
(ii) a trade journalist or publication to write or publish favorable
information about the Company or its products.
(b) Each Selling Stockholder severally represents and warrants to, and
agrees with, the several Underwriters that:
(i) Such Selling Stockholder has and on each Closing Date
hereinafter mentioned will have valid and unencumbered title to the
Offered Securities to be delivered by such Selling Stockholder on such
Closing Date, free and clear of any pledge, lien, security interest,
charge, claim, equity or encumbrance of any kind; such Selling
Stockholder has full right, power and authority to enter into this
Agreement, the Custody Agreement (the "Custody Agreement") and the
Irrevocable Power of Attorney (the "Power of Attorney") entered into
by such Selling Stockholder in connection with the transactions
contemplated hereby and to sell, assign, transfer and deliver the
Offered Securities to be delivered by such Selling Stockholder on such
Closing Date hereunder; and upon the delivery of and payment for the
Offered Securities on each Closing Date hereunder such Selling
Stockholder will pass valid and unencumbered title to the Offered
Securities to be delivered by such Selling Stockholder to the several
Underwriters on such Closing Date.
(ii) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement:
(A) on the Effective Date of the Initial Registration Statement, the
Initial Registration Statement did not include any untrue statement of
a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading, (B) on the Effective Date of the Additional Registration
Statement (if any), each Registration Statement did not include, or
will not include, any untrue statement of a material fact and did not
omit, or will not omit, to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading, and (C) on the date of this Agreement, the Initial
Registration Statement and, if the Effective Time of the Additional
Registration Statement is prior to the execution and delivery of this
Agreement, the Additional Registration Statement, and at the time of
filing of the Prospectus pursuant to Rule 424(b) or (if no such filing
is required) at the
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<PAGE>
Effective Date of the Additional Registration Statement in which the
Prospectus is included, and on each Closing Date neither each
Registration Statement nor the Prospectus includes, or will include,
any untrue statement of a material fact or omits, or will omit, to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading. If the Effective Time of
the Initial Registration Statement is subsequent to the execution and
delivery of this Agreement: on the Effective Date of the Initial
Registration Statement and on each Closing Date, neither the Initial
Registration Statement nor the Prospectus will include any untrue
statement of a material fact or will omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading. The two preceding sentences apply only to the
extent that any statements in or omissions from a Registration
Statement or the Prospectus are based on written information furnished
to the Company by such Selling Stockholder specifically for use
therein.
(iii) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between such Selling
Stockholder and any third party that would give rise to a valid claim
against the Company or any Underwriter for a brokerage commission,
finder's fee or other like payment in connection with the transactions
contemplated by this Agreement, the Custody Agreement and the Power of
Attorney.
(iv) This Agreement, the Custody Agreement and the Power of
Attorney have each been duly authorized, executed and delivered by or
on behalf of such Selling Stockholder and this Agreement, the Custody
Agreement and the Power of Attorney each constitute the legal, valid
and binding obligations of such Selling Stockholder enforceable
against such Selling Stockholder in accordance with their respective
terms (except as rights to indemnification and contribution may be
limited by applicable federal or state law).
(v) No consent, approval, authorization, order, registration
or qualification of, or filing with, any third party (whether acting
in an individual, fiduciary or other capacity) or any governmental or
regulatory agency or body or court is required to be obtained or made
by such Selling Stockholder for the consummation of the transactions
contemplated by this Agreement, the Custody Agreement and the Power of
Attorney in connection with the sale of the Offered Securities, except
such as have been obtained and made under the Act and such as may be
required under state securities laws.
(vi) The execution, delivery and performance of this Agreement,
the Custody Agreement and the Power of Attorney by such Selling
Stockholder and the consummation of the transactions herein and
therein contemplated
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<PAGE>
(including the Reclassification and the Stock-Split) will not conflict
with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under (A) any statute, any
rule, regulation or order of any governmental agency or body or any
court, domestic or foreign, having jurisdiction over such Selling
Stockholder or any of its properties or operations, or any agreement
or instrument to which such Selling Stockholder is a party or by which
such Selling Stockholder is bound or to which any of the properties or
operations of such Selling Stockholder is subject, or (B) if
applicable, the charter, by-laws or other organizational documents of
such Selling Stockholder, except, in the case of clause (A), for such
conflicts, breaches, violations or defaults which could not reasonably
be expected to, individually or in the aggregate, have a material
adverse effect on the consummation of the transactions contemplated by
this Agreement (including the Reclassification and the Stock-Split),
the Custody Agreement or the Power of Attorney.
(vii) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to or that could
reasonably be expected to cause or result in stabilization or
manipulation of the price of the Offered Securities to facilitate the
sale or resale of the Offered Securities, and such Selling Stockholder
has not distributed and will not distribute any offering material in
connection with the offering and sale of the Offered Securities other
than any preliminary prospectus filed with the Commission or the
Prospectus or other materials, if any, permitted by the Act or the
Rules and Regulations.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to each
Underwriter, and each Underwriter agrees, severally and not jointly, to purchase
from the Company, at a purchase price of $[ ] per share, that number of Firm
Securities (rounded up or down, as determined by CSFBC in its discretion, in
order to avoid fractions) obtained by multiplying the number of Firm Securities
by a fraction the numerator of which is the number of Firm Securities set forth
opposite the name of such Underwriter in Schedule B hereto and the denominator
of which is the total number of Firm Securities.
Certificates in negotiable form for the Offered Securities to be sold by
the Selling Stockholders hereunder have been placed in custody, for delivery
under this Agreement, under Custody Agreements made with [ ] (the "Custodian").
Each Selling Stockholder agrees that the shares represented by the certificates
held in custody for the Selling Stockholders under such Custody Agreements are
subject to the interests of the Underwriters hereunder, that the arrangements
made by the Selling Stockholders for such custody are to that extent
irrevocable, and that the obligations of the Selling Stockholders hereunder
shall not be terminated by operation of law, whether by the death of any
individual Selling Stockholder or
13
<PAGE>
the occurrence of any other event, or in the case of a trust, by the death of
any trustee or trustees or the termination of such trust. If any individual
Selling Stockholder or any such trustee or trustees should die, or if any other
such event should occur, or if any of such trusts should terminate, before the
delivery of the Offered Securities hereunder, certificates for such Offered
Securities shall be delivered by the Custodian in accordance with the terms and
conditions of this Agreement as if such death or other event or termination had
not occurred, regardless of whether or not the Custodian shall have received
notice of such death or other event or termination.
The Company will deliver the Firm Securities to the Representatives for the
accounts of the Underwriters, against payment of the purchase price in Federal
(same day) funds by official bank check or checks or wire transfer to an account
at a bank acceptable to CSFBC drawn to the order of the Company in the case of
12,5000,000 shares of Firm Securities, at the office of Skadden, Arps, Slate,
Meagher & Flom LLP ("Skadden Arps"), at 9:00 A.M., New York time, on [ ], 2000,
or at such other time not later than seven full business days thereafter as
CSFBC and the Company determine, such time being herein referred to as the
"First Closing Date". The certificates for the Firm Securities so to be
delivered will be in definitive form, in such denominations and registered in
such names as CSFBC requests and will be made available for checking and
packaging at the office of Skadden Arps at least 24 hours prior to the First
Closing Date.
In addition, upon written notice from CSFBC given to the Company and the
Selling Stockholders from time to time not more than 30 days subsequent to the
date of the Prospectus, the Underwriters may purchase all or less than all of
the Optional Securities at the purchase price per Security to be paid for the
Firm Securities. The Selling Stockholders agree, severally and not jointly, to
sell to the Underwriters the respective numbers of Optional Securities obtained
by multiplying the number of Optional Securities specified in such notice by a
fraction the numerator of which is the number of shares set forth opposite the
names of such Selling Stockholders in Schedules A-1, A-2, A-3, A-4 and A-5
hereto under the caption "Number of Optional Securities to be Sold" and the
denominator of which is the total number of Optional Securities (subject to
adjustment by CSFBC to eliminate fractions). Such Optional Securities shall be
purchased from each Selling Stockholder for the account of each Underwriter in
the same proportion as the number of Firm Securities set forth opposite such
Underwriter's name bears to the total number of Firm Securities (subject to
adjustment by CSFBC to eliminate fractions) and may be purchased by the
Underwriters only for the purpose of covering over-allotments made in connection
with the sale of the Firm Securities. No Optional Securities shall be sold or
delivered unless the Firm Securities previously have been, or simultaneously
are, sold and delivered. The right to purchase the Optional Securities or any
portion thereof may be exercised from time to time and to the extent not
previously exercised may be surrendered and terminated at any time upon notice
by CSFBC to the Company and the Selling Stockholders.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date", which may be the First
Closing Date (the First
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<PAGE>
Closing Date and each Optional Closing Date, if any, being sometimes referred to
as a "Closing Date"), shall be determined by CSFBC but shall be not later than
five full business days after written notice of election to purchase Optional
Securities is given. The Custodian will deliver the Optional Securities being
purchased on each Optional Closing Date to the Representatives for the accounts
of the several Underwriters, against payment of the purchase price therefor in
Federal (same day) funds by official bank check or checks or wire transfer to an
account or accounts at a bank(s) acceptable to CSFBC drawn to the order of the
respective Selling Stockholders in amounts relating to the number of Optional
Securities being sold by each such Selling Stockholder as determined pursuant to
the preceding paragraph, at the above office of Skadden Arps. The certificates
for the Optional Securities being purchased on each Optional Closing Date will
be in definitive form, in such denominations and registered in such names as
CSFBC requests upon reasonable notice prior to such Optional Closing Date and
will be made available for checking and packaging at the office of Skadden Arps
at a reasonable time in advance of such Optional Closing Date.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
5. Certain Agreements of the Company and the Selling Stockholders. The
Company and the several Selling Stockholders, to the extent such covenants
relate to their performance, agree with the several Underwriters that:
(a) If the Effective Time of the Initial Registration Statement
is prior to the execution and delivery of this Agreement, the Company will
file the Prospectus with the Commission pursuant to and in accordance with
subparagraph (1) (or, if applicable and if consented to by CSFBC,
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the
second business day following the execution and delivery of this Agreement
or (B) the fifteenth business day after the Effective Date of the Initial
Registration Statement. The Company will advise CSFBC promptly of any such
filing pursuant to Rule 424(b). If the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement and an additional registration statement is necessary to register
a portion of the Offered Securities under the Act but the Effective Time
thereof has not occurred as of such execution and delivery, the Company
will file the additional registration statement or, if filed, will file a
post-effective amendment thereto with the Commission pursuant to and in
accordance with Rule 462(b) on or prior to 10:00 A.M., New York time, on
the business day following the date of this Agreement or, if earlier, on or
prior to the time the Prospectus is printed and distributed to any
Underwriter, or will make such filing at such later date as shall have been
consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to
amend or supplement the initial or any additional registration statement as
filed or the related prospectus or the Initial Registration Statement, the
Additional Registration Statement (if any) or the Prospectus and will not
effect such amendment or supplementation
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<PAGE>
without CSFBC's consent; and the Company will also advise CSFBC promptly of
the effectiveness of each Registration Statement (if its Effective Time is
subsequent to the execution and delivery of this Agreement) and of any
amendment or supplementation of a Registration Statement or the Prospectus
and of the institution by the Commission of any stop order proceedings in
respect of a Registration Statement and will use its best efforts to
prevent the issuance of any such stop order and to obtain as soon as
possible its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any Underwriter or dealer, any event occurs as a result of which
the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary at any time to
amend the Prospectus to comply with the Act, the Company will promptly
notify CSFBC of such event and will promptly prepare and file with the
Commission, at its own expense, an amendment or supplement which will
correct such statement or omission or an amendment which will effect such
compliance. Neither CSFBC's consent to, nor the Underwriters' delivery of,
any such amendment or supplement shall constitute a waiver of any of the
conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability
Date (as defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12
months beginning after the Effective Date of the Initial Registration
Statement (or, if later, the Effective Date of the Additional Registration
Statement) which will satisfy the provisions of Section 11(a) of the Act.
For the purpose of the preceding sentence, "Availability Date" means the
45th day after the end of the fourth fiscal quarter following the fiscal
quarter that includes such Effective Date, except that, if such fourth
fiscal quarter is the last quarter of the Company's fiscal year,
"Availability Date" means the 90th day after the end of such fourth fiscal
quarter.
(e) The Company will furnish to the Representatives copies of each
Registration Statement (five of which will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as a
prospectus relating to the Offered Securities is required to be delivered
under the Act in connection with sales by any Underwriter or dealer, the
Prospectus and all amendments and supplements to such documents, in each
case in such quantities as CSFBC requests. The Prospectus shall be so
furnished on or prior to 3:00 P.M., New York time, on the business day
following the later of the execution and delivery of this Agreement or the
Effective Time of the Initial Registration Statement. All other such
documents shall be so furnished as soon as available. The Company and the
Selling Stockholders will pay the expenses of printing and distributing to
the Underwriters all such documents.
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<PAGE>
(f) The Company will cooperate with the Underwriters and their
counsel in connection with the registration and qualification of the
Offered Securities for sale and the determination of their eligibility for
investment under the laws of such jurisdictions as CSFBC designates and do
all things necessary to continue such qualifications in effect so long as
required for the resale of the Offered Securities by the Underwriters,
provided that the Company will not be required to qualify as a foreign
corporation or to file a general consent to service of process in any such
jurisdiction.
(g) During the period of five years hereafter, the Company will
furnish to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year, a
copy of its annual report to stockholders for such year; and the Company
will furnish to the Representatives (i) as soon as available, a copy of
each report and any definitive proxy statement of the Company filed with
the Commission under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or mailed to stockholders, and (ii) from time to time, such
other information concerning the Company as CSFBC may reasonably request.
(h) For a period of 180 days after the date of the initial
public offering of the Offered Securities, the Company will not offer,
sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Commission a registration statement under the
Act relating to, any additional shares of its Securities or securities
convertible into or exchangeable or exercisable for any shares of its
Securities, or publicly disclose the intention to make any such offer,
sale, pledge, disposition or filing, without the prior written consent of
CSFBC, except grants of employee stock options pursuant to the terms of a
plan in effect on the date hereof, issuances of Securities pursuant to the
exercise of such options or the exercise of any other employee stock
options outstanding on the date hereof.
(i) The Company and each Selling Stockholder agree with the
several Underwriters that the Company and such Selling Stockholder will pay
all expenses incident to the performance of the obligations of the Company
and such Selling Stockholder, as the case may be, under this Agreement, for
any filing fees and other expenses (including fees and disbursements of
counsel) in connection with qualification of the Offered Securities for
sale under the laws of such jurisdictions as CSFBC designates and the
printing of memoranda relating thereto, for the filing fee incident to, and
the reasonable fees and disbursements of counsel to the Underwriters in
connection with, the review by the National Association of Securities
Dealers, Inc.("NASD") of the Offered Securities, for any travel expenses of
the Company's officers and employees and any other expenses of the Company
in connection with attending or hosting meetings with prospective
purchasers of the Offered Securities, for any transfer taxes on the sale by
the Selling Stockholders of the Offered Securities to the Underwriters and
for expenses incurred in distributing preliminary prospectuses and the
Prospectus (including any amendments and supplements thereto) to the
Underwriters.
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<PAGE>
(j) Each Selling Stockholder agrees to deliver to CSFBC,
attention: Transactions Advisory Group, on or prior to the first Optional
Closing Date a properly completed and executed United States Treasury
Department Form W-9 (or other applicable form or statement specified by
Treasury Department regulations in lieu thereof).
(k) Each Selling Stockholder agrees, for a period of 180 days
after the date of the initial public offering of the Offered Securities,
not to offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, any additional shares of the Securities of the
Company or securities convertible into or exchangeable or exercisable for
any shares of Securities, enter into a transaction which would have the
same effect, or enter into any swap, hedge or other arrangement that
transfers, in whole or in part, any of the economic consequences of
ownership of the Securities, whether any such aforementioned transaction is
to be settled by delivery of the Securities or such other securities, in
cash or otherwise, or publicly disclose the intention to make any such
offer, sale, pledge or disposition, or enter into any such transaction,
swap, hedge or other arrangement, without, in each case, the prior written
consent of CSFBC.
(l) In connection with the Directed Share Program, the Company
will ensure that the Directed Shares will be restricted to the extent
required by the NASD or the NASD rules from sale, transfer, assignment,
pledge or hypothecation for a period of three months following the date of
the effectiveness of the Registration Statement. The Designated
Underwriter will notify the Company as to which Participants will need to
be so restricted. The Company will direct the transfer agent to place stop
transfer restrictions upon such securities for such period of time.
(m) The Company will pay all fees and disbursements of counsel
incurred by the Underwriters in connection with the Directed Share Program
and stamp duties, similar taxes or duties or other taxes, if any, incurred
by the underwriters in connection with the Directed Share Program.
(n) The Company covenants with the Underwriters that the
Company will comply with all applicable securities and other applicable
laws, rules and regulations in each foreign jurisdiction in which the
Directed Shares are offered in connection with the Directed Share Program.
(o) The Company agrees that it will use the net proceeds to it
from the Offered Securities in the manner described in the Prospectus under
the caption "Use of Proceeds".
6. Conditions of the Obligations of the Underwriters. The obligations
of the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the
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Optional Securities to be purchased on each Optional Closing Date will be
subject to the accuracy of the representations and warranties on the part of the
Company and the Selling Stockholders herein, to the accuracy of the statements
of Company officers made pursuant to the provisions hereof, to the performance
by the Company and the Selling Stockholders of their obligations hereunder and
to the following additional conditions precedent:
(a) The Representatives shall have received a letter, dated the
date of this Agreement, of PricewaterhouseCoopers LLP in agreed form
confirming that they are independent public accountants within the meaning
of the Act and the published Rules and Regulations and stating to the
effect that:
(i) in their opinion the financial statements and schedules,
for all periods after July 3, 1999, examined by them and included in
the Registration Statements comply as to form in all material respects
with the applicable accounting requirements of the Act and the related
published Rules and Regulations;
(ii) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a review of
interim financial information as described in Statement of Auditing
Standards No. 71, Interim Financial Information, on the unaudited
financial statements, for all periods after July 3, 1999, and certain
specified financial information included in the Registration
Statements;
(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial statements
of the Company and of all subsidiaries of the Company for which such
interim financial statements are provided, inquiries of officials of
the Company and of such subsidiaries who have responsibility for
financial and accounting matters and other specified procedures,
nothing came to their attention that caused them to believe that:
(A) with respect to the unaudited financial statements, for all
periods after July 3, 1999, included in the Registration
Statements, that any material modifications should be made
to such unaudited financial statements for them to be in
conformity with generally accepted accounting principles;
(B) at the date of the latest available balance sheet read by
such accountants, or at a subsequent specified date not
more than three business days prior to the date of this
Agreement, there was any change in the capital stock or any
increase in short-term indebtedness or long-term debt of
the Company and its
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consolidated subsidiaries or, at the date of the latest
available balance sheet read by such accountants, there was
any decrease in consolidated net current assets or net
assets, as compared with amounts shown on the latest balance
sheet included in the Prospectus; or
(C) for the period from the closing date of the latest income
statement included in the Prospectus to the closing date of
the latest available income statement read by such
accountants there were any decreases, as compared with the
corresponding period of the previous year and with the
period of corresponding length ended the date of the
latest income statement included in the Prospectus, in
consolidated net sales or net operating income or net
income;
except in all cases set forth in clauses (B) and (C) above for changes,
increases or decreases which the Prospectus discloses have occurred or may
occur or which are described in such letter;
(iv) they have performed the procedures specified therein on the
pro forma financial statements included in the Prospectus;
(v) on the basis of the review referred to in clause (iv) above,
nothing came to their attention that caused them to believe that the
pro forma financial data included in the Prospectus (not including
specified supplemental adjustments thereto) do not comply as to form
in all material respects with the applicable accounting requirements
of the Securities Act and the related published Rules and Regulations
or that the pro forma adjustments have not been properly applied to
the historical amounts in the compilation of those statements;
(vi) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Registration Statements (in each case to the extent
that such dollar amounts, percentages and other financial information
are derived from the general accounting records of the Company and its
subsidiaries subject to the internal controls of the Company's
accounting system or are derived directly from such records by
analysis or computation) with the results obtained from inquiries, a
reading of such general accounting records and other procedures
specified in such letter and have found such dollar amounts,
percentages and other financial information to be in agreement with
such results, except as otherwise specified in such letter; and
20
<PAGE>
(vii) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a review of
management's discussion and analysis of financial condition and
results of operations as described in Statement of Auditing Standards
No. 86, Management's Discussion and Analysis, on certain specified
portions of the Management's Discussion and Analysis of Financial
Condition and Results of Operations section of the Registration
Statement.
For purposes of this subsection (a) and subsection (b) below, (i) if the
Effective Time of the Initial Registration Statements is subsequent to the
execution and delivery of this Agreement, "Registration Statements" shall
mean the initial registration statement as proposed to be amended by the
amendment or post-effective amendment to be filed shortly prior to its
Effective Time, (ii) if the Effective Time of the Initial Registration
Statements is prior to the execution and delivery of this Agreement but the
Effective Time of the Additional Registration Statement is subsequent to
such execution and delivery, "Registration Statements" shall mean the
Initial Registration Statement and the additional registration statement as
proposed to be filed or as proposed to be amended by the post-effective
amendment to be filed shortly prior to its Effective Time, and (iii)
"Prospectus" shall mean the prospectus included in the Registration
Statements.
(b) The Representatives shall have received a letter, dated the
date of this Agreement, of KPMG LLP in agreed form confirming that they are
independent public accountants within the meaning of the Securities Act and
the Rules and Regulations and to the effect that:
(i) in their opinion the financial statements and
schedules, for all periods prior to and including July 3, 1999,
examined by them and included in the Registration Statements for
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published Rules and
Regulations;
(ii) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a review of
interim financial information as described in Statement of Auditing
Standards No. 71, Interim Financial Information, on the unaudited
financial statements, for all periods prior to and including July 3,
1999, and certain specified financial information included in the
Registration Statements;
(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial statements
of the Company, and of all subsidiaries of the Company for which such
interim financial statements are provided, inquiries of officials of
the Company and of such subsidiaries
21
<PAGE>
who have responsibility for financial and accounting matters and other
specified procedures, nothing came to their attention that caused them
to believe that with respect to the unaudited financial statements,
for all periods prior to and including July 3, 1999, included in the
Registration Statement, that any material modifications should be made
to such unaudited financial statements for them to be in conformity
with generally accepted accounting principles;
(iv) they have performed the procedures specified therein on the
pro forma financial statements included in the Prospectus;
(v) on the basis of the review referred to in clause (iv)
above, nothing came to their attention that caused them to believe
that the pro forma financial data included in the Prospectus (not
including specified supplemental adjustments thereto) do not comply as
to form in all material respects with the applicable accounting
requirements of the Securities Act and the related published Rules and
Regulations or that the pro forma adjustments have not been properly
applied to the historical amounts in the compilation of those
statements;
(vi) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Registration Statement (in each case to the extent
that such dollar amounts, percentages and other financial information
are derived from the general accounting records of the Company and its
subsidiaries subject to the internal controls of the Company's
accounting system or are derived directly from such records by
analysis or computation) with the results obtained from inquiries, a
reading of such general accounting records and other procedures
specified in such letter and have found such dollar amounts,
percentages and other financial information to be in agreement with
such results, except as otherwise specified in such letter; and
(vii) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a review of
management's discussion and analysis of financial condition and
results of operations as described in Statement of Auditing Standards
No. 86, Management's Discussion and Analysis, on certain specified
portions of the Management's Discussion and Analysis of Financial
Condition and Results of Operations section of the Registration
Statement.
(c) If the Effective Time of the Initial Registration Statement
is not prior to the execution and delivery of this Agreement, such
Effective Time shall have occurred not later than 10:00 A.M., New York
time, on the business day following the date of
22
<PAGE>
this Agreement or such later date as shall have been consented to by CSFBC.
If the Effective Time of the Additional Registration Statement (if any) is
not prior to the execution and delivery of this Agreement, such Effective
Time shall have occurred not later than 10:00 P.M., New York time, on the
date of this Agreement or, if earlier, the time the Prospectus is printed
and distributed to any Underwriter, or shall have occurred at such later
date as shall have been consented to by CSFBC. If the Effective Time of the
Initial Registration Statement is prior to the execution and delivery of
this Agreement, the Prospectus shall have been filed with the Commission in
accordance with the Rules and Regulations and Section 5(a) of this
Agreement. Prior to such Closing Date, no stop order suspending the
effectiveness of a Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or, to the
knowledge of any Selling Stockholder, the Company or the Representatives,
shall be contemplated by the Commission.
(d) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred (i) any change, or any development or event
involving a prospective change, in the condition (financial or other),
business, properties or results of operations of the Company or its
subsidiaries which, in the reasonable judgment of a majority in interest of
the Underwriters including the Representatives, is material and adverse and
makes it impractical or inadvisable to proceed with completion of the
public offering or the sale of and payment for the Offered Securities; (ii)
any downgrading in the rating of any debt securities of the Company by any
"nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Act), or any public announcement that any
such organization has under surveillance or review its rating of any debt
securities of the Company (other than an announcement with positive
implications of a possible upgrading, and no implication of a possible
downgrading, of such rating); (iii) any suspension or material limitation
of trading in securities generally on the New York Stock Exchange, the
American Stock Exchange or the Nasdaq National Market, or any establishment
of minimum or maximum prices for trading, or any requirement of maximum
ranges for prices for securities, on such exchange or the Nasdaq National
Market, or by such exchange or other regulatory body or governmental
authority having jurisdiction (other than limitations on price fluctuations
or minimums or maximums in effect as of the date of this Agreement); (iv)
any banking moratorium declared by federal or state authorities, or any
moratorium declared in foreign exchange trading by major international
banks or persons; or (v) any outbreak or escalation of armed hostilities
involving the United States on or after the date hereof, or if there has
been a declaration by the United States of a national emergency or war, the
effect of which shall be, in the Underwriters' reasonable judgment, to make
it inadvisable or impracticable to proceed with the public offering or
delivery of the Offered Securities on the terms and in the manner
contemplated in the Prospectus.
23
<PAGE>
(e) The Underwriters shall have received an opinion, dated the
Closing Date, of Kirkland & Ellis, counsel for the Company, that:
(i) ICS Technologies, Inc. ("Delaware Sub") (A) is duly incorpo
rated and is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation, (B) has all requisite
corporate power and authority to carry on its business as it is
currently being conducted and as described in the Prospectus and to
own, lease and operate its properties, and (C) is duly qualified and
in good standing as a foreign corporation, authorized to do business
in each jurisdiction set forth beside such entity's name on a schedule
to such opinion;
(ii) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of
the Company owned or to be owned by such person or to require the
Company to include such securities in the securities registered
pursuant to a Registration Statement or in any securities being
registered pursuant to any other registration statement filed by the
Company under the Act;
(ii) To such counsel's knowledge, all of the outstanding shares
of capital stock of Delaware Sub have been duly authorized and validly
issued and are fully paid and non-assessable, and are owned by the
Company, directly or indirectly through one or more subsidiaries, free
and clear of any adverse claim. The term "adverse claim" as used in
such opinion has the meaning given such term in Article 8 of the
Uniform Commercial Code and does not include (i) any claim which
arises through you or any person claiming through you (such as any
security interest you may have granted in the shares) and (ii) any
adverse interest which would not be extinguished upon the purchase of
the Offered Securities by a person who qualifies as a "bona fide
purchase" or "protected purchase" under Section 8-303 of the Uniform
Commercial Code. We advise you that we have no actual knowledge of the
existence of any interest of the kind specified in clause (ii) of the
preceding sentence.
(iv) To the knowledge of such counsel, the Company was not
required under any New York or federal law to obtain any consent,
approval, authorization or order of any governmental agency for the
consummation of the transactions contemplated by this Agreement
(including the Reclassifica tion and the Stock-Split) in connection
with the sale of the Offered Securities, except for any such consent,
approval, authorization or order which may be required under the so-
called "Blue Sky" or securities laws of any states (as to which such
counsel need express no opinion or advice);
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<PAGE>
(v) The execution, delivery and performance of this Agreement
and the consummation of the transactions herein (including the
Reclassification and the Stock-Split) contemplated will not constitute
a violation by the Company of any applicable provision of any New York
or federal law, statute or regulation (except that such counsel need
express no opinion in this paragraph as to compliance with any
disclosure requirement or any prohibition against fraud or
misrepresentation or as to whether performance of the indemnification
or contribution provisions in this Agreement would be permitted);
(vi) The Company's execution and delivery of this Agreement and
the performance of its agreements in this Agreement and the
consummation of the sale of the Offered Securities to you in
accordance with this Agreement do not (i) constitute a violation by
the Company or Delaware Sub of any applicable provision of any
Delaware, New York or federal law, statute or regulation (except that
we express no opinion in this paragraph as to compliance with any
disclosure requirement or any prohibition against fraud or
misrepresentation or as to whether performance of the indemnification
or contribution provisions in this Agreement would be permitted) or
(ii) breach, or result in a default under, any existing obligation of
the Company or Delaware Sub under any of the agreements listed on a
schedule to an officers' certificate relating to such opinion
(provided that such counsel need not express any opinion as to
compliance with any financial test or cross default provision in any
such agreement).
(vii) Except as listed on a schedule to an officers' certificate
relating to such opinion, to such counsel's knowledge, there is no
action, suit, proceeding or investigation before or by any federal or
Delaware court or governmental agency or body, domestic or foreign,
pending or threatened against, the Company that (i) has caused such
counsel to conclude that such action, suit, proceeding or
investigation is required by Regulation S-K under the Securities Act
to be described in the Registration Statement but is not described in
the Prospectus or (ii) would be reasonably likely to adversely affect
the consummation of any of the transactions contemplated by this
Agreement.
(viii) The Company is not an "investment company" within the
meaning of the Investment Company Act;
(ix) To such counsel's knowledge, there is no stop order
preventing the use of the Prospectus or the Registration Statements,
or any amendments or supplements thereto; and
25
<PAGE>
(x) The Initial Registration Statement was declared effective
under the Act as of the date and time specified in such opinion, the
Additional Registration Statement (if any) was filed and became
effective under the Act as of the date and time (if determinable)
specified in such opinion, the Prospectus either was filed with the
Commission pursuant to the subparagraph of Rule 424(b) specified in
such opinion on the date specified therein or was included in the
Initial Registration Statement or the Additional Registration
Statement (as the case may be), and the descriptions in the
Registration Statements and Prospectus of statutes, legal and
governmental proceedings and contracts and other documents are
accurate and fairly present the information required to be shown; and
such counsel do not know of any legal or governmental proceedings
required to be described in a Registration Statement or the Prospectus
which are not described as required or of any contracts or documents
of a character required to be described in a Registration Statement or
the Prospectus or to be filed as exhibits to a Registration Statement
which are not described and filed as required; it being understood
that such counsel need express no opinion as to the financial
statements or other financial data contained in the Registration
Statements or the Prospectus.
Such counsel's opinion letter shall also contain the following language:
"Based upon our participation in the conferences identified in the
preceding paragraph, our understanding of applicable law and the
experience we have gained in our practice thereunder and relying as to
materiality to a large extent upon the opinions and statements of
officers of the Company, we can, however, advise you that nothing has
come to our attention that has caused us to conclude that (i) the
Registration Statement at its effective date and the Closing Date
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading or (ii) the Prospectus at the date it bears
or on the date of this letter contained an untrue statement of a
material fact or omitted to state a material fact necessary in order
to make the statements therein, in light of the circumstances under
which they were made, not misleading or (iii) as of the effective date
either the Registration Statement or the Prospectus appeared on its
face not to be responsive in all material respects to the requirements
of the Act and the Rules and Regulations; it being understood that we
make no such statement in the case of clauses (i)-(iii) with respect
to the financial statements and schedules and other financial or
related statistical data
26
<PAGE>
included in the Registration Statement or the Prospectus or omitted
therefrom."
(f) The Underwriters shall have received an opinion, dated the
Closing Date, of Pepper Hamilton LLP counsel for the Company, that:
(i) Each of the Company and ICST, Inc. (A) is duly incorporated
and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, (B) has all requisite
corporate power and authority to carry on its business as it is
currently being conducted and as described in the Prospectus and to
own, lease and operate its properties, and (C) is duly qualified and
in good standing as a foreign corporation, authorized to do business
in each jurisdiction set forth beside such entity's name on a schedule
to such opinion;
(ii) This Agreement has been duly and validly authorized,
executed and delivered by the Company;
(ii) The Offered Securities delivered on such Closing Date have
been duly authorized and validly issued, are fully paid and
nonassessable and conform to the description thereof contained in the
Prospectus, and the issuance of the Offered Securities is not subject
to preemptive or other similar rights arising under the Pennsylvania
Business Corporation Law of 1988;
(iv) Neither (A) the execution, delivery or performance by the
Company of this Agreement or (B) the issuance and sale of the Offered
Securities violates, conflicts with or constitutes a breach of any of
the terms or provisions of, or a default under (or an event that with
notice or the lapse of time, or both, would constitute a default
under), or requires consent under, or results in the imposition of a
lien or encumbrance on any properties of the Company or any of the
Significant Subsidiaries, or an acceleration of any indebtedness of
the Company or any of the Significant Subsidiaries pursuant to, (1)
the articles of incorporation or bylaws of the Company, (2) any
statute, rule or regulation of the Commonwealth of Pennsylvania
applicable to the Company or any of the Significant Subsidiaries or
any of their assets or properties or (3) to the best of such counsel's
knowledge, any judgment, order or decree known to such counsel of any
court or governmental agency or authority of the Commonwealth of
Pennsylvania having jurisdiction over the Company or any of the
Significant Subsidiaries or any of their assets or properties.
Assuming compliance with applicable federal, state and foreign
securities and Blue Sky laws, as to which no opinion is rendered
hereby, to the best of such counsel's knowledge, no consent, approval,
authorization or order of, or filing, registration, qualification,
license or permit of or with, (A) any
27
<PAGE>
Pennsylvania court or governmental agency, body or administrative
agency or (B) any other person is required for (1) the execution,
delivery and perfor mance by the Company or any of the Significant
Subsidiaries of this Agree ment or (2) the issuance and sale of the
Offered Securities, except such as have been obtained and made or have
been disclosed in the Prospectus; and
Such counsel shall also state that because the primary purpose of
such counsel's engagement was not to establish or confirm factual
matters or financial or accounting matters and because of the wholly
or partially non-legal character of many of the statements contained
in the Prospectus, such counsel is not passing upon and does not
assume any responsibility for the accuracy, completeness or fairness
of the statements contained in the Prospectus and such counsel has not
independently verified the accuracy or completeness of such
statements. Without limiting the foregoing, such counsel assumes no
responsibility for and such counsel has not independently verified the
accuracy, completeness or fairness of the financial statements and any
schedules and other financial data included in the Prospectus and has
not examined the accounting or financial records from which such
financial statements, schedules (if any) and relevant financial data
are derived. However, such counsel participated in conferences with
officers and other representatives and legal counsel of the Company,
representatives of the independent public accountants of the Company
and representatives of the Underwriters at which the contents of the
Prospectus were discussed. Based on such participation and review, and
relying as to materiality in part upon the statements of officers and
other representatives of the Company, no facts have come to such
counsel's attention that have caused such counsel to believe that the
Prospectus as of its date and at the Closing Date, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that such counsel need not express any comment or
belief with respect to the financial statements or schedules, if any,
or any other financial information included in the Prospectus.
(g) The Representatives shall have received the opinion contemplated
in the Power of Attorney executed and delivered by each Selling Stockholder
and an opinion, dated such Closing Date, dated the applicable Optional
Closing Date, of one or more counsel for the respective Selling
Stockholders, to the effect that:
(i) To such counsel's knowledge, all of the outstanding shares
of capital stock of such Selling Stockholder have been duly authorized
and validly issued and are fully paid and non-assessable, and are
owned by such Selling Stockholder, directly or indirectly through one
or more subsidiaries, free and clear of any adverse claim. The term
"adverse claim" as used in such
28
<PAGE>
opinion has the meaning given such term in Article 8 of the Uniform
Commercial Code and does not include (i) any claim which arises
through you or any person claiming through you (such as any security
interest you may have granted in the shares) and (ii) any adverse
interest which would not be extinguished upon the purchase of the
Offered Securities by a person who qualifies as a "bona fide purchase"
or "protected purchase" under Section 8-303 of the Uniform Commercial
Code. We advise you that we have no actual knowledge of the existence
of any interest of the kind specified in clause (ii) of the preceding
sentence.
