-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TIr3gStb/gwXpK3wwPi0FQMOUr2ZmjLMhqoKLJSfK1NOST53Afv3eICBQS9hIzkP WLdFxS4yWsoeSwbMJWhFmg== 0000892569-99-001950.txt : 19990719 0000892569-99-001950.hdr.sgml : 19990719 ACCESSION NUMBER: 0000892569-99-001950 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990702 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990716 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALIGN RITE INTERNATIONAL INC CENTRAL INDEX KEY: 0000945122 STANDARD INDUSTRIAL CLASSIFICATION: GLASS, GLASSWARE, PRESSED OR BLOWN [3220] IRS NUMBER: 954528353 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-26240 FILM NUMBER: 99665697 BUSINESS ADDRESS: STREET 1: 2428 ONTARIO ST CITY: BURBANK STATE: CA ZIP: 91504 BUSINESS PHONE: 8188437720 MAIL ADDRESS: STREET 1: 2428 ONTARIO ST CITY: BURBANK STATE: CA ZIP: 91504 8-K 1 FORM 8-K DATED JULY 2, 1999 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT JULY 2, 1999 ----------------- ALIGN-RITE INTERNATIONAL, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 0-26240 954528353 (STATE OR OTHER JURISDICTION OF (COMMISSION FILE (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) NUMBER) IDENTIFICATION NO.) 2428 ONTARIO STREET, BURBANK, CA 91504 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (818) 843-7220 REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE N/A (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT) ----------------- ================================================================================ -1- 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. On July 2, 1999, Align-Rite International, Inc., a California corporation (the "Company"), acquired certain assets that are used in the manufacture of photomasks (the "Assets") from Harris Corporation, a Delaware corporation ("Harris"). The Assets include, but are not limited to: machinery and equipment, a cleanroom, leasehold fixtures and improvements, inventory of useable goods, rights and interests arising under or in connection with certain contracts which were specifically assumed by the Company, certain prepaid expenses and deposits, sales data and information relating to the Assets, and intangible property including the goodwill associated with the Assets. The Company plans to continue to use the Assets to manufacture photomask products. Under the terms of the Asset Purchase Agreement, dated July 2, 1999, (which agreement is filed as Exhibit 2.1 to this Form 8-K and incorporated herein by reference), the purchase price paid by the Company for the Assets was $13,250,000 in cash. The purchase price was determined through arms length negotiations between the Company and Harris. The Company borrowed funds under an existing line of credit with Sanwa Bank to finance the acquisition. ITEM 7. EXHIBITS. (c) EXHIBITS Exhibit 2.1 Asset Purchase Agreement, dated as of July 2, 1999, among the Company, Align-Rite, Inc., and Harris. *Exhibit 99.1 Photomask Supply and Strategic Alliance Agreement, dated as of July 2, 1999, among the Company, Align-Rite, Inc. and Harris. Exhibit 99.2 Lease Agreement, dated as of July 2, 1999, by and between Align-Rite, Inc. and Harris. * Certain information in this exhibit has been omitted and filed separately with the Commission. Redacted portions of the exhibit are indicated by an asterisk within brackets ([*]), and a legend appears on the appropriate pages. Confidential Treatment has been requested with respect to the omitted portions. -2- 3 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, HEREUNTO DULY AUTHORIZED. DATED: JULY 15, 1999 /S/ JAMES L. MACDONALD --------------------------------------- JAMES L. MACDONALD CHAIRMAN OF THE BOARD, PRESIDENT, AND CHIEF EXECUTIVE OFFICER -3- 4 INDEX OF EXHIBITS
Number Exhibit - ------ ------- 2.1 Asset Purchase Agreement, dated as of July 2, 1999, by and among the Company, Align-Rite, Inc. and Harris. *99.1 Photomask Supply and Strategic Alliance Agreement, dated as of July 2, 1999, by and among the Company, Align-Rite, Inc. and Harris. 99.2 Lease Agreement, dated as of July 2, 1999, by and between Align-Rite, Inc. and Harris.
*Certain information in this exhibit has been omitted and filed separately with the Commission. Redacted portions of the exhibit are indicated by an asterisk within brackets ([*]), and a legend appears on the appropriate pages. Confidential Treatment has been requested with respect to the omitted portions. -4- EX-2.1 2 ASSET PURCHASE AGREEMENT DATED JULY 2, 1999 1 EXHIBIT 2.1 ASSET PURCHASE AGREEMENT dated as of July 2, 1999, by and among ALIGN-RITE INTERNATIONAL, INC., a California corporation, ALIGN-RITE, INC., a Florida corporation, AND HARRIS CORPORATION, a Delaware corporation 2 TABLE OF CONTENTS
PAGE ARTICLE I RULES OF CONSTRUCTION AND DEFINITIONS 1.1 Rules of Construction..................................................1 1.2 Definitions............................................................2 ARTICLE II SALE OF PURCHASED ASSETS, ASSUMPTION OF ASSUMED CONTRACTS AND ASSUMED LIABILITIES AND RELATED TRANSACTIONS 2.1 Purchase and Sale of Purchased Assets..................................9 (a) Purchased Assets..............................................9 (b) Excluded Assets..............................................10 (c) Nonassignable Contracts......................................10 2.2 Assumption of Liabilities.............................................11 (a) Liabilities Not Assumed......................................11 (b) Assumed Liabilities..........................................11 (c) Buyer's Obligation to Replace Photomasks.....................11 2.3 Purchase Price........................................................12 (a) Purchase Price...............................................12 (b) Allocation...................................................12 (c) Payment......................................................12 ARTICLE III CLOSING 3.1 Closing Date..........................................................12 3.2 Items to be Delivered at the Closing By Seller........................12 3.3 Items to be Delivered at the Closing by Buyer.........................13 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER 4.1 Organization and Related Matters......................................13 4.2 Financial Statements; Changes; Contingencies..........................14 (a) Audited Financial Statements.................................14 (b) Unaudited Interim Financial Statements.......................14 (c) No Material Adverse Changes..................................14 4.3 Material Contracts....................................................14 4.4 Condition of Property.................................................15
-i- 3 TABLE OF CONTENTS (continued)
PAGE 4.5 Intangible Property...................................................16 4.6 Authorization; No Conflicts...........................................16 4.7 Legal Proceedings.....................................................17 4.8 Permits...............................................................17 4.9 Compliance with Law...................................................17 4.10 Employee Benefits.....................................................18 (a) Employee Benefit Plans, and Employment Agreements, and Similar Arrangements.....................................18 (b) Qualified Plans..............................................19 (c) Title IV Plans...............................................19 (d) Union Contracts..............................................19 (e) Health Plans.................................................19 (f) Fines and Penalties..........................................19 4.11 No Brokers or Finders.................................................20 4.12 Accuracy of Information...............................................20 4.13 Inventories...........................................................20 4.14 Customers and Suppliers...............................................20 4.15 Environmental Compliance..............................................21 (a) Environmental Reports........................................21 (b) Compliance with Environmental Laws; Permits..................21 (c) Environmental Conditions; Action by Governmental Agency......21 (d) Treatment, Storage or Disposal Sites.........................21 4.16 Powers of Attorney....................................................22 4.17 Year 2000.............................................................22 4.18 Labor and Employment..................................................22 ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER 5.1 Organization and Related Matters......................................23 5.2 Authorization.........................................................23 5.3 Legal Proceedings.....................................................24 5.4 No Conflicts..........................................................24 5.5 No Brokers or Finders.................................................24 5.6 Governmental Authorizations and Consents..............................24 5.7 Litigation............................................................25 5.8 Access................................................................25 5.9 Employee Records......................................................25 5.10 Financial Capacity....................................................25
-ii- 4 TABLE OF CONTENTS (continued)
PAGE ARTICLE VI COVENANTS AND REPRESENTATIONS AND WARRANTIES WITH RESPECT TO CONDUCT OF SELLER PRIOR TO CLOSING 6.1 Access................................................................25 6.2 Material Adverse Changes..............................................26 6.3 Conduct of Photomask Business.........................................26 6.4 Notification of Certain Matters.......................................27 6.5 Permits and Approvals; Third Party Consents...........................28 6.6 Preservation of Photomask Business Prior to Closing Date..............28 6.7 Certain Filings.......................................................28 ARTICLE VII ADDITIONAL CONTINUING COVENANTS 7.1 Noncompetition........................................................29 (a) Restrictions on Competitive Activities.......................29 (b) Exceptions...................................................29 (c) Restrictions on Soliciting Employees by Seller...............29 (d) Restrictions on Soliciting Employees by Buyer................29 (e) Special Remedies and Enforcement.............................30 7.2 Nondisclosure of Proprietary Data.....................................30 7.3 Maintenance of Books and Records......................................31 7.4 Employment Matters....................................................31 (a) Employees....................................................31 (b) Proration of Employee Benefits...............................32 (c) Severance Obligations........................................32 (e) No Third Party Beneficiaries.................................33 7.5 Buyer's Rights in Intellectual Property...............................33 (a) Assignment of Intellectual Property Rights...................33 (b) Assignment of Software Licenses..............................33 (c) Transfer of Tangible Software and Technology.................34 7.6 Representations Regarding Software....................................34 7.7 Sales and Transfer Taxes; Other Fees..................................34 ARTICLE VIII CONDITIONS OF PURCHASE 8.1 General Conditions....................................................35 (a) No Orders; Legal Proceedings.................................35 (b) Approvals....................................................35
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PAGE 8.2 Conditions to Obligations of Buyer....................................35 (a) Representations and Warranties and Covenants of Seller.......35 (b) No Material Adverse Change...................................35 (c) Opinions of Counsel..........................................36 (d) Consents.....................................................36 (e) Changes in Law...............................................36 (f) Employees....................................................36 (g) Facility Lease Agreement.....................................36 (h) Photomask Supply and Strategic Alliance Agreement............36 (i) Seller Certificate...........................................36 (j) Site Services Agreement......................................36 8.3 Conditions to Obligations of Seller...................................37 (a) Representations and Warranties and Covenants of Buyer........37 (b) Opinion of Counsel...........................................37 (c) Facility Lease Agreement.....................................37 (d) Photomask Supply and Strategic Alliance Agreement............37 (e) Site Services Agreement......................................37 ARTICLE IX TERMINATION OF OBLIGATIONS; SURVIVAL 9.1 Termination of Agreement..............................................37 (a) Mutual Consent...............................................37 (b) Conditions to Buyer's Performance Not Met....................37 (c) Conditions to Seller's Performance Not Met...................38 (d) Hart-Scott-Rodino............................................38 (e) Material Breach..............................................38 9.2 Effect of Termination.................................................38 9.3 Survival of Representations and Warranties............................38 ARTICLE X INDEMNIFICATION 10.1 Obligations of Seller.................................................39 10.2 Obligations of Buyer..................................................40 (a) General......................................................40 (b) With Respect to Environmental Conditions.....................40 10.3 Procedure and Other Matters...........................................41 (a) Procedure....................................................41 (b) Other Matters................................................41 (c) Cooperation in Defending Claims..............................42 10.4 Survival..............................................................42
-iv- 6 TABLE OF CONTENTS (continued)
PAGE 10.5 Notice by Seller......................................................42 10.6 Exclusive Remedy......................................................42 10.7 No Offsets............................................................42 ARTICLE XI GENERAL 11.1 Amendments;Waivers....................................................43 11.2 Schedules; Exhibits; Integration......................................43 11.3 Commercially Reasonable Efforts; Further Assurances...................43 (a) Commitment to Commercially Reasonable Efforts................43 (b) Limitation...................................................43 11.4 Governing Law; Choice of Forum; Consent to Personal Jurisdiction......44 11.5 No Assignment.........................................................44 11.6 Headings..............................................................44 11.7 Counterparts..........................................................44 11.8 Publicity and Reports.................................................44 11.9 Confidentiality.......................................................45 11.10 Parties in Interest...................................................45 11.11 Notices...............................................................45 11.12 Expenses..............................................................47 11.13 Remedies; Waiver......................................................47 11.14 Attorneys' Fees.......................................................47 11.15 Knowledge Convention..................................................47 11.16 Representation By Counsel and Other Advisors; Interpretation..........48 11.17 Specific Performance..................................................48 11.18 Severability..........................................................48 11.19 Dispute Resolution and Arbitration....................................48
-v- 7 ASSET PURCHASE AGREEMENT This Asset Purchase Agreement is entered into as of the close of business on July 2, 1999, by and among Align-Rite International, Inc., a California corporation ("PARENT"), Align-Rite, Inc., a Florida corporation ("SUB," and together with Parent, "BUYER"), on the one hand, and Harris Corporation, a Delaware corporation ("SELLER"), acting through its Semiconductor Business Unit, on the other. R E C I T A L S WHEREAS, Seller is engaged in the photomask manufacturing business as a portion of its primary business of designing, developing, manufacturing, assembling, testing, selling and disposing of semiconductor devices. WHEREAS, Seller desires to sell, and Buyer desires to purchase certain assets used in connection with Seller's photomask manufacturing business together with Buyer's assumption of certain Assumed Contracts (as defined herein) and the Assumed Liabilities (as defined herein), on the terms and conditions set forth in this Agreement. A G R E E M E N T In consideration of the premises and the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereby agree as follows: ARTICLE I RULES OF CONSTRUCTION AND DEFINITIONS 1.1 RULES OF CONSTRUCTION For all purposes of this Agreement, except as otherwise expressly provided: (a) the terms defined in this Agreement have the meanings assigned to them in this Agreement and shall include, as appropriate, the plural as well as the singular, (b) all accounting terms not otherwise defined herein have the meanings assigned under generally accepted accounting principles in the United States, as in effect from time to time as applied on a consistent basis (i.e. GAAP), 8 (c) all references in this Agreement to designated "Articles," "Sections" and other subdivisions are to the designated Articles, Sections and other subdivisions of the body of this Agreement, (d) pronouns of either gender or neuter shall include, as appropriate, the other pronoun forms, and (e) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision. 1.2 DEFINITIONS As used in this Agreement and the Exhibits and Schedules delivered pursuant to this Agreement, the following definitions shall apply: "ACTION" means any action, complaint, investigation, petition, suit or other proceeding, whether civil or criminal, in law or in equity, or before any arbitrator or Governmental Entity. "AFFILIATE" means a Person that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, a specified Person. "AGREEMENT" means this Asset Purchase Agreement by and between Buyer and Seller as amended or supplemented together with all Exhibits and Schedules attached hereto. "APPROVAL" means any approval, authorization, consent, qualification or registration, or any waiver of any of the foregoing, required to be obtained from, or any notice, statement or other communication required to be filed with or delivered to, any Governmental Entity or any other Person. "ASSUMED CONTRACTS" has the meaning specified in Section 2.1(a)(v). "ASSUMED LIABILITIES" has the meaning specified in Section 2.2(b). "BUSINESS TECHNOLOGY" means Technology owned by Seller and in the possession of the Photomask Business as of the Closing Date that is specific to operation of the Photomask Business. Business Technology does not include Seller's Product Mask Information. "BUYER" means Align-Rite International, Inc. and any subsidiary corporation through which Align-Rite International, Inc. will take possession of the Purchased Assets. 2 9 "BUYER'S AUDITORS" means Pricewaterhouse Coopers LLP, independent public accountants to Buyer. "BUYER PARTIES" has the meaning specified in Section 10.1. "CLAIMANT" has the meaning specified in Section 11.19. "CLOSING" means the consummation of the transactions contemplated by this Agreement. "CLOSING DATE" means the date of the Closing. "CODE" means the Internal Revenue Code of 1986, as amended, and the related regulations and published interpretations. "CONTRACT" means any agreement, arrangement, bond, commitment, franchise, indemnity, indenture, instrument, lease, license or understanding, whether or not in writing. "COPYRIGHTS" means rights in any and all United States and foreign copyright registrations and applications therefor and unregistered copyrights owned by Seller. "DISPUTE NOTICE" has the meaning specified in Section 11.19. "ENCUMBRANCE" means any claim, charge, lease, covenant, easement, encumbrance, security interest, lien, option, pledge, rights of others, or restriction (whether on voting, sale, transfer, disposition or otherwise), whether imposed by agreement, understanding, law, equity or otherwise, except for any restrictions on transfer generally arising under any applicable federal or state securities law and Permitted Encumbrances. "ENVIRONMENTAL CONDITION" means the presence in, on, under or about the real property currently or formerly used, owned or operated in connection with the operation of the Photomask Business or the assets of Seller used in the Photomask Business of any Hazardous Substance which, if the presence of such Hazardous Substance was known, would be reportable under any Environmental Law, or which could reasonably be anticipated to require investigation or remediation pursuant to any Environmental Law. "ENVIRONMENTAL LAWS" means all applicable Laws pertaining to the safety of employees or the environment including: (x) all requirements pertaining to reporting, licensing, permitting, controlling, investigating or remediating emissions, discharges, releases or threatened releases of Hazardous Substances, chemical substances, pollutants, contaminants or toxic substances, materials or wastes, whether solid, liquid or gaseous in nature, into the air, surface water, groundwater or land, or relating to the 3 10 manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Substances, chemical substances, pollutants, contaminants or toxic substances, materials or wastes, whether solid, liquid or gaseous in nature; and (y) all requirements pertaining to the protection of the safety of employees or the public. "EQUITY SECURITIES" means any capital stock or other equity interest or any securities convertible into or exchangeable for capital stock or any other rights, warrants or options to acquire any of the foregoing securities. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the related regulations and published interpretations. "ERISA AFFILIATE" means (i) any corporation which is a member of a group of corporations of which Seller is a member and which is a controlled group of corporations within the meaning of Section 414(b) of the Code; (ii) any trade or business (whether or not incorporated) which is a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Code of which Seller is a member; and (iii) a member of an affiliated service group within the meaning of Section 414(m) or (o) of the Code of which Seller, any corporation described in clause (i) above or any trade or business described in clause (ii) above are members. "EXCLUDED ASSETS" has the meaning specified in Section 2.1(b). "FACILITY LEASE AGREEMENT" has the meaning specified in Section 8.2. "GAAP" means generally accepted accounting principles in the United States, as in effect from time to time, as applied on a consistent basis. "GOODWILL" means the expectation of patronage from customers of the Photomask Business and the consumer identification and favorable consideration shown by customers of the Photomask Business to the goods or services known to emminate from the Photomask Business. "GOVERNMENTAL ENTITY" means any government or any agency, bureau, board, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign. "HARRIS PATENTS" means and refers to all Patents owned by Harris as of the Closing Date and covering activities performed in the course of business by the Photomask Business prior to the Closing Date. "HART-SCOTT-RODINO ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the related regulations and published interpretations. 4 11 "HAZARDOUS SUBSTANCE" means (but shall not be limited to) substances that are defined or listed in, or otherwise classified pursuant to, any applicable Laws as "hazardous substances," "hazardous materials," "hazardous wastes" or "toxic substances," or any other formulation intended to define, list or classify substances by reason of deleterious properties such as ignitibility, corrosivity, reactivity, radioactivity, carcinogenicity, reproductive toxicity or "EP toxicity," and petroleum and drilling fluids, produced waters and other wastes associated with the exploration, development, or production of crude oil, natural gas or geothermal energy. "INDEMNIFIABLE CLAIM" means any Loss for or against which any Person is entitled to indemnification under this Agreement. "INDEMNIFIED PARTY" means the party entitled to indemnity hereunder. "INDEMNIFYING PARTY" means the party obligated to provide indemnification hereunder. "INTANGIBLE PROPERTY" means any permits or other property other than personal property, real property or Intellectual Property used in or pertaining to the Photomask Business. "INTELLECTUAL PROPERTY" means intellectual property covered by Copyrights, Harris Patents or Trade Secret Rights as defined herein. "INTELLECTUAL PROPERTY RIGHTS" means rights in Copyrights and Harris Patents and Trade Secret Rights which (a) are owned by the Seller, (b) exist under laws respecting Patents, Copyrights or Trade secrets, but not trademarks and (c) cover the use of Business Technology. "INVENTORY" has the meaning specified in Section 2.1(a)(iv). "IRS" means the United States Internal Revenue Service or any successor entity. "LAW" means any constitutional provision, statute or other law, rule, regulation, or interpretation of any Governmental Entity and any Order, whether federal, state or local, domestic or foreign. "LOSS" means any action, cost, damage, disbursement, expense, liability, loss, deficiency, diminution in value, obligation, penalty or settlement of any kind or nature, whether foreseeable or unforeseeable, including but not limited to, interest or other carrying costs, penalties, and reasonable legal, accounting and other professional fees and expenses incurred in the investigation, collection, prosecution and defense of claims and amounts paid in settlement, that is imposed on or otherwise incurred or suffered by the specified Person. 