Exhibit 10.7
[AIG LOGO] AMERICAN INTERNATIONAL COMPANIES
175 WATER STREET
NEW YORK, NY
10038
AMERICAN INTERNATIONAL COMPANIES(R)
REVISED CONDITIONAL BINDER OF INSURANCE
(ALL CAPITALIZED TERMS AS HEREINAFTER DEFINED)
REVISED BINDER
DATE: March 18, 2002
ORIGINAL BINDER
DATE: November 30, 2001
INSURED: Synopsys, Inc. (and its successors)
19500 Northwest Gibbs Dr., # 300
Beaverton, OR 97006
COMPANY DEFENDANT: Avant!, Inc. and any present or future parents,
subsidiaries, affiliates or successors in interest who
are named as a defendant in the Action.
INSURER: Birmingham Fire Insurance Company of Pennsylvania
c/o Loss Mitigation Unit
175 Water Street, 10th Floor
New York, NY 10038
COVERAGE: Litigation Protection
FORM: Manuscripted Litigation Protection Agreement
("Agreement") (attached hereto as Exhibit C).
This Revised Conditional Binder of Insurance (the "Revised Binder" or the
"Binder") shall replace the Conditional Binder of Insurance dated November 30,
2001 (the "Original Binder"). All of the terms, conditions and provisions of
this Revised Binder shall be the same as the Original Binder (including that the
representations and warranties contained in this Revised Binder shall be only as
of the Original Binder Date), except that the previous insurer (National Union
Fire Insurance Company of Pittsburgh, Pa.)(the "Original Insurer") is hereby
replaced with the Insurer (Birmingham Fire Insurance Company of Pennsylvania),
an affiliate of the Original Insurer, in this Revised Binder and the Exhibits
hereto.
BASED ON THE INFORMATION SUBMITTED, WE ARE PLEASED TO BIND THE COVERAGE AS
DESCRIBED IN THIS BINDER SUBJECT TO THE FOLLOWING CONDITIONAL REQUIREMENTS:
Page 1 of 7
THIS BINDER ONLY PROVIDES A SUMMARY OF COVERAGE.
PLEASE REFER TO THE AGREEMENT FOR ACTUAL TERMS AND CONDITIONS.
[AIG LOGO] AMERICAN INTERNATIONAL COMPANIES
175 WATER STREET
NEW YORK, NY
10038
CONDITIONAL
REQUIREMENTS:
1. A $10,000,000 fee ("Binder Fee") was received by
the Original Insurer by wire transfer on or before
December 3, 2001. The underwriting fee of $100,000
("Underwriting Fee") and due diligence funding of
$60,000 previously paid by the Insured shall be
non-refundable, although the Underwriting Fee, along
with the Binder Fee, shall reduce, dollar for dollar,
the Premium due under the Agreement. The Binder shall be
canceled and a portion of the Binder Fee shall be
refundable to the Insured in part under the following
conditions:
a. In the event that (i) the proposed acquisition
or merger transaction between Avant! and the
Insured is terminated ("Transaction Termination")
because of disapproval of the Transaction by the
Insured's or Avant!'s directors or shareholders,
failure to obtain necessary approvals from
governmental or regulatory bodies or the
occurrence of a termination event and termination
pursuant to any Transaction Agreement between the
parties, and (ii) Conditional Requirement 1(c)
does not occur prior to a Transaction Termination,
the Insurer shall refund $7,500,000 to the Insured
within ten (10) business days after the Insurer
receives notice of Transaction Termination;
b. In the event of a Transaction Termination
because of a mutual agreement to discontinue the
Transaction or for any other reason other than
because of an event under 1(a) above or 1(c) or
1(d) below, the Insurer shall refund $5,000,000 to
the Insured within ten (10) business days after
the Insurer receives notice of Transaction
Termination;
c. In the event that on or before December 7, 2001
(1) the Transaction Agreement was never executed
and never became effective and (2) no merger or
acquisition (or related) announcement or
disclosure of the execution of the Transaction
Agreement was made on or before that date, the
Insurer shall refund $9,000,000 to the Insured
within ten (10) business days after the Insurer
receives notice that the Transaction was never
agreed to;
d. In the event that the litigation between
Cadence Design Systems, Inc. v. Avant!, Inc.
(pending in U.S.D.C., N.D. Ca. and including any
appeals and related proceedings) (the "Action", to
be further defined in the Agreement) is settled
("Settlement") prior to the Effective Date, the
Insurer shall owe no refund of the Binder Fee.
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THIS BINDER ONLY PROVIDES A SUMMARY OF COVERAGE.
PLEASE REFER TO THE AGREEMENT FOR ACTUAL TERMS AND CONDITIONS.
[AIG LOGO] AMERICAN INTERNATIONAL COMPANIES
175 WATER STREET
NEW YORK, NY
10038
e. The Binder Fee shall not be refundable, in
whole or in part, other than pursuant to the terms
of Conditional Requirement 1(a), (b), (c), and
(d).
2. The Insured will provide an executed copy of the
purchase and sale agreement ("Transaction Agreement")
for the Transaction as soon as is reasonably practicable
following execution, and will provide such information
about the status of negotiations and terms as the
Insurer may reasonably require. In the event of
Transaction Termination or Settlement, the Insured shall
promptly notify the Insurer.
BINDER PERIOD: Original Binder Date to the Effective Date of the
Agreement.
POLICY PERIOD: Effective Date: The Transaction Effective Time (to be
defined in the Agreement), unless
Premium is unpaid
Expiration Date: Settlement or Final Adjudication (both
terms to be defined in the Agreement)
of the Action or Commutation (as
defined in the Clause 3(c) of the
Agreement)
The Binder shall be noncancelable according to its terms
unless Conditional Requirement 1 (including 1(a), 1(b),
1(c) or 1(d)) causes the Binder to be canceled.
CURRENCY: All amounts shown shall be in $US.
LIMIT OF LIABILITY: The sum of $500 million and the Interest Element Amount
(to be defined in the Agreement) IN THE AGGREGATE
RETENTION: $0
PREMIUM: $335 million
PREMIUM PAYMENT
CONDITIONS: To be defined in the Agreement.
LOSS SETTLEMENT TERMS
AND CONDITIONS: In the Policy Period, to be defined in the Agreement.
In the Binder Period:
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THIS BINDER ONLY PROVIDES A SUMMARY OF COVERAGE.
