<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended July 31, 1997
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 0-22366
CREDENCE SYSTEMS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-2878499
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
215 FOURIER AVE., FREMONT, CALIFORNIA 94539
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (510) 657-7400
- -------------------------------------------------------------------------------
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
APPLICABLE ONLY TO CORPORATE ISSUERS:
At July 31, 1997, there were 21,872,792 shares of the Registrant's common
stock, $0.001 par value per share outstanding.
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CREDENCE SYSTEMS CORPORATION
<TABLE>
<CAPTION>
INDEX PAGE NO.
----- --------
<C> <S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets........................ 3
Condensed Consolidated Statements of Operations.............. 4
Condensed Consolidated Statements of Cash Flows.............. 5
Notes to Condensed Consolidated Financial Statements......... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................ 20
Item 2. Changes in Securities........................................ 20
Item 3. Defaults Upon Senior Securities.............................. 20
Item 4. Submission of Matters to a Vote of Security Holders.......... 20
Item 5. Other Information............................................ 20
Item 6. Exhibits and Reports on Form 8-K............................. 21
</TABLE>
2
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM I -- FINANCIAL STATEMENTS
CREDENCE SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1997 1996/a/
---------- -----------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents............................. $ 42,806 $ 48,649
Restricted cash....................................... 13,120 --
Short-term investments................................ 23,491 37,643
Accounts receivable, net.............................. 43,951 49,025
Inventories........................................... 36,405 35,721
Other current assets.................................. 11,328 6,845
---------- --------
Total current assets................................ 171,101 177,883
Long-term investments................................... -- 4,284
Property and equipment, net............................. 42,092 32,764
Other assets............................................ 12,446 8,111
---------- --------
Total assets........................................ $225,639 $223,042
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 10,876 $ 13,842
Accrued liabilities................................... 15,348 17,829
Income taxes payable.................................. 3,615 1,589
---------- --------
Total current liabilities........................... 29,839 33,260
Minority interest....................................... 428 --
Stockholders' equity.................................... 195,372 189,782
---------- --------
Total liabilities and stockholders' equity.......... $ 225,639 $223,042
========== ========
</TABLE>
See accompanying notes.
- --------
/a/ Derived from the audited consolidated balance sheet included in the
Company's Form 10-K for the year ended October 31, 1996.
3
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CREDENCE SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
-------------------- -----------------
1997 1996 1997 1996
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Net sales............................... $ 51,082 $ 67,200 $134,698 $194,586
Cost of goods sold...................... 21,638 27,088 59,451 77,992
--------- --------- -------- --------
Gross margin............................ 29,444 40,112 75,247 116,594
Operating expenses:
Research and development.............. 9,257 9,588 27,016 27,318
Selling, general and administrative... 14,529 13,700 37,949 40,596
In-process research and development... 6,022 -- 6,022 --
--------- --------- -------- --------
Total operating expenses............ 29,808 23,288 70,987 67,914
--------- --------- -------- --------
Operating income (loss)................. (364) 16,824 4,260 48,680
Interest income, net.................... 1,011 989 2,912 3,090
--------- --------- -------- --------
Income before income taxes.............. 647 17,813 7,172 51,770
Income taxes............................ 1,542 6,271 3,727 18,355
Minority interest....................... 2 -- 2 --
--------- --------- -------- --------
Net income (loss)....................... $ (897) $ 11,542 $ 3,443 $ 33,415
========= ========= ======== ========
Net income (loss) per share............. $ (0.04) $ 0.53 $ 0.15 $ 1.52
========= ========= ======== ========
Number of shares used in computing per
share amount........................... 21,857 21,925 22,336 21,930
========= ========= ======== ========
</TABLE>
See accompanying notes.
4
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CREDENCE SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JULY 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 3,443 $ 33,415
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization............................ 8,760 7,245
(Gain) Loss on disposal of property and equipment........ (26) 48
Changes in operating assets and liabilities:
Accounts receivable, inventories and other current
assets................................................. (12,336) (16,847)
Accounts payable, accrued liabilities and income taxes
payable................................................ (3,272) 7,859
-------- --------
Net cash provided (used) by operating activities....... (3,431) 31,720
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities................ (29,398) (59,577)
Maturities of available-for-sale short-term investments... 44,722 38,114
Sales of available-for-sale securities.................... 3,112 --
Maturities of held-to-maturity securities................. -- 11,521
Acquisition of property and equipment..................... (7,823) (18,992)
Other assets.............................................. (3,639) (3,745)
Proceeds from sale of property and equipment.............. 1,736 --
-------- --------
Net cash provided (used) in investing activities....... 8,710 (32,679)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease obligations........ -- (626)
Issuance of common stock.................................. 1,998 1,526
-------- --------
Net cash provided by financing activities.............. 1,998 900
-------- --------
Net increase (decrease) in cash and cash equivalents....... 7,277 (59)
Cash and cash equivalents at beginning of period........... 48,649 54,534
-------- --------
Cash and cash equivalents at end of period................. $ 55,926 $ 54,475
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid............................................. $ 1 $ 36
Income taxes paid......................................... $ 2,533 $ 16,261
NONCASH INVESTING ACTIVITIES:
Net transfers of inventory to property and equipment...... $ 11,684 $ 1,338
NONCASH FINANCING ACTIVITIES:
Income tax benefit from stock option exercises............ $ 149 $ 70
</TABLE>
See accompanying notes.
5
<PAGE>
CREDENCE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. QUARTERLY FINANCIAL STATEMENTS
The condensed consolidated financial statements and related notes for the
three months and nine months ended July 31, 1997 and 1996 are unaudited but
include all adjustments (consisting solely of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation of
financial position and results of operations of the Company for the interim
periods. The results of operations for the three months and nine months ended
July 31, 1997 and 1996 are not necessarily indicative of the operating results
to be expected for the full fiscal year. The information included in this
report should be read in conjunction with the Company's audited consolidated
financial statements and notes thereto for the fiscal year ended October 31,
1996 included in the Annual Report on Form 10-K and the risk factors,
including, without limitation, risks relating to fluctuations in operating
results, rapid technological change, importance of timely product
introduction, risks of delays, limited system sales, backlog, cyclicality of
semiconductor industry, expansion of operations, sole or limited sources of
supply, reliance on subcontractors, highly competitive industry, dependence on
key customers, lengthy sales cycle, dependence on key personnel, international
sales, proprietary rights, acquisitions, future capital needs and volatility
of stock price, as set forth in this Report. Any party interested in reviewing
these publicly available documents should write to the SEC or the Chief
Financial Officer of the Company.
USE OF ESTIMATES--The preparation of the accompanying unaudited consolidated
condensed financial statements requires management to make estimates and
assumptions that affect the amounts reported in the financial statements.
Actual results could differ from those estimates.
2. INVENTORIES
Inventories are stated at the lower of standard cost (which approximates
first-in, first-out cost) or market. Inventories consist of the following (in
thousands):
<TABLE>
<CAPTION>
OCTOBER
JULY 31, 31,
-------- -------
1997 1996
-------- -------
<S> <C> <C>
Raw materials............................................... $ 23,705 $20,482
Work-in-process............................................. 10,339 10,222
Finished goods.............................................. 2,361 5,017
-------- -------
$ 36,405 $35,721
======== =======
</TABLE>
3. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is based upon the weighted average number of
common and dilutive common equivalent shares (stock options) outstanding
during the period.
In March 1997, the Financial Accounting Standards Board ("FASB") released
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("FAS
128"), which is required to be adopted on December 31, 1997. At that time, the
Company will be required to change the method currently used to compute
earnings per share and to restate all prior periods. Under the new
requirements for calculating primary net income per share (basic earnings per
share), the dilutive effect of stock options will be excluded. The Company's
basic and diluted earnings per share as calculated according to FAS 128 would
be as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
JULY 31, JULY 31,
------------- -----------
1997 1996 1997 1996
------ ----- ----- -----
<S> <C> <C> <C> <C>
Basic.............................................. $(0.04) $0.54 $0.16 $1.55
Diluted............................................ $(0.04) $0.53 $0.15 $1.52
</TABLE>
6
<PAGE>
CREDENCE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. CONTINGENCIES
The Company's litigation matters with Megatest Corporation and Teradyne,
Inc., have been resolved. There was no impact on the financial statements as a
result of these settlements.
The Company is involved in various claims arising in the ordinary course of
business, none of which, in the opinion of management, if determined adversely
against the Company, will have a material adverse effect on the Company's
business, financial condition or results of operations.
5. ACQUISITION OF THE TEST DEVELOPMENT SERIES BUSINESS OF TEST SYSTEMS
STRATEGIES, INC. AND SUMMIT DESIGN, INC.
On July 11, 1997, the Company, through its newly formed subsidiary, Test
Systems Strategies, Inc., a Delaware Corporation ("TSSI"), acquired certain
assets and assumed certain liabilities from Summit Design, Inc. and its wholly
owned subsidiary, Test Systems Strategies, Inc., an Oregon Corporation,
including the test development series software ("TDS") and TSSI trademark of
Test Systems Strategies, Inc. (an Oregon Corporation). TDS includes tools
designed to convert gate-level simulation data from electronic design
automation simulators to programs that operate on targeted automatic test
equipment ("ATE") for testing integrated circuits characterized by the gate-
level simulation data. TDS facilitates simulation analysis, stimulus
generation, simulation rules checking, tester resource checking, ATE test
program generation, and test program conversion. The acquisition has been
accounted for by the Company under the purchase method of accounting, and
accordingly, the condensed consolidated financial statements reflect the
impact of TDS operations subsequent to the acquisition date.
The purchase price of $7.3 million, consisted of a cash payment of $7.0
million to Summit Design, Inc. and $300,000 for the assumption of liabilities.
Acquired assets and liabilities were recorded at their estimated fair market
value at the date of the acquisition. The aggregate purchase price, plus
related acquisition expenses, have been allocated to the assets and
liabilities acquired based on valuations. Amounts allocated to in-process
research and development of approximately $6.0 million were written-off at the
acquisition date, representing an estimated value (using risk-adjusted cash
flows, discounted at 35%) of development programs that have not yet reached
technological feasibility. Amounts allocated to developed technology, $1.0
million, and workforce in place, $0.3 million, are being amortized on a
straight line basis over periods of six and three years respectively.
6. COMMITMENTS
In addition on May 19, 1997, the Company entered into an agreement with
Summit Design, Inc. for the Company to purchase approximately $18 million of
Summit's Visual Testbench ("VTB") product licenses and maintenance services
through 1999. The restricted cash on the accompanying balance sheet relates to
the amounts yet to be purchased under this agreement.
7. SUBSEQUENT EVENTS
On August 20, 1997, the Company through one of its subsidiaries, Test
Systems Strategies, Inc., purchased from Zycad Corporation ("Zycad") and one
of its subsidiaries, Attest Software, Inc. certain assets and assumed certain
liabilities for $2,250,000.
On September 10, 1997, the Company sold $100 million of 5 1/4% convertible
subordinated notes (the "Notes") due 2002 through a private placement within
the U.S. to qualified institutional buyers in accordance with Rule 144A and
outside the U.S., to non-U.S. persons as defined in Regulation S under the
Securities Act of 1933, as amended. The Notes are convertible into common
stock of the Company at a conversion price of $69.15 per share. The Company
has granted to Smith Barney, Inc., the initial purchaser, a 30-day option to
purchase an additional $15 million of Notes to cover over-allotments, if any.
Expense of $3.0 million associated with the offering will be deferred and
included in other assets. Such expenses will be amortized to interest expense
over the term of the Notes.
7
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion may contain predictions, estimates and other
forward-looking statements that involve a number of risks and uncertainties.
While this discussion represents the Company's current judgment on the future
direction of the business, such risks and uncertainties could cause actual
results to differ materially from any future performance described herein.
Factors that could cause actual results to differ are identified throughout
the discussion below, as well as the section entitled "Risk Factors" below.
The Company undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
The following table sets forth items from the Condensed Consolidated
Statements of Operations as a percentage of net sales for the periods
indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
--------------------- ------------------
1997 1996 1997 1996
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Net sales........................ 100.0% 100.0% 100.0% 100.0%
Cost of goods sold............... 42.4 40.3 44.1 40.1
--------- --------- -------- --------
Gross margin..................... 57.6 59.7 55.9 59.9
Operating expenses
Research and development....... 18.1 14.3 20.0 14.0
Selling, general, and
administrative................ 28.4 20.4 28.2 20.9
In-process research &
development................... 11.8 -- 4.5 --
--------- --------- -------- --------
Operating expenses........... 58.3 34.7 52.7 34.9
--------- --------- -------- --------
Operating income (loss).......... (0.7) 25.0 3.2 25.0
Interest income, net............. 2.0 1.5 2.2 1.6
--------- --------- -------- --------
Income before income taxes....... 1.3 26.5 5.4 26.6
Income taxes..................... 3.1 9.3 2.8 9.4
--------- --------- -------- --------
Net income (loss)................ (1.8%) 17.2% 2.6% 17.2%
========= ========= ======== ========
</TABLE>
RESULTS OF OPERATIONS
NET SALES
Net sales consist of revenues from systems sales, spare parts sales and
maintenance contracts. Net sales were $51.1 million for the third quarter and
$134.7 for the first nine months of fiscal 1997, representing decreases of
24.0% and 30.8%, respectively, over the comparable periods of fiscal 1996.
These decreases were due primarily to a significant weakness in the ATE market
which materially adversely affected the Company and several other companies in
the capital equipment market. International net sales accounted for
approximately 71.3% and 70.0% of the total net sales for the third quarter and
first nine months of fiscal 1997 respectively, compared to approximately 61.2%
and 65.1% for the comparable periods a year ago. The Company's international
sales of its products and spare parts and its service revenues are denominated
primarily in United States dollars.
GROSS MARGIN
The Company's gross margin has been and will continue to be affected by a
variety of factors, including manufacturing efficiencies, pricing by
competitors or suppliers, new product introductions, product sales mix,
production volume, product reliability, customization and reconfiguration of
systems, reserves, international and domestic sales mix and field service
margins. Gross margin was 57.6% for the third quarter and 55.9% for the first
nine months of fiscal 1997, compared with 59.7% for the third quarter and
59.9% for the first nine months
8
<PAGE>
of fiscal 1996. The reduction in gross margin as a percent of sales was due
primarily to an increase in the first quarter of fiscal 1997 in inventory
write down reserves on slower moving parts of older products and changes in
product mix.
RESEARCH AND DEVELOPMENT
Research and development expenses were $9.3 million in the third quarter of
fiscal 1997, a slight decrease of $0.3 million or 3.5% as compared to the
third quarter of fiscal 1996. Research and development expenses were $27.0
million in the first nine months of fiscal 1997, which was comparable, in
dollars, to expenses for the first nine months of fiscal 1996. As a percentage
of net sales, these expenses were 18.1% for the third quarter and 20.0% for
the first nine months of fiscal 1997, compared with 14.3% for the third
quarter and 14.0% for the first nine months of 1996. The increase of these
expenses as a percentage of net sales is attributable primarily to the
significant decrease in net sales in fiscal 1997 as compared with the
comparable periods of fiscal 1996. For the foreseeable future, the Company
currently intends to continue to invest significant resources in the
development of new products and enhancements. Accordingly, the Company expects
these expenses to increase in dollars for the remainder of fiscal 1997 as
compared to fiscal 1996 due to the introduction of new products in the latter
half of the year.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $14.5 million in the third
quarter and $37.9 million for the first nine months of fiscal 1997,
representing an increase of $0.8 million or 6.1% in the third quarter of
fiscal 1997 and a decrease of $2.6 million or 6.5% for the first nine months
of fiscal 1997, compared to the comparable periods of fiscal 1996. As a
percentage of net sales, these expenses were 28.4% for the third quarter and
28.2% for the first nine months of fiscal 1997, compared with 20.4% and 20.9%,
respectively, for the corresponding periods in fiscal 1996. The increase of
these expenses as a percentage of net sales is attributable primarily to the
significant decrease in net sales in fiscal 1997 as compared with the
comparable periods of fiscal 1996. The Company expects selling, general and
administrative expenses for the rest of fiscal 1997 to increase in dollars as
compared to fiscal 1996 due to the introduction of new products in the latter
half of the year.
INTEREST INCOME, NET
The Company generated net interest income of $1.0 million for the third
quarter and $2.9 million for the first nine months of fiscal 1997, compared to
$989,000 and $3.1 million, respectively, for the corresponding periods of
fiscal 1996. The slight decrease for the nine months of fiscal 1997 was due
primarily to interest earned on lower average cash and cash equivalents and
short-term investments balances during the period. The lower cash and cash
equivalents and short-term investments balances reflected decreased cash
provided by operations.
INCOME TAXES
Excluding the impact of the in-process R&D charge, the Company's provision
for income taxes for the third quarter and the first nine months of fiscal
1997 is computed based on the projected annualized effective tax rate of
33.5%. The effective tax rate for the third quarter and the first nine months
of fiscal 1996 was 35.2% and 35.5%, respectively. Excluding the impact of the
in-process R&D charge, the projected effective tax rate for fiscal 1997 is
expected to be less than the combined federal and state statutory tax rate,
and the 1996 effective tax rate, primarily due to the projected benefit of the
Company's foreign sales corporation.
9
<PAGE>
The tax provision for the first nine months of 1997 consists of two items: a
$4,420,000 provision on pre-tax book income of $13,194,000 (for a 33.5%
effective tax rate exclusive of the in-process R & D charge), and a $693,000
tax benefit on the $6,022,000 in-process R&D charge.
A valuation allowance has been established in the third quarter of fiscal
1997 to offset a portion of the deferred tax asset attributable to the in-
process R&D charge. Due to the period over which this tax benefit will be
recognized, sufficient uncertainty exists regarding the realizability of a
portion of these assets, and accordingly, a valuation allowance is required.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided (used) by operating activities was ($3.4 million) and
$31.7 million for the nine months ended July 31, 1997 and 1996, respectively.
Net cash flows used by operating activities for the nine months ended July 31,
1997 were primarily attributable to a decrease in accounts receivable, offset
in part by an increase in inventory, $11.7 million of which was transferred to
property and equipment, and reductions in accounts payable ($3.0 million) and
accrued liabilities ($2.5 million). Investing activities provided net cash of
$8.7 million and used net cash of $32.7 million for the nine months ended July
31, 1997 and 1996, respectively. In the first nine months of fiscal 1997, the
Company experienced a net reduction of $14.1 million in short-term investments
while also purchasing $7.8 million of property and equipment. Net cash
provided by financing activities was $2.0 million and $0.9 million for the
nine months ended July 31, 1997 and 1996, respectively.
As of July 31, 1997, the Company had working capital of approximately $141.3
million, including cash of $42.8 million, restricted cash of $13.1 million,
and short-term investments of $23.5 million, $44.0 million of accounts
receivable and $36.4 million of inventories. The Company expects accounts
receivable to continue to represent a significant portion of working capital.
The Company believes that because of the relatively long manufacturing cycles
of many of its testers, investments in inventories will also continue to
represent a significant portion of working capital. Additionally, the Company
expects to continue investing in inventories for its new products, which may
be slower moving at the beginning of the product introduction cycle.
Significant investments in accounts receivable and inventories may subject the
Company to increased risks which could materially adversely affect the
Company's business, financial condition and results of operations. Total
liabilities of $33.3 million as of October 31, 1996 decreased to $29.8 million
as of July 31, 1997. The $3.5 million decrease was due primarily to decreases
in accounts payable of $3.0 million.
The Company has entered into an agreement with Summit Design, Inc. for the
Company to purchase approximately $18 million of VTB product licenses and
maintenance services through 1999. The restricted cash relates to the amounts
yet to be purchased under this agreement.
The Company's principal sources of liquidity as of July 31, 1997 consisted
of approximately $55.9 million of cash and cash equivalents and restricted
cash, short-term investments of $23.5 million and $20.0 million available
under the Company's unsecured working capital line of credit expiring on July
24, 1998. As of July 31, 1997, no amounts were outstanding under the line of
credit. Additionally, as of July 31, 1997, the Company has operating leases
for test and other equipment with remaining payments totaling approximately
$2.6 million.
On September 10, 1997, the Company sold $100 million of 5 1/4% convertible
subordinated notes (the "Notes") due 2002 through a private placement within
the U.S. to qualified institutional buyers in accordance with Rule 144A and
outside the U.S., to non-U.S. persons as defined in Regulation S under the
Securities Act of 1933, as amended. The Notes are convertible into common
stock of the Company at a conversion price of $69.15 per share. The Company
has granted to Smith Barney, Inc., the initial purchaser, a 30-day option to
purchase an additional $15 million of Notes to cover over-allotments, if any.
Expense of $3.0 million associated with the offering will be deferred and
included in other assets. Such expenses will be amortized to interest expense
over the term of the Notes.
RISK FACTORS
The Company's results of operations are affected by a variety of factors,
including the following:
10
<PAGE>
Fluctuations in Operating Results
The Company's operating results have in the past fluctuated significantly
and will in the future fluctuate significantly, due to a variety of factors.
The Company's operating performance from the first quarter of fiscal 1993
through the third quarter of fiscal 1996 produced sequential quarter-to-
quarter growth in both net sales and net income. In the fourth quarter of
fiscal 1996, however, net sales decreased 34% from the third quarter of fiscal
1996 and 17% from the fourth quarter of fiscal 1995. Net income for the fourth
quarter of fiscal 1996 decreased 63% from the third quarter of fiscal 1996 and
55% from the fourth quarter of fiscal 1995. In the first quarter of fiscal
1997, net sales decreased 9% from the fourth quarter of fiscal 1996 and
decreased 34% from the first quarter of fiscal 1996. Net income for the first
quarter of fiscal 1997 decreased 75% from the fourth quarter of fiscal 1996
and decreased 90% from the first quarter of fiscal 1996. In the second quarter
of fiscal 1997, net sales increased 8% from the first quarter of fiscal 1997
and decreased 35% from the second quarter of fiscal 1996. Net income for the
second quarter of fiscal 1997 increased 212% from the first quarter of fiscal
1997 and decreased 71% from the second quarter of fiscal 1996. In the third
quarter of fiscal 1997, net sales increased 15% from the second quarter of
fiscal 1997 but decreased 24% from the third quarter of fiscal 1996. The
Company incurred a net loss of $897,000 for the third quarter of fiscal 1997
resulting in a decrease of 127% when compared to the $3.3 million net income
for the second quarter of fiscal 1997 and a 108% decrease from the third
quarter of fiscal 1996. The decreases were due primarily to a significant
weakness in the ATE market which materially adversely affected the Company and
several other companies in the semiconductor equipment industry. The factors
that have caused and will continue to cause the Company's results to fluctuate
include the timing of new product announcements and releases by the Company or
its competitors, market acceptance of new products and enhanced versions of
the Company's products, manufacturing inefficiencies associated with the start
up of new products, changes in pricing by the Company, its competitors,
customers or suppliers, manufacturing capacity, the ability to volume produce
systems and meet customer requirements, inventory obsolescence, patterns of
capital spending by customers, delays, cancellations or reschedulings of
orders due to customer financial difficulties or otherwise, changes in
overhead absorption levels due to changes in the number of systems
manufactured, the timing and shipment of orders, availability of components,
subassemblies and services, expenses associated with acquisitions and
alliances, product discounts, customization and reconfiguration of systems,
product reliability, the proportion of direct sales and sales through third
parties, including distributors and original equipment manufacturers, the mix
of products sold, the length of manufacturing and sales cycles, cyclicality or
downturns in the semiconductor market and the markets served by the Company's
customers, natural disasters, political and economic instability, regulatory
changes and outbreaks of hostilities. The Company presently intends to
introduce many new products and product enhancements in this current fiscal
year, which will affect its operating results, financial condition and
business. The Company's gross margins on system sales have varied
significantly, especially in the last twelve months, and will continue to vary
significantly based on a variety of factors, including manufacturing
efficiencies, pricing by competitors or suppliers, product sales mix,
reserves, production volume, new product introductions, product reliability,
customization and reconfiguration of systems, international and domestic sales
mix and field service margins. In addition, new and enhanced products
typically have lower gross margins in the early stages of commercial
introduction and production. While the Company has recorded and continues to
record allowances for estimated sales returns and uncollectable accounts,
there can be no assurance that such estimates regarding allowances will be
adequate.
Limited System Sales; Backlog
The Company derives a substantial portion of its net sales from the sale of
a relatively small number of systems that typically range in price from
$350,000 to $2.0 million, excluding the current memory products, for which the
price range is typically below $100,000. As a result, the timing of
recognition of revenue from a single transaction could have a significant
impact on the Company's net sales and operating results for a particular
period. The Company's net sales and operating results for a particular period
could be materially adversely affected if an anticipated order for even one
system is not received in time to permit shipment during that period. The
Company's backlog at the beginning of a quarter typically does not include all
tester orders needed to achieve the Company's sales objectives for that
quarter. In addition, orders in backlog are subject to cancellation, delay,
deferral or rescheduling by a customer with limited or no penalties.
Consequently, the Company's net
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sales and operating results for a quarter have in the past and will in the
future depend upon the Company obtaining orders for systems to be shipped in
the same quarter that the order is received. Furthermore, products generating
most of the Company's net sales continue to be shipped near the end of each
quarter. Accordingly, the failure to receive an anticipated order or a delay
or rescheduling in a shipment near the end of a particular period due, for
example, to an order cancellation, a delay by a customer, manufacturing,
technical, reliability or other difficulties, including difficulties relating
to customization and reconfiguration of systems, a delay in the supply of
components, subassemblies or services or a delay due to competitive or
economic factors, may cause net sales in a particular period to fall
significantly below the Company's expectations, which could have a material
adverse effect upon the Company's business, financial condition or results of
operations. The relatively long manufacturing cycle of many of its testers has
caused and could continue to cause future shipments of such products to be
delayed from one quarter to the next, which could materially adversely affect
the Company's business, financial condition or results of operations.
Furthermore, announcements by the Company or its competitors of new products
and technologies could cause customers to defer or cancel purchases of the
Company's existing systems, which could also have a material adverse effect on
the Company's business, financial condition or results of operations. The
impact of these and other factors on the Company's sales and operating results
in any future period cannot be forecasted with certainty. In addition, the
need for continued significant expenditures for research and development,
marketing and other expenses for new products, capital equipment purchases and
worldwide training and customer service and support, among other factors, will
make it difficult for the Company to reduce its significant fixed expenses in
a particular period if the Company's net sales goals for such period are not
met. Accordingly, there can be no assurance that the Company will be able to
be profitable or that it will not again sustain losses in future periods. Due
to all of the foregoing factors, it is likely that in some future quarter the
Company's operating results will be below the expectations of public market
analysts and investors, as they were in the first and second quarters of 1997.
In such event, the price of the Company's Common Stock may be materially
adversely affected.
Cyclicality of Semiconductor Industry
The Company's business and results of operations depend in significant part
upon the capital expenditures of manufacturers of semiconductors and companies
which specialize in contract packaging and/or testing of semiconductors,
including manufacturers and contractors that are opening new or expanding
existing fabrication facilities, or upgrading existing equipment, which in
turn depend upon the current and anticipated market demand for semiconductors
and products incorporating semiconductors. Historically and recently, the
semiconductor industry has been highly cyclical with recurring periods of
oversupply, which often have had a severe effect on the semiconductor
industry's demand for test equipment, including the systems manufactured and
marketed by the Company. The Company believes that the markets for newer
generations of semiconductors will also be subject to similar fluctuations.
The Company has in the past, and during the last twelve months in particular,
experienced shipment delays, delays in commitments and purchase order
restructurings by several of its customers and anticipates that this may
continue to occur in the future. Accordingly, the Company can give no
assurance that it will be able to achieve or maintain its current or prior
level of sales or rate of growth. During the last four quarters, including the
third quarter of 1997, the Company's net sales, gross margins and net income
have been significantly below the net sales, gross margins and net income,
respectively, of the comparable prior year's quarterly results. The Company
anticipates that a significant portion of new orders may depend upon demand
from semiconductor device manufacturers building or expanding fabrication
facilities and new device testing requirements that are not addressable by
currently installed test equipment, and there can be no assurance that such
demand will develop to a significant degree, or at all. In addition, any
factor adversely affecting the semiconductor industry or particular segments
within the semiconductor industry may adversely affect the Company's business,
financial condition or results of operations. Therefore, there can be no
assurance that the Company's operating results will not continue to be
materially adversely affected if downturns or slowdowns in the semiconductor
industry continue or occur again in the future.
Management of Fluctuations in Operating Results
The Company has over the last several years experienced significant
fluctuations in its operating results. Since 1993, the Company has overall
significantly increased the scale of its operations to support increased sales
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levels and has expanded its operations to address critical infrastructure and
other requirements, including the hiring of additional personnel, significant
investments in research and development to support product development, the
March 1995 acquisition of EPRO, the Company's establishment of a joint venture
with Innotech, Inc., the Company's acquisition in July 1997 of the assets and
certain liabilities of TSSI and the Company's acquisition in August of 1997 of
a software product line from Zycad. However, the Company has during certain
historical periods, particularly over the past twelve months, experienced
revenue declines and reductions in its operations.
Fluctuations in the Company's sales and operations have placed a
considerable strain on its management, financial, manufacturing and other
resources. In order to effectively deal with the changes brought on by the
cyclical nature of the industry, the Company has been required to implement
and improve a variety of highly flexible operating, financial and other
systems, procedures and controls capable of expanding or contracting
consistent with the Company's business. There can be no assurance that any
existing or new systems, procedures or controls will be adequate to support
fluctuations in the Company's operations or that its systems, procedures and
controls will be designed, implemented or improved in a cost effective and
timely manner. Any failure to implement, improve and expand or contract such
systems, procedures and controls in an efficient manner at a pace consistent
with the Company's business could have a material adverse effect on the
Company's business, financial condition or results of operations.
Expansion of Operations
Currently, the Company is devoting significant resources to the development
of new products and technologies. During 1997, the Company will conduct
evaluations of these products and will continue to invest significant
additional resources in plant and equipment, inventory, personnel and other
costs, to begin production of these products and to provide the marketing,
administration and after-sales service and support, if any, required to
service and support these new products. Accordingly, there can be no assurance
that gross profit margin and inventory levels will not be adversely impacted
in the future by start-up costs associated with the initial production and
installation of these new product lines. These start-up costs include, but are
not limited to, additional manufacturing overhead, additional inventory and
warranty reserve requirements and the creation of after-sales service and
support organizations. Additionally, there can be no assurance that operating
expenses will not increase, relative to sales, as a result of adding
additional marketing and administrative personnel, among other costs, to
support the Company's additional products. If the Company is unable to achieve
significantly increased net sales or its sales fall below expectations, the
Company's operating results will be materially adversely affected. There can
be no assurance that net sales will increase or remain at recent levels or
that such products will be successfully commercialized.
Limited Sources of Supply; Reliance on Subcontractors
Certain components, subassemblies and services necessary for the manufacture
of the Company's testers are obtained from a limited group of suppliers. The
Company does not maintain any long-term supply agreements with any of its
vendors and purchases its components and subassemblies through individual
purchase orders. The manufacture of certain of the Company's components and
subassemblies is an extremely complex process. The Company also relies on
outside vendors to manufacture certain components and subassemblies and to
provide certain services. In addition, the Company and certain of its
subcontractors periodically experience significant shortages and delays in
delivery of various components and subassemblies. There can be no assurance
that these or other problems will not continue to occur in the future with
these or the Company's other suppliers or outside subcontractors. The
Company's reliance on a limited group of suppliers and the Company's reliance
on outside subcontractors involve several risks, including an inability to
obtain an adequate supply of required components, subassemblies and services
and reduced control over the price, timely delivery, reliability and quality
of components, subassemblies and services. Shortages, delays, disruptions or
terminations of the sources for these components and subassemblies has delayed
and could continue to delay shipments of the Company's systems and could have
a material adverse effect on the Company's business, financial condition or
results of operations. Any continuing inability to obtain adequate yields or
timely deliveries or any other circumstance that would
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require the Company to seek alternative sources of supply or to manufacture
such components internally could have a material adverse effect on the
Company's business, financial condition or results of operations. Such delays,
shortages and disruptions would also damage relationships with current and
prospective customers and could allow competitors to penetrate such customer
accounts. There can be no assurance that the Company's internal manufacturing
capacity and that of its suppliers and subcontractors will be sufficient to
meet customer requirements.