(i) This Agreement has been duly authorized, executed and
delivered on behalf of such Selling Stockholder;
(ii) The Custody Agreement and the Power of Attorney with
respect to such Selling Stockholder have been duly authorized (if such
selling shareholder is not an individual), executed and delivered by
such Selling Stockholder and constitute valid and legally binding
obligations of such Selling Stockholder enforceable in accordance with
their respective terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to
general equity principles;
(iii) To the knowledge of such counsel such Selling Stockholder
was not required under any New York or federal law to obtain any
consent, approval, authorization or order of any governmental agency
for the consum mation of the transactions contemplated by this
Agreement (including the Reclassification and the Stock-Split) or the
Custody Agreement in connection with the sale of the Offered
Securities, except for any such consent, approval, authorization or
order which may be required under the so-called "Blue Sky" or
securities laws of any states (as to which such counsel need express
no opinion or advice);
(iv) No consent, approval, authorization, order, registration or
qualification of, or filing with, any third party (whether acting in
an individual, fiduciary or other capacity) or any governmental agency
or body or any court is required to be obtained or made by such
Selling Stockholder for the consummation of the transactions
contemplated by this Agreement, the Custody Agreement and the Power of
Attorney in connection with the sale of the Offered Securities, except
such as have been obtained and made under the Act and such as may be
required under state securities laws; and
(v) The execution, delivery and performance of this Agreement,
the Custody Agreement and the Power of Attorney by such Selling
Stockholder
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<PAGE>
and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation
of any of the terms and provisions of, or constitute a default under
(A) to the knowledge of such counsel, any statute, any rule,
regulation or order of any governmental agency or body or any court,
domestic or foreign, having jurisdiction over such Selling Stockholder
or any of its properties or operations, or any agreement or instrument
to which such Selling Stockholder is a party or by which such Selling
Stockholder is bound or to which any of the properties or operations
of such Selling Stockholder is subject, or (B) if applicable, the
charter, by-laws or other organizational documents of such Selling
Stockholder, except, in the case of clause (A), for such conflicts,
breaches, violations or defaults which could not reasonably be
expected to, individually or in the aggregate, have a material adverse
effect on the consummation of the transactions contemplated by this
Agreement, the Custody Agreement or the Power of Attorney.
(h) The Representatives shall have received from Skadden Arps,
counsel for the Underwriters, such opinion or opinions, dated as of the
Closing Date, with respect to the validity of the Offered Securities
delivered on such Closing Date, the Registration Statements, the
Prospectus and other related matters as the Representatives may require,
and the Selling Stockholders and the Company shall have furnished to such
counsel such documents as they request for the purpose of enabling them to
pass upon such matters.
(i) The Representatives shall have received from each stockholder
of the Company listed on Schedule C, in the form attached as Exhibit I
hereto, a letter agreement stating that such stockholder agrees, for a
period of 180 days after the date of the initial public offering of the
Offered Securities, not to offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, any additional shares of the
Securities of the Company or securities convertible into or exchangeable or
exercisable for any shares of Securities, or publicly disclose the
intention to make any such offer, sale, pledge or disposal, without the
prior written consent of CSFBC, except as stated in such letter.
(j) The Representatives shall have received a certificate, dated such
Closing Date, of the President or any Vice President and a principal
financial or accounting officer of the Company in which such officers shall
state that: the representations and warranties of the Company in this
Agreement are true and correct; the Company has complied with all
agreements and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to such Closing Date; no stop order
suspending the effectiveness of any Registration Statement has been issued
and no proceedings for that purpose have been instituted or are
contemplated by the Commission; the Additional Registration Statement (if
any) satisfying the requirements of subparagraphs (1) and (3) of Rule
462(b) was filed pursuant to Rule 462(b), including payment of the
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applicable filing fee in accordance with Rule 111(a) or (b) under the Act,
prior to the time the Prospectus was printed and distributed to any
Underwriter; and, subsequent to the date of the most recent financial
statements in the Prospectus, there has been no material adverse change,
nor any development or event involving a prospective material adverse
change, in the condition (financial or other), business, properties or
results of operations of the Company and its subsidiaries taken as a whole
except as set forth in or contemplated by the Prospectus or as described in
such certificate.
(k) The Representatives shall have received a letter, dated the
Closing Date, of PricewaterhouseCoopers LLP which meets the requirements of
subsection (a) of this Section, except that the specified date referred to
in such subsection will be a date not more than three business days prior
to the Closing Date for the purposes of this subsection.
(l) The Representatives shall have received a letter, dated as
of the Closing Date, of KPMG LLP which meets the requirements of subsection
(b) of this Section, except that the specified date referred to in such
subsection will be a date not more than three business days prior to the
Closing Date for the purposes of this subsection.
(m) The Securities to be delivered on such Closing Date shall
have been approved for listing on the Nasdaq National Market, subject, in
the case of the Offered Securities, only to official notice of issuance.
(n) On or prior to the First Closing Date, the consummation of
the Reclassification and the Stock-Split, on the terms described in the
Prospectus under the caption "The Reclassification", shall have occurred.
The Selling Stockholders and the Company will furnish the
Representatives with such conformed copies of such opinions, certificates,
letters and documents as the Representatives reasonably request. CSFBC may in
its sole discretion waive on behalf of the Underwriters compliance with any
conditions to the obligations of the Underwriters hereunder, whether in respect
of an Optional Closing Date or otherwise.
7. Indemnification and Contribution.
(a) The Company will indemnify and hold harmless each Underwriter,
its partners, directors and officers and each person, if any, who controls
such Underwriter within the meaning of Section 15 of the Act, against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any Registration Statement, the
Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus, or
31
<PAGE>
arise out of or are based upon the omission or alleged omission to state
therein or necessary to make the statements therein not misleading,
including any losses, claims, damages or liabilities arising out of or
based upon the Company's failure to perform its obligations under Section
5(a) of this Agreement, and will reimburse each Underwriter for any legal
or other expenses reasonably incurred by such Underwriter in connection
with investigating or defending any such loss, claim, damage, liability or
action as such expenses are incurred; provided, however, that (i) the
Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission
from any of such documents in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and
agreed that the only such information furnished by any Underwriter consists
of the information described as such in subsection (c) below and (ii) that
the Company shall not be liable to any such Underwriter with respect to any
untrue statement or alleged untrue statement or omission or alleged
omission in the preliminary prospectus to the extent that any such loss,
liability, claim, damage or expense of such Underwriter results from the
fact that such Underwriter sold Offered Securities to a person to whom
there was not sent or given, at or prior to the written confirmation of
such sale, a copy of the Prospectus as then amended or supplemented if the
Company had previously furnished copies thereof to such Underwriter and the
loss, liability, claim, damage or expense of such Underwriter results from
an untrue statement or omission of a material fact contained in the
preliminary prospects which was corrected in the Prospectus.
The Company agrees to indemnify and hold harmless the Designated
Underwriter and each person, if any, who controls the Designated
Underwriter within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act (the "Designated Entities"), from and
against any and all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim) (i)
caused by any untrue statement or alleged untrue statement of a material
fact contained in any material prepared by or with the consent of the
Company for distribution to Participants in connection with the Directed
Share Program or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; (ii) caused by the failure of any
Participant to pay for and accept delivery of Directed Shares that the
Participant agreed to purchase; or (iii) related to, arising out of, or in
connection with the Directed Share Program, other than losses, claims,
damages or liabilities (or expenses relating thereto) that are finally
judicially determined to have resulted from the bad faith or gross
negligence of the Designated Entities.
Insofar as the foregoing indemnity agreement, or the representations
and warranties contained in Section 2(a)(ii), may permit indemnification
for liabilities
32
<PAGE>
under the Act of any person who is an Underwriter or a partner or controlling
person of an Underwriter within the meaning of Section 15 of the Act and who,
at the date of this Agreement, is a director, officer or controlling person of
the Company, the Company has been advised that in the opinion of the
Commission such provisions may contravene Federal public policy as expressed
in the Act and may therefore be unenforceable. In the event that a claim for
indemnification under such agreement or such representations and warranties
for any such liabilities (except insofar as such agreement provides for the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person in the successful defense of any action, suit or
proceeding) is asserted by such a person, the Company will submit to a court
of appropriate jurisdiction (unless in the opinion of counsel for the Company
the matter has already been settled by controlling precedent) the question of
whether or not indemnification by it for such liabilities is against public
policy as expressed in the Act and therefore unenforceable, and the Company
will be governed by the final adjudication of such issue.
(b) Each Selling Stockholder will severally and not jointly indemnify
and hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, not
misleading, and will reimburse each Underwriter for any legal or other
expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such loss, claim, damage, liability or action
as such expenses are incurred in each case only to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission from
any of such documents in reliance upon and in conformity with written
information furnished by such Selling Stockholder specifically for use
therein; provided, however, that the Selling Stockholders will not be liable
in any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
in or omission or alleged omission from any of such documents in reliance upon
and in conformity with written information furnished to the Company by an
Underwriter through the Representatives specifically for use therein, it being
understood and agreed that the only such information furnished by any
Underwriter consists of the information described as such in subsection (c)
below; provided, further, that no Selling Stockholder shall be liable to any
such Underwriter with respect to any untrue statement or alleged untrue
statement or omission or alleged omission in the preliminary prospectus to the
extent that any such loss, liability, claim, damage or expense of such
Underwriter results from the
33
<PAGE>
fact that such Underwriter sold Offered Securities to a person to whom there
was not sent or given, at or prior to the written confirmation of such sale, a
copy of the Prospectus as then amended or supplemented if the Company had
previously furnished copies thereof to such Underwriter and the loss,
liability, claim, damage or expense of such Underwriter results from an untrue
statement or omission of a material fact contained in the preliminary
prospects which was corrected in the Prospectus. Notwithstanding the
foregoing, the aggregate liability of any Selling Stockholder pursuant to the
provisions of this paragraph shall be limited to an amount equal to the
aggregate gross proceeds received by such Selling Stockholder from the sale of
such Selling Stockholder's shares hereunder.
(c) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company, its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the Act, and each
Selling Stockholder against any losses, claims, damages or liabilities to
which the Company or such Selling Stockholder may become subject, under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information furnished
to the Company by such Underwriter through the Representatives specifically
for use therein, and will reimburse any legal or other expenses reasonably
incurred by the Company and each Selling Stockholder in connection with
investigating or defending any such loss, claim, damage, liability or action
as such expenses are incurred, it being understood and agreed that the only
such information furnished by any Underwriter consists of (i) the following
information in the Prospectus furnished on behalf of each Underwriter: the
last paragraph at the bottom of the cover page concerning the terms of the
offering by the Underwriters, the concession and reallowance figures appearing
in the fourth paragraph under the caption "Underwriting" and the over-
allotments and stabilizing descriptions appearing in the fourteenth and
fifteenth paragraphs under the caption "Underwriting" and (ii) the following
information in the Prospectus furnished on behalf of CSFBC, Bear Stearns &
Co., Inc. and Pennsylvania Merchant Group: Credit Suisse First Boston
Corporation, Bear, Stearns & Co. Inc. and
["Bear, Stearns & Co. Inc., one of our underwriters, is an affiliate of
our company. The offering, therefore, is being conducted in accordance
with the applicable provisions of Rule 2720 of the National Association
of Securities Dealers, Inc. Conduct Rules. Rule 2720
34
<PAGE>
requires that the initial public offering price of the shares of common
stock not be higher than that recommended by a "qualified independent
underwriter" meeting certain standards. Accordingly, FleetBoston
Robertson Stephens Inc. is assuming the responsibilities of acting as the
qualified independent underwriter in pricing the offering and conducting
due diligence. The initial public offering price of the shares of common
stock is no higher than recommended by FleetBoston Robertson Stephens
Inc."
"Pennsylvania Merchant Group and their respective affiliates have
performed and expect to continue to perform financial advisory and
investment and commercial banking services for us for which they have
received and will receive customary compensation. We intend to use a
portion of the net proceeds to repay in full all outstanding obligations
under our senior credit facility. Credit Suisse First Boston, an
affiliate of Credit Suisse First Boston Corporation, is a lender and the
administrative agent under the senior credit facility and will receive
some of the proceeds of this offering used to repay our outstanding
indebtedness under our senior credit facility. In addition, Credit Suisse
First Boston Corporation and Bear, Stearns & Co. Inc. were the initial
purchasers in the offering of our senior subordinated notes. An affiliate
of Credit Suisse First Boston Corporation and an affiliate of Bear,
Stearns & Co. Inc. each own common stock of the company and each is a
selling shareholder in the offering. John D. Howard, a director of our
company, is a senior managing director of Bear, Stearns & Co. Inc."]
(d) Promptly after receipt by an indemnified party under this Section or
Section 9 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against an indemnifying
party under subsection (a), (b) or (c) above or Section 9, notify each party
against whom indemnification is to be sought in writing of the commencement
thereof; but the failure so to notify an indemnifying party shall not relieve
it from any liability which it may have under this Section except to the
extent that it has been prejudiced in any material respect by such failure or
from any liability which it may have otherwise than under subsection (a), (b)
or (c) above or Section 9. In case any such action is brought against any
indemnified party, and it notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein, and
to the extent it may elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such indemnified
party, to assume the defense thereof with counsel reasonably satisfactory to
such indemnified party. Notwithstanding the foregoing, the indemnified party
or parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such
35
<PAGE>
counsel shall be at the expense of such indemnified party or parties unless
(i) the employment of such counsel shall have been authorized in writing by
the indemnifying parties in connection with the defense of such action, (ii)
the indemnifying parties shall not have employed counsel to take charge of the
defense of such action within a reasonable time after notice of commencement
of the action, or (iii) such indemnified party or parties shall have
reasonably concluded that there may be defenses available to it or them which
are different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying party or parties shall
not have the right to direct the defense of such action on behalf of the
indemnified party or parties), in any of which events such fees and expenses
of counsel shall be borne by the indemnifying parties; provided, however, that
the indemnifying party under subsection (a) or (b) above shall only be liable
for the legal expenses of one counsel (in addition to any local counsel) for
all indemnified parties in each jurisdiction in which any claim or action is
brought. Notwithstanding anything contained herein to the contrary, if
indemnity may be sought pursuant to the last paragraph in Section 7 (a) hereof
in respect of such action or proceeding, then in addition to such separate
firm for the indemnified parties, the indemnifying party shall be liable for
the reasonable fees and expenses of not more than one separate firm (in
addition to any local counsel) for the Designated Underwriter for the defense
of any losses, claims, damages and liabilities arising out of the Directed
Share Program, and all persons, if any, who control the Designated Underwriter
within the meaning of either Section 15 of the Act of Section 20 of the
Exchange Act. No indemnifying party shall, without prior written consent of
the indemnified party, effect any settlement of any pending or threatened
action in respect of which any indemnified party is or could have been a party
and indemnity could have been sought hereunder by such indemnified party
unless such settlement includes an unconditional release of such indemnified
party from all liability on any claims that are the subject matter of such
action and does not include a statement as to and an admission of fault,
culpability or failure to act by or on behalf of any indemnified party.
Anything in this subsection to the contrary notwithstanding, an indemnifying
party shall not be liable for any settlement of any claim or action effected
without its prior written consent, provided that such consent was not
unreasonably withheld, and that if at any time an indemnified party shall have
requested an indemnifying party to reimburse the indemnified party for fees
and expenses of counsel, such indemnifying party agrees it shall be liable for
any settlement effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
(e) If the indemnification provided for in this Section is unavailable
or insufficient to hold harmless an indemnified party under subsection (a),
(b) or (c) above, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of the losses, claims,
damages or liabilities referred to in subsection (a), (b) or (c)
36
<PAGE>
above (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Selling Stockholders on the one hand
and the Underwriters on the other from the offering of the Securities or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company and the Selling Stockholders on the one hand and the Underwriters on
the other in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities as well as any other relevant
equitable considerations. The relative benefits received by the Company and
the Selling Stockholders on the one hand and the Underwriters on the other
shall be deemed to be in the same proportion as the total net proceeds from
the offering (before deducting expenses) received by the Company and the
Selling Stockholders bear to the total underwriting discounts and commissions
received by the Underwriters. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company, the Selling
Stockholders or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The amount paid by an indemnified party as a result of
the losses, claims, damages or liabilities referred to in the first sentence
of this subsection (e) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any action or claim which is the subject of this subsection (e).
Notwithstanding the provisions of this subsection (e), (i) no Underwriter
shall be required to contribute any amount in excess of the amount by which
the total price at which the Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission and (ii) no
Selling Stockholder shall be required to contribute any amount in excess of
the amount by which the aggregate gross proceeds received by such Selling
Stockholder from the sale of the Offered Securities hereunder exceeds the
amount of any damages or indemnification which such Selling Stockholder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (e) to
contribute are several in proportion to their respective underwriting
obligations and not joint. The Selling Stockholders' obligations in this
subsection (e) to contribute are several and not joint.
37
<PAGE>
(f) The obligations of the Company and the Selling Stockholders under
this Section or Section 9 shall be in addition to any liability which the
Company and the Selling Stockholders may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls
any Underwriter or the QIU (as hereinafter defined) within the meaning of
the Act; and the obligations of the Underwriters under this Section shall
be in addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to
each director of the Company, to each officer of the Company who has signed
a Registration Statement and to each person, if any, who controls the
Company within the meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters
default in their obligations to purchase Offered Securities hereunder on either
the First or any Optional Closing Date and the aggregate number of shares of
Offered Securities that such defaulting Underwriter or Underwriters agreed but
failed to purchase does not exceed 10% of the total number of shares of Offered
Securities that the Underwriters are obligated to purchase on such Closing Date,
CSFBC may make arrangements satisfactory to the Company and the Selling
Stockholders for the purchase of such Offered Securities by other persons,
including any of the Underwriters, but if no such arrangements are made by such
Closing Date, the non-defaulting Underwriters shall be obligated severally, in
proportion to their respective commitments hereunder, to purchase the Offered
Securities that such defaulting Underwriters agreed but failed to purchase on
such Closing Date. If any Underwriter or Underwriters so default and the
aggregate number of shares of Offered Securities with respect to which such
default or defaults occur exceeds 10% of the total number of shares of Offered
Securities that the Underwriters are obligated to purchase on such Closing Date
and arrangements satisfactory to CSFBC, the Company and the Selling Stockholders
for the purchase of such Offered Securities by other persons are not made within
36 hours after such default, this Agreement will terminate without liability on
the part of any non-defaulting Underwriter, the Company or the Selling
Stockholders, except as provided in Section 10 (provided that if such default
occurs with respect to Optional Securities after the First Closing Date, this
Agreement will not terminate as to the Firm Securities or any Optional
Securities purchased prior to such termination). As used in this Agreement, the
term "Underwriter" includes any person substituted for an Underwriter under this
Section. Nothing herein will relieve a defaulting Underwriter from liability
for its default.
9. Qualified Independent Underwriter. The Company hereby confirms
that at its request FleetBoston Robertson Stephens Inc. has without compensation
acted as "qualified independent underwriter" (in such capacity, the "QIU")
within the meaning of Rule 2710 of the Conduct Rules of the NASD in connection
with the offering of the Offered Securities. The Company will indemnify and
hold harmless the QIU against any losses, claims, damages or liabilities, joint
or several, to which the QIU may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon the QIU's acting (or alleged failing to
act) as such "qualified independent
38
<PAGE>
underwriter" and will reimburse the QIU for any legal or other expenses
reasonably incurred by the QIU in connection with investigating or defending any
such loss, claim, damage, liability or action as such expenses are incurred.
10. Survival of Certain Representations and Obligations. The
respective indemnities, agreements, representations, warranties and other
statements of the Selling Stockholders, of the Company or its officers and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation, or statement
as to the results thereof, made by or on behalf of any Underwriter, any Selling
Stockholder, the Company or any of their respective representatives, officers or
directors or any controlling person, and will survive delivery of and payment
for the Offered Securities. If this Agreement is terminated pursuant to Section
8 or if for any reason the purchase of the Offered Securities by the
Underwriters is not consummated, the Company and the Selling Stockholders shall
remain responsible for the expenses to be paid or reimbursed by them pursuant to
Section 5 and the respective obligations of the Company, the Selling
Stockholders, and the Underwriters pursuant to Section 7 and the obligations of
the Company and the Selling Stockholders pursuant to Section 9 shall remain in
effect, and if any Offered Securities have been purchased hereunder the
representations and warranties in Section 2 and all obligations under Section 5
shall also remain in effect. If the purchase of the Offered Securities by the
Underwriters is not consummated for any reason other than solely because of the
termination of this Agreement pursuant to Section 8 or the occurrence of any
event specified in clause (iii), (iv) or (v) of Section 6(d), the Company and
the Selling Stockholders will, jointly and severally, reimburse the Underwriters
for all out-of-pocket expenses (including fees and disbursements of counsel)
reasonably incurred by them in connection with the offering of the Offered
Securities.
11. Notices. All communications hereunder will be in writing and, if sent
to the Underwriters, will be mailed, delivered or telegraphed and confirmed to
the Representatives, c/o Credit Suisse First Boston Corporation, Eleven Madison
Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking Department -
Transactions Advisory Group, or, if sent to the Company, will be mailed,
delivered or telegraphed and confirmed to it at Integrated Circuit Systems,
Inc., 2435 Boulevard of the Generals, Valley Forge, PA 19482, Attention: Chief
Financial Officer, with a copy to Kirkland & Ellis LLC, Citicorp Center, 153
East 53rd Street, New York, NY 10022-4675, Attention: Lance C. Balk, or, if sent
to the Selling Stockholders or any of them, will be mailed, delivered or
telegraphed and confirmed to [ ] at [ ]; provided, however, that any notice
to an Underwriter pursuant to Section 7 or Section 9 will be mailed, delivered
or telegraphed and confirmed to such Underwriter.
12. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective personal representatives and
successors and the officers and directors and controlling persons referred to in
Section 7, and no other person will have any right or obligation hereunder.
39
<PAGE>
13. Representation. The Representatives will act for the several
Underwriters in connection with the transactions contemplated by this Agreement,
and any action under this Agreement taken by the Representatives jointly or by
CSFBC will be binding upon all the Underwriters. [ ] will act for the Selling
Stockholders in connection with such transactions, and any action under or in
respect of this Agreement taken by [ ] will be binding upon [all] the Selling
Stockholders.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement. Delivery by
telecopy or facsimile transmission of an executed counterpart of this Agreement
shall be considered due and sufficient delivery.
15. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to principles
of conflicts of laws.
THE COMPANY AND EACH OF THE SELLING STOCKHOLDER HEREBY SUBMIT TO THE NON-
EXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE COURTS IN THE BOROUGH OF
MANHATTAN IN THE CITY OF NEW YORK IN ANY SUIT OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
40
<PAGE>
If the foregoing is in accordance with the Representatives'
understanding of our agreement, kindly sign and return to the Company one of the
counterparts hereof, whereupon it will become a binding agreement among the
Selling Stockholders, the Company and the several Underwriters in accordance
with its terms.
Very truly yours,
INTEGRATED CIRCUIT SYSTEMS, INC.
_____________________________________
Name:
Title:
BAIN CAPITAL FUND VI, L.P.
BCIP TRUST ASSOCIATES II
BCIP TRUST ASSOCIATES II-B
BCIP ASSOCIATES II
BCIP ASSOCIATES II-B
BCIP ASSOCIATES II-C
PEP INVESTMENT PTY LTD.
By:__________________________________
Name:
Title:
Under Power of Attorney for Each of the Above
Persons
ICST ACQUISITION CORP.
By:__________________________________
Name:
Title:
INTEGRATED CIRCUIT SYSTEMS EQUITY INVESTORS,
L.L.C.
By:__________________________________
Name:
Title:
41
<PAGE>
RANDOLPH STREET PARTNERS I
RANDOLPH STREET PARTNERS II
RANDOLPH STREET PARTNERS 1998
DIF, L.L.C.
By:__________________________________
Name:
Title:
Under Power of Attorney for Each of the Above
Persons
By:__________________________________
Name: Henry I. Boreen
The foregoing Underwriting Agreement
is hereby confirmed and accepted as of
the date first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION,
FLEETBOSTON ROBERTSON STEPHENS INC.
LEHMAN BROTHERS INC.
BEAR, STEARNS & CO. INC. and
PENNSYLVANIA MERCHANT GROUP
Acting on behalf of themselves and as the
Representatives of the several Underwriters.
By: CREDIT SUISSE FIRST BOSTON CORPORATION
________________________________________
Name:
Title:
42
<PAGE>
SCHEDULE A
Number of Optional
1) Bain Option Selling Stockholders Securities to be Sold
-------------------------------- ----------------------
Bain Capital Fund VI, L.P. [ ]
BCIP Trust Associates II [ ]
BCIP Trust Associates II-B [ ]
BCIP Associates II [ ]
BCIP Associates II-B [ ]
BCIP Associates II-C [ ]
PEP Investment PTY Ltd. [ ]
---------
Total.....................
2) Bear Stearns Option Selling Stockholder
---------------------------------------
ICST Acquisition Corp.
3) CSFB Option Selling Stockholder
-------------------------------
Integrated Circuit Systems Equity
Investors, L.L.C.
4) Randolph Street Option Selling Stockholders
-------------------------------------------
Randolph Street Partners I [ ]
Randolph Street Partners II [ ]
---------
Total...........................
5) Henry I. Boreen
---------------
TOTAL OPTION SHARES 1,875,000
=========
A-1
<PAGE>
SCHEDULE B
<TABLE>
Number of
Firm Securities
Underwriter to be Purchased
----------- ----------------
<S> <C>
Credit Suisse First Boston Corporation.........
FleetBoston Robertson Stephens Inc.............
Lehman Brothers Inc............................
Bear, Stearns & Co. Inc........................
Pennsylvania Merchant Group....................
----------------
Total...............................
================
</TABLE>
B-2
<PAGE>
SCHEDULE C
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Intel Corporation
[Asustek]
[Gigabite]
Alayleh, Majed Fuiks, Kenneth Lucas, John R Urbieta, Alberto R.
Alzayat, Nabil Z. Gazda, Jan C. Luong, Don Van Dalsen, Dennis K.
Amiri, Farris Geissler, Jonathan W. Lwin, Kyu Lin Venkateswaran, K
Asadipour, Pouran Gieng, Menh S. Marten, Lance A. Vi, Luc M.
Aycock, Stephen E Glazier, Sherwood D. Martorell, Kimberle M Vongo, Dean T.
Bakhshi, Malek M Gopal, Krishan Miller, Rosemary T. Wade, Chandler L.
Bal, Jagdeep S Gosse, Thomas J. Morita, Hitoshi Wahli, Barbara M
Bartelink, Eric J Green, Carol E. Moyer, Annette Warren, George H
Bartolomei, Cecilia A. Hammoud, Hussein Mukaida, Satoshi Warren, William J
Bednarz, Anthony B. Hanna, Moheen Y Neely, Eric D. Wauhop, Donna M.
Berry Jr., Richard P. Hansen, Peter W. Neiman, Leeann M. Way, Karen A.
Bingham, David W. Hingrajia, Rasik Ngo, Dien Dinh Wei, Robin K
Bland, Christopher J Hinkley, David E. Ngo, Huy T. Wemhaner, Bradley M.
Bliss, Coleen S. Hinkley, Nadine Nguyen, Daniel D. Weng, Siyou
Bolger, Steven H. Hoang, Tuan Minh Nguyen, Hai Wheeler, Linda L.K.K.
Bredenberg, Robert W Hohmann, Daniel A. Nguyen, Nghe Widman, Carl F.
Bui, Dien D. Hon, Pikyue T. Nguyen, Quynh-Chau T Ziegler, Crystal D.
Bui, Dinh N. Hostetter, Sara A. Obregon, Carlos D. Jenny Chin Keok Lian, Jenny
Bui, Maianh Hsu, John C. Obregon-Jimenez, Rebeca G. Tan Koon Huat
Burdett, Stephen Hutnik, Kathleen Oland, Teri Sue Mohd Rashid bin Mohd Noor
Buttry, Melissa Iraninejad, Reyhaneh Olsen, Barry E Koh Hui Choon
Catagnus, Michael S. Isik, Tacettin O'Maley, Linda Anthony Khoo Chwee Guan
Chan, Theodore W. Iyer, Ram H. Palmer, Daniel C. Lim Moi Eng
Chang, Steve Jarvis, Bryan J. Pizzola, Andrea Low Min Yee
Charbonnier, Michel Y. Jasper, Stephen Pizzolato, William M. Doreen Yan Yin Har
Chen, Kristen Q Jerrell, Kelly R. Poitras, Louis Seah Kah Suan
Cheung, Derek Jiang, Yun Liang Pollock, Patricia A. Deanna Luu
Chevalier, Jeannette A. Jing, Tao Reed, Robert F. Teresa Stahl
Cho, Young Shin Jones, Lewis H. Reeves, Scott A. Kevin Tran
Christenberry, David Kandler, Bruce A. Robinson, Arthur George Sampson
Christiansen, Ed M Kane, Sylvester L. Rodgers, Susan M. Wu, Ted
Claudin, Guy Scott Kazak, Bassem Roman, Joseph L Kuo, Ordin
Corpron, Janice Klessel, Peter A. Roth, Diane Cheu, Candy
Darwish, Samer O. Kulp, Allen Sahu, Alok Lin, Kevin
Dematto, Virginia A. Kulp, Danielle Sears, Deborah M. Chan, Jeffrey
Despirito, Patricia E. Lance, Lora J. Self, Paul W Hachiro Sumi
Disperati, Tara M. Larson, Donald M. Shapiro, Garry R. Hiroake Shimauchi
Do, Vinh Trong Lee, Dockjai Silfies, Alan C. Baker, David
Doan, Michelle Lee, Joseph M. Singh, Madhulika
Domin, Darin S. Lee, Rocky L-K Smith II, Gerald W.
Duong, Dien Tam Lee, Simon Chong Smith, Kevin
Durham, Carl M. Leung, Eric Squillace, Charlene N.
Dvorak, Roxanne K. Lien, Justine F. Stockton, Elyse P.
Eggebrecht, Lewis C. Lim, Ming Su, Hanzhong
Engel, Ann Limoun, Bassam M Sun, Grace L.
Eribes, Ruben Lin, Hao Sweeney, Sally
Esgar, Dwight D. Lipcsey, Teresa O. Szucs, Alexander G.
Esgar, Shermette L. Lo, Pedro W. Tajnai, Joseph
</TABLE>
C-1
<PAGE>
<TABLE>
<S> <C> <C>
Faria, Sandy Lo, Yong-Chou Bruce Tan, Hock E.
Fong, Steven Lockwood, Robert J. Taormina, Kristin M.
Frederick, Randall R. Look, Kock C. Tat, Vincent T.
</TABLE>
C-2
<PAGE>
EXHIBIT I
May , 2000
Integrated Circuit Systems, Inc.
2435 Boulevard of the Generals
Valley Forge, PA 19482
Attention: Justine Lien
CREDIT SUISSE FIRST BOSTON CORPORATION
FLEETBOSTON ROBERTSON STEPHENS INC.
LEHMAN BROTHERS INC.
BEAR, STEARNS & CO. INC. and
PENNSYLVANIA MERCHANT GROUP
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Dear Sirs:
As an inducement to the Underwriters to execute the Underwriting
Agreement, pursuant to which an offering will be made that is intended to result
in the establishment of a public market for the Common Stock, par value $.01 per
share (the "Securities") of Integrated Circuit Systems, Inc. (the "Company"),
the undersigned hereby agrees that from the date hereof and until 180 days after
the public offering date set forth on the final prospectus used to sell the
Securities (the "Public Offering Date") pursuant to the Underwriting Agreement,
to which you are or expect to become parties, the undersigned will not offer,
sell, contract to sell, pledge or otherwise dispose of, directly or indirectly,
any shares of Securities or securities convertible into or exchangeable or
exercisable for any shares of Securities, enter into a transaction which would
have the same effect, or enter into any swap, hedge or other arrangement that
transfers, in whole or in part, any of the economic consequences of ownership of
the Securities, whether any such aforementioned transaction is to be settled by
delivery of the Securities or such other securities, in cash or otherwise, or
publicly disclose the intention to make any such offer, sale, pledge or
disposition, or to enter into any such transaction, swap, hedge or other
arrangement, without, in each case, the prior written consent of Credit Suisse
First Boston Corporation.
The undersigned shall not be restricted by the terms of this Agreement
from exercising any options granted to the undersigned; provided, however, that
any Securities received upon exercise of options granted to the undersigned will
be subject to this Agreement. Any Securities acquired by the undersigned in the
open market will not be subject to this Agreement. A transfer of Securities to
a family member or trust may be made, provided the transferee agrees to be bound
in writing by the terms of this Agreement.
C-3
<PAGE>
In furtherance of the foregoing, the Company and its transfer agent
and registrar are hereby authorized to decline to make any transfer of shares of
Securities if such transfer would constitute a violation or breach of this
Agreement.
This Agreement shall be binding on the undersigned and the successors,
heirs, personal representatives and assigns of the undersigned. This Agreement
shall lapse and become null and void if the Public Offering Date shall not have
occurred on or before November 30, 2000.
Very truly yours,
-------------------------------
[Name of non-selling stockholder]
C-4
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
INTEGRATED CIRCUIT SYSTEMS, INC.
ARTICLE ONE
The name of the Corporation is Integrated Circuit Systems, Inc.
ARTICLE TWO
The address of the Corporation's registered office in the State of
Pennsylvania is 2435 Boulevard of the Generals, City of Valley Forge, County of
Montgomery, State of Pennsylvania. The name of its registered agent at such
address is Hock E. Tan.
ARTICLE THREE
The corporation is incorporated under the Business Corporation Law
approved the 5/th/ day of May, 1933, P.L. 364. The nature of the business or
purposes to be conducted or promoted is to engage in any lawful act or activity
for which corporations may be organized under the Business Corporation Law.
ARTICLE FOUR
At the Effective Time, this Article Four shall amend and restate
Article Four of the Original Charter. Until the Effective Time, Article Four of
the Original Charter shall continue in full force and effect.
A. AUTHORIZED SHARES
The total number of shares of capital stock which the Corporation has
authority to issue is 305,000,000 shares, consisting of:
(1) 5,000,000 shares of Preferred Stock, par value $0.01 per share
("Preferred Stock"); and
(2) 300,000,000 shares of Common Stock, par value $0.01 per share
("Common Stock").
<PAGE>
The Preferred Stock and the Common Stock shall have the rights, preferences and
limitations set forth below. Capitalized terms used but not otherwise defined
in Part A, Part B or Part C of this Article Four are defined in Part D.
B. PREFERRED STOCK
The Preferred Stock may be issued from time to time and in one or more
series. The board of directors of the Corporation is authorized to determine or
alter the powers, preferences and rights, and the qualifications, limitations
and restrictions granted to or imposed upon any wholly unissued series of
Preferred Stock, and within the limitations or restrictions stated in any
resolution or resolutions of the board of directors originally fixing the number
of shares constituting any series of Preferred Stock, to increase or decrease
(but not below the number of shares of any such series of Preferred Stock then
outstanding) the number of shares of any such series of Preferred Stock, and to
fix the number of shares of any series of Preferred Stock. In the event that
the number of shares of any series of Preferred Stock shall be so decreased, the
shares constituting such decrease shall resume the status which such shares had
prior to the adoption of the resolution originally fixing the number of shares
of such series of Preferred Stock subject to the requirements of applicable law.
C. COMMON STOCK
Section 1. Dividends. Except as otherwise provided by the
Business Corporation Law or these Amended and Restated Articles of Incorporation
(the "Restated Articles"), the holders of Common Stock: (i) subject to the
rights of holders of any series of Preferred Stock, shall share ratably in all
dividends payable in cash, stock or otherwise and other distributions, whether
in respect of liquidation or dissolution (voluntary or involuntary) or otherwise
and (ii) are subject to all the powers, rights, privileges, preferences and
priorities of any series of Preferred Stock as provided herein or in any
resolution or resolutions adopted by the board of directors pursuant to
authority expressly vested in it by the provisions of Part B of this Article
Four.
Section 2. Conversion Rights. The Common Stock shall not be
convertible into, or exchangeable for, shares of any other class or classes or
of any other series of the same class of the Corporation's capital stock.
Section 3. Cumulative Voting. The shareholders of the Corporation
shall not be entitled to cumulate their votes for the election of directors.