PLEASE REFER TO THE AGREEMENT FOR ACTUAL TERMS AND CONDITIONS.
[AIG LOGO] AMERICAN INTERNATIONAL COMPANIES
175 WATER STREET
NEW YORK, NY
10038
1. In the event of Transaction Termination or
Settlement, the Insured shall promptly notify the
Insurer.
2. The Insured shall promptly provide such
information about the status of efforts to settle the
Action as the Insurer may reasonably require, provided
that the Insured has access to the requested information
pursuant to agreements with Avant! or otherwise and is
permitted to disclose such information. The Insured
shall take all reasonable steps to ensure that
disclosure to the Insurer is permitted. Moreover, the
Insured agrees to inform the Company Defendant, as soon
as reasonably practicable after the Original Binder
Date, that it would be in violation of Section 5.1
"Conduct of Business of the Company" (as it appears as
of the November 28, 2001 draft or any equivalent section
of a subsequent or final draft) of the Transaction
Agreement if it makes an offer of settlement regarding
the Action and that such violation may allow the Insured
to terminate the Transaction under the Transaction
Agreement. The Insured agrees to inform the Insurer
after it so informs the Company Defendant.
3. The Insured shall promptly provide to the Insurer
such information as it may possess or have access to
regarding proceedings, including but not limited to
discovery, motion practice, hearings and appellate
proceedings, in the Action as the Insurer may reasonably
request, provided, however, that the Insured need not
disclose such information if it (i) reasonably believes
such information is privileged, (ii) reasonably believes
that disclosure would materially affect its ability to
maintain privilege, or (iii) reasonably believes the
information is not disclosable except by material breach
of the Transaction Agreement. The Insured shall take all
reasonable steps to secure equal access of the Insurer
to all information to which the Insured has access
regarding the Actions.
4. The Insured must keep the Insurer informed of
progress toward closing the Transaction and provide
advance notice, to the greatest extent reasonably
practicable, to the Insurer of the date that the
Transaction will become effective.
REPRESENTATIONS AND
WARRANTIES:
To the knowledge and belief of the Insured as of the
Original Binder Date, all factual information provided
to the Original Insurer in connection with the
underwriting of the coverage provided by the Agreement
by the Insured and its officers and employees on or
before the Original Binder Date, whether orally or in
writing, is accurate and does not contain any
misrepresentations.
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THIS BINDER ONLY PROVIDES A SUMMARY OF COVERAGE.
PLEASE REFER TO THE AGREEMENT FOR ACTUAL TERMS AND CONDITIONS.
[AIG LOGO] AMERICAN INTERNATIONAL COMPANIES
175 WATER STREET
NEW YORK, NY
10038
The Insured makes further representations and warranties
as of the Original Binder Date (as stated in Exhibit B)
regarding the factual information contained in Exhibit
B.
If these Representations and Warranties are breached in
any material respect, the Insurer may cancel the Binder
and the Insured will receive no refund of the Binder
Fee. In no event, including if Premium is not paid as
required in the Policy for the Policy to become
effective or arising from cancellation under this
paragraph (or any other reason prior to the Effective
Date), shall the liability of the Insured or any of its
affiliates to the Insurer exceed the Binder Fee.
DISCLOSURE PROVISION: The Original Insurer and the Insured have agreed to
amend their Confidentiality Agreement, executed as of
August 8, 2001. The fourth paragraph is replaced by the
following (capitalized terms not defined in this
amendment shall have the definitions in the
Confidentiality Agreement):
This Agreement shall not prohibit the Parties from
disclosing Confidential Material (i) if legally required
to do so, including without limitation as required by
the Securities Act of 1933 or the Securities Exchange
Act of 1934, (ii) as required by the SEC in connection
with its review of the registration statement (and
associated documents) for the proposed
merger/acquisition transaction between the Company and
Avant! ("Transaction"), or (iii) to other parties if
disclosure is limited to that contained in the Proposed
Disclosure (attached as Exhibit A) or the registration
statement (if its content differs from the Proposed
Disclosure by the operation of (ii)), provided that the
Company must make a reasonable, good faith effort to
obtain the consent of the SEC to the Proposed
Disclosure, which contains Confidential Material, prior
to making any other or additional required disclosures
of Confidential Material. The Insured must (1) inform
AIG of SEC requests for other or additional disclosures
(2) consult with AIG on proposing to the SEC other or
additional disclosure that is consistent with the AIG's
interests, and (3) and duly consider any input given by
AIG. Other than in connection with the Proposed
Disclosure, in the event that any Party receives notice
of an actual or potential court action the consequence
of which may be the creation or enforcement of a legal
requirement that either of the Parties (or any of their
Representatives) disclose any Confidential Material, the
Party on notice of such an attempt to compel disclosure
shall promptly notify the other Party hereto so that the
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THIS BINDER ONLY PROVIDES A SUMMARY OF COVERAGE.
PLEASE REFER TO THE AGREEMENT FOR ACTUAL TERMS AND CONDITIONS.
[AIG LOGO] AMERICAN INTERNATIONAL COMPANIES
175 WATER STREET
NEW YORK, NY
10038
other Party may take all steps that they deem advisable
to protect the confidentiality agreed to herein. This
paragraph of this Agreement shall continue in full force
and effect, unless altered or released in writing by the
Parties, until the Effective Date of an insurance
agreement ("Insurance Agreement") between the Parties
occurs and shall then be superceded by the terms of the
Insurance Agreement.
MISCELLANEOUS: The descriptions in the headings of this Binder are
solely for convenience, and form no part of the terms
and conditions of coverage. This Binder is the entire
agreement between the parties with respect to its
subject matter, and supersedes any prior oral or written
communications between the parties, including without
limitation the Original Binder and any term sheet
(except for the Confidentiality Agreement of August 8,
2001). This Binder may only be amended or the rights of
the Insurer and Insured modified in a written amendment
signed by both parties. This Binder shall be governed by
the internal laws of the State of Delaware.
COUNTERPARTS: This Binder may be executed in two or more counterparts,
each of which shall be deemed an original, but all of
which together shall constitute one and the same
document.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
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THIS BINDER ONLY PROVIDES A SUMMARY OF COVERAGE.
PLEASE REFER TO THE AGREEMENT FOR ACTUAL TERMS AND CONDITIONS.