Highly Competitive Industry
The ATE industry is intensely competitive. Because of the substantial
investment required to develop test application software and interfaces, the
Company believes that once a semiconductor manufacturer has selected a
particular ATE vendor's tester, the semiconductor manufacturer is likely to
use that tester for a majority of its testing requirements for the market life
of that semiconductor and, to the extent possible, subsequent generations of
similar products. As a result, once an ATE customer chooses a system for the
testing of a particular device, it is difficult for competing vendors to
achieve significant ATE sales to such customer for similar use. The inability
of the Company to achieve significant sales to any ATE customer could have a
material adverse effect on the Company's business, financial condition or
results of operations.
The Company faces substantial competition throughout the world, primarily
from ATE manufacturers located in the United States, Europe and Japan, as well
as several of the Company's customers. Many of the Company's competitors have
substantially greater financial and other resources with which to pursue
engineering, manufacturing, marketing and distribution of their products.
Certain of the Company's competitors have recently introduced or announced new
products with certain performance or price characteristics equal or superior
to certain products currently offered by the Company. The Company believes
that if the ATE industry continues to consolidate through strategic alliances
or acquisitions, the Company will continue to face significant additional
competition from larger competitors that may offer more complete product lines
and services than the Company. The Company's competitors are continuing to
improve the performance of their current products and to introduce new
products, enhancements and new technologies that provide improved cost of
ownership and performance characteristics. New product introductions by the
Company's competitors could continue to cause a decline in sales or loss of
market acceptance of the Company's existing products. Moreover, increased
competitive pressure could continue to lead to intensified price-based
competition, which could materially adversely affect the Company's business,
financial condition or results of operations. The Company has experienced and
continues to experience significant price competition in the sale of all of
its testers. In addition, at the end of a product life cycle and as
competitors introduce more technologically advanced products, pricing
pressures typically become more intense. The Company believes that to be
competitive, it will continue to require significant financial resources in
order to, among other items, invest in new product development and
enhancements and to maintain customer service and support centers worldwide.
There can be no assurance that the Company will be able to compete
successfully in the future.
Rapid Technological Change; Importance of Timely Product Introduction
The ATE market is subject to rapid technological change and new product
introductions and enhancements and related software tools. The Company's
ability to be competitive in this market will depend in significant part upon
its ability to successfully develop and introduce new products and
enhancements and related software tools with greater features on a timely and
cost-effective basis, including the products under development acquired in the
EPRO merger and the TSSI and Zycad product line acquisitions. The Company's
customers require testers with additional features and higher performance and
other capabilities. The Company is therefore required to enhance the
performance and other capabilities of its existing systems and related
software tools. Any success by the Company in developing new and enhanced
systems and related software tools and new features to its existing systems
depends upon a variety of factors, including product selection, timely and
efficient completion of product design, timely and efficient implementation of
manufacturing and assembly processes, product performance and reliability in
the field and effective sales and marketing. Because new product development
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commitments must be made well in advance of sales, new product decisions must
anticipate both future demand and the availability of technology to satisfy
that demand. There can be no assurance that the Company will be successful in
selecting, developing, manufacturing and marketing new products or
enhancements and related software tools. The inability of the Company to
introduce new products and related software tools that contribute
significantly to net sales, gross margins and net income would have a material
adverse effect on the Company's business, financial condition or results of
operations. New product or technology introductions by the Company's
competitors could cause a decline in sales or loss of market acceptance of the
Company's existing products. In addition, new product introductions by the
Company may cause confusion among the Company's customers if they transition
to such new products, and may delay product purchases.
Significant delays can occur between a system's introduction and the
commencement by the Company of volume production of such system. The Company
has been and is experiencing significant delays in the introduction, volume
production and sales of its systems and related feature enhancements,
including new models within the digital, mixed-signal and non-volatile memory
product lines, due to technical, manufacturing, parts shortages, component
reliability and other difficulties and may continue to experience similar
delays in the future. As a result, certain of the Company's significant
customers have experienced significant delays in receiving and using certain
of the Company's testers in production. There can be no assurance that these
or additional difficulties will not continue to arise in the future with
respect to the Company's systems or that such delays will not materially
adversely affect customer relationships and future sales. Moreover, there can
be no assurance that the Company will not encounter these or other
difficulties that could delay future introductions or volume production or
sales of its systems or enhancements and related software tools. The Company
has incurred and may continue to incur substantial unanticipated costs to
ensure the functionality and reliability of its testers and to increase
feature sets. If the Company's systems continue to have reliability, quality
or other problems, or the market perceives certain of the Company's products
to be feature deficient, reduced orders, higher manufacturing costs, delays in
collecting accounts receivable and higher service, support and warranty
expenses, or inventory write-offs, among other items, could result. The
Company's failure to have a competitive tester and related software tools
available when required by a semiconductor manufacturer could make it
substantially more difficult for the Company to sell testers to that
manufacturer for a number of years. The Company believes that the continued
acceptance, volume production, timely delivery and customer satisfaction of
its newer digital, mixed signal and non-volatile memory testers are of
critical importance to its future financial results. As a result, an inability
to correct any technical, reliability, parts shortages or other difficulties
associated with the Company's systems or to manufacture and ship the Company's
systems on a timely basis to meet customer requirements could damage
relationships with current and prospective customers and would materially
adversely affect the Company's business, financial condition or results of
operations.
Customer Concentration; Lengthy Sales Cycle
During the nine months ended July 31, 1997, three customers accounted for
22%, 12% and 9%, respectively, of the Company's net sales. One customer (a
distributor) accounted for 25%, 17% and 13% of the Company's net sales in
fiscal 1996, 1995 and 1994, respectively. The loss of or any reduction in
orders by a significant customer, including losses or reductions due to
continuing or other technical, manufacturing, reliability or other
difficulties associated with the Company's products or market, economic or
competitive conditions in the semiconductor industry or in other industries
that manufacture products utilizing semiconductors could materially adversely
affect the Company's business, financial condition or results of operations.
The Company's ability to maintain or increase its sales levels in the future
will depend in significant part upon its ability to obtain orders from
existing and new customers and to manufacture systems on a timely and cost-
effective basis, the financial condition and success of its customers, general
economic conditions, and the Company's ability to meet increasingly stringent
customer performance and other requirements and shipment delivery dates. There
can be no assurance that the Company will be able to maintain or increase the
level of its net sales in the future or that the Company will be able to
retain existing customers or attract new ones.
Sales of the Company's systems depend in significant part upon the decision
of a semiconductor manufacturer to develop and manufacture new semiconductor
devices or to increase manufacturing capacity. As
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a result, sales of the Company's testers are subject to a variety of factors
outside of the Company's control. In addition, the decision to purchase a
tester generally involves a significant commitment of capital, with the
attendant delays frequently associated with significant capital expenditures.
For these and other reasons, the Company's systems have lengthy sales cycles
during which the Company may expend substantial funds and management effort to
secure a sale and subject the Company to a number of significant risks.
Acquisitions
The Company has developed in significant part through mergers and
acquisitions of other companies and businesses. Prior to its initial public
offering in 1993, the Company acquired two companies and the semiconductor
test systems division of Tektronix, Inc. In 1995, the Company acquired EPRO, a
memory tester company. In July 1997, the Company acquired the TDS assets of
Summit Design, Inc. and, in August 1997, acquired the TDX fault simulation and
test program development products from Zycad. The Company intends in the
future to pursue additional acquisitions of complementary product lines,
technologies and businesses. Any future acquisitions by the Company, if any,
could result in potentially dilutive issuances of equity securities, the
incurrence of debt and contingent liabilities, expenditures and reserves, and
amortization expenses related to goodwill and other intangible assets, which
could materially adversely affect the Company's business, financial condition
or results of operations. The Company's one-time charge for in-process
research and development for the TSSI asset acquisition accounted for the
Company's net loss for the third quarter of 1997. In addition, acquisitions
involve numerous other risks, including difficulties in the assimilation of
the operations, technologies and products of the acquired companies, the
diversion of management's attention from other business concerns, risks of
entering markets in which the Company has no or limited direct prior
experience, and the potential loss of key employees of the acquired company.
From time to time, the Company has engaged in and will continue to engage in
discussions with third parties concerning potential acquisitions of product
lines, technologies and businesses. In the event that such an acquisition does
occur, however, there can be no assurance as to the effect thereof on the
Company's business, financial condition or results of operations.
Dependence on Key Personnel
The Company's future operating results depend in significant part upon the
continued service of its key personnel, none of whom are bound by an
employment or non-competition agreement. The Company's future operating
results also depend in significant part upon its ability to attract and retain
qualified management, manufacturing, technical, engineering and marketing and
sales and support personnel. Competition for such personnel is intense, and
there can be no assurance that the Company will be successful in attracting or
retaining such personnel. There may be only a limited number of persons with
the requisite skills to serve in these positions and it may be increasingly
difficult for the Company to hire such personnel over time. The loss of any
key employee, the failure of any key employee to perform in his or her current
position, or the Company's inability to attract and retain skilled employees,
as needed, could materially adversely affect the Company's business, financial
condition or results of operations.
Recently, the Company has experienced an increased level of employee
turnover. The Company believes that this increase is due to several factors,
including the recent semiconductor industry slowdown; an expanding economy
within the geographic area where the Company maintains its principal business
offices, making it more difficult for the Company to retain its employees; and
the declining value of stock options granted to employees, relative to their
total compensation, as a result of full vesting of options granted prior to
the Company's initial public offering. Due to these and other factors, the
Company may continue to experience high levels of employee turnover, which
could materially adversely impact the Company's business, financial condition
and results of operations.
International Sales
International sales accounted for approximately 70%, 67% and 55% of total
net sales for the first nine months of fiscal 1997, and for fiscal years 1996
and 1995, respectively. The Company is also attempting to
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increase its sales to non-U.S.-based customers. As a result, the Company
anticipates that international sales will continue to account for a
significant portion of total net sales in the foreseeable future. These
international sales will continue to be subject to certain risks, including
changes in regulatory requirements, tariffs and other barriers, political and
economic instability, an outbreak of hostilities, integration of foreign
operations of acquired businesses, foreign currency exchange rate
fluctuations, difficulties with distributors, joint venture partners, original
equipment manufacturers, foreign subsidiaries and branch operations,
potentially adverse tax consequences and the possibility of difficulty in
accounts receivable collection. The Company is also subject to the risks
associated with the imposition of legislation and regulations relating to the
import or export of semiconductor equipment. The Company cannot predict
whether quotas, duties, taxes or other charges or restrictions will be
implemented by the United States or any other country upon the importation or
exportation of the Company's products in the future. Any of these factors or
the adoption of restrictive policies could have a material adverse effect on
the Company's business, financial condition or results of operations.
Proprietary Rights
The Company attempts to protect its intellectual property rights through
patents, copyrights, trade secrets and other measures, including
confidentiality agreements. There can be no assurance that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to the Company's trade secrets and other
intellectual property rights or disclose such technology or that the Company
can meaningfully protect its trade secrets or other intellectual property
rights. There can be no assurance that patents owned by the Company will not
be invalidated, deemed unenforceable, circumvented or challenged, or that the
rights granted thereunder will provide competitive advantages to the Company
or that any of the Company's pending or future patent applications will be
issued with claims of the scope sought by the Company, if at all. Furthermore,
there can be no assurance that others will not develop similar products,
duplicate the Company's products or design around the patents owned by the
Company. In addition, there can be no assurance that foreign intellectual
property laws or the Company's agreements will protect the Company's
intellectual property rights. Failure to protect the Company's intellectual
property rights could have a material adverse effect upon the Company's
business, financial condition or results of operations. The Company has been
involved in extensive, expensive and time-consuming reviews of, and litigation
concerning, patent infringement claims. In addition, the Company has at times
been notified of other claims that it may be infringing intellectual property
rights possessed by third parties and expects to continue to receive notice of
such claims in the future.
The European patent application relating to one of the proprietary CMOS
stabilization methods owned by the Company was abandoned by the prior owner
after the European patent examiner cited prior art. This prior art was not
referenced in the corresponding United States patent application. Based upon
its review to date of the cited prior art and the European examiner's
objections, and in part upon the advice of Smith-Hill and Bedell, P.C.,
outside patent counsel to the Company ("SHB"), the Company believes that such
prior art is unlikely to affect the validity or scope of the claims of the
United States issued patent.
This prior art may, however, render invalid or significantly narrow the
scope of certain claims set forth in the United States patent covering the
Company's other proprietary CMOS stabilization method. The European examiner
referred to this prior art in the corresponding European patent application.
The European application was approved, but with narrower claims than the
United States patent. This prior art was not referenced in the corresponding
United States patent. Based in part upon the advice of SHB, and on the
Company's review of its current products, the Company believes that this
patent will continue to be valuable to the Company in preventing imitation of
the Company's products covered by this patent. Additionally, in mid-1992, a
third party suggested that certain claims set forth in this patent might be
invalid as a result of other alleged prior art. The Company believes, based in
part upon the advice of SHB, that the prior art alleged by the third party is
less relevant than the prior art referenced by the European examiner. However,
there can be no assurance that any of the aforementioned prior art or other
prior art will not be successfully asserted and used to invalidate or narrow
the scope of any claim of the United States patents or any other patents or
other patent applications of the Company.
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Certain of the Company's customers have received notices of infringement
from Jerome Lemelson alleging that the manufacture of semiconductor products
and/or the equipment used to manufacture semiconductor products infringes
certain patents issued to such person. The Company was notified by a customer
in 1990 and a different customer in late 1994 that the Company may be
obligated to defend or settle claims that the Company's products infringe such
person's patents, and, in the event it is subsequently determined that the
customer infringes such person's patents, such customer intends to seek
reimbursement from the Company for damages and other related expenses. There
can be no assurance that the Company will be successful in defending current
or future patent infringement claims or claims for indemnification resulting
from infringement claims. An award of damages, injunctive relief or
expenditures by the Company of significant amounts in defending any such
action could materially adversely affect the Company's business, financial
condition or results of operations, regardless of the outcome of any
litigation. With respect to any claims, the Company may seek to obtain a
license under the third party's intellectual property rights. There can be no
assurance, however, that a license will be available on reasonable terms or at
all. The Company could decide, in the alternative, to continue to resort to
litigation to challenge such claims. Such challenges have been and could
continue to be extremely expensive and time consuming, and could materially
adversely affect the Company's business, financial condition or results of
operations, regardless of the outcome of any litigation.
Future Capital Needs
The development and manufacture of new ATE systems and enhancements are
highly capital intensive. In order to be competitive, the Company must make
significant investments in capital equipment, expansion of operations,
systems, procedures and controls, research and development and worldwide
training, customer service and support, among many items. The Company expects
that cash on hand and cash equivalents, including restricted cash, proceeds
from the $100 million private placement, short-term investments, funds
available under its bank line of credit, anticipated cash flow from operations
and equipment lease arrangements will satisfy its financing requirements for
at least the next 18 months.
Volatility of Stock Price
The Company believes that factors such as announcements of developments
related to the Company's business, fluctuations in the Company's financial
results, general conditions or developments in the semiconductor and capital
equipment industry and the general economy, sales of the Company's Common
Stock into the marketplace, an outbreak of hostilities, natural disasters,
announcements of technological innovations or new products or enhancements by
the Company or its competitors, developments in patents or other intellectual
property rights, developments in the Company's relationships with its
customers and suppliers, or a shortfall or changes in revenue, gross margins
or earnings or other financial results from analysts' expectations could cause
the price of the Company's Common Stock to fluctuate, perhaps substantially.
In recent years the stock market in general, and the market for shares of
small capitalization stocks in particular, including the Company, have
experienced extreme price fluctuations, which have often been unrelated to the
operating performance of affected companies. There can be no assurance that
the market price of the Company's Common Stock will not continue to experience
significant fluctuations in the future, including fluctuations that are
unrelated to the Company's performance.
Leverage
In connection with the sale of the $100 million aggregate principal amount
of the Note due 2002, the Company will incur $100 million of indebtedness
which will result in a ratio of long-term debt to total capitalization at July
31, 1997 of approximately 34% on an as-adjusted basis. As a result of this
indebtedness, the Company's principal and interest obligations will increase
substantially. The degree to which the Company will be leveraged could
materially adversely affect Company's ability to obtain financing for working
capital, acquisitions or other purposes and could make it more vulnerable to
industry downturns and competitive pressures. The Company's ability to meet
its debt service obligations will be dependent upon the Company's
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future performance, which will be subject to financial, business and other
factors affecting the operations of the Company, many of which are beyond its
control.
Effects of Certain Anti-Takeover Provisions
Certain provisions of the Company's Certificate of Incorporation, equity
incentive plans, Bylaws and Delaware law may discourage certain transactions
involving a change in control of the Company. In addition to the foregoing,
the Company's classified board of directors, the shareholdings of the
Company's officers, directors and persons or entities that may be deemed
affiliates and the ability of the Board of Directors to issue "blank check"
preferred stock without further stockholder approval could have the effect of
delaying, deferring or preventing a change in control of the Company and may
adversely affect the voting and other rights of holders of Common Stock.
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PART II.--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Note 4 of notes to condensed consolidated financial
statements.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
On July 11, 1997, the Company, through its newly formed subsidiary, Test
Systems Strategies, Inc., a Delaware Corporation ("TSSI"), acquired certain
assets and assumed certain liabilities from Summit Design, Inc. and its wholly
owned subsidiary, Test Systems Strategies, Inc., an Oregon Corporation,
including the test development series software ("TDS") and TSSI trademark of
Test Systems Strategies, Inc. (an Oregon Corporation). TDS includes tools
designed to convert gate-level simulation data from electronic design
automation simulators to programs that operate on targeted automatic test
equipment ("ATE") for testing integrated circuits characterized by the gate-
level simulation data. TDS facilitates simulation analysis, stimulus
generation, simulation rules checking, tester resource checking, ATE test
program generation, and test program conversion. The acquisition has been
accounted for by the Company under the purchase method of accounting, and
accordingly, the condensed consolidated financial statements reflect the
impact of TDS operations subsequent to the acquisition date.
The purchase price of $7.3 million, consisted of a cash payment of $7.0
million to Summit Design, Inc. and $300,000 for the assumption of liabilities.
Acquired assets and liabilities were recorded at their estimated fair market
value at the date of the acquisition. The aggregate purchase price, plus
related acquisition expenses, have been allocated to the assets and
liabilities acquired based on valuations. Amounts allocated to in-process
research and development of approximately $6.0 million were written-off at the
acquisition date, representing an estimated value (using risk-adjusted cash
flows, discounted at 35%) of development programs that have not yet reached
technological feasibility. Amounts allocated to developed technology, $1.0
million and workforce in place, $0.3 million, are being amortized on a
straight line basis over periods of six and three years respectively.
In addition, on May 19, 1997, the Company entered into an agreement with
Summit Design, Inc. for the Company to purchase approximately $18 million of
Summit's Visual Testbench ("VTB") product licenses and maintenance services
through 1999.
On August 20, 1997, the Company, through one of its subsidiaries, Test
Systems Strategies, Inc., purchased from Zycad Corporation and one of its
subsidiaries, Attest Software, Inc. certain assets and assumed certain
liabilities for $2,250,000.
On September 10, 1997, the Company sold $100 million of 5 1/4% convertible
subordinated notes (the "Notes") due 2002 through a private placement within
the U.S. to qualified institutional buyers in accordance with Rule 144A and
outside the U.S., to non-U.S. persons as defined in Regulation S under the
Securities Act of 1933, as amended. The Notes are convertible into common
stock of the Company at a conversion price of $69.15 per share. The Company
has granted to Smith Barney, Inc., the initial purchaser, a 30-day option to
purchase an
20
<PAGE>
additional $15 million of Notes to cover over-allotments, if any. Expense of
$3.0 million associated with the offering will be deferred and included in
other assets. Such expenses will be amortized to interest expense over the term
of the Notes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)See Exhibit Index on page 23.
(b)No reports on Form 8-K have been filed during the quarter ended July 31,
1997.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant duly caused this Report to be signed on its behalf by
the undersigned thereunto duly authorized.
CREDENCE SYSTEMS CORPORATION
----------------------------------------------
(Registrant)
September 12, 1997 /s/ RICHARD Y. OKUMOTO
- ------------------------------- ----------------------------------------------
Date Richard Y. Okumoto
Executive Vice President, Chief Financial
Officer and Secretary
22
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER PAGE
------- ----
<C> <S> <C>
2.9 Asset Purchase Agreement, dated as of May 19, 1997, among
Credence Systems Corporation, Summit Design, Inc., Test Systems
Strategies, Inc., a Delaware corporation and wholly-owned
subsidiary of Credence Systems Corporation, and Test Systems
Strategies, Inc., an Oregon Corporation and wholly-owned
subsidiary of Summit Design, Inc................................ 24
10.23* Software OEM License Agreement between Credence Systems
Corporation, Test Systems Strategies, Inc. and Summit Design,
Inc. dated May 19, 1997......................................... 52
10.24 Joint Venture Agreement, dated June 10, 1997, between Credence
Systems Corporation and Innotech Corporation.................... 69
11.1 Computation of Net Income (Loss) Per Share...................... 130
27.1 EDGAR Financial Data Schedule................................... 131
</TABLE>
- --------
* Confidential treatment has been requested for certain portions of this
exhibit.
23
<PAGE>
EXHIBIT 2.9
ASSET PURCHASE AGREEMENT
BY AND AMONG
TEST SYSTEMS STRATEGIES, INC.
(a Delaware corporation),
CREDENCE SYSTEMS CORPORATION,
SUMMIT DESIGN, INC.
AND
TEST SYSTEMS STRATEGIES, INC.
(an Oregon corporation)
Dated as of May 19, 1997
INDEX OF SCHEDULES
i
<PAGE>
SCHEDULE DESCRIPTION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<C> <S> <C>
ARTICLE I
THE ACQUISITION -1-
1.1 Purchase of Assets -1-
1.2 Consideration -2-
1.3 Closing -3-
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER AND SUMMIT -4-
2.1 Organization; Good Standing -4-
2.2 Authorization of Seller -4-
2.3 Financial Statements -5-
2.4 Absence of Certain Changes and Events -5-
2.5 Customers and Commitments -6-
2.6 Inventory -6-
2.7 Title to Assets; Absence of Liens and Encumbrances -6-
2.8 Compliance with Laws -6-
2.9 Consents -7-
2.10 Proprietary Rights -7-
2.11 Restrictive Documents or Orders -10-
2.12 Contracts and Commitments -10-
2.13 Assets -10-
2.14 Insurance -10-
2.15 Product Warranties and Its Product Liability -10-
2.16 Litigation -11-
2.17 Interested Party Relationships -11-
2.18 Books and Records -11-
2.19 Complete Disclosure -11-
2.20 Backlog -11-
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER AND CSC -12-
3.1 Organization, Standing and Power -12-
3.2 Authority -12-
3.3 Ability to Perform -12-
3.4 No Conflict -12-
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE IV
CONDUCT PRIOR TO THE CLOSING DATE -13-
4.1 Maintenance of Business -13-
4.2 No Solicitation -13-
4.3 Break-up Fee -14-
ARTICLE V
ADDITIONAL AGREEMENTS -14-
5.1 Access to Information -14-
5.2 Confidentiality -14-
5.3 Expenses -14-
5.4 Public Disclosure -14-
5.5 Consents -14-
5.6 Best Efforts -14-
5.7 Notification of Certain Matters -15-
5.8 Additional Documents and Further Assurances -15-
5.9 Tax Returns -15-
5.10 Agreement Not to Hire -15-
5.11 Hart-Scott-Rodino Filing -15-
5.12 Cooperation by Seller -16-
ARTICLE VI
CONDITIONS TO THE ACQUISITION -16-
6.1 Conditions to Obligations of Each Party to Effect the Acquisition -16-
6.2 Additional Conditions to Obligations of Summit and Seller -16-
6.3 Additional Conditions to the Obligations of CSC and Buyer -17-
ARTICLE VII
SURVIVAL OF REPRESENTATIONS, WARRANTIES,COVENANTS AND
AGREEMENTS; INDEMNIFICATION -18-
7.1 Survival of Representations and Warranties -18-
7.2 Obligation of Summit and Seller to Indemnify, Reimburse, etc. -19-
7.3 Obligation of Buyer to Indemnify, Reimburse, etc. -19-
7.4 Notice and Opportunity to Defend Against Third Party Claims -19-
</TABLE>
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
7.5 Procedure for Indemnification with Respect to Non-Third Party Claims -20-
7.6 Net Indemnity -20-
7.7 Limits on Indemnification -20-
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER -21-
8.1 Termination -21-
8.2 Effect of Termination -22-
8.3 Amendment -22-
8.4 Extension; Waiver -22-
ARTICLE IX
GENERAL PROVISIONS -22-
9.1 Notices -22-
9.2 Interpretation -23-
9.3 Counterparts -23-
9.4 Entire Agreement -23-
9.5 Severability -24-
9.6 Other Remedies -24-
9.7 Governing Law -24-
9.8 Rules of Construction -24-
9.9 Disclaimer of Projections -24-
9.10 No Warranty -24-
9.11 Cooperation and Records Retention -25-
9.12 Successors and Assigns -25-
</TABLE>
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered into as
of May 19, 1997 by and among Credence Systems Corporation, a Delaware
corporation ("CSC"), Test Systems Strategies, Inc., a Delaware corporation and
wholly-owned subsidiary of CSC ("Buyer"), Summit Design, Inc., a Delaware
corporation ("Summit"), and Test Systems Strategies, Inc., an Oregon corporation
and wholly-owned subsidiary of Summit ("Seller").
RECITALS
A. The Boards of Directors of each of Summit, Seller, CSC and Buyer
believe it is in the best interests of each company and their respective
securityholders that Buyer acquire certain listed assets and assume certain
listed liabilities of Seller (the "Acquisition").
B. On the date hereof, Buyer has executed a $2,000,000 irrevocable
purchase order to purchase 400 time-based licenses for Summit's Visual HDL
interfaces for Visual Testbench ("VTB") software on CSC's standard form of
purchase order, which is payable within five (5) business days after the date
hereof.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
ARTICLE I
THE ACQUISITION
1.1 PURCHASE OF ASSETS.
(a) PURCHASE AND SALE OF ASSETS. On the terms and subject to the
conditions set forth in this Agreement, Seller will sell, convey, transfer,
assign and deliver to Buyer and Buyer will purchase and acquire from Seller on
the Closing Date (as defined in Section 1.3(a)), all of Seller's right, title
and interest in and to the assets and properties of Seller set forth on Schedule
1.1(a) (collectively, the "Assets") free and clear of all liens, pledges,
charges, claims, actions, suits, proceedings, security interests or other
encumbrances of any sort ("Liens"), other than as set forth on Schedule 2.7. The
Assets do not include Summit's and Seller's VTB software.
(b) NONASSIGNMENT OR SUBCONTRACTING OF CERTAIN ASSETS.
Notwithstanding anything to the contrary in this Agreement, to the extent that
the assignment or subcontracting hereunder of any of the Assets shall require
the consent of any other party (or in the event that any of the same shall be
nonassignable or unable to be subcontracted), neither this Agreement nor any
action taken pursuant to its provisions shall constitute an assignment or
subcontract or an agreement to assign or subcontract if such assignment or
subcontract or attempted assignment or subcontract would constitute a breach
thereof or result in the loss or diminution thereof; PROVIDED, HOWEVER, that in
each such case, Seller shall use its commercially reasonable efforts to obtain
the consent of such other party to an assignment to Buyer. If such consent is
not obtained by the Closing, Seller shall cooperate with Buyer in any
arrangement designed for Buyer to perform Seller's obligation with respect to
such
<PAGE>
Asset after the Closing and for Buyer to receive the benefits under any such
Asset after the Closing, which arrangements may include enforcement, for the
account and benefit of Buyer, of any and all rights of Seller against any other
person arising out of the breach or cancellation by such other person or
otherwise, all of such actions of Seller to be at the direction and expense of
Buyer. Seller shall reimburse or pay Buyer for a portion equal to one-half of
all costs and expenses, including amounts owed as a result of increased
obligations under such instruments, resulting from an inability of Buyer to
receive the benefits of such assignment or subcontract.
(c) ASSUMPTION OF LIABILITIES. At the Closing, Buyer shall only assume
the obligations and liabilities of Seller listed on Schedule 1.1(c) (the
"Assumed Liabilities"). Buyer shall not assume any liabilities or obligations
of Seller or the Assets except for those liabilities and obligations which Buyer
expressly assumes pursuant to this Section 1.1(c) and Seller shall retain those
liabilities of Seller that are not Assumed Liabilities. Other than the Assumed
Liabilities of Seller specifically listed in Schedule 1.1(c), Buyer shall not
assume, nor shall Buyer or CSC or any of their respective affiliates, directors,
employees, stockholders or agents, be deemed to have assumed or guaranteed, or
be responsible for in any way, any liabilities or obligations, whether such
liabilities or obligations are contingent or otherwise, or direct or indirect,
of Seller or Summit.
(d) RISK OF LOSS. In the event any of the Assets are unavailable for
delivery to Buyer on the Closing Date as a result of risks for which such Assets
were insured by Seller, Buyer may at its option elect (i) to require Seller to
deliver to Buyer assignments of such Seller's rights under its insurance
policies, if any, applicable to such Assets and to close on that basis, or (ii)
to not close due to the failure of a condition to closing if the rights
described in (i) above are not fully assignable and the amount of the loss
reasonably can be expected to be in excess of five hundred thousand dollars
($500,000). Seller hereby agrees to use its reasonable best efforts to make
such assignment of rights if Buyer so elects.
1.2 CONSIDERATION.
(a) CONSIDERATION. On the terms and subject to the conditions set
forth in this Agreement, Buyer shall on the Closing Date pay to Seller by wire
transfer of immediately available funds the sum of five million dollars
($5,000,000) in full payment for the transfer of Assets to Buyer and the
assumption of the Assumed Liabilities by Buyer (the "Purchase Price").
(b) TRANSFER TAXES. Buyer and Seller shall each pay and promptly
discharge when due one-half of the entire amount of any and all sales, transfer
and use taxes ("Sales Taxes") imposed or levied by reason of the sale of the
Assets to the Buyer. The parties shall cooperate with each other to the extent
reasonably requested and legally permitted to minimize any such Sales Taxes and
to prepare any documents necessary to satisfy the requirements of any applicable
exemption from such laws. Buyer shall take title to, and possession of, the
Assets in the State of Oregon. Buyer and Seller hereby waive compliance with
the Oregon Uniform Commercial Code-Bulk Transfers and any other applicable state
bulk transfer laws. Seller agrees to indemnify Buyer and CSC against all claims
(other than Assumed Liabilities) brought by a creditor of Seller or Summit
against Buyer or CSC or the Assets based on noncompliance with such laws in
connection with the sale of the Assets.
1.3 CLOSING.
(a) CLOSING. Unless this Agreement is earlier terminated pursuant to
Section 8.1, the closing of the transactions contemplated by this Agreement (the
"Closing") shall be held at the offices of Summit, 9305 S.W. Gemini Drive,
Beaverton, Oregon, at 10:00 a.m. on the later of (i) the date which is two
business days following satisfaction or waiver of the last of the conditions to
Closing as set forth in
<PAGE>
Article VI hereof, and (ii) July 1, 1997, or on such other time and/or date as
the parties agree (the actual date on which the Closing occurs is referred to
herein as the "Closing Date").
(b) DELIVERY. At the Closing:
(i) Buyer shall deliver to Seller:
(A) an instrument of assumption of liabilities by which Buyer
shall assume the Assumed Liabilities as of the Closing;
(B) the Purchase Price; and
(C) the Software OEM License Agreement and the Software
Development Agreement (the "Related Agreements").
(ii) Seller and Summit shall deliver to Buyer:
(A) a good and sufficient bill of sale for the Assets,
selling, delivering, transferring and assigning to Buyer title to all
of Seller's and/or Summit's right, title and interest in and to the
Assets, free and clear of all Liens;
(B) the Related Agreements;
(C) valid assignments for all Contracts (as defined below)
and all other contracts and agreements under which obligations are owed
to Seller or Summit with respect to the Assets and intellectual
property forms for filing with the applicable governmental agencies and
other third party or governmental consents necessary to transfer the
Assets; and
(D) resale certificates for the resale of any items in
inventory.
(iii) Seller and Buyer shall deliver or cause to be delivered to one
another such other instruments and documents necessary or appropriate to
evidence the due execution, delivery and performance of this Agreement.