5 12 "MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means, when used in connection with Seller, the Photomask Business, the Purchased Assets, the Assumed Contracts and the Assumed Liabilities, any change, event or effect (or any development that insofar as can reasonably be foreseen, is likely to result in any change or effect) that, individually or in the aggregate, is materially adverse to the business, assets, financial condition or results of operations of the Photomask Business taken as a whole. "MATERIAL CONTRACT" means any Contract material to the Photomask Business as of or after the effective date of this Agreement as described in Schedule 4.3. "ORDER" means any decree, injunction, judgment, order, ruling, assessment or writ. "PARENT" means Align-Rite International, Inc. "PATENTS" means issued patents, including United States and foreign patents and applications therefor, petty patents, patents of importation, and divisions, reissues, continuations, continuations-in-part, renewals and extensions of any of the foregoing; certificates of addition and utility models and utility model applications; but does not include License Agreements. "PBGC" means the United States Pension Benefit Guaranty Corporation or any successor thereto. "PERMIT" means any license, permit, franchise, certificate of authority, or order, or any waiver of the foregoing, required to be issued by any Governmental Entity. "PERMITTED ENCUMBRANCES" means (i) tax liens for taxes not yet payable, or for taxes presently payable, but being contested by Seller in good faith and in accordance with the procedures established in the jurisdiction imposing the tax, (ii) liens relating to obligations to be paid prior to or concurrent with the Closing, (iii) liens of carriers, warehousemen, mechanics, laborers and materialmen and other similar liens incurred in the ordinary course of business for sums not yet due or being contested in good faith, if such reserve or appropriate provision, if any, as shall be required by GAAP shall have been made therefor, (iv) real property liens of record, and (v) liens on assets other than Purchased Assets. "PERSON" means an association, a corporation, an individual, a partnership, a limited liability company, a trust or any other entity or organization, including a Governmental Entity. "PHOTOMASK BUSINESS" means the manufacture and sale of photomask products and related photomask services by Seller regardless of the name under which any such activity is conducted, and shall be deemed to include the Purchased Assets, the rights and assets transferred pursuant to Section 7.5 hereof, revenues and income, 6 13 Assumed Liabilities, Assumed Contracts, exclusive of cash, cash equivalents, accounts receivable, accounts payable and any elements of the Retained Business or Excluded Assets. "PHOTOMASK SUPPLY AND STRATEGIC ALLIANCE AGREEMENT" has the meaning set forth in Section 8.2. "PREPAID EXPENSES" has the meaning specified in Section 2.1(a)(vi). "PURCHASE PRICE" has the meaning set forth in Section 2.3(a). "PURCHASED ASSETS" has the meaning set forth in Section 2.1(a). "REAL PROPERTY" means the real property located within the complex of buildings known as the Semiconductor Sector located at 2401 Palm Bay Road, NE, Palm Bay, Florida 32905 and known as Building 60 and a portion of Building 56 used in the Photomask Business, appurtenances thereto, rights in connection therewith, and the leasehold estates created as part of the transaction contemplated by this Agreement. "REPRESENTATIVES" shall be deemed to include the independent accountants and counsel of the applicable party hereto. "RESPONDENT" has the meaning set forth in Section 11.19. "RETAINED BUSINESS" means the business of the Semiconductor Business Unit of Harris Corporation except for the Photomask Business which is the subject of this Agreement. "SEC" means the United States Securities and Exchange Commission or any successor entity. "SELLER" has the meaning specified in the preamble to this Agreement. "SELLER'S PRODUCT MASK INFORMATION" means the product design data of Seller for products designed or manufactured by or on behalf of Seller's Semiconductor Business Unit from which photomasks are made, whether such data is in electronic pattern media or Photomask tooling, and not otherwise used in the operation of the Photomask Business. "SITE SERVICES AGREEMENT" has the meaning set forth in Section 8.2. "SOFTWARE" means the manifestation of computer programs and databases in tangible or physical form, including, but not limited to magnetic media, firmware, and documentation in the form of source code, object code or microcode; Software includes, but is not limited to management information systems, computer aided design and/or engineering programs, computer aided manufacturing programs, CADBUS programs, machinery control programs, and personal computer programs, in each case that is owned 7 14 by or licensed to Seller and relevant to the Photomask Business. Software does not include any Technology or any Intangible Property Rights. "SOFTWARE LICENSES" means agreements concerning Software (other than Systems Software) used in or on behalf of the Photomask Business including the agreements identified on Schedule 7.6. "SOFTWARE TYPE 1" means Software for which the Seller is sole owner of all right title and interest and which is specific to the Photomask Business. Software Type 1 does not include Systems Software. "SOFTWARE TYPE 2" means Software owned in whole or in part by the Seller and licensable by Seller on a non-exclusive basis to Buyer, and which is not specific to, but is used in, the operations of the Photomask Business. Software Type 2 does not include Systems Software. "SYSTEMS SOFTWARE" means software not specific to the Photomask Business and not specific to an individual personal computer. "SUB" means the subsidiary of Align-Rite International, Inc. through which Align-Rite International, Inc. will take possession of the Purchased Assets. "TAX" means any foreign, federal, state, county or local income, sales and use, excise, franchise, real and personal property, transfer, gross receipt, capital stock, production, business and occupation, disability, employment, payroll, severance or withholding tax or charge imposed by any Governmental Entity, any interest and penalties (civil or criminal) related thereto or to the nonpayment thereof. "TAX RETURN" means a report, return or other information required to be supplied to or filed with a Governmental Entity with respect to Taxes including, where permitted or required, combined or consolidated returns for any group of entities that includes any subsidiary. "TECHNOLOGY" means the manifestation in tangible or physical form of all types of technical information and data including, but not limited to, know-how; product definitions and designs; research and development, engineering, manufacturing, assembly, process, test, quality control, procurement, and service specifications, procedures, standards, and reports; maskworks; blueprints; drawings; materials specifications, procedures, standards, and lists; catalogs; technical information and data relating to marketing and sales activity; and formulae, in each case that is owned by or licensed to Seller and relevant to routine operation of the Photomask Business. Technology does not include any Software or any Intangible Property Rights. "TERMINATION DATE" means the specific date first set forth in Section 9.1. 8 15 "TRADE SECRET RIGHTS" means any and all rights in trade secrets owned by Seller and comprising Technology used in the operation of the Photomask Business. "Y2K PROBLEM" has the meaning set forth in Section 4.17. ARTICLE II SALE OF PURCHASED ASSETS, ASSUMPTION OF ASSUMED CONTRACTS AND ASSUMED LIABILITIES AND RELATED TRANSACTIONS 2.1 PURCHASE AND SALE OF PURCHASED ASSETS (a) Purchased Assets. Upon the terms and subject to the conditions set forth in this Agreement, on the Closing Date, Seller shall sell, convey, assign, transfer and deliver to Sub, and Sub shall purchase, acquire and accept from Seller, Seller's right, title and interest in and to the assets specifically described in this Section 2.1 (a) (the "PURCHASED ASSETS"). (i) All machinery, tools, supplies, apparatus, furniture and fixtures, supplies, and computer hardware located at and used solely by the Photomask Business and other equipment of every type as identified on Schedule 2.1(a)(i) hereto; (ii) The cleanroom located within Building 60, including fixtures and improvements attached thereto as set forth in Schedule 2.1(a)(ii); (iii) All other fixtures and improvements attached to the Real Property used primarily in connection with the Photomask Business as specified in Schedule 2.1(a)(iii); (iv) All inventory of usable goods, including all merchandise, photomasks, raw materials, work in progress, finished products and other tangible personal property held for sale or used in connection with the Photomask Business as of the date hereof (the "INVENTORY"), together with any additions thereto and subject to any reductions therefrom received or incurred by Seller in operating the Photomask Business in the ordinary course and in compliance with Section 6.3 hereof after the date hereof and through the Closing Date all as set forth in Schedule 2.1(a)(iv); All of Seller's rights and interests arising under or in connection with the Contracts to which Seller is a party specified on Schedule 2.1(a)(v) and which Buyer assumes (the "ASSUMED CONTRACTS") including but not limited to obligations to complete work on order from customers; provided, however, that except as otherwise specified herein, Buyer shall not assume any of 9 16 the obligations or liabilities of the Assumed Contracts arising prior to the Closing or based on actions or inactions of Seller prior to the Closing; (vi) Prepaid expenses and deposits as of the date hereof (the "PREPAID EXPENSES") as set forth in Schedule 2.1(a)(vi), together with any additions thereto and subject to any reductions therefrom made or accrued by Seller in operating the Photomask Business in the ordinary course and in compliance with Section 6.3 hereof after the date hereof and through the Closing Date; (vii) Sales data and information, customer lists, information relating to customers, suppliers' names, catalogs, sales literature, promotional materials, advertising matter and all rights thereto relating specifically to the Photomask Business; (viii) Intangible Property; the Goodwill associated with the Photomask Business; all of Seller's books, records, files, documents, pay history papers and agreements (including, but not limited to, those contained in computerized storage media) used solely in the Photomask Business and related to its employees, except for those employee records consisting of field folders, medical records and former employee actions brought against the Seller, which actions have been settled or adjudicated and the order of the court performed; all transferable Permits used in the Photomask Business; unemployment compensation, workers' compensation and other credits, reserves or deposits with applicable Governmental Entities relating to Seller's employees of the Photomask Business who become Employees of Buyer. (b) Excluded Assets. No rights, properties or assets of Seller shall be included in the Purchased Assets except to the extent specified in Section 2.1 (a). As an example, no cash, receivables or Contracts not expressly assumed hereunder by the Buyer are included as Purchased Assets. Buyer shall not acquire under the terms of this Agreement any title to or interest in the name "Harris" or "Harris Semiconductor" or Seller's monograms, logos, trademarks, or any variations or combinations thereof or Seller's Product Mask Information. Buyer, however, shall be entitled to use all of Seller's Product Mask Information solely for the purpose of making Photomasks for Seller. Buyer shall use reasonable care in storing and maintaining Seller's Product Mask Information. Seller acknowledges that Seller's Product Mask Information is Seller's property and that Buyer shall have no liability for damages or loss related thereto; provided, however, that Buyer shall be liable for damages arising from Buyer's negligence or willful misconduct. (c) Nonassignable Contracts. Notwithstanding other terms set forth in this Section 2.1, to the extent that any Software contracts to be assigned pursuant to this Agreement are not capable of being assigned without the consent, approval or waiver of a third person or entity, nothing in this Agreement will constitute an assignment or require the assignment thereof. 10 17 2.2 ASSUMPTION OF LIABILITIES (a) Liabilities Not Assumed. Except as expressly provided in Section 2.2(b), Buyer shall not assume, shall not take subject to and shall not be liable for, any liabilities or obligations of any kind or nature, whether absolute, contingent, accrued, known or unknown, of Seller or any Affiliate of Seller, including, but not limited to the following: (i) The liabilities set forth in the financial statements identified in Sections 4.2(a) and (b) and the contracts set forth on Schedule 4.3; (ii) Any liabilities or obligations incurred arising from or out of or in connection with Seller's operations, the condition of its assets or places of business, its ownership of the Purchased Assets, or the issuance, sale, repayment or repurchase of any of its securities; (iii) Any liabilities or obligations incurred, arising from or out of, in connection with or as a result of claims made by or against Seller whether before or after the Closing Date that arise out of events prior to the Closing Date; and (iv) Any product liability claims for Photomasks manufactured and delivered to customers on or prior to the Closing Date, except, as provided in Section 2.2(b). (b) Assumed Liabilities. Notwithstanding Section 2.2(a), on the Closing Date, Buyer shall assume only the obligations of Seller under the Assumed Contracts to the extent such obligations are to be performed on and after the Closing Date (but excluding any liability or obligation to a third party arising from a breach of such Assumed Contract before the Closing or based on actions or inactions of Seller prior to the Closing or arising out of Seller's failure to obtain a required Consent to the assignment of an Assumed Contract to Buyer), obligations for employee wages, salaries and benefits as provided in Section 7.4, and Buyer's responsibility to replace Photomasks as set forth in Section 2.2(c) below (the "ASSUMED LIABILITIES"). (c) Buyer's Obligation to Replace Photomasks. Buyer shall replace Photomask products manufactured by Harris after January 1, 1999 and through the Closing Date so long as such Photomask products are returned for non-compliance with applicable customer specification within one hundred eighty (180) days of the date on which such products were shipped to such customers by Seller. In no event shall Buyer's liability under this Section 2.2(c) exceed in the aggregate $25,000, which amount shall be calculated by reference to the original invoice for such products. Seller acknowledges and agrees that Buyer's liability hereunder shall be limited to the replacement of such products described above and that in no event shall Buyer be liable for any other damages arising from such products, including, without limitation, damages arising from the use of such products. 11 18 2.3 PURCHASE PRICE (a) Purchase Price. The aggregate purchase price to be paid to Seller by Buyer for the Purchased Assets shall be Thirteen Million Two Hundred Fifty Thousand Dollars ($13,250,000) (the "PURCHASE PRICE"). (b) Allocation. Buyer shall provide Seller with a draft of IRS Form 8594 sixty (60) days prior to the date on which such filing is due with the IRS. (c) Payment. At the Closing, at 12:00 p.m. Eastern Daylight Time on July 2, 1999, Buyer shall pay the Purchase Price to Seller by wire transfer of immediately available funds to Chase Manhattan Bank - New York, ABA Routing #:021000021, Account Name: Harris Corporation Master Account, Account Number: 144046155. ARTICLE III CLOSING 3.1 CLOSING DATE Upon the terms and subject to the conditions set forth in this Agreement, the signing and Closing of the transaction shall take place simultaneously at the offices of Harris Corporation, 1025 NASA Boulevard, Melbourne, Florida 32919, at 12:00 p.m. Eastern Daylight Time, on July 2, 1999. 3.2 ITEMS TO BE DELIVERED AT THE CLOSING BY SELLER At the Closing, Seller shall deliver or cause to be delivered to Buyer: (a) A Bill of Sale and Assignment, in substantially the form of Exhibit A; (b) All documentation required to exempt Seller from the withholding requirement of Section 1445 of the Code, consisting of (i) an affidavit from Seller to Buyer stating under penalty of perjury that Seller is not a foreign person and providing Seller's U.S. taxpayer identification numbers, or (ii) a sworn affidavit of Seller that it is not "U.S. real property holding corporations," as defined in Section 897 of the Code or (iii) a "qualifying statement" obtained by Seller from the Internal Revenue Service; (c) The opinions, certificates, consents and other documents referred to herein, including in Section 8.2, as then deliverable by Seller. (d) The key to all locks located on or in the Purchased Assets (and any and all cards, devices or things necessary to access any Purchased Assets). (e) The Facility Lease Agreement in substantially the form of Exhibit B. 12 19 (f) The Photomask Supply and Strategic Alliance Agreement in substantially the form of Exhibit C. (g) The Site Services Agreement in substantially the form of Exhibit D. 3.3 ITEMS TO BE DELIVERED AT THE CLOSING BY BUYER At the Closing, Buyer shall deliver to Seller: (a) The Purchase Price; (b) An Assumption Agreement, in substantially the form of Exhibit E; (c) The opinions, certificates, consents and other documents referred to herein, including in Section 8.3, as then deliverable by Buyer; (d) The Facility Lease Agreement in substantially the form of Exhibit B; (e) The Photomask Supply and Strategic Alliance Agreement in substantially the form of Exhibit C; and (e) The Site Services Agreement in substantially the form of Exhibit D. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER As of the date hereof and as of the Closing, Seller represents and warrants to Buyer, and agrees with Buyer, as follows: 4.1 ORGANIZATION AND RELATED MATTERS Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. Seller has all requisite corporate power and authority to execute, deliver and perform this Agreement, the Facility Lease Agreement, the Photomask Supply and Strategic Alliance Agreement, the Site Services Agreement and any other related agreements to which it is a party Seller is required to be and is qualified to do business as a foreign corporation in the State of Florida. Seller has all requisite corporate power and authority to own the Purchased Assets and to carry on the Photomask Business as now conducted and is duly qualified or licensed to do business as foreign corporations in good standing in all jurisdictions in which the character or the location of the Purchased Assets owned or leased by it or the nature of the Photomask Business requires licensing or qualification. True, correct and complete copies of the charter documents of Seller as in effect on the date hereof have been delivered to Buyer. 13 20 4.2 FINANCIAL STATEMENTS; CHANGES; CONTINGENCIES (a) Audited Financial Statements. Seller has delivered to Buyer consolidated and consolidating balance sheets for the Seller at June 27, 1997 and July 2, 1998. All such financial statements of Seller have been examined by the auditors whose reports thereon are included with such financial statements and which have been prepared in conformity with GAAP. Such statements of operations and cash flow present fairly in all material respects the results of operations and cash flows of Seller for the respective periods covered, and the balance sheets present fairly in all material respects the financial condition of Seller as of their respective dates. Since April 2, 1999, there has been no change in any of the significant accounting policies, practices or procedures of Seller. (b) Unaudited Interim Financial Statements. Seller has delivered to Buyer balance sheets and income statements for the Photomask Business at April 30, 1999, and May 28, 1999 and for the ten month and eleven month periods ended April 30, 1999 and May 28, 1999, respectively. The internal interim financial statements present fairly the results of operations of the Photomask Business for the respective periods covered. All such interim financial statements reflect all adjustments (which consist only of normal recurring adjustments not material in amount and include but are not limited to estimated provisions for year-end adjustments) necessary for a fair presentation. (c) No Material Adverse Changes. Except as disclosed on Schedule 4.2(c), since April 26, 1999, whether or not in the ordinary course of business, there has not been, occurred or arisen: (i) any change in or event affecting the Photomask Business, the Purchased Assets, the Assumed Liabilities, that has had or may reasonably be expected to have a Material Adverse Effect on the Photomask Business, the Purchased Assets, or the Assumed Liabilities, or (ii) any agreement, condition, action or omission which would be proscribed by (or require consent under) Section 6.3 had it existed, occurred or arisen after the date of this Agreement, or (iii) any strike or other labor dispute, or (iv) any casualty, loss, damage or destruction (whether or not covered by insurance) of any of the Purchased Assets that is material. 4.3 MATERIAL CONTRACTS Schedule 4.3 lists each Contract to which the Photomask Business, or Seller (relating to the Photomask Business) is a party or to which Seller or any of its respective properties on the date hereof is subject or by which any thereof is bound that is deemed a Material Contract under this Agreement. Unless otherwise so noted in Schedule 4.3, each such Contract was entered into in the ordinary course of business. 14 21 Each such Contract that (a) after April 2, 1999 obligates Seller (with respect to the Photomask Business) to pay an amount of $25,000 or more, (b) has an unexpired term as of April 2, 1999 in excess of six (6) months, (c) contains a covenant not to compete or otherwise significantly restricts business activities, (d) provides for the extension of credit other than consistent with normal credit terms, (e) limits the ability of Seller to conduct its business, including as to manner or place, (f) provides for a guaranty or indemnity by Seller, (g) grants a power of attorney, agency or similar authority to another person or entity, (h) contains a right of first refusal, (i) contains a right or obligation of or to any Affiliate, officer or director or any Associate, of Seller, (j) represents a Contract upon which the Photomask Business is substantially dependent or a Contract which is material to the Photomask Business, (k) requires Seller to buy or sell goods or services with respect to which there will be material losses or will be costs and expenses materially in excess of expected receipts (other than as provided for or otherwise reserved against on the most recent of the balance sheets referred to in Section 4.2) or (l) was not made in the ordinary course of business, shall be deemed to be a Material Contract. True, correct and complete copies of the Material Contracts appearing on Schedule 4.3, including all amendments and supplements, have been delivered to Buyer. Each Material Contract is valid and subsisting; Seller has duly performed all its respective obligations thereunder to the extent that such obligations to perform have accrued; and no breach or default, or to Seller's knowledge alleged breach or default, or event which would (with the passage of time, notice or both) constitute a breach or default thereunder by Seller (or, to the best knowledge of Seller, any other party or obligor with respect thereto), has occurred or as a result of this Agreement or its performance will occur. Except as set forth in Schedule 4.3, consummation of the transactions contemplated by this Agreement shall not (and shall not give any Person a right to) terminate or modify any rights of, or accelerate or augment any obligation, of Seller with respect to the Material Contracts. 4.4 CONDITION OF PROPERTY (a) All Purchased Assets used in connection with the Photomask Business are owned by Seller, except as indicated on Schedule 4.4(a). Seller has good and marketable title to the Purchased Assets, free and clear of any Encumbrances, except for Permitted Encumbrances. Seller has all rights, power and authority to sell, convey, assign, transfer and deliver the Purchased Assets to Buyer in accordance with the terms of this Agreement. At the Closing, Seller shall deliver the Purchased Assets to Buyer, free and clear of any Encumbrances, except for Permitted Encumbrances and except for encumbrances created by Buyer. The Purchased Assets are in a good state of maintenance and repair, have been regularly and appropriately maintained, repaired and replaced, and are presently being used in their existing condition to conduct the Photomask Business. (b) Except as set forth on Schedule 4.4(b) all water, sewer, gas, electric, telephone, and drainage facilities and all other utilities required by Law for the present use and operation of the Real Property in which Buyer will obtain a leasehold interest under the Facility Lease Agreement are installed across public property or valid 15 22 easements to the boundary lines of such Real Property, and are connected pursuant to existing Permits, and such facilities are the existing connections presently servicing the Real Property and are in good operating condition, normal wear and tear excepted. Seller holds good title to the Real Property, has not leased or otherwise encumbered, except for Permitted Encumbrances, the Real Property, and shall deliver possession of the Real Property to Buyer at the Closing. The Real Property may be used for the operation of the Photomask Business. 4.5 INTANGIBLE PROPERTY Schedule 4.5 lists all items of Intangible Property in which Seller, as relates to the Photomask Business other than the Excluded Assets, and the Photomask Business has an interest and the nature of such interest. Such assets include all Permits or other rights with respect to any of the foregoing. Seller has complete rights to and ownership of all Intangible Property required or desirable for use in connection with the Photomask Business. Seller does not use any Intangible Property by consent of any other Person nor is required to and makes any payments to others with respect thereto. The Intangible Property of Seller is fully assignable free and clear of any Encumbrances, other than Permitted Encumbrances. Seller has in all material respects performed all obligations required to be performed by it, and is not in default in any material respect, under any Contract relating to any of the foregoing. Seller has not received any notice to the effect (or is otherwise aware) that the Intangible Property or any use by Seller of any such property conflicts with or infringes (or allegedly conflicts with or infringes) the rights of any Person. 