[AIG LOGO] AMERICAN INTERNATIONAL COMPANIES
175 WATER STREET
NEW YORK, NY
10038
IN WITNESS WHEREOF, THE INSURED, THE ORIGINAL INSURER AND THE INSURER HAVE
CAUSED THIS BINDER TO BE SIGNED BY, IN THE CASE OF THE INSURED, ITS CHIEF
FINANCIAL OFFICER, AND, IN THE CASE OF THE ORIGINAL INSURER AND THE
INSURER, ITS AUTHORIZED REPRESENTATIVE.
National Union Fire Insurance Company of Pittsburgh, Pa.
Birmingham Fire Insurance Company of Pennsylvania
/s/ John A. Rudolf
----------------------------------------
By: John A. Rudolf
Title: Authorized Representative
Date: March 18, 2002
Synopsys, Inc.
/s/ Robert B. Henske
---------------------------------------
By: Robert B. Henske
Title: Chief Financial Officer
Date: March 18, 2002
Page 7 of 7
THIS BINDER ONLY PROVIDES A SUMMARY OF COVERAGE.
PLEASE REFER TO THE AGREEMENT FOR ACTUAL TERMS AND CONDITIONS.
EXHIBIT A
Synopsys has agreed to enter into a policy with an insurance company
("Insurer") rated AAA by Standard & Poors. Under the policy, insurance will be
provided to pay Synopsys an amount equaling certain compensatory, exemplary and
punitive damages, penalties and fines, and attorneys' fees arising out of the
Avant!/Cadence litigation ("Covered Loss") as described below. The policy does
not provide coverage for litigation other than the Avant!/Cadence litigation. In
exchange for a binding fee of $10,000,000 paid by Synopsys, the insurance
company has issued a legally binding commitment to provide the coverage,
effective following the closing of the merger. Such fee is refundable in part to
Synopsys in the event the merger does not become effective. Otherwise, the fee
will be credited against the premium to make the insurance effective, which must
be paid by Synopsys to the insurance company on or about the closing of the
merger.
In return for a premium of $335 million (including the binding fee), the
insurance company will be obligated to pay Covered Loss up to a limit of
liability equaling (a) $500 million plus (b) interest accruing at the fixed rate
of 2%, compounded semi-annually, on $250 million (the "Interest Element"). The
policy will expire upon a final judgment or settlement of the Avant!/Cadence
litigation or any earlier date upon Synopsys's election. Upon such expiration,
Synopsys will be entitled to a payment equal to $250 million plus the Interest
Element less any loss paid under the policy.
As discussed above, Covered Loss may arise from exemplary and punitive
damages, fines and penalties. In some jurisdictions, it may be against public
policy to provide insurance for willful acts, punitive damages or similar
claims. This could potentially affect the validity of certain elements of the
policy. The legal agreement governing the arrangement will be governed by the
laws of the State of Delaware. Synopsys believes that the arrangement will be
enforceable in Delaware, but there can be no assurance in this regard. To the
extent the Insurer is prevented from paying Covered Loss on grounds of public
policy, Insurer may be obligated to refund a portion of the premium to Synopsys.
The first $250 million of the insurance premium will be included in the
Company's balance sheet, plus accrued interest to date, as a long-term
restricted asset. Interest earned on that amount will be included in other
income on the statement of operations. The balance of the premium to be paid to
the insurance company, $85 million will be immediately charged to expense as of
the date of the merger.
(see comments attached)
General comments regarding these suggested financial statement disclosures:
Note 1:
Please note, under SEC regulations, the total amount of expenses incurred with
closing the deal, for the accounting period in which the deal is consummated,
will be disclosed as noted in the various sections below. This may entail
further detailed amounts of the expenses depending on the total amount. In any
event, the insurance premium expense of $85 million will be apparent to readers
of the financial statements, as disclosed as part of the transaction costs
associated with the merger agreement.
Note 2:
These disclosures, in appropriate part, will appear in the Notes to the
Company's Financial Statements, the Management Discussion and Analysis section,
the Liquidity and Capital Resources section (as it relates to the restricted
asset), the Legal Proceeding section of the Company's 10Q and 10K. These
disclosures, in appropriate part, will also be disclosed in Risk Factors.
EXHIBIT B
NOVEMBER 30, 2001
Synopsys does not possess information contradicting the following statements.
Synopsys makes no representation that the statements below present a complete
description, without material omissions, of facts relevant to any legal issue or
conclusion, or that any inferences or conclusions drawn from the statements
below are correct or not misleading:
There have been no settlement discussions in the Action between officers or
directors of Cadence and officers or directors of Avant! other than in a
mediation in 1999.
1
EXHIBIT C
EXECUTION DRAFT
POLICY NUMBER: xxx-xx-xx
[AIG LOGO] AMERICAN INTERNATIONAL COMPANIES(R)
[ ] AIU Insurance Company
[ ] American Home Assurance Company
[ ] American International Pacific Insurance Company
[ ] American International South Insurance Company
[X] Birmingham Fire Insurance Company of Pennsylvania
[ ] Granite State Insurance Company
[ ] Illinois National Insurance Co.
[ ] National Union Fire Insurance Company of Pittsburgh, Pa.
[ ] National Union Fire Insurance Company of Louisiana
[ ] New Hampshire Insurance Company
(each of the above being a capital stock company)
- --------------------------------------------------------------------------------
LITIGATION PROTECTION AGREEMENT
DECLARATIONS
ITEM 1. NAMED CORPORATION: Synopsys, Inc.
MAILING ADDRESS: 19500 Northwest Gibbs Dr., #300
Beaverton, OR 97006
STATE OF INCORPORATION OF
THE NAMED CORPORATION: Delaware
ITEM 2. POLICY PERIOD: Effective Date: the Transaction
Effective Time, unless Premium
remains unpaid
Expiration Date: Settlement or Final
Adjudication of the Action or
Commutation pursuant to Clause 3(c)
ITEM 3. RETENTION: $0
ITEM 4. LIMIT OF LIABILITY: See Clause 5
ITEM 5. PREMIUM: See Clause 4
Page 1 of 18
EXHIBIT C
EXHIBITION DRAFT
ITEM 6. NAME AND ADDRESS OF INSURER ("Insurer"):
(This Agreement is issued only by the insurance company indicated
below.)