(c) TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after
the Closing Date and at Buyer's request, any further action is necessary or
desirable to carry out the purposes of this Agreement and to vest the Buyer with
full right, title and possession to the Assets, Seller and Summit shall, and
shall use their reasonable best efforts to cause Seller's employees, agents and
consultants to, sign, execute and acknowledge any and all documents and to
perform such acts as may be necessary for the purposes of perfecting the
assignment to Buyer of the Assets. The costs related to any of the foregoing
shall be shared equally by Seller and Buyer.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER AND SUMMIT
Summit and Seller, jointly and severally, represent and warrant to Buyer
and CSC, subject to such exceptions as are specifically disclosed in the
disclosure schedules supplied by Seller to Buyer and CSC (the "Seller
Schedules") and dated as of the date hereof, which disclosures shall be deemed
to be representations and warranties hereunder, as follows:
<PAGE>
2.1 ORGANIZATION; GOOD STANDING. Each of Seller and Summit are
corporations duly organized, validly existing and in good standing under the
laws of their respective states of organization, and have the corporate power
and authority to own, lease and operate their properties and to carry on their
businesses as the same are now being conducted. Each of Seller and Summit is
qualified as a foreign corporation and is in good standing in each jurisdiction
in which the failure to be so qualified would have a material adverse effect on
the Assets (or Buyer's interest therein or use thereof following the Closing) (a
"Material Adverse Effect"). Seller has property, employees or operations
relating to the Assets only in the jurisdictions set forth on Schedule 2.1.
Summit owns one hundred percent (100%) of the shares of capital stock or other
proprietary interests in Seller.
2.2 AUTHORIZATION OF SELLER. Each of Seller and Summit has full power and
authority to enter into this Agreement and the Related Agreements to which it is
a party, to perform its obligations hereunder and thereunder, and to consummate
the transactions contemplated hereby and thereby, including, without limitation,
the execution and delivery of this Agreement, general conveyances, bills of
sale, assignments, and other documents and instruments evidencing the conveyance
of the Assets or delivered in accordance with Sections 1.1(b) or 1.3(b)
hereunder (the "Closing Documents") and the Related Agreements to which it is a
party. Each of Seller and Summit has taken all necessary and appropriate
corporate action with respect to the execution and delivery of this Agreement,
the Closing Documents, and the Related Agreements to which it is a party. No
other corporate or securityholder proceedings or action on the part of Seller or
Summit, or their respective securityholders, are necessary to authorize this
Agreement and the Related Agreements or to consummate the transactions
contemplated hereby and thereby. This Agreement and the Related Agreements have
been duly executed and delivered by Seller and Summit. This Agreement and the
Related Agreements to which it is a party constitute valid and binding
obligations of Seller and Summit, enforceable in accordance with their terms:
(i) except as limited by applicable bankruptcy, insolvency, moratorium,
reorganization, or other laws affecting creditors' rights and remedies
generally, (ii) except as may be required by the Bulk Sales provisions of
applicable state law, and (iii) except as the indemnification provisions
contained in this Agreement may be limited by principles of public policy. The
execution and delivery of this Agreement and the Related Agreements by Seller
and Summit do not, and, as of the Closing, the consummation of the transactions
contemplated hereby and thereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under (any such event, a "Conflict") (i)
any provision of the Articles or Certificate of Incorporation or Bylaws of
Seller or Summit or (ii) any material mortgage, indenture, lease, contract or
other agreement or material instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Seller or Summit or their properties or assets, except where such Conflict
would not have a Material Adverse Effect.
2.3 FINANCIAL STATEMENTS. Seller has previously furnished Buyer with
copies of the profit and loss statements of Seller for each of the quarters in
the year ended December 31, 1996 and the quarter ended March 31, 1997,
(collectively, the "Seller Financials"). The Seller Financials fairly present'
in all material respects the results of operations of Seller for the periods
therein set forth, subject to normal year-end adjustments, in each case in
accordance with generally accepted accounting principles applied on a consistent
basis. Summit's revenue recognition policies with respect to the Seller
Financials have been made in accordance with generally accepted accounting
principles. Summit and Seller maintain an accounting system in accordance with
generally accepted accounting principles. Notwithstanding the foregoing, the
Seller Financials were prepared using an allocation of cost of goods sold based
on Summit's overall cost of goods sold as a percentage of total revenue, using
an allocation of
<PAGE>
general and administrative expense between Seller's and Summit's SLDA business,
and do not include any allocation for corporate marketing expenses.
2.4 ABSENCE OF CERTAIN CHANGES AND EVENTS. Since March 31, 1997, there has
not been:
(a) Any material adverse change in the financial condition, results of
operation, assets, liabilities, business, or prospects of Seller or any
occurrence, circumstance, or combination thereof which reasonably could be
expected to result in any such material adverse change;
(b) Any material transaction relating to or involving Seller (other
than the transactions contemplated herein) which was entered into or carried out
by Seller other than in the ordinary and usual course of business;
(c) Any modification, waiver, change, amendment, release, rescission,
accord and satisfaction, or termination of, or with respect to, any term,
condition, or provision of any material contract, agreement, license, or other
instrument to which Seller or Summit is a party and relating to or affecting the
Assets, other than any satisfaction by performance in accordance with the terms
thereof in the usual and ordinary course of business and consistent with prior
practice;
(d) Any notice (written or unwritten) from any employee of Seller that
such employee has terminated, or intends to terminate, such employee's
employment with Seller;
(e) Any adverse relationships or conditions with vendors or customers
that may have a Material Adverse Effect; or
(f) Any other event or condition of any character which has resulted in
a Material Adverse Effect, or may reasonably be expected to have a Material
Adverse Effect.
2.5 CUSTOMERS AND COMMITMENTS. Neither Summit nor Seller is aware nor has
any reason to believe that any of Seller's five largest customers during the
twelve month period ended March 31, 1997 (determined on the basis of both
revenues and bookings during such period) has terminated, or intends materially
to reduce or terminate, the amount of its business with Seller. Schedule 2.5
contains a true, accurate and complete list of Seller's obligations and
commitments owed to customers or prospective customers and rights of customers
or prospective customers with respect to Seller's products.
2.6 INVENTORY. All inventory of Seller included in the Assets and, to the
knowledge of Seller, all items to be delivered to Seller for such inventory
after the Closing that are subject to purchase commitments outstanding at the
Closing, consist of items that are or upon delivery will be of a quality and
quantity presently usable and saleable in the ordinary course of business.
2.7 TITLE TO ASSETS; ABSENCE OF LIENS AND ENCUMBRANCES. Seller has good
and valid title to all of the Assets, free and clear of any Liens. Seller has
full right and power to (and at the Closing will) sell, convey, assign, transfer
and deliver to Buyer good and valid title to all the Assets, free and clear of
any and all Liens, except (i) for the Assumed Liabilities, (ii) for statutory
liens for taxes not yet due (none of which shall be the obligation of CSC or
Buyer) and (iii) as set forth on Schedule 2.7. The Assets are in good operating
condition and repair, reasonable wear and tear excepted, and are suitable and
adequate for use in the ordinary course of business and conform in all material
respects to all applicable laws. All leases are binding, valid and enforceable
on the Seller in accordance with their terms and, to the knowledge of the
Seller, are enforceable against the other party or parties thereto in accordance
with their terms, in each case subject to the effect, if any, of (i) applicable
bankruptcy and
<PAGE>
other similar laws affecting the rights of creditors generally, and (ii) rules
of law governing specific performance, injunctive relief and other equitable
remedies. Seller is not in default under any lease and there has not occurred
any event which, with the giving of notice or lapse of time or both, would
constitute a material default under any lease. To the knowledge of Seller,
there are no current defaults by any other party to any lease or events that
have occurred which, with the giving of notice or lapse of time or both, would
constitute a material default by such party under any lease. After the Closing
Date, Buyer will be entitled to the continued use and possession of the personal
property leased by it, for the terms specified in such leases and for the
purposes consistent with the past practices of the Seller.
2.8 COMPLIANCE WITH LAWS. Seller has complied and is in compliance with
all applicable foreign, federal, state, and local laws, statutes, licensing
requirements, rules, and regulations, and judicial or administrative decisions
where the failure to comply could have a Material Adverse Effect. There is no
order issued, investigation, or proceeding pending or notice served on Summit or
Seller or, to Seller's and Summit's knowledge, threatened, with respect to any
violation of any law, ordinance, order, writ, decree, rule, or regulation issued
by any federal, state, local, or foreign court or governmental agency or
instrumentality applicable to the Assets.
2.9 CONSENTS. The execution and delivery of this Agreement by the Seller
and Summit does not, and the performance of this Agreement and the Related
Agreements by the Seller and Summit do not, require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, domestic or foreign, or any other third party,
including licensors and lenders, except for applicable requirements, if any, of
bulk sales laws and the notification requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act").
2.10 PROPRIETARY RIGHTS.
(a) Seller (i) owns all right, title and interest in, (ii) is
exclusively licensed, or (iii) is otherwise entitled to exercise, without
restriction, all rights to all patents, trademarks, trade names, service marks,
copyrights, mask works, trade secrets and other intellectual property rights,
and any applications or registrations therefor, and all inventions, mask work
layouts, net lists, source code, object code, schematics, technical drawings,
technology, know-how, processes, formulas, algorithms, computer software
programs, documentation, and all other tangible and intangible information or
material in any form which form part of the Assets, without any conflict with or
infringement of the rights of others and free and clear of any Liens
(collectively, the "Intellectual Property Rights"). Seller has the right to
use, sell, license, assign, transfer, convey or dispose of the Intellectual
Property Rights or the products, processes and materials covered thereby.
(b) Schedule 2.10(b) sets forth: (i) all copyrights, patents, patent
applications, trademarks, service marks, tradenames, and other company, product
or service identifiers owned by or licensed to Seller with respect to the
Intellectual Property Rights; (ii) the jurisdictions) in which an application
for patent or application for registration, if any, of each Intellectual
Property Right has been made, including the respective application numbers and
dates; (iii) the jurisdiction(s), if any, in which each such Intellectual
Property Right has been patented or registered, including the respective patent
or registration numbers and dates; (iv) all licenses, sublicenses and other
agreements to which Seller is a party and pursuant to which any other party is
authorized to use, exercise, or receive any benefit from the Intellectual
Property Rights (other than to end-user licenses entered into in the.ordinary
course of business); and (v) all parties to whom the Seller has delivered copies
of its source code, whether pursuant to an escrow arrangement or otherwise, or
parties who have the right to receive such source code. Seller has delivered to
CSC copies of all licenses, sublicenses, and other agreements identified
pursuant to
<PAGE>
clause (iv) above. Seller and, to the knowledge of Seller, each other party
thereto, is in compliance with all material terms and conditions of all such
licenses, sublicenses, and other agreements. Seller has no knowledge of any
claim, threatened claim or facts indicating that Seller or any other party
thereto has breached any material terms or conditions of such licenses,
sublicenses, or other agreements.
(c) Seller has taken all necessary and appropriate steps, including,
without limitation, the filing of copyright, and trademark applications to
perfect and protect its interest in the Intellectual Property Rights in all
countries and other jurisdictions in which the Seller does business, except
where the failure to take such actions or make such applications or filings
would not (i) have a Material Adverse Effect or (ii) materially interfere with
the use or enforcement of the Intellectual Property Rights in the ordinary
course of business. Seller has the exclusive right to file, prosecute, and
maintain such applications and the patents and registrations that issue
therefrom.
(d) To Seller's knowledge, after due inquiry, all patents and
registered trademarks, service marks, and other company, product or service
identifiers and copyrights held by Seller are valid and enforceable.
(e) Seller and Summit have secured valid written assignments from all
consultants and employees who contributed to the creation or development of the
Intellectual Property Rights of the rights to such contributions that the Seller
does not already own by operation of law except where failure to secure such
assignments would not have a Material Adverse Effect.
(f) To Seller's knowledge, there has not been and there is not now
any unauthorized use, infringement or misappropriation of any of the
Intellectual Property Rights by any third party, including, without limitation,
any service provider of Summit or Seller.
(g) Seller has not brought any actions or lawsuits alleging (i)
infringement of any of the Intellectual Property Rights or (ii) breach of any
license, sublicense or other agreement authorizing another party to use the
Intellectual Property Rights. To Seller's knowledge, there do not exist any
facts which could form the basis of any such action or lawsuit. Seller has not
entered into any agreement granting any third party the right to bring
infringement actions with respect to, or otherwise to enforce rights with
respect to, any of the Intellectual Property Rights.
(h) No person has asserted or, to the knowledge of Seller, threatened
to assert any claims with respect to the Intellectual Property Rights (i)
contesting the right of Seller to use, exercise, sell, license, transfer or
dispose of any of the Intellectual Property Rights or any products, processes or
materials covered thereby or (ii) challenging the ownership, validity or
enforceability of any of the Intellectual Property Rights. No Intellectual
Property Right is subject to any outstanding order, judgment, decree,
stipulation or agreement related to or restricting in any manner the licensing,
assignment, transfer or conveyance thereof by Seller.
(i) Schedule 2.10(i) sets forth: (i) all copyrights, patents, patent
applications, trademarks, service marks, tradenames, trade secrets and other
company, product or service identifiers licensed to Seller ("In-licensed
Intellectual Property Rights") and (ii) all licenses, sublicenses and other
agreements to which Seller is a party and pursuant to which Seller is authorized
to use, exercise, or receive any benefit from any In-Licensed Intellectual
Property Right (other than commercially available, I.E., "off-the-shelf"
software). Seller has delivered to CSC copies of all licenses, sublicenses and
other agreements identified pursuant to clause (ii) above. Seller and, to
Seller's knowledge, each other party thereto is in compliance with all material
terms and conditions of all such licenses, sublicenses, and other agreements.
Seller has no knowledge of any claim, threatened claim or the existence of any
facts
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indicating that Seller or any other party thereto has breached any material
terms or conditions of such licenses, sublicenses, or other agreements.
(j) No In-Licensed Intellectual Property Right is subject to any
outstanding order, judgment, decree, stipulation or agreement related to, or
restricting in any manner, the use or licensing thereof by Seller.
(k) Seller has the right to sell, assign, transfer, and convey all of
its right, title and interest in and to the Intellectual Property Rights and In-
Licensed Intellectual Property Rights to Buyer. Seller is not, nor will be as a
result of the execution and delivery of this Agreement or the Related Agreements
or the consummation of the transactions contemplated hereby or thereby, in
violation of, breach of nor will Seller forfeit, terminate or in any way impair
any material Intellectual Property Right or In-Licensed Intellectual Property
Right whether or not pursuant to any license, sublicense or agreement with
respect to the Intellectual Property Rights or In-Licensed Intellectual Property
Rights set forth or required to be set forth in the Seller Schedules, or in any
way impair the right of Buyer to use, sell, license or dispose of or to bring
any action for the infringement of, any Intellectual Property Right or In-
Licensed Intellectual Property Right or any products or technology designed,
developed, manufactured, sold or serviced by Seller (collectively, "Products").
(l) To Seller's knowledge, the manufacture, marketing, license, sale
or use of any Products anywhere in the world does not (i) violate any material
license or agreement with any third party, or (ii) infringe on any intellectual
property right of any third party. Neither Summit nor Seller knows of any claims
to the effect that the manufacture, marketing, license, sale or use of any
Product infringes any copyright, patent, trade secret, or other intellectual
property right of any third party or violates any license or agreement with any
third party. Neither Seller nor Summit has received service of process or been
charged in writing as a defendant in any claim, suit, action or proceeding that
alleges that any Asset infringes any patents, trademarks, service marks, trade
secret rights, copyrights or other intellectual property rights of any third
party, which has not been finally adjudicated prior to the date hereof. Neither
Seller nor Summit has any outstanding restrictions or infringement liability
with respect to any patent, trade secret, trademark, service mark, copyright or
other intellectual property right of another which relates to the Assets.
(m) Seller and Summit have taken all necessary and appropriate steps
to protect and preserve the confidentiality of, and proprietary rights in, all
inventions, algorithms, formulas, schematics, technical drawings, ideas, know-
how, processes not otherwise protected by patents or patent applications, source
code, program listings, and trade secrets ("Confidential Information"),
including, without limitation, marking all such Confidential Information with
appropriate "Proprietary" or "Confidential" legends, establishing policies for
the handling, disclosure, and use of Confidential Information, and the
acquisition of valid written nondisclosure agreements from any party (including
Summit and Seller employees) receiving Confidential Information (the form of
which has been provided to CSC and its counsel), except where failure to take
such steps would not have a Material Adverse Effect. All Confidential
Information is presently, and as of the Closing will be, located at Seller's
address as set forth in this Agreement. No person other than Seller has used,
divulged or appropriated Confidential Information except for the benefit of
Seller. No person has used, divulged or appropriated Confidential Information to
the detriment of Seller other than pursuant to the terms of written agreements
between Seller and such other persons.
2.11 RESTRICTIVE DOCUMENTS OR ORDERS. Neither Summit nor Seller is a
party to or bound by any agreement, contract, order, judgment, or decree, or any
similar restriction not of general application which (i) has, or could
reasonably be expected to have, a Material Adverse Effect, or (ii)
<PAGE>
materially adversely affects, or could reasonably be expected to materially
adversely affect, the consummation of the transactions contemplated by this
Agreement or the Related Agreements.
2.12 CONTRACTS AND COMMITMENTS.
(a) Schedule 2.12 sets forth a list of all outstanding licenses,
contracts or other agreements, whether or not in writing, to which obligations
are owing by the Seller and which are related to the Assets or pursuant to
which Seller or Summit derives any benefits relating to the Assets (collectively
"Contracts").
(b) Seller has performed all of its obligations under the terms of
each Contract, and is not in default thereunder, in either case, except where
such non-performance or default would have a Material Adverse Effect. No event
or omission has occurred which but for the giving of notice or lapse of time or
both would constitute a default by Seller or, to Seller's knowledge, any other
party thereto under any such Contract where such default by any such party could
have a Material Adverse Effect. Each Contract is valid and binding on the Seller
and, to the knowledge of the Seller, on each other party thereto and is in full
force and effect. Neither Summit nor Seller has received any notice of default,
cancellation, or termination in connection with any Contract.
2.13 ASSETS. Upon or after the Closing, Buyer will have all the
intellectual property that Seller or Summit owned or had the right to use that
was necessary to operate the business of Seller relating to Seller's TDS product
line (but not Seller's Visual Test Bench product line) prior to the Closing.
The Assets are suitable for the purpose or purposes for which they are being
used by Seller prior to the Closing, and are free from any known defects, except
such minor defects as do not interfere with the continued use thereof.
2.14 INSURANCE. Schedule 2.14 sets forth all insurance policies and
fidelity bonds covering the Assets. All such insurance policies and fidelity
bonds will terminate as of the Closing. There is no claim by the Seller pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds.
2.15 PRODUCT WARRANTIES AND ITS PRODUCT LIABILITY. Seller is not
obligated under any product warranty relating to the Assets, except pursuant to
Seller's standard product license agreement (a form of which is attached hereto
as Schedule 2.15). Seller is not aware of any claim in excess of claims made in
the ordinary course of business.
2.16 LITIGATION. Except as disclosed in documents that Summit has filed
with the Securities and Exchange Commission before the date of this Agreement,
there is no claim, investigation, litigation, action, suit, or administrative or
judicial proceeding pending or threatened against Summit or Seller, or to
Seller's or Summit's knowledge, any officer or director of Summit or Seller, and
involving the Assets. Neither Summit nor Seller has received any complaints
from any of its customers or suppliers within the last year, which complaints
could reasonably be expected individually or in the aggregate, to have a
Material Adverse Effect.
2.17 INTERESTED PARTY RELATIONSHIPS. Neither Summit nor Seller, nor any
officer or director of Summit or Seller has any material financial interest,
direct or indirect, in any material supplier or customer or any party to any
contract that is included in the Assets.
2.18 BOOKS AND RECORDS. The books and records of Summit and Seller to
which CSC, Buyer and their accountants and attorneys have been given access are
the true books and records of
<PAGE>
Summit and Seller and accurately reflect, when read together, the underlying
information presented therein in all material respects.
2.19 COMPLETE DISCLOSURE. To the knowledge of Summit's Chief Executive
Officer and Chief Financial Officer, no representations or warranties made by
Summit or Seller in this Agreement, nor any document, written information,
written statement, financial statement, certificate or exhibit prepared and
furnished or to be prepared and furnished by Summit or Seller or its
representatives to CSC or Buyer pursuant hereto or the Related Agreements or
otherwise in connection with the transactions contemplated hereby or thereby,
when read together, contains or will contain any untrue statement of a material
fact, or omits or will have failed to state a material fact necessary to make
the statements or facts contained herein or therein not misleading; PROVIDED,
HOWEVER, that the above mentioned information contains projections and other
forward looking statements. There is no presently existing event, fact or
condition that would have, has or could reasonably be expected to have a
Material Adverse Effect, which has not been set forth in this Agreement or the
Related Agreements or the exhibits hereto or thereto or otherwise disclosed by
Summit or the Seller to CSC or Buyer in writing prior to or on the Closing Date.
Seller and/or Summit, as the case may be, has prepared such disclosure documents
in good faith.
2.20 BACKLOG. Schedule 2.21 sets forth the backlog of orders that the
Seller is to ship and contract work to be performed as of May 1, 1997, and such
schedule will be updated to indicate such backlog as of the Closing. The Seller
either (i) possesses sufficient inventory of Products, materials and personnel
to produce the same within their schedule delivery dates or (ii) such Products
or materials have lead times such that the Seller can acquire or produce such
Products and materials in time to produce and ship such backlog in accordance
with its scheduled shipping date.
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER AND CSC
Buyer and CSC, jointly and severally, represent and warrant to Seller and Summit
as follows:
3.1 ORGANIZATION, STANDING AND POWER. Each of Buyer and CSC are
corporations duly organized, validly existing and in good standing under the
laws of Delaware, and have the corporate power and authority to own, lease and
operate their properties and to carry on their businesses as the same are now
being conducted. Each of Buyer and CSC is qualified as a foreign corporation
and is in good standing in each jurisdiction in which the failure to be so
qualified would have a material adverse effect on the ability of Buyer or CSC to
consummate the transactions contemplated by this Agreement and the Related
Agreements.
3.2 AUTHORITY. Each of Buyer and CSC has all requisite corporate power and
authority to enter into this Agreement and the Related Agreements and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Related Agreements and the consummation of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of Buyer and CSC. This Agreement has
been duly executed and delivered by Buyer and CSC and constitutes the valid and
binding obligation of Buyer and CSC, enforceable in accordance with its terms
(i) except as limited by applicable bankruptcy, insolvency, moratorium,
reorganization, or other laws affecting creditors' rights and remedies
generally, (ii) except as may be required by the Bulk Sales provisions of
applicable state law, and (iii) except as the indemnification provisions
contained in this Agreement may be limited by principles of public policy. The
Related Agreements have been duly executed and delivered by Buyer and CSC and
constitute the valid and binding obligation of Buyer and CSC, enforceable in
accordance with their terms (i) except as limited by applicable bankruptcy,
insolvency, moratorium, reorganization, or other laws affecting creditors'
rights and remedies generally, (ii) except as may be required by the Bulk Sales
provisions of applicable state law, and (iii) except as the indemnification
provisions contained in this Agreement may be limited by principles of public
policy.
3.3 ABILITY TO PERFORM. CSC currently has available, and at the time
payable to Seller pursuant to the terms of this Agreement or to Summit pursuant
to the Related Agreements, CSC and Buyer will have available, sufficient cash to
enable them to perform their obligations under this Agreement and the Related
Agreements.
3.4 NO CONFLICT. The execution and delivery of this Agreement and the
Related Agreements by Buyer and CSC do not, and, as of the Closing, the
consummation of the transactions contemplated hereby and thereby will not give
rise to any Conflict under (i) any provision of the Certificate of Incorporation
or Bylaws of Buyer or CSC or (ii) any material mortgage, indenture, lease,
contract or other agreement or material instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to buyer or their properties or assets except where such
conflict would not have a material adverse effect on the business of Buyer. No
consent, waiver, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Buyer and CSC in connection with the execution and delivery of this
Agreement and the Related Agreements or (except as has been, or will be,
obtained prior to the Closing) the consummation of the transactions contemplated
hereby and thereby.
ARTICLE IV
<PAGE>
CONDUCT PRIOR TO THE CLOSING DATE
4.1 MAINTENANCE OF BUSINESS. During the period from the date hereof
through the Closing, Seller and Summit shall use their commercially reasonable
efforts (i) to preserve the Assets and maintain all equipment and machinery in
good working order, and (ii) keep available the services of key employees and
preserve relationships with customers and suppliers. During such period, Seller
shall not, without the written consent of CSC (i) terminate the employment of
any engineering or technical personnel or other key employees except for cause;
(ii) alter any employee or personnel benefits; or (iii) dispose of any Assets
(other than in the ordinary course of business and subject to the obligation to
maintain proper inventory levels).
4.2 NO SOLICITATION. Until the Closing Date or the date of termination of
this Agreement pursuant to the provisions of Section 8.1 hereof, as the case may
be, neither Summit nor Seller will (nor will Seller or Summit permit any of
their respective officers, directors, agents, representatives or Affiliates to)
directly or indirectly, take any of the following actions with any party other
than CSC or Buyer and its designees:
(a) solicit, encourage, initiate or participate in any negotiations or
discussions with respect to, any offer or proposal to, directly or indirectly,
acquire all or any portion of the Assets or securities of Seller, whether by
merger, purchase of assets, security issuance or sale or otherwise,
(b) disclose any information not customarily disclosed to any person
other than its attorneys or financial advisors concerning the Assets or afford
to any person or entity access to Seller's properties, books or records, or
(c) assist or cooperate with any person to make any proposal to
purchase all or any part of the Assets or acquire more than 50% of the Seller's
voting securities, other than selling products of Seller in the ordinary course
of business and consistent with past practice.
In the event Summit or Seller shall receive any offer or proposal, directly
or indirectly, of the type referred to in clause (a) or (c) above, or any
request for disclosure or access pursuant to clause (b) above, Summit shall
promptly inform Buyer as to any such offer or proposal. If the Board of
Directors of Seller or Summit is advised by legal counsel that it must consider
such offer or proposal, under applicable law, including fiduciary duties under
applicable law, then the Seller shall provide Buyer with all written materials
prepared by the Seller or the soliciting party in connection with such proposal,
and shall at all times while such offer or solicitation is pending, keep Buyer
informed as to the status thereof.
4.3 BREAK-UP FEE. Summit agrees to pay to Buyer the sum of two million
dollars ($2,000,000) in the event that the Acquisition is not consummated for
any reason other than a material breach of this Agreement by CSC or Buyer.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 ACCESS TO INFORMATION. Summit and Seller shall afford CSC and Buyer
and their accountants, counsel and other representatives, reasonable access
during normal business hours during
<PAGE>
the period prior to the Closing Date to (a) all of Seller's properties, books,
contracts, commitments and records, and (b) all other information concerning the
Assets as Buyer may reasonably request.
5.2 CONFIDENTIALITY. Each of the parties hereto hereby agrees to keep such
information or knowledge obtained in any investigation pursuant to Section 5.1,
or pursuant to the negotiation and execution of this Agreement and the Related
Agreements or the effectuation of the transactions contemplated hereby and
thereby, confidential; PROVIDED, HOWEVER, that the foregoing shall not apply to
information or knowledge which (a) a party can demonstrate was already lawfully
in its possession prior to the disclosure thereof by the other party, (b) is
generally known to the public and did not become so known through any violation
of law or this Agreement, (c) is disclosed by a third party without the
violation of an obligation to such other party, or (d) is required to be
disclosed by order of court or government agency with subpoena powers; provided,
that such party shall provide reasonable notice to each other party that it is
required to disclose information pursuant to this Section 5.2(d).
5.3 EXPENSES. Whether or not the Acquisition is consummated, all fees and
expenses incurred in connection with the Acquisition including, without
limitation, all legal, accounting, financial advisory, consulting and all other
fees and expenses of third parties incurred by a party in connection with the
negotiation and effectuation of the terms and conditions of this Agreement and
the transactions contemplated hereby, shall be the obligation of the respective
party incurring such fees and expenses; PROVIDED, HOWEVER, that CSC and Summit
shall each bear one-half of: (i) any filing fees required under the HSR Act;
(ii) any fees, taxes and expenses incurred pursuant to Sections 1.1(b), 1.2(b)
and 1.3(c) of this Agreement.
5.4 PUBLIC DISCLOSURE. Unless otherwise required by law, prior to the
Closing Date, no disclosure (whether or not in response to an inquiry) of the
terms and conditions of this Agreement shall be made by any party hereto unless
approved by CSC and Summit prior to release, provided that such approval shall
not be unreasonably withheld, and subject to Summit's and CSC's obligation to
comply with applicable securities laws. The parties acknowledge and agree that
a press release or releases (in the form and substance mutually satisfactory to
Summit and CSC) relating to the signing of this Agreement shall be issued by the
parties hereto upon the signing of this Agreement.
5.5 CONSENTS. Each party shall use its reasonable best efforts to obtain
all necessary consents, waivers and approvals from any third parties, including,
without limitation, under any of the Contracts as may be required in connection
with the Acquisition and so as to transfer to Buyer all rights in the Assets of
Seller thereunder as of the Closing.
5.6 BEST EFFORTS. Subject to the terms and conditions provided in this
Agreement and to the fiduciary duties of the boards of directors of Summit and
Seller, each party hereto shall use its respective reasonable best efforts to
take promptly, or cause to be taken, all actions, and to do promptly, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations: to consummate and make effective the transactions contemplated
hereby and by the Related Agreements, to obtain all necessary waivers, consents
and approvals and to effect all necessary registrations and filings, and to
remove or satisfy any conditions precedent under this Agreement, injunctions or
other impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement and the Related
Agreements for the purpose of securing to the parties hereto the benefits
contemplated hereby and thereby.
5.7 NOTIFICATION OF CERTAIN MATTERS. Each party shall give prompt notice
to each other party, of (i) the occurrence or non-occurrence of any event, the
occurrence or non-occurrence of which is likely to cause any representation or
warranty of Summit, Seller, CSC or Buyer, respectively,
<PAGE>
contained in this Agreement to be untrue or inaccurate at or prior to the
Closing Date and (ii) any failure of Summit, Seller, CSC or Buyer, as the case
may be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; PROVIDED, HOWEVER, that the delivery
of any notice pursuant to this Section 5.7 shall not limit or otherwise affect
any remedies available to the party receiving such notice.
5.8 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each party hereto, at
the request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary
or desirable for effecting completely the consummation of this Agreement and
the Related Agreements and the transactions contemplated hereby and thereby.
5.9 TAX RETURNS. Seller shall be responsible for and pay when due (i) all
of Seller's Taxes attributable to or levied or imposed upon the Assets relating
or pertaining to the period (or that portion of any period) ending on or prior
to the Closing Date and (ii) all Taxes attributable to, levied or imposed upon,
or incurred in connection with the Seller's business operations prior to the
Closing Date. Seller shall timely file within the time period for filing, or
any extension granted with respect thereto, all of Seller's Tax Returns required
to be filed in connection with the Assets and any portion of any such Tax
Returns connected therewith shall be true and correct and completed in
accordance with applicable laws.
5.10 AGREEMENT NOT TO HIRE. Other than with the written consent of CSC,
Summit and Seller agree not to solicit or hire any of the individuals hired by
the Buyer within thirty (30) days of the Closing, whether as employees or
otherwise, until the later of (i) termination of their employment with Buyer,
and (ii) two years from the Closing Date. Other than with the written consent
of Summit, Buyer agrees not to solicit or hire any of the persons employed by
Summit or its subsidiaries (other than Seller) as of the Closing Date, whether
as employees or otherwise, until the later of (i) termination of their
employment with Summit or such subsidiaries and (ii) two years from the Closing
Date. Notwithstanding the foregoing, Buyer may offer employment to those
employees of Seller prior to the Closing as Buyer, in its sole and absolute
discretion, shall select, such offers of employment to be contingent on the
Closing.
5.11 HART-SCOTT-RODINO FILING. Seller and Buyer shall promptly file with
the Federal Trade Commission and the Antitrust Division of the Department of
Justice any notification and report required by the HSR Act, and, in the event
that any additional filings are required, and shall cooperate with each other
with respect to the foregoing. The parties shall give each other prior notice
and consult with each other prior to any meeting with the United States Federal
Trade Commission or Department of Justice with respect to their respective
filings under the HSR Act or any review by either of the foregoing agencies.
Each of the parties shall take all reasonable actions necessary to cause the
expiration of the waiting periods under the HSR Act as promptly as possible and
shall promptly file any supplemental information which may be requested in
connection therewith.