4.6 AUTHORIZATION; NO CONFLICTS The execution, delivery and performance of this Agreement, the Facility Lease, Photomask Supply and Strategic Alliance Agreement and any other related agreements by Seller has been duly and validly authorized by the Board of Directors of Seller and by all other necessary corporate action on the part of Seller. This Agreement has been and the Facility Lease Agreement, Photomask Supply and Strategic Alliance Agreement and any related agreements to which Seller is a party shall, prior to or simultaneously with the Closing, be duly executed and delivered by Seller and constitute the legally valid and binding obligations of Seller, enforceable against Seller in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws and equitable principles relating to or limiting creditors rights generally. The execution, delivery and performance of this Agreement, the Facility Lease Agreement, the Photomask Supply and Strategic Alliance Agreement and the Strategic Alliance Agreement by Seller and the execution, delivery and performance of any related agreements or contemplated transactions by Seller shall not violate, or constitute a breach or default (whether upon lapse of time and/or the occurrence of any act or event or otherwise) under, the charter documents or by-laws of Seller or any Material Contract of Seller, result in the imposition of any Encumbrance against any of the Purchased Assets, or violate any Law. 16 23 Schedule 4.6 lists all Permits, Approvals and consents required to be obtained by Seller to consummate the transactions contemplated by this Agreement. Except for matters identified in Schedule 4.6 as requiring that certain actions be taken by or with respect to a third party or Governmental Entity, the execution and delivery of this Agreement by Seller and the performance of this Agreement and any related or contemplated transactions by Seller will not require filing or registration with, or the issuance of any Permit by, any other third party or Governmental Entity. 4.7 LEGAL PROCEEDINGS There is no Order or Action pending, or, to the knowledge of Seller, threatened, against or affecting Seller or any of their respective properties or assets that individually or when aggregated with one or more other Orders or Actions has or if determined adversely might reasonably be expected to have a Material Adverse Effect on the Photomask Business, or the Purchased Assets (or the use, operation or value thereof), the Assumed Liabilities, Seller's ability to perform this Agreement, or any aspect of the transactions contemplated by this Agreement. Schedule 4.7 lists each Order and each Action that involves a claim or potential claim of aggregate liability in excess of $10,000 against, or that enjoins or seeks to enjoin, any activity by Seller with respect to the Photomask Business other than any Order or Action concerning Environmental Conditions disclosed in Schedule 4.15. 4.8 PERMITS Seller holds all Permits that to Seller's knowledge are required by any Governmental Entity to permit it to conduct the Photomask Business as now conducted and operate the Purchased Assets as well as all other assets material to the Photomask Business, and all such Permits are valid and in full force and effect, except where the failure to be in compliance would not reasonably be expected to result in a Material Adverse Effect on the Photomask Business, and where in effect, shall remain in full force and effect for the benefit of Buyer upon consummation of the transactions contemplated by this Agreement, except for those Permits identified on Schedule 4.8 as not transferable to Buyer. To Seller's Knowledge no suspension, cancellation or termination of any of such Permits is threatened or imminent. 4.9 COMPLIANCE WITH LAW (a) Seller has conducted the Photomask Business in accordance with applicable Laws, and the forms, procedures and practices of Seller are in material compliance with all such Laws, to the extent applicable. (b) The use and operation of the Purchased Assets are in compliance with all applicable Laws, building codes, environmental, zoning, subdivision, and land use laws, and other local, state and federal laws and regulations, and there are no material violations of any such Laws. 17 24 4.10 EMPLOYEE BENEFITS (a) Employee Benefit Plans, and Employment Agreements, and Similar Arrangements. (i) Schedule 4.10(a) lists (by entity subject thereto or bound thereby) all employee benefit plans, employment or severance agreements and other similar arrangements to which Seller (only insofar as applicable to the employees of Seller dedicated to the Photomask Business) is or has been bound for the last five (5) years, legally or otherwise, including, without limitation, (a) any profit-sharing, deferred compensation, bonus, stock option, stock purchase, pension, retainer, consulting, retirement, severance, welfare or incentive plan, agreement or arrangement, (b) any plan, agreement or arrangement providing for "fringe benefits" or perquisites to employees, or agents, including but not limited to benefits relating to company automobiles, clubs, vacation, child care, parenting, sabbatical, sick leave, medical, dental, hospitalization, life insurance and other types of insurance, (c) any employment agreement not terminable on thirty (30) days (or less) written notice, or (d) any other "employee benefit plan" (within the meaning of Section 3(3) of ERISA). (ii) Seller has made available to Buyer true and complete copies of all documents and summary plan descriptions with respect to such plans, agreements and arrangements, or summary descriptions of any such plans, agreements or arrangements not otherwise in writing. (iii) There are no negotiations, demands or proposals that are pending or have been made which concern matters now covered, or that would be covered, by plans, agreements or arrangements of the type described in this section. (iv) Seller is in compliance in all material respects with the applicable provisions of ERISA (as amended through the date of this Agreement), the regulations and published authorities thereunder, and all other Laws applicable with respect to all such employee benefit plans, agreements and arrangements. Seller has performed in all material respects all of its respective obligations under all such plans, agreements and arrangements and all such plans, agreements and arrangements have been operated in compliance with their terms. To the knowledge of Seller, there are no Actions (other than routine claims for benefits) pending or threatened against such plans or their assets, or arising out of such plans, agreements or arrangements, and, to the knowledge of Seller, no facts exist which could give rise to any such Actions (other than routine claims for benefits). 18 25 (b) Qualified Plans. (i) Schedule 4.10(b) lists all "employee pension benefit plans" (within the meaning of Section 3(2) of ERISA) in Schedule 4.10(a) which are also stock bonus, pension or profit-sharing plans within the meaning of Section 401(a) of the Code. (ii) Each such plan has been duly authorized by the board of directors of Seller. Each such plan is qualified in form and operation under Section 401(a) of the Code and each trust under each such plan is exempt from tax under Section 501(a) of the Code. To the knowledge of Seller no event has occurred that shall or could give rise to disqualification or loss of tax-exempt status of any such plan or trust under such sections. To the knowledge of Seller no event has occurred that shall or could subject any such plans to tax under Section 511 of the Code. No prohibited transaction (within the meaning of Section 4975 of the Code) or party-in-interest transaction (within the meaning of Section 406 of ERISA) has occurred with respect to any of such plans. (iii) Seller has made available to Buyer for each such plan copies of the following documents: (i) the Form 5500 filed in each of the most recent three plan years, including but not limited to all schedules thereto and financial statements with attached opinions of independent accountants, (ii) the most recent determination letter from the IRS, (iii) the consolidated statement of assets and liabilities of such plan as of its most recent valuation date, and (iv) the statement of changes in fund balance and in financial position or the statement of changes in net assets available for benefits under such plan for the most recently ended plan year. The financial statements so delivered fairly present the financial condition and the results or operations of each of such plans as of such dates, in accordance with GAAP. (c) Title IV Plans. No plan listed in Schedules 4.10(a) or (b) is a plan subject to Title IV of ERISA. (d) Union Contracts. Seller is not a party to any collective bargaining or other agreements with labor unions, the members of which are employed by Seller, in connection with the Photomask Business. (e) Health Plans. All group health plans of Seller have been operated in all material respects in compliance with the group health plan continuation coverage requirements of Section 162(k) and Section 4980B of the Code to the extent such requirements are applicable. (f) Fines and Penalties. There has been no act or omission by Seller that has given rise to or may give rise to fines, penalties, taxes or related charges under Section 502(c) or (i) or Section 4701 of ERISA of Chapter 43 of the Code. 19 26 4.11 NO BROKERS OR FINDERS No agent, broker, finder, or investment or commercial banker, or other Person or firm engaged by or acting on behalf of Seller or any of its respective Affiliates in connection with the negotiation, execution or performance of this Agreement or the transactions contemplated by this Agreement, is or will be entitled to any brokerage or finder's or similar fee or other commission as a result of this Agreement or such transactions. 4.12 ACCURACY OF INFORMATION All information furnished by or on behalf of Seller to Buyer, its agents or representatives in connection with the Purchased Assets, the Assumed Liabilities and this Purchase Asset Agreement is true and correct in all material respects and does not contain any untrue statement of material fact or omit to state a material fact necessary to make any statement herein not misleading. 4.13 INVENTORIES All inventories of Seller are of good and merchantable quality, are carried at cost (with respect to raw materials), standard cost (with respect to work in process and finished goods) or expensed (with respect to spares), and are currently useable or saleable in the ordinary course of business. The value of obsolete, damaged or excess inventory and of inventory below standard quality has been written down on the most recent balance sheet delivered to Buyer pursuant to Section 4.2 or, with respect to inventories purchased since the balance sheet date, on the books and records of Seller, to ascertainable market value, or adequate reserves described on such balance sheet have been provided therefor, and the value at which inventories are carried reflects the customary inventory valuation policy of Seller (which fairly reflects the value of obsolete, spoiled or excess inventory) for stating inventory. 4.14 CUSTOMERS AND SUPPLIERS Schedule 4.14 lists the names of and describes all Assumed Contracts with and the appropriate percentage of Photomask Business attributable to, the ten largest captive users/customers of the Photomask Business, the ten largest merchant customers of the Photomask Business and the ten most significant suppliers of the Photomask Business as of the first six (6) months of the current fiscal year, and any sole-source suppliers of significant goods or services (other than electricity, gas, telephone or water) to the Photomask Business with respect to which alternative sources of supply are not readily available on comparable terms and conditions. To Seller's Knowledge no existing customer has threatened to transfer business to a third Person on account of the transactions contemplated by this Agreement. 20 27 4.15 ENVIRONMENTAL COMPLIANCE (a) Environmental Reports. Schedule 4.15(a) contains a list of each current report, study or filing, of which Seller is aware, and which relates to the use of Hazardous Substances upon the Real Property in which Buyer will obtain a leasehold interest under this Agreement, the Facility Lease Agreement, or the transactions contemplated hereby, or upon real property currently or formerly used, owned or operated in connection with the operation of the Photomask Business of Seller, any Environmental Condition existing upon the real property currently or formerly used, owned or operated in connection with the operation of the Photomask Business of Seller or the compliance of the Photomask Business of Seller, or any real property in which Buyer will obtain an interest under this Agreement, the Facility Lease Agreement, or the transactions contemplated hereby, currently or formerly used, owned or operated in connection with the operation of the Photomask Business of Seller with any Environmental Laws. A copy of each item listed in Schedule 4.15(a) has been made available to Buyer. (b) Compliance with Environmental Laws; Permits. Except as disclosed in Schedule 4.15(b), the Photomask Business of Seller and all real property and personal property currently or formerly used, owned or operated in connection with the operation of the Photomask Business of Seller is, and at all times in the past has been, used or operated in all material respect in compliance with all Environmental Laws. Seller has obtained and presently maintains all Permits and other governmental authorizations required to operate the Photomask Business of Seller in compliance with all Environmental Laws. (c) Environmental Conditions; Action by Governmental Agency. Except as disclosed in Schedule 4.15(c), no Environmental Condition exists upon the real property in which Buyer will obtain an interest under this Agreement, the Facility Lease Agreement, or the transactions contemplated hereby, currently or formerly used, owned or operated in connection with the operation of the Photomask Business of Seller and no investigation, inquiry or other proceeding is pending or, to the knowledge of Seller, threatened by any governmental entity with respect to the real property in which Buyer will obtain a leasehold interest under this Agreement or the transactions contemplated hereby, currently or formerly used, owned or operated in connection with the operation of the Photomask Business of Seller and relating to any actual or alleged Environmental Condition or failure to comply with any Environmental Law. (d) Treatment, Storage or Disposal Sites. Schedule 4.15(d) contains a list of all Hazardous Substance or waste treatment, storage or disposal sites currently used in the operation of the Photomask Business of Seller, which list identifies the type of Hazardous Substances or wastes that are treated, stored or disposed of at each site and estimates of the annual amount of Hazardous Substances or waste sent to each site. To the knowledge of Seller none of the sites listed is the subject of federal, state, or local enforcement action or other investigation that may lead to claims against Seller for 21 28 cleanup costs, remedial action, damages to natural resources for personal injury or property damage. Schedule 4.15(d) contains a list of all parties currently engaged to transport Hazardous Substances or wastes to such treatment, storage or disposal sites. 4.16 POWERS OF ATTORNEY Except as set forth on Schedule 4.16, Seller has not given any power of attorney (irrevocable or otherwise) to any Person for any purpose relating to the Photomask Business, Purchased Assets, Assumed Liabilities, or the material assets of the Photomask Business, other than powers of attorney given to Governmental Authority in connection with routine qualifications to do business. 4.17 YEAR 2000 The Harris Semiconductor Sector (a) has conducted an assessment of its information system technologies, automated manufacturing, billing and other operations for the purpose of identifying, (b) has shared this assessment with Buyer, and (c) is engaged in an effort to mitigate (which effort is continuing in the ordinary course of business) any significant disruption in operations that it anticipates as a consequence with of the Y2K Problem. Except as set forth on Schedule 4.17, to the Seller's knowledge, assuming the efforts to mitigate as set forth in the assessment are continued, with respect to the Purchased Assets, by Buyer in the ordinary course of business after the Closing Date, the Purchased Assets will not experience any disruption in operations as a consequence of the Y2K problem that could reasonably be expected to have a Material Adverse Effect on the Photomask Business. As used in this Section 4.17, the "Y2K PROBLEM" means a date-handling problem relating to the Year 2000 date change that would cause a computer system, software or equipment to fail to correctly perform, process, and handle date-related data for the dates within and between the twentieth and twenty-first centuries and all other centuries. 4.18 LABOR AND EMPLOYMENT Except as set forth on Schedule 4.18, Seller does not have unfair labor practice charges or complaints pending or to the Seller's knowledge threatened against the Semiconductor Business Unit relating to the Photomask Business before the National Labor Relations Board or any equivalent foreign Governmental Entity. Seller has not at any time during the last three years had, nor to the knowledge of Seller is there now threatened, any walkout, strike, union activity, picketing, work stoppage, work slowdown or any other similar occurrence relating to the Photomask Business which Materially Adversely Affects or is reasonably likely to Materially Adversely Affect the Photomask Business, or any attempt to organize or represent the labor force of the Photomask Business. Seller has not had a plant closing or mass layoff relating to the Photomask Business, as such terms are defined in the Worker Adjustment and Retraining Notification Act, or if such has occurred, Seller has given all required notifications required in connection with such Plant Closing and/or Mass Layoff. All products manufactured by Seller (as it relates to the Photomask Business) are manufactured and 22 29 distributed in all material respects in compliance with all foreign, federal, state and local laws regarding the use of labor, including, but not limited to, all laws regulating wages, hours, immigration and working conditions. Seller (as it relates to the Photomask Business) is in all material respects in compliance with applicable workers' compensation insurance laws. Seller (as it relates to the Photomask Business) has in all material respects complied with all laws, regulations and executive orders to which they are subject because of any agreement or contract with any foreign, federal or state Governmental Entity. Seller has taken no actions to encourage any employee of the Photomask Business to leave the Seller's employ before the Closing, or discourage any employee of the Photomask Business from accepting the offer of employment of Buyer. ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER As of the date hereof and as of the Closing, Buyer represents and warrants to Seller and agrees with Seller as follows: 5.1 ORGANIZATION AND RELATED MATTERS Parent is a corporation duly incorporated, validly existing and in good standing under the laws of the State of California. Sub is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Florida. Buyer has all requisite corporate power and authority to execute, deliver and perform this Agreement, the Facility Lease Agreement, the Photomask Supply and Strategic Alliance Agreement, the Site Services Agreement and any other related agreements to which it is a party. On the Closing Date, Parent or Sub shall be duly qualified or licensed to do business as a foreign corporation in good standing in the State of Florida. Buyer has all necessary corporate power and authority to carry on its business as now being conducted. 5.2 AUTHORIZATION The execution, delivery and performance of this Agreement, the Facility Lease Agreement, the Photomask Supply and Strategic Alliance Agreement, the Site Services Agreement and other related agreements by Buyer has been duly and validly authorized by the Board of Directors of Buyer, respectively, and by all other necessary corporate action on the part of Buyer. This Agreement, the Facility Lease, the Photomask Supply and Strategic Alliance Agreement and any other related agreements to which Buyer is a party, shall, prior to or simultaneously with the Closing, be duly executed and delivered by Buyer and constitute the legally valid and binding obligations of Buyer, enforceable against Buyer in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws and equitable principles relating to or limiting creditors rights generally. 23 30 5.3 LEGAL PROCEEDINGS There is no Order or Action pending, or, to the knowledge of Buyer, threatened, against or affecting Buyer or any of its respective properties or assets that individually or when aggregated with one or more other Orders or Actions has or if determined adversely might reasonably be expected to have a Material Adverse Effect on Buyer's ability to perform this Agreement or any other aspect of the transactions contemplated by this Agreement. 5.4 NO CONFLICTS The execution, delivery and performance of this Agreement, the Facility Lease Agreement, the Photomask Supply and Strategic Alliance Agreement, the Site Services Agreement and any related agreements by Buyer will not violate the provisions of, or constitute a breach or default whether upon lapse of time and/or the occurrence of any act or event or otherwise under (a) the charter documents or bylaws of Buyer, (b) any Law to which Buyer is subject or (c) any Contract to which Buyer is a party that is material to the financial condition, results of operations or conduct of the business of Buyer, provided that the appropriate regulatory approvals are received as contemplated by Section 8.1 and specified consents, if any, are secured. 5.5 NO BROKERS OR FINDERS No agent, broker, finder or investment or commercial banker, or other Person or firms engaged by or acting on behalf of Buyer or its Affiliates in connection with the negotiation, execution or performance of this Agreement or the transactions contemplated by this Agreement, is or shall be entitled to any broker's or finder's or similar fees or other commissions as a result of this Agreement or such transactions. 5.6 GOVERNMENTAL AUTHORIZATIONS AND CONSENTS Except as set forth on Schedule 5.6, no consents, licenses, approvals, or authorizations of, or registrations or declarations with, any Governmental Authority, bureau, agency or commission, or any third party, are required to be obtained or made by Buyer in connection with the execution, delivery, performance, validity and enforceability of this Agreement, or the Facility Lease Agreement, the Photomask Supply and Strategic Alliance Agreement, the Site Services Agreement or any related agreements, other than (a) a filing with the Federal Trade Commission and the Department of Justice under the Hart Scott Rodino Act and (b) other consents, licenses, approvals, authorizations, registrations or declarations, where the failure to obtain such would not have a Material Adverse Effect on Buyer. Buyer is not currently engaged in, or contemplating, any business transaction that would be reasonably expected to hinder or delay the authorizations and consents referred to in this Section 5.6. 24 31 5.7 LITIGATION As of the date of this Asset Purchase Agreement, no action, suit proceeding or governmental investigation is pending or to the knowledge of Buyer, threatened, against Buyer or its properties, at law or in equity or before any Governmental Authority that seeks to question, delay or prevent the consummation of the transactions contemplated hereby. 5.8 ACCESS Buyer has received and reviewed the Financial Statements and is acquainted with the Photomask Business. Buyer has had an opportunity to review the assets, books, records and contracts of the Photomask Business, and has been given the opportunity to meet with officers and other representatives of Seller's Semiconductor Business Unit for the purpose of investigating and obtaining information regarding the Photomask Business operations and its financial and legal affairs. 5.9 EMPLOYEE RECORDS Buyer and Seller acknowledge that Buyer is entitled to inspect and copy the personnel and related employment files of any of the current employees, except for those employee records consisting of field folders, medical records and former employee actions brought against the Seller, of the Photomask Business who are offered employment by Buyer. Buyer acknowledges that some of this information is considered to be confidential under state and/or Federal law. Buyer agrees that it will keep all information obtained from Seller strictly confidential and that it will be maintained (and disclosed, if at all) in strict compliance with applicable state and Federal Laws. 5.10 FINANCIAL CAPACITY Buyer has the financial capacity to consummate the transactions contemplated by this Agreement, the Facility Lease Agreement, the Photomask Supply and Strategic Alliance Agreement, the Site Services and related agreements. Buyer has heretofore provided to Seller an accurate written explanation of the means by which Buyer plans to finance the transactions contemplated by this Agreement. ARTICLE VI COVENANTS AND REPRESENTATIONS AND WARRANTIES WITH RESPECT TO CONDUCT OF SELLER PRIOR TO CLOSING 6.1 ACCESS Prior to the Closing Date, upon reasonable notice from Buyer to Seller, Seller shall authorize and permit Buyer and its Representatives to have reasonable access 25 32 during normal business hours, upon reasonable notice and in such manner as shall not unreasonably interfere with the conduct of their respective businesses, to the employees, Purchased Asset, the Real Property, and the books, records, operating instructions and procedures of Seller, so as to afford Buyer full opportunity to make such review, examination and investigation of the Photomask Business as Buyer determines are reasonably necessary in connection with the consummation of the transactions contemplated hereby. Buyer will be permitted to make extracts from or copies of such books, records and other documents of the Photomask Business as may be reasonably necessary in connection with and to discuss their respective business with such third Persons, including without limitations, their respective directors, officers, employees, accountants, suppliers, customers, and creditors as Buyer considers necessary or appropriate for the purposes of familiarizing itself with the Photomask Business, the Purchased Assets and the Assumed Liabilities, obtaining any necessary Approvals of or Permits for the transactions contemplated by this Agreement and conducting an evaluation of the organization and Photomask Business of Seller. The access provided by this Section 6.1 shall be subject to the obligations of confidentiality and return of information obligations set forth in Section 11.9 hereof. 6.2 MATERIAL ADVERSE CHANGES From the date hereof to the earlier of the Closing Date or the Termination Date, Seller shall promptly notify Buyer of, and set forth in Schedule 4.2(c), any event of which Seller obtains knowledge which has had a Material Adverse Effect on the Photomask Business or any of the Purchased Assets or Assumed Liabilities or which if known as of the date hereof would have been required to be disclosed to Buyer. 