BIRMINGHAM FIRE INSURANCE COMPANY OF PENNSYLVANIA
c/o Loss Mitigation Unit
175 Water Street, 10th Floor
New York, New York 10038
IN WITNESS WHEREOF, the Insurer has caused this Agreement to be signed on the
Declarations Page, by a duly authorized representative of the Insurer.
----------------------------------------
John A. Rudolf
AUTHORIZED REPRESENTATIVE
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EXHIBIT C
EXHIBITION DRAFT
LITIGATION PROTECTION AGREEMENT
This Litigation Protection Agreement ("Agreement") is made and entered into as
of the XXth day of TBD, 2002 by the Insured and the Insurer.
WHEREAS, the Insured desires to protect itself against certain Loss resulting
from a Final Adjudication or Settlement or defense of the Action.
NOW, THEREFORE, in consideration of the payment of Premium required by Clause 4
herein and in reliance on the Representations and Warranties and Covenant made
in Clause 9, the Insured and the Insurer agree as follows:
1. INSURING AGREEMENT
The Insurer shall pay to the Insured (except as provided in Clause 2(r)
herein) all Loss (all capitalized terms as hereinafter defined).
2. DEFINITIONS
a.) "Action" shall mean Cadence Design Systems, Inc. v. Avant!, Inc., et
al., Case No. CV 95-20828 RMW ("Existing Action") and all related
proceedings (including appeals) and any amendment to, refiling of, or
newly-filed civil action, provided that such amendment, refiling or
newly-filed action arises from substantially the same facts as those
alleged in the Existing Action at the Binder Date.
b.) "Adjusted Commutable Amount" shall mean the difference between (1)
the sum of the Base Amount and the Interest Element Amount, and (2) the
amount expended by the Insurer to pay Loss, provided that, solely for
purposes of this definition, if these are less than $10,000,000 of
Defense Costs, Defense Costs shall be deemed to be $10,000,000.
c.) "Appeal Bond" shall mean any bond or similar security (up to the
Limit of Liability) required to stay or delay the execution of any
judgment for Loss in the Action pending appeal. The Insurer shall make a
good faith effort to obtain an Appeal Bond if such a judgment is rendered
and an appeal is intended, provided that the Insurer shall be under no
obligation to write a bond itself or to obtain a bond from its parents,
affiliates or subsidiaries.
d.) "Base Amount" shall mean two hundred fifty million dollars
($250,000,000).
e.) "Base Remainder Amount" shall mean any amount of the Base Amount not
expended by the Insurer to pay Loss.
f.) "Binder Date" shall mean November 30, 2001.
g.) "Commutable Amount" shall mean the sum of Base Remainder Amount and
any
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EXHIBIT C
EXHIBITION DRAFT
Interest Element Remainder Amount.
h.) "Commutation" shall mean the process described in Clause 3(c).
i.) "Company Defendant" shall mean Avant!, Inc., and any present or
future parents, subsidiaries, affiliates and successors in interest that
are named as a defendant in the Action.
j.) "Defendants" shall mean the Company Defendant and the Individual
Defendants.
k.) "Defense Costs" shall mean all reasonable legal and expert fees,
other costs (including premium and costs incurred in obtaining any appeal
bond, attachment bond or similar bond), and court costs that (i) result
solely from the investigation, adjustment, and defense of the Action and
(ii) are payable by the Insured or the Company Defendant, either for their
own obligations or as indemnification of the Individual Defendants
(provided that any such agreement with or obligation to the Individual
Defendants named in the Action as of the Binder Date must have preceded
the Binder Date or must be a successor to such agreement or obligation
which provides no additional or enhanced indemnification rights). Defense
Costs shall not include (1) amounts otherwise meeting the requirements of
this definition which are incurred (whether or not billed) outside the
Policy Period; (2) salaries and other compensation of the Insured, the
Defendants and their officers, directors, and employees; and (3)
litigation or related expenses of any current, former or future directors,
officers or employees of the Insured or the Defendants, if not otherwise
required to be paid, whether by law, pursuant to the by-laws or charter of
the Insured or the Company Defendant, or by agreement (provided that any
such agreement with or obligation to the Individual Defendants named in
the Action as of the Binder Date must have preceded the Binder Date or
must be a successor to such agreement or obligation which provides no
additional or enhanced indemnification rights), by the Insured or the
Company Defendant. It is agreed that amounts which would otherwise be
within the definition of Defense Costs for indemnification of Individual
Defendants Hsu and Cheng are Defense Costs, unless a court proceeding,
arbitration or similar proceeding determines in a final non-appealable
decision that such indemnification is not required by the Insured or the
Company Defendant.
l.) "Final Adjudication" shall mean amounts payable of a judgment or
binding arbitration award in the Action not, or no longer, subject to
appeal.
m.) "Individual Defendants" shall mean Gerald Hsu, Mitsuru Igusa,
Chih-Liang Cheng, and any other persons who (i) were, or are, officers,
directors or employees of the Company Defendant or the Insured and (ii)
are, after the Binder Date but before the Expiration Date, named as
defendants in the Action.
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EXHIBIT C
EXHIBITION DRAFT
n.) "Insured" shall mean the Named Corporation and its successors.
o.) "Interest Calculation Period" shall mean a number of days between
(i) the Effective Date and the first payment of Loss, (ii) each payment of
Loss and the next payment of Loss, and (iii) the final payment of Loss and
the Expiration Date or Commutation of this Agreement, if and to the extent
that the events described by (i), (ii) or (iii) of this definition have
occurred at the time the Interest Element Amount is to be calculated.