5.12 COOPERATION BY SELLER. Seller agrees to use its commercially
reasonable efforts during the six (6) months after the Closing to provide
cooperation between Seller's remaining personnel in Seller's offices and Buyer's
personnel to help assure an orderly transition of customer accounts and to help
assure an orderly transition of the Assets. Buyer shall reimburse Seller for
these services at Seller's cost (including fully burdened labor costs, materials
and reasonable travel costs). Summit agrees to use its commercially reasonable
efforts to cooperate with CSC in the preparation and filing of any necessary
reports with the Securities and Exchange Commission, and shall provide CSC with
such information as CSC shall reasonably request for such purpose.
<PAGE>
ARTICLE VI
CONDITIONS TO THE ACQUISITION
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE ACQUISITION.
The respective obligations of each party to this Agreement to effect the
Acquisition shall be subject to the satisfaction or written waiver at or prior
to the Closing Date of the following conditions:
(a) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Acquisition shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, seeking any of the foregoing
be pending; nor shall there be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Acquisition, which makes the consummation of the Acquisition illegal.
(b) CONSENTS AND GOVERNMENTAL APPROVALS. All governmental approvals
and third party consents required to be made or obtained by any party hereto in
connection with the execution and delivery of this Agreement and the Related
Agreements or the consummation of the transactions contemplated hereby or
thereby shall have been made or obtained and be in full force and effect.
Complete and correct copies of all such governmental approvals and such consents
shall have been delivered by each party to each other party. Without limiting
the generality of the foregoing, the notifications of the parties pursuant to
the HSR Act, if any, shall have been made and the applicable waiting period and
any extensions thereof shall have expired or been terminated.
(c) RELATED AGREEMENTS. Buyer, Summit and Seller shall have executed
and delivered the Related Agreements, and the Related Agreements shall be in
full force and effect.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF SUMMIT AND SELLER. The
obligations of Summit and Seller to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Closing Date of each of the following conditions, any of which may
be waived, in writing, exclusively by Seller and Summit, respectively:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and
warranties of CSC and Buyer in this Agreement not qualified as to materiality
shall be true and correct in all material respects, and the representations and
warranties that are qualified as to materiality shall be true and correct, on
and as of the Closing Date as though such representations and warranties were
made on and as of such time and Buyer shall have performed and complied in all
material respects with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by it as of the Closing
Date.
(b) CERTIFICATE OF BUYER AND CSC. Seller shall have been provided with
a certificate executed on behalf of Buyer and CSC by each of their respective
Chief Executive Officers and a Chief Financial Officers to the effect that, as
of the Closing Date:
(i) all representations and warranties made by Buyer and CSC in
this Agreement not qualified as to materiality are true and correct in all
material respects, and the representations and warranties that are
qualified as to materiality shall be true and correct; and
<PAGE>
(ii) all covenants, obligations and conditions of this Agreement
and the Related Agreements to be performed by Buyer or CSC on or before
such date have been so performed in all material respects.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF CSC AND BUYER. The
obligations of CSC and Buyer to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Closing Date of each of the following conditions, any of which may
be waived, in writing, exclusively by Buyer or CSC, respectively:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and
warranties of CSC and Seller in this Agreement not qualified as to materiality
shall be true and correct in all material respects, and the representations and
warranties that are qualified as to materiality shall be true and correct, on
and as of the Closing Date as though such representations and warranties were
made on and as of such time and Seller shall have performed and complied in all
material respects with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by it as of the Closing
Date.
(b) CERTIFICATE OF SELLER AND SUMMIT. Buyer shall have been provided
with a certificate executed on behalf of Seller and Summit by each of their
respective Chief Executive Officers and a Chief Financial Officers to the effect
that, as of the Closing Date:
(i) all representations and warranties made by Seller and
Summit in this Agreement not qualified as to materiality are true and
correct in all material respects, and the representations and warranties
that are qualified as to materiality shall be true and correct;
(ii) all covenants, obligations and conditions of this Agreement
and the Related Agreements to be performed by Seller or Summit on or before
such date have been so performed in all material respects;
(iii) since the date of signing this Agreement, there has
not occurred any event that would have a Material Adverse Effect.
(c) CLAIMS. There shall not have occurred any claims (whether or not
asserted in litigation) which materially and adversely affect the consummation
of the transactions contemplated hereby or the Assets.
(d) NO INJUNCTIONS OR RESTRAINTS ON CONDUCT OF BUSINESS. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
provision challenging Buyer's proposed acquisition of the Assets, or limiting or
restricting Buyer's conduct or operation of the business related to the Assets
as conducted on the date of this Agreement following the Acquisition shall be in
effect, nor shall any proceeding brought by an administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending.
(e) NO MATERIAL ADVERSE EVENT. Since the date of signing this
Agreement, there has not occurred any event that would have a Material Adverse
Effect.
<PAGE>
(f) THIRD PARTY RIGHTS. No third party shall have any right of any
nature whatsoever (including, without limitation, any right to receive royalty
payments) in respect of any of the Assets other than Liens for leased equipment.
(g) SATISFACTORY FORM OF LEGAL MATTERS. The form, scope and substance
of all legal matters contemplated hereby and all closing documents and other
papers delivered hereunder shall be reasonably acceptable to counsel to Summit
and CSC.
(h) CERTAIN ASSIGNMENTS. Seller and/or Summit, as applicable, shall
deliver such assignments of In-Licensed Intellectual Property as are necessary
to transfer the Assets.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS; INDEMNIFICATION
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each party hereto set forth in this Agreement (as modified by the
Seller Schedules and any Buyer Schedule) shall survive until the date that is
one year after the Closing Date; provided, however, the representations and
warranties contained in Sections 2.8, 2.10, 2.12(a) and 2.13 shall survive until
the date that is three (3) years after the Closing Date. All covenants and
agreements made by the parties to this Agreement which contemplate performance
following the Closing Date shall survive the Closing Date. All other covenants
and agreements, including without limitation Sections 4.2 and 4.3 of this
Agreement, shall not survive the Closing Date and shall terminate as of the
Closing.
7.2 OBLIGATION OF SUMMIT AND SELLER TO INDEMNIFY, REIMBURSE, ETC. Subject
to the limitations set forth in Sections 7.1, 7.5 and 7.6, Summit and Seller and
their successors and assigns, jointly and severally, shall indemnify, reimburse,
defend and hold harmless Buyer and CSC and their respective successors and
assigns and each of their respective directors, officers, employees, Affiliates,
and their respective successors and assigns from and against any claims, losses,
liabilities, damages, causes of action, costs and expenses (including reasonable
attorney's, accountant's, consultant's and expert's fees and expenses)
(collectively "Losses") resulting from, imposed upon, incurred or suffered by
any of them, directly or indirectly, based upon, arising out of or otherwise in
respect of (i) any inaccuracy in or any breach of any representation or warranty
of Summit or Seller (after taking into account the exceptions to such
representations and warranties which are set forth on the Seller Schedules), and
(ii) the nonfulfillment or breach on the part of Summit or Seller of any
unwaived covenant or agreement set forth in this Agreement which survives the
Closing Date in accordance with Section 7.1.
7.3 OBLIGATION OF BUYER TO INDEMNIFY, REIMBURSE, ETC. Subject to the
limitations set forth in Sections 7.1 and 7.5, Buyer and CSC and their
respective successors and assigns, jointly and severally, shall indemnify,
defend and hold harmless Summit and Seller and their respective successors and
assigns and each of their respective directors, officers, employees, Affiliates,
and their respective successors and assigns from and against any Losses
resulting from, imposed upon, incurred or suffered by any of them, directly or
indirectly, based upon, arising out of or otherwise in respect of (i) any
inaccuracy in or breach of any representation or warranty of Buyer (after taking
into account the exceptions to such representations and warranties which are set
forth on a Buyers' Schedule, if any, which will be delivered, if applicable, at
the Closing) and (ii) the nonfulfillment on the part of Buyer of any unwaived
covenant or agreement set forth in this Agreement which survives the Closing
Date in accordance with Section 7.1.
<PAGE>
7.4 NOTICE AND OPPORTUNITY TO DEFEND AGAINST THIRD PARTY CLAIMS.
(a) Promptly after receipt from any third party by any party hereto of
a written notice of any demand, claim or circumstance that, immediately or with
the lapse of time, would give rise to a claim or the commencement (or threatened
commencement) of any action, proceeding or investigation (an "Asserted
Liability") that may result in Losses for which indemnification may be sought
hereunder, the party seeking indemnification pursuant to Section 7.2 or 7.3 (the
"Indemnitee") shall give written notice thereof (the "Claims Notice") to the
party obligated to provide indemnification pursuant to Section 7.2 or 7.3 (the
"Indemnifying Party"), PROVIDED, HOWEVER, that a failure to give such notice
shall not prejudice the Indemnitee's right to indemnification hereunder except
to the extent that the Indemnifying Party is actually and materially prejudiced
thereby. The Claims Notice shall describe the Asserted Liability in reasonable
detail, and shall indicate the amount (estimated, if necessary) of the Losses
that have been or may be suffered by the Indemnitee when such information is
available.
(b) The Indemnifying Party may elect to compromise or defend, at its
own expense and by its own counsel, any Asserted Liability. If the Indemnifying
Party elects to compromise or defend such Asserted Liability, it shall, within
20 business days following its receipt of the Claims Notice (or sooner, if the
nature of the Asserted Liability so requires) notify the Indemnitee of its
intent to do so, and the Indemnitee shall cooperate, at the expense of the
Indemnifying Party, in the compromise of, or defense against, such Asserted
Liability. If the Indemnifying Party elects not to compromise or defend the
Asserted Liability, fails to notify the Indemnitee of its election as herein
provided or contests its obligation to provide indemnification under this
Agreement, the Indemnitee may pay, compromise or defend such Asserted Liability
with all reasonable costs and expenses borne by the Indemnifying Party.
Notwithstanding the foregoing, neither the Indemnifying Party nor the Indemnitee
may settle or compromise any claim without the consent of the other party,
PROVIDED, HOWEVER, that such consent to settlement or compromise shall not be
unreasonably withheld. In any event, the Indemnitee and the Indemnifying Party
may participate, at their own expense, in the defense of such Asserted
Liability; PROVIDED, HOWEVER, that if the Indemnitee reasonably determines that
there is a conflict of interest between the Indemnified Party and the
Indemnitee, the fees of such counsel shall be borne by the Indemnifying Party.
If the Indemnifying Party chooses to defend any claim, the Indemnitee shall make
available to the Indemnifying Party any books, records or other documents within
its control that are necessary or appropriate for such defense.
7.5 PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO NON-THIRD PARTY CLAIMS.
In the event that CSC and Buyer, on the one hand, and Summit and Seller, on the
other hand, assert the existence of a claim giving rise to Losses (but excluding
claims resulting from the assertion of liability by third parties), Indemnitee
shall give write notice to the Indemnifying Party. Such written notice shall
state that it is being given pursuant to this Section 7.5, specify the nature
and amount of the claim asserted and indicate the date on which such assertion
shall be deemed accepted and the amount of the claim deemed a valid claim (such
date to be established in accordance with the next sentence). If Indemnifying
Party, within sixty (60) days after the mailing of notice by Indemnitee, shall
not give written notice to Indemnitee announcing its intent to contest such
assertion of Indemnitee, such assertion shall be deemed accepted and the amount
of claim shall be deemed a valid claim. In the event, however, that
Indemnifying Party contests the assertion of a claim by giving such written
notice to Indemnitee within said period, then the parties shall act in good
faith to reach agreement regarding such claim. In the event that litigation
shall arise with respect to any such claim, the prevailing party shall be
entitled to reimbursement of costs and expenses incurred in connection with such
litigation, including attorney's fees, if the parties hereto, acting in good
faith, cannot reach agreement with respect to such claim within ten (10) days
after such notice.
<PAGE>
7.6 NET INDEMNITY. The amount of any Losses from and against which either
party is liable to indemnify, reimburse, defend and hold harmless the other
party or any other person pursuant to Section 7.2 or Section 7.3 shall be
reduced by any insurance or other recoveries or any tax benefit that such
indemnified person realizes or may realize as a result of or in connection with
such Loss and increased by any taxes such indemnified person realizes or may
realize in respect of indemnification for such Loss.
7.7 LIMITS ON INDEMNIFICATION. Absent fraud or willful misconduct of any
party (for which there shall be no limitation of liability of any party), no
party shall have any right to seek indemnification under this Agreement (i)
until Losses which would otherwise be indemnifiable hereunder and have been
incurred by such party and other indemnitees associated with or related to such
party exceed $100,000 after insurance or other recoveries and on an after-tax
basis in the aggregate (provided that after such $100,000 amount has been
satisfied, the Indemnitee shall be entitled to recover all Losses, including
such $100,000 amount); or (ii) for an aggregate amount in excess of $5,000,000.
The parties to this Agreement shall have liabilities and obligations for Losses
under this Article VII only with respect to claims submitted or notice of claims
provided during the relevant time period of survivability of the specific
representation, warranty, covenant or agreement as set forth herein.
Notwithstanding the expiration dates of the representations, warranties,
covenants and agreements set forth herein, if any party to this Agreement shall
provide notice to the other parties with respect to the submission of a claim
during the time period of survivability of such representation, warranty,
covenant or agreement, such Indemnifying Party's (as defined herein) liability
or obligation for Losses identified in such notice shall continue in full force
and effect until a final determination of such liability or obligation with
respect to those claims timely made.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. Except as provided in Section 8.2 below, this Agreement
may be terminated and the Acquisition abandoned at any time prior to the Closing
Date:
(a) by mutual consent of Seller and Buyer;
(b) by CSC or Summit if: (i) there shall be a final nonappealable order
of a federal or state court in effect preventing consummation of the
Acquisition; or (ii) there shall be any statute, rule, regulation or order
enacted, promulgated or issued or deemed applicable to the Acquisition by any
Governmental Entity that would make consummation of the Acquisition illegal;
(c) by CSC if there shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Acquisition by any Governmental Entity, which: (i) results in the issuance of
such an order or injunction, or the imposition against any party hereto of
substantial damages if the Acquisition is consummated, (ii) prohibits CSC's or
Buyer's ownership or operation of all or a material portion of the Assets or
compels the Buyer or Seller to dispose of or hold separate all or a material
portion of the Assets of Buyer or Seller as a result of the sale of the Assets,
(iii) materially limits or restricts Buyer's conduct or operation of the Assets
after the Closing, or (iv) renders any party hereto unable to consummate the
sale of the Assets. In the event any such order or injunction shall have been
issued, each party agrees to use its reasonable efforts to have any such
injunction lifted;
<PAGE>
(d) by CSC if it is not in material breach of its obligations under
this Agreement or the Related Agreements and there has been a material breach of
any representation, warranty, covenant or agreement contained in this Agreement
or the Related Agreements on the part of Summit or Seller and such breach has
not been cured within ten (10) business days after written notice to Summit and
Seller (provided that, no cure period shall be required for a breach which by
its nature cannot be cured);
(e) by Summit if it is not in material breach of its obligations under
this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement or the Related
Agreements on the part of CSC or Buyer and such breach has not been cured within
ten (10) business days after written notice to CSC and Buyer (provided that, no
cure period shall be required for a breach which by its nature cannot be cured).
8.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
as provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto, or their
respective officers, directors, securityholders or Affiliates, provided that
each party shall remain liable for any breaches of this Agreement prior to its
termination; and provided further that, the provisions of Sections 4.3, 5.2,
5.3, 5.4, 5.12 and 9.7 of this Agreement shall remain in full force and effect
and survive any termination of this Agreement.
8.3 AMENDMENT. This Agreement may be amended by the parties hereto at any
time by execution of an instrument in writing signed on behalf of each of the
parties hereto.
8.4 EXTENSION; WAIVER. At any time prior to the Closing Date, CSC, on the
one hand, and Summit, on the other, may, to the extent legally allowed, (i)
extend the time for the performance of any of the obligations of the other party
hereto, (ii) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto, and
(iii) waive compliance with any of the agreements or conditions for the benefit
of such party or Seller or Buyer, as applicable, contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party and shall not be deemed to be a waiver or extension of any other condition
or breach of any other representation or warranty nor shall the forbearance by
any party to seek a remedy for any noncompliance or breach by any other party
hereto be deemed to be a waiver by such party of any rights or remedies with
respect to such breach or noncompliance.
ARTICLE IX
GENERAL PROVISIONS
9.1 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or BY commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via telecopy (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Buyer, to:
Credence Systems Corporation
215 Fourier Avenue
Fremont, California 94539
<PAGE>
Attention: Wilmer R. Bottoms
Telecopy No.: (510) 623-2547
with a copy to:
Brobeck, Phleger & Harrison LLP
2200 Geng Road
Two Embarcadero Place
Palo Alto, CA 94303
Attention: Warren T. Lazarow, Esq.
Telecopy No.: (415) 496-2733
(b) if to Seller or Summit, to:
Summit Design, Inc.
9305 S.W. Gemini Drive
Beaverton, Oregon 97008
Attention: Larry Gerhard
Telecopy No.: (503) 646-9320
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attention: Steven V. Bernard, Esq.
Telecopy No.: (415) 493-6811
9.2 INTERPRETATION. When a reference is made in this Agreement to
Schedules or Exhibits, such reference shall be to a Schedule or Exhibit to this
Agreement unless otherwise indicated. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by the
words "without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
9.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 ENTIRE AGREEMENT. This Agreement, the schedules and exhibits hereto
and the Related Agreements: (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; (b) are not intended to confer upon any
other person any rights or remedies hereunder, unless expressly provided
otherwise; and (c) shall not be assigned by operation of law or otherwise except
as otherwise specifically provided.
9.5 SEVERABILITY. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such
<PAGE>
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to
replace such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.6 OTHER REMEDIES. Any and all remedies herein expressly conferred upon a
party will be deemed cumulative with and not exclusive of any other remedy
conferred hereby, or by law or equity upon such party, and the exercise by a
party of any one remedy will not preclude the exercise of any other remedy.
Other than equitable remedies available to any party or claims based on fraud,
Article VII hereto shall be the sole remedy of any party hereto for breaches of
representations, warranties, covenants and agreements set forth in this
Agreement.
9.7 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Title to the Assets shall pass in the State of Oregon.
9.8 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
9.9 DISCLAIMER OF PROJECTIONS. With respect to any of the representations
and warranties contained in Section 2.20 of this Agreement relating to any
financial projection or forecast with respect to the Assets delivered by or on
behalf of Seller or Summit to Buyer, Buyer acknowledges that to the extent such
projections or forecasts were made in good faith: (A) there are uncertainties
inherent in attempting to make such projections and forecasts; (B) it is
familiar with such uncertainties; (C) it is taking full responsibility for
making its own evaluation of the adequacy and accuracy of all such projections
and forecasts so furnished to it; and (D) it shall have no claim against Seller
or Summit with respect to any such projection or forecast.
9.10 NO WARRANTY ON INVENTORY. WITH RESPECT TO ANY INVENTORY OF SELLER
INCLUDED IN THE ASSETS, BUYER ACKNOWLEDGES THAT SELLER TS TRANSFERING SUCH
INVENTORY "AS IS" WITHOUT ANY REPRESENTATIONS OR WARRANTIES REGARDING
FUNCTIONALITY, PERFORMANCE, USE, OPERATION OR SPECIFICATIONS, AND WITHOUT
EXPRESS OR IMPLIED REPRESENTATIONS OR WARRANTIES OF ANY KIND, INCLUDING BUT NOT
LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR NONINFRINGEMENT (EXCEPT THE EXPRESS REPRESENTATIONS, WARRANTIES AND
COVENANTS SET FORTH HEREIN). IN NO EVENT SHALL SELLER OR SUMMIT BE LIABLE TO
BUYER FOR LOSS OF PROFITS, COSTS OF PROCUREMENT OF SUBSTITUTE GOODS, OR OTHER
SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES WITH RESPECT TO A DEFECT IN SUCH
INVENTORY.
9.11 COOPERATION AND RECORDS RETENTION. The parties hereto shall (i) each
provide the other with such assistance as may reasonably be requested by them in
connection with the preparation of any filing with the Securities and Exchange
Commission or any tax return, statement, report, form or other document
(hereinafter, collectively, a "Tax Return"), or in connection with any audit or
other examination by any taxing authority or any judicial or administrative
proceedings relating to liability for Taxes or filing with the Securities and
Exchange Commission, (ii) each retain and provide the other with any records or
other information which may be relevant to any such Tax Return, audit or
<PAGE>
examination, proceeding or determination, and (iii) each provide the other with
any final determination of any such audit or examination, proceeding or
determination that affects any amount required to be shown on any Tax Return of
the other for any period. Without limiting the generality of the foregoing,
each party hereto shall retain, until the applicable statute of limitations
(including any extensions) have expired, copies of all Tax Returns, supporting
work schedules and other records or information which may be relevant to such
Tax Returns for all tax periods or portions thereof ending before or including
the Closing Date and shall not destroy or otherwise dispose of any such records
without first providing the other party with a reasonable opportunity to review
and copy the same.
9.12 SUCCESSORS AND ASSIGNS. All of the terms and conditions of this Agreement
shall be binding upon, and shall insure to the benefit of the parties hereto and
their respective heirs, legal representatives, successors and assigns.
[Remainder of page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, CSC, Buyer, Seller and Summit have caused this
Agreement to be signed by their duly authorized respective officers, all as of
the date first written above.
TEST SYSTEMS STRATEGIES, INC.,
a Delaware corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
CREDENCE SYSTEMS CORPORATION
By: /s/ Richard Y. Okumoto
------------------------------------
Name: Richard Y. Okumoto
----------------------------------
Title: Exec. V.P. & CFO
---------------------------------
TEST SYSTEMS STRATEGIES, INC.,
a Delaware corporation
By: /s/ Larry J. Gerhard
------------------------------------
Name: Larry J. Gerhard
----------------------------------
Title: President, CEO
---------------------------------
SUMMIT DESIGN INC.
By: /s/ Larry J. Gerhard
------------------------------------
Name: Larry J. Gerhard
----------------------------------
Title: President, CEO
---------------------------------
<PAGE>
EXHIBIT 10.23
SOFTWARE OEM LICENSE AGREEMENT
This Software License and OEM Agreement ("Agreement") is entered into this
19th day of May, 1997 (the "Effective Date") by and between Summit Design, Inc.,
a Delaware corporation with principal offices at 9305 SW Gemini Drive,
Beaverton, Oregon 97008 and Test Systems Strategies, Inc., an Oregon corporation
(collectively, "SDI"), and Credence Systems Corporation, a Delaware corporation
with principal offices at 215 Fourier Avenue, Fremont, California 94539 ("CSC").
RECITALS
WHEREAS, CSC desires to purchase licenses to certain SDI software products,
and SDI desires to sell such licenses to CSC in accordance with the terms of
this Agreement; and
WHEREAS, SDI desires to grant to CSC, and CSC desires to receive from SDI,
a non-exclusive license to bundle certain of SDI's products with certain CSC
products and to distribute such SDI products, in object code format only, with
CSC's products in accordance with the terms of this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein, the parties agree as follows:
Section 1
DEFINITIONS
For purposes of this Agreement the following terms shall have the meanings
set forth below:
1.1 CSC PRODUCTS. "CSC Products" means those CSC automatic test equipment
products which are described on SCHEDULE A attached to this Agreement, as it may
be amended from time to time by mutual agreement of the parties.
1.2 SDI DOCUMENTATION. "SDI Documentation" means all written or
electronic technical documentation furnished by SDI during the term of this
Agreement that relates to the VTB Software.
1.3 VTB. "VTB Software" means SDI's proprietary software, in machine-
readable, compiled object code format only, as more fully described on SCHEDULE
B, including any bug fixes, corrections, or other modifications hereinafter
furnished to CSC by SDI in connection with the VTB Software, whether requested
by CSC pursuant to a Maintenance Agreement between CSC and SDI or initiated by
SDI.
1.4 MAINTENANCE AGREEMENT. "Maintenance Agreement" shall mean the
maintenance agreement for maintenance of the VTB Software in the form set forth
in SCHEDULE C.
1.5 END USER LICENSE AGREEMENT. "End User License Agreement" shall mean
the end user license agreement for the VTB Software in the form set forth in
SCHEDULE E.
<PAGE>
Section 2
PURCHASE GRANT AND DELIVERABLES
2.1 VTB SOFTWARE LICENSE PURCHASE. CSC shall purchase licenses to the VTB
Software for the prices and in the quantity set forth in SCHEDULE D, in
accordance with the terms set forth in SCHEDULE D. Each of such licenses shall
be subject to the terms of the End User License Agreement.
2.2 MAINTENANCE PURCHASE. CSC and SDI shall execute the Maintenance
Agreement set forth in SCHEDULE C, as of the date hereof. CSC shall sign an
irrevocable purchase order for such Maintenance Agreement for eighteen (18)
months of maintenance for an aggregate purchase price of $2,000,000. Payment
shall be made upon Closing (as defined in the Asset Purchase Agreement among
CSC, SDI and Test Systems, Inc.) ("Closing") by wire transfer to a bank account
designated by SDI.
2.3 DISTRIBUTION LICENSE. Subject to the terms and conditions of this
Agreement, SDI hereby grants to CSC and its affiliates, under all of SDI's
intellectual property rights in and to the VTB Software, a worldwide, non-
exclusive, non-transferable (except as provided in Section 10.2 below) license
to use the VTB Software for internal purposes (provided a license for such use
has been purchased from SDI) and distribute units of VTB Software purchased
hereunder through its normal distribution channels, in machine-readable,
compiled object code format only, and only when bundled with CSC Products or
sold to customers of CSC who have purchased CSC Products. For each CSC Product
sold to a customer, CSC shall only issue one (1) VTB Software license and the
VTB Software shall only be distributed to end users who agree to be bound by the
terms of the End User License Agreement. Except as expressly provided in
Section 2.4 below, CSC shall have no right to sublicense the rights granted
hereunder by SDI, provided that CSC and its affiliates may use subdistributors
in their distribution efforts ' CSC agrees that it shall be responsible for the
compliance of its affiliates and subdistributors of the relevant terms of this
Agreement. CSC shall not distribute or market the VTB Software in any manner
except as expressly provided in this Section 2.3. Notwithstanding the foregoing,
SDI agrees that it shall not distribute the VTB Software through OEM's which are
automatic test equipment vendors to the semiconductor industry prior to January
1, 2000.
2.4 SUBLICENSING OF VTB SOFTWARE BY CSC.
2.4.1 RESTRICTIONS. Each unit of VTB Software shall be distributed
by CSC with a license in the form set forth on SCHEDULE E.
2.4.2 INDEMNITY. CSC shall be solely responsible for, and SDI shall
have no obligation to honor, any warranties that CSC provides to its customers
with respect to the VTB Software that are in addition to, or inconsistent with,
the warranties provided by SDI in this Agreement or the End User License
Agreement. CSC shall defend any claim against SDI arising in connection with
any such warranties to CSC's customers, express, implied, statutory, or
otherwise, and shall pay any settlements or damages awarded to SDI that are
based on any such warranty.
2.4.3 INFRINGEMENTS. CSC agrees to use reasonable commercial efforts
to enforce violations or infringements under any agreements for the VTB Software
with its customers and to inform SDI promptly of any known violation,
infringement or breach.
2.5 DOCUMENTATION. SDI shall provide the SDI Documentation included with
each unit of the VTB Software.
<PAGE>
2.6 PROPRIETARY NOTICES. CSC shall not remove, efface or obscure any
copyright notices or other proprietary notices or legends from any SDI materials
provided hereunder.
2.7 OWNERSHIP. SDI shall retain all right, title and interest, including
all intellectual property rights, in and to the VTB Software and SDI
Documentation, except as otherwise provided in the Software Development
Agreement of even date herewith.
2.8 REPORTING. CSC shall, within thirty (30) days of the end of each
calendar quarter during the term of this Agreement, prepare a report summarizing
the number and type of copies of VTB Software distributed during such quarter.
2.9 AUDIT. CSC shall maintain complete and accurate accounting records,
in accordance with sound accounting practices, to support and document VTB
Software licenses distributed in connection with this Agreement. Such records
shall be retained for a period of at least two (2) years after the year to which
they pertain.
2.10 VTB SOFTWARE STEERING COMMITTEE. SDI and CSC will each appoint two
(2) representatives to a steering committee to coordinate information on the
development of the VTB Product in accordance with Section 2.1 of the Software
Development Agreement of even date herewith.
Section 3
SDI TRADEMARKS
CSC acknowledges that the symbols, trademarks and service marks adopted by
SDI or its suppliers to identify the VTB Software, as set forth in SCHEDULE F
attached to this Agreement (the "Trademarks"), belong to SDI and its suppliers
and that CSC shall have no rights in such Trademarks except as expressly set
forth herein. All VTB Software distributed by CSC hereunder and all
documentation, associated brochures, packaging and advertising shall display the
Trademarks in accordance with SDI's reasonable instruction, samples of all
materials that may be distributed by CSC displaying the Trademarks shall be
submitted to SDI upon SDI's reasonable request, and the Trademarks shall be used
only in a form so approved by SDI.
Section 4
TERM
4.1 INITIAL TERM. This Agreement shall become effective on the Effective
Date and shall remain in effect until January 1, 2000. This Agreement may be
renewed upon the mutual written agreement of the parties. Each party's remedy
for breach of this Agreement shall be an action for damages or injunctive
relief; neither party shall be entitled to terminate this Agreement for any
reason.
4.2 SURVIVAL. The sublicenses granted to end users pursuant to Section
2.4.1 shall survive the expiration of this Agreement pursuant to their terms.
Also, provisions of Sections 2.7 (Ownership), 2.10 (Audit), 4 (Term), 5
(Confidentiality), 9 (Limitation of Liability) and 10 (Miscellaneous) shall
survive the expiration of this Agreement.
<PAGE>
Section 5
CONFIDENTIALITY
5.1 OBLIGATIONS. Each party (the "receiving party") acknowledges and
agrees that any business and technical information provided to the receiving
party by the other party (the "disclosing party") hereunder constitutes the
confidential and proprietary information of the disclosing party, and that the
receiving party's protection thereof is essential to this Agreement and a
condition to the receiving party's use and possession thereof. The receiving
party shall retain in strict confidence and not disclose to any third party
(except as authorized by this Agreement) without the disclosing party's express
written consent, any and all such information. CSC acknowledges and agrees that
the VTB Software is confidential and proprietary information of SDI.
5.2 EXCEPTIONS. The receiving party shall be relieved of this obligation
of confidentiality to the extent any such information:
(i) was in the public domain at the time it was disclosed or has
become in the public domain through no fault of the receiving party;
(ii) the receiving party can prove was known to the receiving party,
without restriction, at the time of disclosure as shown by the files of the
receiving party in existence at the time of disclosure;
(iii) is disclosed by the receiving party with the prior written
approval of the disclosing party;
(iv) the receiving party can prove was independently developed by the
receiving party without any use of the disclosing party's confidential
information and by employees or other agents of the receiving party who
have not had access to any of the disclosing party's confidential
information; or
(v) becomes known to the receiving party, without restriction,
from a source other than the disclosing party without breach of this
Agreement by the receiving party and otherwise not in violation of the
disclosing party's rights.
5.3 SOURCE CODE PROTECTIONS. Unless as otherwise permitted under this
Agreement or another written agreement between CSC and SDI, CSC shall not under
any circumstances attempt, or knowingly permit others to attempt, to decompile,
decipher, disassemble, reverse engineer or otherwise determine the source code
for the VTB Software.
5.4 CONFIDENTIALITY AGREEMENTS. The receiving party, prior to permitting
access by any individual to any of the disclosing party's confidential
information, shall enter into a confidentiality agreement with each such
individual which (i) incorporates the protections and restrictions set forth
herein for the disclosing party's confidential information; (ii) provides that
the individual's obligations with respect to the disclosing party's confidential
information shall continue after termination of the individual's employment,
consulting relationship or other relationship with the receiving party; and
(iii) provides that the disclosing party is a direct and intended beneficiary of
the agreement and entitled to enforce it directly against the individual.
5.5 NOTIFICATION OF SECURITY BREACH. The receiving party agrees to notify
the disclosing party promptly in the event of any breach of its security under
conditions in which it would appear that the trade secrets contained in the VTB
Software were prejudiced or exposed to loss. The receiving party shall, upon
request of the disclosing party, take all other reasonable steps necessary to
<PAGE>
recover any compromised trade secrets disclosed to or placed in the possession
of the receiving party by virtue of this Agreement. The cost of taking such
steps shall be borne solely by the receiving party.