6.3 CONDUCT OF PHOTOMASK BUSINESS Seller hereby agrees that, with respect to the Photomask Business, from the date hereof to the earlier of the Closing Date or the Termination Date, Seller shall not without the prior consent in writing of Buyer (such consent not to be unreasonably withheld or delayed): (a) conduct the Photomask Business except in the ordinary course; or (b) except as required by its terms, amend, terminate, renew/fail to renew or renegotiate any Material Contract or default (or take or omit to take any action that with or without the giving of notice or passage of time or both, would constitute a default) in any of its obligations under any Material Contract or any Lease or enter into any new Material Contract or any Lease to the extent such event is adverse to the interest of the Photomask Business; or (c) terminate, amend or fail to renew or preserve any Permits; or (d) incur or agree to incur any obligation or liability (absolute or contingent), except for normal and customary trade payables incurred in the ordinary 26 33 course of business, that individually calls for payment by Seller of more than $50,000 in any specific case or $150,000 in the aggregate; or (e) except for normal scheduled salary increases as set forth on Schedule 6.3(e), grant any general or uniform increase in the rates of pay or benefits to employees of the Photomask Business (or a class thereof) or any increase in salary or benefits of any employee of the Photomask Business or agent or pay any bonus to any person, or enter into any new employment, collective bargaining or severance agreement, or hire any Person at an annual salary in excess of $50,000; or (f) sell, transfer, mortgage, encumber or otherwise dispose of any Purchased Assets (other than Inventory sold in the ordinary course of business and replacements of equipment in the ordinary course); or (g) make any capital expenditures or commitments on behalf of the Photomask Business aggregating more than $50,000; or (h) make any material investment, by purchase, contribution to capital, property transfer, or otherwise, on behalf of the Photomask Business in any other Person; or (i) dispose of or permitted to lapse any Intellectual Property related solely to the Photomask Business or any rights to its use; or (j) fail to maintain or repair any Purchased Asset in accordance with normal operating procedures and consistent with past practices of the Semiconductor Business Unit of Seller; or (k) quote for sale or enter into any sales transactions with any customer on terms inconsistent with past practice; or (l) enter into sales transactions with payment terms in excess of sixty (60) days; or (m) agree to or make any commitment to take any action that is or would have been prohibited by this Section 6.3. 6.4 NOTIFICATION OF CERTAIN MATTERS From the date hereof to the earlier of the Closing Date or the Termination Date, Seller shall give prompt notice to Buyer, and Buyer shall give prompt notice to Seller, of (i) the occurrence, or failure to occur, of any event that would be likely to cause any of its representations or warranties, contained in this Agreement to be untrue or inaccurate in any material respect at any time from the date of this Agreement to the Closing Date and (ii) any failure on its part to comply with or satisfy, in any material 27 34 respect, any covenant, condition or agreement to be complied with or satisfied by it under this Agreement. 6.5 PERMITS AND APPROVALS; THIRD PARTY CONSENTS (a) From the date hereof to the earlier of the Closing Date and the Termination Date, Seller and Buyer each agree to cooperate and use their commercially reasonable efforts to obtain (and shall immediately prepare all registrations, filings and applications, requests and notices preliminary to obtaining all) Approvals and Permits that may be necessary or that may be reasonably requested by Buyer to consummate the transactions contemplated by this Agreement. (b) To the extent that the Approval of a third party with respect to any Assumed Contract is required in connection with the transactions contemplated by this Agreement, Seller shall use its commercially reasonable efforts to obtain such Approval, prior to the Closing Date and in the event that any such Approval is not obtained (but without limitation on Buyer's rights under Section 8.2), Seller shall cooperate with Buyer to ensure that Buyer obtains the benefits of each such Assumed Contract. 6.6 PRESERVATION OF PHOTOMASK BUSINESS PRIOR TO CLOSING DATE During the period beginning on the date hereof and ending on the earlier of the Closing Date and the Termination Date, (a) Seller shall use their commercially reasonable efforts to preserve the Photomask Business and to preserve the goodwill of customers, suppliers and others having business relations with Seller relating to the Photomask Business and (b) Seller and Buyer shall consult with each other concerning, and Seller shall cooperate to keep available to Buyer, the services of the employees of Seller engaged in the Photomask Business. Nothing in this Section 6.6 shall obligate Buyer after the Closing to retain or offer employment to any officer or employee of Seller except as provided in Section 7.4. 6.7 CERTAIN FILINGS From the date hereof until the earlier of the Closing Date and the Termination Date, Buyer and Seller shall make any and all filings required to be made on their respective parts or the part of Persons controlling such entities under the Hart-Scott-Rodino Act. Seller and Buyer shall furnish each other such necessary information and reasonable assistance as the other may request in connection with its preparation of necessary filings or submissions under the provisions of such laws. Seller and Buyer shall supply each other with copies of all correspondence, filings or communications, including file memoranda evidencing telephonic conferences, with representatives of any Governmental Entity or member of its staff, with respect to the transactions contemplated by this Agreement and any related or contemplated or inconsistent transactions. 28 35 ARTICLE VII ADDITIONAL CONTINUING COVENANTS 7.1 NONCOMPETITION (a) Restrictions on Competitive Activities. Seller agrees that, after the Closing, Buyer shall be entitled to the Goodwill and going concern value of the Photomask Business and to protect and preserve the same to the maximum extent permitted by law. Seller also acknowledges that its management contribution to the Photomask Business have been uniquely valuable and involve proprietary information that would be competitively unfair to make available to any competitor of the Photomask Business. For these and other reasons and as an inducement to Buyer to enter into this Agreement, Seller agrees that for a period of five (5) years after the date hereof, Seller, its subsidiaries and any purchaser of the Harris Semiconductor Business Unit and its subsidiaries (excluding the other portfolio companies of Sterling Holding) shall not, directly or indirectly, for their own benefit or as agent for another, carry on or participate in the ownership, management or control of, or the financing of, or allow their name, reputation or knowledge to be used in or by any other present or future business enterprise that competes with Buyer, or any subsidiary of Buyer, in activities similar to the Photomask Business as of the Closing Date in the United States and Europe using technology generally available as of the Closing Date or derived from technology generally available as of the Closing Date for so long as Buyer or any person entitled to or acquiring ownership of the Goodwill of the Photomask Business or the Purchased Assets through Buyer conducts a like business therein. (b) Exceptions. Nothing contained herein shall preclude Seller from (i) owning an equity interest of five percent or less of any publicly traded company listed on a national stock exchange or on the Nasdaq national market system or (ii) acquiring the capital stock or assets of any business that derives less than 10% of its consolidated revenues from an activity prohibited by Section 7.1(a) above, so long as the Seller makes a commercially reasonable effort to divest that portion of the acquired business that is engaged in said prohibited acts within 12 months following such acquisition. (c) Restrictions on Soliciting Employees by Seller. In addition, to protect Buyer against any efforts by Seller, its Subsidiaries or Affiliates to cause employees of the Photomask Business to terminate their employment, Seller agrees that for a period of three (3) years following the Closing Date, neither Seller, nor the Semiconductor Business Unit of Seller shall directly or indirectly solicit for employment any employee of the Photomask Business to leave Buyer, or to accept any other employment or position. Nor shall Seller nor Seller's Semiconductor Business Unit permit any employee of Buyer to participate in Seller's job opportunity posting system. (d) Restrictions on Soliciting Employees by Buyer. In addition, to protect Seller and Seller's Semiconductor Business Unit against any efforts by Buyer, its Subsidiaries or Affiliates to cause employees of the Semiconductor Business Unit to 29 36 terminate their employment, Buyer agrees that for a period of three (3) years following the Closing Date, Buyer, shall not directly or indirectly solicit for employment any employee of the Semiconductor Business Unit to leave Seller or Seller's Semiconductor Business Unit, or to accept any other employment or position with Buyer. (e) Special Remedies and Enforcement. Seller recognizes and agrees that a breach by Seller of any of the covenants set forth in this Section 7.1 could cause irreparable harm to Buyer, that Buyer's remedies at law in the event of such breach would be inadequate, and that, accordingly, in the event of such breach a restraining order or injunction or both may be issued against Seller, in addition to any other rights and remedies which are available to Buyer. If this Section 7.1 is more restrictive than permitted by the Laws of any jurisdiction in which Buyer seeks enforcement hereof, this Section 7.1 shall be limited to the extent required to permit enforcement under such Laws. In particular, the parties intend that the covenants contained in the preceding portions of this Section 7.1 shall be construed as a series of separate covenants, one for each county and city or other location in which Seller conducts business as of the Closing Date. Except for geographic coverage, each such separate covenant shall be deemed identical in terms. If, in any judicial proceeding, a court shall refuse to enforce any of the separate covenants deemed included in this paragraph, then such unenforceable covenant shall be deemed eliminated from these provisions for the purpose of those proceedings to the extent necessary to permit the remaining separate covenants to be enforced. 7.2 NONDISCLOSURE OF PROPRIETARY DATA (a) After the Closing, subject to the limitations in Section 11.9 neither Seller nor any of its representatives shall, at any time, make use of, divulge or otherwise disclose, directly or indirectly, any trade secret or other proprietary data (including, but not limited to, any customer list, record or financial information) concerning the Photomask Business or the business or policies of Seller related to the Photomask Business that Seller or any representative of Seller may have learned as an owner or a shareholder, employee, officer or director of the Photomask Business. In addition, neither Seller nor any of its representatives shall make use of, divulge or otherwise disclose, directly or indirectly, to Persons other than Buyer, any confidential information concerning the conduct of the Photomask Business that may have been learned in any such capacity. This Section 7.2 shall not apply to any such information of the Photomask Business which becomes part of the public domain through no fault of Seller. Nor shall this Section 7.2 apply to any confidential information of Seller related to Seller's conducting its primary business of designing, developing, manufacturing, assembling, testing, selling, leasing, and disposing of semiconductor devices and integrated circuits. (b) After the Closing, subject to the limitations in Section 11.9 neither Buyer nor any of its representatives shall, at any time, make use of (other than in connection with the manufacture of photomasks on behalf of Seller and the Semiconductor Business Unit), divulge or otherwise disclose, directly or indirectly, any trade secret or other proprietary information of Seller or Seller's Product Mask 30 37 Information that Buyer or any representative of Buyer may have learned as the purchaser or employee of the Photomask Business. In addition, neither Buyer nor any of its representatives shall make use of, divulge or otherwise disclose, directly or indirectly, to Persons other than Seller, any confidential information concerning Seller's semiconductor products that Buyer may learn in any capacity through the purchase of the Photomask Business. This Section 7.2 shall not apply to any such information which becomes part of the public domain through no fault of Buyer. 7.3 MAINTENANCE OF BOOKS AND RECORDS Each of Seller and Buyer shall preserve until the seventh anniversary of the Closing Date all records possessed by such party relating to the Purchased Assets, Assumed Liabilities or operations of the Photomask Business prior to the Closing Date. After the Closing Date, where there is a legitimate purpose, such party shall provide the other party with access, upon prior reasonable written request specifying the need therefor, during normal business hours, to (i) the relevant officers and employees of such party and (ii) the books of account and records of such party, but, in each case, only to the extent relating to the Purchased Assets, Assumed Liabilities and operations of the Photomask Business prior to the Closing Date, and the other party and its representatives shall have the right to make copies of such books and records; provided, however, that the foregoing right of access shall not be exercisable in such manner as to interfere unreasonably with the normal operations and business of such party; and further provided that, as to so much of such information as constitutes trade secrets or confidential business information of such party, the requesting party and its representatives will use due care to not disclose such information except (x) as required by Law, (y) with the prior consent of such party, which consent shall not be unreasonably withheld, or (z) where such information becomes available to the public generally, or becomes generally known to competitors of such party, through sources other than the requesting party and its representatives. Such records may nevertheless be destroyed by a party if such party sends the other party written notice of its intent to destroy records, specifying with particularity the contents of the records to be destroyed. Such records may then be destroyed after the 30th day following delivery of such notice unless the other party objects to the destruction, in which case the party seeking to destroy the records shall either agree to retain such records or deliver such records to the objecting party at the objecting party's expense. 7.4 EMPLOYMENT MATTERS (a) Employees. Except as to individuals set forth on Schedule 7.4, as of the close of business on the Closing Date, Seller shall cease to employ, and Buyer shall offer employment to, all existing employees of the Photomask Business, excluding the employee on ninety (90) day general leave of absence due back on July, 9, 1999. The terms and conditions of the employment of the employees who accept employment with Buyer shall as of the Closing Date be substantially similar, in the aggregate, to the terms and conditions of their employment with Seller. Seller shall use its commercially 31 38 reasonable efforts to assist Buyer in hiring such employees of the Photomask Business. Seller shall not take any action, directly or indirectly, to prevent or discourage any such employee of the Photomask Business from being employed by Buyer as of the Closing Date and shall not solicit, invite, induce or entice any such employee of the Photomask Business to remain in the employ of Seller or otherwise attempt to retain the services of any such employee, except with the prior written consent of Buyer. Seller agrees to consult with Buyer on all material oral or written communications or meetings primarily regarding future employment with such employees. (b) Proration of Employee Benefits. All obligations for compensation, wages, bonuses, vacation time, pay in lieu of vacation, leaves of absence, and similar employee benefits provided by Seller or the Photomask Business and due, earned or accrued in accordance with GAAP, prior to the Closing Date shall be paid by Seller either directly to the employees or to Buyer on behalf of the employees as set forth in Schedule 7.4(b). Seller shall reimburse its former employees of the Photomask Business the value of employee education reimbursements earned by any such employee enrolled in a qualified education class on the Closing Date, who completes said course work after the Closing Date in accordance with Seller's policy on educational reimbursements and the Buyer shall have no liability in connection therewith. (c) Severance Obligations. Seller shall be solely responsible for liabilities and obligations, if any, for severance pay owed to employees of the Photomask Business prior to the Closing, including, but not limited any such liabilities and obligations arising from the events described in the first sentence of Section 7.4(a) hereto. Buyer shall be solely responsible for any liabilities or obligations for severance pay for employees of the Photomask Business who become employees of Buyer. Buyer acknowledges that it has not informed Seller of any planned or contemplated decisions or actions by Buyer or one of its subsidiaries that would require service of notice under the WARN Act, Buyer agrees that neither it nor any of its subsidiaries will take any action which will cause the notice provisions of the WARN Act to become applicable to the transactions contemplated by this Agreement. (d) Buyer and its subsidiaries will credit employees of the Photomask Business who become employees of Buyer with service with Seller (and predecessors of Seller) for purposes of (i) vesting for and eligibility to participate a 401(k) plan, but not for benefit accruals; (ii) any waiting periods, eligibility or pre-existing condition limitations for employee welfare benefit plans (as defined in Section 3(1) of ERISA); and (iii) eligibility and benefit computations for vacation and flexible holiday; provided , however, that with respect to vacation and flexible holiday plans for the remainder of calendar year 1999 only, Buyer shall maintain vacation and flexible holiday plans equivalent to, and in lieu of, Seller's vacation and flexible holiday plans covering the employees of the Photomask Business immediately prior to the Closing Date (offset by vacation time and flexible holiday time used under Seller's vacation plans as of the Closing Date). Seller shall pay to employees of the Photomask Business immediately prior to the Closing any amount of flexible holiday pay credited to employees in excess 32 39 of thirty-two (32) hours after offsetting any flexible holiday time previously used in calendar year 1999 as set forth on Schedule 7.4(b). Buyer shall credit said employees with any amounts paid prior to the Closing Date under any Welfare Plan that is a health plan toward the satisfaction of deductible amounts and copayment minimums under the Buyer's corresponding welfare benefit plans.] (e) No Third Party Beneficiaries. Notwithstanding any possible inferences to the contrary, neither Seller nor Buyer intends for this Section 7.4 to create any rights or obligations except as between Seller and Buyer, and no past, present or future employees of Seller or Buyer shall be treated as third-party beneficiaries of this Section 7.4. 7.5 BUYER'S RIGHTS IN INTELLECTUAL PROPERTY (a) Assignment of Intellectual Property Rights. (i) Seller hereby assigns to the Buyer its entire ownership, right, title and interest in and to Business Technology. (ii) Seller hereby grants to Buyer (and each of its present or future wholly-owned subsidiaries for so long as they are subsidiaries) a royalty-free, non-exclusive, worldwide license to use the Technology under the Intellectual Property Rights in activities similar to activities undertaken by the Photomask Business as of the Closing Date in the locations in the United States and Europe. This license may not be sublicensed and may be assigned only to any person entitled to or acquiring ownership of the Goodwill of the Photomask Business or substantially all of the Purchased Assets through Buyer for the purpose of conducting a like business therein. (iii) Assignment of Software Type 1. Seller hereby assigns to Buyer all of its right, title and interest in and to the Software Type 1 identified on Schedule 7.5(a) (iii). (iv) License of Software Type 2. Seller hereby grants to Buyer a royalty-free, non-exclusive, worldwide license to use Software Type 2 identified on Schedule 7.5(a)(iv) in the Photomask Business as of the Closing Date. (b) Assignment of Software Licenses. To the extent assignable by Seller to Buyer, Seller hereby assigns all of its right, title, and interest in and to Software Licenses specific to the Photomask Business and listed on Schedule 7.5(b). To the extent any Software License listed on Schedule 7.5(b) is not assignable to Buyer, but is both specific to and used in the operation of the Photomask Business, Seller will use commercially reasonable efforts as requested by Buyer in writing to provide at Buyer's expense the economic benefit of such Software License Agreement to Buyer, and upon doing such, shall be deemed to have satisfied any and all obligations of Buyer regarding assignment or transfer of each such Software License Agreement. 33 40 (c) Transfer of Tangible Software and Technology. Seller hereby tenders and Buyer hereby accepts delivery of all Technology and Software Licenses assigned to Seller under this Section 7.5 7.6 REPRESENTATIONS REGARDING SOFTWARE Seller represents that to the Seller's Knowledge: (a) Schedule 7.6(a) identifies all Software Licenses used in or on behalf of the Photomask Business on the Closing Date and during the five (5) calendar days prior thereto; (b) Schedule 7.5(a)(iii) identifies all Software Type 1 used in or on behalf of the Photomask Business on the Closing Date and during the five (5) calendar days prior thereto; (c) Schedule 7.5(a)(iv) identifies all Software Type 2 used in or on behalf of the Photomask Business on the Closing Date and during the five (5) calendar days prior thereto. If it is later determined after the Closing Date that any Software should have been, but was not, identified on any of the Schedules 7.6(a), 7.5(a)(iii) or 7.5(a)(iv), then as the sole remedy of Buyer to Seller's failure to identify such Software, Seller shall consent to assign or license and effect delivery of such Software in accord with the provisions of Section 7.5. 7.7 SALES AND TRANSFER TAXES; OTHER FEES To Seller's Knowledge pursuant to applicable Florida Department of Revenue regulations and interpretations thereof, no sales/use tax will be due on the sale of the machinery, equipment, supplies, or other tangible personal property (other than inventory) used in the Photomask Business, and none of the Assets consist of motor vehicles, aircraft, boats, mobile homes or salvage, surplus or obsolete property on which sales/use tax would be due. However, Buyer shall pay all real and personal property transfer taxes, if any, and all sales, use and other similar taxes that may be imposed as a result of Buyer's failure to supply a Resale Exemption Certificate, if any, imposed on or in connection with the purchase, sale or transfer of the Purchased Assets to, and the assumption of the Assumed Liabilities by, Buyer pursuant to this Agreement or on the use thereof by Buyer after the Closing Date. Buyer shall furnish Seller with a Resale Exemption Certificate for all inventory purchased from Seller. Buyer shall pay all fees incurred in connection with the transfer of the Purchased Assets and Assumed Contracts, including, but not limited to, any applicable fees which may be due in connection with the transfer of Seller's ETEC Systems. 34 41 ARTICLE VIII CONDITIONS OF PURCHASE 8.1 GENERAL CONDITIONS The obligations of the parties to effect the Closing shall be subject to the following conditions unless waived in writing by the parties to the Agreement: (a) No Orders; Legal Proceedings. No Law or Order shall have been enacted, entered, issued, promulgated or enforced by any Governmental Entity, nor shall any Action have been instituted and remain pending or, to the knowledge of Seller or Buyer, have been threatened and remain so by any Governmental Entity at what would otherwise be the Closing Date, that prohibits or restricts or would (if successful) prohibit or restrict the transactions contemplated by this Agreement. No Governmental Entity shall have notified any party to this Agreement that consummation of the transactions contemplated by this Agreement would constitute a violation of any Laws of any jurisdiction or that it intends to commence proceedings to restrain or prohibit such transactions or force divestiture or rescission, unless such Governmental Entity shall have withdrawn such notice and abandoned any such proceedings prior to the scheduled Closing, unless nationally recognized counsel known to have expertise as to such matters on behalf of the party against whom such action or proceeding was or would be instituted renders to the parties a favorable opinion that such action or proceeding is or would be without merit. (b) Approvals. To the extent required by applicable Law, all Permits and Approvals required to be obtained from any Governmental Entity, shall have been received or obtained on or prior to the Closing Date without the imposition of any burdens or conditions materially adverse to the party or parties entitled to the benefit thereof and any applicable waiting period under the Hart-Scott-Rodino Act shall have expired or been terminated. 8.2 CONDITIONS TO OBLIGATIONS OF BUYER The obligations of Buyer to effect the Closing shall be subject to the following conditions except to the extent waived in writing by Buyer: (a) Representations and Warranties and Covenants of Seller. The representations and warranties of Seller herein contained shall be true in all material respects at the Closing Date with the same effect as though made at such time; Seller shall have performed all obligations and complied with all covenants and conditions required by this Agreement to be performed or complied with by Seller at or prior to the Closing Date. (b) No Material Adverse Change. There shall not have been any Material Adverse Change in or affecting the Photomask Business subsequent to April 2, 1999. 