Section 4. Voting Rights. Except as otherwise provided by the
Business Corporation Law or the Restated Articles and subject to the rights of
holders of any series of Preferred Stock, all of the voting power of the
shareholders of the Corporation shall be vested in the holders of the Common
Stock, and each holder of Common Stock shall have one vote for each share held
by such holder on all matters voted upon by the shareholders of the Corporation.
Section 5. Registration or Transfer. The Corporation shall keep
at its principal office (or such other place as the Corporation reasonably
designates) a register for the registration
2
<PAGE>
of Common Stock. Upon the surrender of any certificate representing shares of
any class of Common Stock at such place, the Corporation shall, at the request
of the registered holder of such certificate, execute and deliver a new
certificate or certificates in exchange therefor representing in the aggregate
the number of shares of such class represented by the surrendered certificate,
and the Corporation forthwith shall cancel such surrendered certificate. Each
such new certificate will be registered in such name and will represent such
number of shares of such class as is requested by the holder of the surrendered
certificate and shall be substantially identical in form to the surrendered
certificate. The issuance of new certificates shall be made without charge to
the holders of the surrendered certificates for any issuance tax in respect
thereof or other cost incurred by the Corporation in connection with such
issuance.
Section 6. Replacement. Upon receipt of evidence reasonably
satisfactory to the Corporation (an affidavit of the registered holder will be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing one or more shares of any class of Common Stock, and
in the case of any such loss, theft or destruction, upon receipt of indemnity
reasonably satisfactory to the Corporation (provided that if the holder is a
financial institution or other institutional investor its own agreement will be
satisfactory), or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
shares of such class represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate.
Section 7. Notices. All notices referred to herein shall be in
writing, shall be delivered personally or by first class mail, postage prepaid,
and shall be deemed to have been given when so delivered or mailed to the
Corporation at its principal executive offices and to any shareholder at such
holder's address as it appears in the stock records of the Corporation (unless
otherwise specified in a written notice to the Corporation by such holder).
Section 8. Fractional Shares. In no event will holders of
fractional shares be required to accept any consideration in exchange for such
shares other than consideration which all holders of Common Stock are required
to accept.
Section 9. Reclassification of Existing Common Stock and Forward
Stock Split.
(i) Reclassification. At the Effective Time, each share of capital
stock of the Corporation then outstanding shall, without any action by the
holder thereof, convert and be reclassified as follows (the "Reclassification"):
(A) first, each outstanding share of Series A Cumulative
-----
Convertible Preferred Stock (the "Series A Preferred") shall
automatically convert into Class A Common and Class L Common
in an amount equal to the quotient obtained by dividing (x)
the Stated Value multiplied by the number of Series A
Preferred being converted by (y) the Preferred Conversion
Price, as last adjusted and then in effect; provided,
however, that 90% of the shares of common stock issuable
upon such
3
<PAGE>
conversion shall be issued as shares of Class A Common
and 10% of the shares of common stock issuable upon such
conversion shall be issued as shares of Class L Common;
(B) then,
----
(1) each outstanding share of Class A Common Stock, par
value $0.01 per share (the "Class A Common"), shall be
reclassified into one share of Common Stock;
(2) each outstanding share of Class B Common Stock, par
value $0.01 per share (the "Class B Common"), shall be
reclassified into one share of Common Stock; and
(3) each outstanding share of Class L Common Stock, par
value $0.01 per share (the "Class L Common" and,
together with the Class A Common and Class B Common, the
"Existing Common Stock"), shall be reclassified into a
number of shares of Common Stock equal to the sum of (i)
one and (ii) the quotient obtained by dividing (x) the
Unreturned Cost plus Unpaid Yield of such share of Class
L Common by (y) the price per share of the Common Stock
paid by investors in the public offering contemplated by
the Registration Statement (in each case before giving
effect to the Stock Split).
Prior to the effectiveness of the Reclassification, the Series A
Preferred and the Existing Common Stock shall continue to have the rights,
preferences and limitations set forth in the Original Charter.
(ii) Forward Stock Split. Immediately following the
Reclassification, each share of Common Stock outstanding at such time (after
giving effect to the Reclassification) shall be, without further action by the
Corporation or any of the holders thereof, changed and converted into 1.6942
shares of Common Stock (the "Stock Split"). Each certificate then outstanding
representing shares of Common Stock (including those certificates that represent
shares of Common Stock as a result of the Reclassification) shall automatically
represent from and after the Effective Time that number of shares of Common
Stock equal to the number of shares shown on the face of the certificate
multiplied by 1.6942.
(iii) Fractional Shares. Notwithstanding the foregoing, in the
event that the Reclassification and Stock Split would result in any holder of
shares of Common Stock holding a share of Common Stock that is not an integral
multiple of one, the effect of the Reclassification and Stock Split shall be
such that the number of such holder's shares of Common Stock issued as a result
of the Reclassification and Stock Split with fractions of 0.50 and greater will
be rounded up to the next higher integral multiple of one and fractions less
than 0.50 being rounded down to the next
4
<PAGE>
lower integral multiple of one. No consideration will be paid in lieu of
fractions that are rounded down.
(iv) As soon as possible after the Reclassification and Stock Split,
the Corporation shall deliver to its shareholders a certificate or certificates
representing the number of shares of Common Stock issuable by reason of the
Reclassification and Stock Split in such name or names and such denomination or
denominations as each shareholder has specified.
(v) The issuance of certificates for shares of Common Stock after the
Reclassification and Stock Split, shall be made without charge to the holders of
such Existing Common Stock for any issuance tax in respect thereof or other cost
incurred by the Corporation in connection with the Reclassification and Stock
Split. Immediately after the Reclassification and Stock Split, the Corporation
shall take all such actions as are necessary in order to insure that the Common
Stock, issuable with respect to the Reclassification and Stock Split shall be
validly issued, fully paid and nonassessable, free and clear of all taxes,
liens, charges and encumbrances with respect to the issuance thereof.
(vi) The Corporation shall not close its books against the transfer of
the Existing Common Stock or of Common Stock issued or issuable upon the
Reclassification and Stock Split in any manner which interferes with the timely
conversion of the Existing Common Stock. The Corporation shall assist and
cooperate with any holder of shares required to make any governmental filings or
obtain any governmental approval prior to or in connection with any conversion
of shares hereunder (including, without limitation, making any filings required
to be made by the Corporation).
(vii) All shares of Common Stock which are so issuable shall, when
issued, be duly and validly issued, fully paid and nonassessable and free from
all taxes, liens and charges. The Corporation shall take all such actions as
may be necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Common
Stock may be listed (except for official notice of issuance which shall be
immediately delivered by the Corporation upon each such issuance). The
Corporation shall not take any action which would cause the number of authorized
but unissued shares of Common Stock to be less than the number of such shares
required to be reserved hereunder for issuance upon conversion of the existing
Common Stock.
D. DEFINITIONS
"Bain Group" means, collectively, Bain Capital Fund VI, L.P., BCIP
Associates II, BCIP Trust Associates II, L.P., BCIP Associates II-B, BCIP Trust
Associates II-B, BCIP Associates II-C, PEP Investments PTY Ltd., and Randolph
Street Partners II.
"Business Corporation Law" means the Business Corporation Law of 1988
of the Commonwealth of Pennsylvania, as amended from time to time.
5
<PAGE>
"Effective Time" means the time immediately prior to the effectiveness
of the Registration Statement.
"Original Charter" means the Amended and Restated Articles of
Incorporation of the Corporation in effect immediately prior to the filing of
the Restated Articles.
"Preferred Conversion Price" has the meaning given such term in the
Original Charter.
"Registration Statement" means the Corporation's Registration
Statement on Form S-1 (Registration No. 333-33318).
"Stated Value" has the meaning given such term in the Original
Charter.
"Unpaid Yield" has the meaning given such term in the Original
Charter.
"Unreturned Cost" has the meaning given such term in the Original
Charter.
ARTICLE FIVE
The Corporation is to have perpetual existence.
ARTICLE SIX
In furtherance and not in limitation of the powers conferred by statute,
the board of directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the Corporation.
ARTICLE SEVEN
Meetings of shareholders may be held within or without the State of
Pennsylvania, as the Bylaws may provide. The books of the Corporation may be
kept (subject to any provision contained in the statutes) outside of the
Commonwealth of Pennsylvania at such place or places as may be designated from
time to time by the board of directors or in the Bylaws of the Corporation.
Elections of directors need not be by written ballot unless the Bylaws of the
Corporation shall so provide.
ARTICLE EIGHT
(a) To the fullest extent permitted by the Business Corporation Law as
the same exists or as it may hereafter be amended, no director of the
Corporation shall be personally liable to the Corporation or its shareholders
for monetary damages for breach of fiduciary duty as a director.
(b) The corporation may indemnify to the fullest extent permitted by
law any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director, officer or employee of
the Corporation or any predecessor of the Corporation or serves or
6
<PAGE>
served at any other enterprise as a director, officer or employee at the request
of the Corporation or any predecessor to the Corporation.
(c) Neither any amendment nor repeal of this Article, nor the adoption
of any provision of this Restated Articles inconsistent with this Article, shall
eliminate or reduce the effect of this Article in respect of any matter
occurring, or any cause of action, proceeding, suit or claim accruing or
arising, or that, but for this Article, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
ARTICLE NINE
The Corporation expressly elects not to be governed by Section 2538
(Adoption of Transactions with Interested Shareholders) and the provisions
contained in Subchapters E (Control Transactions), G (Control-Share
Acquisitions), H (Disgorgement by Certain Controlling Shareholders for Employees
Terminated Following Attempts to Acquire Control), I (Severance Compensation for
Employees Terminated Following Certain Control-Share Acquisitions) and J
(Business Combination Transactions - Labor Contracts) of Chapter 25 of the
Business Corporation Law.
ARTICLE TEN
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this certificate of incorporation in the manner now
or hereafter prescribed herein and by the laws of the Commonwealth of
Pennsylvania, and all rights conferred upon shareholders herein are granted
subject to this reservation.
ARTICLE ELEVEN
At the Effective Time, this Article Eleven shall be inserted as
Article Eleven of the Original Charter. Until the Effective Time, the Original
Charter shall continue in full force and effect.
Section 1. Classification of Directors. At each annual meeting of
shareholders, directors of the Corporation shall be elected to hold office until
the expiration of the term for which they are elected, and until their
successors have been duly elected and qualified; except that if any such
election shall be not so held, such election shall take place at shareholders'
meeting called and held in accordance with the Business Corporation Law. The
directors of the Corporation shall be divided into two classes as nearly equal
in size as is practicable, hereby designated Class I and Class II. The term of
office of the initial Class I directors shall expire at the next succeeding
annual meeting of shareholders, and the term of office of the initial Class II
directors shall expire at the second succeeding annual meeting of shareholders.
For the purposes hereof, the initial Class I and Class II directors shall be
those directors elected by the shareholders of the Corporation in connection
with the adoption of this Restated Articles. At each annual meeting after the
first annual meeting of shareholders, directors to replace those of a Class
whose terms expire at such annual meeting shall be elected to hold office until
the second succeeding annual meeting and until their
7
<PAGE>
respective successors shall have been duly elected and qualified. If the number
of directors is hereafter changed, any newly created directorships or decrease
in directorships shall be so apportioned among the classes as to make all
classes as nearly equal in number as practicable.
Section 2. Vacancies. Vacancies occurring on the board of
directors for any reason may be filled by vote of a majority of the remaining
members of the board of directors, although less than a quorum, at any meeting
of the board of directors. A person so elected by the board of directors to
fill a vacancy shall hold office until the next succeeding annual meeting of
shareholders of the Corporation and until his or her successor shall have been
duly elected and qualified.
ARTICLE TWELVE
At the Effective Time, this Article Twelve shall be inserted as
Article Twelve of the Original Charter. Until the Effective Time, the Original
Charter shall continue in full force and effect.
The shareholders of the Corporation may not take any action by written
consent in lieu of a meeting, and must take any actions at a duly called annual
or special meeting of shareholders and the power of shareholders to consent in
writing without a meeting is specifically denied. Special meetings of
shareholders of the Corporation may be called only by either the board of
directors pursuant to a resolution adopted by the affirmative vote of the
majority of the total number of directors then in office or by the chief
executive officer of the Corporation.
ARTICLE THIRTEEN
At the Effective Time, this Article Thirteen shall be inserted as
Article Thirteen of the Original Charter. Until the Effective Time, the
Original Charter shall continue in full force and effect.
Notwithstanding any other provisions of the Restated Articles or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of the capital stock required by
law or the Restated Articles, the affirmative vote of the holders of at least
two-thirds (2/3) of the combined voting power of all of the then outstanding
shares of the Corporation eligible to be cast in the election of directors shall
be required to alter, amend or repeal Articles Eleven or Twelve hereof, or this
Article Thirteen, or any provision thereof or hereof, unless such amendment
shall be approved by a majority of the directors of the Corporation not
affiliated or associated with any person or entity holding (or which has
announced an intention to obtain) twenty percent (20%) or more of the voting
power of the Corporation's outstanding capital stock (other than the Bain
Group).
8
<PAGE>
BY-LAWS
OF
INTEGRATED CIRCUIT SYSTEMS, INC.
A Pennsylvania Corporation
(Adopted as of May __, 2000)
ARTICLE I
---------
OFFICES
-------
Section 1. Registered Office. The registered office of Integrated Circuit
---------- -----------------
Systems, Inc. (the "Corporation") in the Commonwealth of Pennsylvania shall be
-----------
located at 2435 Boulevard of the Generals, City of Valley Forge, County of
Montgomery, Commonwealth of Pennsylvania. The name of the Corporation's
registered agent at such address shall be Hock E. Tan. The registered office
and/or registered agent of the Corporation may be changed from time to time by
action of the Board of Directors.
Section 2. Other Offices. The Corporation may also have offices at such
---------- -------------
other places, both within and without the Commonwealth of Pennsylvania, as the
Board of Directors may from time to time determine or the business of the
Corporation may require.
ARTICLE II
----------
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Annual Meeting. An annual meeting of the stockholders shall
---------- --------------
be held each year within 150 days after the close of the immediately preceding
fiscal year of the Corporation or at such other time specified by the Board of
Directors for the purpose of electing Directors and conducting such other proper
business as may come before the annual meeting. At the annual meeting,
stockholders shall elect directors and transact such other business as properly
may be brought before the annual meeting pursuant to Section 11 of ARTICLE II
----------
hereof.
Section 2. Special Meetings. Special meetings of the stockholders may
---------- ----------------
only be called in the manner provided in the Amended and Restated Articles of
Incorporation.
Section 3. Place of Meetings. The Board of Directors may designate any
---------- -----------------
place, either within or without the Commonwealth of Pennsylvania, as the place
of meeting for any annual meeting or for any special meeting. If no designation
is made, or if a special meeting be otherwise called, the place of meeting shall
be the principal executive office of the Corporation. If for any reason any
<PAGE>
annual meeting shall not be held during any year, the business thereof may be
transacted at any special meeting of the stockholders.
Section 4. Notice. Whenever stockholders are required or permitted to
---------- ------
take action at a meeting, written or printed notice stating the place, date,
time and, in the case of special meetings, the purpose or purposes, of such
meeting, shall be given to each stockholder entitled to vote at such meeting not
less than 10 nor more than 60 days before the date of the meeting. All such
notices shall be delivered, either personally or by mail, by or at the direction
of the Board of Directors, the chairman of the board, the president or the
secretary, and if mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, postage prepaid, addressed to the
stockholder at his, her or its address as the same appears on the records of the
Corporation. Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends for the express purpose
of objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened.
Section 5. Stockholders List. The officer having charge of the stock
---------- -----------------
ledger of the Corporation shall make, at least 10 days before every meeting of
the stockholders, a complete list of the stockholders entitled to vote at such
meeting arranged in alphabetical order, showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least 10 days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 6. Quorum. The holders of a majority of the outstanding shares of
---------- ------
capital stock entitled to vote, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders, except as otherwise
provided by the Business Corporation Law of the Commonwealth of Pennsylvania or
by the Amended and Restated Articles of Incorporation. If a quorum is not
present, the holders of a majority of the shares present in person or
represented by proxy at the meeting, and entitled to vote at the meeting, may
adjourn the meeting to another time and/or place. When a specified item of
business requires a vote by a class or series (if the Corporation shall then
have outstanding shares of more than one class or series) voting as a class or
series, the holders of a majority of the shares of such class or series shall
constitute a quorum (as to such class or series) for the transaction of such
item of business.
Section 7. Adjourned Meetings. When a meeting is adjourned to another
---------- ------------------
time and place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than 30 days, or if after the adjournment a new record date is fixed for
the adjourned meeting,
-2-
<PAGE>
a notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
Section 8. Vote Required. When a quorum is present, the affirmative vote
---------- -------------
of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless (i) by express provisions of an applicable law or of the
Amended and Restated Articles of Incorporation a different vote is required, in
which case such express provision shall govern and control the decision of such
question, or (ii) the subject matter is the election of Directors, in which case
Section 2 of ARTICLE III hereof shall govern and control the approval of such
-----------
subject matter.
Section 9. Voting Rights. Except as otherwise provided by the Business
---------- -------------
Corporation Law of the Commonwealth of Pennsylvania, the Amended and Restated
Articles of Incorporation of the Corporation or any amendments thereto or these
By-laws, every stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of capital stock held
by such stockholder.
Section 10. Proxies. Each stockholder entitled to vote at a meeting of
----------- -------
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him or her
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the Corporation generally. Any proxy is suspended when the person
executing the proxy is present at a meeting of stockholders and elects to vote,
except that when such proxy is coupled with an interest and the fact of the
interest appears on the face of the proxy, the agent named in the proxy shall
have all voting and other rights referred to in the proxy, notwithstanding the
presence of the person executing the proxy. At each meeting of the
stockholders, and before any voting commences, all proxies filed at or before
the meeting shall be submitted to and examined by the secretary or a person
designated by the secretary, and no shares may be represented or voted under a
proxy that has been found to be invalid or irregular.
Section 11. Business Brought Before an Annual Meeting. At an annual
----------- -----------------------------------------
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before an
annual meeting, business must be (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (ii)
brought before the meeting by or at the direction of the Board of Directors or
(iii) otherwise properly brought before the meeting by a stockholder. For
business to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the secretary of
the Corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation, not
less than 60 days nor more than 90 days prior to the meeting; provided, however,
-------- -------
that in the event that less than 70 days'
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notice or prior public announcement of the date of the meeting is given or made
to stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the date on which
such notice of the date of the annual meeting was mailed or such public
announcement was made. A stockholder's notice to the secretary shall set forth
as to each matter the stockholder proposes to bring before the annual meeting
(i) a brief description of the business desired to be brought before the annual
meeting, (ii) the name and address, as they appear on the Corporation's books,
of the stockholder proposing such business, (iii) the class and number of shares
of the Corporation which are beneficially owned by the stockholder and (iv) any
material interest of the stockholder in such business. Notwithstanding anything
in these By-laws to the contrary, no business shall be conducted at an annual
meeting except in accordance with the procedures set forth in this section. The
presiding officer of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting and in accordance with the provisions of this section; if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted. For purposes of this
section,"public announcement" shall mean disclosure in a press release reported
-------------------
by Dow Jones News Service, Associated Press or a comparable national news
service. Nothing in this section shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
------------
ARTICLE III
-----------
Directors
---------
Section 1. General Powers. The business and affairs of the Corporation
---------- --------------
shall be managed by or under the direction of the Board of Directors. In
addition to such powers as are herein and in the Amended and Restated Articles
of Incorporation expressly conferred upon it, the Board of Directors shall have
and may exercise all the powers of the Corporation, subject to the provisions of
the laws of Pennsylvania, the Amended and Restated Articles of Incorporation and
these By-laws.
Section 2. Number, Election and Term of Office. Subject to any rights of
---------- -----------------------------------
the holders of any series of Preferred Stock to elect additional Directors under
specified circumstances, the number of Directors which shall constitute the
Board of Directors shall be fixed from time to time by resolution adopted by the
affirmative vote of a majority of the total number of Directors then in office.
The Directors shall be elected by a plurality of the votes of the shares present
in person or represented by proxy at the meeting and entitled to vote in the
election of Directors; provided that, whenever the holders of any class or
series of capital stock of the Corporation are entitled to elect one or more
Directors pursuant to the provisions of the Amended and Restated Articles of
Incorporation of the Corporation (including, but not limited to, for purposes of
these By-laws, pursuant to any duly authorized certificate of designation), such
Directors shall be elected by a plurality of the votes of such class or series
present in person or represented by proxy at the meeting and entitled to vote in
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the election of such Directors. The Directors shall be elected and shall hold
office only in the manner provided in the Amended and Restated Articles of
Incorporation.
Section 3. Removal and Resignation. No Director may be removed from
---------- -----------------------
office without cause and without the affirmative vote of the holders of a
majority of the voting power of the then outstanding shares of capital stock
entitled to vote generally in the election of Directors voting together as a
single class; provided, however, that if the holders of any class or series of
capital stock are entitled by the provisions of the Amended and Restated
Articles of Incorporation (it being understood that any references to the
Amended and Restated Articles of Incorporation shall include any duly
authorized certificate of designation) to elect one or more Directors, such
Director or Directors so elected may be removed without cause only by the vote
of the holders of a majority of the outstanding shares of that class or series
entitled to vote. Any Director may resign at any time upon written notice to
the Corporation.
Section 4. Vacancies. Vacancies and newly created directorships resulting
---------- ---------
from any increase in the total number of Directors may be filled only in the
manner provided in the Amended and Restated Articles of Incorporation.
Section 5. Nominations.
---------- -----------
(a) Only persons who are nominated in accordance with the procedures
set forth in these By-laws shall be eligible to serve as Directors. Nominations
of persons for election to the Board of Directors of the Corporation may be made
at a meeting of stockholders (i) by or at the direction of the Board of
Directors or (ii) by any stockholder of the Corporation who was a stockholder of
record at the time of giving of notice provided for in this By-law, who is
entitled to vote generally in the election of Directors at the meeting and who
shall have complied with the notice procedures set forth below in Section 5(b).
(b) In order for a stockholder to nominate a person for election to
the Board of Directors of the Corporation at a meeting of stockholders, such
stockholder shall have delivered timely notice of such stockholder's intent to
make such nomination in writing to the secretary of the Corporation. To be
timely, a stockholder's notice shall be delivered to or mailed and received at
the principal executive offices of the Corporation (i) in the case of an annual
meeting, not less than 60 nor more than 90 days prior to the first anniversary
of the preceding year's annual meeting; provided, however, that in the event
-------- -------
that the date of the annual meeting is changed by more than 30 days from such
anniversary date, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the earlier of the
day on which notice of the date of the meeting was mailed or public disclosure
of the meeting was made, and (ii) in the case of a special meeting at which
Directors are to be elected, not later than the close of business on the 10th
day following the earlier of the day on which notice of the date of the meeting
was mailed or public disclosure of the meeting was made. Such stockholder's
notice shall set forth (i) as to each person whom the stockholder proposes to
nominate for election as a Director at such meeting all information relating to
such person that is required to be disclosed in solicitations of proxies for
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election of Directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Exchange Act (including such person's written consent
to being named in the proxy statement as a nominee and to serving as a Director
if elected); (ii) as to the stockholder giving the notice (A) the name and
address, as they appear on the Corporation's books, of such stockholder and (B)
the class and number of shares of the Corporation which are beneficially owned
by such stockholder and also which are owned of record by such stockholder; and
(iii) as to the beneficial owner, if any, on whose behalf the nomination is
made, (A) the name and address of such person and (B) the class and number of
shares of the Corporation which are beneficially owned by such person. At the
request of the Board of Directors, any person nominated by the Board of
Directors for election as a Director shall furnish to the secretary of the
Corporation that information required to be set forth in a stockholder's notice
of nomination which pertains to the nominee.
(c) No person shall be eligible to serve as a Director of the
Corporation unless nominated in accordance with the procedures set forth in this
section. The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by this section, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be disregarded. A
stockholder seeking to nominate a person to serve as a Director must also comply
with all applicable requirements of the Exchange Act, and the rules and
regulations thereunder with respect to the matters set forth in this section.
Section 6. Annual Meetings. The annual meeting of the Board of Directors
---------- ---------------
shall be held without other notice than this By-law immediately after, and at
the same place as, the annual meeting of stockholders.
Section 7. Other Meetings and Notice. Regular meetings, other than the
---------- -------------------------
annual meeting, of the Board of Directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the Board of Directors. Special meetings of the Board of Directors may be
called by the chairman of the board, the president (if the president is a
Director) or, upon the written request of at least a majority of the Directors
then in office, the secretary of the Corporation on at least 24 hours notice to
each Director, either personally, by telephone, by mail or by telecopy.
Section 8. Chairman of the Board, Quorum, Required Vote and Adjournment.
---------- ------------------------------------------------------------
The Board of Directors shall elect, by the affirmative vote of a majority of the
total number of Directors then in office, a chairman of the board, who shall
preside at all meetings of the stockholders and Board of Directors at which he
or she is present and shall have such powers and perform such duties as the
Board of Directors may from time to time prescribe. If the chairman of the
board is not present at a meeting of the stockholders or the Board of Directors,
the president (if the president is a Director and is not also the chairman of
the board) shall preside at such meeting, and, if the president is not present
at such meeting, a majority of the Directors present at such meeting shall elect
one of their members to so preside. A majority of the total number of Directors
then in office shall constitute a quorum for the transaction of business.
Unless by express provision of an applicable law, the
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<PAGE>
Amended and Restated Articles of Incorporation or these By-laws a different vote
is required, the vote of a majority of Directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors. If a quorum shall
not be present at any meeting of the Board of Directors, the Directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 9. Committees. The Board of Directors may, by resolution passed
---------- ----------
by a majority of the total number of Directors then in office, designate one or
more committees, each committee to consist of one or more of the Directors of
the Corporation, which to the extent provided in such resolution or these By-
laws shall have, and may exercise, the powers of the Board of Directors in the
management and affairs of the Corporation, except as otherwise limited by law.
The Board of Directors may designate one or more Directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. Such committee or committees shall have such name or
names as may be determined from time to time by resolution adopted by the Board
of Directors. Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors upon request.
Section 10. Committee Rules. Each committee of the Board of Directors may
----------- ---------------
fix its own rules of procedure and shall hold its meetings as provided by such
rules, except as may otherwise be provided by a resolution of the Board of
Directors designating such committee. Unless otherwise provided in such a
resolution, the presence of at least a majority of the members of the committee
shall be necessary to constitute a quorum. Unless otherwise provided in such a
resolution, in the event that a member and that member's alternate, if
alternates are designated by the Board of Directors, of such committee is or are
absent or disqualified, the member or members thereof present at any meeting and
not disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in place of any such absent or disqualified member.
Section 11. Communications Equipment. Members of the Board of Directors
----------- ------------------------
or any committee thereof may participate in and act at any meeting of such board
or committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
and speak with each other, and participation in the meeting pursuant to this
section shall constitute presence in person at the meeting.
Section 12. Waiver of Notice and Presumption of Assent. Any member of the
----------- ------------------------------------------
Board of Directors or any committee thereof who is present at a meeting shall be
conclusively presumed to have waived notice of such meeting except when such
member attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Such member shall be conclusively presumed to have assented
to any action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless his or her written dissent to such action shall be filed
with the person acting as the secretary of the meeting before the adjournment
thereof or shall be forwarded by registered mail to the secretary of
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<PAGE>
the Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any member who voted in favor of such action.
Section 13. Action by Written Consent. Unless otherwise restricted by the
----------- -------------------------
Amended and Restated Articles of Incorporation, any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting if all members of such board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the board or committee.
ARTICLE IV
----------
OFFICERS
--------
Section 1. Number. The officers of the Corporation shall be elected by
---------- ------
the Board of Directors and shall consist of a chairman of the board, a chief
executive officer, a president, one or more vice-presidents, a secretary, a
chief financial officer and such other officers and assistant officers as may be
deemed necessary or desirable by the Board of Directors. Any number of offices
may be held by the same person, except that neither the chief executive officer
nor the president shall also hold the office of secretary. In its discretion,
the Board of Directors may choose not to fill any office for any period as it
may deem advisable, except that the offices of president and secretary shall be
filled as expeditiously as possible.
Section 2. Election and Term of Office. The officers of the Corporation
---------- ---------------------------
shall be elected annually by the Board of Directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as convenient.
Vacancies may be filled or new offices created and filled at any meeting of the
Board of Directors. Each officer shall hold office until a successor is duly
elected and qualified or until his or her earlier death, resignation or removal
as hereinafter provided.
Section 3. Removal. Any officer or agent elected by the Board of
---------- -------
Directors may be removed by the Board of Directors at its discretion, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.
Section 4. Vacancies. Any vacancy occurring in any office because of
---------- ---------
death, resignation, removal, disqualification or otherwise may be filled by the
Board of Directors.
Section 5. Compensation. Compensation of all executive officers shall be
---------- ------------
approved by the Board of Directors, and no officer shall be prevented from
receiving such compensation by virtue of his or her also being a Director of the
Corporation; provided however, that compensation of all executive officers may
-------- -------
be determined by a committee established for that purpose if so authorized by
the unanimous vote of the Board of Directors.
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<PAGE>
Section 6. Chairman of the Board. The chairman of the board shall preside
---------- ---------------------
at all meetings of the stockholders and of the Board of Directors and shall have
such other powers and perform such other duties as may be prescribed to him or
her by the Board of Directors or provided in these By-laws.
Section 7. Vice-Chairman of the Board. Whenever the chairman of the board
---------- --------------------------
in unable to serve, by reason of sickness, absence, or otherwise, the vice-
chairman shall have the powers and perform the duties of the chairman of the
board. The vice-chairman shall have such other powers and perform such other
duties as may be prescribed by the chairman of the board, the board of directors
or these By-laws.
Section 8. Chief Executive Officer. The chief executive officer shall
---------- -----------------------
have the powers and perform the duties incident to that position. Subject to
the powers of the Board of Directors and the chairman of the board, the chief
executive officer shall be in the general and active charge of the entire
business and affairs of the Corporation, and shall be its chief policy making
officer. The chief executive officer shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors or provided in
these By-laws. The chief executive officer is authorized to execute bonds,
mortgages and other contracts requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation. Whenever the president is unable to serve, by reason of
sickness, absence or otherwise, the chief executive officer shall perform all
the duties and responsibilities and exercise all the powers of the president.
Section 9. The President. The president of the Corporation shall, subject
---------- -------------
to the powers of the Board of Directors, the chairman of the board and the chief
executive officer, have general charge of the business, affairs and property of
the Corporation, and control over its officers, agents and employees. The
president shall see that all orders and resolutions of the Board of Directors
are carried into effect. The president is authorized to execute bonds,
mortgages and other contracts requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation. The president shall have such other powers and perform such
other duties as may be prescribed by the chairman of the board, the chief
executive officer, the Board of Directors or as may be provided in these By-
laws.
Section 10. Vice-Presidents. The vice-president, or if there shall be
----------- ---------------
more than one, the vice-presidents in the order determined by the Board of
Directors or the chairman of the board, shall, in the absence or disability of
the president, act with all of the powers and be subject to all the restrictions
of the president. The vice-presidents shall also perform such other duties and
have such other powers as the Board of Directors, the chairman of the board, the
chief executive officer, the president or these By-laws may, from time to time,
prescribe. The vice-presidents may also be
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designated as executive vice-presidents or senior vice-presidents, as the Board
of Directors may from time to time prescribe.
Section 11. The Secretary and Assistant Secretaries. The secretary shall
----------- ---------------------------------------
attend all meetings of the Board of Directors, all meetings of the committees
thereof and all meetings of the stockholders and record all the proceedings of
the meetings in a book or books to be kept for that purpose or shall ensure that
his or her designee attends each such meeting to act in such capacity. Under
the chairman of the board's supervision, the secretary shall give, or cause to
be given, all notices required to be given by these By-laws or by law; shall
have such powers and perform such duties as the Board of Directors, the chairman
of the board, the chief executive officer, the president or these By-laws may,
from time to time, prescribe; and shall have custody of the corporate seal of
the Corporation. The secretary, or an assistant secretary, shall have authority
to affix the corporate seal to any instrument requiring it and when so affixed,
it may be attested by his or her signature or by the signature of such assistant
secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by his
or her signature. The assistant secretary, or if there be more than one, any of
the assistant secretaries, shall in the absence or disability of the secretary,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the Board of Directors, the
chairman of the board, the chief executive officer, the president, or secretary
may, from time to time, prescribe.
Section 12. The Chief Financial Officer. The chief financial officer
----------- ---------------------------
shall have the custody of the corporate funds and securities; shall keep full
and accurate all books and accounts of the Corporation as shall be necessary or
desirable in accordance with applicable law or generally accepted accounting
principles; shall deposit all monies and other valuable effects in the name and
to the credit of the Corporation as may be ordered by the chairman of the board
or the Board of Directors; shall cause the funds of the Corporation to be
disbursed when such disbursements have been duly authorized, taking proper
vouchers for such disbursements; and shall render to the Board of Directors, at
its regular meeting or when the Board of Directors so requires, an account of
the Corporation; shall have such powers and perform such duties as the Board of
Directors, the chairman of the board, the chief executive officer, the president
or these By-laws may, from time to time, prescribe. If required by the Board of
Directors, the chief financial officer shall give the Corporation a bond (which
shall be rendered every six years) in such sums and with such surety or sureties
as shall be satisfactory to the Board of Directors for the faithful performance
of the duties of the office of chief financial officer and for the restoration
to the Corporation, in case of death, resignation, retirement or removal from
office of all books, papers, vouchers, money and other property of whatever kind
in the possession or under the control of the chief financial officer belonging
to the Corporation.
Section 13. Other Officers, Assistant Officers and Agents. Officers,
----------- ---------------------------------------------
assistant officers and agents, if any, other than those whose duties are
provided for in these By-laws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the Board of Directors.
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Section 14. Absence or Disability of Officers. In the case of the absence
----------- ---------------------------------
or disability of any officer of the Corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the Board of Directors may by resolution delegate the powers and
duties of such officer to any other officer or to any Director, or to any other
person selected by it.
ARTICLE V
---------
CERTIFICATES OF STOCK
---------------------
Section 1. Form. Every holder of stock in the Corporation shall be
---------- ----
entitled to have a certificate, signed by, or in the name of the Corporation by
the chairman of the board, the chief executive officer or the president and the
secretary or an assistant secretary of the Corporation, certifying the number of
shares owned by such holder in the Corporation. If such a certificate is
countersigned (i) by a transfer agent or an assistant transfer agent other than
the Corporation or its employee or (ii) by a registrar, other than the
Corporation or its employee, the signature of any such chairman of the board,
chief executive officer, president, secretary or assistant secretary may be
facsimiles. In case any officer or officers who have signed, or whose facsimile
signature or signatures have been used on, any such certificate or certificates
shall cease to be such officer or officers of the Corporation whether because of
death, resignation or otherwise before such certificate or certificates have
been delivered by the Corporation, such certificate or certificates may neverthe
less be issued and delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures have been
used thereon had not ceased to be such officer or officers of the Corporation.
All certificates for shares shall be consecutively numbered or otherwise
identified. The name of the person to whom the shares represented thereby are
issued, with the number of shares and date of issue, shall be entered on the
books of the Corporation. Shares of stock of the Corporation shall only be
transferred on the books of the Corporation by the holder of record thereof or
by such holder's attorney duly authorized in writing, upon surrender to the
Corporation of the certificate or certificates for such shares endorsed by the
appropriate person or persons, with such evidence of the authenticity of such
endorsement, transfer, authorization and other matters as the Corporation may
reasonably require, and accompanied by all necessary stock transfer stamps. In
that event, it shall be the duty of the Corporation to issue a new certificate
to the person entitled thereto, cancel the old certificate or certificates and
record the transaction on its books. The Board of Directors may appoint a bank
or trust company organized under the laws of the United States or any state
thereof to act as its transfer agent or registrar, or both in connection with
the transfer of any class or series of securities of the Corporation.
Section 2. Lost Certificates. The Board of Directors may direct a new
---------- -----------------
certificate or certificates to be issued in place of any certificate or
certificates previously issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Corporation
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate or certificates,
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or his or her legal representative, to give the Corporation a bond sufficient to
indemnify the Corporation against any claim that may be made against the
Corporation on account of the loss, theft or destruction of any such certificate
or the issuance of such new certificate.