In no event shall any single Interest Calculation Period exceed one
hundred eighty days. To effect the intent of the immediately preceding
sentence, if any Interest Calculation Period, as defined by (i), (ii) or
(iii) of this definition, exceeds one hundred eighty days, each one
hundred eighty day period shall be deemed to be one Interest Calculation
Period. Any days unaccounted for, after the deeming of each one hundred
eighty day period to be one Interest Calculation Period under the
immediately preceding sentence, shall be deemed to be one, single Interest
Calculation Period.
p.) "Interest Element Amount" shall mean, up to a maximum amount of
$250,000,000, the amount calculated by applying the following formula to
each Interest Calculation Period to arrive at a total amount for all
Interest Calculation Periods:
(i) the sum of the Base Amount (as defined by 2(d)) and the
Interest Element Amount resulting from all preceding Interest
Calculation Periods, less
(ii) the total amount of Loss paid up to and including the Loss
payment denoting the beginning of the Interest Calculation
Period (for the Interest Calculation Period defined by Clause
2(o)(i), the value of this Clause 2(p)(ii) shall be deemed to
be zero (0)), multiplied by
(iii) the Interest Rate, multiplied by
(iv) an amount of days equal to the Interest Calculation Period,
divided by 365.
q.) "Interest Element Remainder Amount" shall mean any amount of the
Interest Element Amount not expended by the Insurer to pay Loss.
r.) "Interest Rate" shall mean 2% per annum.
s.) "Loss" shall be equal to any and all amounts of a Settlement or
Final Adjudication (including compensatory damages, punitive damages,
exemplary damages, fines, penalties, and/or multiplied damages,
plaintiff's counsel fees and expenses that may be awarded) and Defense
Costs. Loss shall include amounts equal to the Insured's or the Company
Defendant's own obligation to plaintiff in the Action or their
indemnification obligation to the Individual Defendants, based on
indemnification obligations required by law, pursuant to the by-laws or
charter of the Insured or the Company Defendant, or by
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EXHIBIT C
EXHIBITION DRAFT
agreement (provided that any such agreement with or obligation to the
Individual Defendants named in the Action as of the Binder Date must have
preceded the Binder Date or must be a successor to such agreement or
obligation which provides no additional or enhanced indemnification
rights), for amounts in satisfaction of the Individual Defendants'
obligations to plaintiff in the Action. Loss will be paid from the
following elements in the following order (i) Base Amount, until
exhausted, (ii) Interest Element Amount, until exhausted, and then (iii)
Limits of Liability in excess of the Base Amount and the Interest Element
Amount. The Insurer is obligated to pay Loss arising from Defense Costs
directly to the billing party (all such bills shall be timely provided to
the Insurer if first received by the Insured or the Company Defendant).
Amounts paid as indemnification of Individual Defendants Hsu and Cheng are
Loss, unless a court proceeding, arbitration or similar proceeding
determines in a final non-appealable decision that such indemnification is
not required by the Insured or the Company Defendant.
t.) "Pre-Binding Fees" shall mean the Term Sheet Fee and the $100,000
non-refundable underwriting fee paid by the Insured to the Insurer on
October 17, 2001. Pre-Binding Fees shall be applied as of the Effective
Date to reduce, dollar for dollar, the amount of Premium due to the
Insurer.
u.) "Proposed Disclosure" shall mean Exhibit A to this Agreement.
v.) "Settlement" shall mean any voluntary judgment or dismissal in
accordance with the terms and provisions of Clause 3 that is the product
of stipulation or agreement to settle, enter judgment, voluntarily
dismiss, or otherwise finally resolve the Action.
w.) "Settlement Proposal" shall mean a proposal to settle the Action
made by or on behalf of plaintiff which is either in writing or, if not in
writing, is a proposal sufficiently definite to serve as a starting point
for negotiation of full terms of a Settlement.
x.) "Term Sheet Fee" shall mean that $10,000,000 fee paid on the Binder
Date in consideration of the Insurer's issuance of the Binder. The Term
Sheet Fee is referred to as the Binder Fee in the Binder.
y.) "Transaction" shall mean the acquisition of the Company Defendant by
the Insured or the merger of the Company Defendant with any affiliate of
the Insured. The Insured shall determine the form or manner to effect the
Transaction in its sole discretion, provided that the Company Defendant
(or its successor) is maintained after the Transaction as a separate legal
entity (in good standing) from the Insured, with a separate bank account,
officers and board of directors.
z.) "Transaction Effective Time" shall mean the business day immediately
following
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EXHIBIT C
EXHIBITION DRAFT
the day on which the Transaction becomes effective.
3. LOSS SETTLEMENT TERMS AND CONDITIONS
a.) The Insurer will have the right to exercise full control over the
defense of the Action, including but not limited to strategy and tactics
and choice of counsel, provided that the Insurer may not change counsel
without the consent of the Insured, which consent shall not be
unreasonably withheld or delayed. The Insured will have the right to
effectively associate in the defense of the Action by the Insurer. The
Insured shall give effect to, and shall cause the Company Defendant to
give effect to, the Insurer's rights to fully control the defense of the
Action, including by provision of such information and cooperation as the
Insurer may reasonably require, and shall make a good faith effort to
secure the same rights from the Individual Defendants.
b.) In relation to Loss incurred by Settlement or Final Adjudication,
subject to all of the other terms and provisions of the Agreement, the
Insurer's obligation to pay Loss requires that the Insurer pay such Loss
to the Insured at a time sufficiently in advance of the time that payment
is due to enable the Insured to timely pay such amounts.
c.) At the Insured's sole discretion at any time during the Policy
Period, the Insured may elect a Commutation of this Agreement and receive
a loss payment equal to the Adjusted Commutable Amount within 45 calendar
days after the Insurer receives notice of such election. Upon delivery of
such payment to the Insured, the Insurer shall have no further obligation
under this Agreement and, as a condition precedent to such payment, the
Insured shall provide to the Insurer a release and indemnity from the
Insured, in form and substance reasonably satisfactory to the Insurer,
against any and all further obligation to the Insured, the Company
Defendant, or to any of their present, future or former affiliates,
subsidiaries, directors, officers and employees, in connection with this
Agreement. Immediately upon Commutation and such release of the Insurer,
the Expiration Date shall be deemed to have occurred.
d.) Except as expressly provided in Clauses 3(c), 3(d) and 3(e), the
Insurer will have the right to fully, exclusively and directly (at the
Insurer's sole discretion) control the discussion, negotiation and terms
of all Settlements, provided that (i) the Insured has the right to consent
to any Settlement Proposal for equal to or less than the Commutable
Amount, which consent shall not be unreasonably withheld or delayed, (ii)
the Insurer shall agree to any such Settlement Proposal, and (iii) the
Insurer shall reasonably consider any Settlement in excess of the Limit of
Liability. For any Settlement Proposal that is equal to or less than the
Commutable Amount, if the Insured unreasonably withholds or delays its
consent to such Settlement Proposal, and Loss ultimately exceeds the
amount that would have been incurred as the result of that Settlement
Proposal, then the Insurer shall not be liable for payment of any amounts
of Loss in excess of the amount that
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would have been incurred as the result of agreement to the terms of that
Settlement Proposal.