35 42 (c) Opinions of Counsel. Buyer shall receive at the Closing from Howard E. Rothman, counsel to Seller, opinions dated the Closing Date, in form and substance substantially as set forth in Exhibit F (d) Consents. Seller shall have obtained and provided to Buyer evidence of the receipt of all required Approvals and Permits listed on Schedule 4.6 and Buyer shall have obtained all Approvals and Permits required by Law or referred to in Section 5.2, each in form and substance reasonably satisfactory to Buyer. (e) Changes in Law. No Law or Order shall have been enacted, entered, issued, promulgated or enforced by any Governmental Entity, nor shall any Action have been instituted and remain pending or, to the best knowledge of Seller, have been threatened and remain so by any Governmental Entity at what would otherwise be the Closing Date which would not permit the Photomask Business as presently conducted to be continued by Buyer unimpaired following the Closing Date. (f) Employees. Buyer shall have determined to its satisfaction in its sole discretion that (i) each of the persons identified by Buyer on Schedule 8.2(f) hereto as key employees of the Photomask Business have agreed to become an employee of Buyer upon Closing, and (ii) a satisfactory number of other employees of the Photomask Business have agreed to become employees of Buyer upon Closing. (g) Facility Lease Agreement. Seller shall have executed and delivered to Buyer a Lease covering the facilities used in the operation of the Photomask Business (the "FACILITY LEASE AGREEMENT") substantially in the form attached hereto as Exhibit B. (h) Photomask Supply and Strategic Alliance Agreement. Seller shall have executed and delivered to Buyer a photomask product supply agreement (the "PHOTOMASK SUPPLY AND STRATEGIC ALLIANCE AGREEMENT"), in form and substance substantially as set forth in Exhibit C. (i) Seller Certificate. An Officer of Seller shall execute a Certificate as of the Closing Date in form and substance substantially as set forth in Exhibit G. (j) Site Services Agreement. Seller shall have executed and delivered to Buyer a Site Services Agreement pursuant to which, during the term of the Facility Lease, Seller shall provide at a commercially reasonable price to Buyer electricity, cooling water, D.I. water, compressed air, and nitrogen, building, clean room and environmental chamber maintenance and repair services, security services, parking, administrative and management information systems services at its then current prices for such services (the "SITE SERVICES AGREEMENT") at a commercially reasonable price. The Site Services Agreement shall be in form and substance substantially as set forth in Exhibit D. 36 43 8.3 CONDITIONS TO OBLIGATIONS OF SELLER The obligations of Seller to effect the Closing shall be subject to the following conditions, except to the extent waived in writing by Seller: (a) Representations and Warranties and Covenants of Buyer. The representations and warranties of Buyer herein contained shall be true in all material respects at the Closing Date with the same effect as though made at such time; Buyer shall have in all material respects performed all obligations and complied with all covenants and conditions required by this Agreement to be performed or complied with by it at or prior to the Closing Date, and Buyer shall have delivered to Seller certificates of Buyer in form and substance reasonably satisfactory to Seller, dated the Closing Date and signed by the chief executive officer of Buyer, to such effect. (b) Opinion of Counsel. Seller shall receive at the Closing from O'Melveny & Myers LLP, counsel to Buyer, opinions dated the Closing Date, in form and substance substantially as set forth in Exhibit H. (c) Facility Lease Agreement. Buyer shall have executed and delivered to Seller the Facility Lease Agreement, substantially in the form of Exhibit B. (d) Photomask Supply and Strategic Alliance Agreement. Buyer shall have executed and delivered to Seller the Photomask Supply and Strategic Alliance Agreement, substantially in the form of Exhibit C. (e) Site Services Agreement. Buyer shall have executed and delivered to Seller the Site Services Agreement, substantially in the form of Exhibit D. ARTICLE IX TERMINATION OF OBLIGATIONS; SURVIVAL 9.1 TERMINATION OF AGREEMENT Anything herein to the contrary notwithstanding, this Agreement and the transactions contemplated by this Agreement shall terminate at the close of business on July 5, 1999 (the "TERMINATION DATE") unless extended by mutual consent in writing of Buyer and Seller and may otherwise be terminated at any time before the Closing as follows and in no other manner: (a) Mutual Consent. By mutual consent in writing of Buyer and Seller. (b) Conditions to Buyer's Performance Not Met. By Buyer upon written notice to Seller if any event occurs which would render impossible the satisfaction of one or more conditions to the obligations of Buyer to consummate the transactions 37 44 contemplated by this Agreement as set forth in Section 8.1 or 8.2 and the Seller cannot or will not take action to cure the deficiency within thirty days of the event. (c) Conditions to Seller's Performance Not Met. By Seller upon written notice to Buyer if any event occurs which would render impossible the satisfaction of one or more conditions to the obligation of Seller to consummate the transactions contemplated by this Agreement as set forth in Section 8.1 or 8.3 and the Buyer cannot or will not take action to cure the deficiency within thirty days of the event. (d) Hart-Scott-Rodino. By Buyer if Buyer shall receive a request for further information under the Hart-Scott-Rodino Act with respect to its filing thereunder from either the FTC or Department of Justice (provided Buyer exercises its right to terminate this Agreement at any time prior to making a responsive filing to such request) by delivering written notice of such termination to Seller. (e) Material Breach. By Buyer or Seller if there has been a material misrepresentation or material breach on the part of the other party in its representations, warranties or covenants set forth herein; provided, however, that if such breach or misrepresentation is susceptible to cure, Seller or Buyer, as the case may be, shall have 10 business days after receipt of notice from the other party of its intention to terminate this Agreement pursuant to this Section 9.1(f) if such misrepresentation or breach continues in which to cure such breach or misrepresentation before the other party may so terminate this Agreement. 9.2 EFFECT OF TERMINATION In the event that this Agreement shall be terminated pursuant to Section 9.1, all further obligations of the parties under this Agreement shall terminate without further liability of any party to another; provided, that, the obligations of the parties contained in Section 11.9 and Section 11.12 shall survive any such termination. A termination under Section 9.1 shall not relieve any party of any liability for a breach of, or for any misrepresentation under this Agreement, or be deemed to constitute a waiver of any available remedy (including specific performance if available) for any such breach or misrepresentation. 9.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES (a) The representations and warranties set forth in this Agreement shall survive the Closing Date and the consummation of the transactions contemplated hereby for a period of 18 months from the Closing Date; provided, however, that (i) the representations and warranties set forth in Section 4.15 respecting environmental compliance and Seller's obligations set forth in Section 10.1(d),(e), (f) and (g) shall survive until the expiration of the applicable statute of limitations, and (ii) the second and fourth sentences of Section 4.4(a) and the second sentence of Section 4.4(b) shall survive indefinitely. The rights to indemnification set forth in this Agreement based on the representations, warranties, covenants and obligations set forth herein shall not be 38 45 affected by any investigation conducted with respect to, or any knowledge acquired (or capable of being acquired) at any time, whether before or after the execution and delivery of this Agreement or the Closing Date, with respect to the accuracy or inaccuracy of or compliance with, any such representation, warranty, covenant or obligation. (b) No claim for the recovery of indemnifiable damages based upon the inaccuracy of such representations and warranties may be asserted by a party after such representations and warranties have expired; provided, however, that claims first asserted in reasonable detail in writing to the other party within the applicable period shall not thereafter be barred. (c) This Section 9.3 shall not limit actions with respect to any covenant or agreement of the parties hereto which by its terms contemplates performance after the Closing Date, other than the indemnity obligations of the parties set forth in Article X, hereof. ARTICLE X INDEMNIFICATION 10.1 OBLIGATIONS OF SELLER During the time periods set forth in Section 9.3, the Seller, agrees to indemnify and hold harmless Buyer and its respective directors, officers, shareholders, employees, affiliates, agents and assigns (the "BUYER Parties") in respect of any and all claims, actions, suits or other proceedings and any and all Losses, incurred by, imposed on or borne by Buyer, directly or indirectly, as a result of, or based upon or arising from: (a) any inaccuracy in or breach or nonperformance of any of the representations, warranties, covenants or agreements made by Seller in this Agreement whether or not of a material nature; or (b) any other matter as to which Seller in other provisions of this Agreement has agreed to indemnify Buyer; or (c) any liability or obligation of Seller or any of their Affiliates related to Seller (including the Photomask Business) not expressly assumed by Buyer pursuant to Section 2.2(b) hereof; or (d) any claim by a current or former employee of Seller the facts upon which such claim is based occurred prior to the Closing Date, including but not limited to, claims alleging wrongful discharge, employment discrimination and wage and hour violations; or 39 46 (e) the alleged or actual violation of any law, rule or regulation, prior to the Closing, by Seller, including, without limitation, any Environmental Law or any conditions existing at the Closing that constitutes a violation of Environmental Laws; or (f) the generation, use, transportation, treatment, storage, release or disposal, before the Closing, of Hazardous Substances by Seller at, on or under the real property currently or formerly used, owned or operated in connection with the operation of the business of Seller; or (g) the presence of Hazardous Substances or the existence of an Environmental Condition at the real property currently or formerly used, owned or operated in connection with the operation of the business of Seller which was present at such property or facility at any time on or prior to the Closing. Notwithstanding the foregoing, in no event shall the aggregate liability of Seller hereunder with respect to any Losses of the Buyer Parties exceed Five Million Dollars ($5,000,000), except with respect to Losses resulting from Seller's fraudulent actions or inactions, in which case the aggregate liability of Seller hereunder shall be without limit. 10.2 OBLIGATIONS OF BUYER (a) General. During the time periods set forth in Section 9.3, Buyer agrees to indemnify and hold harmless, Seller and their respective directors, officers, shareholders, employees, affiliates, agents and assigns in respect of any and all claims, actions, suits or other proceedings, and any and all Losses incurred by, imposed on or borne by Seller, directly or indirectly, as a result of, or based upon or arising from, any inaccuracy in or breach or nonperformance of any of the Assumed Contracts, Assumed Liabilities and post-Closing obligations of the Photomask Business, the representations, warranties, covenants or agreements made by Buyer in or pursuant to this Agreement. (b) With Respect to Environmental Conditions. Buyer agrees to indemnify and hold Seller and its Subsidiaries and Affiliates harmless from and against and in respect of any of the following, including any damage, expense, loss, claims, incidental and consequential damages (including attorney and expert fees) and any such amounts related to, arising from or caused by the following: (i) All liabilities of any nature, whether accrued, absolute, contingent or otherwise, arising from or caused by any act or omission by Buyer after the Closing Date including the storage, use, manufacture, transportation, disposal, release, discharge or emission by Buyer of any Hazardous Substance while operating the Photomask Business; and (ii) the exposure to any Hazardous Substance after the Closing Date of any person engaged in activities on the Real Property, provided the 40 47 presence of such Hazardous Substance is not the result of any act or omission of Seller or Seller's employees on, after or prior to the Closing Date; (iii) any disposal after the Closing Date into any landfill or other disposal facility of a Hazardous Substance by Buyer or by any person to whom Hazardous Substances have been directly or indirectly delivered in connection with the operation by Buyer of the Photomask Business. 10.3 PROCEDURE AND OTHER MATTERS (a) Procedure. If a claim by a third party is made against an indemnified party (the "INDEMNIFIED PARTY"), and if such party intends to seek indemnity with respect thereto under this Agreement from the other party (the "INDEMNIFYING PARTY"), the Indemnified Party shall promptly, but in any event, within ten (10) business days, notify the Indemnifying Party in writing of such claims setting forth such claims in reasonable detail. The failure to give such notice shall not relieve the Indemnifying Party of any liability hereunder except to the extent that the Indemnifying Party is actually prejudiced thereby. The Indemnifying Party shall have thirty (30) days after receipt of such notice to undertake, conduct and control, through counsel of its own choosing and at its own expense, the settlement or defense thereof (except in such instances where the settlement includes other than strictly the payment of money, in which case such settlement shall not be entered into without the written consent of the Indemnified Party, which consent shall not be unreasonably withheld or delayed). An Indemnifying Party's undertaking to conduct and control the settlement and defense of such a claim shall constitute an acknowledgement of such Indemnifying Party's obligation hereunder to indemnify the Indemnified Party against such claim. The Indemnified Party may participate in (but not control) such settlement or defense through counsel chosen by such Indemnified Party; provided, that, the fees and expenses of such counsel shall be borne by such Indemnified Party. If the Indemnifying Party does not notify the Indemnified Party in writing within thirty (30) days after the receipt of the Indemnified Party's notice of a claim of indemnity hereunder that it elects to undertake the defense thereof, the Indemnified Party shall have the right to contest, settle or compromise the claim but shall not thereby waive any right to indemnity therefor pursuant to this Agreement. (b) Other Matters. The provisions of this Article X are subject to the rights of any Indemnified Party's insurer which may be defending any such claim. If the Indemnifying Party makes any payment hereunder of a Loss, the Indemnifying Party shall be subrogated, to the extent of such payment, to the rights of the Indemnified Party against any insurer or third party with respect to such Loss. Nothing in this Section 10.3 shall be deemed to obligate any Person to maintain any insurance or to pursue any claim against any insurer or third party. Notwithstanding anything to the contrary contained in this Agreement, (i) any indemnification owed under this Agreement shall be reduced by the amount of any reimbursement actually received by an Indemnified Party from any insurance carriers or from third parties; (ii) the amount of any payment to Buyer by Seller 41 48 on account of indemnification for Losses relating to taxes shall be reduced or increased, as appropriate, by the amount of any corresponding federal, state, local, foreign or other income tax benefit or income tax cost actually received or paid by Buyer from payment of the liability upon which the claim for indemnification is based or from payment to Buyer of the amount of the indemnity payment. (c) Cooperation in Defending Claims. Each party to this Agreement shall cooperate in every reasonable way with the party or parties assuming responsibility for the defense and disposition of any claim of indemnity hereunder, including making available to the defending party reasonable access during normal business hours, upon reasonable notice and in such a manner as shall not unreasonably interfere with the conduct of the other party's business, all books, records, operating instructions and procedures, and other information as the defending party may from time to time reasonably request in order to defend such claim, including the right to make copies of such books, records and other documents and to discuss with such third Persons, including, without limitation, the directors, officers, employees, accountants, counsel, suppliers, customers and creditors, of the other parties, as the defending party considers necessary or appropriate for the purpose of defending such claim. The access provided by this Section 10.3(c) shall be subjection to the obligations of confidentiality and return of information obligations set forth in Section 11.9 hereof. 10.4 SURVIVAL Subject to Section 9.3, this Article X shall survive any termination of this Agreement. 10.5 NOTICE BY SELLER Seller agrees to notify Buyer of any liabilities, claims or misrepresentations, breaches or other matters covered by this Article X upon discovery or receipt of notice thereof (other than from Buyer), whether before or after Closing. 10.6 EXCLUSIVE REMEDY To the extent permitted by Law, the indemnity provisions of this Article X shall be the sole and exclusive remedy of the parties with respect to any breach of the representations and warranties contained in this Agreement that is asserted subsequent to Closing, provided that the foregoing shall not prohibit any party from seeking an injunction or any other equitable remedy in respect thereof. 10.7 NO OFFSETS Nothing herein shall be construed so as to permit either party to offset the amount of any unresolved claim which may arise under this Agreement from any payments due the other party under this Agreement. 42 49 ARTICLE XI GENERAL 11.1 AMENDMENTS; WAIVERS This Agreement and any schedule or exhibit attached hereto may be amended only by agreement in writing of the parties to the Agreement. No waiver of any provision nor consent to any exception to the terms of this Agreement or any agreement contemplated hereby shall be effective unless in writing and signed by the party to be bound and then only to the specific purpose, extent and instance so provided. 11.2 SCHEDULES; EXHIBITS; INTEGRATION Each Schedule and Exhibit delivered pursuant to the terms of this Agreement shall be in writing and shall constitute a part of this Agreement, although Schedules need not be attached to each copy of this Agreement. This Agreement, together with such Schedules and Exhibits, constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements and understandings of the parties in connection therewith, including, but not limited to, the letter of intent dated April, 20, 1999, between Buyer and Seller. 11.3 COMMERCIALLY REASONABLE EFFORTS; FURTHER ASSURANCES (a) Commitment to Commercially Reasonable Efforts. Each party shall use its commercially reasonable efforts to cause all conditions to its and the other parties' obligations to be timely satisfied and to perform and fulfill all obligations on its part to be performed and fulfilled under this Agreement, to the end that the transactions contemplated by this Agreement shall be effected substantially in accordance with its terms as soon as reasonably practicable. The parties shall cooperate with each other in such actions and in securing requisite Approvals. Each party shall execute and deliver both before and after the Closing such further certificates, agreements and other documents and take such other actions, including obtaining third party consents, as the other party may reasonably request to consummate or implement the transactions contemplated hereby or to evidence such events or matters including the assignment of the Insurance Claims. (b) Limitation. As used in this Agreement, the term "commercially reasonable efforts" shall not mean efforts which require the performing party to do any act that is unreasonable under the circumstances or to expend any funds other than in payment of reasonable out-of-pocket expenses incurred in satisfying obligations hereunder, including but not limited to the fees, expenses and disbursements of its accountants, actuaries, counsel and other professional advisers. 43 50 11.4 GOVERNING LAW; CHOICE OF FORUM; CONSENT TO PERSONAL JURISDICTION This Agreement and the legal relations between the parties shall be governed by and construed in accordance with the laws of the State of Florida except to the extent that certain matters are preempted by federal law or are governed by the law of the jurisdiction of organization/incorporation of the respective parties. 11.5 NO ASSIGNMENT Neither this Agreement (nor related agreements pursuant to this Agreement) nor any rights or obligations under any of them are assignable, except that Buyer may assign its rights hereunder and under any related agreement entered into in connection herewith (including but not limited to its rights under Article X) to any wholly-owned subsidiary or Affiliate of Buyer or to any post-Closing purchaser(s) of all of the capital stock of Buyer or of substantially all of the Purchased Assets, and except that Seller may assign its rights hereunder and under any related agreement entered into in connection herewith (including but not limited to its rights under Article X) to any wholly-owned subsidiary or Affiliate of Seller or to any post-Closing purchaser(s) of substantially all of the Semiconductor Business Unit of the Seller. 11.6 HEADINGS The descriptive headings of the articles, sections and subsections of this Agreement are for convenience only and do not constitute a part of this Agreement. 11.7 COUNTERPARTS This Agreement and any amendment hereto or any other agreement (or document) delivered pursuant hereto may be executed in one or more counterparts and by different parties in separate counterparts. All of such counterparts shall constitute one and the same agreement (or other document) and shall become effective (unless otherwise therein provided) when one or more counterparts have been signed by each party and delivered to the other party. 11.8 PUBLICITY AND REPORTS Seller and Buyer shall coordinate all publicity relating to the transactions contemplated by this Agreement, and no party shall issue any press release, publicity statement or other public notice relating to this Agreement, or the transactions contemplated by this Agreement, without obtaining the prior consent of Seller and Buyer except to the extent that independent legal counsel to Seller or Buyer, as the case may be, shall advise the other party to the effect that a particular action is required by applicable Law. Buyer and Seller shall obtain the prior consent of the other party to the form and content of any application or report made to any Governmental Entity that relates or refers to this Agreement. 44 51 11.9 CONFIDENTIALITY All information disclosed in writing and designated in writing as confidential by any party (or its representatives) whether before or after the date hereof, in connection with the transactions contemplated by, or the discussions and negotiations preceding, this Agreement to any other party (or its representatives) shall be kept confidential by such other party and its representatives and shall not be used by any Persons other than as contemplated by this Agreement, except to the extent that such information (i) was known by the recipient when received and was not covered by any other obligation of confidentiality, whether contained elsewhere in this Agreement, or in a separate agreement, (ii) it is or hereafter becomes lawfully obtainable from other sources, (iii) is necessary or appropriate to disclose to a Governmental Entity having jurisdiction over the parties, (iv) as may otherwise be required by law or (v) to the extent such duty as to confidentiality is waived in writing by the other party. If this Agreement is terminated, each party shall use all reasonable efforts to return upon written request from the other party all documents (and reproductions thereof) received by it or its representatives from such other party (and, in the case of reproductions, all such reproductions made by the receiving party) that include information not within the exceptions contained in the first sentence of this Section 11.9, unless the recipients provide reasonable written assurances satisfactory to the requesting party that such documents have been destroyed and no originals or copies of such documents have been retained for any purpose. Upon consummation of the Closing, this Section 11.9 shall not, however, limit Buyer's use of information provided to it in connection with the operation of the Photomask Business except with respect to Seller's Product Mask Information which may not be used in manufacturing Photomasks for third parties but may be used in manufacturing Photomasks for Seller and its Affiliates. 11.10 PARTIES IN INTEREST This Agreement shall be binding upon and inure to the benefit of each party, and nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. Nothing in this Agreement is intended to relieve or discharge the obligation of any third person to, or to confer any right of subrogation or action over against, any party to this Agreement. 11.11 NOTICES Any notice or other communication hereunder must be given in writing and either (a) delivered in person, (b) transmitted by telex, facsimile or telecommunications mechanism provided that any notice so given is also mailed as provided in clause (c), or (c) mailed by certified or registered mail, postage prepaid, as follows: 45 52 IF TO BUYER, ADDRESSED TO: Align-Rite International, Inc. 2428 Ontario Street Burbank, CA 91504 Attention: James L. MacDonald Chairman of the Board and Chief Executive Officer WITH A COPY TO: J. Jay Herron, Esq. Robert L. Davis, Esq. O'Melveny & Myers LLP 610 Newport Center Drive, Suite 1700 Newport Beach, California 92660 Fax: (949) 823-6994 IF TO SELLER, ADDRESSED TO: Harris Corporation Semiconductor Sector Attention: Gregory L. Williams 2401 Palm Bay Road N.E. Mail Stop 53-198 Palm Bay, FL 32905 WITH A COPY TO: Harris Corporation Richard L. Ballantyne Vice President, General Counsel and Secretary 1025 W. NASA Boulevard Melbourne, Fl 32919 Fax: (407)727-9222 or to such other address or to such other person as either party shall have last designated by such notice to the other party. Each such notice or other communication shall be effective (i) if given by telecommunication, when transmitted to the applicable number so specified in (or pursuant to) this Section 11.11 and an appropriate confirmation is received, (ii) if given by certified mail, postage prepaid, return receipt requested, three days after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when actually delivered at such address. 