Section 3. Fixing a Record Date for Stockholder Meetings. In order that
---------- ---------------------------------------------
the Corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than 60 nor less than 10 days
before the date of such meeting. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be the close of business on the next
day preceding the day on which notice is first given. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
Section 4. Fixing a Record Date for Other Purposes. In order that the
---------- ---------------------------------------
Corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purposes of any other lawful action, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be
not more than 60 days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto.
Section 5. Registered Stockholders. Prior to the surrender to the
---------- -----------------------
Corporation of the certificate or certificates for a share or shares of stock
with a request to record the transfer of such share or shares, the Corporation
may treat the registered owner as the person entitled to receive dividends, to
vote, to receive notifications and otherwise to exercise all the rights and
powers of an owner. The Corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof.
Section 6. Subscriptions for Stock. Unless otherwise provided for in the
---------- -----------------------
subscription agreement, subscriptions for shares shall be paid in full at such
time, or in such installments and at such times, as shall be determined by the
Board of Directors. Any call made by the Board of Directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to all
shares of the same series. In case of default in the payment of any installment
or call when such payment is due, the Corporation may proceed to collect the
amount due in the same manner as any debt due the Corporation.
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ARTICLE VI
----------
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
-------------------------------------------------
Section 1. Nature of Indemnity. Each person who was or is made a party or
---------- -------------------
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he, or a person of whom
he is the legal representative, is or was a director or officer, of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee, fiduciary, or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, shall be indemnified and
held harmless by the corporation to the fullest extent which it is empowered to
do so unless prohibited from doing so by the Business Corporation Law of the
Commonwealth of Pennsylvania, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such amendment
permits the corporation to provide broader indemnification rights than said law
permitted the corporation to provide prior to such amendment) against all
expense, liability and loss (including attorneys' fees actually and reasonably
incurred by such person in connection with such proceeding) and such
indemnification shall inure to the benefit of his heirs, executors and
administrators; provided, however, that, except as provided in Section 2 hereof,
the corporation shall indemnify any such person seeking indemnification in
connection with a proceeding initiated by such person only if such proceeding
was authorized by the board of directors of the corporation. The right to
indemnification conferred in this Article VI shall be a contract right and,
subject to Sections 2 and 5 hereof, shall include the right to be paid by the
corporation the expenses incurred in defending any such proceeding in advance of
its final disposition. The corporation may, by action of its board of
directors, provide indemnification to employees and agents of the corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.
Section 2. Procedure for Indemnification of Directors and Officers. Any
---------- -------------------------------------------------------
indemnification of a director or officer of the corporation under Section 1 of
this Article VI or advance of expenses under Section 5 of this Article VI shall
be made promptly, and in any event within thirty (30) days, upon the written
request of the director or officer. If a determination by the corporation that
the director or officer is entitled to indemnification pursuant to this Article
VI is required, and the corporation fails to respond within sixty (60) days to a
written request for indemnity, the corporation shall be deemed to have approved
the request. If the corporation denies a written request for indemnification or
advancing of expenses, in whole or in part, or if payment in full pursuant to
such request is not made within thirty (30) days, the right to indemnification
or advances as granted by this Article VI shall be enforceable by the director
or officer in any court of competent jurisdiction. Such person's costs and
expenses incurred in connection with successfully establishing his right to
indemnification, in whole or in part, in any such action shall also be
indemnified by the corporation. It shall be a defense to any such action (other
than an action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any, has been tendered to the corporation) that the claimant has not met the
standards of conduct which make it permissible under the Business Corporation
Law of the Commonwealth of Pennsylvania for the corporation to indemnify the
claimant for the amount claimed, but the burden
-13-
<PAGE>
of such defense shall be on the corporation. Neither the failure of the
corporation (including its board of directors, independent legal counsel or it
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the Business
Corporation Law of the Commonwealth of Pennsylvania, nor an actual determination
by the corporation (including its board of directors, independent legal counsel
or its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 3. Article Not Exclusive. The rights to indemnification and the
---------- ---------------------
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article VI shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the certificate of incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 4. Insurance. The corporation may purchase and maintain insurance
---------- ---------
on its own behalf and on behalf of any person who is or was a director, officer,
employee, fiduciary or agent of the corporation or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him or her and incurred by him or her in any such
capacity, whether or not the corporation would have the power to indemnify such
person against such liability under this Article VI.
Section 5. Expenses. Expenses incurred by any person described in Section
---------- --------
1 of this Article VI in defending a proceeding shall be paid by the corporation
in advance of such proceeding's final disposition unless otherwise determined by
the board of directors in the specific case upon receipt of an undertaking by or
on behalf of the director or officer to repay such amount if it shall ultimately
be determined that he or she is not entitled to be indemnified by the
corporation. Such expenses incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the board of directors deems
appropriate.
Section 6. Employees and Agents. Persons who are not covered by the
---------- --------------------
foregoing provisions of this Article VI and who are or were employees or agents
of the corporation, or who are or were serving at the request of the corporation
as employees or agents of another corporation, partnership, joint venture, trust
or other enterprise, may be indemnified to the extent authorized at any time or
from time to time by the board of directors.
Section 7. Contract Rights. The provisions of this Article VI shall be
---------- ---------------
deemed to be a contract right between the corporation and each director or
officer who serves in any such capacity at any time while this Article VI and
the relevant provisions of the Business Corporation Law of the Commonwealth of
Pennsylvania or other applicable law are in effect, and any repeal or
modification of this Article VI or any such law shall not affect any rights or
obligations then existing with respect to any state of facts or proceeding then
existing.
-14-
<PAGE>
Section 8. Merger or Consolidation. For purposes of this Article VI,
---------- -----------------------
references to "the corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this Article
VI with respect to the resulting or surviving corporation as he or she would
have with respect to such constituent corporation if its separate existence had
continued.
ARTICLE VII
-----------
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the capital stock of the
---------- ---------
Corporation, subject to the provisions of the Amended and Restated Articles of
Incorporation, if any, may be declared by the Board of Directors at any regular
or special meeting, in accordance with applicable law. Dividends may be paid in
cash, in property or in shares of the capital stock, subject to the provisions
of the Amended and Restated Articles of Incorporation. Before payment of any
dividend, there may be set aside out of any funds of the Corporation available
for dividends such sum or sums as the Directors from time to time, in their
absolute discretion, think proper as a reserve or reserves to meet contin
gencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or any other purpose and the Directors may modify
or abolish any such reserve in the manner in which it was created.
Section 2. Checks, Drafts or Orders. All checks, drafts or other orders
---------- ------------------------
for the payment of money by or to the Corporation and all notes and other
evidences of indebtedness issued in the name of the Corporation shall be signed
by such officer or officers, agent or agents of the Corporation, and in such
manner, as shall be determined by resolution of the Board of Directors or a duly
authorized committee thereof.
Section 3. Contracts. In addition to the powers otherwise granted to
---------- ---------
officers pursuant to ARTICLE IV hereof, the Board of Directors may authorize any
----------
officer or officers, or any agent or agents, of the Corporation to enter into
any contract or to execute and deliver any instrument in the name of and on
behalf of the Corporation, and such authority may be general or confined to
specific instances.
Section 4. Loans. The Corporation may lend money to, or guarantee any
---------- -----
obligation of, or otherwise assist any officer or other employee of the
Corporation or of its subsidiaries, including any officer or employee who is a
Director of the Corporation or its subsidiaries, whenever, in the judgment of
the Directors, such loan, guaranty or assistance may reasonably be expected to
benefit
-15-
<PAGE>
the Corporation. The loan, guaranty or other assistance may be with or without
interest, and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this section shall be deemed to deny, limit
or restrict the powers of guaranty or warranty of the Corporation at common law
or under any statute.
Section 5. Fiscal Year. The fiscal year of the Corporation shall be fixed
---------- -----------
by resolution of the Board of Directors.
Section 6. Corporate Seal. The Board of Directors may provide a corporate
---------- --------------
seal which shall be in the form of a circle and shall have inscribed thereon the
name of the Corporation and the words "Corporate Seal, Pennsylvania." The seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
Section 7. Voting Securities Owned By Corporation. Voting securities in
---------- --------------------------------------
any other Corporation held by the Corporation shall be voted by the chief
executive officer, the president or a vice-president, unless the Board of
Directors specifically confers authority to vote with respect thereto, which
authority may be general or confined to specific instances, upon some other
person or officer. Any person authorized to vote securities shall have the
power to appoint proxies, with general power of substitution.
Section 8. Inspection of Books and Records. The Board of Directors shall
---------- -------------------------------
have power from time to time to determine to what extent and at what times and
places and under what conditions and regulations the accounts and books of the
Corporation, or any of them, shall be open to the inspection of the
stockholders; and no stockholder shall have any right to inspect any account or
book or document of the Corporation, except as conferred by the laws of the
Commonwealth of Pennsylvania, unless and until authorized so to do by resolution
of the Board of Directors or of the stockholders of the Corporation.
Section 9. Section Headings. Section headings in these By-laws are for
---------- ----------------
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
Section 10. Inconsistent Provisions. In the event that any provision of
----------- -----------------------
these By-laws is or becomes inconsistent with any provision of the Amended and
Restated Articles of Incorporation, the Business Corporation Law of the
Commonwealth of Pennsylvania or any other applicable law, the provision of these
By-laws shall not be given any effect to the extent of such inconsistency but
shall otherwise be given full force and effect.
-16-
<PAGE>
ARTICLE VIII
------------
AMENDMENTS
----------
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors of the Corporation is expressly authorized to make,
alter, amend, change, add to or repeal these By-laws by the affirmative vote of
a majority of the total number of Directors then in office. Any alteration or
repeal of these By-laws by the stockholders of the Corporation shall require the
affirma tive vote of a majority of the outstanding shares of the Corporation
entitled to vote on such alteration or repeal; provided, however, that Section
-------- -------
11 of ARTICLE II and Sections 2, 3, 4 and 5 of ARTICLE III and this ARTICLE VIII
---------- ----------- ------------
of these By-laws shall not be altered, amended or repealed and no provision
inconsistent therewith shall be adopted without the affirmative vote of the
holders of at least two thirds (2/3) of the combined voting power of all of the
then outstanding shares of the Corporation entitled to vote on such alteration
or repeal unless such amendment shall be approved by a majority of the directors
of the Corporation not affiliated or associated with any person or entity
holding (or which has announced an intention to obtain) twenty percent (20%) or
more of the voting power of the Corporation's outstanding capital stock (other
than the Bain Group).
<PAGE>
EXHIBIT 4.2
- ------------ -----------
NUMBER SHARES
- ------------ -----------
INCORPORATED UNDER THE LAWS COMMONWEALTH OF PENNSYLVANIA
- -------------------------------------------------------------------------------
INTEGRATED CIRCUIT SYSTEMS, INC.
- -------------------------------------------------------------------------------
SEE LEGENDS ON REVERSE SIDE
This Certifies that _______________ is the owner of
full paid and non-assessable
Shares of the Class A Common Stock, $.01 par value per share, of Integrated
Circuit Systems, Inc., transferable on the books of the Corporation in person or
by duly authorized Attorney upon surrender of this Certificate properly
endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and sealed with the Seal of the
Corporation,
this_____________day of______________A.D._______
_____________________ ___________________________
SECRETARY PRESIDENT
<PAGE>
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER
For Value Received, _______ hereby sell, assign and transfer unto ___________
_____________________________________________________________________Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
________________________________________________________________Attorney
to transfer the said Shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated_________________________________
In presence of
_______________________________________________________________________
-----------------------------
THIS SPACE IS NOT TO BE
COVERED IN ANY WAY
-----------------------------
<PAGE>
Exhibit 5.1
May 19, 2000
Integrated Circuit Systems, Inc.
2435 Boulevard of the Generals
Norristown, PA 19403
Re: Registration Statement on Form S-1
(Registration No. 333-33318)
----------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Integrated Circuit Systems, Inc.,
a Pennsylvania corporation (the "Company"), in connection with the registration
under the Securities Act of 1933, as amended (the "Act"), of a public offering
(the "Offering") of up to 12,500,000 shares (the "Primary Shares") of the
Company's Common Stock, par value $.01 per share (the "Common Stock") to be
offered by the Company, and up to 1,875,000 shares of Common Stock to be offered
by certain selling shareholders pursuant to an over-allotment option (the
"Additional Shares" and, together with the Primary Shares, the "Shares").
The opinion is delivered in accordance with the requirements of Item
601(b)(5) of Regulation S-K under the Act.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of (i) the Registration Statement on Form S-1
(No. 333-33318) originally filed under the Act with the Securities and Exchange
Commission (the "Commission") on March 27, 2000, Amendment No. 1 thereto filed
on May 2, 2000 and Amendment No. 2 thereto filed on or about May 19, 2000 (as so
amended the "Registration Statement"); (ii) the form of underwriting agreement,
filed as Exhibit 1.1 to Amendment No. 2 to the Registration Statement (the
<PAGE>
Integrated Circuit Systems, Inc.
May 19, 2000
Page 2
"Underwriting Agreement"), to be entered into by and among the Company, Credit
Suisse First Boston Corporation, Fleet Boston Robertson Stephens, Inc., Lehman
Brothers, Inc., Bear Stearns & Co., Inc. and Pennsylvania Merchant Group, as
representatives of the several underwriters (the "Representatives"); (iii) the
form of the Company's Amended and Restated Articles of Incorporation (the
"Restated Articles") and By-Laws (the "Restated By-Laws") filed as exhibits to
Amendment No. 2 to the Registration Statement which are to become effective
immediately prior to completion of the Offering; (iv) certain resolutions of the
Board of Directors of the Company relating to, among other things, the issuance
of the Shares; (v) the form of resolutions to be adopted by the Board of
Directors and shareholders of the Company relating to, among other things, the
approval and adoption of the Restated Articles and Restated By-Laws; (vi) a
specimen certificate representing the shares of Common Stock; and (vii) such
other documents as we have deemed necessary or appropriate as a basis for the
opinions set forth below.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as certified or photostatic copies and the authenticity of the
originals of such latter documents. As to any facts material to the opinions
expressed herein which were not independently established or verified, we have
relied upon statements and representations of officers and other representatives
of the Company and others. In addition, we have assumed the conformity of the
certificates representing the Shares to the form of the specimen thereof
examined by us and the due execution and delivery of such certificates. We have
also assumed that the Restated Articles and Restated By-Laws will be duly
approved and adopted by the Company's Board of Directors and shareholders and
will become effective immediately prior to the completion of the Offering.
We express no opinion as to the laws of any other jurisdiction other
than the Federal laws of the United States of America and the Business
Corporation Law of the Commonwealth of Pennsylvania.
Based upon and subject to the foregoing, we are of the opinion that
when (i) the Board of Directors of the Company or a duly designated committee
thereof authorizes the initial public offering price per Share, (ii) the duly
appointed officers of the Company execute and deliver the Underwriting
Agreement, (iii) the Primary Shares are issued and delivered against payment
therefor in accordance with the terms and conditions of the Underwriting
Agreement and (iv) the Additional Shares are delivered against payment therefor
in accordance with the terms and conditions of the Underwriting Agreement, the
Shares will be duly authorized, validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Opinions" in the prospectus
<PAGE>
Integrated Circuit Systems, Inc.
May 19, 2000
Page 3
filed as part of the Registration Statement. In giving such consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Act or the Rules and Regulations promulgated thereunder.
This opinion is furnished by us, as your special counsel, in
connection with the filing of the Registration Statement and, except as provided
in the immediately preceding paragraph, is not to be used, circulated, quoted or
otherwise referred to for any other purpose without our express written
permission or relied upon by any other person.
Very truly yours,
PEPPER HAMILTON LLP
<PAGE>
EXHIBIT A
AMENDMENT NO. 1 TO
STOCKHOLDERS AGREEMENT
This Amendment No. 1 to STOCKHOLDERS Agreement (the "Amendment") is made
and entered into as of December 29, 1999, by and among Integrated Circuit
Systems, Inc., a Pennsylvania corporation (the "Company"), each of the Persons
-------
listed on Schedule I attached hereto (the "Bain Stockholders"), each of the
---------- -----------------
Persons listed on Schedule II attached hereto (the "Bear Stearns Stockholders"),
----------- -------------------------
the Person listed on Schedule III hereto (the "First Boston Stockholder") and
------------ ------------------------
the Person listed on Schedule IV hereto (the "Intel Stockholder").
----------- -----------------
RECITALS
A. The Bain Stockholders, the Bear Stearns Stockholder, the First Boston
Stockholder and the Company entered into that certain Stockholders Agreement
dated as of May 11, 1999 (the "Original Agreement") for the purposes, among
others, of (i) assuring continuity in the management and ownership of the
Company and (ii) limiting the manner and terms by which the Stockholders' Common
Stock may be transferred.
B. Pursuant to a Series A Cumulative Convertible Preferred Stock Purchase
Agreement dated December 28, 1999 between the Company and Intel Corporation (the
Purchase Agreement"), the Company has agreed to sell to Intel Corporation, and
- ------------------
Intel Corporation has agreed to purchase from the Company, certain shares of the
Company's Series A Cumulative Convertible Preferred Stock (the "Series A
--------
Preferred Stock"). Pursuant to the Purchase Agreement, the Company has agreed
- ---------------
to provide certain rights to the Intel Stockholder, as more particularly set
forth in this Amendment.
C. Terms not otherwise defined in this Amendment have the meanings given
to them in the Agreement.
AGREEMENT
The parties hereto, intending to be legally bound, hereby agree as follows:
1. This Amendment constitutes an amendment to the Original Agreement.
The Original Agreement, as amended by this Amendment, is herein
referred to as the "Agreement." Except as specifically amended
pursuant to the terms of this Amendment, all of the terms of the
Original Agreement shall continue in full force and effect. Unless
otherwise provided in this Agreement, capitalized terms used herein
shall have the meanings set forth in Section 11 of the Agreement.
2. The Intel Stockholder is hereby added as a party to the Agreement,
and the definition of "Stockholder" in the first paragraph of the
Original Agreement shall be amended to include the Intel Stockholder.
3. Schedule IV shall be added to the Original Agreement, and the
reference to "Schedule I, II or III" in Section 1 of the Original
Agreement are hereby replaced with "Schedule I, II, III or IV."
<PAGE>
4. Section 2(a) of the Original Agreement is hereby amended to add ", the
Intel Stockholder" after the words "the Bear Stearns Stockholders,"
and before the words "or the First Boston Stockholder" in the first
sentence thereof, and to replace the words "Public Offering" with the
words "Qualified Initial Public Offering" in the first sentence
thereof.
5. Section 2(b) of the Original Agreement is hereby amended to add the
words "the Intel Stockholder," after the words "the Bear Stearns
Stockholders," and before the words "the First Boston Stockholder" in
part (iv) thereof.
6. Section 3(a) of the Original Agreement is hereby amended to add the
words "(in connection with a Transfer by an Intel Stockholder only),
3(d)," after the word "3(c)" and to add "the Intel Stockholder," after
the word "Neither" and before the words " the First Boston
Stockholder" in the first sentence thereof.
7. Section 3(b)(i) of the Original Agreement is hereby amended to add ",
the Intel Stockholder," after the words "the Bear Stearns
Stockholders" and before the words "and the First Boston Stockholder"
in the first and last sentences thereof.
8. Section 3 of the Original Agreement is hereby amended by renumbering
the existing paragraphs (c) and (d) thereof as paragraph (d) and (e),
respectively, and by adding the following subsection as new paragraph
(c):
"(c) Intel Right of First Offer. Other than
--------------------------
pursuant to an Approved Sale or an Approved
Bain Sale, the Intel Stockholder may not
Transfer any Stockholder Shares, directly or
indirectly, in one transaction or a series of
related transactions, to a Person engaged in
the business of designing, producing and
marketing mixed signal integrated circuits (a
"Competitor"). Prior to making any Transfer
----------
of Intel Shares pursuant to this Section
3(c), Intel shall deliver a written notice
(the "Intel Offer Notice") to the Company.
------------------
The Intel Offer Notice shall disclose in
reasonable detail the proposed number of its
Stockholder Shares to be transferred (the
"Offered Shares") and the proposed sale
--------------
price, terms and conditions of the Transfer.
The Company may elect to purchase all, but
not less than all, of the Offered Shares at
the price and on the other terms specified in
the Intel Offer Notice by delivering written
notice of such election to Intel within 20
days after receipt of the Intel Offer Notice
by the Company. If the Company has elected to
purchase the Offered Shares from Intel within
the aforementioned 20-day period, the
Transfer of such shares shall be consummated
as soon as practical after the delivery of
the election notice to Intel, but in any
event within 45 days after receipt of the
Intel Offer Notice by the Company (or such
longer period of time as may be required
pursuant to applicable law). If the Company
does not elect
-2-
<PAGE>
within the aforementioned 20-day period to
purchase the Offered Shares, Intel may,
within 80 days after the Company's receipt of
the Intel Offer Notice, transfer such Intel
Shares to one or more Persons (other than a
Competitor) at a price and on other terms no
more favorable to the transferee(s) thereof
than offered to the Company in the Intel
Offer Notice. Any Intel Shares not
transferred within such 45-day period shall
be reoffered to the Company in accordance
with this Section 3(c) prior to any
subsequent Transfer."
9. Section 3(c) of the Original Agreement (renumbered as 3(d) pursuant to
Section 8 hereof) is hereby amended to delete the second proviso which
begins "and provided further" and replace the second proviso in its
-----------------
entirety with the following language: "and provided further that the
-------- -------
transferees of such Stockholder Shares shall have agreed in writing to
be bound by the provisions of this Agreement and, with respect to all
Stockholders other than transferees of the Intel Stockholder, the
Voting Agreement, in each case affecting the Stockholder Shares so
transferred."
10. Section 4(a) of the Original Agreement is hereby amended to add the
words ", subject to paragraph (d) of this Section 4" after the words
"by executing definitive agreements with respect to the sale thereof"
in the second sentence thereof and to add the words "and paragraph (d)
of this Section 4" after the words "immediately preceding proviso" in
the last sentence thereof.
11. Section 4 of the Original Agreement is hereby amended by renumbering
the existing paragraph (d) as paragraph (e), and by adding the
following subsection as new paragraph (d):
"(d) Without the prior written consent of the
Intel Stockholder, the Company shall not
enter into any agreement in connection with
an Approved Sale unless (i) with respect to
the Intel Stockholder, the liability of the
shareholders under the agreement for the
Approved Sale is several, and not joint and
several, (ii) the liability of the Intel
Stockholder under the offer is limited to the
Intel Stockholder's pro rata portion of any
claim and the liability of the Intel
Stockholder will not, in any event, exceed
that portion of the purchase price received
by the Intel Stockholder in the Approved
Sale; and (iii) the Intel Stockholder shall
not be restricted from engaging in any line
of business or subject to any non-
competition, non-solicitation or similar
covenants."
12. Section 5(a) of the Original Agreement is hereby amended to add the
words ", subject to paragraph (d) of this Section 5" after the words
"by executing definitive
-3-
<PAGE>
agreements with respect to the sale thereof" in the second sentence
thereof and again at the end of such Section.
13. Section 5 of the Original Agreement is hereby amended by renumbering
the existing paragraph (d) as paragraph (e), and by adding the
following subsection as new paragraph (d):
"(d) out the prior written consent of the
Intel Stockholder, the Company shall not
enter into any agreement in connection with
an Approved Bain Sale unless (i) with respect
to the Intel Stockholder, the liability of
the shareholders under the agreement for the
Approved Bain Sale is several, and not joint
and several, (ii) the liability of the Intel
Stockholder under the offer is limited to the
Intel Stockholder's pro rata portion of any
claim and the liability of the Intel
Stockholder will not, in any event, exceed
that portion of the purchase price received
by the Intel Stockholder in the Approved Bain
Sale; and (iii) the Intel Stockholder shall
not be restricted from engaging in any line
of business or subject to any non-
competition, non-solicitation or similar
covenants."
14. Section 7 of the Original Agreement is hereby deleted and replaced in
its entirety with the following section:
"7. Initial Public Offering. In the event
-----------------------
that the Board approves an initial public
offering and sale of Common Stock (a "Public
------
Offering") pursuant to an effective
--------
registration statement under the Securities
Act of 1933, as amended, the holders of
Common Stock shall take all necessary or
desirable actions in connection with the
consummation of the Public Offering. In the
event that such Public Offering is an
underwritten offering and the managing
underwriters advise the Company in writing
that in their opinion the Common Stock
structure would adversely affect the
marketability of the offering, each holder of
Common Stock shall consent to and vote for a
recapitalization, reorganization and/or
exchange of the Common Stock into securities
that the managing underwriters and the Board
find acceptable and shall take all necessary
or desirable actions in connection with the
consummation of the recapitalization,
reorganization and/or exchange; provided that
--------
(a) the resulting securities take into
account the rights and preferences set forth
in the Company's Amended and Restated
Articles of Incorporation as in effect
immediately prior to such Public Offering and
(b) any securities issued in exchange for the
Series A Preferred Stock shall have rights,
preferences and
-4-
<PAGE>
privileges substantially similar to and no
less favorable than the Series A Preferred
Stock. Nothing in this Section 7 shall be
deemed to constitute a consent or waiver by
the holders of Series A Preferred Stock with
respect to any action for which such consent
is required under the Company's Amended and
Restated Articles of Incorporation."
15. Section 13 of the Original Agreement is hereby deleted and replaced in
its entirety with the following section:
"13. Amendment and Waiver. Except as
--------------------
otherwise provided herein, no modification,
amendment or waiver of any provision of this
Agreement shall be effective against the
Company or the Stockholders unless such
modification, amendment or waiver is approved
in writing by the Company and the holders of
a majority of each class of the Stockholder
Shares; provided that in the event that such
--------
modification, amendment, action or waiver (or
any action with the effect of amending,
modifying or waiving) would adversely affect
the Intel Stockholder, the Bear Stearns
Stockholders or the First Boston Stockholder
in a manner different than the Bain
Stockholders or otherwise reduce or diminish
any rights that are applicable to the Intel
Stockholder, the Bear Stearns Stockholders or
the First Boston Stockholder unless the same
rights applicable to the Bain Stockholders
are reduced or diminished in the same manner,
then such modification, amendment or waiver
will require the consent of the Intel
Stockholder, the Bear Stearns Stockholders or
the First Boston Stockholder, as applicable.
The failure of any party to enforce any of
the provisions of this Agreement shall in no
way be construed as a waiver of such
provisions and shall not affect the right of
such party thereafter to enforce each and
every provision of this Agreement in
accordance with its terms."
16. Section 18 of the Original Agreement is hereby deleted and replaced in
its entirety with the following section:
"18. Remedies. The Company, the Bain
--------
Stockholders, the Bear Stearns Stockholders,
the Intel Stockholder and the First Boston
Stockholder shall be entitled to enforce
their rights under this Agreement
specifically, to recover damages by reason of
any breach of any provision of this Agreement
and to exercise all other rights existing in
their favor. The parties hereto agree and
acknowledge that money damages would not be
an adequate remedy for any breach of the
provisions of this Agreement and that the
-5-
<PAGE>
Company, any of the Bain Stockholders, the
Bear Stearns Stockholders, the Intel
Stockholder or the First Boston Stockholder
may in its sole discretion apply to any court
of law or equity of competent jurisdiction
for specific performance and/or injunctive
relief (without posting a bond or other
security) in order to enforce or prevent any
violation of the provisions of this
Agreement."
17. Section 23 of the Oiginal Agreement is hereby amended to add ", the
Intel Stockholder" after the words "the Bear Stearns Stockholders" and
before the words "and the First Boston Stockholder" in the first
sentence thereof.
18. Section 25 of the Original Agreement is hereby deleted and replaced in
its entirety with the following section:
"25. Rights Granted to the Bain
--------------------------
Stockholders, the Bear Stearns Stockholders,
-------------------------------------------
the First Boston Stockholder, the Intel
--------------------------------------
Stockholder and their Affiliates. Any rights
--------------------------------
granted to the Bain Stockholders, the Bear
Stearns Stockholders, the First Boston
Stockholder, the Intel Stockholder or their
Affiliates hereunder may also be exercised
(in whole or in part) by its designees (which
may be Affiliates)."
19. Miscellaneous.
-------------
(a) Severability. Whenever possible, each provision of this
------------
Amendment shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this
Amendment is held to be invalid, illegal or unenforceable in any
respect under any applicable law or rule in any jurisdiction,
such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision
of this Amendment in such jurisdiction or affect the validity,
legality or enforceability of any provision in any other
jurisdiction, but this Amendment shall be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.
(b) Entire Agreement. Except as otherwise expressly set forth herein,
----------------
this Amendment embodies the complete agreement and understanding
among the parties hereto with respect to the subject matter
hereof and supersedes and preempts any prior understandings,
agreements or representations by or among the parties, written or
oral, which may have related to the subject matter hereof in any
way.
(c) Successors and Assigns. Except as otherwise provided herein, this
----------------------
Amendment shall bind and inure to the benefit of and be
enforceable by the Company and its successors and assigns and the
Stockholders and any
-6-
<PAGE>
subsequent holders of Stockholder Shares and the respective
successors and assigns of each of them, so long as they hold
Stockholder Shares.
(d) Counterparts. This Amendment may be executed in multiple
------------
counterparts, each of which shall be an original and all of which
taken together shall constitute one and the same agreement.
(e) Governing Law. The corporate law of the Commonwealth of
-------------
Pennsylvania shall govern all issues and questions concerning the
relative rights of the Company and its stockholders. All other
issues and questions concerning the construction, validity,
interpretation and enforceability of this Amendment and the
exhibits and schedules hereto shall be governed by, and construed
in accordance with, the laws of the Commonwealth of Pennsylvania,
without giving effect to any choice of law or conflict of law
rules or provisions (whether of the Commonwealth of Pennsylvania
or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the Commonwealth of
Pennsylvania.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.
INTEGRATED CIRCUIT SYSTEMS, INC.
By: /s/ Hock E. Tan
----------------------------------------
Name: Hock E. Tan
Its: President and Chief Executive Officer
INTEL CORPORATION
By: /s/ Arvind Sodhni
----------------------------------------
Name: Arvind Sodhni
Its: Vice President and Tresurer
-8-
<PAGE>
BAIN STOCKHOLDERS:
- -----------------
BAIN CAPITAL FUND VI, L.P.
By: Bain Capital Partners VI, L.P.
Its: General Partner
By: Bain Capital Investors VI, Inc.
Its: General Partner
By: /s/ Michael Krupka
------------------------
Name: Michael Krupka
Its: Managing Director
BCIP TRUST ASSOCIATES II
By: /s/ Michael Krupka
------------------------
Name: Michael Krupka
Its: Managing Director
BCIP TRUST ASSOCIATES II-B
By: /s/ Michael Krupka
------------------------
Name: Michael Krupka
Its: Managing Director
BCIP ASSOCIATES II
By: /s/ Michael Krupka
------------------------
Name: Michael Krupka
Its: Managing Director
BCIP ASSOCIATES II-B
By: /s/ Michael Krupka
------------------------
Name: Michael Krupka
Its: Managing Director
BCIP ASSOCIATES II-C
By: /s/ Michael Krupka
------------------------
Name: Michael Krupka
Its: Managing Director
PEP INVESTMENTS PTY LTD.
By: /s/ Michael Krupka
------------------------
Name: Michael Krupka
Its: Managing Director
RANDOLPH STREET PARTNERS II
By:_______________________________
Name:
Its:
RANDOLPH STREET PARTNERS 1998
DIF, L.L.C.
By:_______________________________
Name:
Its:
-9-
<PAGE>
BEAR STEARNS STOCKHOLDERS:
-------------------------
ICST ACQUISITION CORP.
By: /s/ Bodil Arlander
----------------------
Name: Bodil Arlander
Its: Vice President
-10-
<PAGE>
SCHEDULE IV
-----------
Name and Address Number of Stockholder Shares
- ---------------- ----------------------------
Intel Corporation 3,366,670 shares of Series A Cumulative
Convertible Preferred Stock
<PAGE>
EXHIBIT B
AMENDMENT NO. 2 TO
STOCKHOLDERS AGREEMENT
This Amendment No. 2 to Stockholders Agreement (the "Amendment") is made
and entered into as of February __, 2000, by and among Integrated Circuit
Systems, Inc., a Pennsylvania corporation (the "Company"), each of the Persons
listed on Schedule I attached hereto (the "Bain Stockholders"), each of the
----------
Persons listed on Schedule II attached hereto (the "Bear Stearns Stockholder"),
-----------
the Person listed on Schedule III hereto (the "First Boston Stockholder") and
------------
the Person listed on Schedule IV hereto (the "Intel Stockholder").
-----------
RECITALS
A. The Company entered into a Confidentiality Agreement with Intel
Corporation on December 29, 1999 (the "Confidentiality Agreement") in connection
with the Series A Cumulative Convertible Preferred Stock Purchase Agreement
dated December 23, 1999 between the Company and Intel Corporation (the "Purchase
Agreement"). Under Section 1.6 of the Confidentiality Agreement, the Company is
required to use its reasonable best efforts to amend the Stockholders Agreement
dated as of May 11, 1999 by and among the Bain Stockholders, the Bear Stearns
Stockholders, the First Boston Stockholder, the Intel Stockholder and the
Company, as amended by Amendment No. 1 dated December 29, 1999 (as amended, the
"Stockholders Agreement"), to include the terms and provisions of the
Confidentiality Agreement.
B. Terms not otherwise defined in this Amendment have the meanings given
to them in the Stockholders Agreement.
AGREEMENT
The parties hereto, intending to be legally bound, hereby agree as follows:
1. This Amendment constitutes an amendment to the Stockholders Agreement.
Except as specifically amended pursuant to the terms of this
Amendment, all of the terms of the Stockholders Agreement shall
continue in full force and effect.
2. Section 29 is hereby added to the Stockholders Agreement to read in
full as follows:
The Stockholders hereby agree to comply with
the terms and provisions of the
Confidentiality Agreement dated December 29,
1999 by and between the Company and Intel
Corporation (a copy of which is attached
hereto and marked as Exhibit A) that are
---------
applicable to the Company to the same extent
that the Company is bound thereby.
3. Miscellaneous.
(a) Entire Agreement. Except as otherwise expressly set forth herein,
----------------
this Amendment embodies the complete agreement and understanding
among the parties hereto with respect to the subject matter
hereof and supersedes
<PAGE>
and preempts any prior understandings, agreements or
representations by or among the parties, written or oral, which
may have related to the subject matter hereof in any way.
(b) Successors and Assigns. Except as otherwise provided herein, this
----------------------
Amendment shall bind and inure to the benefit of and be
enforceable by the Company and its successors and assigns and the
Stockholders and any subsequent holders of Stockholder Shares and
the respective successors and assigns of each of them, so long as
they hold Stockholder Shares.
(c) Counterparts. This Amendment may be executed in multiple
------------
counterparts, each of which shall be an original and all of which
taken together shall constitute one and the same agreement.
(d) Governing Law. The corporate law of the Commonwealth of
-------------
Pennsylvania shall govern all issues and questions concerning the
relative rights of the Company and its stockholders. All other
issues and questions concerning the construction, validity,
interpretation and enforceability of this Amendment and the
exhibits and schedules hereto shall be governed by, and construed
in accordance with, the laws of the Commonwealth of Pennsylvania,
without giving effect to any choice of law or conflict of law
rules or provisions (whether of the Commonwealth of Pennsylvania
or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the Commonwealth of
Pennsylvania.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.
INTEGRATED CIRCUIT SYSTEMS, INC.
By:___________________________________
Name: Hock E. Tan
Its: President and Chief Executive Officer
-3-
<PAGE>
BAIN STOCKHOLDERS:
- -----------------
BAIN CAPITAL FUND VI, L.P. BCIP ASSOCIATES II-C
By: Bain Capital Partners VI, L.P. By: /s/ Michael Krupka
Its: General Partner -----------------------
Name: Michael Krupka
By: Bain Capital Investors VI, Inc. Its: Managing Director
Its: General Partner
By: /s/ Michael Krupka
-----------------------
Name: Michael Krupka
Its: Managing Director PEP INVESTMENTS PTY LTD.
BCIP TRUST ASSOCIATES II By: /s/ Michael Krupka
-----------------------
Name: Michael Krupka
By: /s/ Michael Krupka Its: Managing Director
-----------------------
Name: Michael Krupka
Its: Managing Director RANDOLPH STREET PARTNERS II
BCIP TRUST ASSOCIATES II-B By:_____________________________
Name:
Its:
By: /s/ Michael Krupka
-----------------------
Name: Michael Krupka RANDOLPH STREET PARTNERS 1998
Its: Managing Director DIF, L.L.C.