The Insured and the Insurer, as the case may be, shall each promptly
notify the other of any Settlement discussions. The Insured shall have the
right to associate with the Insurer and to receive information regarding
Settlement discussions. The Insured shall have no right to make any
representations (except under the circumstances describing permitted
disclosures of Confidential Information in Clause 3(g)) to any person
regarding possible terms or parameters of a Settlement, without the prior
consent, which may be sought and given orally, of the Insurer, in its sole
discretion. Any discussions regarding Settlement that the Insured has with
the plaintiff, or any person representing the plaintiff, in the Action may
be undertaken only with the prior consent, which may be sought and given
orally, of the Insurer, in its sole discretion.
e.) The Insurer's right to settle (or not) for an amount in excess of
the Commutable Amount and less than the Limit of Liability shall be at the
Insurer's sole discretion, provided that the Insurer shall evaluate any
Settlement as though the Insurer alone bears the entire risk of loss.
Provided that the Insurer complies with the immediately preceding
sentence, the Insurer may determine not to settle within the Limit of
Liability. In such event, the Insurer shall in no circumstances be liable
for any amounts in excess of the Limit of Liability, except as and in the
amount specifically provided in Clause 12.
f.) For all Settlements, the Insured or the Defendants, as applicable,
shall have the right to consent or reasonably withhold consent to any
terms which are non-monetary and can be satisfied only by future
performance or forbearance to perform by the Insured or the Defendants,
except that the Insured and the Company Defendant shall be required to
consent to any injunctive or similar relief that forbids or limits (i) use
of software code misappropriated by the Defendants or (ii) the marketing
or sale of product(s) which contain software code misappropriated by
Defendants. Notice to the Insurer of any decision to consent or not to
consent to any such non-monetary terms shall not be unreasonably delayed.
If the Insured or the Defendants unreasonably withhold or delay consent,
or withhold or delay consent required by the immediately preceding
paragraph, to non-monetary terms of a Settlement, and Loss ultimately
exceeds the amount that would have been incurred as the result of the
Settlement Proposal, then the Insurer shall not be liable for payment of
any amounts of Loss in excess of what would have been incurred had the
Settlement been consummated.
g.) The Insured, on behalf of itself and the Company Defendant (in this
paragraph, collectively the "Defendant Parties"), and the Insurer (in this
paragraph, with the Defendant Parties, collectively, the "Parties") agree
to maintain the confidentiality of the
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negotiation, issuance, existence, and terms and provisions of the coverage
afforded by this Agreement ("Confidential Information") to the extent
permitted by law and except to the extent disclosure hereof is necessary
to enforce the provisions hereof. The Parties shall not, and shall use all
reasonable efforts to cause any of their advisors, investment bankers,
representatives, brokers, legal counsel or agents ("Representatives") not
to, issue any press release or make any statements or otherwise disclose
any information relating to any Confidential Information, including
disclosures relating to the settlement or compromise of the Action, to any
person, including but not limited to plaintiff in the Action, without the
prior written consent of the Insurer, in the case of proposed disclosure
by the Defendant Parties, and the Insured, in the case of proposed
disclosure by the Insurer. The Parties may disclose Confidential
Information to Representatives, accountants and auditors if and only to
the extent necessary for those persons to provide their respective
services to the Parties, provided that all such disclosures (except those
that in the opinion of Insured's legal counsel are subject to some
privilege or immunity from disclosure) be accompanied by execution of a
confidentiality agreement with terms at least as restrictive as those in
this paragraph. The Parties will be responsible for any violation of this
provision by their respective Representatives, whether such violation
occurs during or after the conclusion of the Representatives' relationship
with their respective principals.
This clause shall not prohibit the Parties from disclosing Confidential
Information (i) if legally required to do so, including without limitation
as required by the Securities Act of 1933 or the Securities Exchange Act
of 1934, (ii) as required by the SEC in connection with its review of the
registration statement (and associated documents) for the Transaction, or
(iii) to other parties if disclosure is limited to that contained in the
Proposed Disclosure or the registration statement, provided that the
Insured must make a reasonable, good faith effort to obtain the consent of
the SEC to the Proposed Disclosure, which contains Confidential
Information, prior to making any other or additional required disclosures
of Confidential Information. The Insured must (1) inform the Insurer of
SEC requests for other or additional disclosures, (2) consult with the
Insurer on proposing to the SEC other or additional disclosure that is
consistent with the Insurer's interests, and (3) and duly consider any
input given by the Insurer. Other than in connection with the Proposed
Disclosure, in the event that any Party receives notice of an actual or
potential court action the consequence of which may be the creation or
enforcement of a legal requirement that either of the Parties (or any of
their Representatives) disclose any Confidential Material, the Party on
notice of such an attempt to compel disclosure shall promptly notify the
other Party hereto so that the other Party may take all steps that they
deem advisable to protect the confidentiality agreed to herein. These
confidentiality provisions shall continue in full force and effect after
the Expiration Date of this Agreement until altered or released in writing
by the Parties or five years after the Expiration Date.
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4. PREMIUM
a.) The Premium shall be $335,000,000 and shall be considered
fully-earned upon receipt and non-cancelable.
b.) Premium shall be due on or before the Transaction Effective Time,
and provided that the Insured pays the Premium no later than the first
business day after the Transaction Effective Time the coverage shall not
be deemed void pursuant to Clause 4(c). The Premium due shall be subject
to a credit for payment of the Pre-Binding Fees. All payments by the
Insured under this Agreement shall be made to:
Bank Name: Chase Manhattan Bank
Located at: 55 Water Street
New York, N.Y. 10005
ABA#: 021-000-021
Account#: 323-160-387
Phone#: 1-877-204-1124
Account Name: American International Group
c.) In no event shall coverage incept prior to payment of the Premium.
The failure to pay the Premium as provided by Clause 4(b) shall cause the
coverage to be deemed void ab initio.
d.) If (i) the Agreement is deemed void for any reason, including as not
insurable under the law or as a matter of public policy or as otherwise
prohibited by law, other than by operation of Clause 4(c), (ii) a court
disallows any payment of Loss for compensatory damages, fines, penalties,
exemplary, punitive or other damages as not insurable under the law, as a
matter of public policy or as otherwise prohibited by law, or (iii) the
Agreement is canceled by operation of Clause 9, then the Insured shall be
entitled to a return of Premium calculated as the difference between (1)
the sum of the Premium paid and the Interest Element Amount and (2) the
sum of any Loss paid or incurred by the Insurer (provided that, solely for
purposes of this Clause 4(d), if there are less than $10,000,000 of
Defense Costs, Defense Costs shall be deemed to be $10,000,000) and the
Pre-Binding Fees. Under each of the circumstances in this paragraph, it is
intended that the Pre-Binding Fees will be deemed to have been in
consideration for insurance services rendered.