46 53 11.12 EXPENSES Except as provided in Section 2.3 hereof, each of Seller and Buyer shall pay its own expenses incident to the negotiation, preparation and performance of this Agreement and the transactions contemplated hereby, including but not limited to the fees, expenses and disbursements of its investment bankers, accountants and counsel and of securing third party consents and approvals required to be obtained by it except as otherwise expressly provided in this Section 11.12. Seller agrees to pay one-half of Buyer's fees and expenses related to compliance with the Hart-Scott-Rodino Act, in an amount not to exceed $25,000, within thirty (30) days of the Closing Date. Buyer shall pay (i) any documentary transfer tax, real property transfer or gains tax, document recording fees and charges, and any income, franchise or revenue tax or excise tax (and any surtax thereon) due in connection with the consummation of the transactions contemplated by this Agreement. 11.13 REMEDIES; WAIVER Except to the extent this Section 11.13 is inconsistent with any other provision in this Agreement or applicable law, all rights and remedies existing under this Agreement and any related agreements or documents are cumulative to, and not exclusive of, any rights or remedies otherwise available under applicable Law. No failure on the part of any party to exercise or delay in exercising any right hereunder shall be deemed a waiver thereof, nor shall any single or partial exercise preclude any further or other exercise of such or any other right. 11.14 ATTORNEYS' FEES In the event of any Action for the breach of this Agreement or misrepresentation by any party, the prevailing party shall be entitled to reasonable attorneys' fees, costs and expenses incurred in such Action. Attorneys' fees incurred in enforcing any judgment in respect of this Agreement are recoverable as a separate item. The preceding sentence is intended to be severable from the other provisions of this Agreement and to survive any judgment and, to the maximum extent permitted by law, shall not be deemed merged into any such judgment. 11.15 KNOWLEDGE CONVENTION Whenever any statement herein or in any schedule, exhibit, certificate or other documents delivered to any party pursuant to this Agreement is made "to the knowledge of" or words of similar intent or effect of any party or its representative, such statement shall refer to the knowledge of such Person, and such Person shall make such statement only after conducting a reasonable inquiry concerning the subject matter thereof, and each statement shall be deemed to include a representation that such 47 54 investigation has been conducted; provided, however, that with respect to Seller, such phrases shall mean the knowledge of Tim Muth, Suzanne Jones, Jay Duncombe, Howard Rothman, Charles Burns and Holly Carothers. 11.16 REPRESENTATION BY COUNSEL AND OTHER ADVISORS; INTERPRETATION Seller and Buyer each acknowledge that each party to this Agreement has been represented by counsel, financial, technical or other experts it deems necessary or desirable before entering into this Agreement. and the transactions contemplated by this Agreement. Each party represents and warrants that it has read, knows, understands and agrees with the terms and conditions of the Agreement. Neither party has relied upon any oral representation of the other party in entering this Agreement. All discussions, estimates or projections developed by a party during the course of negotiating the terms and conditions of this Agreement are by way of illustration only, and are not binding or enforceable against the other party in law or in equity. The provisions of this Agreement shall be interpreted in a reasonable manner to effect the intent of Buyer and Seller. 11.17 SPECIFIC PERFORMANCE Seller and Buyer each acknowledge that, in view of the uniqueness of the Photomask Business and the transactions contemplated by this Agreement, the other party would not have an adequate remedy at law for money damages in the event that this Agreement has not been performed in accordance with its terms. Each party therefore agrees that the other party shall be entitled to specific enforcement of the terms hereof in addition to any other remedy to which it may be entitled, at law or in equity. 11.18 SEVERABILITY If any provision of this Agreement is determined to be invalid, illegal or unenforceable by any Governmental Entity, the remaining provisions of this Agreement shall remain in full force and effect provided that the economic and legal substance of the transactions contemplated is not affected in any manner materially adverse to any party. In the event of any such determination, the parties agree to negotiate in good faith to modify this Agreement to fulfill as closely as possible the original intents and purposes hereof. To the extent permitted by Law, the parties hereby to the same extent waive any provision of Law that renders any provision hereof prohibited or unenforceable in any respect. 11.19 DISPUTE RESOLUTION AND ARBITRATION In the event that any dispute arises among the parties pertaining to the subject matter of this Agreement, and the parties, through the Buyer's senior management and the Seller's senior management, are unable to resolve such dispute within a reasonable time through negotiations and mediation efforts by senior executives of both parties, such dispute shall be resolved as set forth in this Section 11.19 48 55 (a) The procedures of this Section 11.19 may be initiated by a written notice ("DISPUTE NOTICE") given by one party ("CLAIMANT") to the other, but not before 30 days have passed during which the parties have been unable to reach a resolution as described above. The Dispute Notice shall be accompanied by (i) a statement of the Claimant describing the dispute in reasonable detail and (ii) documentation, if any, supporting the Claimant's position on the dispute. Within twenty (20) days after the other party's ("RESPONDENT") receipt of the Dispute Notice and accompanying materials, the parties shall submit the dispute to mediation in the Orlando, Florida area under the rules of the American Arbitration Association. All negotiations and mediation procedures pursuant to this paragraph (a) shall be confidential and treated as compromise and settlement negotiations and shall not be admissible in any arbitration or other proceeding. (b) If the dispute is not resolved as provided in paragraph (a) within sixty (60) days after the Respondent's receipt of the Dispute Notice, the dispute shall be resolved by binding arbitration. Within the sixty-day period referred to in the immediately preceding sentence, the parties shall agree on a single arbitrator to resolve the dispute. If the parties fail to agree on the designation of an arbitrator within said sixty-day period, the American Arbitration Association in the Orlando, Florida area shall be requested to designate the single arbitrator. If the arbitrator becomes disabled, resigns or is otherwise unable to discharge the arbitrator's duties, the arbitrator's successor shall be appointed in the same manner as the arbitrator was appointed. (c) Except as otherwise provided in this Section 11.19, the arbitration shall be conducted in accordance with the Commercial Rules of the American Arbitration Association, which shall be governed by the United States Arbitration Act. (d) Any resolution reached through mediation and any award arising out of arbitration (i) shall be binding and conclusive upon the parties; (ii) shall be limited to a holding for or against a party, and affording such monetary remedy as is deemed equitable, just and within the scope of this Agreement; (iii) may not include special, incidental, consequential or punitive damages; (iv) may in appropriate circumstances include injunctive relief; and (v) may be entered in court in accordance with the United States Arbitration Act. (e) Arbitration shall not be deemed a waiver of any right of termination under this Agreement, and the arbitrator is not empowered to act or make any award other than based solely on the rights and obligations of the parties prior to termination in accordance with this Agreement. (f) The arbitrator may not limit, expand or otherwise modify the terms of this Agreement. (g) The laws of the State of Florida shall apply to any mediation, arbitration, or litigation arising under this Agreement. 49 56 (h) Each party shall bear its own expenses incurred in any mediation, arbitration or litigation, but any expenses related to the compensation and the costs of any mediator or arbitrator shall be borne equally by the parties to the dispute. (i) A request by a party to a court for interim measures necessary to preserve a party's rights and remedies for resolution pursuant to this Section 11.19 shall not be deemed a waiver of the obligation to mediate or of the agreement to arbitrate. (j) The parties, their representatives, other participants and the mediator or arbitrator shall hold the existence, content and result of mediation or arbitration in confidence. 50 57 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by a duly authorized officer as of the day and year first above written. ALIGN-RITE INTERNATIONAL, INC., A CALIFORNIA CORPORATION By: ____________________________________ James MacDonald Chairman of the Board and Chief Executive Officer ALIGN-RITE, INC., A FLORIDA CORPORATION By: ____________________________________ James MacDonald Chairman of the Board HARRIS CORPORATION, A DELAWARE CORPORATION By: ____________________________________ W.R. Morcom Vice President-General Manager Operations EX-99.1 3 PHOTOMASK SUPPLY AND STRATEGIC ALLIANCE AGREEMENT 1 EXHIBIT 99.1 PHOTOMASK SUPPLY AND STRATEGIC ALLIANCE AGREEMENT BY AND AMONG ALIGN-RITE INTERNATIONAL, INC., ALIGN-RITE, INC. AND HARRIS CORPORATION DATED JULY 2, 1999 2 TABLE OF CONTENTS TABLE OF CONTENTS
PAGE ARTICLE 1 Definitions..................................................................1 ARTICLE 2 Supply of Products...........................................................3 ARTICLE 3 Product Quality, Delivery, Service and Pricing...............................4 ARTICLE 4 [*] Products.................................................................6 ARTICLE 5 Product Orders...............................................................7 ARTICLE 6 Manufacture..................................................................9 ARTICLE 7 Delivery and Payment.........................................................9 ARTICLE 8 Strategic Alliance, Consultation and Cooperation Arrangements................9 ARTICLE 9 Termination Rights And Obligations Upon Termination.........................10 ARTICLE 10 Warranties..................................................................11 ARTICLE 11 Dispute Resolution and Arbitration..........................................12 ARTICLE 12 Confidentiality.............................................................13 ARTICLE 13 General.....................................................................14 13.1 Independent Contractors............................................14 13.2 Amendments; Waivers................................................14 13.3 Schedules; Exhibits; Integration...................................14 13.4 Force Majeure......................................................14 13.5 Assignment.........................................................15 ARTICLE 14 Notices.....................................................................15
* Certain information in this exhibit has been omitted and filed separately with the Commission. Redacted portions of the exhibit are indicated by an asterisk within brackets ([*]), and a legend appears on the appropriate pages. Confidential Treatment has been requested with respect to the omitted portions. -i- 3 PHOTOMASK SUPPLY AND STRATEGIC ALLIANCE AGREEMENT This Supply Agreement is entered into as of July 2, 1999, (the "Effective Date") by and among Align-Rite International, Inc., a California corporation ("Align-Rite"), and Align-Rite, Inc., a Florida corporation ("Sub"), on the one hand, and Harris Corporation, a Delaware corporation ("Harris"), on the other acting through its Semiconductor Business. R E C I T A L S WHEREAS, Sub has purchased the Photomask business unit of Harris (the "Photomask Business Unit") on the date hereof pursuant to the terms of that certain Asset Purchase Agreement, dated as of even date, by and among Align-Rite and Sub, on the one hand, and Harris on the other (the "Asset Purchase Agreement"). WHEREAS, the parties hereto have agreed that Align-Rite will manufacture and supply to Harris, and Harris will purchase exclusively from Align-Rite, 100% of Harris' Photomask requirements in accordance with the terms of this Agreement for a period of 10 years from the Effective Date (the "Term"). WHEREAS, Harris shall use its commercially reasonable efforts to promote Align-Rite's Photomask products and services to (i) the merchant customers of the Photomask Business Unit, (ii) Harris' joint venture partners, (iii) the semiconductor foundry businesses utilized by Harris which will or are envisioned to require the purchase of Photomask (as defined below) products and services, and (iv) other companies and foundries within the influence or under the control of Harris, in each case in accordance with the terms of this Agreement. WHEREAS, Align-Rite shall strive to be the industry leader in quality, delivery, service and price, and provide the benefit of such world class operation to Harris. NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises and covenants set forth below, the parties mutually agree as follows: A G R E E M E N T ARTICLE 1 DEFINITIONS In this Agreement, unless the context otherwise requires, the following expressions shall have the following meanings: "AFFILIATES" shall mean (a) any company owned or controlled to the extent of at least fifty percent (50%) of its issued and voting capital by a party to this Agreement and any other company so owned or controlled (directly or indirectly) by any such company or the owner of any such company, or (b) any partnership, joint venture or other entity directly or indirectly controlled by, controlling, or under common control of, to the extent of fifty percent (50%) or more of voting power (or otherwise having power to control its general activities), a party to this Agreement, but in each case only for so long as such ownership or control shall continue; -1- 4 "ALIGN-RITE" means Align-Rite International Inc., a California corporation, and each of its subsidiaries from time to time; "BUSINESS ASSETS" means those assets previously owned and used by Harris to manufacture Photomasks which were purchased by Align-Rite pursuant to the Asset Purchase Agreement, including equipment, materials, know-how, work in progress, related inventory and goodwill used by and associated with the Photomask business unit of Harris; [*] [*] "FACILITY LEASE" means the lease of the Premises entered into among Sub and Harris on the date hereof; "FORCE MAJEURE" means, in relation to any party, circumstances beyond the reasonable control of that party including, without limitation, acts of God, acts of any governmental or super-national authority, war or national emergency, riots, civil commotion, fire, explosion, flood, epidemic, lock-outs (whether or not by that party), strikes and other industrial disputes (in each case, whether or not relating to that party's work force); "MASK ORDER" means a written order from an authorized originator employed by Harris specifying the Product(s) required, applicable Specification(s), amount of Product(s), date(s) required and delivery instructions [*]; [*] "PHOTOMASK BUSINESS UNIT" has the meaning set forth in the recitals. "PHOTOMASKS" means precision photographic quartz or glass plates containing microscopic images of integrated circuits for use as master images to transfer circuit patterns onto semiconductor wafers during the fabrication of integrated circuits and other semiconductor products; "PREMISES" means the real property located within the complex of buildings known as the Semiconductor Sector located at 2401 Palm Bay Road, N.E., Palm Bay, Florida 32905 and known as Building 60 and a portion of Building 56 used in the Photomask Business [*] Certain information in this exhibit has been omitted and filed separately with the Commission. Redacted portions of the exhibit are indicated by an asterisk within brackets ([*]), and a legend appears on the appropriate pages. Confidential Treatment has been requested with respect to the omitted portions. -2- 5 Unit, which are the subject of the Facility Lease entered into among Sub and Harris on the date hereof; "PRODUCT PERIOD" [*] "PRODUCTS" means the Photomask products and services listed on the Product and Services Pricing Schedule, as amended from time to time, or any other Photomask Product or services purchased from Align-Rite by Harris; "PRODUCT AND SERVICES PRICING SCHEDULE" means a schedule listing the Product and related services, together with the relevant Specification thereof and applicable price [*] "QUARTER" means a continuous calendar period of three months, the first such period ending on September 30, 1999; "SPECIFICATION" means, in respect of any Product, the specification agreed in writing between Harris and Align-Rite from time to time. [*] "STANDARD DELIVERY" has the meaning specified in Section 5.5; and "TERM" shall mean the ten-year term of this Agreement ARTICLE 2 SUPPLY OF PRODUCTS 2.1 The parties hereby agree that, during the Term of the Agreement, Harris shall satisfy 100% of its and its Affiliates' requirements for Photomasks, or any other product with similar functional characteristics, solely through its purchase of Products, [*} Products and [*] Products from Align-Rite; [*] 2.2 Harris hereby confirms its intent to order and purchase during the first three Product Periods, solely on its behalf or on behalf of its Affiliates approximately [*] in aggregate of Products, [*] Products from Align-Rite at the Product prices set forth on the Product and Services Pricing Schedule, as such Product and Services Pricing Schedule is amended pursuant hereto. 2.3 [*] but such [*] Certain information in this exhibit has been omitted and filed separately with the Commission. Redacted portions of the exhibit are indicated by an asterisk within brackets ([*]), and a legend appears on the appropriate pages. Confidential Treatment has been requested with respect to the omitted portions. -3- 6 Photomask purchases shall not decrease the purchase requirements of Harris from Align-Rite hereunder or Harris' obligations pursuant to Article 8. ARTICLE 3 PRODUCT QUALITY, DELIVERY, SERVICE AND PRICING 3.1 [*] 3.2 [*] 3.3 Pricing. 3.3.1 [*] [*] Certain information in this exhibit has been omitted and filed separately with the Commission. Redacted portions of the exhibit are indicated by an asterisk within brackets ([*]), and a legend appears on the appropriate pages. Confidential Treatment has been requested with respect to the omitted portions. -4- 7 [*] 3.3.2 Beginning with the commencement of the second Product Period and for each subsequent Product Period thereafter during the Term of this Agreement, Align-Rite shall provide Harris with the following [*] [*} [*] 3.3.3 [*] 3.3.4 [*] 3.4 [*] [*] Certain information in this exhibit has been omitted and filed separately with the Commission. Redacted portions of the exhibit are indicated by an asterisk within brackets ([*]), and a legend appears on the appropriate pages. Confidential Treatment has been requested with respect to the omitted portions. -5- 8 3.5 [*] 3.6 [*] ARTICLE 4 [*] PRODUCTS 4.1 In the event Harris anticipates a requirement for a [*] Product, it shall (i) notify Align-Rite as soon as practicable, (ii) provide Align-Rite with the Specification for such Derivative Product together with an estimate of its anticipated annual demand for such [*] Product, and (iii) request Align-Rite to provide a quotation for the manufacture and supply of such [*] Product. 4.2 [*] [*] Certain information in this exhibit has been omitted and filed separately with the Commission. Redacted portions of the exhibit are indicated by an asterisk within brackets ([*]), and a legend appears on the appropriate pages. Confidential Treatment has been requested with respect to the omitted portions. -6- 9 4.3 Upon acceptance of the quotation by Harris and the placing of the first order for any [*] Product, such [*] Product and the unit price shall be added to the Product and Services Pricing Schedule and the [*] Product shall be treated as a "Product" for the purposes of this Agreement. 4.4 In the event Harris anticipates a requirement for a New Product, it shall (i) notify Align-Rite as soon as practicable, (ii) provide Align-Rite with the specification for the New Product together with an estimate of its anticipated annual demand for such New Product, and (iii) request Align-Rite provide a quotation for the manufacture and supply of such New Product. 4.5 Upon acceptance of the quotation by Harris and the placing of the first order for any New Product, such New Product and the unit price shall be added to the Product and Services Pricing Schedule and the New Product shall be treated as a "Product" for the purposes of this Agreement. 4.6 [*] 4.7 [*] 4.8 [*] ARTICLE 5 PRODUCT ORDERS 5.1 Harris shall, no later than five (5) days before the beginning of each month, give Align-Rite written notice of its anticipated requirements for Products for the forthcoming month. 5.2 In order to facilitate the purchase of Products, all applicable Business Units of Harris which require Photomask Products shall issue to Align-Rite upon the execution of this Agreement, a blanket purchase order regarding its anticipated Photomask requirements for the first Product Period. At the end of the first Product Period new blanket purchase orders will be issued for each succeeding Product Period. 5.3 All applicable Photomask Business Units of Harris which require Photomask Products shall issue Mask Orders for Products in writing. 5.4 [*] [*] Certain information in this exhibit has been omitted and filed separately with the Commission. Redacted portions of the exhibit are indicated by an asterisk within brackets ([*]), and a legend appears on the appropriate pages. Confidential Treatment has been requested with respect to the omitted portions. -7- 10 [*] 5.5 [*] 5.6 [*] 5.7 [*] 5.8 Cancellations and Schedule Changes. 5.8.1 Harris may cancel without charge any purchase order and/or Mask Order or portion thereof for a Product at any time prior to the date on which Align-Rite has started manufacturing such Product. 5.8.2 In the event Harris cancels a purchase order and/or Mask Order for a Product after Align-Rite has purchased custom raw materials for such Product, but before Align-Rite has started manufacturing such Product, Harris shall reimburse Align-Rite for the cost of such custom raw materials. [*] Certain information in this exhibit has been omitted and filed separately with the Commission. Redacted portions of the exhibit are indicated by an asterisk within brackets ([*]), and a legend appears on the appropriate pages. Confidential Treatment has been requested with respect to the omitted portions. -8- 11 5.8.3 In the event Harris cancels a purchase order and/or Mask Order for a Product after Align-Rite has started manufacturing the Product, Harris shall pay one hundred percent (100%) of the price of such Product. Payment of amounts due under this Section shall be made within thirty (30) days of the date of each invoice. ARTICLE 6 MANUFACTURE 6.1 Each Product sold by Align-Rite to Harris pursuant to this Agreement shall conform in all respects to its Specification as set forth on the applicable purchase order and/or Mask Order. 6.2 Align-Rite and Harris shall consult with one another annually (or more frequently if appropriate or desirable) during the Term in order to ensure that the Specifications of the Products are mutually acceptable to both parties. Align-Rite shall agree to any reasonable change to a Specification requested by Harris provided that such change is capable of being made by Align-Rite and that the price of the Product in question is increased or decreased to cover any increased or decreased cost of manufacture. ARTICLE 7 DELIVERY AND PAYMENT 7.1 Align-Rite shall use commercially reasonable efforts to fulfill Mask Orders received from Harris for the Products on the date specified in the purchase order and/or Mask Order and shall give Harris as much advance notice as reasonably possible if despite its commercially reasonable efforts it is unable for any reason to fulfill any purchase order and/or Mask Order on the specified date. 7.2 Align-Rite shall deliver the Products to the designated ship address set forth on each purchase order and/or Mask Order, FOB/CIP Align-Rite's manufacturing sites located in the United States. Harris shall be responsible for all shipping and other costs of delivery from the manufacturing sites located in the United States. Align-Rite shall retain a security interest and right of possession in the Products and Harris hereby grants such security interest therein to Align-Rite until Harris makes full payment. Title and risk of loss or damage to Products shall pass to Harris at the FOB/CIP point. 7.3 Harris shall pay for the Products which are supplied under this Agreement in full within thirty (30) days of the date of the applicable invoice. ARTICLE 8 STRATEGIC ALLIANCE, CONSULTATION AND COOPERATION ARRANGEMENTS 8.1 During the Term, Harris and Align-Rite shall make their respective representatives available once every Quarter in order for: 8.1.1 Harris to advise Align-Rite of its Product development programs and its anticipated needs for Products and New Products; -9- 12 8.1.2 Align-Rite to inform Harris of its capacity and technological capabilities relating to Photomask products and services offered by it from time to time; and 8.1.3 Harris to review Align-Rite's performance in supplying Harris' Product requirements. 8.2 During the Term, Harris shall use its commercially reasonable efforts to maintain for Align-Rite the good will of the business of the Photomask Business Unit at the Closing Date (including, without limitation, merchant Photomask customers, suppliers and other parties having relationships with the Photomask Business Unit). 8.3 During the Term, Harris agrees at Align-Rite's expense as set forth in the Site Services Agreement to cooperate and to provide such assistance as Align-Rite may require from time to time in maintaining the Photomask Business Unit's current ability to manufacture Products which meet Department of Defense ("DOD") Secret and Top Secret status, provided such cooperation and assistance is permitted under DOD and NSA regulations and is acceptable to DOD and NSA. Harris shall allow Align-Rite the use of Harris' Classified Material Control Center (CMCC) for processing, storing and shipping classified material pursuant to DD254 requirements, if such use is permissible under DOC and NSA regulations. 8.4 During the Term of the Agreement, Harris shall use its commercially reasonable efforts to promote Align-Rite's Photomask products and services to [*]. ARTICLE 9 TERMINATION RIGHTS AND OBLIGATIONS UPON TERMINATION 9.1 Unless otherwise terminated pursuant to the provisions of this Article 9, this Agreement shall continue in effect for the Term. The Term may be extended on terms mutually acceptable to the parties. 