5.6 INJUNCTIVE RELIEF. Each receiving party acknowledges that any breach
of any of its obligations with respect to confidentiality or use of the
disclosing party's confidential information hereunder is likely to cause or
threaten irreparable harm to the disclosing party, and, accordingly, the
receiving party agrees that in the event of such breach the disclosing party
shall be entitled to seek equitable relief to protect its interest therein,
including but not limited to preliminary and permanent injunctive relief, as
well as money damages.
Section 6
REPRESENTATIONS AND WARRANTIES
6.1 WARRANTY OF TITLE. SDI warrants and represents to CSC that (i) CSC
shall acquire good and clear title to the VTB Software, free and clear of all
liens and encumbrances, (ii) all materials and services provided hereunder
including, without limitation, the VTB Software, are either owned or properly
licensed by SDI or are in the public domain and the use thereof by CSC, its
representatives, distributors or dealers will not infringe any proprietary
rights of any third party; provided, however, that SDI's obligations under
Section 7 shall be CSC's sole remedy for any breach of this warranty; and (iii)
SDI has the full power to enter into this Agreement, to carry out its
obligations under this Agreement and to grant the rights and licenses granted to
CSC in this Agreement.
6.2 PRODUCT WARRANTY. SDI warrants the VTB Software under the warranty
set forth in the End User License Agreement.
Section 7
INDEMNIFICATION
7.1 INDEMNIFICATION BY SDI. SDI agrees to indemnify, defend and hold
harmless CSC, its affiliates, and their respective officers, directors,
employees, distributors, agents, successors and assigns from and against any and
all loss, damage, settlement or expense (including reasonable legal expenses),
as incurred, resulting from or arising out of any claims which allege that the
VTB Software or the use or sale thereof infringe upon, misappropriate or violate
any patents, copyrights, or trade secret rights or other proprietary rights of
persons, firms or entities who are not parties to this Agreement; provided that
CSC (i) promptly notifies SDI, in writing, of any notice or claim of such
alleged infringement or misappropriation involving the VTB Software of which it
becomes aware; (ii) permits SDI to control, the defense, settlement, adjustment
or compromise of any such claim; (iii) the claim does not result from
modification of the VTB Software which modification is not authorized by SDI;
and (iv) the claim does not result from the combination of the VTB Software with
software or equipment not provided by SDI if the VTB Software alone would not be
the subject of the claim. CSC may employ counsel, at its own expense (provided
that if such counsel is necessary because SDI does not assume control, SDI will
bear such expense), to assist it with respect to any such claim. CSC shall have
no authority to settle any claim on behalf of SDI.
7.2 INJUNCTION. If by reason of such infringement claim, CSC or its
customers shall be prevented or are likely to be prevented by legal means from
selling or using any VTB Software, or if, in SDI's opinion, such claim is likely
to occur, SDI will use its commercially reasonable efforts, at its
<PAGE>
expense, to: (i) obtain all rights required to permit the sale or use of the VTB
Software by CSC; or (ii) modify or replace such VTB Software to make then non-
infringing (and extend this indemnity thereof), provided that any such
replacement or modified VTB is functionally equivalent to the VTB Software. If
SDI is unable to achieve either of the options set forth above within a
reasonable period of time after the issuance of the injunction, or reasonably
believes that an injunction will issue and that such options cannot be achieved
within a reasonable period of time, then neither party will sell or distribute
the VTB Software in accordance with the terms of such injunction-or SDI's
reasonable instructions. Notwithstanding the foregoing, all payments due from
CSC hereunder shall be paid whether or not the VTB Software may be used, sold or
distributed by any of the parties under such injunction or instructions of SDI.
This Section 7 states SDI's entire obligation with respect to claims that the
VTB Software or any rights therein infringe or misappropriate the rights of any
third party.
Section 8
CSC WAVEBRIDGE PRODUCTS
CSC agrees to sell CSC Wavebridge products to SDT's customers who have
purchased VTB Software from SDI. Upon CSC's approval, subject to SDI executing
CSC's standard Sales Representative Agreement, SDI may solicit orders from its
VTB Software customers for CSC Wavebridge products, in which case CSC shall pay
to SDI a commission of forty percent (40%) of the amount received from CSC under
such sale.
Section 9
LIMITATION OF LIABILITY
EXCEPT FOR THE INDEMNIFICATION OBLIGATIONS IN SECTIONS 2.4.2 AND 7, AND THE
CONFIDENTIALITY OBLIGATIONS IN SECTION 5, IN NO EVENT SHALL EITHER PARTY'S
LIABILITY ARISING OUT OF THIS AGREEMENT OR THE TERMINATION OF THIS AGREEMENT
EXCEED THE AMOUNTS PAID BY CSC TO SDI PURSUANT TO THIS AGREEMENT. IN NO EVENT
SHALL EITHER PARTY HAVE ANY LIABILITY FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, ARISING
OUT OF THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO LOSS OF ANTICIPATED PROFITS,
EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THESE
LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY
LIMITED REMEDY.
Section 10
MISCELLANEOUS
10.1 CONFIDENTIALITY OF AGREEMENT. Both SDI and CSC agree that the terms
and conditions of this Agreement shall be treated as confidential information
and that no reference to the terms and conditions of this Agreement or to
activities pertaining thereto can be made in any form without the prior written
consent of the other party; provided, however, that the general existence of
this Agreement shall not be treated as confidential information and that either
party may disclose the terms and conditions of this Agreement:
<PAGE>
(i) as required by any court or other governmental body;
(ii) as otherwise required by law including SDI's obligations under
applicable securities laws;
(iii) to legal counsel of the parties;
(iv) in confidence, to accountants, banks, proposed investors, and
financing sources and their advisors;
(v) in confidence, in connection with the enforcement of this
Agreement or rights under this Agreement; or
(vi) in confidence, in connection with a merger or acquisition or
proposed merger or acquisition, or the like.
10.2 ASSIGNMENT. Neither this Agreement nor any rights, licenses or
obligations hereunder, may be assigned by either party without the prior written
approval of the non-assigning party. Notwithstanding the foregoing, either
party may assign this Agreement to a subsidiary or any acquiror of all or of
substantially all of such party's may assign this Agreement to any acquiror of
all or of substantially all of such party's equity securities, assets or
business relating to the subject matter of this Agreement, except to a direct
competitor of the other party. As a condition to such purported assignment, the
purported assignor shall provide to the other party written confirmation prior
to such assignment of such successor's assumption of this Agreement. Any
attempted assignment in violation of this Section shall be void and without
effect. Subject to the foregoing, this Agreement will benefit and bind the
parties' successors and assigns.
10.3 NOTICES. All notices between the parties shall be in writing and
shall be deemed to have been given if personally delivered or sent by certified
or registered mail (return receipt) or telecopy to the addresses set forth as
follows, or such other address as is provided by notice as set forth herein:
If to SDI to: Summit Design, Inc.
9305 SW Gemini Drive
Beaverton, Oregon 97008
Attn.: Larry J. Gerhard
with a copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attn.: Steven Bernard
If to CSC to: Credence Systems Corporation
215 Fourier Avenue Fremont, California 94539
Attn.: Wilmer R. Bottoms
with a copy to: Brobeck, Phleger & Harrison LLP
2200 Geng Road
Palo Alto, California 94303
Attn.: Warren Lazarow
<PAGE>
Notices shall be deemed effective upon receipt or, if delivery is not effected
by reason of some fault of the addressee, when tendered.
10.4 RELATIONSHIP OF THE PARTIES. The parties hereto expressly understand
and agree that each party is an independent contractor in the performance of
each and every part of this Agreement, is solely responsible for all of its
employees and agents and its labor costs and expenses arising in connection
therewith. Neither party nor its agents or employees are the representatives of
the other party for any purpose and neither party has the power or authority as
agent, employee or any other capacity to represent, act for, bind or otherwise
create or assume any obligation on behalf of the other party for any purpose
whatsoever.
10.5 IMPORT AND EXPORT. Upon CSC's request, SDI shall provide all
information under its control which is necessary or useful for CSC to obtain any
export or import licenses required for CSC to ship or receive VTB Software,
including, but not limited to, certificates of origin, (NAFTA, etc.),
manufacturer's affidavits, and Buy America qualification, if applicable. This
information is to be provided within ten (10) business days of CSC's request.
10.6 GOVERNING LAW; FORUM SELECTION. This Agreement shall be governed by
the laws of the State of California, without reference to its conflict of laws
principles. All disputes arising out of this Agreement shall be subject to the
exclusive jurisdiction and venue of the California state courts of Santa Clara
County, California (or, if there is exclusive federal jurisdiction, the United
Stated District Court for the Northern District of California), and the parties
consent to the personal and exclusive jurisdiction of these courts.
10.7 SEVERABILITY. Any term or provision of this Agreement held to be
illegal or unenforceable shall, if possible, be interpreted so as to be
construed as valid, but in any event the validity or enforceability of the
remainder hereof shall not be affected.
10.8 EXPORT REGULATIONS. CSC understands that SDI is subject to
regulation by agencies of the U.S. government, including the U.S. Department
of Commerce, which prohibit export or diversion of certain technical products
to certain countries. CSC warrants that it will comply in all respects with
the export and re-export restrictions applicable to the technology and
documentation licensed hereunder.
10.9 WAIVER. The waiver of, or failure to enforce, any breach or default
hereunder shall not constitute the waiver of any other or subsequent breach or
default.
10.10 ENTIRE AGREEMENT. This Agreement, along with the Schedules attached
hereto which are incorporated herein by reference, sets forth the entire
Agreement between the parties and supersedes any and all prior proposals,
agreements, and representations between them, whether written or oral. This
Agreement may be changed only by mutual agreement of the parties in writing.
[Remainder of page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by duly authorized officers or representatives as of the Effective Date.
<TABLE>
<CAPTION>
SUMMIT DESIGN, INC. CREDENCE SYSTEMS CORPORATION
<S> <C> <C> <C>
By: /s/ Larry J. Gerhard By: /s/ Richard Y. Okumoto
-------------------------------------- ------------------------------------------
Name: Larry J. Gerhard Name: Richard Y. Okumoto
-------------------------------------- ------------------------------------------
Title: President, CEO Title: Executive Vice President & CFO
-------------------------------------- ------------------------------------------
Date: 5/19/97 Date: Date: 5/19/97
-------------------------------------- ------------------------------------------
</TABLE>
-10-
<PAGE>
SCHEDULE A
CSC PRODUCTS
VISTA/DUO SERIES TESTERS
SC SERIES TESTERS
<PAGE>
SCHEDULE B
VTB SOFTWARE
VISUAL TESTBENCH COMPONENTS
Visual Testbench consists of modified Visual HDL for Verilog and VHDL, Visual IF
Testbench harness code, Visual HDL simulation interface, various internal TDS
routines, WDB input/output routines and Visual Testbench on-line documentation.
For customer delivery these source code modules are compiled to a single Visual
Testbench binary executable module.
A Testbench is created using the Visual HDL Flow chart editor, Block diagram
editor and Waveform/Timing diagram editor. The Testbench is connected to the
simulated circuit using the Visual HDL Block Diagram editor and the Visual
Testbench Launch editor.
The Testbench harness is compiled with the customer's simulator and design as to
stimulate and examine the circuit under investigation. The Testbench harness
reads and writes TSSI WDB databases through binary linkable library functions.
The examples include Visual HDL databases and Verilog or VHDL codes sufficient
to demonstrate basic and advanced product operation. The examples are
operational and will produce legitimate WDB output.
DOCUMENTATION
Visual Testbench documentation consists of a binary file in Framemaker mif
format describing theory of operation, external controls, and function call
interface of the product. The mif file is interpreted by a view for run time
viewing of the test.
<PAGE>
SCHEDULE C
MAINTENANCE AGREEMENT
This Maintenance Agreement ("Agreement") is entered into between Summit Design,
Inc., a Delaware Corporation ("Summit") and Credence Systems Corp. ("CSC") for
the products described in the Software OEM License Agreement between Summit and
CSC ("the Software"), which is incorporated herein by this reference.
IN CONSIDERATION OF THE MUTUAL COVENANTS SET FORTH HEREIN, THE PARTIES AGREE AS
FOLLOWS:
1. FEES
During the term of this Agreement and any renewal term thereof, Customer shall
pay a maintenance fee for each term ("the Maintenance Feel') as determined by
the parties. The Maintenance Fee is due upon the execution of this Agreement,
or the expiration of any applicable warranty period for the above-described
Software ("Software"), whichever last occurs.
2. TERM
The term of this Agreement shall be eighteen (18) months. Thereafter, this
Agreement can be renewed for successive annual day period immediately prior to
the expiration renewal term. After the eighteen months, this by either party
upon thirty (30) days' written event of termination by Customer, Summit shall
any advance maintenance fees, and any fees due terms within the ninety (90) of
the current term or any Agreement may be terminated notice: however, in the not
be obligated to refund and payable shall remain due and payable without
adjustment for early termination.
3. CUSTOMER OBLIGATIONS
To facilitate Summit's performance under this Agreement, Customer shall:
3.1 Promptly notify Summit in writing or by telephone of the need for
maintenance services, the Software License Agreement Number, the Serial
Numbers and Release Numbers of the Software, the location of the Software
site number, a description of the CPU on which the Software is being used,
and the nature of the problem.
3.2 Cooperate with Summit as reasonably necessary to identify the nature and
cause of the problem.
3.3 Allow Summit access to Customers' hardware, products, systems and
information (including confidential information), as may be reasonably
necessary to facilitate Summit's identification of the nature, cause and
potential remedy of the problem, all subject to Customers' security and
safety rules.
4. SUMMIT'S OBLIGATIONS
4.1 During the term of the Agreement and any renewal term thereof, Summit
shall respond to CSC requirements for telephone technical support and bug
fix requests.
<PAGE>
5. SPECIAL TERMS AND CONDITIONS
5.1 This maintenance agreement does not provide for upgrade releases.
5.2 This Agreement shall apply to the Software in its standard form, and
shall not apply to custom enhancements and modifications. Any requested
service on custom enhancements and modifications shall be charged to
Customer at Summit Design's standard service rates then in effect.
5.3 This Agreement shall apply only to the original release of the Software.
5.4 Although Summit will exert reasonable efforts to provide prompt service,
Summit is not liable for damages resulting from delay in the provision of
service caused BY circumstances beyond reasonable control.
5.5 Summit's maintenance obligations under this Agreement do not include; (a)
services connected with system reconfiguration or relocation, (b) service
resulting from neglect, misuse or accidental damages to the Software, (c)
service resulting from modifications or repairs of the Software without
Summit's authority, (d) service resulting from the failure of Customer to
provide and maintain a suitable installation environment, (e) service
resulting from the use of the Software for other than the purposes for
which it was designed, (f) the provision of supplies, accessories, or
media.
<PAGE>
SCHEDULE D
LICENSE FEE AND PAYMENT
Per Copy License Fee:
US $***
Payment and Delivery Schedule:
CSC shall issue to SDI an irrevocable purchase order for *** VTB Software
licenses for the amount of $16,000,000 on the Closing. Also on the Closing, CSC
shall establish an irrevocable letter of credit with a nationally recognized
financial institution reasonably acceptable to SDI, in the amount of $16,000,000
for payment of such *** VTB Software licenses. SDI shall have the right to ship
up to the number of licenses corresponding to the maximum payments set forth
below and SDI shall receive the payment calculated at $*** per license, drawn
from the letter of credit upon each such shipment. If SDI does not ship the
permitted maximum during a quarter, the shortfall will be carried forward to the
next quarter's maximum amount.
Year and
Calendar Quarterly Annual
Quarter Maximum Maximum
--------- --------- -------
1997 Ql
1997 Q2
1997 Q3 $ ***
1997 Q4 $ ***
1997 Total $ ***
1998 Ql $ ***
1998 Q2 $ ***
1998 Q3 $ ***
1998 Q4 $ ***
1998 Total $ ***
1999 Ql $ ***
1999 Q2 $ ***
1999 Q3 $ ***
1999 Q4 $ ***
1999 Total $ ***
Shipment of VTB Software shall be made by the fifteenth day of the first month
for each quarter and payment shall be drawn from the letter of credit on the
same day. VTB Software will be shipped to CSC via overnight courier.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE>
SCHEDULE E
END USER LICENSE AGREEMENT
This is a legal Agreement between you, the end user, and Summit Design, Inc. By
opening this sealed media package and/or by using the Software, you are agreeing
to be bound by the terms of this Agreement.
GRANT OF LICENSE. Summit Design, Inc. ("Summit") grants you the right to use
one (1) copy of the enclosed Summit software program and accompanying
documentation (together with any upgrades supplied by Summit, the "Software")
according to the conditions specified below. Usage area to be less than one
kilometer in radius and subject to the terms and conditions of this Agreement.
All rights not expressly granted herein are reserved by Summit, its suppliers,
licensors, or successors.
YOU MAY:
a. Install the Software and its License Manager (FlexLM) on only one computer
or workstation;
b. make no more than one (1) copy of the Software in machine readable form,
solely for back-up purposes, provided that you reproduce all proprietary
notices on the copy; and
c. physically transfer the Software from one computer to another, provided
that the Software is used on only one computer at a time, and within a
usage area to be less than one kilometer in radius.
YOU MAY NOT:
a. Use the Software on more than one computer or workstation at a time;
b. modify, translate, reverse engineer, decompile, disassemble, create
derivative works based on, or copy (except to create the back-up copy) the
Software;
c. rent, lend, transfer, distribute, or grant any rights in the Software in
any form to any person without the written consent of Summit;
d. remove any proprietary notices, labels, or marks from the Software; or
e. operate the Software on networks where two client nodes using Summit
products of this type are greater than two (2) kilometers from each other
(WAN).
UPGRADE PRODUCTS. Any upgrades to the Software may only be used in conjunction
with the prior version of the Software.
LIMITED WARRANTY AND DISCLAIMER. Summit warrants that for a period of ninety
(90) days from the date of sale of the Software to you, the media on which the
Software is furnished will, under normal use, be free from defects in materials
and workmanship. Summit's entire liability and your exclusive remedy under this
warranty (which is subject to you returning the Software to Summit) will be, at
Summit's option, to replace the media or to refund the purchase price and
terminate this Agreement. Except for these express limited warranties, Summit
makes, and you receive, no warranties or conditions, express, implied,
statutory, or otherwise, and Summit specifically disclaims any implied
warranties of merchantability, noninfringement and fitness for a particular
purpose. Summit does not warrant that the Software will meet your requirements
or that the operation of the Software will be uninterrupted or error free. You
assume the responsibility for the selection of your requirements, software, and
hardware to achieve your intended results; for installation; for use; and that
the operations of the Software will be uninterrupted or error free. Some States
do not allow the exclusion of implied warranties so that the above exclusions
may not apply to you. This warranty gives you specific legal rights. You may
also have other rights which vary from State to State.
<PAGE>
PROPRIETARY RIGHTS. This license is not a sale. Title and copyrights to the
Software and accompanying documentation, including the enclosed copies and any
copy made by you, remain with Summit or its suppliers, licensors, or successors.
LIMITATION OF LIABILITY. Summit's liability arising out of this Agreement shall
not exceed the amounts paid by you to obtain the Software. In no event will
Summit be liable for any loss of data, lost opportunity of profits, cost of
cover, or special, incidental, consequential, or indirect damages arising from
the use of the Software in this Agreement, however caused and on any theory of
liability. These limitations will apply even if Summit or an authorized dealer
has been advised of the possibility of such damage, and notwithstanding any
failure of essential purpose of any limited remedy. You acknowledge that the
amount paid for the Software reflects this allocation of risk. Some States do
not allow the limitation or exclusion of liability for incidental or
consequential damages, so the above limitation or exclusion may not apply to
you.
EXPORT RESTRICTIONS. You agree that you will not export or re-export the
Software in any form without the appropriate United States and foreign
government licenses, and Summit written approval. Your failure to comply with
this provision is a material breach of this contract. If you need advice on
such export laws and regulations, you should contact the U.S. Department of
Commerce, Export Division, Washington, DC 20230, USA, for clarification.
TERMINATION. This Agreement is effective until terminated. You may terminate
this Agreement at any time by removing from your system and destroying all
copies of the Software and the accompanying documentation. Unauthorized copying
of the software or the accompanying documentation or otherwise failing to comply
with the terms and conditions of this Agreement will result in automatic
termination of this Agreement and will make available to Summit other legal
remedies. Upon termination of this Agreement, the license granted herein will
terminate and you must immediately destroy the Software and accompanying
documentation, and all back-up copies thereof.
U.S. GOVERNMENT USE. The Software and accompanying documentation are deemed to
be "commercial computer software" and "commercial computer software
documentation," respectively, pursuant to DFAR Section 227.7202 and FAR Section
12.212, as applicable. Any use, modification, reproduction, release,
performing, displaying or disclosing of the Software and accompanying
documentation by the U. S. Government shall be governed solely by the terms of
this Agreement and shall be prohibited except to the extent expressly permitted
by the terms of this Agreement.
MISCELLANEOUS. This is the entire Agreement between the parties relating to the
subject matter hereof and no waiver or modification of the Agreement shall be
valid unless signed by each party. The waiver of a breach of any term hereof
shall in no way be construed as a waiver of any other term or breach hereof. If
any provision of this Agreement shall be held by a court of competent
jurisdiction to be contrary to law, the remaining provisions of this Agreement
shall remain in full force and effect. This Agreement is governed by the laws
of the State of Oregon without reference to conflict of laws principles. All
disputes arising out of this Agreement shall be subject to the exclusive
jurisdiction of the state and federal courts located in Multnomah County,
Oregon, and the parties agree and submit to the personal and exclusive
jurisdiction and venue of these courts. Should you have any question about this
Agreement, or if you desire to contract Summit Design, Inc., please write:
Summit Design, Inc., 9305 S.W. Gemini Drive, Beaverton, Oregon 97008 USA (503-
643-9281).
BEFORE OPENING THIS ENVELOPE, carefully read the License Agreement on the
reverse side of this envelope. By opening this envelope and/or by using the
software contained herein, you are agreeing to be bound by the terms of the
License Agreement.
<PAGE>
SCHEDULE F
TRADEMARKS
Visual Test Serial No. 75/002, 501 US
Visual Test 11216-TM1003 US
Visual Testbench 11216-TM1034 INTERNATIONAL CLASS 9
<PAGE>
JOINT VENTURE AGREEMENT
This Agreement is made and entered into this 10th day of June 1997, by and
between INNOTECH CORPORATION, a corporation organized and existing under the
laws of Japan with its principal place of business located at 2-15-10
Shinyokohama, Kouhoku-ku, Yokohama-shi, Kanagawa 222, Japan (hereinafter
referred to as "Innotech") and CREDENCE SYSTEMS CORPORATION, a corporation
organized and existing under the laws of the State of Delaware, with its
principal place of business located at 215 Fourier Avenue, Fremont, California
94539 USA (hereinafter referred to as "Credence").
WHEREAS, Innotech is in the business of selling equipment and services to
users of automatic test equipment in Japan;
WHEREAS, Credence is in the business of manufacturing automatic test
equipment and related products; and
WHEREAS, Innotech and Credence desire to establish a Japanese company as a
joint venture company ("JVC") for the purpose of localizing, customizing,
developing, and manufacturing in Japan ("Territory") products defined below as
JVC Products, for resale by Innotech in the Territory and by Credence outside
the Territory;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
ARTICLE 1.
DEFINITIONS
1.1 "Person" means a natural individual, partnership, firm, company,
corporation, and any other form of business association.
1.2 "Control" means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a person,
whether through the ownership of voting securities, by contract, through members
of the board of directors, or otherwise.
1.3 "Affiliate" means a Person that directly, or indirectly through one
or more intermediaries, Controls, or is Controlled by, or is in common Control
with, the Person specified.
1
<PAGE>
1.4 "Localize" means to source and qualify components manufactured by
third parties in the Territory for use in the JVC Products.
1.5 "Customize" means to design and manufacture JVC Products according
to customer requirements, from components and/or subassemblies purchased from
Credence or qualified third party vendors.
ARTICLE 2.
EFFECTIVE DATE AND TERM OF THIS AGREEMENT
2.1 EFFECTIVE DATE. As soon as this Agreement has been signed, the
parties hereto shall be obligated to take every reasonable step to cooperate
with each other in obtaining the requisite approvals, validations, rulings and
consents provided for in this Agreement or made necessary thereby. The parties
shall not be obligated to proceed further, however, with the action which they
are to take under this Agreement until the "Effective Date", which shall mean
the date which the following conditions shall have been met to the satisfaction
of both Innotech and Credence: (i) the appropriate Japanese government agencies
shall have approved and validated the acquisition of shares of JVC by Innotech
and Credence; and (ii) Innotech and Credence shall have received an opinion of
Japanese counsel acceptable to both parties to the effect that the shares of JVC
to be issued to Innotech and Credence pursuant to this Agreement, and to be paid
for as provided for herein, will when issued and paid for, be validly issued,
fully paid and non-assessable.
2.2 DURATION. This Agreement shall continue to be effective and in full
force for five (5) years (the "Initial Term") after the date set forth at the
beginning of this Agreement, unless terminated pursuant to Section 10 hereof.
The Initial Term may be extended with the written agreement signed by both
parties hereto at least 90 days prior to the expiration of the Initial Term. In
the event such written agreement is not reached within such 90 day time period,
this agreement shall be terminated and Credence shall have the option to either
(i) purchase Innotech's entire stock ownership of JVC at the time of such
termination for its fair market value as determined by a qualified appraiser
mutually agreed upon by the parties and paid for on an equal basis by the
parties, or (ii) cause JVC's dissolution, in which case both parties shall
2
<PAGE>
promptly take all the procedures to have JVC dissolved and liquidated in
accordance with the laws of Japan.
ARTICLE 3.
GOVERNMENTAL AUTHORIZATION
3.1 REPORT OR NOTIFICATION TO THE GOVERNMENTAL AUTHORITIES. Each party
hereto shall be obligated to and cooperate with the other party to file any
subsequent report or prior notification, as the case may be, with the
appropriate Japanese governmental authorities, which may be required by the
applicable Japanese law with respect to the execution or performance of this
Agreement.
ARTICLE 4.
INCORPORATION OF THE JOINT VENTURE COMPANY
4.1 DEADLINE. Promptly after the execution of this Agreement and the
completion of governmental procedures required to be completed prior to the
establishment of JVC, the parties shall cause JVC to be established as a joint
stock corporation in accordance with the terms herein and the laws of Japan by
5th day of September 1997 (the "Deadline").
4.2 CAPITAL.
4.2.1 The authorized capital of JVC shall be Four Hundred Million
Yen (400,000,000) to be represented by Eight Thousand (8,000) shares of common
stock, each having par value of fifty thousand yen (50,000). The initial paid-in
capital of JVC to be issued at the time of incorporation shall be One Hundred
Million Yen (100,000,000) to be represented by Two Thousand (2,000) shares of
common stock.
4.2.2 Credence shall, at the time of incorporation, subscribe for
and purchase One Thousand and One (1,001) shares of common stock for Fifty
Million and Fifty Thousand Yen (50,050,000), and Innotech shall, at the time of
incorporation, subscribe for and purchase Nine Hundred and Ninety-Nine (999)
shares of common stock for Forty-Nine Million, and Nine Hundred and Fifty
Thousand Yen (49,950,000). Each party hereto shall pay for their respective
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shares in Japanese yen in cash, and shall have preemptive rights on the issuance
of any new shares thereby allowing each party to maintain its percentage
ownership of the capital stock.
4.3 EXPENSES. All costs of forming JVC as agreed upon by the parties
hereto other than those legally permissible without being inspected by an
official inspector pursuant to Article 173 (1) of the Japanese Commercial Code
to be borne by JVC shall be shared pro rata by the parties hereto according to
their respective percentage ownership of the capital stock as set forth in
paragraph 4.2.2 above.
4.4 PURPOSES OF JVC. Innotech and Credence shall organize JVC for the
purposes of localizing, customizing, developing, and manufacturing, as the case
may be, in the Territory, the equipment set forth in Exhibit B and any
additional equipment that may be added thereto by mutual agreement of the
parties (hereinafter cumulatively referred to as "JVC Products"), and selling
the JVC Products to Innotech for exclusive resale by Innotech in the Territory
pursuant to a Distribution Agreement between Innotech and JVC which shall be in
form and substance identical or substantially identical to the draft
distribution agreement attached hereto as Exhibit D, and to Credence and its
affiliates for exclusive resale outside of the Territory pursuant to a
Distribution Agreement between Credence and JVC which shall be in form and
substance identical or substantially identical to the draft distribution
agreement attached hereto as Exhibit E. JVC shall not terminate the
aforementioned Distribution Agreements with the parties hereto without cause as
long as the parties are major shareholders of JVC.
4.5 ARTICLES OF INCORPORATION OF THE JOINT VENTURE COMPANY. The parties
hereby agree that JVC shall be organized in accordance with the Articles of
Incorporation which shall be made in the Japanese language and translated into
the English language and shall be in form and substance identical or
substantially similar to the draft Articles of Incorporation ("Draft Articles"),
attached hereto as Exhibit A.
ARTICLE 5.
STOCK
5.1 PREEMPTIVE RIGHTS. Each party shall have a preemptive right to
subscribe for shares of any class whenever they may be issued by JVC. Such
preemptive right shall be provided for in the Articles of Incorporation of JVC.
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5.2 TRANSFER OF SHARES.
5.2.1 RESTRICTION ON TRANSFER. Except as expressly provided in this
Agreement neither party shall sell, transfer, pledge nor otherwise dispose of
any shares in JVC without the prior approval of the Board of Directors of JVC.
Such restriction on transfer of shares in JVC shall be provided for in the
Articles of Incorporation of JVC.
In addition to the foregoing, neither party shall sell, transfer,
pledge nor otherwise dispose of any shares in JVC without the prior approval of
the other party except in cases expressly provided in this Agreement.
5.2.2 TRANSFER TO EMPLOYEES OR OFFICERS. Notwithstanding any other
provisions hereof, either party may sell or transfer up to ten percent (10%) of
its shares in JVC to the party's employees and officers. In this case, the
share transferred to either party's employees and officers shall be deemed to be
owned by such transferring party; provided that in the event any of such
employees or officers leaves the employment of such transferring party, the
transferring party shall buy back all the shares in JVC possessed by such
employees or officers.
5.2.3 FIRST REFUSAL RIGHT. Except as provided in Section 5.2.2
above, the parties mutually agree that each of them shall have the right of
first refusal in respect of the shares of JVC held by the other and that any
sale, assignment, transfer, mortgage, pledge or other encumbrances of its shares
of JVC by either of them shall be subject to the following provision that if
either party (the "Selling Party") shall desire to sell, assign, or transfer any
or all of its shares, it shall give the other party written notice of such
desire, setting forth in such notice all of the details of such contemplated
sale, assignment or transfer, including without limitation thereto, the price,
currency, terms and conditions of such proposed transaction and the identity and
address of the proposed purchaser or transferee. The consideration in the case
of any such contemplated transaction may not be unique, or not readily
procurable, or a service to be performed for the Selling Party. The other party
shall have sixty (60) days after receipt of such notice to exercise its right of
first refusal option to purchase such shares at the same price, in the same
currency, and upon the same terms and conditions that the Selling Party has been
offered and is willing to accept from the proposed purchaser or transferee, by
mailing to the Selling Party a written notice thereof. If the other party so
exercises its right of first refusal option to purchase, it shall have an
additional four (4) months after such exercise within which to make payment for,
and take title to, the stock of the Selling Party. If the other party does not
so exercise its right of first refusal option, the Selling Party may sell,
assign or transfer such shares to the proposed
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purchaser or transferee pursuant to the terms and conditions set forth in such
notice to the other party.
ARTICLE 6.
MANAGEMENT
6.1 MANAGEMENT OF JVC.
6.1.1 BOARD OF DIRECTORS. The number of the Directors of JVC shall
be not less than six (6) and not more than ten (10). Innotech shall have the
right to nominate five (5) of the Directors and Credence shall have the right to
nominate five (5). The parties agree to vote their shares so as to appoint the
nominees as Directors of JVC. In case a director dies, resigns, or is removed
prior to the fulfillment of his term, then the parties agree to fill the vacancy
promptly and to vote their shares so as to appoint as his replacement a director
nominated by the party who nominated the director whose death, resignation, or
removal created the vacancy. The parties further agree to cause their
respectively nominated and elected Directors to comply with all terms and
conditions set forth in this Agreement, all applicable laws, and all resolutions
of the Board of Directors.