5. LIMIT OF LIABILITY (FOR ALL LOSS - INCLUDING DEFENSE COSTS)
The Limit of Liability is a variable limit, $500,000,000 IN THE AGGREGATE
at the Effective Date, as augmented during the Policy Period by the
Interest Element Amount existing at any given time.
In no event shall the Insured place insurance coverage excess of that
provided by this
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Agreement without the written consent of the Insurer, which shall be at
the sole discretion of the Insurer.
Defense Costs are not payable by the Insurer in addition to the Limit of
Liability. Defense Costs are part of Loss and as such are subject to the
Limit of Liability for Loss.
6. SUBROGATION/TREATMENT OF RECOVERED AMOUNTS
As soon as practicable after the payment of Loss under this Agreement, the
Insured shall, shall cause the Company Defendant to, and shall make a good
faith effort to cause the Individual Defendants to: (i) assign to the
Insurer all of their respective rights of recovery against any other
person or entity for loss incurred by the Insured or Defendants for Loss
arising out of the Action and (ii) execute all papers required and do
everything that may be necessary to secure such rights, including but not
limited to the execution of such documents necessary to enable the Insurer
to effectively bring suit in the name of the Insured or the Defendants. If
assignment of any particular right of recovery is not permissible under
applicable law, then the Insured and the Defendants shall agree instead to
allow the Insurer to control the assertion and pursuit of any such claim,
and the proceeds from any such claim shall be for the benefit of the
Insurer to defray Loss paid or incurred. Any recovery made by the Insurer
shall be applied against Loss in excess of the sum of the Base Amount and
the Interest Element Amount, and any remainder after such application
shall be paid over to the Insured in addition to the Adjusted Commutable
Amount at the later of (i) the Commutation or the Expiration Date or (ii)
the date any such recovery is made by the Insurer.
The amount of any recovery made by the Insured or the Company Defendant
arising out of the facts alleged in the Action shall reduce the Insurer's
obligation to pay Loss under this Agreement. All such amounts shall be
deemed to accrue interest at the Interest Rate.
7. ASSIGNMENT/NO THIRD PARTY BENEFICIARIES
Neither this Agreement nor any of the rights or obligations hereunder are
assignable by either party hereto without the prior written consent of the
other party hereto. The rights hereunder shall inure only to the benefit
of the Insured and the Insurer, and their respective successors in
interest, and no other person or entity, including any or all of the
Defendants, shall be deemed a beneficiary thereof.
8. NON-CANCELLATION
The Policy shall be noncancelable by both the Insurer (except in
accordance with the terms of Clause 9) and the Insured.
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9. REPRESENTATIONS AND WARRANTIES/COVENANT
As of the Effective Date, the Insured represents and warrants that:
a.) To the knowledge and belief of the Insured, all factual information
provided to the Insurer in connection with the underwriting of the
coverage provided by this Agreement by the Insured and its officers and
employees on or before the Binder Date, whether orally or in writing, was
accurate and did not contain any misrepresentations.
b.) To the knowledge and belief of the Insured, all factual information
provided to the Insurer in connection with the Action by Robert Henske,
Steven Shevick, Roger Klein, Paul Sakai, Lars Larsen (and their
successors) and counsel, to the extent counsel is authorized by any of the
preceding individuals to provide such information, on or after the Binder
Date but on or before the Effective Date, whether orally (provided that in
the event of a dispute, such communications must by proven by
contemporaneous notes or other written records of the conversation) or in
writing, is accurate and does not contain any misrepresentations.
c.) The statements in Exhibit B (which lists information provided or
confirmed by the Company Defendant and its counsel prior to the Effective
Date) are accurate.
As of the Effective Date, the Insured, on behalf of itself and the Company
Defendant, covenants that:
d.) Neither the Insured nor the Company Defendant nor their respective
affiliates or subsidiaries shall enter into any employment, consulting, or
any other material contractual or business arrangement with Individual
Defendants Gerald Hsu, Mitsuru Igusa or Chih-Liang Cheng.
If the Representations and Warranties are breached in any material respect
(or, in the case of Clause 9(d), if that Covenant is breached in any way),
the Insurer may cancel the Agreement. In the event of such cancellation,
the Insurer shall be relieved of any obligation hereunder and the Insured
shall be entitled to payment by the Insurer of the difference between (i)
the amount calculated under Clause 4(d) and (ii) the sum of $17,000,000
for each 365 day period and $17,000,000 for any uncompleted 365 day period
from the Effective Date through and including the date of cancellation
under this Clause.
10. COVENANTS OF INSURER RELATED TO THE CONDUCT, CAUSES OF ACTION AND DAMAGES
ALLEGED IN THE ACTION
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It is expressly understood that the purpose of this Agreement is to
provide coverage, subject to all other applicable terms and conditions of
the Agreement, for all Loss arising out of all the claims alleged in the
Action, including but not limited to claims for willful acts, intentional
acts, punitive damages, exemplary damages, fines, penalties, and/or
multiplied damages. In this regard, the Insurer expressly covenants the
following:
a.) The Insurer will not disclaim or deny coverage under this Agreement
upon a contention that claims for willful acts, intentional acts, punitive
damages, exemplary damages, fines, penalties, and/or multiplied damages
are not insurable under the laws of any state or as a matter of public
policy or otherwise are prohibited by law;
b.) The Insurer will not file or maintain any action or proceeding
seeking to determine, disclaim, or deny coverage under the Agreement on
the grounds that claims for willful acts, intentional acts, punitive
damages, exemplary damages, fines, penalties, and/or multiplied damages
are not insurable under the law or as a matter of public policy or
otherwise are prohibited by law; and
c.) The Insurer will take no action inconsistent with affording coverage
under the Agreement, subject to all other applicable terms and conditions
of the Agreement, for all the claims alleged in the Action for willful
acts, intentional acts, punitive damages, exemplary damages, fines,
penalties, and/or multiplied damages.