BCIP ASSOCIATES II By:_____________________________
Name:
Its:
By:
Name: Michael Krupka
Its: Managing Director
BCIP ASSOCIATES II-B
By: /s/ Michael Krupka
-----------------------
Name: Michael Krupka
Its: Managing Director
-4-
<PAGE>
BEAR STEARNS STOCKHOLDER:
------------------------
ICST ACQUISITION CORP.
By: /s/ Bodil Arlander
-------------------
Name: Bodil Arlander
Its: Vice President
-5-
<PAGE>
FIRST BOSTON STOCKHOLDER:
------------------------
INTEGRATED CIRCUIT SYSTEMS
EQUITY INVESTORS, L.L.C.
By:_________________________________
Name:
Its:
<PAGE>
INTEL STOCKHOLDER:
-----------------
INTEL CORPORATION
By: /s/ Arvind Sodhni
---------------------------------
Name: Arvind Sodhni
Its: Vice President and Treasurer
<PAGE>
SCHEDULE I
----------
Bain Stockholders
-----------------
Bain Capital Fund VI, L.P.
BCIP Associates II
BCIP Trust Associates II
BCIP Associates II-B
BCIP Trust Associates II-B
BCIP Associates II-C
PEP Investments PTY Ltd.
Randolph Street Partners II
Randolph Street Partners 1998 DIF, L.L.C.
<PAGE>
SCHEDULE II
-----------
Bear Stearns Stockholder
------------------------
ICST Acquisition Corp.
<PAGE>
SCHEDULE III
------------
First Boston Stockholder
------------------------
Integrated Circuit Systems Equity Investors, L.L.C.
<PAGE>
SCHEDULE IV
-----------
Intel Stockholder
-----------------
Intel Corporation
<PAGE>
EXHIBIT A
---------
[Confidentiality Agreement entered into with Intel]
<PAGE>
EXHIBIT C
AMENDMENT NO. 1 TO REGISTRATION AGREEMENT
-----------------------------------------
THIS AMENDMENT NO. 1 TO REGISTRATION AGREEMENT ("Amendment No. 1") is
---------------
made and entered into as of December 29, 1999, by and among Integrated Circuit
Systems, Inc., a Pennsylvania corporation (the "Company"), each of the Persons
-------
listed on Schedule I attached hereto (the "Bain Stockholders"), each of the
-----------------
Persons listed on Schedule II attached hereto (the "Bear Stearns Stockholders")
-------------------------
and each of the Persons listed on Schedule V attached hereto (the "Intel
-----
Stockholders").
- ------------
All of the Stockholders other than the Intel Stockholder are parties
to that certain Registration Agreement dated as of May 11, 1999 (the "Original
--------
Agreement"). Pursuant to a Series A Cumulative Convertible Preferred Stock
- ---------
Purchase Agreement dated December 23, 1999 between the Company and Intel
Corporation (the Purchase Agreement"), the Company has agreed to sell to Intel
------------------
Corporation, and Intel Corporation has agreed to purchase from the Company,
certain shares of the Company's Series A Cumulative Convertible Preferred Stock
(the "Preferred Stock"). Pursuant to the Purchase Agreement, the Company has
---------------
agreed to provide certain registration rights to the Intel Stockholders, as more
particularly set forth in this Amendment.
The parties hereto, intending to be legally bound, hereby agree as
follows:
1. Amendment to Original Agreement. This Amendment constitutes an
-------------------------------
amendment to the Original Agreement. The Original Agreement, as amended by this
Amendment, is herein referred to as the "Agreement." Except as specifically
amended pursuant to the terms of this Amendment, all of the terms of the
Original Agreement shall continue in full force and effect. Unless otherwise
provided in this Agreement, capitalized terms used herein shall have the
meanings set forth in paragraph 9 of the Agreement.
2. Demand Registrations. Paragraphs (a), (b), (c) and (g) of Section
--------------------
1 of the Original Agreement are hereby amended to read in full as follows:
1. Demand Registrations.
(a) Requests for Registration. At any time after the date
-------------------------
hereof and prior to an IPO, the holders of a majority of the Class
A Common (excluding any shares of Class A Common issued upon
conversion of Preferred Stock) may request, and at any time after
an IPO, subject to the limitations set forth in Section 1(b) and
1(c) hereof, the holders of a majority of the Bain Registrable
Securities, the holders of a majority of the Intel Registrable
Securities or the holders of a majority of Bear Stearns
Registrable Securities may request a registration (a "Demand")
------
under the Securities Act of all or part of their Registrable
Securities on Form S-1 or any similar long-form registration
("Long-Form Registrations") or, if available, on
-----------------------
<PAGE>
Form S-2 or S-3 (including pursuant to Rule 415 under the
Securities Act) or any similar short-form registration ("Short-
-------
Form Registrations"). Each Demand shall specify the approximate
------------------
number of Registrable Securities requested to be registered and
the anticipated per share price range for such offering. Within
ten (10) days after receipt of any Demand, the Company will give
written notice of such requested registration to all other holders
of Registrable Securities and, subject to paragraph 1(d) below,
will include in such registration all Registrable Securities with
respect to which the Company has received written requests for
inclusion therein within fifteen (15) days after the receipt of
the Company's notice. All registrations requested pursuant to this
paragraph 1(a) are referred to herein as "Demand Registrations."
--------------------
(b) Long-Form Registrations. The holders of a majority of the
-----------------------
Bain Registrable Securities will be entitled to request (i) three
Long-Form Registrations in which the Company will pay all
Registration Expenses and (ii) any other number of Long-Form
Registrations in which Registration Expenses will be paid in
accordance with Section 5(c) hereof. Each of the following groups
------------
will be entitled to request one Long-Form Registration in which
the Company will pay all Registration Expenses: (i) the holders of
a majority of the Intel Registrable Securities and (ii) the
holders of a majority of the Bear Stearns Registrable Securities.
A registration shall not count as one of the permitted Long-Form
Registrations until it has become effective and the holders of
Registrable Securities initially requesting the Long-Form
Registration are able to register and sell at least 95% of the
Registrable Securities requested to be included in such
registration by such holders; provided that in any event the
--------
Company will pay all Registration Expenses in connection with any
registration initiated as a Long-Form Registration whether or not
it has become effective and whether or not such registration has
counted as one of the permitted Long-Form Registrations. Long-Form
Registrations may be underwritten or non-underwritten
registrations.
(c) Short-Form Registrations. In addition to the Long-Form
------------------------
Registrations provided pursuant to Section 1(b): (i) holders of a
------------
majority of Bain Registrable Securities will be entitled to
request unlimited Short-Form Registrations in which the Company
will pay all Registration Expenses; and (ii) each of the following
groups will be entitled to request three Short-Form
-2-
<PAGE>
Registrations (to be filed no more frequently than one in any six-
month period) in which the Company will pay all Registration
Expenses: (1) the holders of a majority of Intel Registrable
Securities and (2) the holders of a majority of the Bear Stearns
Registrable Securities. Notwithstanding anything contained herein
to the contrary, Demand Registrations will be Short-Form
Registrations whenever the Company is permitted to use any
applicable short form. After the Company has become subject to the
reporting requirements of the Securities Exchange Act, the Company
will use its best efforts to make Short-Form Registrations
available for the sale of Registrable Securities.
(d) Priority on Demand Registrations. The Company will not
--------------------------------
include in any Demand Registration any securities which are not
Registrable Securities without the prior written consent of the
holders of a majority of the Bain Registrable Securities or, in
the case where the holders of Intel Registrable Securities or Bear
Stearns Registrable Securities have made a Demand pursuant to
Section 1, the holders of a majority of Intel Registrable
Securities or Bear Stearns Registrable Securities, respectively.
If a Demand Registration is an underwritten offering and the
managing underwriters advise the Company in writing (with a copy
to each party hereto requesting registration of Registrable
Securities) that in their opinion the number of Registrable
Securities and, if permitted hereunder, other securities requested
to be included in such offering exceeds the number of Registrable
Securities and other securities, if any, which can be sold therein
without adversely affecting the marketability of the offering, the
Company will include in such registration prior to the inclusion
of any securities which are not Registrable Securities: (i)
subject to the proviso set forth below, not less than 20% of the
securities requested to be registered by the holders requesting
such Demand Registration, (ii) the number of Registrable
Securities requested to be included which in the opinion of such
underwriters can be sold without adversely affecting the
marketability of the offering, (1) subject to the proviso set
forth below, first pro rata among the respective holders
requesting such Demand Registration under Section 1(a), and then
(2) to the extent that any additional Registrable Securities can
still be included, pro rata among the respective holders of the
remaining Registrable Securities on the basis of the amount of
Registrable Securities owned by each such holder and then (3) to
the extent that any securities which are not Registrable
Securities can still be
-3-
<PAGE>
included, pro rata among the respective holders thereof on the
basis of the amount of such securities owned by each such holder;
provided, however, that the priorities set forth in clauses (i)
and (ii)(1) set forth above shall not apply if holders of
Registrable Securities making the Demand have registered any
Registrable Securities in the six months preceding the date of the
Demand. Any Persons other than holders of Registrable Securities
who participate in Demand Registrations which are not at the
Company's expense, if any, must pay their share of the
Registration Expenses as provided in Section 5 hereof.
---------
* * * * *
(g) Selection of Underwriters. The holders of a majority of
-------------------------
the Bain Registrable Securities or, in the case where the holders
of Intel Registrable Securities have requested the Demand
Registration pursuant to Section 1, the holders of a majority of
Intel Registrable Securities, or, in the case where the holders of
Bear Stearns Registrable Securities have requested the Demand
Registration pursuant to Section 1, the holders of a majority of
Bear Stearns Registrable Securities, will have the right to select
the investment banker(s) and manager(s) to administer the
offering."
3. Restrictions on Demand Registrations. Paragraph (e) of Section 1
------------------------------------
of the Original Agreement is hereby amended by replacing the words "six months"
in the second sentence thereof with the words "90 days" and by adding the
following to the end of the first sentence thereof: "provided, further that the
-------- -------
Company may postpone the filing or effectiveness of a registration statement in
accordance with this Section 3 no more than 90 days in any 12-month period."
4. Holdback Agreements. Paragraph (a) of Section 3 of the Original
-------------------
Agreement is hereby amended to read in full as follows:
"3. Holdback Agreements.
(a) Notwithstanding anything else in this Agreement to the
contrary (but subject to the proviso in the last sentence of this
paragraph 3(a)), to the extent not inconsistent with applicable
law, each holder of Registrable Securities agrees not to effect
any public sale or distribution (including sales pursuant to Rule
144) of equity securities of the Company, or any securities,
options or rights convertible into or exchangeable or exercisable
for such securities during the period (the "LockUp Period") that
-------------
is agreed to with respect to such holder by the
-4-
<PAGE>
underwriter managing the registered public offering and the
Company, with the consent of the holders of a majority of the Bain
Registrable Securities (in the case of a Piggyback Registration)
or the underwriter managing the registered public offering and the
holders of a majority of the Bain Registrable Securities included
in such registration (in the case of a Demand Registration);
provided that the LockUp Period shall not be more restrictive upon
the holders of Intel Registrable Securities or Bear Stearns
Registrable Securities than upon the holders of Bain Registrable
Securities. The LockUp Period may include a period before and a
period after the effective date of any (i) underwritten Demand
Registration (except as part of such underwritten registration),
or (ii) underwritten Piggyback Registration (except as part of
such underwritten registration or pursuant to registrations of
Form S-4 or Form S-8 or any successor form); provided that the
portion of the LockUp Period following the effective date of any
registration shall in no event exceed the 180-day period following
such effective date; and further provided that with respect to any
holders of Intel Registrable Securities or Bear Stearns
Registrable Securities, after a Qualified Initial Public Offering
has taken place, the holders of Intel Registrable Securities and
Bear Stearns Registrable Securities shall be subject to a LockUp
Period with respect to such Intel Registrable Securities and Bear
Stearns Registrable Securities only if: (x) such holders offer
securities in the registration that is the subject of such LockUp
Period, (y) officers and directors of the Company enter into
holdback agreements providing for restrictions during the LockUp
Period that are no less restrictive than those that are applicable
to such holders, and (z) the portion of the LockUp Period
following the effective date of such registration does not exceed
the 90-day period following such effective date."
5. Definitions. Section 9 of the Original Agreement is hereby
-----------
amended by amending the defined terms in the Agreement that are set forth below
and by adding definitions for the terms "Intel Registrable Securities" and
"Qualified Initial Public Offering," as follows:
"Group" means each of the Bain Stockholders, the Bear
-----
Stearns Stockholders, the Executive Stockholders, the Intel
Stockholders and the holders of Other Registrable Securities.
"Intel Registrable Securities" means (i) any shares of
----------------------------
Common Stock issuable upon conversion of Preferred Stock; and (ii)
any shares of Common Stock issued or
-5-
<PAGE>
issuable directly or indirectly with respect to the securities
referred to in clause (i) by way of stock dividend or stock split
or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization, including a
recapitalization or exchange; provided that in the event that
--------
pursuant to such recapitalization or exchange, Non-Participating
Securities are issued, such Non-Participating Securities will not
be Registrable Securities.
"IPO" means the initial sale of Common Stock to the public
---
pursuant to an underwritten offering registered under the
Securities Act.
"Qualified Initial Public Offering" shall have the meaning
---------------------------------
given in the Stockholders Agreement.
"Other Registrable Securities" means any shares of Common
----------------------------
Stock held by Other Stockholders or other Persons that are a
party to this Agreement that are of the same class and type as
Bain Registrable Securities but that do not constitute Bain
Registrable Securities, Bear Stearns Registrable Securities,
Intel Registrable Securities or Executive Stockholder Registrable
Securities.
"Preferred Stock" means any capital stock of the Company
---------------
having a preference over the Common Stock as to dividends or
assets or both and that is convertible into Common Stock.
"Registrable Securities" means collectively the Bain
----------------------
Registrable Securities, Bear Stearns Registrable Securities,
Intel Registrable Securities, Executive Stockholder Registrable
Securities and Other Registrable Securities. For purposes of this
Agreement, a Person will be deemed to be a holder of Registrable
Securities whenever such Person has the right to acquire such
Registrable Securities (upon conversion or exercise in connection
with a transfer of securities or otherwise, but disregarding any
restrictions or limitations upon the exercise of such right),
whether or not such acquisition has actually been effected, and,
except as set forth in the definition of "Executive Stockholder
Registrable Securities", such Person shall be entitled to
exercise the rights of a holder of Registrable Securities
hereunder. As to any particular shares constituting Registrable
Securities, such shares will cease to be Registrable Securities
when they have been (x) effectively registered under the
Securities Act and disposed of in
-6-
<PAGE>
accordance with the registration statement covering them, or (y)
sold to the public through a broker, dealer or market maker
pursuant to Rule 144 (or by similar provision then in force)
under the Securities Act.
All other defined terms set forth in Section 9 of the Original Agreement that
are not amended as set forth in this Section 5 shall remain in full force and
effect.
6. Miscellaneous.
(a) The provisions of paragraphs (d), (f), (g), (h), (i) and (j)
of Section 10 of the Original Agreement are incorporated by reference herein as
if set forth in full in this Amendment.
(b) Paragraph (e) of Section 10 of the Original Agreement is
hereby amended to read in full as follows:
"(e) Additional Parties. The Board of Directors of the
------------------
Company shall be entitled, but not obligated, with the consent of Person(s)
holding at least a majority of the Bain Registrable Securities, to allow
any purchaser of equity securities (or securities or rights convertible or
exercisable into equity securities), of the same type and class of the
Registrable Securities, to execute a counterpart to this Agreement and
become a party hereto (each, an "Additional Party"), in which case the
----------------
equity securities issued or issuable to any such Additional Party shall be
deemed a holder of "Executive Stockholder Registrable Securities," "Bain
Registrable Securities", "Bear Stearns Registrable Securities," "Intel
Registrable Securities" or "Other Registrable Securities," as the case may
be, in accordance with the definitions thereof; provided, however, that if
-------- -------
allowing such Person to become an Additional Party shall adversely affect
any Group in a manner adversely different than any other Group, no such
Person shall become an Additional Party without the prior written consent
of such Group adversely affected thereby (with it being understood that if
the admission of an Additional Party is adversely different to the holders
of Bear Stearns Registrable Securities or otherwise reduces or diminishes
any rights applicable to the holders of Bear Stearns Registrable Securities
without reducing or diminishing the same rights applicable to the holders
of Bain Registrable Securities in the same manner, such admission shall
require the consent of the holders of a majority of the Bear Stearns
Registrable Securities). Except as set forth in this Section 10(e), the
Company will not grant to any other Persons any registration rights."
-7-
<PAGE>
(c) The obligations of the parties hereto with respect to Intel
Registrable Securities, and any rights of the holders of Intel Registrable
Securities set forth herein, shall expire, to the extent not earlier terminated
or expired, on the seventh anniversary of the first issuance of a share of
Preferred Stock.
(d) Paragraph (c) of Section 2 of the Original Agreement is hereby
amended by replacing the word "os" in the last sentence thereof with the word
"of."
-8-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first above written.
INTEGRATED CIRCUIT SYSTEMS, INC.
By: /S/ HOCK E. TAN
---------------------------------------
Name: Hock E. Tan
Its: President and Chief Executive Officer
INTEL CORPORATION
By: /S/ Arvind Sodhni
---------------------------------------
Name: Arvind Sodhni
Its: Vice President and Teasurer
-9-
<PAGE>
BAIN STOCKHOLDERS:
- --------------------
BAIN CAPITAL FUND VI, L.P. BCIP ASSOCIATES II-B
By: Bain Capital Partners VI, L.P. By:/S/ MICHAEL KRUPKA
Its: General Partner ----------------------------------
Name: Michael Krupka
Its: Managing Director
By: Bain Capital Investors VI, Inc.
Its: General Partner
By: /S/ MICHAEL KRUPKA BCIP ASSOCIATES II-C
---------------------------------
Name: Michael Krupka
Its: Managing Director
By: /S/ MICHAEL KRUPKA
-------------------------------
Name: Michael Krupka
BCIP TRUST ASSOCIATES II Its: Managing Director
By: /S/ MICHAEL KRUPKA PEP INVESTMENTS PTY LTD.
---------------------------------
Name: Michael Krupka
Its: Managing Director
By: /S/ MICHAEL KRUPKA
--------------------------------
Name: Michael Krupka
BCIP TRUST ASSOCIATES II-B Its: Managing Director
By: /S/ MICHAEL KRUPKA RANDOLPH STREET PARTNERS II
---------------------------------
Name: Michael Krupka
Its: Managing Director
By:________________________________
Name:
BCIP ASSOCIATES II Its:
By: /S/ MICHAEL KRUPKA RANDOLPH STREET PARTNERS 1998
---------------------------------
Name: Michael Krupka DIF, L.L.C.
Its: Managing Director
By:_______________________________
Name:
Its:
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<PAGE>
BEAR STEARNS STOCKHOLDERS:
-------------------------
ICST ACQUISITION CORP.
By: /S/ Bodil Arlander
------------------------------
Name: Bodil Arlander
Its: Vice President
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<PAGE>
Schedule I
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Bain Capital Fund VI, L.P.
BCIP Trust Associates II
BCIP Trust Associates II-B
BCIP Associates II
BCIP Associates II-B
BCIP Associates II-C
PEP Investments PTY Ltd.
Randolph Street Partners II
Randolph Street Partners 1998 DIF, L.L.C.
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<PAGE>
Schedule II
-----------
ICST Acquisition Corp.
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<PAGE>
Schedule V
----------
Intel Corporation
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<PAGE>
EXHIBIT D
INTEGRATED CIRCUIT SYSTEMS, INC.
2000 LONG-TERM EQUITY INCENTIVE PLAN
1. Purpose.
This plan shall be known as the Integrated Circuit Systems, Inc. 2000
Long-Term Equity Incentive Plan (the "Plan"). The purpose of the Plan shall be
to promote the long-term growth and profitability of Integrated Circuit Systems,
Inc. (the "Company") and its Subsidiaries by (i) providing certain directors,
officers and employees of, and certain other individuals who perform services
for, or to whom an offer of employment has been extended by, the Company and its
Subsidiaries with incentives to maximize shareholder value and otherwise
contribute to the success of the Company and (ii) enabling the Company to
attract, retain and reward the best available persons for positions of
responsibility. Grants of incentive or non-qualified stock options, stock
appreciation rights ("SARs"), either alone or in tandem with options, restricted
stock, performance awards, or any combination of the foregoing may be made under
the Plan.
2. Definitions.
(a) "Board of Directors" and "Board" mean the board of directors of
the Company.
(b) "Cause" means the occurrence of one or more of the following
events:
(i) conviction of a felony or any crime or offense lesser than
a felony involving the property of the Company or a Subsidiary; or
(ii) conduct that has caused demonstrable and serious injury
to the Company or a Subsidiary, monetary or otherwise; or
(iii) willful refusal to perform or substantial disregard of
duties properly assigned, as determined by the Company; or
(iv) breach of duty of loyalty to the Company or a Subsidiary or
other act of fraud or dishonesty with respect to the Company or a Subsidiary.
(c) "Change in Control" means the occurrence of one of the following
events:
(i) if any "person" or "group" as those terms are used in
Sections 13(d) and 14(d) of the Exchange Act or any successors thereto, other
than an Exempt Person, is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act or any successor thereto), directly or indirectly,
of securities of the Company representing 50% or more of the combined voting
power of the Company's then outstanding securities;
<PAGE>
(ii) during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board and any new directors whose
election by the Board or nomination for election by the Company's shareholders
was approved by at least two-thirds of the directors then still in office who
either were directors at the beginning of the period or whose election was
previously so approved, cease for any reason to constitute a majority thereof;
(iii) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation (A) which would result in all or a portion of the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 50% of the combined voting power
of the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation or (B) by which the corporate
existence of the Company is not affected and following which the Company's chief
executive officer and directors retain their positions with the Company (and
constitute at least a majority of the Board); or
(iv) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company's assets.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means the Compensation Committee of the Board, which
shall consist solely of two or more members of the Board.
(f) "Common Stock" means the common stock, par value $0.01 per share,
of the Company, and any other shares into which such stock may be changed by
reason of a recapitalization, reorganization, merger, consolidation or any other
change in the corporate structure or capital stock of the Company.
(g) "Competition" is deemed to occur if a person whose employment
with the Company or its Subsidiaries has terminated obtains a position as a
full-time or part-time employee of, as a member of the board of directors of, or
as a consultant or advisor with or to, or acquires an ownership interest in
excess of 5% of, a corporation, partnership, firm or other entity that engages
in any of the businesses of the Company or any Subsidiary with which the person
was involved in a management role at any time during his or her last five years
of employment with or other service for the Company or any Subsidiaries.
(h) "Disability" means a disability that would entitle an eligible
participant to payment of monthly disability payments under any Company
disability plan or as otherwise determined by the Committee.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
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(j) "Exempt Person" means any employee benefit plan of the Company or
a trustee or other administrator or fiduciary holding securities under an
employee benefit plan of the Company.
(k) "Family Member" has the meaning given to such term in General
Instructions A.1(a)(5) to Form S-8 under the Securities Act of 1933, as amended,
and any successor thereto.
(l) "Fair Market Value" of a share of Common Stock of the Company
means, as of the date in question, the officially-quoted closing selling price
of the stock (or if no selling price is quoted, the bid price) on the principal
securities exchange on which the Common Stock is then listed for trading
(including for this purpose the Nasdaq National Market) (the "Market") for the
applicable trading day or, if the Common Stock is not then listed or quoted in
the Market, the Fair Market Value shall be the fair value of the Common Stock
determined in good faith by the Board; provided, however, that when shares
received upon exercise of an option are immediately sold in the open market, the
net sale price received may be used to determine the Fair Market Value of any
shares used to pay the exercise price or applicable withholding taxes and to
compute the withholding taxes.
(m) "Incentive Stock Option" means an option conforming to the
requirements of Section 422 of the Code and any successor thereto.
(n) "Non-Employee Director" has the meaning given to such term in
Rule 16b-3 under the Exchange Act and any successor thereto.
(o) "Non-qualified Stock Option" means any stock option other than an
Incentive Stock Option.
(p) "Other Company Securities" mean securities of the Company other
than Common Stock, which may include, without limitation, unbundled stock units
or components thereof, debentures, preferred stock, warrants and securities
convertible into or exchangeable for Common Stock or other property.
(q) "Retirement" means retirement as defined under any Company
pension plan or retirement program or termination of one's employment on
retirement with the approval of the Committee.
(r) "Subsidiary" means a corporation or other entity of which
outstanding shares or ownership interests representing 50% or more of the
combined voting power of such corporation or other entity entitled to elect the
management thereof, or such lesser percentage as may be approved by the
Committee, are owned directly or indirectly by the Company.
3. Administration.
The Plan shall be administered by the Committee; provided that the
Board may, in its discretion, at any time and from time to time, resolve to
administer the Plan, in which case the
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<PAGE>
term "Committee" shall be deemed to mean the Board for all purposes herein.
Subject to the provisions of the Plan, the Committee shall be authorized to (i)
select persons to participate in the Plan, (ii) determine the form and substance
of grants made under the Plan to each participant, and the conditions and
restrictions, if any, subject to which such grants will be made, (iii) certify
that the conditions and restrictions applicable to any grant have been met, (iv)
modify the terms of grants made under the Plan, (v) interpret the Plan and
grants made thereunder, (vi) make any adjustments necessary or desirable in
connection with grants made under the Plan to eligible participants located
outside the United States and (vii) adopt, amend, or rescind such rules and
regulations, and make such other determinations, for carrying out the Plan as it
may deem appropriate. Decisions of the Committee on all matters relating to the
Plan shall be in the Committee's sole discretion and shall be conclusive and
binding on all parties. The validity, construction, and effect of the Plan and
any rules and regulations relating to the Plan shall be determined in accordance
with applicable federal and state laws and rules and regulations promulgated
pursuant thereto. No member of the Committee and no officer of the Company shall
be liable for any action taken or omitted to be taken by such member, by any
other member of the Committee or by any officer of the Company in connection
with the performance of duties under the Plan, except for such person's own
willful misconduct or as expressly provided by statute.
The expenses of the Plan shall be borne by the Company. The Plan
shall not be required to establish any special or separate fund or make any
other segregation of assets to assume the payment of any award under the Plan,
and rights to the payment of such awards shall be no greater than the rights of
the Company's general creditors.
4. Shares Available for the Plan.
Subject to adjustments as provided in Section 15, the number of shares
of Common Stock (the "Shares") issuable pursuant to the Plan shall equal the sum
of (a) 6,400,000 Shares, plus (b) any Shares returned to the Company's existing
stock option plans (the "Existing Plans") as a result of termination of options
under the Existing Plans, plus (c) an annual increase to be added on the date of
each annual meeting of the shareholders of the Company, beginning with the 2000
annual meeting of the shareholders, equal to one percent (1.0%) of the
outstanding Shares on such date or such lesser amount determined by the Board.
Such Shares may be in whole or in part authorized and unissued or held by the
Company as treasury shares. If any grant under the Plan expires or terminates
unexercised, becomes unexercisable or is forfeited as to any Shares, or is
tendered or withheld as to any shares in payment of the exercise price of the
grant or the taxes payable with respect to the exercise, then such unpurchased,
forfeited, tendered or withheld Shares shall thereafter be available for further
grants under the Plan unless, in the case of options granted under the Plan,
related SARs are exercised.
Without limiting the generality of the foregoing provisions of this
Section 4 or the generality of the provisions of Sections 3, 6 or 17 or any
other section of this Plan, the Committee may, at any time or from time to time,
and on such terms and conditions (that are consistent with and not in
contravention of the other provisions of this Plan) as the Committee may, in its
sole discretion, determine, enter into agreements (or take other actions with
respect to the options) for new options containing terms (including exercise
prices) more (or less) favorable than the outstanding options.
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<PAGE>
5. Participation.
(a) Participation in the Plan shall be limited to those directors
(including Non-Employee Directors), officers (including non-employee officers)
and employees of, and other individuals performing services for, or to whom an
offer of employment has been extended by, the Company and its Subsidiaries
selected by the Committee (including participants located outside the United
States). Nothing in the Plan or in any grant thereunder shall confer any right
on a participant to continue in the employ as a director or officer of or in the
performance of services for the Company or shall interfere in any way with the
right of the Company to terminate the employment or performance of services or
to reduce the compensation or responsibilities of a participant at any time. By
accepting any award under the Plan, each participant and each person claiming
under or through him or her shall be conclusively deemed to have indicated his
or her acceptance and ratification of, and consent to, any action taken under
the Plan by the Company, the Board or the Committee.
Incentive Stock Options or Non-qualified Stock Options, SARs alone or
in tandem with options, restricted stock awards, performance awards, or any
combination thereof, may be granted to such persons and for such number of
Shares as the Committee shall determine (such individuals to whom grants are
made being sometimes herein called "optionees" or "grantees," as the case may
be). Determinations made by the Committee under the Plan need not be uniform
and may be made selectively among eligible individuals under the Plan, whether
or not such individuals are similarly situated. A grant of any type made
hereunder in any one year to an eligible participant shall neither guarantee nor
preclude a further grant of that or any other type to such participant in that
year or subsequent years.
(b) On the first business day immediately following the date that an
individual is first elected or appointed to serve as a Non-Employee Director
(other than Non-Employee Directors affiliated with any shareholder of the
Company beneficially owning 10% or more of the Company's outstanding common
stock), such Non-Employee Director shall be granted an option to purchase 12,000
Shares (the "Initial Options"). Thereafter, each year on the first business day
immediately following the date of the Company's annual meeting of shareholders,
each individual reelected or continuing as a Non-Employee Director shall
automatically receive an option to acquire 8,000 Shares (the "Annual Options").
Except as set forth herein, each Non-Employee Director who receives options
under the Plan must continue as a Non-Employee Director for one year from the
date of grant of the Initial Options and six months from the date of grant of
the Annual Options in order to exercise any options granted hereby. Each Initial
Option will vest and be exercisable as to [_____] Shares on the first
anniversary of grant and [_____] additional shares beginning on the first day of
each three-month period commencing on the date three months after the first
anniversary of the date of grant. The right to exercise an Initial Option will
expire on the fifth anniversary of the date on which the option was granted.
Once an installment of an Initial Option has become exercisable, such
installment may be exercised in whole at any time or in part from time to time
until the expiration of the option, whether or not any option granted previously
remains outstanding at the time of such exercise. Each Annual Option will vest
and be exercisable, on a cumulative basis, as to [____] shares beginning six
months from the date of grant, [____] additional shares beginning nine months
from the date of grant and [____] additional shares beginning on the first
anniversary of the date of grant.
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<PAGE>
The right to exercise an Annual Option will expire on the fifth anniversary of
the date on which the option was granted. Once an Annual Option has become
exercisable, it may be exercised in whole at any time or in part from time to
time until the expiration of the option, whether or not any option granted
previously to the optionee remains outstanding at the time of such exercise.
6. Incentive and Non-qualified Options and SARs.
The Committee may from time to time grant to eligible participants
Incentive Stock Options, Non-qualified Stock Options, or any combination
thereof; provided that the Committee may grant Incentive Stock Options only to
eligible employees of the Company or its subsidiaries (as defined for this
purpose in Section 424(f) of the Code or any successor thereto). In any one
calendar year, the Committee shall not grant to any one participant options or
SARs to purchase a number of shares of Common Stock in excess of __% of the
total number of Shares authorized under the Plan pursuant to Section 4. The
options granted shall take such form as the Committee shall determine, subject
to the following terms and conditions.
It is the Company's intent that Non-qualified Stock Options granted
under the Plan not be classified as Incentive Stock Options, that Incentive
Stock Options be consistent with and contain or be deemed to contain all
provisions required under Section 422 of the Code and any successor thereto, and
that any ambiguities in construction be interpreted in order to effectuate such
intent. If an Incentive Stock Option granted under the Plan does not qualify as
such for any reason, then to the extent of such non-qualification, the stock
option represented thereby shall be regarded as a Non-qualified Stock Option
duly granted under the Plan, provided that such stock option otherwise meets the
Plan's requirements for Non-qualified Stock Options.
(a) Price. The price per Share deliverable upon the exercise of each
option ("exercise price") shall be established by the Committee, except that in
the case of the grant of any Option, the exercise price may not be less than 50%
of the Fair Market Value of a share of Common Stock as of the date of grant of
the option, and in the case of the grant of any Incentive Stock Option to an
employee who, at the time of the grant, owns more than 10% of the total combined
voting power of all classes of stock of the Company or any of its Subsidiaries,
the exercise price may not be less than 110% of the Fair Market Value of a share
of Common Stock as of the date of grant of the option, in each case unless
otherwise permitted by Section 422 of the Code or any successor thereto.
(b) Payment. Options may be exercised, in whole or in part, upon
payment of the exercise price of the Shares to be acquired. Unless otherwise
determined by the Committee, payment shall be made (i) in cash (including check,
bank draft, money order or wire transfer of immediately available funds), (ii)
by delivery of outstanding shares of Common Stock with a Fair Market Value on
the date of exercise equal to the aggregate exercise price payable with respect
to the options' exercise, (iii) by simultaneous sale through a broker reasonably
acceptable to the Committee of Shares acquired on exercise, as permitted under
Regulation T of the Federal Reserve Board, (iv) by authorizing the Company to
withhold from issuance a number of Shares issuable upon exercise of the options
which, when multiplied by the Fair Market Value of a share of Common Stock on
the date of exercise, is equal to the aggregate exercise price payable with
respect to the options so
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<PAGE>
exercised or (v) by any combination of the foregoing. Options may also be
exercised upon payment of the exercise price of the Shares to be acquired by
delivery of the optionee's promissory note, but only to the extent specifically
approved by and in accordance with the policies of the Committee.
In the event a grantee elects to pay the exercise price payable with
respect to an option pursuant to clause (ii) above, (A) only a whole number of
share(s) of Common Stock (and not fractional shares of Common Stock) may be
tendered in payment, (B) such grantee must present evidence acceptable to the
Company that he or she has owned any such shares of Common Stock tendered in
payment of the exercise price (and that such tendered shares of Common Stock
have not been subject to any substantial risk of forfeiture) for at least six
months prior to the date of exercise, and (C) Common Stock must be delivered to
the Company. Delivery for this purpose may, at the election of the grantee, be
made either by (A) physical delivery of the certificate(s) for all such shares
of Common Stock tendered in payment of the price, accompanied by duly executed
instruments of transfer in a form acceptable to the Company, or (B) direction to
the grantee's broker to transfer, by book entry, of such shares of Common Stock
from a brokerage account of the grantee to a brokerage account specified by the
Company. When payment of the exercise price is made by delivery of Common Stock,
the difference, if any, between the aggregate exercise price payable with
respect to the option being exercised and the Fair Market Value of the shares of
Common Stock tendered in payment (plus any applicable taxes) shall be paid in
cash. No grantee may tender shares of Common Stock having a Fair Market Value
exceeding the aggregate exercise price payable with respect to the option being
exercised (plus any applicable taxes).
In the event a grantee elects to pay the exercise price payable with
respect to an option pursuant to clause (iv) above, (A) only a whole number of
Share(s) (and not fractional Shares) may be withheld in payment and (B) such
grantee must present evidence acceptable to the Company that he or she has owned
a number of shares of Common Stock at least equal to the number of Shares to be
withheld in payment of the exercise price (and that such owned shares of Common
Stock have not been subject to any substantial risk of forfeiture) for at least
six months prior to the date of exercise. When payment of the exercise price is
made by withholding of Shares, the difference, if any, between the aggregate
exercise price payable with respect to the option being exercised and the Fair
Market Value of the Shares withheld in payment (plus any applicable taxes) shall
be paid in cash. No grantee may authorize the withholding of Shares having a
Fair Market Value exceeding the aggregate exercise price payable with respect to
the option being exercised (plus any applicable taxes). Any withheld Shares
shall no longer be issuable under such option (except pursuant to any Reload
Option (as defined below) with respect to any such withheld Shares).