6.1.2 CHAIRMAN AND REPRESENTATIVE DIRECTOR. The number of
Representative Directors of JVC shall be one (1). The Representative Director
shall be elected through a meeting of the Board of Directors, and the parties
agree to cause their respectively nominated and elected Directors to vote so as
to elect such Representative Director nominated by Innotech and to elect a
direct or nominated by Credence as Chairman. Once so elected, the parties
further agree that the Representative Director shall be the President of JVC.
The President of JVC shall have the authority to conduct the daily operation of
JVC pursuant to the business plan approved by the Board of Directors of JVC.
6.1.3 STATUTORY AUDITORS. JVC shall have one (1) statutory auditor
nominated by Credence or, if Innotech desires, two (2) statutory auditors, in
which case, one shall be nominated by Credence and the other by Innotech. The
parties agree to vote their shares so as to appoint the nominee(s) as statutory
auditor(s) of JVC. In case a statutory auditor dies, resigns, or is removed
prior to the fulfillment of his term, then the parties agree to fill the vacancy
promptly and to vote their shares so as to appoint as his replacement a
statutory auditor as the case may be,
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nominated by the party who nominated the statutory auditor whose death,
resignation, or removal created the vacancy.
The reasonable travel expense and accommodation charges of statutory
auditor(s) attending the Meeting of the Board of Directors of JVC and/or
shareholder's Meeting of JVC shall be borne by JVC.
6.1.4 MEETINGS OF THE BOARD OF DIRECTORS.
(a) Meetings of the Board of Directors shall be convened whenever
necessary but at least annually, and presided over by the Chairman of JVC. In
case the Chairman is prevented from so doing, the President of JVC shall do so.
Any Director may, whenever it is deemed necessary, request the Chairman to
convene a Meeting of the Board of Directors. Meetings of the Board of Directors
may be conducted by video conference provided that a quorum of Directors are on
the line during the entire period of the meeting.
(b) Notice of all meetings of the Board of Directors shall be given at
least three (3) weeks in advance to each Director, and statutory auditor as
appropriate, but where any matter requires such urgent action by the Board of
Directors as to preclude the possibility of giving notice as aforesaid, notice
shall be given to each Director, and statutory auditor as appropriate, by
facsimile, as far in advance of the meeting as possible, but in no event less
than three (3) days prior thereto.
(c) The notice referred to in paragraph (b) above shall include an
agenda of all matters to be considered at the meeting, in such detail as may be
reasonable and necessary to permit the Directors, and statutory auditor(s) as
appropriate, to study the matters which are to be considered at the meeting, and
shall in any event describe in such detail any such matters which are referred
to in Section 6.2 below.
(d) All resolutions of the Board of Directors shall be adopted by a an
affirmative vote of six (6) or more Directors at a Meeting of the Board of
Directors. In the event of a tie vote by the Directors, adoption of the
resolution shall be determined by a majority vote of all shareholders.
(e) The substance of the proceedings at the Meeting of the Board of
Directors and the resolutions thereof shall be recorded in the Minutes of the
Meeting in both the Japanese and English languages, which shall bear the names
and the seals or signatures of the chairman of the Meeting, the Directors and
the Statutory Auditors present at the Meeting. The original Minutes of the
Meeting shall be preserved in the Head Office of JVC for a period of ten (10)
years.
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Copies of the Minutes of Meetings of the Board of Directors shall be promptly
delivered to each shareholder along with a complete and accurate English
translation thereof.
(f) Meetings of the Board of Directors shall be held in English.
Interpretation into Japanese shall be provided at the request of any of the
Directors at the expense of JVC.
(g) The reasonable travel expense and accommodation charges of
Directors attending the Meeting of the Board of Directors of JVC and/or
shareholder's Meeting of JVC shall be borne by JVC.
6.1.5 ACTIONS REQUIRING APPROVAL BY THE BOARD OF DIRECTORS. The
following actions require approval of the Board of Directors:
(a) The adoption, amendment or repeal of any share-handling
regulation.
(b) Any borrowing or issue of bonds and/or debentures.
(c) Any pledge or encumbrance of any shares, bonds or debentures.
(d) Any lending of money.
(e) Any guarantee of any obligation of any Person.
(f) The declaration of any dividend or other distribution of any kind.
(g) The investment or allocation of surplus funds.
(h) The transfer of any amount to reserves in any year out of
earnings, after taxes.
(i) The establishment of salaries or other remuneration or allowances
in excess of fifteen million Yen (15,000,000) per year per individual and
the salaries of the President and all persons reporting directly to the
President.
(j) The adoption of any pension plan, bonus plan, plan for retirement
allowances, or employee welfare plan or policy.
(k) The adoption of the business plan and operating budget.
(l) The organization of, or the acquisition or disposition of any
interest in the legal or beneficial ownership of any other company or
business organization.
(m) Any acquisition, mortgage, pledge, sale, assignment, transfer or
other disposition of any capital having a value in excess of three million Yen
(3,000,000) which has not been provided for in the business plan and budget.
(n) The manufacture of any new Products.
(o) Any agreement or transaction with any party hereto or any
Affiliate of any such party, other than purchases or sales in the ordinary
course of business.
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(p) The establishment of prices paid to Credence for parts and
services, prices charged to Innotech and its affiliates for Products sold to
Innotech and its affiliates, and prices charged to Credence and its affiliates
for Products sold to Credence and its affiliates.
(q) Any action substantially adversely affecting the financial
condition of JVC.
(r) Filing of any patent application.
6.2 ACCOUNTING. JVC shall keep all books of accounts and make all
financial reports in accordance with the standards prescribed by Japanese laws
and regulations and established accounting principles in Japan, which, to such
extent as may be practicable, shall also conform to Generally Acceptable
Accounting Practices in the United States, and shall prepare preliminary
financial statements, including without limitation a balance sheet and income
statement, within five (5) days after the end of each of the first three (3)
quarters of Credence's fiscal year for the most recent quarter, followed by
unaudited finalized versions thereof within fifteen (15) days; unaudited
finalized financial statements, including without limitation a balance sheet and
income statement, within fifteen (15) days after the end of the fourth quarter
and its entire fiscal year; and such further reports as shall be required by the
Board of Directors, copies of which shall be forwarded to each party with an
English translation being provided to Credence. JVC shall provide any financial
statement required by Credence to meet its United States reporting requirements
as a public company.
6.2.1 CERTIFIED PUBLIC ACCOUNTANTS. JVC shall at its expense appoint a
firm of certified public accountants of good repute and mutually acceptable to
both Innotech and Credence, to audit its books of account for each accounting
period. Said certified public accountants shall issue an audit report before the
regular Meeting of Shareholders, copies of which shall be forwarded to each
party with an English translation being provided to Credence. Each audit report
shall be in reasonable detail and shall contain such financial data as either
Innotech or Credence may deem necessary in order to keep it advised of JVC's
financial status.
6.2.2 RIGHT OF INSPECTION. At all times after JVC's incorporation,
each party shall have the right by its duly authorized representative or
accountant to inspect and have full access to all properties, books of account,
records and the like of JVC, and JVC shall furnish to the requesting party all
information concerning the same which the requesting party may reasonably
require in connection with a complete examination thereof, and the requesting
party shall have the right to inspect and make copies from the books and records
of JVC at all reasonable times.
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6.3 PERSONNEL. The parties agree that the policy of JVC is that it will
pay no salary or fees to anyone employed by Credence and/or Innotech unless such
person is engaged full time in the operation of JVC and such salary or fee shall
be commensurate with amounts generally paid for such services in Japan.
6.4 MATERIALS AND COMPONENTS. The sourcing of all materials and
components used in the manufacture of Products by JVC must be approved by
Credence prior to such use.
6.5 LICENSE AGREEMENT. For the manufacture and sale of the Products,
promptly after the incorporation of JVC, Credence shall enter into a License and
Consulting Agreement with JVC in form and substance as attached hereto as
Exhibit C.
ARTICLE 7.
APPROPRIATION OF PROFIT
The parties agree that JVC shall retain all profits (without payment of
dividend) for use in expansion and development of JVC until the profitability
and the expansion of JVC is assured by Innotech and Credence, and after that
time, JVC may pay dividends.
ARTICLE 8.
CONFIDENTIALITY
8.1 CONFIDENTIAL OBLIGATIONS. Innotech and Credence each covenants and
agrees, during the term of this Agreement and for a period of five (5) years
thereafter, on behalf of its Directors, officers, employees and agents to
maintain in strict confidence and not to make any unauthorized use of the
Confidential Information (hereinafter defined) received from the other party and
JVC, as the case may be, pursuant to this Agreement. The Confidential
Information shall be (i) disclosed in writing or in other tangible form and
clearly marked as confidential at the time of disclosure, or (ii) disclosed
orally or in other intangible form and clearly indicated as confidential at the
time of disclosure and, within thirty (30) days after such disclosure, followed
up with a written notice stating the content and nature of such Confidential
Information.
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8.2 EXCEPTIONS. The obligations in this Section 8 will not apply to any
information which (i) is or becomes available to the public other than by breach
of this Agreement by the receiving party, or (ii) is or has been rightfully
received by the receiving party from a third party, or disclosed by the
disclosing party to a third party, without any restrictions as to its use or
disclosure, or (iii) is or has been independently developed by the receiving
party.
ARTICLE 9.
REPRESENTATION AND WARRANTY
The parties hereby represent and warrant to and hereby covenant with each
other that they have the right and authority to enter into this Agreement and to
perform the obligations on their respective parts under this Agreement.
ARTICLE 10.
TERMINATION AND RIGHT TO PURCHASE OR SELL SHARES
10.1 AUTOMATIC TERMINATION. This Agreement shall be terminated
automatically if Innotech and Credence fail to incorporate JVC by the Deadline.
10.2 INSOLVENCY OF JVC. This agreement shall be terminated and the JVC
dissolved accordingly upon the occurrence of any of the following events to JVC.
(a) liquidation, bankruptcy or insolvency;
(b) termination of business by decision of the shareholders;
(c) the appointment of any trustee, receiver or liquidator for
substantially all of the assets of the business of JVC;
(d) the attachment, sequestration, execution or seizure of substantially
all of the assets of JVC, which attachment, sequestration, execution or seizure
is not vacated within thirty (30) days from the institution thereof;
(e) judicial, governmental or any sale other than a voluntary sale of
substantially all of the assets of JVC by its Board of Directors.
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10.3 SALE OF ALL SHARES BY ONE OF THE PARTIES. This agreement may be
terminated after the Effective Date by either Innotech or Credence on not less
than ten (10) days' written notice to the other party hereto, if either Innotech
or Credence shall cease to be the owner of any of the then issued common voting
shares of JVC.
10.4 TERMINATION FOR CAUSE. By either Innotech or Credence in the event
that the other party hereto shall default in the performance of any of its
undertakings in this Agreement and such default shall not be remedied to the
reasonable satisfaction of the non-defaulting party within sixty (60) days next
after written notice of such default shall have been given to the defaulting
party, in which case such termination shall take place on such sixtieth (60th)
day.
10.4.1 In the event that this Agreement is terminated by Innotech
for Credence's default, Credence agrees to pay to lnnotech in exchange for
lnnotech's entire stock ownership of JVC either (i) the book value of Innotech's
entire stock ownership of JVC at the time of such termination, or at Innotech's
option, (ii) the fair market value of Innotech's entire stock ownership of JVC
at the time of such termination as determined by a qualified appraiser whose
services are paid for by Innotech and whose selection is mutually agreed upon by
the parties hereto.
10.4.2 In the event that this Agreement is terminated by Credence
for Innotech's default, Credence shall have the option to either (i) purchase
Innotech's entire stock ownership of JVC at the time of such termination for the
book value thereof, or (ii) cause JVC's dissolution, in which case both parties
shall promptly take all the procedures to have JVC dissolved and liquidated in
accordance with the laws of Japan.
10.5 INSOLVENCY OR MERGER. This Agreement may be terminated by either
Innotech or Credence on not less than ten (10) days' written notice to the other
party hereto, effective upon the date stated in such notice, if the other party
shall file a petition in bankruptcy or for a receiver for all or any substantial
portion of its property and assets, or if such petition shall be filed
against the other party and shall not be dismissed with thirty (30) days from
its filing, or if the other party shall file a petition for reorganization or to
effect a compositions with its creditors or such a petition shall be filed
against the other party and shall not be discharged within thirty (30) days
after the date of its filing, or if the other party shall make a general
assignment for the benefit of creditors, and in the case of any such
termination, all of the rights and obligations under and pursuant to this
Agreement shall cease and terminate, except such as shall have accrued prior to
termination, including but not limited to, any and all claims and demands for
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damages for any breach of any covenant contained in this Agreement, and except
for the continuing obligations of Credence and lnnotech contained in Section 8
with respect to the confidential treatment of technical, economic and marketing
information.
10.5.1 INSOLVENCY OF CREDENCE. In the event that (i) Credence
becomes or is caused to become insolvent or any voluntary or involuntary
petition in bankruptcy or for corporate reorganization is filed by or against
Credence, (ii) a receiver is appointed with respect to any of the assets of
Credence, or (ii) liquidation proceeding is commenced by or against Credence,
JVC shall be dissolved and liquidated and both parties shall promptly take all
the procedures to have JVC dissolved and liquidated in accordance with the laws
of Japan.
10.5.2 INSOLVENCY OR MERGER OF INNOTECH. In the event that (i) the
whole or any substantial part of the business or assets of Innotech is
transferred to a third party by agreement, order of court or otherwise, (ii)
Innotech becomes or is caused to become insolvent or any voluntary or
involuntary petition in bankruptcy or for corporate reorganization is filed by
or against Innotech, (iii) a receiver is appointed with respect to any of the
assets of Innotech, or (iv) liquidation proceeding is commenced by or against
Innotech, Credence shall have the right to choose either purchasing all of the
outstanding shares of stock owned by Innotech at a price according to section
10.4.1 of this Agreement, or JVC's dissolution. If Credence chooses JVC's
dissolution, both parties shall promptly take all the procedures to have JVC
dissolved and liquidated in accordance with the laws of Japan.
10.6 SURVIVAL. Section 6.2, Section 8, Section 10 and Section 11 of
this Agreement shall survive and continue to be effective after the termination
of this Agreement.
10.7 EFFECTIVENESS OF THE RELATIVE AGREEMENTS. The termination of this
Agreement shall not affect the effectiveness of any agreement executed by the
parties hereto and/or JVC pursuant to this Agreement, and such relative
agreements shall continue to be effective until such relative agreements will be
terminated in accordance with the terms thereof.
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ARTICLE 11.
GENERAL PROVISIONS
11.1 LANGUAGE. This Agreement and all other agreements executed on the
basis of this Agreement shall be written and interpreted in English, except for
the Articles of Incorporation of the JVC, which shall be written and interpreted
in Japanese.
11.2 ENTIRE AGREEMENT. This Agreement and related agreements executed
concurrently herewith supersede all negotiations, commitments and writings prior
to the date hereof pertaining to the subject matter of this Agreement and such
related agreements. This Agreement shall not be changed or modified in any
manner, except by mutual consent in writing of subsequent date signed by duly
authorized representatives of both parties hereto.
11.3 BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assignees.
11.4 NOTICE. Any notice provided for under this Agreement shall be deemed
effective when delivered in person or seven (7) days after deposit in the mails
by registered or certified mail postage prepaid and addressed to the respective
address listed in the introduction of this Agreement, or to such different
address as either party may designate in writing to the other pursuant to this
paragraph.
11.5 INTERPRETATION AND GOVERNING LAW. This Agreement shall be interpreted
in accordance with the plain English meaning of its terms and the construction
thereof shall be governed by the laws of the State of California, United States
of America. The Articles of Incorporation of the JVC and matters affecting the
organization and operation of the internal affairs of the JVC shall be governed
by the laws of Japan.
11.6 ARBITRATION. In the event of any dispute, controversy, or difference
which may arise between the parties, out of or in relation to or in connection
with this Agreement, or a breach hereof (the "Dispute"), the parties hereto
shall first settle such Dispute through friendly consultation. If such Dispute
cannot be satisfactorily resolved by the parties themselves through friendly
consultation within a period of two (2) months, then such Disputes shall be
finally settled by arbitration pursuant to the Japan-American Trade Arbitration
Agreement of September 16. 1952, by which each party hereto is bound.
If Credence is the initiating party, the arbitration shall be held in
Tokyo, Japan unless mutually agreed otherwise by the parties hereto, and if
Innotech is the initiating party, the
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arbitration shall be held in Fremont, California, USA unless mutually agreed
otherwise by the parties hereto.
11.7 SEVERABILITY. In case any one or more of the provisions, or portions
of provisions, of this Agreement shall be deemed by any governmental authority
to be invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions, or portions of provisions.
contained herein shall not be in any way affected or impaired thereby.
11.8 FORCE MAJEURE. If the performance of this Agreement or any
obligation hereunder is prevented, restricted or interfered with by reason of
force majeure, the party so affected, upon giving prompt notice to the other
party, shall be excused from such performance to the extent of such prevention,
restriction or interference; provided, that the party so affected shall use it
best efforts to avoid or remove such causes of non-performance and shall
continue performance hereunder with the utmost dispatch whenever such causes are
removed; and provided, further, that whenever it appears advisable to a party
hereto to consent to the entry of a judgment against it by a court of competent
jurisdiction rather that incur substantial expense or great inconvenience, the
entry of such judgment shall excuse such party from performance hereunder to the
extent that such judgment forbids or restrains such performance.
11.9 OMISSIONS OR DELAYS. No omission or delay on the part of any party
hereto in requiring a due and punctual fulfillment by the other party hereto of
the obligations of such other party hereunder shall be deemed to constitute a
waiver by the omitting or delaying party of any of its rights to require such
due and punctual fulfillment of any other obligation hereunder, whether similar
or otherwise, or a waiver of any remedy it might have.
11.10 CLASSIFIED INFORMATION. It is understood and agreed that nothing in
this Agreement shall authorize the disclosure of, or access to, classified
information, material, or know-how, of the Government of the United States or
Japan, or the violation of the Export Control Regulations of either country.
11.11 ASSIGNMENT AND SUCCESSION. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns, but shall not be assignable by any party other than a
Person acquiring substantially all of its business and assuming all of its
obligation and liabilities, except with the written consent of the other party.
In the event of any such assignment the transferor or assignor shall remain
obligated to perform its own obligations and in addition shall be jointly and
severally liable for the proper performance of the obligations of the transferee
or assignee pursuant to this Agreement.
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11.12 SECTION HEADINGS. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above set forth.
INNOTECH CORP. CREDENCE SYSTEMS CORP.
/s/ L.M. Yoshida /s/ W.R. Bottoms
- ------------------------------ ----------------------------------------
Larry M. Yoshida W. R. Bottoms
President and Chief Executive Officer Chairman and Chief Executive Officer
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- EXHIBIT A -
ARTICLES OF INCORPORATION
CHAPTER I. GENERAL PROVISIONS
Article 1. (Corporate Name)
The name of the Company shall be Innotech-Credence Kabushiki Kaisha,
which shall be expressed in English as Innotech-Credence Corporation.
Article 2. (Objective)
The objective of the Company shall be to carry on the following
business:
1. To engage in manufacture, import, export, purchases and sales of
automatic test equipment and related products and parts, materials, and
components thereof and related software, for testing semiconductors and
electronic devices including same.
2. To engage in research and development, localizing and customizing of
automatic test equipment and related products and parts, materials, and
components thereof and related software and consulting services related thereto,
for testing semiconductors and electronic devices including same.
3. To engage in application for and assignment of patents and any other
industrial property rights, and agency services thereto.
4. To engage in any other business related to the above.
Article 3. (Location of Head Office)
The Head Office of the Company shall be located in Yokohama-shi,
Kanagawa Ken.
Article 4. (Method of Public Notice)
Public notices of the Company shall be given in official gazette.
CHAPTER II. SHARES
Article 5. (Total Number of Shares Authorized to be Issued, Type of Shares, and
Par Value of Each Share)
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The total number of shares authorized to be issued by the Company shall
be eight thousand (8,000) shares. All shares of the Company shall be voting
shares of common stock with a par value of fifty thousand yen (50,000) per
share.
Article 6. (Share Certificate)
1. Share certificates issued by the Company shall be in one (1) share,
five (5) shares, ten (10) shares, fifty (50) shares and one hundred (100) shares
per certificate, or in such other denominations as shall be determined by the
Board of Directors.
2. In the event that a shareholder does not wish to possess the share
certificates in his/her custody, the shareholder shall make a written proposal
to that effect to the Company and at the same time submit the share certificates
to the Company if they have already been issued.
Article 7. (Issuance of New Shares)
1. The shareholders shall have preemptive rights to subscribe to any
new shares of the Company in proportion to their shares.
2. In the event that a foreign shareholder has the right to subscribe
to such new shares, the time during which shareholders may exercise such rights
shall be determined in such manner as to give such foreign shareholder
sufficient time to complete the procedures as required under the laws of Japan.
Article 8. (Restriction on Transfer of Shares)
All transfers of the shares of the Company shall be subject to approval
of the Board of Directors.
Article 9. (Registration of Transfer)
1. The request for registration of transfer of shares shall be made by
submitting the form prescribed by the Company to which the name and seal of the
transferee are affixed together with the following documents:
(1) In case of assignment; the share certificates;
(2) In case of other than assignment, a document evidencing the acquisition
and the share certificates.
2. Foreign nationals who are not accustomed to using seal impressions
may utilize their signatures for the purposes of the preceding paragraph.
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Article 10. (Registration of Pledge and Indication of trust Property)
1. The request for registration of pledge or indication of trust
property with respect to shares shall be made by submitting the form prescribed
by the Company to which the names and seals of the parties concerned are affixed
together with the share certificates.
2. The preceding paragraph shall apply to cancellation of pledge or
trust property.
3. Foreign nationals who are not accustomed to using seal impressions
may utilize their signatures for the purposes of the preceding two (2)
paragraphs.
Article 11. (Reissuance of Share Certificates)
1. In case that the issuance of new share certificates is requested due
to subdivision, combination or defacement of share certificates, the form
prescribed by the Company to which the name and seal of requesting person are
affixed shall be submitted together with the share certificates. In case that
the issuance of new share certificates is requested due to loss, the form
prescribed by the Company to which the name and seal of requesting person are
affixed shall be submitted together with the original or a certified copy of
judgment of nullification of the lost share certificates.
2. Foreign nationals who are not accustomed to using seal impressions
may utilize their signatures for the purposes of the preceding paragraph.
Article 12. (Handling Fees)
With respect to the request made pursuant to Articles 9 to 11 above, the
Company shall charge handling fees prescribed by the Company.
Article 13. (Closing of Register of Shareholders and Record Date)
1. The Company shall suspend changes of records in the Register of
Shareholders from the day following the last day of each fiscal year to the day
on which the Ordinary General Meeting of Shareholders is closed.
2. In addition to the preceding paragraph, the Company may, in case of
necessity to determine the person who exercises the right as a shareholder or a
pledgee and through a resolution of the Board of Directors, suspend changes of
records in the Register of Shareholders for a specific period not exceeding
three (3) months or establish a record date within three (3) month prior to the
date of exercise of such right by giving at least two (2) week prior public
notice thereof.
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Article 14. (Notification of Addresses etc. of Shareholders)
1. Shareholders and registered pledgees or their statutory agents or
representatives shall notify the Company of their names, addresses and seal
impressions by using the form prescribed by the Company.
2. In case of a change thereof, the same shall apply.
3. Foreign nationals who are not accustomed to using seal impressions
may utilize their signatures for the purposes of the preceding two (2)
paragraphs.
CHAPTER III. GENERAL MEETING OF SHAREHOLDERS
Article 15. (Convocation)
1. The Ordinary General Meeting of Shareholders shall be convened
within three (3) months from the day following the last day of each fiscal year
of the Company and the Extraordinary General Meeting of Shareholders may be
convened whenever necessary.
2. Except as otherwise provided by law, General Meetings of
Shareholders shall be convened by the Chairman of the Board of Directors of the
Company pursuant to a resolution of the Board of Directors. If the Chairman is
unable or unwilling to convene a General Meeting of Shareholders, another
Director, in accordance with the order previously determined by the Board of
Directors, may convene the Meeting.
3. General Meetings of Shareholders of the Company shall be held at the
head office of the Company or at such other place as the majority of
shareholders of record agree.
4. In convening a General Meeting of Shareholders, notice thereof shall
be dispatched in Japanese and English to each shareholder of record at least
fourteen (14) days prior to the date of such Meeting, unless the exceptions of
paragraph 5 of this Article 15 apply.
5. The notice set forth in the preceding paragraph may be waived for a
particular General Meeting at which all the shareholders of record are present
in person or by proxy. The period of the notice set forth in the preceding
paragraph may be shortened for a particular General Meeting with the unanimous
written consent of the shareholders of record.
6. The notice of a General Meeting of Shareholders shall state the
agenda of the Meeting.
Article 16. (Chairman)
The Chairman of the Board of Directors shall act as chairman at the
General Meeting of Shareholders. In case the Chairman is prevented from so
acting, one of the other Directors, chosen according to an order previously
determined by the Board of Directors, shall so act.
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Article 17. (Method of Resolution)
Except for provisions of laws and ordinances or these Articles of
Incorporation prescribing severer method of resolution, resolutions of a General
Meeting of Shareholders shall be adopted (i) at a Meeting at which shareholders
holding more than 50% of the issued and outstanding voting shares are present,
and (ii) by the affirmative vote of shareholders holding more than 50% of all of
the issued and outstanding voting shares.
Article 18. (Proxy Voting)
1. A shareholder may exercise his/her vote by proxy.
2. The proxy shall submit to the Company for each General Meeting of
Shareholders attended a document evidencing his/her appointment as proxy.
Article 19. (Minutes)
1. The substance of the proceedings at the General Meeting of
Shareholders and the resolutions thereof shall be recorded in the Minutes of the
Meeting, which shall bear the names and the seals or signatures of the Chairman
and Directors present at the Meeting. The original Minutes of the Meeting shall
be preserved for ten (10) years in the Head Office of the Company, and all
copies thereof shall be preserved for five years in the Branch Offices
2. Copies of the minutes of General Meetings of Shareholders of the
Company shall be promptly delivered to each shareholder.
CHAPTER IV. DIRECTORS, THE BOARD OF DIRECTORS AND AUDITORS
Article 20. (Number of Directors and Auditors)
The number of Directors shall be not less than six (6) and not more than
ten (10) and the number of Auditors shall not exceed two (2).
Article 21. (Election of Directors and Auditors)
Directors and Auditors shall be elected at a General Meeting of
Shareholders of the Company. A resolution for election of Directors shall not be
made by cumulative voting.
Article 22. (Term of Office of Directors and Auditors)
1. The term of office of Directors and Auditors shall expire at the
close of the Ordinary General Meeting of Shareholders pertaining to the last
settlement of accounts occurring within
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two (2) years after his/her assumption of office, unless the exception of
paragraph 2 of this Article 22 applies.
2. In case of a Director or an Auditor who has been elected to fill a
vacancy or to increase the number of Directors or Auditors, the term of office
of such Director or Auditor shall be equal to the remaining term of office of
the predecessor or other Directors or Auditor(s) currently in office.
Article 23. (Meeting of The Board of Directors)
1. Meetings of the Board of Directors shall be convened whenever
necessary but at least annually, and presided over by the Chairman of the Board.
In case the Chairman is prevented from so doing, the President shall do so. Any
Director may, whenever it is deemed necessary, request the Chairman to convene a
Meeting of the Board of Directors. Meetings of the Board of Directors may be
conducted by video conference provided that a quorum of Directors are on the
line during the entire period of the meeting.
2. Notice of all meetings of the Board of Directors shall be given at
least three (3) weeks in advance to each Director, and Auditor as appropriate,
but where any matter requires such urgent action by the Board of Directors as to
preclude the possibility of giving notice as aforesaid, notice shall be given to
each Director, and Auditor as appropriate, by facsimile, as far in advance of
the meeting as possible, but in no event less than three (3) days prior thereto.
3. The notice referred to in paragraph 2 of this Article 23, shall
include an agenda of all matters to be considered at the meeting, in such detail
as may be reasonable and necessary to permit the Directors, and Auditors as
appropriate, to study the matters which are to be considered at the meeting.
4. All resolutions of the Board of Directors shall be adopted by a
majority vote of six (6) or more Directors at a Meeting of the Board of
Directors. In the event of a tie vote by the Directors, the Directors shall
bring the matter before a shareholder meeting and have it determined by a
majority vote of all shareholders .
5. If meetings of the Board of Directors are held in English,
interpretation into Japanese shall be provided at the request of any of the
Directors at the expense of the Company.
Article 24. (Rules for the Board of Directors)
1. Matters concerning the Board of Directors, except as otherwise
provided by laws and ordinances and these Articles of Incorporation, shall be
governed by the Rules of the Board of Directors prescribed by the Board of
Directors.
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Article 25. (Actions Requiring Approval by the Board of Directors)
The following actions require approval of the Board of Directors.
1. The adoption of the business plan and operating budget.
2. The manufacture of any new Products.
Article 26. (Remuneration)
The remuneration (including retirement allowance) of Directors and
Auditors shall be respectively determined by resolutions of the General Meeting
of Shareholders.
Articles 27. (Chairman, Representative Directors, etc.)
1. The Board of Directors shall elect one (1) Representative Director
from among the members of the Board of Directors.
2. The Board of Directors shall elect the President and the Chairman
from among the Directors.
3. The Board of Directors may elect any of Executive Vice Presidents,
Senior Managing Directors and Managing Directors from among its members whenever
it is deemed necessary.
CHAPTER V. ACCOUNTS
Article 28. (Fiscal Year)
The fiscal year of the Company shall commence on November 1 and end on
October 31 each year.
Article 29. (Dividends of Shares)
1. Dividends of shares shall be paid to those shareholders and/or
registered pledgees listed in the Register of Shareholders as of the last day of
each fiscal year. Dividends shall not yield interest.
2. The Company may, through a resolution of the Board of Directors,
make a distribution of interim dividends to the shareholders of record
(including registered pledgees) as of the last day of April each year pursuant
to the provisions of Articles 293-5 of the Commercial Code of Japan. Interim
dividends shall not yield interest.
3. The Company shall be relieved from the obligation to pay such
dividends (or such interim dividends) when the same remain unreceived after a
period of three full years from the payment date thereof.
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CHAPTER VI. SUPPLEMENTARY PROVISIONS
Article 30. (Shares to be Issued upon Incorporation of Company)
The total number of shares to be issued upon incorporation of the
Company shall be two thousand (2,000) par value shares, and shall be issued at
par value.
Article 31. (First Fiscal Year)
The first fiscal year of the Company shall commence on the date of
incorporation of the Company and end on October 31, 1997.
Article 32. (Term of Office of Initial Directors and Auditors)
Notwithstanding the provisions of Article 22, Paragraph 1, the terms of
office of the Initial Directors and Auditors shall expire at the close of the
Ordinary General Meeting of the Shareholders pertaining to the last settlement
of accounts occurring within one (1) year after their assumption of office.
Article 33. (Promoter's Name and Address)
The name and address of the promoter is as follows:
(Address): 2-15-10 Shin-Yokohama, Kouhoku-ku, Yokohama-shi, Kanagawa 222
(Name): Innotech Corporation Larry M. Yoshida, President
IN WITNESS WHEREOF, these Articles of Incorporation shall be executed with the
names and seals of the promoters affixed hereto.
Date: June 10, 1997
Promoter: Innotech Corporation
Larry M. Yoshida, President
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- EXHIBIT B -
JVC PRODUCTS
1. SC and TSK UF200 Prober integrated test system with new skin.
2. Kalos and TSK UF200 Prober integrated test system with new skin.
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- EXHIBIT C -
TECHNOLOGY LICENSING AGREEMENT
This Agreement is made and entered into this tenth (10th) day of June 1997,
by and between CREDENCE SYSTEMS CORPORATION, a corporation organized and
existing under the laws of the State of Delaware, with its principal place of
business located at 215 Fourier Avenue, Fremont, California 94539 USA
("Credence"), and INNOTECH-CREDENCE KABUSHIKI KAISHA, a corporation organized
and existing under the laws of the country of Japan, with its principal place of
business located at Yokohama-shi, Kanagawa, Japan ("Licensee").