11. DISPUTE RESOLUTION
In relation to any action or proceeding convened under or in connection
with this Agreement, the following is hereby stipulated and agreed by the
Insurer and Insured, on behalf of itself and the Company Defendant:
a.) The venue for any such action or proceeding shall be a court of and
within the State of Delaware and the Insurer and the Insured agree to
submit to the jurisdiction of any such court;
b.) In any such action or proceeding, any right to jury trial will be
waived and the action or proceeding will be tried exclusively before a
judge;
c.) Each party shall bear its own costs of litigation, including but not
limited to legal fees and expenses and any costs, in any action or
proceeding;
d.) In relation to any dispute regarding the insurability of willful
acts, intentional acts, punitive damages, exemplary damages, fines,
penalties, and/or multiplied damages, the internal laws of the State of
Delaware, without reference to any choice of law rules, shall apply;
provided that, in the event that such laws are changed or construed so as
to
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prohibit or materially limit the insurability of such willful acts,
intentional acts, punitive damages, exemplary damages, fines, penalties,
and/or multiplied damages, any jurisdiction of the Insured's choice which
allows such shall apply, provided that such jurisdiction has a reasonable
relationship to the Insured, the Insurer, the claim in which such damages
are awarded, or this Agreement, including, without limitation, the
jurisdiction where:
i.) any Insured resides, is incorporated, has its principal place
of business, or transacts business, or
ii.) the Insurer is incorporated, has its principal place of
business or transacts business, or
iii.) such damages are awarded, or
iv.) the wrongful acts, willful acts, or other facts and
circumstances underlying the claim occurred, or
v.) this Agreement was negotiated, agreed upon, issued, made,
delivered or performed;
e.) The Agreement shall be construed so as to provide coverage, subject
to all other applicable terms and conditions of the Agreement, for all
claims alleged in the Action for willful acts, intentional acts, punitive
damages, exemplary damages, fines, penalties, and/or multiplied damages;
f.) The internal laws of the state of Delaware shall govern the
construction, interpretation and enforcement of all provisions of this
Agreement other than those that are the subject of the immediately
preceding three paragraphs, without giving effect to Delaware conflict of
laws principles; however, those other terms, conditions, provisions and
exclusions of this Agreement, which was manuscripted and extensively
negotiated by the Insured and the Insurer, are to be construed in an
evenhanded fashion as between the parties, including, without limitation,
where the language of this Agreement is alleged to be ambiguous or
otherwise unclear, the issue shall be resolved in the manner most
consistent with the relevant terms, conditions, provisions or exclusions
of the Agreement (without regard to authorship of the language and without
any presumption or arbitrary interpretation of construction in favor of
either party or parties) and in accordance with the intent of the parties;
and
g.) The Insurer and the Insured agree that they will take no action to
challenge any of the provisions of this Clause, that they will assert no
position inconsistent with any of those provisions, and that any such
action or assertion will be considered a material breach of this
Agreement.
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12. WAIVERS
In connection with any claim made in connection with this Agreement, the
Insured expressly waives any and all claims against the Insurer which
might expose the Insurer to liability in addition to or instead of the
obligations specifically set forth in this Agreement (except as
specifically set forth in the next paragraph), including but not limited
to the Loss Settlement Terms and Conditions and Limit of Liability,
whether such claim sounds in tort or contract or is based on statute or
regulation, for violation of any covenant or duty of good faith and fair
dealing or any unfair trade or claims practices or any other type of
claim, based on common law, statute or regulation. Nothing in this
paragraph shall be deemed to limit or otherwise modify the power of either
party hereto to enforce the express contractual obligations, as defined by
the Agreement, of the other party hereunder.
In connection with any dispute over whether a Settlement Proposal
requiring payment of Loss in excess of $450,000,000 should be, or should
have been, consented to by the Insurer pursuant to Clause 3(e), and not
under any other circumstances, the Insurer agrees that in any action or
proceeding commenced to enforce the express contractual obligations of
Clause 3(e) the Insurer shall be potentially liable, for any damages
proven, in a maximum amount $50,000,000 greater than the amount of Loss
that would have been payable if the Insurer had consented to the
Settlement, provided that under no circumstances shall the Insurer's
liability ever exceed $50,000,000 in excess of the Limit of Liability that
obtained at the time the Settlement Proposal was made. The Insured waives
any rights it may have to obtain punitive damages, exemplary damages,
and/or multiplied damages against the Insurer in any action or proceeding
in connection with this Agreement.
13. NOTICES
All notices under this Agreement shall be in writing and delivered by
hand, sent by overnight courier or sent by telecopier to the following
persons:
For the Insurer:
President
Loss Mitigation Unit
National Union Fire Insurance Company of Pittsburgh, Pa
175 Water Street, 10th Floor
New York, NY 10038
Tel: 212-458-1484
Fax: 212-785-4325
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With a copy to:
William A. Cotter
Peabody & Arnold LLP
50 Rowes Wharf
Boston, Massachusetts 02110-3342
Tel: 617-951-2063
Fax: 617-951-2125
For the Insured:
Steven Shevick
Synopsys, Inc.
General Counsel
700 E. Middlefield Road
Mountain View, CA 94043
Tel: 650-584-4880
Fax: 650-584-1780
With a copy to:
Lawrence Friedman
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, NY
Tel: 212-225-2000
Fax: 212-246-3146
14. MISCELLANEOUS
The descriptions in the headings of this Agreement are solely for
convenience, and form no part of the terms and conditions of coverage.
This Agreement is the entire agreement between the parties with respect to
its subject matter, and supersedes any prior oral or written
communications between the parties, including without limitation any term
sheet or binder agreement. This Agreement may only be amended or the
rights of the Insurer and Insured modified in a written amendment signed
by both parties.
15. COUNTERPARTS
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This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute
one and the same document.
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IN WITNESS WHEREOF, the Insured and the Insurer have caused this Agreement
to be signed by, in the case of the Insured, its Senior Vice President (or other
authorized representative), and, in the case of the Insurer, its Authorized
Representative.
SYNOPSYS, INC.
By: _______________________________
Name: Robert B. Henske
Title: Chief Financial Officer, Senior Vice
President - Finance and Operations
Date: ____________________, 2002
BIRMINGHAM FIRE INSURANCE COMPANY OF
PENNSYLVANIA
By: _______________________________
Name: John A. Rudolf
Title: Authorized Representative
Date: ____________, 2002
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