(c) Terms of Options. The term during which each option may be
exercised shall be determined by the Committee, but if required by the Code and
except as otherwise provided herein, no option shall be exercisable in whole or
in part more than ten years from the date it is granted, and no Incentive Stock
Option granted to an employee who at the time of the grant owns more than 10% of
the total combined voting power of all classes of stock of the Company or any of
its Subsidiaries shall be exercisable more than five years from the date it is
granted. All rights to purchase Shares pursuant to an option shall, unless
sooner terminated, expire at the date designated by the Committee. The Committee
shall determine the date on which each option shall become exercisable and may
provide that an option shall become exercisable in installments. The Shares
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<PAGE>
constituting each installment may be purchased in whole or in part at any time
after such installment becomes exercisable, subject to such minimum exercise
requirements as may be designated by the Committee. Prior to the exercise of an
option and delivery of the Shares represented thereby, the optionee shall have
no rights as a shareholder with respect to any Shares covered by such
outstanding option (including any dividend or voting rights).
(d) Limitations on Grants. If required by the Code, the aggregate
Fair Market Value (determined as of the grant date) of Shares for which an
Incentive Stock Option is exercisable for the first time during any calendar
year under all equity incentive plans of the Company and its Subsidiaries (as
defined in Section 422 of the Code or any successor thereto) may not exceed
$100,000.
(e) Termination; Forfeiture.
(i) Death or Disability. If a participant ceases to be a
director, officer or employee of, or to perform other services for, the Company
and any Subsidiary due to death or Disability, all of the participant's options
and SARs that were exercisable on the date of Retirement shall remain
exercisable for, and shall otherwise terminate at the end of, a period of 180
days from the date of such death or Disability, but in no event after the
expiration date of the options or SARs; provided that the participant does not
engage in Competition during such 180-day period unless he or she received
written consent to do so from the Board or the Committee. Notwithstanding the
foregoing, if the Disability giving rise to the termination of employment is not
within the meaning of Section 22(e)(3) of the Code or any successor thereto,
Incentive Stock Options not exercised by such participant within 90 days after
the date of termination of employment will cease to qualify as Incentive Stock
Options and will be treated as Non-qualified Stock Options under the Plan if
required to be so treated under the Code.
(ii) Retirement. If a participant ceases to be a director,
officer or employee of, or to perform other services for, the Company and any
Subsidiary upon the occurrence of his or her Retirement, (A) all of the
participant's options and SARs that were exercisable on the date of Retirement
shall remain exercisable for, and shall otherwise terminate at the end of, a
period of 90 days after the date of Retirement, but in no event after the
expiration date of the options or SARs; provided that the participant does not
engage in Competition during such 90-day period unless he or she receives
written consent to do so from the Board or the Committee, and (B) all of the
participant's options and SARs that were not exercisable on the date of
Retirement shall be forfeited immediately upon such Retirement; provided,
however, that such options and SARs may become fully vested and exercisable in
the discretion of the Committee.
(iii) Discharge for Cause. If a participant ceases to be a
director, officer or employee of, or to perform other services for, the Company
or a Subsidiary due to Cause, or if a participant does not become a director,
officer or employee of, or does not begin performing other services for, the
Company or a Subsidiary for any reason, all of the participant's options and
SARs shall expire and be forfeited immediately upon such cessation or non-
commencement, whether or not then exercisable.
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<PAGE>
(iv) Other Termination. Unless otherwise determined by the
Committee, if a participant ceases to be a director, officer or employee of, or
to otherwise perform services for, the Company or a Subsidiary for any reason
other than death, Disability, Retirement or Cause, (A) all of the participant's
options and SARs that were exercisable on the date of such cessation shall
remain exercisable for, and shall otherwise terminate at the end of, a period of
30 days after the date of such cessation, but in no event after the expiration
date of the options or SARs; provided that the participant does not engage in
Competition during such 30-day period unless he or she receives written consent
to do so from the Board or the Committee, and (B) all of the participant's
options and SARs that were not exercisable on the date of such cessation shall
be forfeited immediately upon such cessation.
(v) Change in Control. If there is a Change in Control of the
Company and a participant is terminated as a director, officer or employee of,
or from performing other services for, the Company or a subsidiary within one
year after such Change in Control, all of the participant's options and SARs
shall become fully vested and exercisable upon such termination and shall remain
so until the expiration date of the options or SARS. In addition, the
Compensation Committee shall have the authority to grant options that become
fully vested and exercisable automatically upon a Change in Control, whether or
not the grantee is subsequently terminated.
(f) Forfeiture. If a participant exercises any of his or her options
or SARs and, within one year thereafter, either (i) is terminated from the
Company or a Subsidiary for any of the reasons specified in the definition of
"Cause" set forth in Section 2(b)(i), (ii) or (iv), or (ii) engages in
Competition without having received written consent to do so from the Board or
the Committee, then the participant may, in the discretion of the Committee, be
required to pay the Company the gain represented by the difference between the
aggregate selling price of the Shares acquired upon the options' exercise (or,
if the Shares were not then sold, their aggregate Fair Market Value on the date
of exercise) and the aggregate exercise price of the options exercised (the
"Option Gain"), without regard to any subsequent increase or decrease in the
Fair Market Value of the Common Stock. In addition, the Company may, in its
discretion, deduct from any payment of any kind (including salary or bonus)
otherwise due to any such participant an amount equal to the Option Gain.
(g) Grant of Reload Options. The Committee may provide (either at the
time of grant or exercise of an option), in its discretion, for the grant to a
grantee who exercises all or any portion of an option ("Exercised Options") and
who pays all or part of such exercise price with shares of Common Stock, of an
additional option (a "Reload Option") for a number of shares of Common Stock
equal to the sum (the "Reload Number") of the number of shares of Common Stock
tendered or withheld in payment of such exercise price for the Exercised Options
plus, if so provided by the Committee, the number of shares of Common Stock, if
any, tendered or withheld by the grantee or withheld by the Company in
connection with the exercise of the Exercised Options to satisfy any federal,
state or local tax withholding requirements. The terms of each Reload Option,
including the date of its expiration and the terms and conditions of its
exercisability and transferability, shall be the same as the terms of the
Exercised Option to which it relates, except that (i) the grant date for each
Reload Option shall be the date of exercise of the Exercised Option to
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which it relates and (ii) the exercise price for each Reload Option shall be the
Fair Market Value of the Common Stock on the grant date of the Reload Option.
7. Stock Appreciation Rights.
The Committee shall have the authority to grant SARs under this Plan,
either alone or to any optionee in tandem with options (either at the time of
grant of the related option or thereafter by amendment to an outstanding
option). SARs shall be subject to such terms and conditions as the Committee
may specify.
No SAR may be exercised unless the Fair Market Value of a share of
Common Stock of the Company on the date of exercise exceeds the exercise price
of the SAR or, in the case of SARs granted in tandem with options, any options
to which the SARs correspond. Prior to the exercise of the SAR and delivery of
the cash and/or Shares represented thereby, the participant shall have no rights
as a shareholder with respect to Shares covered by such outstanding SAR
(including any dividend or voting rights).
SARs granted in tandem with options shall be exercisable only when, to
the extent and on the conditions that any related option is exercisable. The
exercise of an option shall result in an immediate forfeiture of any related SAR
to the extent the option is exercised, and the exercise of an SAR shall cause an
immediate forfeiture of any related option to the extent the SAR is exercised.
Upon the exercise of an SAR, the participant shall be entitled to a
distribution in an amount equal to the difference between the Fair Market Value
of a share of Common Stock on the date of exercise and the exercise price of the
SAR or, in the case of SARs granted in tandem with options, any option to which
the SAR is related, multiplied by the number of Shares as to which the SAR is
exercised. The Committee shall decide whether such distribution shall be in
cash, in Shares having a Fair Market Value equal to such amount, in Other
Company Securities having a Fair Market Value equal to such amount or in a
combination thereof.
All SARs will be exercised automatically on the last day prior to the
expiration date of the SAR or, in the case of SARs granted in tandem with
options, any related option, so long as the Fair Market Value of a share of
Common Stock on that date exceeds the exercise price of the SAR or any related
option, as applicable. An SAR granted in tandem with options shall expire at
the same time as any related option expires and shall be transferable only when,
and under the same conditions as, any related option is transferable.
8. Restricted Stock.
The Committee may at any time and from time to time grant Shares of
restricted stock under the Plan to such participants and in such amounts as it
determines. Each grant of restricted stock shall specify the applicable
restrictions on such Shares, the duration of such restrictions (which shall be
at least six months except as otherwise determined by the Committee or provided
in the third
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<PAGE>
paragraph of this Section 8), and the time or times at which such restrictions
shall lapse with respect to all or a specified number of Shares that are part of
the grant.
The participant will be required to pay the Company the aggregate par
value of any Shares of restricted stock (or such larger amount as the Board may
determine based upon applicable law) within ten days of the date of grant,
unless such Shares of restricted stock are treasury shares. Unless otherwise
determined by the Committee, certificates representing Shares of restricted
stock granted under the Plan will be held in escrow by the Company on the
participant's behalf during any period of restriction thereon and will bear an
appropriate legend specifying the applicable restrictions thereon, and the
participant will be required to execute a blank stock power therefor. Except as
otherwise provided by the Committee, during such period of restriction the
participant shall have all of the rights of a holder of Common Stock, including
but not limited to the rights to receive dividends and to vote, and any stock or
other securities received as a distribution with respect to such participant=s
restricted stock shall be subject to the same restrictions as then in effect for
the restricted stock.
Except as otherwise provided by the Committee, no restrictions on
Shares shall lapse because of a Change in Control or the death, Disability or
Retirement of any participant. At such time as a participant ceases to be, or in
the event a participant does not become, a director, officer or employee of, or
otherwise performing services for, the Company or its Subsidiaries for any other
reason, all Shares of restricted stock granted to such participant on which the
restrictions have not lapsed shall be immediately forfeited to the Company.
9. Performance Awards.
Performance awards may be granted to participants at any time and from
time to time as determined by the Committee. The Committee shall have complete
discretion in determining the size and composition of performance awards granted
to a participant and the appropriate period over which performance is to be
measured (a "performance cycle"). Performance awards may include (i) specific
dollar-value target awards (ii) performance units, the value of each such unit
being determined by the Committee at the time of issuance, and/or (iii)
performance Shares, the value of each such Share being equal to the Fair Market
Value of a share of Common Stock.
The value of each performance award may be fixed or it may be
permitted to fluctuate based on a performance factor (e.g., return on equity)
selected by the Committee.
The Committee shall establish performance goals and objectives for
each performance cycle on the basis of such criteria and objectives as the
Committee may select from time to time, including, without limitation, the
performance of the participant, the Company, one or more of its Subsidiaries or
divisions or any combination of the foregoing. During any performance cycle,
the Committee shall have the authority to adjust the performance goals and
objectives for such cycle for such reasons as it deems equitable.
The Committee shall determine the portion of each performance award
that is earned by a participant on the basis of the Company's performance over
the performance cycle in relation
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<PAGE>
to the performance goals for such cycle. The earned portion of a performance
award may be paid out in Shares, cash, Other Company Securities, or any
combination thereof, as the Committee may determine.
A participant must be a director, officer or employee of, or otherwise
perform services for, the Company or its Subsidiaries at the end of the
performance cycle in order to be entitled to payment of a performance award
issued in respect of such cycle; provided, however, that except as otherwise
determined by the Committee, if a participant ceases to be a director, officer
or employee of, or to otherwise perform services for, the Company and its
Subsidiaries upon his or her death, Retirement, or Disability prior to the end
of the performance cycle, the participant shall earn a proportionate portion of
the performance award based upon the elapsed portion of the performance cycle
and the Company's performance over that portion of such cycle.
In the event of a Change in Control, a participant shall earn no less
than the portion of the performance award that the participant would have earned
if the applicable performance cycle(s) had terminated as of the date of the
Change in Control.
10. Withholding Taxes.
(1) Participant Election. Unless otherwise determined by the Committee, a
participant may elect to deliver shares of Common Stock (or have the Company
withhold shares acquired upon exercise of an option or SAR or deliverable upon
grant or vesting of restricted stock, as the case may be) to satisfy, in whole
or in part, the amount the Company is required to withhold for taxes in
connection with the exercise of an option or SAR or the delivery of restricted
stock upon grant or vesting, as the case may be. Such election must be made on
or before the date the amount of tax to be withheld is determined. Once made,
the election shall be irrevocable. The fair market value of the shares to be
withheld or delivered will be the Fair Market Value as of the date the amount of
tax to be withheld is determined. In the event a participant elects to deliver
or have the Company withhold shares of Common Stock pursuant to this Section
10(a), such delivery or withholding must be made subject to the conditions and
pursuant to the procedures set forth in Section 6(b) with respect to the
delivery or withholding of Common Stock in payment of the exercise price of
options.
(2) Company Requirement. The Company may require, as a condition to any
grant or exercise under the Plan or to the delivery of certificates for Shares
issued hereunder, that the grantee make provision for the payment to the
Company, either pursuant to Section 10(a) or this Section 10(b), of federal,
state or local taxes of any kind required by law to be withheld with respect to
any grant or delivery of Shares. The Company, to the extent permitted or
required by law, shall have the right to deduct from any payment of any kind
(including salary or bonus) otherwise due to a grantee, an amount equal to any
federal, state or local taxes of any kind required by law to be withheld with
respect to any grant or delivery of Shares under the Plan.
11. Written Agreement; Vesting.
Each employee to whom a grant is made under the Plan shall enter into
a written agreement with the Company that shall contain such provisions,
including without limitation vesting
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<PAGE>
requirements, consistent with the provisions of the Plan, as may be approved by
the Committee. Unless the Committee determines otherwise and except as otherwise
provided in Sections 6, 7, 8 and 9 in connection with a Change of Control or
certain occurrences of termination, no grant under this Plan may be exercised,
and no restrictions relating thereto may lapse, within six months of the date
such grant is made.
12. Transferability.
Unless the Committee determines otherwise, no option, SAR, performance
award or restricted stock granted under the Plan shall be transferable by a
participant other than by will or the laws of descent and distribution or to a
participant's Family Member by gift or a qualified domestic relations order as
defined by the Code. Unless the Committee determines otherwise, an option, SAR
or performance award may be exercised only by the optionee or grantee thereof;
by his or her Family Member if such person has acquired the option, SAR or
performance award by gift or qualified domestic relations order; by his or her
executor or administrator or any person to whom the Option is transferred by
will or the laws of descent and distribution; or by his or her guardian or legal
representative; provided that Incentive Stock Options may be exercised by any
Family Member, guardian or legal representative only if permitted by the Code
and any regulations thereunder. All provisions of this Plan shall in any event
continue to apply to any option, SAR, performance award or restricted stock
granted under the Plan and transferred as permitted by this Section 12, and any
transferee of any such option, SAR, performance award or restricted stock shall
be bound by all provisions of this Plan as and to the same extent as the
applicable original grantee.
13. Listing, Registration and Qualification.
If the Committee determines that the listing, registration or
qualification upon any securities exchange or under any law of Shares subject to
any option, SAR, performance award or restricted stock grant is necessary or
desirable as a condition of, or in connection with, the granting of same or the
issue or purchase of Shares thereunder, no such option or SAR may be exercised
in whole or in part, no such performance award may be paid out, and no Shares
may be issued, unless such listing, registration or qualification is effected
free of any conditions not acceptable to the Committee.
14. Transfer of Employee.
The transfer of an employee from the Company to a Subsidiary, from a
Subsidiary to the Company, or from one Subsidiary to another shall not be
considered a termination of employment; nor shall it be considered a termination
of employment if an employee is placed on military or sick leave or such other
leave of absence which is considered by the Committee as continuing intact the
employment relationship.
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<PAGE>
15. Adjustments.
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation, distribution of assets,
or any other change in the corporate structure or shares of the Company, the
Committee shall make such adjustment as it deems appropriate in the number and
kind of Shares or other property available for issuance under the Plan
(including, without limitation, the total number of Shares available for
issuance under the Plan pursuant to Section 4), in the number and kind of
options, SARs, Shares or other property covered by grants previously made under
the Plan, and in the exercise price of outstanding options and SARs. Any such
adjustment shall be final, conclusive and binding for all purposes of the Plan.
In the event of any merger, consolidation or other reorganization in which the
Company is not the surviving or continuing corporation or in which a Change in
Control is to occur, all of the Company's obligations regarding options, SARs,
performance awards, and restricted stock that were granted hereunder and that
are outstanding on the date of such event shall, on such terms as may be
approved by the Committee prior to such event, be assumed by the surviving or
continuing corporation or canceled in exchange for property (including cash).
Without limitation of the foregoing, in connection with any
transaction of the type specified by clause (iii) of the definition of a Change
in Control in Section 2(c), the Committee may, in its discretion, (i) cancel any
or all outstanding options under the Plan in consideration for payment to the
holders thereof of an amount equal to the portion of the consideration that
would have been payable to such holders pursuant to such transaction if their
options had been fully exercised immediately prior to such transaction, less the
aggregate exercise price that would have been payable therefor, or (ii) if the
amount that would have been payable to the option holders pursuant to such
transaction if their options had been fully exercised immediately prior thereto
would be equal to or less than the aggregate exercise price that would have been
payable therefor, cancel any or all such options for no consideration or payment
of any kind. Payment of any amount payable pursuant to the preceding sentence
may be made in cash or, in the event that the consideration to be received in
such transaction includes securities or other property, in cash and/or
securities or other property in the Committee's discretion.
16. Amendment and Termination of the Plan.
The Board of Directors or the Committee, without approval of the
shareholders, may amend or terminate the Plan, except that no amendment shall
become effective without prior approval of the shareholders of the Company if
shareholder approval would be required by applicable law or regulations,
including if required for continued compliance with the performance-based
compensation exception of Section 162(m) of the Code or any successor thereto,
under the provisions of Section 422 of the Code or any successor thereto, or by
any listing requirement of the principal stock exchange on which the Common
Stock is then listed.
17. Amendment or Substitution of Awards under the Plan.
The terms of any outstanding award under the Plan may be amended from
time to time by the Committee in its discretion in any manner that it deems
appropriate (including, but not
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<PAGE>
limited to, acceleration of the date of exercise of any award and/or payments
thereunder or of the date of lapse of restrictions on Shares); provided that,
except as otherwise provided in Section 15, no such amendment shall adversely
affect in a material manner any right of a participant under the award without
his or her written consent. The Committee may, in its discretion, permit holders
of awards under the Plan to surrender outstanding awards in order to exercise or
realize rights under other awards, or in exchange for the grant of new awards,
or require holders of awards to surrender outstanding awards as a condition
precedent to the grant of new awards under the Plan.
18. Commencement Date; Termination Date.
The date of commencement of the Plan shall be May __, 2000, subject to
approval by the shareholders of the Company. If required by the Code, the Plan
will also be subject to reapproval by the shareholders of the Company prior to
the fifth anniversary of the date of commencement of this Plan.
Unless previously terminated upon the adoption of a resolution of the
Board terminating the Plan, the Plan shall terminate at the close of business on
the tenth anniversary of the date of commencement of this Plan. No termination
of the Plan shall materially and adversely affect any of the rights or
obligations of any person, without his or her written consent, under any grant
of options or other incentives theretofore granted under the Plan.
19. Severability. Whenever possible, each provision of the Plan shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of the Plan is held to be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of the Plan.
20. Governing Law. The Plan shall be governed by the corporate laws of the
State of Pennsylvania, without giving effect to any choice of law provisions
that might otherwise refer construction or interpretation of the Plan to the
substantive law of another jurisdiction.
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EXHIBIT E
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SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
BETWEEN
INTEL CORPORATION
AND
INTEGRATED CIRCUIT SYSTEMS, INC.
Dated as of December 23, 1999
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
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<S> <C>
SECTION 1 - Authorization and Sale of the Preferred Stock.................. 2
1.1. Sale of the Preferred Stock.............................. 2
SECTION 2 - Closing Date; Delivery....................................... 2
2.1. Closing Date........................................... 2
2.2. Delivery............................................... 2
SECTION 3 - Representations and Warranties of the Company................ 2
3.1. Organization and Qualification; Subsidiaries........... 2
3.2. Capitalization; Subsidiaries........................... 3
3.3. Authority Relative to this Agreement................... 3
3.4. No Violation........................................... 4
3.5. Financial Statements................................... 4
3.6. Compliance with Applicable Laws........................ 5
3.7. Litigation............................................. 5
3.8. Certain Approvals...................................... 5
3.9. Employee Benefit Plans................................. 6
3.10. Taxes.................................................. 7
3.11. Environmental Matters.................................. 8
3.12. Absence of Certain Changes............................. 10
3.13. Brokers................................................ 11
3.14. Material Contracts..................................... 11
3.15. Issuance of Shares..................................... 12
3.16. Intellectual Property.................................. 12
3.17. Related Party Transactions............................. 13
3.18. Labor Relations and Employment......................... 14
3.19. Year 2000.............................................. 15
3.20. Real Estate............................................ 15
(a) Owned Properties................................. 15
(b) Leased Properties................................ 15
(c) Real Property Disclosure......................... 16
(d) No Proceedings................................... 16
(e) Condition and Operation of Improvements.......... 16
(f) Permits.......................................... 16
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C>
3.21. Knowledge Qualification................................ 17
SECTION 4 - Representations and Warranties of Purchaser.................. 17
4.1. Organization........................................... 17
4.2. Authorization.......................................... 17
4.3. Experience............................................. 17
4.4. Investment............................................. 17
4.5. Rule 144............................................... 18
4.6. No Public Market....................................... 18
4.7. Access to Data......................................... 18
4.8. Brokers or Finders..................................... 18
SECTION 5 - Conditions to Closing of Purchaser........................... 18
5.1. Representations and Warranties Correct................. 18
5.2. Covenants.............................................. 19
5.3. Filing of Articles of Incorporation.................... 19
5.4. Ancillary Agreements................................... 19
5.5. Delivery of Preferred Shares........................... 19
5.6. Opinion of Company Counsel............................. 19
5.7. Addendum to Purchase Agreement......................... 19
5.8. Board and Shareholder Approval......................... 19
5.9. Good Standing Certificate.............................. 19
SECTION 6 - Conditions to Closing of Company............................. 20
6.1. Representations and Warranties Correct................. 20
6.2. Filing of Articles of Incorporation.................... 20
6.3. Ancillary Agreements................................... 20
6.4. Delivery of Purchase Price............................. 20
6.5. Addendum to Purchase Agreement......................... 20
6.6. Board and Shareholder Approval......................... 20
SECTION 7 - Affirmative Covenants of the Company......................... 20
7.1. Financial Information.................................. 20
7.2. Shareholder and Commission Reports..................... 21
SECTION 8 - Restrictions on Transferability of
Securities; Registration Rights........................... 22
</TABLE>
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<TABLE>
<CAPTION>
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8.1. Restrictions on Transfer............................... 22
8.2. Restrictive Legend..................................... 22
8.3. Notice of Proposed Transfers........................... 22
8.4. Required Registration and Notice....................... 23
SECTION 9 - Miscellaneous................................................ 23
9.1. Governing Law.......................................... 23
9.2. Counterparts; Telecopied Signatures.................... 23
9.3. Termination............................................ 23
9.4. Survival............................................... 23
9.5. Successors and Assigns................................. 24
9.6. Entire Agreement; Amendment............................ 24
9.7. Notices, etc........................................... 24
9.8. Expenses............................................... 25
9.9. Severability........................................... 25
9.10. Titles and Subtitles................................... 25
</TABLE>
EXHIBITS
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A. Amended and Restated Articles of Incorporation
B. Amendment No. 1 to Registration Agreement
C. Amendment No. 1 to Stockholders Agreement
D. Confidentiality Agreement
E. Opinion of Company Counsel
DISCLOSURE SCHEDULE
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<PAGE>
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
This Series A Cumulative Convertible Preferred Stock Purchase
Agreement ("Agreement") is made this 23rd day of December, 1999, between INTEL
CORPORATION, a Delaware corporation (the "Purchaser"), and INTEGRATED CIRCUIT
SYSTEMS, INC., a Pennsylvania corporation (the "Company").
WHEREAS, The Company and the Purchaser are executing and delivering
this Agreement in reliance upon the exemption from securities registration
afforded by Rule 506 under Regulation D ("Regulation D") as promulgated by the
United States Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933 (the "1933 Act") and Section 4(6) of the 1933 Act;
WHEREAS, The Company's Board of Directors has authorized a new series
of preferred stock, designated as its Series A Cumulative Convertible Preferred
Stock (the "Preferred Stock"), having the rights and preferences set forth in
the Amended and Restated Articles of Incorporation of Integrated Circuit
Systems, Inc. attached hereto as Exhibit "A" (the "Articles of Incorporation"),
and the Board and the Company's shareholders have approved the Articles of
Incorporation;
WHEREAS, The Preferred Stock is convertible into shares of Class A
Common Stock, par value $.01 per share, of the Company and Class L Common Stock,
par value $.01 per share, of the Company, upon the terms and subject to the
conditions set forth in the Articles of Incorporation (the Common Stock into
which the Preferred Stock is convertible being hereinafter referred to as the
"Conversion Shares");
WHEREAS, The Purchaser desires to purchase and the Company desires to
issue and sell, upon the terms and conditions set forth in this Agreement, (i)
an aggregate of Three Million Four Hundred Sixty Six Thousand Six Hundred Eights
(3,366,670) shares of Preferred Stock (the "Preferred Shares"), having a stated
value of Four Dollars ($4.00) per share, for an aggregate purchase price of
Thirteen Million Four Hundred Sixty Six Thousand Six Hundred Eighty Dollars
($13,466,680) (the "Purchase Price");
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering (1) Amendment No.1 to
the Registration Agreement dated May 11, 1999 among the Company, Investment
Stockholders specified therein, Executive Stockholders specified therein and
Other Stockholders specified therein, in the form attached hereto as Exhibit "B"
(the "Amended Registration Agreement"), pursuant to which the Company has agreed
to provide certain registration rights under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws; (2)
Amendment No.1 to the Stockholders Agreement dated May 11, 1999 among the Bain
Stockholders, the Bear Stearns Stockholders and the FirstBoston Stockholder, in
the form
<PAGE>
attached hereto as Exhibit "C" (the "Amended Stockholders Agreement"); and (3) a
Confidentiality Agreement, in the form attached hereto as Exhibit "D" (the
"Confidentiality Agreement").
NOW, THEREFORE, the parties agree as follows:
SECTION 1
Authorization and Sale of
the Preferred Stock
1.1 Sale of the Preferred Stock. Subject to the terms and conditions
---------------------------
hereof, the Company will issue and sell to the Purchaser and the Purchaser will
buy from the Company the Preferred Shares for the Purchase Price, payable via
wire transfer of immediately available Federal funds to an account designated in
writing by the Company at least one day prior to the Closing Date.
SECTION 2
Closing Date; Delivery
2.1 Closing Date. The closing of the purchase and sale of the
------------
Preferred Shares hereunder (the "Closing") shall be held within two business
days after the date of this Agreement or on such other date upon which the
Company and the Purchaser shall agree (the date of the Closing is hereinafter
referred to as the "Closing Date").
2.2 Delivery. At the Closing, the Company will deliver to the
--------
Purchaser duly executed certificates representing the Preferred Shares being
purchased by Purchaser hereunder and the Purchaser will pay the Purchase Price
in the manner specified in Section 2.1.
SECTION 3
Representations and Warranties of the Company
The Company hereby represents and warrants to the Purchaser as
follows:
3.1 Organization and Qualification; Subsidiaries. The Company and
--------------------------------------------
each of its Subsidiaries (as hereinafter defined) is a corporation duly
organized, validly existing and in good standing under the laws of its state or
jurisdiction of incorporation and has all requisite corporate power and
corporate authority to own, lease and operate its properties and to carry on
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<PAGE>
its business as now being conducted and is in good standing as a foreign
corporation in each jurisdiction where the properties owned, leased or operated,
or the business conducted, by it require such qualification and where failure to
be in good standing or to so qualify would have a Material Adverse Effect on the
Company. The term "Material Adverse Effect on the Company," as used in this
Agreement, means any effect, event, occurrence, change or state of facts that,
individually or aggregated with other effects, events, occurrences, changes or
states of facts, is, or is reasonably likely to be, materially adverse to (i)
the assets, liabilities, business, property, operations, condition as a whole
(financial or otherwise) of the Company and its Subsidiaries taken as a whole,
or (ii) the ability of the Company to perform its obligations under this
Agreement. The Company has heretofore made available to Purchaser a complete and
correct copy of its Articles of Incorporation, as amended, and By-Laws. The
following is a list of every corporation, limited liability company, partnership
or other business organization or entity of which the Company owns either
directly or through its Subsidiaries, (a) more than 50% of (i) the total
combined voting power of all classes of voting securities of such entity, (ii)
the total combined equity interests therein, or (iii) the capital or profit
interests therein, in the case of a partnership; or (b) or otherwise has the
power to vote or direct the voting of sufficient securities to elect a majority
of the board of directors or similar governing body of such entity (the
"Subsidiaries"): ICS Technologies, Inc., ICST, Inc., Integrated Circuit Systems
PTE Ltd. and MicroClock, Inc.
3.2 Capitalization; Subsidiaries. Upon filing the Articles of
----------------------------
Incorporation with the Pennsylvania Department of State, the authorized capital
stock of the Company will consist of 68,366,670 shares, including 3,366,670
shares of Preferred Stock, 31,000,000 shares of Class A Common Stock, 31,000,000
shares of Class B Common Stock and 4,000,000 shares of Class L Common Stock
("Common Stock"). As of the close of business on November 12, 1999, 15,612,588
shares of Class A Common Stock were issued and outstanding, 5,653,079 shares of
Class B Common Stock were issued and outstanding and 2,362,852 shares of Class L
Common Stock were issued and outstanding. Prior to the date of this Agreement,
the Company had no shares of Preferred Stock authorized or issued and
outstanding. Except for (i) 6,868,000 shares of Class A Common Stock and 137,000
shares of Class L Common Stock reserved for issuance pursuant to outstanding
Options and rights granted under the Stock Plans, there are no existing options,
warrants, calls, subscriptions, or other rights, or other agreements or
commitments, obligating the Company to issue, transfer or sell any shares of
capital stock of the Company or any of its Subsidiaries, other than in favor of
the Company's senior secured lenders. All of the outstanding shares of capital
stock of each of the Company's Subsidiaries have been validly issued and are
fully paid and non-assessable.
3.3 Authority Relative to this Agreement.
------------------------------------
(a) The Company has all necessary corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. Upon receipt of the Board of Directors and shareholder
approval as contemplated by Section 5.8,
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<PAGE>
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will have been duly and validly authorized by
the Company Board and, to the extent necessary, the shareholders of the Company,
and no other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions so contemplated. Upon
receipt of the Board of Directors and shareholder approval as contemplated by
Section 5.8, this Agreement has been duly and validly executed and delivered by
the Company, and, assuming this agreement constitutes a valid and binding
obligation of Purchaser, this Agreement will constitute a valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws
affecting the rights of creditors generally, general equitable principles
(whether considered in a proceeding in equity or at law) and an implied covenant
of good faith and fair dealing.
(b) Other than in connection with, or in compliance with, the
provisions of the Pennsylvania Business Corporation Law of 1988 ("BCL") with
respect to the transactions contemplated hereby, and federal and state
securities laws, no authorization, consent or approval of, or filing with, any
Governmental Entity (as hereinafter defined) is necessary for the consummation
by the Company of the transactions contemplated by this Agreement. As used in
this Agreement, the term "Governmental Entity" means any government or
subdivision thereof, domestic, foreign or supranational or any administrative,
governmental or regulatory authority, agency, commission, tribunal or body,
domestic, foreign or supranational.
3.4 No Violation. Neither the execution or delivery of this
------------
Agreement by the Company nor the consummation by the Company of the transactions
contemplated hereby will (i) constitute a breach or violation of any provision
of the Articles of Incorporation or By-Laws of the Company, (ii) violate any
applicable law or other restriction of any governmental body or (iii) constitute
a breach or violation of any obligation, agreement, covenant, consideration or
condition contained in any indenture, mortgage, deed of trust, loan agreement,
note, lease or other contract to which the Company is a party or by which it or
any of its assets is subject.
3.5 Financial Statements. Since January 1, 1995, the Company has
--------------------
filed all forms, reports and documents ("SEC Reports") with the SEC required to
be filed by it pursuant to the federal securities laws and the SEC rules and
regulations thereunder. Copies of all such SEC Reports have been made available
to Purchaser by the Company or are publicly available on EDGAR. None of such SEC
Reports (as of their respective filing dates) contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading except as subsequently
disclosed. The audited and unaudited consolidated financial statements of the
Company included in the SEC Reports have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis (except
as otherwise stated in such financial statements, including the related notes)
and
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<PAGE>
fairly present the financial position of the Company and its consolidated
Subsidiaries as of the dates thereof and the results of their operations and
changes in financial position for the periods then ended, subject, in the case
of the unaudited financial statements, to year-end audit adjustments. Except as
set forth in the SEC Reports, at the date of the most recent audited financial
statements of the Company included in the SEC Reports, neither the Company nor
any of its Subsidiaries had, and since such date neither the Company nor any of
such Subsidiaries has incurred, any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) which, individually or in
the aggregate, would be required to be disclosed in a balance sheet of the
Company prepared in accordance with generally accepted accounted principles
except liabilities incurred in the ordinary and usual course of business and
consistent with past practice, liabilities incurred in connection with the
transactions contemplated by this Agreement, and liabilities that would not
reasonably be expected to have a Material Adverse Effect on the Company.
3.6 Compliance with Applicable Laws. Except for matters relating to
-------------------------------
Environmental Laws (which matters are covered in Section 3.12 hereof) or matters
relating to real estate (which matters are covered in Section 3.20 hereof), (i)
the Company and its Subsidiaries possess all permits, licenses, certifications
and other governmental or regulatory authorizations and approvals necessary to
enable the Company and its Subsidiaries to carry on their business as presently
conducted except for such failures to have such permits, licenses,
certifications or regulatory authorizations or approvals that would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Company, and all such permits are valid, and in full force
and effect and there exists no default thereunder and (ii) the operations of the
Company and its Subsidiaries have been conducted in compliance with all laws,
ordinances, regulations, judgments and decrees of any Governmental Entity
applicable to the Company or such Subsidiary or by which it may be bound, except
for possible violations which would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the Company.
3.7 Litigation. Except as set forth in the SEC Reports filed prior to
----------
the date of this Agreement or on Section 3.7 of the Disclosure Schedule, there
is no suit, claim, action, proceeding or investigation pending or, to the
knowledge of the Company, threatened, at law or in equity, or before any
Governmental Entity, against the Company or any of its Subsidiaries, and the
matters set forth on Section 3.7 of the Disclosure Schedule, individually or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect on the Company or would reasonably be expected to prevent or materially
delay the consummation of the transactions contemplated by this Agreement.
Except as disclosed in the SEC Reports filed prior to the date of this Agreement
or on Section 3.7 of the Disclosure Schedule, neither the Company nor any of its
Subsidiaries is subject to any outstanding order, writ, injunction or decree.
3.8 Certain Approvals. The Company Board has taken any and all
-----------------
necessary and appropriate action to approve the transactions contemplated by
this Agreement.
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<PAGE>
3.9 Employee Benefit Plans.
----------------------
(a) Section 3.9 of the Disclosure Schedule includes a list of
all material employee benefit plans and programs providing benefits to any
employee or former employee of the Company and its Subsidiaries sponsored or
maintained by the Company or any of its Subsidiaries or to which the Company or
any of its Subsidiaries contributes or is obligated to contribute ("Plans").
Without limiting the generality of the foregoing, the term "Plans" includes all
employee welfare benefit plans within the meaning of Section 3(1) of the
Employee Retirement Income Security Act of 1974, as amended, and the regulations
thereunder ("ERISA"), and all employee pension benefit plans within the meaning
of Section 3(2) of ERISA.
(b) With respect to each Plan, the Company has made available to
Purchaser a true, correct and complete copy of: (i) all plan documents, benefit
schedules, trust agreements, and insurance contracts and other funding vehicles;
(ii) the most recent Annual Report (Form 5500 Series) and accompanying schedule,
if any; (iii) the current summary plan description, if any; (iv) the most recent
annual financial report, if any; (v) the most recent actuarial report, if any;
and (vi) the most recent determination letter from the United States Internal
Revenue Service (the "IRS"), if any.
(c) The Company and each of its Subsidiaries has complied, and
is now in compliance, in all material respects with all provisions of ERISA, the
Internal Revenue Code of 1986, as amended, including the Treasury Regulations
thereunder (the "Code") and all laws and regulations applicable to the Plans.
With respect to each Plan that is intended to be a "qualified plan" within the
meaning of Section 401(a) of the Code ("Qualified Plans"),(i) such Plan is a
Qualified Plan within the meaning of Section 401(a) of the Code, (ii) such
Qualified Plans are within the remedial amendment period and (iii) the Company
will submit such Qualified Plans to the IRS for a favorable determination letter
within the remedial amendment period.