WHEREAS, Credence owns certain patents, copyrights, trademarks, and trade
secrets ("Credence Intellectual Property"), and possesses considerable know-how
in designing and manufacturing certain automatic test equipment products
("Credence Products");
WHEREAS, Licensee has been established as a joint venture company, pursuant
to a Joint Venture Agreement by and between Credence and INNOTECH CORPORATION, a
corporation organized and existing under the laws of Japan with its principal
place of business located at 2-15-10 Shinyokohama, Kouhoku-ku, Yokohama-shi,
Kanagawa 222, Japan ("Innotech"), for the purpose of localizing, customizing,
developing, and manufacturing in Japan ("Territory"), certain products ("JVC
Products") defined in the Joint Venture Agreement, which integrate Credence
Products, for resale by Innotech in the Territory and Credence and its
Affiliates outside the Territory; and
WHEREAS, Licensee, therefore, desires to obtain rights to certain of
Credence's patents, copyrights, trademarks, trade secrets, and know-how related
to the design, development and manufacture of such integrated Credence Products;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
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ARTICLE 1.
DEFINITIONS
1.1 "Effective date" means the date of this Agreement as indicated
above.
1.2 "Joint Venture Agreement" means the Joint Venture Agreement executed
on the 9th day of June 1997, by and between Innotech and Credence, which is
incorporated herein by this reference.
1.3 "JVC Products" means the equipment set forth in Exhibit B of the
Joint Venture Agreement, and any additional equipment that may be added thereto
pursuant to the terms and conditions of the Joint Venture Agreement.
1.4 "Integrated Credence Products" means Credence Products integrated by
design or construction into the JVC Products.
1.5 "Credence Intellectual Property" means all patents, copyrights,
trademarks, and trade secrets which relate to any or all of the manufacture, use
and sale of the Integrated Credence Products in Japan during the term of this
Agreement.
1.6 "Credence Technology" means the combination of the Credence
Intellectual Property and know-how in the design, development and manufacture of
the Integrated Credence Products.
1.7 "Person" means a natural individual, partnership, firm, company,
corporation, and any other form of business association.
1.8 "Control" means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract, through members
of the board of directors, or otherwise.
1.9 "Affiliate" means a Person that directly, or indirectly through one
or more intermediaries, Controls, or is Controlled by, or is in common Control
with, the Person specified.
ARTICLE 2.
GRANT
Credence grants to Licensee the exclusive license rights to the Credence
Technology for localizing, customizing and manufacturing the JVC Products in the
Territory, and for selling the
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JVC Products to Innotech for exclusive resale in the Territory and to
Credence for exclusive resale outside the Territory, in accordance with the
Joint Venture Agreement and Innotech/ICC and Credence/ICC Distribution
Agreements attached thereto.
ARTICLE 3.
TECHNOLOGY TRANSFER AND SUPPORT
3.1 KNOW-HOW. Credence shall from time-to-time and to such extent as
it considers in its sole discretion to be reasonably necessary for the
performance of this Agreement, furnish to Licensee technical information for the
design and manufacture of the Integrated Credence Products and processes or
experience incidental to the design and manufacture of the Integrated Credence
Products ("know-how").
3.1.1 TECHNICAL INFORMATION. Credence shall provide Licensee the
technical information described in Attachment C hereof, and shall make
reasonably available Credence personnel to explain such technical information to
Licensee.
3.1.2 TRAINING. Credence shall provide at its facilities in
Fremont, California and/or Beaverton, Oregon, training of Licensee employees
without charge on a one-time basis, to be conducted within one-hundred and
twenty (120) days after the effective date of this Agreement, and may post a
Credence engineer from time to time at Licensee's facilities to further train
Licensee's employees without charge. Licensee shall pay all travel, lodging,
meals, and transportation expenses incurred by Licensee's employees to train at
Credence's facilities and by Credence engineers to conduct training at
Licensee's facilities. Additional training of Licensee employees shall be at
Credence's standard charge at the time for conducting training of Credence's
customers' engineers.
3.1.3 TECHNICAL SUPPORT. Credence shall provide reasonable levels
of technical support to assist Licensee in its efforts to localize, customize
and manufacture the JVC Products in the Territory. For this purpose, Credence
may appoint a project manager for the term of this Agreement.
3.2 TROUBLE-SHOOTING. Licensee shall inform Credence of any problems
encountered in manufacturing the JVC Products which affect the quality or
reliability of the JVC Products; Licensee shall inform Credence of all design
related defects in the Integrated Credence Products
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and the JVC Products reported by Innotech or its customers; and Licensee shall
inform and consult with Credence prior to taking any corrective action or
provide any response to Innotech or its customers regarding such reported
defects.
3.3 DISCLAIMER OF WARRANTY AND PRODUCT LIABILITY. Neither Credence nor
its employees and representatives shall be liable to Licensee or to any other
party for direct or indirect damages, losses or injuries, including foreseeable
and unforeseeable damages resulting from the use or application of the Credence
Technology transferred under this Agreement. Licensee shall indemnify Credence
and its employees and representatives for and hold Credence and its employees
and representatives harmless from any cause of action, claim, action or suit,
including claims for civil liability, for recovery of said damages, losses or
injuries, as well as all costs and attorney's fees, if any, relating thereto.
ARTICLE 4.
PRODUCT AND MANUFACTURING DEVELOPMENT
4.1 PRODUCT AND MANUFACTURING DEVELOPMENT. Licensee shall make every
reasonable effort to reduce manufacturing costs of the JVC Products by seeking
and qualifying lower cost component vendors for the JVC Products, improving
manufacturing methods and the manufacturability of the JVC Products, and
incorporating other such cost reduction mechanisms and schemes, subject to the
conditions that the quality level of and customer satisfaction with the JVC
Products will be maintained or preferably enhanced, and the platform
compatibility and interchangeability between Credence Products and Licensee
manufactured JVC Products shall be maintained, including, but not limited to,
compatibility in hardware, software, electrical and chemical elements.
4.2 REVIEW AND APPROVAL. Licensee shall consult closely with Credence
during the product and manufacturing development process of paragraph 4.1. All
proposed changes made by Licensee to the designs or manufacture of the JVC
Products shall require the review and prior written approval by Credence before
being included in the designs or manufacture of the JVC Products by Licensee.
The review and approval procedure shall be determined by Credence after
consultation on the matter with Licensee, and shall be set forth in writing.
Notwithstanding such, Credence shall have at least the opportunity to review and
approve:
(i) manufacturing bill of materials and component sourcing;
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(ii) production and assembly process, including manufacturing
environment;
(iii) quality control, including test procedures; and
(iv) packing, shipping and installation process.
4.3 QUALIFICATION TESTING. In addition to the review and approval
procedure of paragraph 4.2 above, Credence may further require that any proposed
changes made by Licensee to the designs or manufacture of the JVC Products to be
qualified by Credence before being included in the designs or manufacture of the
JVC Products by Licensee. In such event, the qualification criteria and
procedures may be the same or comparable to those used by Credence to qualify
its own products for shipment.
4.4 LIABILITY. Notwithstanding any review, testing or other action
taken by Credence pursuant to paragraphs 4.2 and 4.3 above, Licensee shall
retain all responsibility for the quality of its manufactured JVC Products, and
Credence shall not be liable to Licensee or any third parties for any defects in
Licensee manufactured JVC Products, except for defects in any Integrated
Credence Products included therein.
ARTICLE 5.
QUALITY CONTROL
Licensee shall maintain manufacturing standards at least equal to those
of Credence in the United States, which standards Licensee acknowledges and is
familiar with, and any material proposed change involving any alteration in the
structure, quality or design of the JVC Products and the supplied know-how
relating thereto, shall be subject to the written approval of Credence.
Licensee agrees that Credence may, at Credence's expense, visit the
laboratories, offices and factories of Licensee at reasonable times to observe
the operations contemplated by this Agreement.
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ARTICLE 6.
MARKING REQUIREMENTS
On each item of JVC Products manufactured hereunder, Licensee shall attach
in a prominent position, suitable to Credence, a stamping, which shall indicate
that the item has been manufactured under license from Credence.
ARTICLE 7.
ROYALTY AND RECORDS
7.1 ROYALTY. Licensee shall pay to Credence a running royalty
equivalent to the Royalty Rate (as defined below) of the "net sale price" of the
JVC Products sold by Licensee to Innotech, and delivered after the Effective
Date of this Agreement. The net sale price shall mean the invoiced price of the
JVC Products less the following deductions to the extent included in the
invoiced price: (i) sales or consumption taxes, import duties and similar
governmental charges; (ii) packing expenses and storage charges; (iii) freight
charges including insurance premiums; (iv) invoiced price of returned Product;
and (v) volume or similar sales discounts to Innotech.
The "Royalty Rate" shall mean such royalty rates as agreed to by the
parties hereto in the written supplement hereto from time to time; provided that
each Royalty Rate shall fall within the range of 1% up to 10%. In the event
that a Royalty Rate is determined for a certain period of time and if another
Royalty Rate applicable after the former period is not determined, the former
Royalty Rate would be applied after such period.
7.2 PAYMENT OF ROYALTY. Royalties shall be payable in Yen each June and
December for shipments made during the preceding six (6) months ended May 31 and
November 30, respectively. At or before the time the royalty payment is made,
Licensee shall submit to Credence a report setting out the volume of the JVC
Products manufactured and sold or otherwise distributed by Licensee during the
relevant six (6) month period, the total net sales price from such transactions,
and the basis of calculation of royalty.
7.3 TAXATION. If any Japanese taxes are required to be withheld from
Licensee's payments to Credence, Licensee shall withhold such amounts, pay the
same to the appropriate tax authority, and promptly furnish Credence with
appropriate documentation, including taxation
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receipts, evidencing the amounts so withheld as soon as practicable. The parties
shall cooperate to make any necessary filings to utilize the lowest withholding
tax rate available with respect to the Treaty for the Avoidance of Double
Taxation between Japan and the United States.
7.4 RECORDS. Licensee shall maintain complete records of the JVC
Products' sales and make such records available for inspection by Credence from
time to time to permit Credence to verify the amount of the Royalty payable.
7.5 ADJUSTMENTS. If the JVC Products' sales in the Territory are a
dramatic success, the parties will consult and consider a royalty increase or
other means of allowing Credence to share equitably in the success. If the JVC
Products' sales in the Territory are dramatically unsuccessful, the parties will
consult and consider a royalty decrease.
ARTICLE 8.
INTELLECTUAL PROPERTY
8.1 COPYRIGHTS AND PATENTS. Subject to the terms and conditions of
this Agreement, Credence grants to Licensee an exclusive, nontransferable,
royalty-bearing license, without right of sub-license, during the term of this
Agreement, to all Copyrights and Japanese Patents owned by Credence as of the
Effective Date of this Agreement, for the sole purposes of making, using, and
selling the JVC Products to Innotech for resale by Innotech in the Territory,
and to Credence and its affiliates for resale outside the Territory.
8.2 FUTURE COPYRIGHTS AND PATENTS. Credence grants to Licensee an
exclusive, nontransferable, royalty-free license, without right of sub-license,
during the term of this Agreement, to all Copyrights and Japanese Patents
acquired by Credence subsequent to the Effective Date of this Agreement, for the
sole purposes of making, using, and selling the JVC Products to Innotech and its
affiliates for resale by Innotech in the Territory, and to Credence and its
Affiliates for resale outside the Territory.
8.3 GRANT-BACK. Licensee shall disclose to Credence any and all
developments or improvements which Licensee may or does make in the design or
manufacture of the JVC Products, and grants to Credence an exclusive, royalty-
free license to make, use and sell products embodying such improvements and
developments in all countries of the world, with the exception of the Territory,
for the duration of this Agreement, and to permit and authorize
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Credence to secure in such countries, patents and other industrial property
rights for Licensee at the sole discretion and expense of Credence.
8.4 TRADEMARKS. Subject to the terms and conditions of this Agreement,
Credence grants to Licensee a non-exclusive, royalty-free, and sub-licensable
license, during the term of this Agreement, to place Credence on the JVC
Products, and their packaging and documentation produced by or for Licensee;
provided that Licensee may sub-license such license only to Innotech.
8.5 MAINTENANCE OF TRADEMARKS. Credence shall register and maintain the
registration of their Trademarks in the Territory. The Trademarks and all
goodwill associated therewith will be exclusively owned by Credence. Licensee
will not apply for registration of any marks substantially similar to any of
Credence's marks. All uses of the Trademarks will inure solely to Credence, and
Licensee shall obtain no rights with respect to any of Credence's Trademarks or
other marks, other than the rights as set forth herein.
8.6 INFRINGEMENT OF CREDENCE TRADEMARKS BY THIRD PARTIES. Credence and
Licensee shall take reasonable measures to protect Credence's Trademarks from
infringement by third parties. If Licensee discovers that such an infringement
exists, Licensee shall inform Credence of all pertinent details of such, and
Credence shall determine what action to take. Credence shall bear the cost of
any prosecution and retain any amounts recovered in such a proceeding. Licensee
shall provide reasonable cooperation in the event of any such suit.
ARTICLE 9.
INDEMNIFICATION
9.1 INDEMNIFICATION BY CREDENCE FOR COPYRIGHT AND PATENT INFRINGEMENT.
Credence shall defend, indemnify and hold harmless Licensee, its directors,
officers, employees and agents against and from any manufacture, sale or use of
the JVC Products which infringes third party copyright or patent rights to the
extent such claims are based on Credence's designs, use or methods of
manufacturing the JVC Products, subject to the condition of paragraph 9.1.1
below. However, Credence shall have no indemnity obligation with respect to any
claim resulting from the use of the JVC Products in combination with any other
products which caused infringement of the third party's copyright or patent.
9.1.1 CONDITION FOR INDEMNIFICATION. Credence's indemnity
obligation of this Section 9 is subject to the condition that Licensee gives
Credence prompt notice, in writing, of the third party infringement claim and an
opportunity to elect to take over, settle or defend the
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claim through counsel of its own choice and under its sole discretion and at its
own expense, and make available to Credence all defenses against such actions,
claims or proceedings, known or available to Licensee.
9.1.2 RIGHT TO TAKE CORRECTIVE ACTION. If any portion of
Credence's design of or manufacturing process for the JVC Products is or, in
Credence's sole opinion, may become the subject of any third party copyright
or patent claim, or if such a claim is upheld through adjudication, then
Credence shall, at its option and expense, either modify the design or process
to correct the liability or obtain a license to permit continued use of the
infringing design or process.
9.2 INDEMNIFICATION BY LICENSEE FOR COPYRIGHT AND PATENT INFRINGEMENT.
Licensee shall defend, indemnify and hold harmless Credence and its affiliates,
their directors, officers, employees and agents against and from any
manufacture, sale or use of the JVC Products which infringes third party
copyright or patent rights to the extent such claims are based on Licensee's
designs, use or methods of manufacturing the JVC Products, subject to the
condition of paragraph 9.2.1 below. However, Licensee shall have no indemnity
obligation with respect to any claim resulting from the use of the JVC Products
in combination with any other products which caused infringement of the third
party's copyright or patent.
9.2.1 CONDITION FOR INDEMNIFICATION. Licensee's indemnity
obligation of this Section 9 is subject to the condition that Credence or its
affiliate, as the case may be, gives Licensee prompt notice, in writing, of the
third party infringement claim and an opportunity to elect to take over, settle
or defend the claim through counsel of its own choice and under its sole
discretion and at its own expense, and make available to Licensee all defenses
against such actions, claims or proceedings, known or available to Credence or
its affiliate, as the case may be.
9.2.2 RIGHT TO TAKE CORRECTIVE ACTION. If any portion of
Licensee's design of or manufacturing process for the JVC Products is or, in
Licensee's sole opinion, may become the subject of any third party copyright
or patent claim, or if such a claim is upheld through adjudication, then
Licensee shall, at its option and expense, either modify the design or process
to correct the liability or obtain a license to permit continued use of the
infringing design or process.
9.3 INFRINGEMENT OF THIRD PARTY MARKS BY CREDENCE. Credence shall
defend, indemnify and hold harmless Licensee against and from any claims that
the use of Credence's Trademarks in the marketing and sale of the JVC Products
infringes third party trademark rights. Credence's indemnity obligation is
subject to the condition that Licensee gives Credence prompt notice, in writing,
of the third party claim and gives Credence an opportunity to elect to take
over, settle or defend the claim through counsel of its own choice and under its
sole discretion, and make available to Credence all defenses against such
actions, claims or proceedings, known
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or available to Licensee. If trademark infringement exists or if, in Credence's
judgment, there is a risk of infringement, Credence may modify Credence's
Trademarks or substitute new Marks after consulting with Licensee.
9.4 DISCLAIMER. THE FOREGOING STATES EACH PARTY'S ENTIRE LIABILITY AND
OBLIGATION (EXPRESS, IMPLIED, STATUTORY OR OTHERWISE) WITH RESPECT TO
INTELLECTUAL PROPERTY INFRINGEMENT OR CLAIMS THEREFORE REGARDING ANY OF THE JVC
PRODUCTS OR TECHNOLOGY DEVELOPED, MANUFACTURED OR SOLD PURSUANT TO THIS
AGREEMENT.
ARTICLE 10.
CONFIDENTIAL OBLIGATIONS
10.1 CONFIDENTIAL OBLIGATIONS. The parties hereto each covenants and
agrees, during the term of this Agreement and for a period of five (5) years
thereafter, on behalf of its Directors, officers, employees and agents to
maintain in strict confidence and not to make any unauthorized use of the
Confidential Information (hereinafter defined) received from the other party
pursuant to this Agreement. The Confidential Information shall be (i) disclosed
in writing or in other tangible form and clearly marked as confidential at the
time of disclosure, or (ii) disclosed orally or in other intangible form and
clearly indicated as confidential at the time of disclosure and, within thirty
(30) days after such disclosure, followed up with a written notice stating the
content and nature of such Confidential Information.
10.2 EXCEPTIONS. The obligations in this Section 10 will not apply to
any information which (i) is or becomes available to the public other than by
breach of this Agreement by the receiving party, or (ii) is or has been
rightfully received by the receiving party from a third party, or disclosed by
the disclosing party to a third party, without any restrictions as to its use or
disclosure, or (iii) is or has been independently developed by the receiving
party.
ARTICLE 11.
GOVERNMENT APPROVAL, TAXES
11.1 REVIEW BY FAIR TRADE COMMISSION. Each party hereto agrees to
file this Agreement, if required, with the Japan Fair Trade Commission (the
OJFTCO) and the Japanese
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Ministry of Finance ("MOF"). Licensee shall provide Credence with English
language translations of all notifications filed in connection with this
Agreement promptly after such filing. If the JFTC or MOF advises or recommends
the amendment or deletion of any terms and conditions of, or any addition to,
this Agreement pursuant to the Law Relating to Prohibition of Private Monopoly
and Methods of Preserving Fair Trade of Japan and the guidelines promulgated
thereunder, Licensee shall immediately inform Credence of such advice or
recommendation and the parties shall negotiate in good faith to modify this
Agreement in accordance with such advice or recommendation. If the parties do
not reach agreement within thirty (30) days, either party may terminate this
Agreement without incurring any further liability or obligation.
11.2 COMPLIANCE WITH APPLICABLE LAWS. At its own expense, Licensee
shall make, obtain, and maintain in force at all times during the terms of this
Agreement, all filings, registrations, reports, licenses, permits and
authorizations (collectively, "Authorizations") in the Territory in order for
Licensee to perform its obligations under this Agreement and shall promptly
forward English translations of such Authorizations to Credence, and Credence
shall provide Licensee with such assistance as Licensee may reasonably request
in making or obtaining any such Authorizations.
11.3 EXPORT CONTROLS. Licensee acknowledges that Credence is subject to
regulation by agencies of the U.S. government, including the U.S. Department of
Commerce, which prohibit export or diversion of certain products and technology
to certain countries. Any and all obligations of Credence to provide technical
information, technical assistance, any media in which any of the foregoing is
contained, training and related technical data (collectively, ODataO) shall be
subject in all respects to such United States laws and regulations as shall from
time to time govern the license and delivery of technology and products abroad
by persons subject to the jurisdiction of the United States, including the
Export Administration Act of 1979, as amended, any successor legislation, and
the Administration, Bureau of Export Administration. Licensee will not export
or transfer the Products, Data disclosed or provided by Credence to Licensee, or
the direct products of such Data if such export or transfer would constitute a
violation of such United States laws and regulations.
ARTICLE 12.
TERM AND TERMINATION
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12.1 TERM. This Agreement shall remain in force for five (5) years from
its effective date, and will automatically renew year after year on the
anniversary date of such effective date unless terminated pursuant to this
Section 12.
12.2 TERMINATION WITH CAUSE. Either party hereto may terminate this
Agreement by giving a written notice of termination to the other party upon
occurrence of any of the following events; provided, however, that the
termination of this Agreement pursuant to this paragraph 12.2 does not prevent
claims for damages from the non-liable party for such termination:
(i) When the other party becomes or is caused to become insolvent or any
voluntary or involuntary petition in bankruptcy or for corporate reorganization
is filed by or against the other party, or a receiver is appointed with respect
to any of the assets of the other party, or liquidation proceeding is commenced
by or against the other party;
(ii) When the whole or any substantial part of the business or assets of
the other party is transferred to a third party by agreement, order of court or
otherwise; or
(iii) When the other party defaults in any of the provisions of this
Agreement and does not make the remedy the default within thirty (30) days after
a written notice is given requesting to make remedy the default.
12.3 NON-AUTOMATIC TERMINATION. The termination of the Joint Venture
Agreement shall not affect the effectiveness of this Agreement unless otherwise
mutually agreed by Credence and Licensee in writing.
12.4 EFFECT OF TERMINATION. The provisions of 3.3, 4.4, 7, 9, 10, 11,
12 and 13 shall survive any termination or expiration of this Agreement. All
other rights and obligations of the parties under this Agreement shall cease
upon termination of this Agreement.
ARTICLE 13.
GENERAL
13.1 NO AGENCY. Neither party hereto is the agent of the other for any
purpose and neither shall so represent itself or allow others to so reasonably
conclude.
13.2 ENTIRE AGREEMENT, AMENDMENT. This is the entire Agreement between
the parties as to the subject matter of this Agreement and no amendment or
waiver of this Agreement shall be binding unless it is in writing and signed by
authorized representatives of both parties.
13.3 ASSIGNMENT. Neither party may assign this Agreement nor any rights
or benefits hereunder, or delegate any of its duties under this Agreement
without the prior written consent of
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the other party. Subject to the foregoing sentence, this Agreement will be
binding upon and inure to the benefit of the parties hereto, their successors
and assignees.
13.4 FORCE MAJEURE. If the performance of this agreement or of any
obligation hereunder, except the payment of the sums and/or royalties, is
prevented, restricted, or interfered with by reason of force majeure, the party
so affected, upon giving prompt notice to the other party, shall be excused from
such performance to the extent of such prevention, restriction, or interference;
provided that the party so affected shall use its best efforts to avoid or
remove such causes of nonperformance and shall continue performance hereunder
with the utmost dispatch whenever such causes are removed.
13.5 ARBITRATION. All disputes, controversies, or differences which may
arise between the parties, out of or in relation to or in connection with this
Agreement, or the breach hereof, which cannot be satisfactorily resolved by the
parties themselves, shall be finally settled by arbitration pursuant to the
Japan-American Trade Arbitration Agreement of September 16, 1952, by which each
party hereto is bound.
13.6 NOTICES, AUTHORITY. Any communications required by or pursuant to
this Agreement shall be sent to the respective addresses of the parties set out
in the preamble of this Agreement. The parties signing below have full power
and authority to bind their principals.
13.7 GOVERNING LAW. This agreement shall be construed in accordance
with and governed by the laws of the State of California and the United States
of America.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above set forth.
CREDENCE SYSTEMS CORP. INNOTECH-CREDENCE K.K.
______________________________ _________________________________
W.R. BOTTOMS TYPED NAME:
CHAIRMAN & CEO PRESIDENT
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- EXHIBIT D -
DISTRIBUTOR AGREEMENT
This Agreement is made and entered into this ___________ day of
_____________________, 1997 by and between INNOTECH CORPORATION, a Japanese
corporation organized and existing under the laws of Japan with its principal
place of business located at 2-15-10 Shinyokohama Kouhoku-ku, Yokohama-shi,
Kanagawa 222, Japan ("Innotech") and INNOTECH-CREDENCE KABUSHIKI KAISHA, a
Japanese corporation organized and existing under the laws of Japan with its
principal place of business located at Yokohama-shi, Kanagawa-ken, Japan
("ICC").
WHEREAS, ICC has been established as a joint venture company, pursuant to
an agreement executed on the 9th day of June 1997 ("Joint Venture Agreement"),
by and between Innotech and CREDENCE SYSTEMS CORPORATION, a corporation
organized and existing under the laws of the State of Delaware, with its
principal place of business located at 215 Fourier Avenue, Fremont, California
94539 USA ("Credence"), for the purpose of localizing, customizing, developing
and manufacturing in Japan certain products ("JVC Products"), as defined in the
Joint Venture Agreement, for resale by Innotech in Japan and Credence outside
Japan;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereto agree as follows:
ARTICLE 1.
APPOINTMENT
ICC hereby appoints Innotech its exclusive distributor in Japan ("Territory"),
and Innotech hereby accepts such appointment for the sale of JVC Products, as
listed in Appendix A, in the Territory. Innotech is authorized by the above
appointment to sell the JVC Products only to customers located in the Territory,
and Innotech shall refer to ICC all inquiries made from prospective customers
from outside the Territory.
The list of JVC Products as set forth in Appendix A may be changed, abandoned
or added to by mutual written agreement between the parties.
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ARTICLE 2.
TERM OF AGREEMENT
This Agreement shall continue in effect for a period of five (5) years from
the date of its execution and shall automatically renew year after year, unless
terminated pursuant to Article 15 hereof.
ARTICLE 3.
PARTY RESPONSIBILITIES
3.1 ICC agrees to the following responsibilities under this Agreement.
3.1.1 ICC shall make every reasonable effort to manufacture quantities
of the JVC Products sufficient to meet the resale requirements of Innotech,
based on a monthly forecast given to ICC by Innotech.
3.1.2 ICC shall make every reasonable effort to satisfy Innotech's
customer's request for quality of the JVC Products and shall establish a
quality assurance system and ensure its operation to achieve this purpose. ICC
shall provide reports in writing about such system upon request from Innotech
and/or customer.
3.1.3 ICC shall ensure that an inventory of spare parts be
maintained for each model of the JVC Products in the Territory for five (5)
years from the date of the last technical acceptance of such JVC Products by
customers. ICC shall not terminate such supply during the term of this
Agreement without written consent of Innotech.
3.1.4 ICC shall retain and submit to Innotech upon request by Innotech
any information (including, but not limited to, technical information, data,
company regulations related to the JVC Products) which are related to Product
design, Product manufacturing, or Product quality control that are necessary
for performing Innotech's obligation under the Product Liability Law in the
Territory at least eleven (11) years after the last shipments of each of the
JVC Products for Innotech's customers. If any claim, demand, proceeding,
action arises against Innotech and/or Innotech's customers in relation with
the JVC Products under the Product Liability Law in the Territory, ICC shall
cooperate with and support Innotech to execute Innotech's obligations under
the Product Liability Law in the Territory.
3.2 INNOTECH agrees to the following responsibilities under this Agreement.
3.2.1 Innotech shall make every reasonable effort to promote the sale
and technical support service related to the sales of the JVC Products and
further shall serve the best interests of ICC in any and all matters in
accordance with this Agreement.
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3.2.2 Innotech shall refrain from manufacturing or selling products
which are thought by both ICC and Innotech to directly compete with the JVC
Products for the duration of this Agreement, provided, however, it is not
prohibited that Innotech may provide its customer with delivery, service and
maintenance for directly competitive products if the equipment was supplied to
such customer prior to the start of this Agreement and Innotech is requested
to provide the above services by its customer. This prohibition against
selling competitive products shall not apply, however, to products
manufactured by Credence and/or its subcontractors, and sold through Innotech
in the Territory pursuant to an existing distribution agreement between
Innotech and Credence.
3.2.3 Innotech agrees to maintain a qualified sales staff sufficient to
provide for the sales and support of the JVC Products in the Territory.
3.2.4 Innotech agrees to provide ICC with an Order Forecast at the
beginning of each month that details the account, product, order value,
anticipated order date, delivery requirement, and probability of order
placement with ICC.
3.2.5 Innotech agrees to provide ICC with a Prospects List (funnel) at
the beginning of each quarter that projects opportunities for 9-12 months. The
list will detail the account, product, order value, and anticipated order
date.
3.2.6 Innotech or its subsidiary shall provide on-site installation,
technical and maintenance support in the Territory for Innotech's customers
during the Warranty Period (defined in Article 13 hereof) and after the
Warranty Period upon customer's request.
ARTICLE 4.
PRICE AND PRICE CHANGES
4.1 PRICE. Innotech agrees to pay ICC for the JVC Products purchased
hereunder in accordance with price schedules or bulletins supplied by ICC and
accepted by Innotech from time to time. The presently applicable schedule is
attached hereto as Appendix B.
4.2 PRICE CHANGES. ICC shall give Innotech at least ninety (90) days written
notice prior to any price change which may be made by ICC; provided that, in
case of price increase, notwithstanding the provision provided above, any order
placed by Innotech to ICC and accepted by ICC prior to the effective date of
such price increase will not be affected with such price change.
ARTICLE 5.
ORDERS
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5.1 QUOTATIONS, ORDERS, ACCEPTANCE. ICC will generate price and delivery
quotations for the JVC Products to Innotech. Product shipment information must
be confirmed by ICC prior to Innotech making a written or verbal commitment or
accepting an order from a customer.
5.2 RECORDS. Innotech will maintain a file of all quotations, proposals, and
purchase orders which shall be available to ICC for review upon reasonable
request.
5.3 TAXES. All taxes shall be set forth separately on the face of the order
acknowledgment. Failure of ICC to so set forth any of these items shall relieve
Innotech from the obligation to pay such amounts. In lieu of the imposition of
any particular tax, Innotech may, where applicable, provide a tax exemption
certificate to ICC in a form acceptable to the taxing authorities.
ARTICLE 6.
TERMS OF PAYMENT
The terms of payment and applicable discounts shall be as provided in Appendix
A attached hereto. In case a JVC Product does not meet specifications which
have been committed by mutual agreement and Innotech does not obtain customer
acceptance due to an engineering problem of the machine, payment to ICC shall be
adjusted accordingly. If payment has been made by Innotech to ICC on that JVC
Product, the next payment shall be adjusted accordingly.
ARTICLE 7.
DELIVERY
7.1 GENERAL. ICC shall make every reasonable effort to fill all orders
promptly upon acceptance thereof. However, if conditions beyond the control of
ICC arise which prevent compliance with normal delivery schedules, ICC shall not
be liable for damages, general, special or otherwise arising from such delivery
delay.
All sales are made F.O.B. point of shipment, ICC facility in Machida-shi,
Tokyo, Japan. Innotech shall have the right to select the carrier of its
choice. Unless written instructions from Innotech specifying the method of
shipment to be used have been received by ICC, ICC will exercise its own
discretion with respect to manner of shipment and insurance to be used.
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7.2 RISK OF LOSS. ICC shall retain title and bear the risk of loss until
such time as a shipment has been placed on board the carrier at the factory, at
which time title shall pass to Innotech and the risk of loss shall be borne by
Innotech.
ARTICLE 8.
CONFIDENTIALITY
During the term of this Agreement and for two (2) years thereafter, both
parties hereto agree not to disclose to any third party nor to use for its own
benefits (except in performing its duties hereunder) any information disclosed
by the other party hereunder (hereinafter referred to as "CONFIDENTIAL
INFORMATION") which is (i) of a confidential nature and (ii) disclosed in
writing or other tangible form and clearly marked as "Confidential" or promptly
reduced to writing and clearly designated as "Confidential" if first transmitted
orally.
The obligation described herein shall not apply to any information (i) which
is generally known to the public, or (ii) which subsequently becomes generally
known to the public through no fault of the receiving party, or (iii) which has,
at the time of disclosure thereof, been in the possession of the receiving
party, or (iv) which may subsequently be rightfully obtained by the receiving
party from a third party without confidential restriction, or (v) which may
subsequently be developed by the receiving party independently of the
CONFIDENTIAL INFORMATION.
ARTICLE 9.
PATENTS, TRADE MARKS, INDEMNITY
9.1 USE. During the term of this Agreement, ICC grants to Innotech the right
to use ICC's trade mark or trade name without charge only for the purposes of
sales or sales promotion of JVC Products.
9.2 RETENTION. Innotech recognizes that ICC retains all rights to patents,
copyrights, trademarks, trade names, other marketing names and trade secrets.
Copying or reproduction of any portion of the JVC Products by Innotech without
the written approval of ICC is expressly prohibited.