9.2 This Agreement may be terminated at any time before the end of the Term as follows and in no other manner: 9.2.1 By mutual agreement in writing by Align-Rite and Harris; 9.2.2 By Align-Rite upon Harris' failure to pay when due any amounts required to be paid to Align-Rite after reasonable notice under this Agreement; 9.2.3 By Harris upon the entry of any order for relief under any provision of any applicable bankruptcy code in any bankruptcy proceedings initiated by or against Align-Rite or the presentation of a petition or convening of a meeting for the purpose of winding up Align-Rite's business, or entering into liquidation whether compulsory or voluntarily, or compounding with its creditors generally, or the appointment of a receiver * Certain information in this exhibit has been omitted and filed separately with the Commission. Redacted portions of the exhibit are indicated by an asterisk within brackets ([*]), and a legend appears on the appropriate pages. Confidential Treatment has been requested with respect to the omitted portions. -10- 13 of any part of all of either party's assets, or either party taking or suffering any similar action in consequence of debt; 9.2.4 By Align-Rite upon the entry of any order for relief under any provision of any applicable bankruptcy code in any bankruptcy proceedings initiated by or against Harris or the presentation of a petition or convening of a meeting for the purpose of winding up Harris' business, or entering into liquidation whether compulsory or voluntarily, or compounding with its creditors generally, or the appointment of a receiver of any part of all of either party's assets, or either party taking or suffering any similar action in consequence of debt; 9.2.5 By Harris upon Align-Rite's material breach of any of the terms or conditions of this Agreement after written notice thereof and a failure by Align-Rite to then cure such breach within thirty (30) days except as otherwise provided in Section 3.6; and 9.2.6 By Align-Rite upon Harris' material breach of any of the terms or conditions of this Agreement after written notice thereof and a failure by Harris to then cure such breach within thirty (30) days. 9.3 In addition to any other remedies available to Align-Rite, in the event Align-Rite terminates the Agreement, it shall have the following rights: (i) if the Product has been delivered, Align-Rite may recover, together with any incidental damages, any unpaid portion of the purchase price of the Product; and (ii) if the Product has not been delivered, Align-Rite may withhold delivery of such Product. 9.4 The failure of either party to enforce any provision of this Agreement shall not be deemed a waiver of such provision. ARTICLE 10 WARRANTIES 10.1 Harris shall as soon as practicable, and in any event within thirty (30) working days of the delivery of a Product at its premises, notify Align-Rite in writing of any noncompliance with applicable Specifications. 10.2 If Harris fails to give notice in accordance with Section 10.1, then except in respect of any noncompliance with applicable Specifications which is such that it would not be apparent upon a reasonable visual inspection, the Product in question shall be conclusively presumed to be in all respects in accordance with its Specification, and Harris shall be deemed to have accepted the quality of such Product, and Align-Rite shall have no liability to Harris with respect to that Product and the warranties made in Section 10.4 shall not apply thereafter. 10.3 If Harris rejects any delivery of a Product which it believes is not in accordance with its Specification, then Align-Rite shall as soon as practicable and in any event within five (5) working days of being requested to do so by Harris supply a replacement Product which is in accordance with its Specifications or shall notify Harris that it is unable to do so whereupon Harris shall be entitled to obtain such replacement Product from a third party. -11- 14 10.4 Align-Rite warrants that Products delivered hereunder shall be free and clear of liens and encumbrances arising from actions or inactions of Align-Rite and shall have been manufactured to the applicable Harris Specification. This warranty shall terminate in accordance with Section 10.2 or for any noncompliance which is not apparent upon reasonable visual inspection upon expiration of 135 calendar days following receipt by Harris or its designee of a shipment. In the event a problem occurs or is discovered after receipt by Harris, Align-Rite and Harris agree to discuss and resolve such problem in good faith. 10.5 The liability of Align-Rite hereunder is solely and exclusively limited to replacement, or repair, or credit of the purchase price, at Harris' option, for any Product which is returned by Harris during the applicable warranty period and which is found by Harris to be subject to adjustment under this warranty. 10.6 THIS WARRANTY EXTENDS TO HARRIS ONLY. THIS WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES WHETHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE. THIS WARRANTY DOES NOT APPLY TO DEFECTS ARISING AS A RESULT OF HARRIS' DESIGN OR FORMULA. IN NO EVENT SHALL ALIGN-RITE BE LIABLE FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES DUE TO BREACH OF THIS WARRANTY. HARRIS' SOLE REMEDY FOR ANY BREACH SHALL BE LIMITED TO THE REMEDIES SET FORTH IN SECTION 10.5. ARTICLE 11 DISPUTE RESOLUTION AND ARBITRATION 11.1 In the event that any dispute arises among the parties pertaining to the subject matter of this Agreement, and the parties, through Align-Rite's senior management and Harris' senior management are unable to resolve such dispute within a reasonable time through negotiations and mediation efforts by senior executives of both parties, such dispute shall be resolved as set forth in this Article. 11.1.1 The following procedures may be initiated by written notice ("Dispute Notice") given by one party ("Claimant") to the other, but not before thirty (30) days have passed during which the parties have been unable to reach a resolution as described above. The Dispute Notice shall be accompanied by (i) a statement of the Claimant describing the dispute in reasonable detail and (ii) documentation, if any, supporting the Claimant's position on the dispute. Within twenty (20) days after the other party's ("Respondent") receipt of the Dispute Notice and accompanying materials, the parties shall submit the dispute to mediation in the Orlando, Florida area under the rules of the American Arbitration Association. All negotiations and mediation procedures pursuant to this paragraph 11.1.1 shall be confidential and treated as compromise and settlement negotiations and shall not be admissible in any arbitration or other proceeding. 11.1.2 If the dispute is not resolved as provided in Section 11.1.1 within sixty (60) days after the Respondent's receipt of the Dispute Notice, the dispute shall be resolved by binding arbitration. Within the sixty-day period referred to in the immediately preceding sentence, the parties shall agree on a single arbitrator to resolve the dispute. If the parties -12- 15 fail to agree on the designation of an arbitrator within said sixty-day period, the American Arbitration Association in the Orlando, Florida area shall be requested to designate the single arbitrator. If the arbitrator becomes disabled, resigns or is otherwise unable to discharge the arbitrator's duties, the arbitrator's successor shall be appointed in the same manner as the arbitrator was appointed. 11.1.3 Except as otherwise provided in this Article, the arbitration shall be conducted in accordance with the Commercial Rules of the American Arbitration Association, which shall be governed by the United States Arbitration Act. 11.1.4 Any resolution reached through mediation and any award arising out of arbitration (i) shall be binding and conclusive upon the parties; (ii) shall be limited to a holding for or against a party, and affording such monetary remedy as is deemed equitable, just and within the scope of this Agreement; (iii) may not include special, incidental, consequential or punitive damages; (iv) may in appropriate circumstances include injunctive relief; and (v) may be entered in court in accordance with the United States Arbitration Act. 11.1.5 Arbitration shall not be deemed a waiver of any right of termination under this Agreement, and the arbitrator is not empowered to act or make any award other than based solely on the rights and obligations of the parties prior to termination in accordance with this Agreement. 11.1.6 The arbitrator may not limit, expand or otherwise modify the terms of this Agreement. 11.1.7 The laws of the State of Florida shall apply to any mediation, arbitration, or litigation arising under this Agreement. 11.1.8 Each party shall bear its own expenses incurred in any mediation, arbitration or litigation, but any expenses related to the compensation and the costs of any mediator or arbitrator shall be borne equally by the parties to the dispute. 11.1.9 A request by a party to a court for interim measures necessary to preserve a party's rights and remedies for resolution pursuant to this Article shall not be deemed a waiver of the obligation to mediate or of the agreement to arbitrate. 11.1.10 The parties, their representatives, other participants and the mediator or arbitrator shall hold the existence, content and result of mediation or arbitration in confidence. ARTICLE 12 CONFIDENTIALITY 12.1 During the course of this Agreement each party may obtain possession of information belonging to the other parties which contains confidential or secret information (e.g. inventions, know-how, trade secrets, future product plans). As far as such information is disclosed by one party to the other party it shall be clearly labeled "Confidential" or the like. -13- 16 12.2 The party which obtains possession of such confidential information shall maintain all such information in confidence and shall not disclose it to a third party without the prior written consent of the other party. These non-disclosure obligations shall terminate ten (10) years after receipt of such information. 12.3 These non-disclosure obligations shall not apply with respect to any information which: (i) now or hereafter, through no act or failure to act on the part of the obtaining party, becomes generally known or available; (ii) is known by the party at the time of obtaining it from the other party; (iii) is furnished to third parties by the party without restriction on disclosure; (iv) is independently developed by the obtaining party; or (v) is furnished to the obtaining party by a third party as a matter of right and without restriction on disclosure. The obligations of this Article 12 shall survive the expiration or any termination of this Agreement. ARTICLE 13 GENERAL 13.1 INDEPENDENT CONTRACTORS. Both parties are independent contractors under this Agreement. Nothing contained in this Agreement is intended nor is to be construed so as to constitute Align-Rite and Harris as partners, agents or joint venturers with respect to this Agreement. Neither party hereto shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other party or to bind the other party to any contract, agreement or undertaking with any third party. 13.2 AMENDMENTS; WAIVERS. This Agreement and any schedule or exhibit attached hereto may be amended only by agreement in writing of the parties to the Agreement. No waiver of any provision nor consent to any exception to the terms of this Agreement or any agreement contemplated hereby shall be effective unless in writing and signed by the party to be bound and then only to the specific purpose, extent and instance so provided. 13.3 SCHEDULES; EXHIBITS; INTEGRATION. Each Schedule and Exhibit delivered pursuant to the terms of this Agreement shall be in writing and shall constitute a part of this Agreement, although Schedules need not be attached to each copy of this Agreement. This Agreement, together with such Schedules and Exhibits, and the Asset Purchase Agreement constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements and understandings of the parties in connection therewith, including, but not limited to, the letter of intent dated April, 20, 1999, between Harris and Align-Rite. 13.4 FORCE MAJEURE. No party to this Agreement shall be deemed to be in breach of this Agreement or otherwise liable to any other party in any manner whatsoever for any failure or delay in performing its obligations under this Agreement due to Force Majeure. If a party's performance of its obligations under this Agreement is affected by Force Majeure, then: (i) it shall give written notice to the other parties, specifying the nature and extent of the Force Majeure, as soon as reasonably practicable on becoming aware of the Force Majeure and will at all times use its reasonable endeavors to mitigate the severity of the Force Majeure; (ii) the date for performance of such obligation shall be deemed suspended only for a period equal to the delay caused by such event; and (iii) it shall not be entitled to payment from the other party in respect of extra costs and expenses incurred by virtue of the Force Majeure event. -14- 17 13.5 ASSIGNMENT. Neither Align-Rite nor Harris may assign this Agreement without the prior written consent of the other, except that Align-Rite may assign its rights hereunder to any wholly-owned subsidiary or Affiliate of Align-Rite or to any post-Closing purchaser(s) of all of the capital stock of Align-Rite or of substantially all of its assets, and except that Harris may assign its rights hereunder to any wholly-owned subsidiary or Affiliate of Harris or to any post-Closing purchaser(s) of substantially all of the Semiconductor Business Unit of Harris. Notwithstanding the above, Harris covenants and agrees that in the event it sells all or substantially all of its assets related to its semiconductor business (including, but not limited to, its June 3, 1999 announced sale of its semiconductor business to a subsidiary of Sterling Holding Company, Citicorp Venture Capital investment portfolio company), it shall require as a condition of completion of such transaction that the purchaser of such assets, as well as any successors of any such purchaser, enters into an express assumption of this Agreement, as if such purchaser or such successor were the original party to this Agreement, and the form of any such assumption agreements shall be reasonably acceptable to Align-Rite. In the event of any such assignments, Harris shall be deemed to have guaranteed the performance of such purchaser's or successor's obligations hereunder and be responsible therefor. Align-Rite covenants and agrees that in the event it sells all or substantially all of the Business Assets, it shall require that the purchaser of such assets, as well as any successors of any such purchaser, enters into an express assumption of this Agreement, as if such purchaser or such successor were the original party to this Agreement, and the form of any such assumption agreements shall be reasonably acceptable to Harris. In the event of any such assignments, Align-Rite shall be deemed to have guaranteed the performance of such purchaser's or successor's obligations hereunder and be responsible therefor. ARTICLE 14 NOTICES 14.1 Any notice or any other information required or authorized by this Agreement to be given by any party to the other must be given in writing by U.S. mail, facsimile or overnight courier to the other party at the address for service notified in Section 14.3 or to such other address as any party may notify to the others from time to time in writing as being the address for service. 14.2 To be a valid and enforceable notice, evidence of receipt by the recipient of such notice shall be required. -15- 18 14.3 The addresses and contact numbers of those persons who are authorized to accept service on behalf of the parties to this Agreement are set out below: ON BEHALF OF ALIGN-RITE AND SUB TO: Mr. James MacDonald Mr. Petar Katurich Align-Rite International, Inc. 2428 Ontario Street Burbank, California 91504 USA Telephone No: (818)843-7220 Facsimile No: (818)563-4902 WITH A COPY TO: J. Jay Herron, Esq. Robert L. Davis, Esq. O'Melveny & Myers LLP 610 Newport Center Drive, Suite 1700 Newport Beach, California 92660 Telephone No: (949)760-9600 Facsimile No: (949)823-6994 ON BEHALF OF HARRIS TO: Harris Corporation Semiconductor Sector Attention: Gregory L. Williams 2401 Palm Bay Road N.E. Mail Stop 53-198 Palm Bay, FL 32905 Telephone No: (407) 729-5756 Facsimile No: (407) 729-5773 -16- 19 WITH A COPY TO: Harris Corporation Leslie J. Hart Vice President-Counsel 2401 Palm Bay Road N.E. Mail Stop 53-198 Palm Bay, FL 32905 Telephone No: (407)729-5395 Facsimile No: (407)729-5392 -17- 20 IN WITNESS WHEREOF, this agreement is entered into by duly authorized representatives of the parties hereto on the date first above written. ALIGN-RIGHT INTERNATIONAL, INC., A CALIFORNIA CORPORATION By: ____________________________________ James L. MacDonald Chairman of the Board and Chief Executive Officer ALIGN-RITE, INC., A FLORIDA CORPORATION By: ____________________________________ James L. MacDonald Chairman of the Board HARRIS CORPORATION, A DELAWARE CORPORATION By: ____________________________________ W.R. Morcom Vice President-General Manager Operations -18- EX-99.2 4 LEASE AGREEMENT 1 EXHIBIT 99.2 LEASE AGREEMENT BY AND AMONG HARRIS CORPORATION SEMICONDUCTOR BUSINESS UNIT AND ALIGN-RITE, INC. 2 LEASE SUMMARY Lessor: Harris Corporation Semiconductor Business Unit Notice Address: 2401 Palm Bay Road NE, m/s 53-205 Palm Bay, FL 32905 Attention: Tim Muth Phone Number: (407) 724-7988 Fax Number: (407) 729-4887 with a copy to: Vice President Counsel Harris Semiconductor Business Unit 2401 Palm Bay Road NE, m/s 53-216 Fax Number: (407) 729-5952 - ---------------------------------------------------------------------------------------------- LESSEE: Align-Rite, Inc. Notice Address: c/o 2428 Ontario Street Burbank, CA 91504 Attention: Petar Katurich Phone Number: (818) 843-7220 Fax Number: (818 563-4902 with a copy to: J. Jay Herron, Esquire Robert L. Davis, Esquire O'Melveny & Myers 610 Newport Beach, California 92660 Phone Number: (949) 823-6906 Fax Number: (949) 823-6994 - ---------------------------------------------------------------------------------------------- Date of this Agreement: July 2, 1999 Description of Demised Premises: Building 60 and a portion of Building 56, as described in Exhibits "A" through "D" hereof Gross Rentable Square Feet: Building 60: approx. 25,567 sq. ft. Building 56: approx. 8,108 sq. ft.
2 3 LEASE SUMMARY (CONTINUED) Tenant's proportionate Share: Building 60: 100% Building 56: 50.6% (4,101 sq. ft.) with option to expand to 95% Rent: Years 1 - 2 $225,000.00 annually, plus tax; adjusted if the option to expand the occupied portion of building 56 is exercised ("Adjusted Rent") $225,000 or the adjusted rent increased by the increase, if any, in the Producer Price Index for the month of July in the year in which any option to renew is exercised over the Producer Price Index for July, 1999, if option to renew is exercised. Term of Lease: Two (2) years Option to Extend Term: Six (6) options of three (3) years each Commencement date: July 3, 1999 Liability Insurance: Lessor to provide for Building Shells Lessee to provide for Building contents Security Deposit: None
3 4 Table of Contents 1. Premises 2. Term 3. Rent 4. Additional Rent / Tax 5. Use of Premises 6. Utilities 7. Maintenance, Repairs & Alterations 8. Fixtures 9. Security 10. Services 11. Signs 12. Parking Spaces 13. Entry Way 14. Hazardous Material Storage Area 15. Stock Room 16. Telephone Communications Equipment 17. Condition of Premises 18. Insurance 19. Destruction of Premises 20. Condemnation 21. Default 22. Remedies Upon Event of Default 23. Option to Renew 24. Option to Expand 25. Hazardous Materials 26. Indemnification 27. Abandonment of Premises 28. Assignment and Subletting 29. Option to Cancel 30. Compliance with Law 31. Holding Over 32. Lessor's Right to Entry and Inspection 33. Lessor's Right to Perform Lessee's Covenants 34. Late Payment Charges 35. Liens 36. Notices 37. Quiet Enjoyment 38. Security Deposit 39. Successors and Assigns 40. Surrender of Premises 41. Transfer of Property by Lessor 42. Estoppel Certificate and Subordination 4 5 Table of Contents - continued 43. General 44. Governing Law 45. Force Majeure 46. Entire Agreement 47. Attorneys' Fees 48. Authority Exhibits Exhibit A - Map of the Complex located at 2401 Palm Bay Road NE, Palm Bay, FL 32905 Exhibit B - Description of the demised Premises Exhibit C - Layout of Building 56, first floor Exhibit D - Layout of Building 56, second floor 5 6 COMMERCIAL NET LEASE This Lease Agreement is entered into this 2nd day of July, 1999 at Palm Bay, Florida, by and among Harris Corporation, a Delaware Corporation, acting through its Semiconductor Business Unit, 2401 Palm Bay Rd. NE, Palm Bay, FL 32905 ("Lessor"), Align-Rite, Inc., a Florida Corporation ("Align-Rite"), 2428 Ontario Street, Burbank, CA 91504-3195 ("Lessee"). RECITALS WHEREAS, Lessor and Lessee have or will enter into a separate Asset Purchase Agreement ("Asset Purchase Agreement") of even date herewith for the sale of certain assets to Lessee used in connection with Lessor's Photomask Business; and WHEREAS, Lessor and Lessee have or will enter into a separate Site Services Agreement ("Site Service Agreement") of even date herewith for the provision of certain services to Lessee used in connection with Lessor's Photomask Business; and WHEREAS, Lessor has agreed to lease the principal facilities used in the Photomask Business ( as defined in the Asset Purchase Agreement) to Lessee. AGREEMENT In consideration of the premises, the mutual promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties agree as follows: 1. PREMISES: Lessor hereby leases to Lessee and Lessee hires from Lessor for the Term, at the rental, and upon all of the conditions set forth herein, a portion of the complex situated in the City of Palm Bay, Brevard County, State of Florida, located at 2401 Palm Bay Rd. NE, Palm Bay, FL 32905 (the "Complex", a map of which is attached hereto and incorporated herein as Exhibit "A"), said portion consisting of Building 60, which contains the Imaging Technology Group photomask manufacturing facilities, and a portion of Building 56, which contains office space, more particularly depicted in Exhibits "B" through "D" attached hereto and incorporated herein by reference (the "Premises"). 6 7 2. TERM: The term of this Lease shall be for twenty-four (24) months commencing July 3, 1999, (the "Commencement Date") and terminating on July 2, 2001, The term shall be automatically renewed for six extensions of three years each, pursuant to Section 23, unless terminated pursuant to Section 29 (as so extended the "Term"). 3. RENT: Rent shall be payable in advance on the first day of each month, commencing on July 3, 1999 without abatement, deduction, offset, prior notice or demand. Building 60 is a triple-net lease, whereby the monthly rent covers the building shell only; real property taxes, utilities, site services and insurance on the building shell a are not included. Building 56 is a fully-burdened lease, whereby the monthly rent includes all utilities, real property taxes, and insurance on the building shell. The total rent for the Premises, consisting of 100% occupancy of building 60 and initially 50.6% occupancy of Building 56, shall be $225,000.00 annually, which is $18,750.00 per month. If the Commencement Date of this Lease is other than on the first of the month, that month's rent shall be pro-rated accordingly. The rent for the last month of the Lease, whether during the Term, shall also be pro-rated. Commencing on the twenty-fifth (25th)month of the Term hereof and thereafter every three (3) years, the annual rent shall be adjusted (as illustrated below) by adding to the annual rent an amount calculated by multiplying Base Rent by the Increase in PPI, if a positive number. As used herein: "Base Rent" means $225,000 or, if Lessee has exercised its option to increase occupancy of Building 56 to 95% of the area of the Building, $250,000; "Increase in PPI" means the amount obtained by subtracting the Commencement PPI from the Final PPI and dividing such difference by the Final PPI; "Commencement PPI" means the PPI for July 1999; "Final PPI" means, with respect to the first renewal term, the PPI for June 2001 and, with respect to each successive renewal term, the PPI for the month immediately preceding the first month of the applicable successive renewal term; and "PPI" means the Producer Price Index for the month in question as published by the United States Department of Commerce ("USDC"), or such substitute or replacement index therefor as may be published by the USDC. In the event that the PPI is discontinued and not replaced by an index published by the USDC, the parties hereto shall agree to a reasonable replacement index to approximate the results under the foregoing formulas that would be achieved through use of the PPI. Example of Rent Calculation New Rent (1st Renewal Term) = Base Rent + [(Base Rent) x ({PPI (6/01)} - {Commencement PPI}/Commencement PPI)] New Rent (2nd Renewal Term) = Base Rent + [(Base Rent) x ({PPI (6/04)} - {Commencement PPI}/Commencement PPI)] 7 8 Should Lessee exercise the option to expand as set forth in Section 23 herein, the monthly rent of Building 56 will increase to reflect 95% occupancy, and the total rent for the Premises shall be $250,000 annually, which is $20,833.33 per month. 4. ADDITIONAL RENT / TAX: a) In addition to the rent required to be paid under this Lease, Lessee shall pay, as additional rent, the utilities charges as set forth in the "Consumables" Section (provided to Align-Rite by Harris) on page 2 of Exhibit "A" of the Site Services Agreement. b) In addition to the rent required to be paid under this Lease, Lessee shall pay, as additional rent, six percent (6%) Florida sales tax on the monthly rental amount as required by Florida Statutes Section 212.031. c) In addition to the rent required to be paid under this Lease, Lessee shall pay, as additional rent, a monthly pro-rata portion of any and all Real Property Taxes levied or assessed against Buildings 60 during the Term of this Lease. The estimated real estate taxes in fiscal year 2000 for Building 60 is $17,244. d) For purposes of this Lease, Real Property Taxes shall be defined as follows: (i) All real estate taxes, including but not limited to town, county and school taxes payable (adjusted after protest or litigation, if any) for any part of the term of this Lease including any extension period hereof on the Premises, (ii) any taxes that shall be levied in lieu of the taxes described in (i) above or that shall be levied on the gross rentals of the Premises but excluding all income taxes of Lessor, (iii) any other governmental real estate taxes, levies, impositions or charges of a similar or dissimilar nature, whether general, special, supplemental, ordinary, extraordinary, foreseen or unforeseen that may be assessed, levied or imposed upon all or any part of the Premises, and (iv) the reasonable expense of contesting the amount or validity of any such taxes, charges or assessments, such expense (including reasonable attorneys' fees) to be applicable to the period of the item contested. If the method of taxation of real estate utilized by the taxing jurisdictions having jurisdiction over the Premises at the time of execution of this Lease shall be altered so as to cause the whole or any part of the taxes now or hereafter levied, assessed or imposed on real estate to be levied, assessed or imposed upon Lessor wholly or partially, as a capital levy or other tax or otherwise, or on or measured by the rents received therefrom, then such new or altered taxes attributable to the Premises shall be included within the term "Real Estate Taxes." 