(d) All contributions required to be made to any Plan by
applicable law or regulation or by any plan document or other contractual
undertaking, and all premiums due or payable with respect to insurance policies
funding any Plan, for any period through the date hereof have been timely made
or paid in full or, to the extent not required to be made or paid on or before
the date hereof, have been fully reflected in the financial statements of the
Company included in the SEC Reports to the extent required under generally
accepted accounting principles.
(e) No Plan is subject to Title IV or Section 302 of ERISA or
Section 412 or 4971 of the Code. Without limiting the generality of the
foregoing, no Plan is a "multiemployer plan" within the meaning of Section
4001(a)(3) of ERISA (a "Multiemployer Plan") or a plan that has two or more
contributing sponsors at least two of whom are not under
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<PAGE>
common control, within the meaning of Section 4063 of ERISA and which is subject
to Title IV of ERISA (a "Multiple Employer Plan").
(f) There does not now exist, nor do any circumstances exist
that could result in, any material liability under (i) Title IV of ERISA, (ii)
Section 302 of ERISA, (iii) Sections 412 and 4971 of the Code, (iv) the
continuation coverage requirements of section 601 et seq. of ERISA and Section
4980B of the Code, or (v) corresponding or similar provisions of foreign laws or
regulations, other than a liability that arises solely out of, or relates solely
to, the Plans, that would be a liability of the Company or any of its
Subsidiaries following the Effective Time. Without limiting the generality of
the foregoing, none of the Company, its Subsidiaries nor any ERISA Affiliate of
the Company or any of its Subsidiaries has engaged in any transaction described
in Section 4069 or Section 4204 or 4212 of ERISA. An "ERISA Affiliate" means any
entity, trade or business that is a member of a group described in Section
414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA that includes
the Company or any of its Subsidiaries, or that is a member of the same
"controlled group" as the Company or any of its Subsidiaries, pursuant to
Section 4001(a)(14) of ERISA.
3.10. Taxes.
-----
(a) The Company and each of its Subsidiaries has timely
filed all federal, state, local and foreign income Tax Returns (as hereinafter
defined) required to be filed by it in all jurisdictions in which it is required
to do so, and all other Tax Returns required to be filed by it, and such Tax
Returns are true and complete, and the Company and each of its Subsidiaries has
paid or caused to be paid all Taxes (as hereinafter defined) shown due on such
Tax Returns and has made adequate provision in the Company's financial
statements for payment of all Taxes that are not payable as of the date hereof
or have not been paid, in respect of all taxable periods or portions thereof
ending on or before the date hereof, except where the failure to so file or pay
or make adequate provision would not, individually or in the aggregate, have a
Material Adverse Effect on the Company. All Tax Returns for the Company in
respect of all years not barred by the statute of limitations have heretofore
been made available by the Company to Purchaser. There are no outstanding
Agreements, waivers or requests for waivers extending the statutory period of
limitation applicable to any Tax Return of the Company or any of its
Subsidiaries. Neither the Company nor any of its Subsidiaries (i) has been a
member of a group filing consolidated returns for federal income tax purposes
(except for the group of which the Company is the common parent), (ii) is a
party to or has any liability pursuant to a Tax sharing or Tax indemnity
agreement or any other agreement of a similar nature that remains in effect or
(iii) has any liability for the Taxes of any person (other than any of the
Company or its Subsidiaries) under Treas. Reg. (S) 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or successor, by
contract, or otherwise. No claim has ever been made by a taxing authority in a
jurisdiction where the Company or any of its Subsidiaries does not file Tax
Returns that such person is or may be subject to taxation by such jurisdiction.
None of the Company or its Subsidiaries will be required to include any item of
income in, or exclude any
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<PAGE>
item of deduction from, taxable income for any taxable period (or portion
thereof) ending after the Closing Date as a result of any (i) change in method
of accounting for a taxable period ending on or prior to the Closing Date under
Code (S) 481(c) (or any corresponding or similar provision of state, local or
foreign income Tax law), (ii) "closing agreement" as described in Code (S) 7121
(or any corresponding or similar provision of state, local or foreign income Tax
law) or (iii) deferred intercompany gain or any excess loss account described in
Treasury Regulations under Code Section 1502. None of the Company or its
Subsidiaries is a party to any agreement, contract, arrangement or plan that has
resulted or would result, separately or in the aggregate, in the payment of any
"excess parachute payment" within the meaning of Code (S) 280G (or any
corresponding provision of state, local or foreign income Tax law).
(b) For purposes of this Agreement, the term "Taxes" means all
taxes, charges, fees, levies or other assessments, including, without
limitation, income, gross receipts, excise, property, sales, transfer, license,
payroll, withholding, capital stock and franchise taxes, imposed by the United
States or any state, local or foreign government or subdivision or agency
thereof, including any interest, penalties or additions thereto. For purposes of
this Agreement, the term "Tax Return" means any report, return or other
information or document required to be supplied to a taxing authority in
connection with Taxes.
3.11. Environmental Matters.
---------------------
Except for such matters that, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect on the Company
(other than the representation with respect to the matters described in
paragraph (c) below, which is made without any Material Adverse Effect
qualification):
(a) with respect to the Business, the Company and its
Subsidiaries have complied and are in compliance with all Environmental and
Safety Requirements;
(b) without limiting the generality of the foregoing, the
Company and its Subsidiaries have obtained and complied with, and are in
compliance with, all permits, licenses and other authorizations that may be
required pursuant to Environmental and Safety Requirements for the occupation of
their facilities and the operation of the Business and all such permits,
licenses and authorizations may be relied upon for the lawful operation of the
Business and such facilities on and after the Closing without transfer,
reissuance or other governmental action;
(c) neither the Company nor any Subsidiary has received any
written or oral notice, report or other information regarding any actual or
alleged violation of Environmental and Safety Requirements, or any liabilities
or potential liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise), including any investigatory, remedial
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<PAGE>
or corrective obligations, relating to the Business or its past or current
facilities and arising under Environmental and Safety Requirements;
(d) none of the following exists at any property or facility
owned or operated by the Company or any Subsidiary in connection with the
Business: (i) underground storage tanks; (ii) asbestos-containing material in
any form or condition; (iii) materials or equipment containing polychlorinated
biphenyls; or (iv) landfills, surface impoundments, or disposal areas;
(e) with respect to the Business, neither the Company nor any
Subsidiary has treated, stored, disposed of, arranged for or permitted the
disposal of, transported, handled, or released any substance, including without
limitation any hazardous substance, or owned or operated any property or
facility (and no such property or facility is contaminated by any such
substance) in a manner that has given or would give rise to liabilities,
including any liability for response costs, corrective action costs, personal
injury, property damage, natural resources damages or attorney fees, or any
investigative, corrective or remedial obligations, pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA") or the Solid Waste Disposal Act, as amended ("SWDA") or any other
Environmental and Safety Requirements;
(f) no facts, events or conditions relating to the past or
present facilities, properties or operations of the Company, any Subsidiary, or
any of their respective affiliates or predecessors the Business will prevent,
hinder or limit continued compliance by the Business with Environmental and
Safety Requirements, give rise to any investigatory, remedial or corrective
obligations pursuant to Environmental and Safety Requirements, or give rise to
any other liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise) pursuant to Environmental and Safety Requirements, including without
limitation any relating to onsite or offsite releases or threatened releases of
hazardous materials, substances or wastes, personal injury, property damage or
natural resources damage;
(g) neither this Agreement nor the consummation of the
transaction that is the subject of this Agreement will result in any obligations
for site investigation or cleanup, or notification to or consent of government
agencies or third parties, pursuant to any of the so-called "transaction-
triggered" or "responsible property transfer" Environmental and Safety
Requirements;
(h) with respect to the Business, neither the Company nor any
Subsidiary has, either expressly or by operation of law, assumed or undertaken
any liability, including without limitation any obligation for corrective or
remedial action, of any other person relating to Environmental and Safety
Requirements; and
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<PAGE>
(i) for purposes of this Agreement, "Environmental and Safety
Requirements" shall mean all federal, state, local and foreign statutes,
regulations, ordinances and similar provisions having the force or effect of
law, all judicial and administrative orders and determinations, all contractual
obligations and all common law concerning public health and safety, worker
health and safety, and pollution or protection of the environment, including
without limitation all those relating to the presence, use, production,
generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
release, control, or cleanup of any hazardous materials, substances or wastes,
chemical substances or mixtures, pesticides, pollutants, contaminants, toxic
chemicals, petroleum products or byproducts, asbestos, polychlorinated
biphenyls, noise or radiation, as such of the foregoing are enacted or in
effect, prior to, on, or after the Closing Date.
3.12. Absence of Certain Changes. Except as disclosed in the SEC
--------------------------
Reports, since July 3, 1999, through the date of this Agreement the Company (a)
has conducted its business only in the ordinary course consistent with past
practice and (b) has not:
(a) incurred any indebtedness for borrowed money, except
borrowings from banks (or other financial institutions) necessary to meet
ordinary course working capital requirements and to finance ordinary course
capital expenditures;
(b) mortgaged, pledged or subjected to any Lien, any asset or
related group of assets having a net book value in excess of $500,000;
(c) sold, leased, assigned or transferred any tangible asset
or related group of assets having a net book value in excess of $500,000 except
for the sale of inventory and obsolete or used machinery and equipment in the
ordinary course of business consistent with past practice;
(d) sold, leased, assigned or transferred any interest in real
estate having a net book value in excess of $500,000;
(e) sold, licensed, assigned or transferred any patents,
trademarks, trade names, copyrights, trade secrets or other intangible assets
having a fair market value in excess of $500,000 individually or in the
aggregate;
(f) waived or relinquished any right or claim or related group
of rights or claims except any such item which the Company believes has a fair
value of less than $500,000 individually or in the aggregate;
(g) (x) issued or sold any of its Common Stock or other equity
securities or any warrants, options or other rights to acquire its Common Stock
or other securities of the Company except for the issuance of Common Stock upon
exercise of Options outstanding
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<PAGE>
as of July 3, 1999, or (y) purchased or redeemed or agreed to purchase or redeem
any Common Stock or other equity securities;
(h) made or entered into binding commitment for any capital
expenditures or related group of capital expenditures in excess of $2,500,000;
(i) modified or amended in any material manner or terminated
any Material Contract (as hereinafter defined) other than the termination of any
such contract by its terms;
(j) granted any increase in the base compensation of, or made
any other material change in the employments terms for, any of its directors,
officers, and employees other than normal periodic increases or changes
reflecting or based upon changed responsibilities or duties made in the ordinary
course of business consistent with past practice or changes made pursuant to any
collective bargaining agreements or existing contracts;
(k) adopted, modified, or terminated any bonus, profit-
sharing, incentive, severance or other plan or contract for the benefit of any
of its directors, officers, and employees, other than for changes which do not
materially increase the aggregate cost of such plan or contract or which are
required by law or a collective bargaining agreement; or
(l) declared or paid any dividend or other distribution with
respect to the Common Stock.
3.13. Brokers. None of the Company, any of its Subsidiaries, or any
-------
of their respective officers, directors or employees has employed any broker or
finder or incurred any liability for any brokerage fees, commissions or finder's
fees in connection with the transactions contemplated by this Agreement.
3.14. Material Contracts. Except as set forth on Section 3.14 of the
------------------
Disclosure Schedule or filed as exhibits to the SEC Reports, neither the Company
nor any of its Subsidiaries is a party to any: (i) collective bargaining
agreement or contract with any labor union; (ii) bonus, pension, profit sharing,
retirement or other form of deferred compensation plan; (iii) stock purchase,
stock option, stock appreciation or similar plan; (iv) contract for the
employment of any officer, individual employee or other person on a full-time or
consulting basis involving an annual compensation commitment by the Company or a
Subsidiary in excess of $200,000; (v) agreement or indenture relating to the
borrowing of money in excess of $1,000,000 or to mortgaging, pledging or
otherwise placing a Lien (other than a Permitted Lien (as defined herein)) on
any material portion of the Company's assets; (vi) guaranty of any obligation
for borrowed money in excess of $1,000,000; (vii) lease or agreement under which
it is lessee of, or holds or operates any personal property owned by any other
party, for which the annual rental exceeds $250,000, (viii) contract or group of
related contracts with the same party for the
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<PAGE>
purchase of inventories, supplies or services, under which the undelivered
balance of such inventories, supplies or services has a selling price in excess
of $1,000,000; (ix) contract or group of related contracts with the same party
for the sale of products or services under which the undelivered balance of such
products or services has a sales price in excess of $1,000,000; (x) agreement
pertaining to Intellectual Property (as hereinafter defined) including, license
agreements or similar arrangements; or (xi) contract which prohibits or limits
the Company or a Subsidiary from freely engaging in business in the United
States or anywhere else in the world (all such contracts and agreements,
"Material Contracts"). The Company has provided or made available to Purchaser
(i) true and complete copies of all written Material Contracts, or (ii) with
respect to such Material Contracts that have not been reduced to writing, a
written description thereof, each of which is listed on Section 3.14 of the
Disclosure Schedule. Neither the Company nor any of its Subsidiaries is, or has
received any notice or has any knowledge that any other party is, in default in
any respect under any such Material Contract, except for those defaults which
would not reasonably be likely, either individually or in the aggregate, to have
a Material Adverse Effect on the Company; and there has not occurred any event
that, with the lapse of time or the giving of notice or both, would constitute
such a default by the Company or any of its Subsidiaries or, to the knowledge of
the Company, by any other party thereto. For purposes of this Agreement,
"Permitted Liens" shall mean (i) Liens for Taxes (other than those pursuant to
Section 412 of the Code) or governmental assessments, charges or claims, the
payment of which is not yet due, or for Taxes, the validity of which are being
contested in good faith by appropriate proceedings; (ii) statutory Liens
incurred in the ordinary course of business for sums not yet due or being
contested in good faith; (iii) Liens relating to deposits made in the ordinary
course of business; and (iv) Liens which do not individually or in the aggregate
materially interfere with or materially impair the conduct of the Business as it
is currently being conducted, or the value, marketability, use or ownership of
the asset to which it attaches.
3.15. Issuance of Shares. Upon receipt of the Board of Directors and
------------------
shareholder approval as contemplated by Section 5.8, the Preferred Shares and
the Conversion Shares will be duly authorized and, upon issuance in accordance
with the terms of this Agreement or upon conversion of the Preferred Shares, as
applicable, the Preferred Shares and the Conversion Shares will be validly
issued, fully paid and non-assessable, and free from all taxes, liens and
charges with respect to the issue thereof and shall not be subject to preemptive
rights or other similar rights of securityholders of the Company (other than any
such rights created by the Purchaser).
3.16. Intellectual Property.
---------------------
(a) Section 3.16 of the Disclosure Schedule contains a
complete and accurate list of all (i) patented or registered Intellectual
Property (as hereinafter defined) owned or filed by the Company or any
Subsidiary, (ii) pending patent applications and applications for registration
of other Intellectual Property filed by or on behalf of the Company or any
Subsidiary, (iii) material unregistered trade names, corporate names, or
Internet domain names owned or
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<PAGE>
used by the Company or any Subsidiary, (iv) material unregistered trademarks,
service marks, copyrights and mask works owned or used by the Company or any
Subsidiary, (v) all computer software owned and/or used by the Company or any of
its Subsidiaries (other than mass-marketed software with a license fee of less
than $10,000) that is material to the Business, and (vi) all material licenses
or similar agreements or arrangements pertaining to Intellectual Property to
which the Company or its Subsidiaries is a party, either as licensee or
licensor. "Intellectual Property" means (i) all patents, patent applications and
patent disclosures; all inventions (whether or not patentable and whether or not
reduced to practice); (ii) all trademarks, service marks, trade names, logos,
slogans, corporate names and Internet domain names, and all the goodwill
associated with each of the foregoing; (iii) all mask works and registrations
and applications for registry thereof; (iv) all registered and unregistered
statutory and common law copyrights; (v) all registrations, applications and
renewals for any of the foregoing; and (vi) all trade secrets, confidential
information, ideas, formulae, compositions, know-how, manufacturing and
production processes and techniques, research information, drawings,
specifications, designs, plans, improvements, proposals, technical and computer
data, documentation and software, financial business and marketing plans,
customer and supplier lists and related information and marketing materials and
all other proprietary rights.
(b) Except as set forth on Section 3.16 of the Disclosure
Schedule, (i) the Company or one of its Subsidiaries owns all right, title and
interest to, or has a valid and enforceable license to use, all Intellectual
Property necessary for the operation of the businesses of the Company and its
Subsidiaries as presently conducted and free and clear of all Liens or other
encumbrances or restrictions; (ii) no claim by any other Person contesting the
validity, enforceability, use or ownership of any of the Intellectual Property
owned or used by the Company or any of its Subsidiaries (the "Company
Intellectual Property") has been made, is currently outstanding or, to the
knowledge of the Company, is threatened (including, without limitation, any
demand or request that the Company or its Subsidiaries license any rights from a
third Person); (iii) neither the Company nor its Subsidiaries have received any
notices of, nor are aware of any facts which indicate a likelihood of, any
infringement or misappropriation by, or conflict with, any third Person with
respect to the Company Intellectual Property; (iv) to the knowledge of the
Company, neither the Company nor its Subsidiaries have infringed,
misappropriated, or otherwise conflicted with any Intellectual Property or other
rights of any third Persons and neither the Company nor its Subsidiaries is
aware of any infringement, misappropriation or conflict which will occur as a
result of the continued operation of the business of the Company or its
Subsidiaries as currently conducted; (v) no loss or expiration of any of the
material Company Intellectual Property is threatened, pending or reasonably
foreseeable; (vi) the transactions contemplated by this Agreement will have no
Material Adverse Effect on the Company on the right, title and interest in and
to the Company Intellectual Property; and (vii) the Company and its Subsidiaries
have taken all necessary and desirable action to maintain and protect the
Company Intellectual Property and will continue to maintain and protect the
Company Intellectual Property to ensure that there is no effect on any of the
Company Intellectual Property that would have a Material Adverse Effect on the
Company.
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<PAGE>
3.17. Related Party Transactions. Except as set forth in Section 3.17
--------------------------
of the Disclosure Schedule hereto, and excluding intercompany arrangements
solely between or among the Company and any of its Subsidiaries (or solely
between or among Subsidiaries), no director, officer, partner, "affiliate" or
"associate" (as such terms are defined in Rule 12b-2 under the Securities
Exchange Act of 1934 (the "Exchange Act")) of the Company or any of its
Subsidiaries (i) has borrowed any monies from or has outstanding any
indebtedness or other similar obligations to the Company or any of its
Subsidiaries; (ii) owns any direct or indirect interest of any kind in, or is a
director, officer, employee, partner, affiliate or associate of, or consultant
or lender to, or borrower from, or has the right to participate in the
management, operations or profits of, any person or entity which is (1) a
competitor, supplier, customer, distributor, lessor, tenant, creditor or debtor
of the Company or any of its Subsidiaries, (2) engaged in a business related to
the business of the Company or any of its Subsidiaries, (3) participating in any
transaction to which the Company or any of its Subsidiaries is a party or (iii)
otherwise a party to any contract, arrangement or understanding with the Company
or any of its Subsidiaries.
3.18. Labor Relations and Employment.
------------------------------
(a) Except as set forth on Section 3.18(a) of the Disclosure
Schedule and except for matters which would not (other than in the case of
clauses (i), (ii), (iii),(iv), (vi), (vii) and (ix) of this sentence) be
reasonably likely to result in a Material Adverse Effect on the Company, (i)
there is no labor strike, dispute, slowdown, stoppage or lockout actually
pending, or, to the knowledge of the Company, threatened against the Company or
any of its Subsidiaries, and during the past three years there has not been any
such action; (ii) to the knowledge of the Company, no union claims to represent
the employees of the Company or any of its Subsidiaries; (iii) neither the
Company nor any of its Subsidiaries is a party to or bound by any collective
bargaining or similar agreement with any labor organization, or work rules or
practices agreed to with any labor organization or employee association
applicable to employees of the Company or any of its Subsidiaries; (iv) none of
the employees of the Company or any of its Subsidiaries is represented by any
labor organization and the Company does not have any knowledge of any current
union organizing activities among the employees of the Company or any of its
Subsidiaries, nor does any question concerning representation exist concerning
such employees; (v) the Company and its Subsidiaries are, and have at all times
been, in compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages, hours of work
and occupational safety and health, and are not engaged in any unfair labor
practices as defined in the National Labor Relations Act or other applicable
law, ordinance or regulation; (vi) there is no unfair labor practice charge or
complaint against the Company or any of its Subsidiaries pending or, to the
knowledge of the Company, threatened before the National Labor Relations Board
or any similar state or foreign agency; (vii) there is no grievance arising out
of any collective bargaining agreement or other grievance procedure; (viii) no
charges with respect to or relating to the Company or any of its Subsidiaries
are pending
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<PAGE>
before the Equal Employment Opportunity Commission or any other agency
responsible for the prevention of unlawful employment practices; and (ix)
neither the Company nor any of its Subsidiaries has received notice of the
intent of any federal, state, local or foreign agency responsible for the
enforcement of labor or employment laws to conduct an investigation with respect
to or relating to the Company or any of its Subsidiaries and no such
investigation is in progress.
(b) Within the past five years , there has not been (i) a
"plant closing" (as defined in the Worker Adjustment and Retraining Notification
("WARN") Act) affecting any site of employment or one or more facilities or
operating units within any site of employment or facility of the Company or any
of its Subsidiaries; or (ii) a "mass layoff" (as defined in the WARN Act)
affecting any site of employment or facility of the Company or any of its
Subsidiaries; nor has the Company or any of its Subsidiaries been affected by
any transaction or engaged in layoffs or employment terminations sufficient in
number to trigger application of any similar state or local law. None of the
employees of the Company or any of its Subsidiaries has suffered an "employment
loss" (as defined in the WARN Act) since three months prior to the date of this
Agreement.
3.19. Year 2000. The Company has conducted an assessment, testing and
---------
remediation of Year 2000 compliance issues as described in the SEC Reports.
Based on such assessment, testing and remediation, the Company believes that all
Information Technology used by the Company and its Subsidiaries are, and the
Company has no knowledge, after due inquiry, that the Information Technology
used by the Company's and its Subsidiaries' key suppliers, vendors and customers
are not, reasonably expected on a timely basis to be Year 2000 Compliant (as
defined below), except to the extent that a failure to do so would not
reasonably be expected, individually or in the aggregate, to have Material
Adverse Effect on the Company. "Year 2000 Compliant" means, with respect to the
Company's information technology, the information technology is designed to be
used prior to, during, and after the calendar Year 2000 A.D., and the
information technology used during each such time period will accurately
receive, provide and process date/time data (including, but not limited to,
calculating, comparing and sequencing) from, into and between the twentieth and
twenty-first centuries, including the years 1999 and 2000, and leap year
calculations and will not malfunction, cease to function, or provide invalid or
incorrect results as a result of date/time data. "Information Technology" means
the Company's internal application systems, infrastructure and procedures, and
manufacturing and control processes and other computer applications.
3.20. Real Estate.
-----------
(a) Owned Properties. There is no Real Property owned (the
----------------
"Owned Real Property") by the Company used by the Company in the operation of
the Company's business.
-15-
<PAGE>
(b) Leased Properties. Section 3.20 of the Disclosure Schedule
-----------------
sets forth a list of all of the leases and subleases ("Leases") and each leased
and subleased parcel of real property in which the Company has a leasehold and
subleasehold interest (the "Leased Real Property"). Each of the Leases are in
full force and effect, and the Company holds a valid and existing leasehold or
subleasehold interest under each of the Leases described in Schedule 3.20. With
respect to each Lease set forth on Section 3.20 of the Disclosure Schedule: (i)
the Lease is legal, valid, binding, enforceable and in full force and effect;
(ii) the Lease will continue to be legal, valid, binding, enforceable and in
full force and effect on identical terms following the Closing; (iii) neither
the Company, nor, to the knowledge of the Company, any other party to the Lease,
is in breach or default, and no event has occurred which, with notice or lapse
of time, would constitute such a breach or default by the Company or permit
termination, modification or acceleration under the Lease by any other party
thereto; (iv) the Company has not, and, to the knowledge of the Company, no
third party has repudiated any provision of the Lease; (v) there are no
disputes, oral agreements, or forbearance programs in effect as to the Lease;
(vi) the Lease has not been modified in any respect, except to the extent that
such modifications are disclosed by the documents delivered to ICS; (vii) the
Company has not assigned, transferred, conveyed, mortgaged, deeded in trust or
encumbered any interest in the Lease (except for Permitted Liens); and (viii)
the Lease is fully assignable to ICS without the necessity of any consent or the
Company shall obtain all necessary consents prior to the Closing.
(c) Real Property Disclosure. Except as disclosed on Section
------------------------
3.20 of the Disclosure Schedule, there is no Real Property leased or owned by
the Company used in the Company's business. The Owned Real Property and Leased
Real Property is referred to collectively herein as the "Real Property."
(d) No Proceedings. There are no proceedings in eminent domain
--------------
or other similar proceedings pending or, to the knowledge of the Company,
threatened, affecting any portion of the Real Property (except for Permitted
Liens). There exists no writ, injunction, decree, order or judgment outstanding,
nor any litigation, pending or threatened, relating to the ownership, lease,
use, occupancy or operation by any person of the Real Property (except for
Permitted Liens).
(e) Condition and Operation of Improvements. All buildings and
---------------------------------------
other improvements included within the Real Property (the "Improvements") are in
good condition and repair and adequate to operate such facilities as currently
used, and there are no facts or conditions affecting any of the Improvements
which would, individually or in the aggregate, interfere with the use, occupancy
or operation thereof in a manner that would reasonably be expected to have a
Material Adverse Effect on the Company as currently used, occupied or operated
or intended to be used, occupied or operated. No Improvement or portion thereof
is dependent for its access, operation or utility on any land, building or other
improvement not included in the Real Property.
-16-
<PAGE>
(f) Permits. All required or appropriate certificates of
-------
occupancy, permits, licenses, franchises, approvals and authorizations
(collectively, the "Real Property Permits") of all governmental authorities
having jurisdiction over the Real Property, the absence of which could have a
Material Adverse Effect on the Company, have been issued to the Company to
enable the Real Property to be lawfully occupied and used for all of the
purposes for which it is currently occupied and used have been lawfully issued
and are, as of the date hereof, in full force and effect. The Company has
delivered complete and correct copies of the Real Property Permits to Purchaser.
The Company has not received any notice from any governmental authority having
jurisdiction over the Real Property threatening a suspension, revocation,
modification or cancellation of any Real Property Permit and, to the knowledge
of the Company, there is no basis for the issuance of any such notice or the
taking of any such action.
3.21. Knowledge Qualification. Whenever a representation or warranty
-----------------------
contained herein is based on the knowledge of the Company, such representation
and warranty is made based on the actual knowledge of the officers or directors
of the Company and on the knowledge that the officers or directors of the
Company would have if it had conducted a diligent inquiry into the subject
matter of the representation or warranty.
SECTION 4
Representations and Warranties of Purchaser
Purchaser hereby represents and warrants to the Company as follows:
4.1. Organization. Purchaser is a corporation duly organized,
------------
validly existing and in good standing under the laws of its jurisdiction of
organization and has the power and authority to enter into the Transaction
Documents and to carry out the transactions contemplated thereby.
4.2. Authorization. It has all necessary corporate power and
-------------
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by its Board and no other corporate proceedings on the part
of it are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Purchaser, and, assuming this agreement constitutes a valid and
binding obligation of the Company, this Agreement constitutes a valid and
binding agreement of Purchaser, enforceable against it in accordance with its
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws
affecting
-17-
<PAGE>
the rights of creditors generally, general equitable principles
(whether considered in a proceeding in equity or at law) and an implied covenant
of good faith and fair dealing.
4.3 Experience. It has experience in evaluating and investing in
----------
private placement transactions of securities in companies similar to the Company
so that it is capable of evaluating the merits and risks of its investment in
the Company and has the capacity to protect its own interests.
4.4 Investment. It is acquiring the Preferred Stock for investment
----------
for its own account, not as nominee or agent, and not with the view to, or for
resale in connection with, any distribution thereof. It understands that the
Preferred Stock has not been registered under the Securities Act by reason of a
specific exemption from the registration provisions of the Securities Act which
depends upon, among other things, the bona fide nature of the investment intent
and the accuracy of such Purchaser's representations as expressed herein.
4.5 Rule 144. It acknowledges that the Preferred Stock must be held
--------
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available. It is aware of the provisions of
Rule 144 promulgated under the Securities Act which permit limited resale of
securities purchased in a private placement subject to the satisfaction of
certain conditions, including (except as otherwise provided for in Rule 144(k)),
among other things, the existence of a public market for the securities, the
availability of certain current public information about the Company, the resale
occurring not less than two years after a party has purchased and paid for the
security to be sold, the sale being through a "broker's transaction" or in
transactions directly with a "market maker" and the amount of securities being
sold during any three-month period not exceeding specified limitations.
4.6 No Public Market. It understands that no public market now
----------------
exists for any of the securities issued by the Company and that it is uncertain
whether a public market will ever exist.
4.7 Access to Data. It has had an opportunity to discuss the
--------------
Company's business, management and financial affairs with the Company's
management and has had the opportunity to inspect the Company's facilities. It
understands that such discussions, as well as any written information issued by
the Company, were intended to describe the aspects of the Company's business and
prospects which it believes to be material but were not necessarily a thorough
or exhaustive description. Nothing contained in this Section 4.7 shall be
construed as a limitation of any of the representations and warranties contained
in Section 3.
4.8 Brokers or Finders. The Purchaser has not incurred, and will not
------------------
incur, directly or indirectly, as a result of any action taken by the Purchaser,
any liability for brokerage or finders' fees or agents' commissions or any
similar charges in connection with the Transaction Documents.
-18-
<PAGE>
SECTION 5
Conditions to Closing of Purchaser
The obligation of the Purchaser at the Closing to purchase the
Preferred Stock is, at the option of the Purchaser, subject to the fulfillment
of the following conditions:
5.1 Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by the Company in Section 3 hereof shall be true and correct
when made, and shall be true and correct as of the Closing Date. The Purchaser
shall have received a certificate signed on behalf of the Company, by an
authorized officer of the Company, to the effect set forth in this paragraph.
5.2 Covenants. All covenants, agreements and conditions contained in
---------
the Transaction Documents to be performed or complied with by the Company on or
prior to the Closing Date shall have been performed or complied with. The
Purchaser shall have received a certificate signed on behalf of the Company, by
an authorized officer of the Company, to the effect set forth in this paragraph.
5.3 Filing of Articles of Incorporation. The Articles of
-----------------------------------
Incorporation shall have been filed with the Secretary of the Commonwealth of
Pennsylvania.
5.4 Ancillary Agreements. The Company and the required number of
--------------------
signatories to the Registration Agreement shall have executed and delivered to
the Purchaser the Amended Registration Agreement. The Company and the required
number of signatories to the Stockholders Agreement shall have executed and
delivered to the Purchaser the Amended Stockholders Agreement. The Company shall
have executed and delivered to the Purchaser the Confidentiality Agreement.
5.5 Delivery of Preferred Shares. The Company shall have delivered
----------------------------
to the Purchaser duly executed certificates representing such number of
Preferred Shares as being purchased by Purchaser hereunder.
5.6 Opinion of Company Counsel. The Company shall have delivered to
--------------------------
the Purchaser an opinion of its counsel containing the opinions set forth in
Exhibit E attached hereto, and otherwise in a form reasonably acceptable to the
- ---------
Purchaser.
5.7 Addendum to Purchase Agreement. That certain Addendum "I"
------------------------------
Supplemental Provisions to Purchase Agreement - Goods (the "Purchase Addendum")
between the Company and the Purchaser shall have been executed and delivered by
the Company to the
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<PAGE>
Purchaser.
5.8 Board and Shareholder Approval. This Agreement, the Articles of
------------------------------
Incorporation, the Amended Registration Agreement, the Amended Shareholders
Agreement and the Purchase Addendum shall have been approved by the Company's
Board of Directors and the Articles of Amendment shall have been approved by the
Company's shareholders, in each case in accordance with applicable provisions of
the BCL, the Articles of Incorporation, the Company's By-laws and applicable
agreements.
5.9 Good Standing Certificate. The Purchaser shall have received a
-------------------------
good standing certificate with respect to the Company from the Secretary of the
Commonwealth of Pennsylvania.
SECTION 6
Conditions to Closing of Company
The Company's obligation to sell and issue the Preferred Stock at the
Closing Date is, at the option of the Company, subject to the fulfillment as of
the Closing Date of the following conditions:
6.1 Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by the Purchaser in Section 4 hereof shall be true and correct
when made, and shall be true and correct as of the Closing Date.
6.2 Filing of Articles of Incorporation. The Articles of
-----------------------------------
Incorporation shall have been filed with the Pennsylvania Department of State.
6.3 Ancillary Agreements. The Purchaser shall have executed and
--------------------
delivered to the Company the Amended Stockholders Agreement, the Amended
Registration Agreement and the Confidentiality Agreement.
6.4 Delivery of Purchase Price. The Purchaser shall have delivered to
--------------------------
the Company funds in the total amount of Thirteen Million Four Hundred Sixty
Six Thousand Six Hundred Eighty Dollars ($13,466,680), in payment of the
Purchase Price, which may be evidenced by a check in such amount payable to the
Company or by wire transfer of such amount to the Company's bank account.
6.5 Addendum to Purchase Agreement. That Purchase Addendum shall
------------------------------
have been executed and delivered by the Purchaser to the Company.
-20-
<PAGE>
6.6 Board and Shareholder Approval. This Agreement, the Articles of
------------------------------
Incorporation, the Amended Registration Agreement, the Amended Shareholders
Agreement and the Purchase Addendum shall have been approved by the Company's
Board of Directors and the Articles of Amendment shall have been approved by the
Company's shareholders, in each case in accordance with applicable provisions of
the BCL, the Articles of Incorporation, the Company's By-laws and applicable
agreements.
SECTION 7
Affirmative Covenants of the Company
The Company hereby covenants and agrees as follows:
7.1 Financial Information. At any time that the Company is not
---------------------
subject to the periodic reporting requirements of Section 13(a) or 15(d) of the
Exchange Act, as long as Purchaser retains at least 25% of the Preferred Stock
purchased hereunder (or a corresponding amount of Conversion Shares), the
Company will mail to the Purchaser:
(a) Within 90 days after the end of each fiscal year, a
consolidated balance sheet of the Company and its subsidiaries, if any, as of
the end of such fiscal year, and consolidated statements of income and
consolidated statements of changes in financial position of the Company and its
subsidiaries, if any, for such year, prepared in accordance with generally
accepted accounting principles, consistently applied, in reasonable detail and
audited by independent public accountants selected by the Company.
(b) Within 45 days after the end of each fiscal quarter, an
unaudited consolidated balance sheet of the Company and its subsidiaries, if
any, as of the end of such fiscal quarter, and unaudited consolidated statements
of income and consolidated statements of changes in financial position of the
Company and its subsidiaries, if any, for such quarter, prepared in accordance
with generally accepted accounting principles, consistently applied (not
including any accompanying notes), subject to changes resulting from year-end
audit adjustments.
(c) Within 30 days after the end of each month, an unaudited
consolidated balance sheet of the Company and its subsidiaries, if any, as of
the end of each such month, and unaudited consolidated statements of operations
of the Company and consolidated statements of changes in financial position, for
such month, prepared in accordance with generally accepted accounting
principles, consistently applied (not including any accompanying notes), subject
to changes resulting from year-end audit adjustments.
(d) Within 30 days after the end of each fiscal year, an annual
budget
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<PAGE>
for the ensuing fiscal year.
7.2 Shareholder and Commission Reports. At any time that the Company
----------------------------------
is subject to the periodic reporting requirements of Section 13(a) or 15(d) of
the Exchange Act, as long as Purchaser retains at least 25% of the Preferred
Stock purchased hereunder (or a corresponding amount of Conversion Shares), the
Company will deliver to the Purchaser copies of annual reports and copies of all
other documents, reports and information furnished by the Company to its
shareholders or filed with or supplied to any securities exchange or pursuant to
the requirements of such exchange or, as the case may be, the SEC pursuant to
the 1933 Act or the Exchange Act.