9.3 PRODUCTS. Products marketed by Innotech shall be sold only in the forms
shipped by ICC, and Innotech shall not alter, modify or change any system or its
package or use any trademark of Innotech on any Product without the prior
written consent of ICC. Innotech agrees that it shall not include any parts in
JVC Products except parts supplied by ICC, without the prior
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written consent of ICC. If ICC consents to any alteration, modification or
change in any Product or to the use of any non-ICC part, Innotech shall provide
and pay for a) all costs incurred thereby, b) all related warranty service and
c) all long-term maintenance service. Innotech shall be responsible for any
claim of patent or copyright infringement or for any claim under the product
liability law in the Territory, which result from such Innotech's alteration,
modification or change in any Product or the use of any non-ICC part.
9.4 INDEMNIFICATION. ICC shall indemnify Innotech against claims of
infringement of any patent or copyright brought by any third party in accordance
with the Patents and Copyrights statement in Appendix E. The term "Seller" used
in such statements shall mean ICC, and the term "Buyer" used in such statements
shall be interpreted to include both Innotech and Innotech's customers.
ARTICLE 10.
ADVERTISING
ICC shall supply reasonable quantities of materials such as catalogs,
brochures of new JVC Products, and reprints of its advertising materials at no
charge to Innotech. Innotech shall have the right to conduct advertising
campaigns with respect to the JVC Products but shall be required to obtain an
approval of ICC prior to releasing the same. Innotech agrees to refrain from
making any claims or representations concerning the JVC Products in excess of
those made by ICC.
ICC and Innotech may jointly conduct advertising and/or sales promotion in the
Territory with respect to the JVC Products upon mutual agreement.
ARTICLE 11.
WARRANTIES
Products are warranted in accordance with ICC's standard Hardware and Software
Warranties set forth in Appendix F. The warranty period determined in Appendix F
begins upon completion of installation procedures, including customers'
acceptance, at the customer site. The warranty services for the JVC Products
during the warranty period shall be provided by Innotech to customers directly.
ARTICLE 12.
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PRODUCT LIABILITY
If, under the product liability law in the Territory, any claim is made or any
suit or action is instituted against Innotech and/or Innotech's customers
arising out of or otherwise in connection with any defect or alleged defects of
the JVC Products supplied by ICC to Innotech under this Agreement, ICC shall, at
its own expenses and upon request of lnnotech:
(i) investigate or research the causes of accidents, occurrences, injuries
or losses affecting any person or property as a result of the manner in which
the JVC Products are designed, manufactured, treated, fabricated, constructed,
packaged, labeled, delivered, sold or used, and use its every reasonable
effort to correct or eliminate such causes within a reasonable period; and
(ii) support Innotech's recall, repair, replacement in whole or in part or
research into the need to recall any JVC Products supplied by ICC to Innotech in
the event that such recall is required by law or is considered necessary or
prudent by mutual agreement of Innotech and ICC, and indemnify and hold harmless
Innotech from and against all costs and expenses of any kind whatsoever arising
out of or in connection with such recall, repair, replacement and/or research;
and
(iii) provide to Innotech any and all assistance (including, without
limitation, technical and other information, documents, data, materials and
witnesses) which are, in the opinion of Innotech or its counsel, necessary or
useful for Innotech's defense to such claim, suit or action in relation to the
JVC Products supplied by ICC to Innotech hereunder.
(iv) If a succession of claims are made, or a succession of suits or actions
are instituted (whether or not they are against Innotech, and whether or not
they are made or instituted in the Territory) in relation to a product
manufactured by ICC which is the same as or similar to the JVC Products supplied
by ICC to Innotech hereunder, then notwithstanding anything else in this
Agreement; (1) ICC shall, at the request of Innotech, stop delivery of the JVC
Products to Innotech; and (2) Innotech shall have no obligation to purchase or
take delivery of the JVC Products, until ICC can establish to Innotech's
complete satisfaction that: (a) the JVC Products arc free from defects in
materials, design, workmanship, manufacture, treatment, fabrication,
construction, packaging, instruction manuals, labeling, warnings or otherwise;
or (b) all such defects have been completely corrected or eliminated.
(v) If ICC is unable to satisfy Innotech in such manner as stipulated in
subsection (iv) above within a ninety (90) days period, lnnotech may terminate
this Agreement by written notice with immediate effect. Upon termination,
Innotech shall have no obligation to purchase or accept delivery of any JVC
Products remaining undelivered under this Agreement, and ICC shall, upon
Innotech's request, buy back from Innotech any and all JVC Products and parts
thereof then
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in Innotech's inventory. The re-purchase price for such JVC Products shall
include the original purchase price in Japanese Yen paid by Innotech to ICC,
plus freight costs, import duty and customs clearance charges paid on such JVC
Products.
ARTICLE 13.
EXPORT
13.1 Innotech will not export JVC Products, and will not sell JVC Products to
others who might export JVC Products outside the Territory except as authorized
by the appropriate U.S. and Japanese export authorities.
13.2 The Export Administration Regulations of the U.S. Department of Commerce
(the "Regulations") permit the exportation from the U.S. under General License
GTDR, technical data relating to certain commodities or direct JVC Products of
such technical data, provided the exporter has obtained certain written
assurances from the foreign importer. Accordingly, to facilitate the furnishing
of data under this agreement, Innotech hereby gives its assurance that unless
prior authorization is obtained form the U.S. Bureau of Export Administration,
Innotech will not knowingly export or sell to any party which might export from
the Territory, directly or indirectly, to any country any such technical data or
JVC Products except as permitted by the Regulations.
ARTICLE 14.
CHANGE OF BUSINESS NAME OR ACTIVITIES
Either party shall immediately notify the other party of any change of its
firm's name, address or representative, or of any significant change in its
business activities.
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ARTICLE 15.
TERMINATION
15.1 GENERAL.
15.1.1 This Agreement may be terminated (i) by an agreement in writing
duly signed by the parties hereto, or (ii) by either party at will, with or
without cause, upon not less than ninety (90) days written notice, given by
registered or certified mail to the other party; provided, however, that
neither party hereto shall, by reason of the termination of this Agreement
pursuant to this Article 15.1.1, be liable to the other for compensation,
reimbursement or damages on account of the loss of prospective profits on
anticipated sales, or on account of expenditures, investments, leases or
commitments in connection with the business or good will of ICC or Innotech,
or otherwise.
15.1.2 Either party hereto may terminate this Agreement by giving a
written notice of termination to the other party upon occurrence of any of the
following events; provided, however, that the termination of this Agreement
pursuant to this Article 15.1.2 doesn't prevent claims for damages from the
unliable party for such termination:
(i) When the other party becomes or is caused to become insolvent or
any voluntary or involuntary petition in bankruptcy or for corporate
reorganization is filed by or against the other party, or a receiver is
appointed with respect to any of the assets of the other party, or liquidation
proceeding is commenced by or against the other party, and such proceeding is
not discharged within sixty (60) days;
(ii) When the whole or any substantial part of the business or assets
of the other party is transferred to a third party by agreement, order of
court or otherwise; or
(iii) When the other party defaults in payment for the JVC Products or
otherwise defaults in any of the provisions of this Agreement and does not make
the payment or remedy the default within thirty (30) days after a written notice
is given requesting to make the payment or remedy the default.
15.2 SALES AFTER TERMINATION. The acceptance of any order from or the sale
of any JVC Products to Innotech after the termination of this Agreement shall
not be construed as a renewal or extension hereof nor as a waiver of
termination.
15.3 TRADE NAMES. If during the term of this Agreement, Innotech uses signs
containing the name of ICC or uses any trade name, trademark, or the listing of
ICC's name in any telephone book, directory, public record or elsewhere,
Innotech, regardless of the cause of termination of this Agreement, will take
all reasonable and necessary steps to discontinue any use of the aforementioned
in any manner whatsoever and cause the removal of ICC's name from any such
listing.
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15.4 INVENTORY BUY-BACK. In the event ICC terminates this Agreement for its
convenience, rather than as a result of Innotech's default or insolvency, or
Innotech terminates this Agreement as a result of ICC's default or insolvency,
ICC shall buy back from Innotech any and all JVC Products and part thereof
purchased by Innotech then in Innotech's inventory.
The re-purchase price for such JVC Products shall include the original
purchase price in Japanese Yen paid by Innotech to ICC, plus freight costs,
import duty and customs clearance charges paid on such JVC Products.
In the event that ICC terminates this Agreement as a result of Innotech's
insolvency, or its default of obligations hereunder or if Innotech terminates
this Agreement for any reason excluding as a result of ICC's defaults or
insolvency, ICC shall have first right of purchase, but no obligation to
repurchase any of its JVC Products from Innotech.
15.5 EFFECT OF TERMINATION. Article 3.1.4, Article 8, Article 9.4, Article
11, Article 12, Article 15, Article 16, Article 17 and Article 18 shall survive
and continue to be effective after the termination of this Agreement.
ARTICLE 16.
ARBITRATION
All disputes, controversies, or differences which may arise between the
parties, out of or in relation to or in connection with this Agreement or the
breach hereof, which cannot be satisfactorily resolved by the parties
themselves, shall be finally settled by arbitration held in Tokyo, Japan by the
Japan Commercial Arbitration Association, by which each party hereto is bound.
ARTICLE 17.
GOVERNING LAW
This Agreement shall be construed in accordance with and governed by the
laws of the country of Japan.
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ARTICLE 18.
MISCELLANEOUS
18.1 FORCE MAJEURE. If performance of any part of this Agreement or
individual contracts of sale hereunder is interfered with for any length of time
by governmental restrictions, war, civil commotions, riots, strike, lock out, or
Acts of God such as typhoon, earthquake, flood, fire or any other similar or
dissimilar causes which are beyond the control of the parties, the party so
affected shall not be responsible for delay or failure of performance of this
Agreement or such individual contracts of sale for such length of time.
18.2 ASSIGNMENT. This Agreement is not assignable or transferable by either
party in whole or in part, except with the written consent of the other party.
However, this Agreement shall not prohibit its assignment or transfer to wholly
owned subsidiaries or divisions of Innotech.
18.3 WAIVER. Any failure of either party to enforce any of the provisions of
this Agreement or to exercise any right hereunder shall not constitute a waiver
of same or prejudice its right to enforce the same thereafter.
18.4 NOTICES. Any notices provided for under this Agreement shall be deemed
effective when delivered in person or seven (7) days after deposit in the mail
by registered or certified mail postage prepaid and addressed to the party
listed in the introduction of this Agreement, or to such different address as
either party may designate in writing to the other pursuant to this Article
18.4.
18.5 RELATIONSHIP OF PARTIES. The parties hereto agree that Innotech shall
operate as an independent contractor and not as an agent or employee of ICC.
Innotech has no express or implied authorization to incur any obligation or in
any manner otherwise make any commitments on behalf of ICC.
Innotech shall employ its own personnel and shall be responsible for them and
their acts and in no way shall ICC be liable to Innotech, its employees or third
parties for any losses, injuries, damages or the like occasioned by Innotech's
activities in connection with this Agreement, except as expressly provided
herein.
18.6 SOFTWARE INCORPORATED IN THE JVC PRODUCTS. Innotech understands that
the JVC Products may include computer software which is subject to protection
under copyright laws of the United States, Japan and other jurisdictions.
Innotech is authorized to distribute this software only as a part of the JVC
Products.
18.7 ENTIRE AGREEMENT. This Agreement (including all attachments referenced
herein) sets forth the entire agreement between the parties hereto with respect
to the subject matter hereof, and supersedes all previous and contemporaneous
agreement, negotiations,
11
<PAGE>
representations and commitments in respect of the subject matter hereof. This
Agreement shall not be changed or modified in any manner, except by mutual
consent in writing of subsequent date signed by duly authorized representatives
of both parties hereto.
18.8 BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assignees.
Both parties hereto acknowledge that the branches, subsidiaries and affiliates
of ICC shall be bound by this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year set forth first above.
INNOTECH CORPORATION INNOTECH-CREDENCE K.K.
_______________________ ________________________________________________
LARRY M. YOSHIDA TYPED NAME:
PRESIDENT & C.E.O. PRESIDENT
.
<PAGE>
- EXHIBIT E -
DISTRIBUTOR AGREEMENT
This Agreement is made and entered into this ___________ day of
_____________________, 1997 by and between CREDENCE SYSTEMS CORPORATION, a
corporation organized and existing under the laws of the State of Delaware, with
its principal place of business located at 215 Fourier Avenue, Fremont,
California 94539 USA ("Credence") and INNOTECH-CREDENCE KABUSHIKI KAISHA, a
Japanese corporation organized and existing under the laws of Japan with its
principal place of business located at Yokohama-shi, Kanagawa-ken, Japan
("ICC").
WHEREAS, ICC has been established as a joint venture company, pursuant to
an agreement executed on the 9th day of June 1997 ("Joint Venture Agreement"),
by and between Credence and INNOTECH CORPORATION, a corporation organized and
existing under the laws of Japan with its principal place of business located at
2-15-10 Shinyokohama, Kouhoku-ku, Yokohama-shi, Kanagawa 222, Japan
("Innotech"), for the purpose of localizing, customizing, developing and
manufacturing in Japan certain products ("JVC Products"), as defined in the
Joint Venture Agreement, for resale by Innotech in Japan and Credence outside
Japan;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereto agree as follows:
ARTICLE 1.
APPOINTMENT
ICC hereby appoints Credence its exclusive distributor outside of Japan
("Territory"), and Credence hereby accepts such appointment for the sale of JVC
Products, as listed in Appendix A, in the Territory. Credence is authorized by
the above appointment to sell the JVC Products only to customers located in the
Territory, and Credence shall refer to ICC all inquiries made from prospective
customers from outside the Territory.
The list of JVC Products as set forth in Appendix A may be changed, abandoned
or added to by mutual written agreement between the parties.
1
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ARTICLE 2.
TERM OF AGREEMENT
This Agreement shall continue in effect for a period of five (5) years from
the date of its execution and shall automatically renew year after year, unless
terminated pursuant to Article 15 hereof.
ARTICLE 3.
PARTY RESPONSIBILITIES
3.1 ICC agrees to the following responsibilities under this Agreement.
3.1.1 ICC shall make every reasonable effort to manufacture quantities
of the JVC Products sufficient to meet the resale requirements of Credence,
based on a monthly forecast given to ICC by Credence.
3.1.2 ICC shall make every reasonable effort to satisfy Credence's
customer's request for quality of the JVC Products and shall establish a
quality assurance system and ensure its operation to achieve this purpose. ICC
shall provide reports in writing about such system upon request from Credence
and/or customer.
3.1.3 ICC shall ensure that an inventory of spare parts be
maintained for each model of the JVC Products in the Territory for five (5)
years from the date of the last technical acceptance of such JVC Products by
customers. ICC shall not terminate such supply during the term of this
Agreement without written consent of Credence.
3.1.4 ICC shall retain and submit to Credence upon request by Credence
any information (including, but not limited to, technical information, data,
company regulations related to the JVC Products) which are related to Product
design, Product manufacturing, or Product quality control that are necessary
for performing Credence's obligation under the Product Liability Law in the
Territory at least eleven (11) years after the last shipments of each of the
JVC Products for Credence's customers. If any claim, demand, proceeding,
action arises against Credence and/or Credence's customers in relation with
the JVC Products under the Product Liability Law in the Territory, ICC shall
cooperate with and support Credence to execute Credence's obligations under
the Product Liability Law in the Territory.
3.2 CREDENCE agrees to the following responsibilities under this Agreement.
2
<PAGE>
3.2.1 Credence shall make every reasonable effort to promote the sale
and technical support service related to the sales of the JVC Products and
further shall serve the best interests of ICC in any and all matters in
accordance with this Agreement.
3.2.2 Credence agrees to maintain a qualified sales staff sufficient to
provide for the sales and support of the JVC Products in the Territory.
3.2.3 Credence agrees to provide ICC with an Order Forecast by the
middle of each month that details the account, product, order value,
anticipated order date, delivery requirement, and probability of order
placement with ICC.
3.2.4 Credence agrees to provide ICC with a Prospects List (funnel) in
the first month of each quarter that projects opportunities for 9-12 months.
The list will detail the account, product, order value, and anticipated order
date.
3.2.5 Credence or its subcontractor shall provide on-site installation,
technical and maintenance support in the Territory for Credence's customers
during the Warranty Period (defined in Article 13 hereof) and after the
Warranty Period upon customer's request.
ARTICLE 4.
PRICE AND PRICE CHANGES
4.1 PRICE. Credence agrees to pay ICC for the JVC Products purchased
hereunder in accordance with price schedules or bulletins supplied by ICC and
accepted by Credence from time to time. The presently applicable schedule is
attached hereto as Appendix B.
4.2 PRICE CHANGES. ICC shall give Credence at least ninety (90) days written
notice prior to any price change which may be made by ICC; provided that, in
case of price increase, notwithstanding the provision provided above, any order
placed by Credence to ICC and accepted by ICC prior to the effective date of
such price increase will not be affected with such price change.
ARTICLE 5.
ORDERS
5.1 QUOTATIONS, ORDERS, ACCEPTANCE. ICC will generate price and delivery
quotations for the JVC Products to Credence. Product shipment information must
be confirmed by ICC prior to Credence making a written or verbal commitment or
accepting an order from a customer.
3
<PAGE>
5.2 RECORDS. Credence will maintain a file of all quotations, proposals, and
purchase orders which shall be available to ICC for review upon reasonable
request.
5.3 TAXES. All taxes shall be set forth separately on the face of the order
acknowledgment. Failure of ICC to so set forth any of these items shall relieve
Credence from the obligation to pay such amounts. In lieu of the imposition of
any particular tax, Credence may, where applicable, provide a tax exemption
certificate to ICC in a form acceptable to the taxing authorities.
ARTICLE 6.
TERMS OF PAYMENT
The terms of payment and applicable discounts shall be as provided in Appendix
A attached hereto. In case a JVC Product does not meet specifications which
have been committed by mutual agreement and Credence does not obtain customer
acceptance due to an engineering problem of the machine, payment to ICC shall be
adjusted accordingly. If payment has been made by Credence to ICC on that JVC
Product, the next payment shall be adjusted accordingly.
ARTICLE 7.
DELIVERY
7.1 GENERAL. ICC shall make every reasonable effort to fill all orders
promptly upon acceptance thereof. However, if conditions beyond the control of
ICC arise which prevent compliance with normal delivery schedules, ICC shall not
be liable for damages, general, special or otherwise arising from such delivery
delay.
All sales are made F.O.B. point of shipment, ICC facility in Machida-shi,
Tokyo, Japan. Credence shall have the right to select the carrier of its
choice. Unless written instructions from Credence specifying the method of
shipment to be used have been received by ICC, ICC will exercise its own
discretion with respect to manner of shipment and insurance to be used.
7.2 RISK OF LOSS. ICC shall retain title and bear the risk of loss until
such time as a shipment has been placed on board the carrier at the factory, at
which time title shall pass to Credence and the risk of loss shall be borne by
Credence.
ARTICLE 8.
4
<PAGE>
CONFIDENTIALITY
During the term of this Agreement and for two (2) years thereafter, both
parties hereto agree not to disclose to any third party nor to use for its own
benefits (except in performing its duties hereunder) any information disclosed
by the other party hereunder (hereinafter referred to as "CONFIDENTIAL
INFORMATION") which is (i) of a confidential nature and (ii) disclosed in
writing or other tangible form and clearly marked as "Confidential" or promptly
reduced to writing and clearly designated as "Confidential" if first transmitted
orally.
The obligation described herein shall not apply to any information (i) which
is generally known to the public, or (ii) which subsequently becomes generally
known to the public through no fault of the receiving party, or (iii) which has,
at the time of disclosure thereof, been in the possession of the receiving
party, or (iv) which may subsequently be rightfully obtained by the receiving
party from a third party without confidential restriction, or (v) which may
subsequently be developed by the receiving party independently of the
CONFIDENTIAL INFORMATION.
ARTICLE 9.
TRADE MARKS, TRADE NAME, INDEMNITY
9.1 PRODUCTS. Products marketed by Credence shall be sold only in the forms
shipped by ICC, and Credence shall not alter, modify or change any system or its
package or use any trademark of Credence on any Product without the prior
written consent of ICC. Credence agrees that it shall not include any parts in
JVC Products except parts supplied by ICC, without the prior written consent of
ICC. If ICC consents to any alteration, modification or change in any Product
or to the use of any non-ICC part, Credence shall provide and pay for a) all
costs incurred thereby, b) all related warranty service and c) all long-term
maintenance service. Credence shall be responsible for any claim of patent or
copyright infringement or for any claim under the product liability law in the
Territory, which result from such Credence's alteration, modification or change
in any Product or the use of any non-ICC part.
9.2 INDEMNIFICATION. ICC shall indemnify Credence against claims of
infringement of any patent or copyright brought by any third party in accordance
with the Patents and Copyrights statement in Appendix E. The term "Seller" used
in such statements shall mean ICC, and the term "Buyer" used in such statements
shall be interpreted to include both Credence and Credence's customers.
5
<PAGE>
ARTICLE 10.
ADVERTISING
ICC shall supply reasonable quantities of materials such as catalogs,
brochures of new JVC Products, and reprints of its advertising materials at no
charge to Credence. Credence shall have the right to conduct advertising
campaigns with respect to the JVC Products but shall be required to obtain an
approval of ICC prior to releasing the same. Credence agrees to refrain from
making any claims or representations concerning the JVC Products in excess of
those made by ICC.
ICC and Credence may jointly conduct advertising and/or sales promotion in the
Territory with respect to the JVC Products upon mutual agreement.
ARTICLE 11.
WARRANTIES
Products are warranted in accordance with ICC's standard Hardware and Software
Warranties set forth in Appendix F. The warranty period determined in Appendix F
begins upon completion of installation procedures, including customers'
acceptance, at the customer site. The warranty services for the JVC Products
during the warranty period shall be provided by Credence to Credence's
customers.
ARTICLE 12.
PRODUCT LIABILITY
If, under the product liability law in the Territory, any claim is made or any
suit or action is instituted against Credence and/or Credence's customers
arising out of or otherwise in connection with any defect or alleged defects of
the JVC Products supplied by ICC to Credence under this Agreement, ICC shall, at
its own expenses and upon request of Credence:
(i) investigate or research the causes of accidents, occurrences, injuries or
losses affecting any person or property as a result of the manner in which the
JVC Products are designed, manufactured, treated, fabricated, constructed,
packaged, labeled, delivered, sold or used, and use its every reasonable effort
to correct or eliminate such causes within a reasonable period; and
6
<PAGE>
(ii) support Credence's recall, repair, replacement in whole or in part or
research into the need to recall any JVC Products supplied by ICC to Credence in
the event that such recall is required by law or is considered necessary or
prudent by mutual agreement of Credence and ICC, and indemnify and hold harmless
Credence from and against all costs and expenses of any kind whatsoever arising
out of or in connection with such recall, repair, replacement and/or research;
and
(iii) provide to Credence any and all assistance (including, without
limitation, technical and other information, documents, data, materials and
witnesses) which are, in the opinion of Credence or its counsel, necessary or
useful for Credence's defense to such claim, suit or action in relation to the
JVC Products supplied by ICC to Credence hereunder.
(iv) If a succession of claims are made, or a succession of suits or actions
are instituted (whether or not they are against Credence, and whether or not
they are made or instituted in the Territory) in relation to a product
manufactured by ICC which is the same as or similar to the JVC Products supplied
by ICC to Credence hereunder, then notwithstanding anything else in this
Agreement; (1) ICC shall, at the request of Credence, stop delivery of the JVC
Products to Credence; and (2) Credence shall have no obligation to purchase or
take delivery of the JVC Products, until ICC can establish to Credence's
complete satisfaction that: (a) the JVC Products arc free from defects in
materials, design, workmanship, manufacture, treatment, fabrication,
construction, packaging, instruction manuals, labeling, warnings or otherwise;
or (b) all such defects have been completely corrected or eliminated.
(v) If ICC is unable to satisfy Credence in such manner as stipulated in
subsection (iv) above within a ninety (90) days period, Credence may terminate
this Agreement by written notice with immediate effect. Upon termination,
Credence shall have no obligation to purchase or accept delivery of any JVC
Products remaining undelivered under this Agreement, and ICC shall, upon
Credence's request, buy back from Credence any and all JVC Products and parts
thereof then in Credence's inventory. The re-purchase price for such JVC
Products shall include the original purchase price in Japanese Yen paid by
Credence to ICC, plus freight costs, import duty and customs clearance charges
paid on such JVC Products.
ARTICLE 13.
CHANGE OF BUSINESS NAME OR ACTIVITIES
Either party shall immediately notify the other party of any change of its
firm's name, address or representative, or of any significant change in its
business activities.
7
<PAGE>
ARTICLE 14.
TERMINATION
14.1 GENERAL.
14.1.1 This Agreement may be terminated (i) by an agreement in writing
duly signed by the parties hereto, or (ii) by either party at will, with or
without cause, upon not less than ninety (90) days written notice, given by
registered or certified mail to the other party; provided, however, that
neither party hereto shall, by reason of the termination of this Agreement
pursuant to this Article 14.1.1, be liable to the other for compensation,
reimbursement or damages on account of the loss of prospective profits on
anticipated sales, or on account of expenditures, investments, leases or
commitments in connection with the business or good will of ICC or Credence,
or otherwise.
14.1.2 Either party hereto may terminate this Agreement by giving a
written notice of termination to the other party upon occurrence of any of the
following events; provided, however, that the termination of this Agreement
pursuant to this Article 14.1.2 doesn't prevent claims for damages from the
unliable party for such termination:
(i) When the other party becomes or is caused to become insolvent or
any voluntary or involuntary petition in bankruptcy or for corporate
reorganization is filed by or against the other party, or a receiver is
appointed with respect to any of the assets of the other party, or liquidation
proceeding is commenced by or against the other party, and such proceeding is
not discharged within sixty (60) days;
(ii) When the whole or any substantial part of the business or assets
of the other party is transferred to a third party by agreement, order of
court or otherwise; or
(iii) When the other party defaults in payment for the JVC Products or
otherwise defaults in any of the provisions of this Agreement and does not make
the payment or remedy the default within thirty (30) days after a written notice
is given requesting to make the payment or remedy the default.
14.2 SALES AFTER TERMINATION. The acceptance of any order from or the sale
of any JVC Products to Credence after the termination of this Agreement shall
not be construed as a renewal or extension hereof nor as a waiver of
termination.
14.3 TRADE NAMES. If during the term of this Agreement, Credence uses signs
containing the name of ICC or uses any trade name, trademark, or the listing of
ICC's name in any telephone book, directory, public record or elsewhere,
Credence, regardless of the cause of termination of this Agreement, will take
all reasonable and necessary steps to discontinue any use
8
<PAGE>
of the aforementioned in any manner whatsoever and cause the removal of ICC's
name from any such listing.
14.4 INVENTORY BUY-BACK. In the event ICC terminates this Agreement for its
convenience, rather than as a result of Credence's default or insolvency, or
Credence terminates this Agreement as a result of ICC's default or insolvency,
ICC shall buy back from Credence any and all JVC Products and part thereof
purchased by Credence then in Credence's inventory.
The re-purchase price for such JVC Products shall include the original
purchase price in Japanese Yen paid by Credence to ICC, plus freight costs,
import duty and customs clearance charges paid on such JVC Products.
In the event that ICC terminates this Agreement as a result of Credence's
insolvency, or its default of obligations hereunder or if Credence terminates
this Agreement for any reason excluding as a result of ICC's defaults or
insolvency, ICC shall have first right of purchase, but no obligation to
repurchase any of its JVC Products from Credence.
14.5 EFFECT OF TERMINATION. Article 3.1.4, Article 8, Article 9.4, Article
11, Article 12, Article 14, Article 15, Article 16 and Article 17 shall survive
and continue to be effective after the termination of this Agreement.
ARTICLE 15.
ARBITRATION
All disputes, controversies, or differences which may arise between the
parties, out of or in relation to or in connection with this Agreement or the
breach hereof, which cannot be satisfactorily resolved by the parties
themselves, shall be finally settled by arbitration pursuant to the Japan -
American Trade Arbitration Agreement of September 16, 1952, by which each party
hereto is bound. The arbitration shall be held in Tokyo, Japan or any other
convenient location mutually agreed upon by the parties.
ARTICLE 16.
GOVERNING LAW
This Agreement shall be construed in accordance with and governed by the laws
of the country of Japan.
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<PAGE>
ARTICLE 17.
MISCELLANEOUS
17.1 FORCE MAJEURE. If performance of any part of this Agreement or
individual contracts of sale hereunder is interfered with for any length of time
by governmental restrictions, war, civil commotions, riots, strike, lock out, or
Acts of God such as typhoon, earthquake, flood, fire or any other similar or
dissimilar causes which are beyond the control of the parties, the party so
affected shall not be responsible for delay or failure of performance of this
Agreement or such individual contracts of sale for such length of time.
17.2 ASSIGNMENT. This Agreement is not assignable or transferable by either
party in whole or in part, except with the written consent of the other party.
However, this Agreement shall not prohibit its assignment or transfer to wholly
owned subsidiaries or divisions of Credence.
17.3 WAIVER. Any failure of either party to enforce any of the provisions of
this Agreement or to exercise any right hereunder shall not constitute a waiver
of same or prejudice its right to enforce the same thereafter.
17.4 NOTICES. Any notices provided for under this Agreement shall be deemed
effective when delivered in person or seven (7) days after deposit in the mail
by registered or certified mail postage prepaid and addressed to the party
listed in the introduction of this Agreement, or to such different address as
either party may designate in writing to the other pursuant to this Article
17.4.
17.5 RELATIONSHIP OF PARTIES. The parties hereto agree that Credence shall
operate as an independent contractor and not as an agent or employee of ICC.
Credence has no express or implied authorization to incur any obligation or in
any manner otherwise make any commitments on behalf of ICC.
Credence shall employ its own personnel and shall be responsible for them and
their acts and in no way shall ICC be liable to Credence, its employees or third
parties for any losses, injuries, damages or the like occasioned by Credence's
activities in connection with this Agreement, except as expressly provided
herein.
17.6 SOFTWARE INCORPORATED IN THE JVC PRODUCTS. Credence understands that
the JVC Products may include computer software which is subject to protection
under copyright laws of the United States, Japan and other jurisdictions.
Credence is authorized to distribute this software only as a part of the JVC
Products.
17.7 ENTIRE AGREEMENT. This Agreement (including all attachments referenced
herein) sets forth the entire agreement between the parties hereto with respect
to the subject matter hereof, and supersedes all previous and contemporaneous
agreement, negotiations,
10
<PAGE>
representations and commitments in respect of the subject matter hereof. This
Agreement shall not be changed or modified in any manner, except by mutual
consent in writing of subsequent date signed by duly authorized representatives
of both parties hereto.
17.8 BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assignees.
Both parties hereto acknowledge that the branches, subsidiaries and affiliates
of ICC shall be bound by this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year set forth first above.
CREDENCE SYSTEMS CORP. INNOTECH-CREDENCE K.K.
____________________________ ____________________________________________
W.R. BOTTOMS TYPED NAME:
CHAIRMAN & C.E.O. PRESIDENT
11
<PAGE>
EXHIBIT 11.1
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED Nine months ended
July 31, July 31,
------------------------------ -----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding 21,857 21,551 21,813 21,498
Common equivalent shares from stock options -- 374 523 432
Number of shares used in computing per share amounts 21,857 21,925 22,336 21,930
============ ============ ============ ============
Net income (loss) $ (897) $11,542 $ 3,443 $33,415
============ ============ ============ ============
Net income (loss) per share $ (0.04) $ 0.53 $ 0.15 $ 1.52
============ ============ ============ ============
</TABLE>
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JUL-31-1997
<CASH> 55,926
<SECURITIES> 23,491
<RECEIVABLES> 45,846
<ALLOWANCES> 1,895
<INVENTORY> 36,405
<CURRENT-ASSETS> 171,101
<PP&E> 78,420
<DEPRECIATION> 36,328
<TOTAL-ASSETS> 225,639
<CURRENT-LIABILITIES> 29,839
<BONDS> 0
0
0
<COMMON> 22
<OTHER-SE> 195,350
<TOTAL-LIABILITY-AND-EQUITY> 225,639
<SALES> 51,082
<TOTAL-REVENUES> 51,082
<CGS> 21,638
<TOTAL-COSTS> 21,638
<OTHER-EXPENSES> 29,808
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 645
<INCOME-TAX> 1,542
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (897)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