SECTION 8
Restrictions on Transferability of Securities; Registration Rights
8.1 Restrictions on Transfer. The Preferred Stock and the Conversion
------------------------
Shares will be subject to the restrictions on transfers set forth in Section 8
hereof. The Purchaser will cause any proposed transferee of the securities held
by the Purchaser to agree to take and hold such securities subject to the
provisions and upon the conditions specified in this Section 8.
8.2 Restrictive Legend. The Preferred Stock shall be (unless
------------------
otherwise permitted by the provisions of Section 8.3 below) stamped or otherwise
imprinted with a legend in substantially the following form (in addition to any
legend required under applicable state securities laws):
THIS PREFERRED STOCK AND THE SHARES INTO WHICH IT MAY BE CONVERTED
HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT.
COPIES OF THE PURCHASE AGREEMENT DATED DECEMBER 23, 1999, COVERING THE
PURCHASE OF THESE SECURITIES AND RESTRICTING THEIR TRANSFER MAY BE
OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF
THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL
OFFICE OF THE CORPORATION.
8.3 Notice of Proposed Transfers. The Purchaser by its acceptance of
----------------------------
the Preferred Stock agrees to comply in all respects with the provisions of this
Section 8.3. Prior to
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<PAGE>
any proposed transfer of the Preferred Stock or Conversion Shares, unless there
is in effect a registration statement under the Securities Act covering the
proposed transfer, the Purchaser shall give written notice to the Company of its
intention to effect such transfer. Such notice shall describe the manner and
circumstances of the proposed transfer in sufficient detail to evidence
compliance with securities laws, and shall be accompanied (except in
transactions in compliance with Rule 144) by either (i) a written opinion of the
in-house counsel of the Purchaser or other legal counsel who shall be reasonably
satisfactory to the Company addressed to the Company and reasonably satisfactory
in form and substance to the Company's counsel, to the effect that the proposed
transfer of the Preferred Stock or the Conversion Shares may be effected without
registration under the Securities Act, or (ii) a "no action" letter from the SEC
to the effect that the distribution of such securities without registration will
not result in a recommendation by the staff of the SEC that action be taken with
respect thereto, whereupon the Purchaser shall be entitled to transfer such
Preferred Stock or the Conversion Shares in accordance with the terms of the
notice delivered by the Purchaser to the Company. The certificate evidencing the
Preferred Stock or the Conversion Shares, as applicable, transferred as above
provided shall bear the appropriate restrictive legend set forth in Section 8.2
above, except that such certificate shall not bear such restrictive legend if in
the opinion of counsel for the Company such legend is not required in order to
establish compliance with any provisions of the Securities Act.
8.4 Required Registration and Notice. The holder of the Preferred
--------------------------------
Stock and the Conversion Shares (the Preferred Stock and the Conversion Shares
being collectively referred to as the "Registrable Shares") will be entitled to
the registration rights set forth in the Amended Registration Agreement.
SECTION 9
Miscellaneous
9.1 Governing Law. This Agreement shall be governed in all respects
-------------
by the internal laws of the State of Pennsylvania.
9.2 Counterparts; Telecopied Signatures. This Agreement and any of
-----------------------------------
the Transaction Documents may be executed in counterparts, each of which shall
be deemed an original, and all of which together shall constitute one
instrument. The execution signatures of any party pursuant to this Agreement
and any of the Transaction Documents may be delivered by telecopy, and any
execution signature so delivered shall have the same legal force and effect as
the delivery of an ink execution signature. At the request of any other party,
each party delivering execution signatures via telecopier will promptly provide
original ink execution signatures following the date hereof.
9.3 Termination. This Agreement may be terminated and the
-----------
transactions
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<PAGE>
contemplated hereby may be abandoned by either party upon written notice to the
other party if approval of this Agreement and the transactions contemplated
thereby by the Board of Directors or shareholders of the Company is not obtained
by January 31, 1999. In the event of the termination of this Agreement pursuant
to this Section 9.3, this Agreement shall forthwith become void and have no
effect, without any liability on the part of any party or its directors,
officers or shareholders, other than the provisions of Section 9.8 hereof, which
shall survive any such termination. Nothing contained in this Section 9.3 shall
relieve any party from liability for any breach of any covenant of this
Agreement or any breach of warranty or any misrepresentation.
9.4 Survival. The representations, warranties, covenants and
--------
agreements made herein shall survive any investigation made by the Purchaser and
the Closing for a period of one year following the Closing Date, except for
Article VII hereof, which shall survive the Closing and shall expire only in
accordance with its terms.
9.5 Successors and Assigns. Except as otherwise provided herein, the
----------------------
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto,
provided, however, that the rights of the Purchaser to purchase the Preferred
Stock shall not be assignable without the consent of the Company, which consent
shall not be unreasonably withheld; and provided further that the Company may
not assign its rights hereunder.
9.6 Entire Agreement; Amendment. This Agreement and the other
---------------------------
documents delivered pursuant hereto at the Closing constitute the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof, and no party shall be liable or bound to any other
party in any manner by any warranties, representations or covenants except as
specifically set forth herein or therein. Except as expressly provided herein,
neither this Agreement and the other documents delivered pursuant hereto at the
Closing, nor any term hereof or thereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
9.7 Notices, etc. All notices and other communications required or
-------------
permitted hereunder shall be in writing and shall be delivered personally, by
overnight courier, or by messenger, addressed to the other party at the address
set forth below, or at such other address as such party shall furnish to the
other in writing in accordance with this Section.
-24-
<PAGE>
If to Company: Integrated Circuit Systems, Inc.
23435 Boulevard of the Generals
P.O. Box 968
Valley Forge, PA 19482
Attention: Hock E. Tan
Telecopier: 610-630-3385
with a copy to: Pepper Hamilton LLP
3000 Two Logan Square
18/th/ and Arch Streets
Philadelphia, PA 19103-2799
Attention: Robert Friedel, Esq.
Telecopier: (215) 981-4750
If to Purchaser: Intel Corporation
2200 Mission College Blvd.
Santa, Clara, CA 95052
Attention: Jose Blanc
Telecopier: (408) 765-6038
with a copy to: Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, CA 90071
Attention: Brette S. Simon, Esq.
Telecopier: (213) 229-7520
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given upon actual receipt of
delivery or refusal of delivery by the intended recipient.
9.8 Expenses. The Company and the Purchaser shall each bear its own
--------
expenses incurred on its behalf with respect to this Agreement and the
transactions contemplated hereby; except that the Company will reimburse the
Purchaser all out-of-pocket fees and expenses, including attorneys' and
accountants' fees, whether incurred prior to, on or after the date hereof, in
connection with the consummation of all transactions contemplated by this
Agreement, up to a maximum of all such fees and expenses of $20,000.
9.9 Severability. In the event that any provision of this Agreement
------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision.
-25-
<PAGE>
9.10 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement
under seal as of the day and year first above mentioned.
INTEGRATED CIRCUIT SYSTEMS, INC.
BY: /S/ HOCK E. TAN
------------------------------------
Title: President and cheif executive
officer
INTEL CORPORATION
BY: /S/ Arvind Sodhni
-------------------------------------
Title: Vice President and Treasurer
-26-
<PAGE>
EXHIBIT F
INCINTEGRATED CIRCUIT SYSTEMS, INC..
2000 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 2000 Employee Stock Purchase
Plan of Integrated Circuit Systems, Inc.
1. PURPOSE.
The purpose of the Plan is to provide employees of the Company and its
Designated Subsidiaries with an opportunity to purchase Common Stock of the
Company. It is the intention of the Company to have the Plan qualify as an
"Employee Stock Purchase Plan" under Section 423 of the Code. The provisions of
the Plan shall, accordingly, be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code.
2. DEFINITIONS.
(a) "BOARD" means the Board of Directors of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" means the Company's common stock, par value $0.01 per
share.
(d) "COMPANY" means Integrated Circuit Systems, Inc., a Pennsylvania
corporation.
(e) "COMPENSATION" means all regular straight time gross earnings, and
shall not include commissions, payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses and other compensation.
(f) "CONTINUOUS STATUS AS AN EMPLOYEE" means the absence of any
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of (i) sick leave; (ii)
military leave; (iii) any other leave of absence approved by the Administrator,
provided that such leave is for a period of not more than 90 days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the Company
or between the Company and its Designated Subsidiaries.
(g) "CONTRIBUTIONS" means all amounts credited to the account of a
participant pursuant to the Plan.
<PAGE>
(h) "CORPORATE TRANSACTION" means a sale of all or substantially all of the
Company's assets, or a merger, consolidation or other capital reorganization of
the Company with or into another corporation.
(i) "DESIGNATED SUBSIDIARIES" means the Subsidiaries which have been
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan; provided however that the Board shall only have the
discretion to designate Subsidiaries if the issuance of options to such
Subsidiary's Employees pursuant to the Plan would not cause the Company to incur
adverse accounting charges.
(j) "EMPLOYEE" means any person, including an Officer, who is customarily
employed for at least twenty (20) hours per week and more than five (5) months
in a calendar year by the Company or one of its Designated Subsidiaries.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(l) "OFFERING DATE" means the first business day of each Offering Period of
the Plan.
(m) "OFFERING PERIOD" means a period of twenty-four (24) months commencing
on April 1, July 1, October 1 and January 1 of each year, except for the first
Offering Period as set forth in Section 4(a).
(n) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(o) "PLAN" means this Employee Stock Purchase Plan.
(p) "PURCHASE DATE" means the last day of each Purchase Period of the Plan.
(q) "PURCHASE PERIOD" means a period of three (3) months within an Offering
Period, except for the first Purchase Period as set forth in Section 4(b).
(r) "PURCHASE PRICE" means with respect to a Purchase Period an amount
equal to 85% of the Fair Market Value (as defined in Section 7(b) below) of a
Share of Common Stock on the Offering Date or on the Purchase Date, whichever is
lower; provided, however, that in the event (i) of any increase in the number of
Shares available for issuance under the Plan as a result of a stockholder-
approved amendment to the Plan, and (ii) all or a portion of such additional
Shares are to be issued with respect to one or more Offering Periods that are
underway at the time of such increase ("Additional Shares"), and (iii) the Fair
Market Value of a Share of Common Stock on the date of such increase (the
"Approval Date Fair Market Value") is higher than the Fair Market Value on the
Offering Date for any such Offering Period, then in such instance the Purchase
Price with respect to Additional Shares shall be 85% of the Approval Date Fair
Market Value or the Fair Market Value of a Share of Common Stock on the Purchase
Date, whichever is lower.
2
<PAGE>
(s) "SHARE" means a share of Common Stock, as adjusted in accordance with
Section 19 of the Plan.
(t) "SUBSIDIARY" means a corporation, domestic or foreign, of which not
less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.
3. ELIGIBILITY.
(a) Any person who is an Employee as of the Offering Date of a given
Offering Period shall be eligible to participate in such Offering Period under
the Plan, subject to the requirements of Section 5(a) and the limitations
imposed by Section 423(b) of the Code; provided however that eligible Employees
may not participate in more than one Offering Period at a time.
(b) Any provisions of the Plan to the contrary notwithstanding, no Employee
shall be granted an option under the Plan (i) if, immediately after the grant,
such Employee (or any other person whose stock would be attributed to such
Employee pursuant to Section 424(d) of the Code) would own capital stock of the
Company and/or hold outstanding options to purchase stock possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company or of any subsidiary of the Company, or (ii) if such
option would permit his or her rights to purchase stock under all employee stock
purchase plans (described in Section 423 of the Code) of the Company and its
Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) of the Fair Market Value (as defined in Section 7(b) below) of such
stock (determined at the time such option is granted) for each calendar year in
which such option is outstanding at any time.
4. OFFERING PERIODS AND PURCHASE PERIODS.
(a) OFFERING PERIODS. The Plan shall be implemented by a series of Offering
Periods of twenty-four (24) months duration, with new Offering Periods
commencing on or about April 1, July 1, October 1 and January 1 of each year (or
at such other time or times as may be determined by the Board of Directors). The
first Offering Period shall commence on the beginning of the effective date of
the Registration Statement on Form S-1 for the initial public offering of the
Company's Common Stock (the "IPO Date") and continue until June 30, 2002. The
Plan shall continue until terminated in accordance with Section 20 hereof. The
Board of Directors of the Company shall have the power to change the duration
and/or the frequency of Offering Periods with respect to future offerings
without stockholder approval if such change is announced at least five (5) days
prior to the scheduled beginning of the first Offering Period to be affected.
(b) PURCHASE PERIODS. Each Offering Period shall consist of eight (8)
consecutive Purchase Periods of three (3) months' duration. The last day of each
Purchase Period shall be the "Purchase Date" for such Purchase Period. A
Purchase Period commencing on April 1 shall end on the next June 30. A Purchase
Period commencing on
3
<PAGE>
July 1 shall end on the next September 30. A Purchase Period commencing on
October 1 shall end on the next December 31. A Purchase Period commencing on
January 1 shall end on the next March 31. The first Purchase Period shall
commence on the IPO Date and shall end on June 30, 2000. The Board of Directors
of the Company shall have the power to change the duration and/or frequency of
Purchase Periods with respect to future purchases without stockholder approval
if such change is announced at least five (5) days prior to the scheduled
beginning of the first Purchase Period to be affected.
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan by completing
a subscription agreement on the form provided by the Company and filing it with
the Company's payroll office prior to the applicable Offering Date, unless a
later time for filing the subscription agreement is set by the Board for all
eligible Employees with respect to a given Offering Period. The subscription
agreement shall set forth the percentage of the participant's Compensation
(subject to Section 6(a) below) to be paid as Contributions pursuant to the
Plan. The eligible Employee may choose one of the following methods of payment
for the Shares to be acquired on his or her behalf during the Purchase Period:
(i) periodic payroll deduction; or
(ii) lump sum cash payment; provided, however, that the Board may, for
any Purchase Period, prohibit lump sum cash payments.
(b) If periodic payroll deductions are selected, payroll deductions shall
commence on the first payroll following the Offering Date and shall end on the
last payroll paid on or prior to the last Purchase Period of the Offering Period
to which the subscription agreement is applicable, unless sooner terminated by
the participant as provided in Section 10.
(c) If the lump sum cash payment alternative is selected, the lump sum
payment must be paid by the participant within the first fifteen (15) days of
the final month of the Purchase Period to which the subscription agreement is
applicable, unless sooner terminated by the participant as provided in Section
10.
6. METHOD OF PAYMENT OF CONTRIBUTIONS.
(a) A participant shall elect to have payroll deductions made on each
payday during the Offering Period in an amount not less than one percent (1%)
and not more than fifteen percent (15%) (or such greater percentage as the Board
may establish from time to time before an Offering Date) of such participant's
Compensation on each payday during the Offering Period; provided, however, that,
in the event the participant chooses the lump sum payment alternative, such
payment may not exceed 15% of the Compensation paid to such participant. All
payroll deductions made by a participant shall be credited to his or her account
under the Plan. A participant may not make any additional payments into such
account.
4
<PAGE>
(b) A participant may discontinue his or her participation in the Plan as
provided in Section 10, or, on one occasion only during a Purchase Period may
increase and on one occasion only during a Purchase Period may decrease the rate
of his or her Contributions with respect to the Offering Period by completing
and filing with the Company a new subscription agreement authorizing a change in
the payroll deduction rate or lump sum payment, as applicable. The change shall
be effective as of the beginning of the next payroll period following the date
of filing of the new subscription agreement, if the agreement is filed at least
ten (10) business days prior to such date and, if not, as of the beginning of
the next succeeding payroll period.
(c) Notwithstanding the foregoing, to the extent necessary to comply with
Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's payroll
deductions or lump sum payment, as applicable, may be decreased by the Company
to 0% at any time during a Purchase Period. Payroll deductions or lump sum
payments shall re-commence at the rate provided in such participant's
subscription agreement at the beginning of the first Purchase Period which is
scheduled to end in the following calendar year, unless terminated by the
participant as provided in Section 10. In addition, a participant's payroll
deductions or lump sum payment, as applicable, may be decreased by the Company
to 0% at any time during a Purchase Period in order to avoid unnecessary payroll
contributions as a result of application of the maximum share limit set forth in
Section 7(a), in which case payroll deductions or lump sum payments shall re-
commence at the rate provided in such participant's subscription agreement at
the beginning of the next Purchase Period, unless terminated by the participant
as provided in Section 10.
7. GRANT OF OPTION.
(a) On the Offering Date of each Offering Period, each eligible Employee
participating in such Offering Period shall be granted an option to purchase on
each Purchase Date a number of Shares of the Company's Common Stock determined
by dividing such Employee's Contributions accumulated prior to such Purchase
Date and retained in the participant's account as of the Purchase Date by the
applicable Purchase Price; provided however that the maximum number of Shares an
Employee may purchase during any Purchase Period shall be [400] Shares (subject
to any adjustment pursuant to Section 19 below), and provided further that such
purchase shall be subject to the limitations set forth in Sections 3(b) and 13.
(b) The fair market value of the Company's Common Stock on a given date
(the "Fair Market Value") shall be determined by the Board in its discretion
based on the closing sales price of the Common Stock for such date (or, in the
event that the Common Stock is not traded on such date, on the immediately
preceding trading date), as reported by the National Association of Securities
Dealers Automated Quotation (Nasdaq) National Market or, if such price is not
reported, the mean of the bid and asked prices per share of the Common Stock as
reported by Nasdaq or, in the event the Common Stock is listed on a stock
exchange, the Fair Market Value per share shall be the closing sales price on
such exchange on such date (or, in the event that the Common Stock is not traded
on such date, on the
5
<PAGE>
immediately preceding trading date), as reported in The Wall Street Journal. For
purposes of the Offering Date under the first Offering Period under the Plan,
the Fair Market Value of a share of the Common Stock of the Company shall be the
Price to Public as set forth in the final prospectus filed with the Securities
and Exchange Commission pursuant to Rule 424 under the Securities Act of 1933,
as amended.
8. EXERCISE OF OPTION.
Unless a participant withdraws from the Plan as provided in Section 10, his
or her option for the purchase of Shares will be exercised automatically on each
Purchase Date of an Offering Period, and the maximum number of full Shares
subject to the option will be purchased at the applicable Purchase Price with
the accumulated Contributions in his or her account. No fractional Shares shall
be issued. The Shares purchased upon exercise of an option hereunder shall be
deemed to be transferred to the participant on the Purchase Date. During his or
her lifetime, a participant's option to purchase Shares hereunder is exercisable
only by him or her.
9. DELIVERY.
As promptly as practicable after each Purchase Date of each Offering
Period, the Company shall arrange the delivery to each participant, as
appropriate, the Shares purchased upon exercise of his or her option. No
fractional Shares shall be purchased; any payroll deductions accumulated in a
participant's account which are not sufficient to purchase a full Share shall be
retained in the participant's account for the subsequent Purchase Period or
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 below. Any other amounts left over in a participant's account after a
Purchase Date shall be returned to the participant.
10. VOLUNTARY WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A participant may withdraw all but not less than all the Contributions
credited to his or her account under the Plan at any time prior to each Purchase
Date by giving written notice to the Company. All of the participant's
Contributions credited to his or her account will be paid to him or her promptly
after receipt of his or her notice of withdrawal and his or her option for the
current period will be automatically terminated, and no further Contributions
for the purchase of Shares will be made during the Offering Period.
(b) Upon termination of the participant's Continuous Status as an Employee
prior to the Purchase Date of an Offering Period for any reason, including
retirement or death, the Contributions credited to his or her account will be
returned to him or her or, in the case of his or her death, to the person or
persons entitled thereto under Section 14, and his or her option will be
automatically terminated.
(c) In the event an Employee fails to remain in Continuous Status as an
Employee of the Company for at least twenty (20) hours per week during the
Offering Period in which the
6
<PAGE>
employee is a participant, he or she will be deemed to have elected to withdraw
from the Plan and the Contributions credited to his or her account will be
returned to him or her and his or her option terminated.
(d) A participant's withdrawal from an offering will not have any effect
upon his or her eligibility to participate in a succeeding offering or in any
similar plan which may hereafter be adopted by the Company.
11. AUTOMATIC WITHDRAWAL.
If the Fair Market Value of the Shares on any Purchase Date of an Offering
Period is less than the Fair Market Value of the Shares on the Offering Date for
such Offering Period, then every participant shall automatically (i) be
withdrawn from such Offering Period at the close of such Purchase Date and after
the acquisition of Shares for such Purchase Period, and (ii) be enrolled in the
Offering Period commencing on the first business day subsequent to such Purchase
Period.
12. INTEREST.
No interest shall accrue on the Contributions of a participant in the Plan.
13. STOCK.
(a) Subject to adjustment as provided in Section 19, the maximum number of
Shares which shall be made available for sale under the Plan shall be [500,000]
Shares or such lesser number of Shares as is determined by the Board. If the
Board determines that, on a given Purchase Date, the number of shares with
respect to which options are to be exercised may exceed (i) the number of shares
of Common Stock that were available for sale under the Plan on the Offering Date
of the applicable Offering Period, or (ii) the number of shares available for
sale under the Plan on such Purchase Date, the Board may in its sole discretion
provide (x) that the Company shall make a pro rata allocation of the Shares of
Common Stock available for purchase on such Offering Date or Purchase Date, as
applicable, in as uniform a manner as shall be practicable and as it shall
determine in its sole discretion to be equitable among all participants
exercising options to purchase Common Stock on such Purchase Date, and continue
all Offering Periods then in effect, or (y) that the Company shall make a pro
rata allocation of the shares available for purchase on such Offering Date or
Purchase Date, as applicable, in as uniform a manner as shall be practicable and
as it shall determine in its sole discretion to be equitable among all
participants exercising options to purchase Common Stock on such Purchase Date,
and terminate any or all Offering Periods then in effect pursuant to Section 20
below. The Company may make pro rata allocation of the Shares available on the
Offering Date of any applicable Offering Period pursuant to the preceding
sentence, notwithstanding any authorization of additional Shares for issuance
under the Plan by the Company's stockholders subsequent to such Offering Date.
7
<PAGE>
(b) The participant shall have no interest or voting right in Shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. ADMINISTRATION.
The Board, or a committee named by the Board, shall supervise and
administer the Plan and shall have full power to adopt, amend and rescind any
rules deemed desirable and appropriate for the administration of the Plan and
not inconsistent with the Plan, to construe and interpret the Plan, and to make
all other determinations necessary or advisable for the administration of the
Plan.
15. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who is to
receive any Shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to the end of a
Purchase Period but prior to delivery to him or her of such Shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death prior to the Purchase Date of an Offering Period. If
a participant is married and the designated beneficiary is not the spouse,
spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant (and
his or her spouse, if any) at any time by written notice. In the event of the
death of a participant and in the absence of a beneficiary validly designated
under the Plan who is living at the time of such participant's death, the
Company shall deliver such Shares and/or cash to the executor or administrator
of the estate of the participant, or if no such executor or administrator has
been appointed (to the knowledge of the Company), the Company, in its
discretion, may deliver such Shares and/or cash to the spouse or to any one or
more dependents or relatives of the participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company may
designate.
16. TRANSFERABILITY.
Neither Contributions credited to a participant's account nor any rights
with regard to the exercise of an option or to receive Shares under the Plan may
be assigned, transferred, pledged or otherwise disposed of in any way (other
than by will, the laws of descent and distribution, or as provided in Section
15) by the participant. Any such attempt at assignment, transfer, pledge or
other disposition shall be without effect, except that the Company may treat
such act as an election to withdraw funds in accordance with Section 10.
8
<PAGE>
17. USE OF FUNDS.
All Contributions received or held by the Company under the Plan may be
used by the Company for any corporate purpose, and the Company shall not be
obligated to segregate such Contributions.
18. REPORTS.
Individual accounts will be maintained for each participant in the Plan.
Statements of account will be given to participating Employees at least
annually, which statements will set forth the amounts of Contributions, the per
Share Purchase Price, the number of Shares purchased and the remaining cash
balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS.
(a) ADJUSTMENT. Subject to any required action by the stockholders of the
Company, the number of Shares covered by each option under the Plan which has
not yet been exercised and the number of Shares which have been authorized for
issuance under the Plan but have not yet been placed under option (collectively,
the "Reserves"), as well as the maximum number of shares of Common Stock which
may be purchased by a participant in a Purchase Period, the number of shares of
Common Stock set forth in Section 13(a) above, and the price per Share of Common
Stock covered by each option under the Plan which has not yet been exercised,
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock (including any such change
in the number of Shares of Common Stock effected in connection with a change in
domicile of the Company), or any other increase or decrease in the number of
Shares effected without receipt of consideration by the Company; provided
however that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no issue
by the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of Shares subject to an
option.
(b) CORPORATE TRANSACTIONS. In the event of a dissolution or liquidation of
the Company, any Purchase Period and Offering Period then in progress will
terminate immediately prior to the consummation of such action, unless otherwise
provided by the Board. In the event of a Corporate Transaction, each option
outstanding under the Plan shall be assumed or an equivalent option shall be
substituted by the successor corporation or a parent or Subsidiary of such
successor corporation. In the event that the successor corporation refuses to
assume or substitute for outstanding options, each Purchase Period and Offering
Period then in progress shall be shortened and a new Purchase Date shall be set
(the "New Purchase Date"), as of which date any Purchase Period and Offering
Period then in progress will terminate. The New Purchase Date shall be on or
before the date of
9
<PAGE>
consummation of the transaction and the Board shall notify each participant in
writing, at least ten (10) days prior to the New Purchase Date, that the
Purchase Date for his or her option has been changed to the New Purchase Date
and that his or her option will be exercised automatically on the New Purchase
Date, unless prior to such date he or she has withdrawn from the Offering Period
as provided in Section 10. For purposes of this Section 19, an option granted
under the Plan shall be deemed to be assumed, without limitation, if, at the
time of issuance of the stock or other consideration upon a Corporate
Transaction, each holder of an option under the Plan would be entitled to
receive upon exercise of the option the same number and kind of shares of stock
or the same amount of property, cash or securities as such holder would have
been entitled to receive upon the occurrence of the transaction if the holder
had been, immediately prior to the transaction, the holder of the number of
Shares of Common Stock covered by the option at such time (after giving effect
to any adjustments in the number of Shares covered by the option as provided for
in this Section 19); provided however that if the consideration received in the
transaction is not solely common stock of the successor corporation or its
parent (as defined in Section 424(e) of the Code), the Board may, with the
consent of the successor corporation, provide for the consideration to be
received upon exercise of the option to be solely common stock of the successor
corporation or its parent equal in Fair Market Value to the per Share
consideration received by holders of Common Stock in the transaction.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per Share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of Shares of its outstanding Common
Stock, and in the event of the Company's being consolidated with or merged into
any other corporation.
20. AMENDMENT OR TERMINATION.
(a) The Board may at any time and for any reason terminate or amend the
Plan. Except as provided in Section 19, no such termination of the Plan may
affect options previously granted, provided that the Plan or an Offering Period
may be terminated by the Board on a Purchase Date or by the Board's setting a
new Purchase Date with respect to an Offering Period and Purchase Period then in
progress if the Board determines that termination of the Plan and/or the
Offering Period is in the best interests of the Company and the stockholders or
if continuation of the Plan and/or the Offering Period would cause the Company
to incur adverse accounting charges as a result of a change after the effective
date of the Plan in the generally accepted accounting rules applicable to the
Plan. Except as provided in Section 19 and in this Section 20, no amendment to
the Plan shall make any change in any option previously granted which adversely
affects the rights of any participant. In addition, to the extent necessary to
comply with Rule 16b-3 under the Exchange Act, or under Section 423 of the Code
(or any successor rule or provision or any applicable law or regulation), the
Company shall obtain stockholder approval in such a manner and to such a degree
as so required.
10
<PAGE>
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been adversely affected, the Board
(or its committee) shall be entitled to change the Offering Periods and Purchase
Periods, limit the frequency and/or number of changes in the amount withheld
during an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding in
excess of the amount designated by a participant in order to adjust for delays
or mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or accounting
and crediting procedures to ensure that amounts applied toward the purchase of
Common Stock for each participant properly correspond with amounts withheld from
the participant's Compensation, and establish such other limitations or
procedures as the Board (or its committee) determines in its sole discretion
advisable which are consistent with the Plan.
21. NOTICES.
All notices or other communications by a participant to the Company under
or in connection with the Plan shall be deemed to have been duly given when
received in the form specified by the Company at the location, or by the person,
designated by the Company for the receipt thereof.
22. CONDITIONS UPON ISSUANCE OF SHARES.
Shares shall not be issued with respect to an option unless the exercise of
such option and the issuance and delivery of such Shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act of 1933, as amended, the Exchange Act,
the rules and regulations promulgated thereunder, applicable state securities
laws and the requirements of any stock exchange upon which the Shares may then
be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
23. TERM OF PLAN; EFFECTIVE DATE.
The Plan shall become effective upon the IPO Date. It shall continue in
effect for a term of ten (10) years unless sooner terminated under Section 20.
24. ADDITIONAL RESTRICTIONS OF RULE 16b-3.
The terms and conditions of options granted hereunder to, and the purchase
of Shares by, persons subject to Section 16 of the Exchange Act shall comply
with the applicable
11
<PAGE>
provisions of Rule 16b-3. This Plan shall be deemed to contain, and such options
shall contain, and the Shares issued upon exercise thereof shall be subject to,
such additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
12
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
FORM OF SUBSCRIPTION AGREEMENT
New Election ______
Change of Election ______
1. I, ________________________, hereby elect to participate in the Integrated
Circuit Circuit Systems, Inc. 2000 Employee Stock Purchase Plan (the
"Plan") for the Offering Period ______________, ____ to _______________,
____, and subscribe to purchase shares of the Company's Common Stock in
accordance with this Subscription Agreement and the Plan.
2. I elect to have Contributions in the amount of ____% of my Compensation, as
those terms are defined in the Plan, applied to this purchase. I understand
that this amount must not be less than 1% and not more than 15% of my
Compensation during the Offering Period. (Please note that no fractional
percentages are permitted).
3. I elect to have these Contributions made through (choose one): ____ Payroll
Deduction or ____ Lump Sum Payment
4. In the event the payroll deduction option was selected, I hereby authorize
payroll deductions from each paycheck during the Offering Period at the
rate stated in Item 2 of this Subscription Agreement. I understand that all
payroll deductions made by me shall be credited to my account under the
Plan and that I may not make any additional payments into such account.
5. I understand that all payments made by me shall be accumulated for the
purchase of shares of Common Stock at the applicable purchase price
determined in accordance with the Plan. I further understand that, except
as otherwise set forth in the Plan, shares will be purchased for me
automatically on the Purchase Date of each Offering Period unless I
otherwise withdraw from the Plan by giving written notice to the Company
for such purpose.
6. I understand that I may discontinue at any time prior to the Purchase Date
my participation in the Plan as provided in Section 10 of the Plan. I also
understand that I can increase or decrease the rate of my Contributions on
one occasion only with respect to any increase and one occasion only with
respect to any decrease during any Purchase Period by completing and filing
a new Subscription Agreement with such increase or decrease taking effect
as of the beginning of the calendar month following the date of filing of
the new Subscription Agreement, if filed at least ten (10) business days
prior to the beginning of such month. Further, I may change the rate of my
Contributions for future Offering Periods by filing a new Subscription
<PAGE>
Agreement, and any such change will be effective as of the beginning of the
next Offering Period. In addition, I acknowledge that, unless I discontinue
my participation in the Plan as provided in Section 10 of the Plan, my
election will continue to be effective for each successive Offering Period.
7. I have received a copy of the complete "Integrated Circuit Systems, Inc.
2000 Employee Stock Purchase Plan." I understand that my participation in
the Plan is in all respects subject to the terms of the Plan.
8. Shares purchased for me under the Plan should be issued in the name(s) of
(name of employee or employee and spouse only):
9. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the
Plan:
NAME: (Please print)
--------------------------------------------------------------------------
(First) (Middle) (Last)
_______________________________________________________________________________
(Relationship) (Address)
AND
NAME: (Please print)
--------------------------------------------------------------------------
(First) (Middle) (Last)
_______________________________________________________________________________
(Relationship) (Address)
10. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Offering Date (the first day of the Offering
Period during which I purchased such shares) or within 1 year after the
Purchase Date, I will be treated for federal income tax purposes as having
received ordinary compensation income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares on the
Purchase Date over the price which I paid for the shares, regardless of
whether I disposed of the shares at a price less than their fair market
value at the
<PAGE>
Purchase Date. The remainder of the gain or loss, if any, recognized on
such disposition will be treated as capital gain or loss.
I hereby agree to notify the Company in writing within 30 days after the
date of any such disposition, and I will make adequate provision for
federal, state or other tax withholding obligations, if any, which arise
upon the disposition of the Common Stock. The Company may, but will not be
obligated to, withhold from my compensation the amount necessary to meet
any applicable withholding obligation including any withholding necessary
to make available to the Company any tax deductions or benefits
attributable to the sale or early disposition of Common Stock by me.
11. If I dispose of such shares at any time after expiration of the 2-year and
1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received compensation income only to the
extent of an amount equal to the lesser of (1) the excess of the fair
market value of the shares at the time of such disposition over the
purchase price which I paid for the shares under the option, or (2) 15% of
the fair market value of the shares on the Offering Date. The remainder of
the gain or loss, if any, recognized on such disposition will be treated as
capital gain or loss.
I understand that this tax summary is only a summary and is subject to
change. I further understand that I should consult a tax advisor concerning
the tax implications of the purchase and sale of stock under the Plan.
12. I hereby agree to be bound by the terms of the Plan. The effectiveness of
this Subscription Agreement is dependent upon my eligibility to participate
in the Plan.
SIGNATURE:________________________________________________________________
SOCIAL SECURITY #:________________________________________________________
DATE:_____________________________________________________________________
SPOUSE'S SIGNATURE (necessary if beneficiary is not spouse):______________
________________________
(Signature)
________________________
(Print name)
<PAGE>
INTEGRATED CIRCUIT SYSTEMS, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
I, __________________________, hereby elect to withdraw my participation in
the Integrated Circuit Systems, Inc. 2000 Employee Stock Purchase Plan (the
"Plan") for the Offering Period that began on _________ ___, _____. This
withdrawal covers all Contributions credited to my account and is effective on
the date designated below.
I understand that all Contributions credited to my account will be paid to
me within ten (10) business days of receipt by the Company of this Notice of
Withdrawal and that my option for the current period will automatically
terminate, and that no further Contributions for the purchase of shares can be
made by me during the Offering Period.
The undersigned further understands and agrees that he or she shall be
eligible to participate in succeeding offering periods only by delivering to the
Company a new Subscription Agreement.
Dated:________________ ________________________________________
Signature of Employee
________________________________________
Social Security Number
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
The Board of Directors
Integrated Circuit Systems, Inc.
The audits referred to in our report dated August 4, 1999, included the
related financial statement schedule as of July 3, 1999, and for each of the
years in the three-year period ended July 3, 1999, included in the registration
statement. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We consent to the use of our reports included herein and to the references
to our firm under the headings "Experts" and "Selected Historical Consolidated
Financial Data" in the prospectus.
/s/ KPMG LLP
Philadelphia, Pennsylvania
May 19, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> JUL-01-2000 JUL-03-1999
<PERIOD-START> JUL-04-1999 JUN-28-1998
<PERIOD-END> APR-01-2000 JUL-03-1999
<CASH> 31,320 9,285
<SECURITIES> 278 288
<RECEIVABLES> 20,506 20,270
<ALLOWANCES> 2,117 2,150
<INVENTORY> 8,829 8,736
<CURRENT-ASSETS> 79,554 49,406
<PP&E> 26,077 23,148
<DEPRECIATION> 13,742 11,021
<TOTAL-ASSETS> 105,291 87,290
<CURRENT-LIABILITIES> 25,129 23,457
<BONDS> 93,000 169,000
0 0
13,467 0
<COMMON> 248 45,066
<OTHER-SE> (86,451) 152,483
<TOTAL-LIABILITY-AND-EQUITY> 105,291 87,290
<SALES> 120,511 139,063
<TOTAL-REVENUES> 120,511 139,063
<CGS> 44,558 64,496
<TOTAL-COSTS> 48,938 82,792
<OTHER-EXPENSES> 35,971 41,110
<LOSS-PROVISION> 0 2,955
<INTEREST-EXPENSE> 13,855 31,106
<INCOME-PRETAX> 22,539 24,826
<INCOME-TAX> 2,213 0
<INCOME-CONTINUING> 20,326 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 170 24,826
<CHANGES> 0 0
<NET-INCOME> 20,496 0
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