8 9 e) Tax Hold-Harmless Clause: Lessee shall indemnify and hold Lessor and the property of Lessor, including said Premises and any improvements now or hereafter on said Premises, free and harmless from any liability, loss, or damage resulting from any taxes, assessments, or other charges required by this Article to be paid by Lessee and from all interests, penalties, and other sums imposed thereon and from any sales or other proceedings to enforce collection of any such increase in taxes, assessments, or other charges. f) Payment by Lessor: Should Lessee fail to pay within the time specified in this Article any taxes, assessments, or other charges required by this Article to be paid by Lessee, Lessor may, but is not obligated to, without notice to or demand on Lessee, pay, discharge, or adjust such tax, assessment, or other charge for the benefit of Lessee. In such event, Lessee shall promptly on written demand of Lessor reimburse Lessor for the full amount paid by Lessor in paying, discharging, or adjusting such tax, assessment, or other charge together with interest thereon at the rate of ten percent (10%) per annum from the date of payment by Lessor until the date of repayment by Lessee. Where no time within which any charge required by this Article to be paid by Lessee is specified in this Article, such charge must be paid by Lessee before it becomes delinquent. g) Lessee shall pay all taxes assessed against or levied upon fixtures, furnishings, equipment and all other personal property of Lessee located in the Premises other than those furnished and paid for by Lessor. 5. USE OF PREMISES The Premises shall be used and occupied by Lessee for its lawful business consistent with the Photomask Business conducted on the Premises by Lessor prior to the Closing Date and incidental uses thereto. Lessee is responsible to obtain any and all licenses and/or permits required for the lawful operation of Lessee's business. 6. UTILITIES: Lessee shall pay or cause to be paid all charges for the furnishings of utilities to Building 60 including, but not limited to, water, electricity, nitrogen and deionized water to the Premises during the term of this Lease as set forth in the Site Services Agreement. Lessor will provide utilities in accordance with Lessor's specifications. Lessee hereby acknowledges that Lessor is not in the business of providing the utilities herein and that Lessor does not warrant the performance of providing utilities hereunder. In the event of an error or omission in the provision of utilities which shall be established to be principally caused by Lessor's performance hereunder, Lessor shall credit Lessee for any previously invoiced charges in connection with such utilities. Such adjustment shall be Lessee's only remedy. Lessor shall have no liability to Lessee for any special, consequential, or incidental damages. Lessor shall undertake to perform services hereunder for Lessee substantially in the same manner as if it were performing such services for a Lessor business unit. Lessor's obligations to provide any service hereunder is conditioned upon the responsible party obtaining prior to the commencement of such services all 9 10 necessary governmental licenses, approvals, and permits. The utility charges shall be considered additional rent in accordance with Article 4 of this Lease. 7. MAINTENANCE, REPAIRS & ALTERATIONS: a) Lessee agrees that the Premises are now in a tenantable and good condition. Lessor shall maintain the building structure, all utility and production supply piping up to the point of entry into the Premises or to the meter, if applicable, windows, doors, landscaping, parking lot, fire detection and alert system, and the interior sprinkler system of the Premises in good condition and repair in accordance with the policies and procedures of Lessor, whether written or oral, by which Lessor maintains the other buildings on the Complex. Repairs will be performed in accordance with Lessor's standard procedures for scheduling such work, using the same workmanship levels and materials used for the adjacent buildings of the Complex as shown on Exhibit "A". Lessee shall maintain the remainder of the Premises in good condition and repair. b) Lessee may use any contractor of Lessee's choice to complete any repair, maintenance, alteration, or improvement to be completed under this Section. All such contractors must submit required information to Lessor's facility and security functions and be cleared and badged appropriately before being admitted to the Complex. Information required to be submitted to the Facilities department prior to the commencement of work includes the scope of the work, detailed engineering drawings, and a bill of materials. In the alternative, at Lessee's request, Lessor shall make available to Lessee, Lessor's list of qualified contractors, which Lessee is free to hire to complete any repair, maintenance, alteration, or improvement. c) The Premises shall not be materially altered, repaired or changed without the written consent of Lessor, which will not be unreasonably withheld. Detailed descriptions or drawings ("Plans") of proposed alterations are to be supplied to the Lessor ten (10) business days prior to the start of work. The Lessor will respond in writing within ten (10) business days of its receipt of any Plans; Lessor's failure to respond within such period shall be conclusively deemed to be Lessor's approval of the applicable Plans. d) Lessee may at Lessee's option and Lessee's expense submit a work order to Lessor's facilities department to complete any repair, maintenance, alteration, or improvement. In such event Lessor shall charge Lessee for the work in accordance with the Site Services Agreement between Lessor and Lessee. 8. FIXTURES: Only those fixtures and improvements set forth in Schedules to the Asset Purchase Agreement shall belong to Lessee; all other fixtures and improvements to the Premises shall remain the property of Lessor. All fixtures and improvements other than Lessee's trade fixtures and equipment which are installed or constructed upon or attached to the Premises by either the Lessor or the Lessee shall become a part of the realty and belong to Lessor. Lessee may, at the termination or expiration of this Lease, or at any other time, remove from the Premises all trade fixtures, equipment, and other personal property owned by Lessee and not permanently affixed to the Premises. Upon said removal, Lessee shall restore the Premises to its original condition at the time of occupancy, normal wear and tear and other casualty damage excepted. 10 11 9. SECURITY: Building security will be supplied by the Lessor at the cost and terms set forth in the Site Services Agreement. These services include: (a) Guard Services: o Periodic checks of the closed area: twice per day during 1st shift, and every two hours during 2nd and 3rd shifts, weekends, and holidays. (b) Badging: o Badge Lessee's guests and employees with a badge different from that of Lessor's employees, but permitting Lessee's employees unrestricted access to all common areas of the Complex. Lessor's employees and agents shall have unrestricted access to both Building 56 and 60. o Lobby training and support for Building 60 receptionist o Provide perimeter access control and interface with Cardkey systems o Handle incoming and outgoing classified visits (c) Clearances: o Fingerprinting, paperwork processing, electronic submission to appropriate government agencies, appointments for polygraphs, interviews with government investigators. (d) Briefings: o Initial security briefings to all cleared employees, rebrief when appropriate, debrief when employees terminate. o Foreign travel briefing and reporting o Computer Security briefings (e) Security Education: o Periodic reminders of security practice for cleared employees (f) Locks and Combinations: o Furnish "approved containers" and approved locks for classified storage, maintain classified combinations. Change combinations when required. (g) Classified Material Control: o Control and accountability of all classified materials (documents and hardware). o Shipping and Receiving of all classified material on the premises. (h) Computer Security support (i) CSSO (Contractor Special Security Officer) and COMSEC (Communications Security) Custodian on premises. (j) Liaison with Defense Security Service Reps. and NSA for internal audits and inspections. 11 12 Lessee shall appoint a security officer responsible for all security matters relating to Lessee's Photomask Business. The name of this person shall be provided to Lessor within five (5) business days after the commencement of this Lease. Lessee shall, at its sole cost, obtain a security clearance for the Premises as required to handle classified materials in accordance with U.S. Government Department of Defense requirements. Lessee will have access to and use of the secure conference room located in Building 52 as shown on Exhibit "A", subject to preemption by Lessor for confidential meetings which necessarily take priority over said use by Lessee. Lessee shall comply with Lessor's on-site hurricane preparedness and evacuation plan as directed by the Complex Director of Emergency Operations. Lessee acknowledges receipt of a copy of Lessor's Hurricane Plan. 10. SERVICES Lessor will provide Lessee with site services in accordance with the cost and terms set forth in the Site Services Agreement. 11. SIGNS a) Lessee may install a suitable sign on the Complex which meets all applicable signage codes, with the prior written approval of the Lessor, which shall not be unreasonably withheld. Lessee shall not construct any projecting sign or awning without the prior written consent of Lessor, which consent shall not be unreasonably withheld. The cost of the sign, its installation, operation, and maintenance expenses shall be Lessee's sole expense. b) Lessee may install suitable signs which meet all applicable signage codes for the six (6) designated parking spaces assigned in Section 12, subject to the prior written approval of the Lessor, which consent shall not be unreasonably withheld. Upkeep of the signs shall be at Lessee's sole expense. 12. PARKING SPACES Lessee shall be assigned and entitled to use at no additional cost six (6) parking spaces in the parking lot located to the south of Building 54 and to the east of Building 53 of the Complex as shown on Exhibit "A". Lessee may mark these as designated spaces with signs as set forth in Section 11. 13. ENTRY WAY Lessee may install a separate covered entry way to Building 60 from the parking lot located to the south of Building 54 and to the east of Building 53 of the Complex as shown on Exhibit "A", with the prior written consent of the Lessor, which consent shall not be unreasonably withheld. The cost of the entry way, its installation, operation, and maintenance shall be at Lessee's sole expense. 12 13 14. HAZARDOUS MATERIAL STORAGE AREA Lessee may build a separate storage area for Hazardous Materials on the west side of Building 60 adjacent to the loading dock with approximate dimensions of twenty-four feet by twenty feet (24' x 20'), having access from both inside and outside the building, subject to the prior written consent of Lessor, which consent shall not be unreasonably withheld. The cost of installation, operation, and maintenance of this storage area shall be at Lessee's sole expense. 15. STOCK ROOM Lessee shall have access to and use of the Building 61 stock room during Lessor's normal operating hours for those materials necessary for operation of Lessee's Photomask Business. Materials stored by Lessee shall be substantially the same as those stored by Lessor for use in the Photomask Business prior to the Closing Date. No material change in the type or kind of materials stored in Building 61 after the Closing Date by Lessee is allowed without the prior written approval of Lessor, which consent shall not be unreasonably withheld. Lessee must furnish Material Safety Data Sheets with any new chemicals approved for storage by Lessor. For the purposes of Sections 15 and 25 the introduction, use, storage or disposal of any materials not used by the Photomask Business prior to the Closing Date, which are toxic, corrosive, hazardous substances or flammable (including solvents) constitutes a material change. 16. TELEPHONE COMMUNICATIONS EQUIPMENT Lessee shall be allowed to use the local telephone service provider's external telephone lines and network interface on the Complex for connecting their own separate telephone system with the service provider. Lessor's telecommunications personnel shall be consulted prior to any work relating to telephone connections is performed. All work, equipment, connection fees, and usage fees for a separate telephone system and account will be at Lessee's sole expense. If Lessee exercises the option to expand as set forth in Section 24 herein, Lessor's telecommunications personnel shall be allowed access to the sixty-nine (69) square-foot Communications Equipment Room (CER) located in Building 56 as shown in Exhibit "C" during the remainder of the Term, with reasonable prior notice to Lessee. Lessor shall maintain possession and control of the four-hundred (400) square-foot CER located in Building 56 as shown on Exhibit "C" throughout the entire Term of this Lease, including renewal Terms. 17. CONDITION OF PREMISES: Except as otherwise provided in this Lease, Lessee has inspected and hereby accepts the Premises in their condition existing as of the Commencement Date or the date that Lessee takes possession of the Premises, whichever is earlier, subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the Premises, and any covenants or restrictions of record, and accepts this Lease subject thereto and to all matters disclosed thereby and by all exhibits attached hereto. Lessee acknowledges that neither Lessor nor Lessor's agent has made any representation or warranty as to the present or 13 14 future suitability of the Premises for the conduct of Lessee's business, except as set forth in the Asset Purchase Agreement. Notwithstanding the foregoing, Lessor agrees to deliver the Premises to Lessee with basic facilities equipment in repair and operational including those mechanical, plumbing and electrical systems which were in place as of July 2, 1999. Lessor agrees to provide a knowledgeable individual to review the start-up of the basic facility equipment and transfer the information to the appropriate staff member of Lessee. This support will not exceed one week of time and will be a one-time event. 18. INSURANCE Lessor will obtain and keep in effect throughout the Term an insurance policy providing general comprehensive property damage insurance for the building shells, including floor, walls and ceiling (but not the cleanroom) only. Lessee will obtain and keep in effect throughout the Term an insurance policy providing bodily injury liability insurance with a limit amount of not less than $2,000,000.00 per occurrence, which names Lessor as an additional insured. The limits of said insurance shall not however limit the indemnity provisions of Lessee hereunder. (a) Lessee hereby agrees that Lessor shall not be liable for injury to Lessee's business or any loss of income therefrom or for damage to the goods, wares, merchandise or other property of Lessee, Lessee's employees, invitees, customers or any person in, on, or about the Premises nor shall Lessor be liable for injury to the person of Lessee, Lessee's employees, agents, invitees or contractors whether such damage or injury is caused by or results from fire, wind, steam, electricity, gas, water or rain or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures or from any other cause whether the same damage or injury results from conditions arising upon the Premises or upon other portions of the Complex of which the Premises are a part or from other sources or places and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible to Lessee, unless such damage or injury results from the gross negligence or willful acts of Lessor, Lessor's employees, agents or contractors. (b) Property Damage Insurance: Lessee agrees at its sole expense to maintain in full force during the Term, a policy of property damage coverage for any and all personal property of Lessee on the Premises in the amount of its reasonable replacement value. Consistent with the foregoing, Lessee shall, at Lessee's own cost and expense at all times herein, during the Term of this Lease and any extended term thereof, keep the contents of the Premises, including the cleanroom, improvements and other personal property on the Premises insured for their full replacement cost against loss or destruction by fire, earthquake, flood wind, and other perils, including vandalism and malicious mischief, commonly covered under the standard extended coverage endorsement in Brevard County, State of Florida. "Full replacement cost" as used in this section shall mean the actual cost of replacement for personal property and other improvements on the Premises as determined from time to time. If at any time during the term of this Lease, Lessor believes that the full replacement cost has increased, Lessor shall notify Lessee in writing. If Lessee agrees with the 14 15 increased full replacement cost set forth in Lessor's notice, Lessee shall increase the amount of insurance carried to the amount stated in the notice. If the parties are unable to agree within that time period, the increased full replacement cost, if any, shall be determined by the insurance carrier that is then carrying the largest amount of fire and extended coverage on the Premises. That determination shall be final and Lessee shall immediately increase the amount of insurance to the amount determined by that carrier. (c) Waiver of Subrogation Rights: Lessee and Lessor each hereby release and relieve the other and waive their entire right of recovery against the other for loss or damage arising out of or incident to all perils insured against, which perils occur in, on or about the Premises whether due to the negligence of Lessor or Lessee or their agents, employees, contractors or invitees. Lessee and Lessor shall, upon obtaining the policies of insurance required hereunder, give notice to the insurance carrier or carriers of the foregoing mutual waiver of subrogation. 19. DESTRUCTION OF PREMISES (a) Duty to Repair or Restore: If any improvements, including buildings and other structures, located on the Premises are damaged or destroyed during the term of this Lease or any renewal or extension thereof, the damage shall be repaired as follows: (i) If the damage or destruction is caused by a peril against which fire and extended coverage insurance is required to be carried by Section 18 of this Lease, Lessor shall repair that damage as soon as reasonably possible and restore the Premises and improvements to substantially the same condition as existed before the damage or destruction, regardless of whether the insurance proceeds are sufficient to cover the actual cost of repair and restoration. (ii) If the damage or destruction is of personal property of Lessee and is caused by a peril against which fire and extended coverage insurance is required to be carried by Section 18 of this Lease, Lessee shall repair that damage as soon as reasonably possible and restore the Premises and improvements to substantially the same condition as existed before the damage or destruction, regardless of whether the insurance proceeds are sufficient to cover the actual cost of repair and restoration. (iii) If the damage or destruction is caused by a peril against which insurance is not required to be carried by this Lease, subject to their rights to terminate this Lease described in this Section, Lessor shall repair that damage to the buildings and Lessee shall repair that damage to its personal property and any improvements to the Premises owned by Lessee, trade fixtures, equipment and the like as soon as reasonably possible and restore the Premises to substantially the same condition as existed before the damage or destruction. (b) Termination of Lease for Certain Losses: (i) Notwithstanding any other provision of this Lease, if any improvements located on the Premises are damaged or destroyed to such an extent it will cost more than $250,000.00 (as determined by Lessor in the exercise of its reasonable discretion) to repair or replace them, and the damage or destruction is caused by a peril against which insurance is not required to be carried by this Lease, Lessor may terminate this Lease by giving Lessee written notice of the termination. The notice must be given within thirty (30) days after occurrence of the damage or destruction. 15 16 (ii) Lessee and Lessor shall each have the right in its respective sole and absolute discretion, to terminate this Lease under either of the following circumstances: (A) If the Premises are damaged or destroyed from any cause whatsoever, insured or uninsured, and the laws then in existence do not permit the repair or restoration of the Premises provided for in this article; or (B) If the Premises are destroyed from any cause whatsoever, insured or uninsured, during the last twelve (12) months of the Term. (iii) Either party may terminate this Lease in accordance with Section 18(b)(i) or (ii) by giving written notice of termination to the other not later than thirty (30) days after occurrence of the event giving rise to the termination under subsection (ii), and termination shall be effective as of the date of the notice of termination. In the event of a termination under subsection (ii), Lessee shall not be entitled to collect any insurance proceeds attributable to insurance policies covering the Premises or improvements, except those proceeds attributable to Lessee's personal property and trade fixtures. (iv) If this Lease is terminated pursuant to either subsection (i) or (ii) above, rent, taxes, assessments, and other sums payable by Lessee to Lessor under this Lease shall be prorated as of the termination date. If any taxes, assessments, or rent has been paid in advance by Lessee, Lessor shall refund it to Lessee for the unexpired period for which the payment has been made. (c) Time for Construction of Repairs: Any and all repairs and restoration of improvements required by this section shall be commenced by Lessor or Lessee, as the case may be, within a reasonable time after occurrence of the damage or destruction requiring the repairs or restoration, shall be diligently pursued after being commenced, and shall be completed within a reasonable time after the loss. If Lessor is required under this Lease to perform the repairs and restoration, Lessor shall cause the repairs and restoration to be completed not later than one hundred twenty (120) days after occurrence of the event causing destruction or Lessee shall have the right to terminate this Lease. In the event of damage or destruction to the Premises as described in this Section 18, rent shall be abated in proportion to the extent that the Premises are rendered untenantable by such damage or destruction from the date of such damage or destruction to the date of substantial completion of all required repairs and restoration. 20. CONDEMNATION: (a) Total Condemnation Defined: The term "total condemnation" as used in this section shall mean the taking by eminent domain or transfer under threat thereof ("condemnation") by a public or quasi-public agency or other entity having the power of eminent domain ("condemnor") of either: (i) More than thirty-three percent (33%) of the ground area of Building 60; or (ii) Less than thirty-three percent (33%) of the ground area of Building 60 at a time when the remaining portion of Building 60 or improvements thereon cannot reasonably be restored in Lessor's reasonable judgment to a condition suitable for Lessee's occupancy for the uses permitted by this Lease within thirty (30) normal eight-hour working days under all laws and regulations then applicable; or 16 17 (iii) Less than thirty-three percent (33%) of the ground area of Building 60 in such a manner that Lessee is substantially prevented from carrying on operations of a permitted use under this Lease on the remaining portion of the Premises. (iv) If Building 56 or any portion thereof is taken by condemnation, Lessor shall provide Lessee substantially similar office space, reasonably acceptable to Lessee, elsewhere on the Complex. (b) Partial Condemnation Defined: The term "partial condemnation" as used in this section shall mean any condemnation of a portion of the Premises that is not a total condemnation under Section 20(a) of this Lease. (c) Termination for Total Condemnation: In the event of a total condemnation of the Premises during the term of this Lease, this Lease shall terminate without further notice as of 12:01 A.M. on the date that Lesee surenders the Premises as a result of the order or decree of condemnation ("Surrender Date") All rent payable under this Lease shall be prorated as of 12:01 A.M. on said date and a prompt refund or payment of rent for the unexpired period of this Lease shall be made by Lessor to Lessee. On the making of that rent adjustment, both Lessor and Lessee will be released and discharged from any and all further obligations under this Lease. (d) Effect of Partial Condemnation: In the event of a partial condemnation of the Premises, this Lease shall terminate as to the portion of the Premises taken on Surrender Date, but shall remain in full force and effect as to the remainder of the Premises; provided, however, that promptly after the Surrender Date, Lessor shall restore, at Lessor's own cost and expense, the improvements on the remainder of the Premises to a condition making the Premises tenantable by Lessee for the uses permitted by this Lease. Any rent payable under this Lease after the Surrender Date shall be reduced by the percentage the ground area of the portion taken by eminent domain bears to the total ground area of the Premises on the date of this Lease. In addition, the rent payable under this Lease shall be further abated during the time and to the extent Lessee is prevented from occupying all of the remainder of the Premises by the work of restoration required by this section to be performed by Lessor. (e) Lessor's Power to Sell in Lieu of Condemnation: Lessor may, without any obligation or liability to Lessee and without affecting the validity or continuation of this Lease other than as expressly provided in this section, agree to sell or convey to the condemnor, without first requiring that an action or proceeding for condemnation be instituted or tried, that portion of the Premises sought by the condemnor, free from this Lease and the rights of Lessee in the Premises other than as provided in this Section 20. (f) Condemnation Award: All compensation and damages awarded or paid for the condemnation of the Premises or any portion of the Premises, or for any sale in lieu of condemnation as authorized by Section 20(e) above, shall, except as otherwise expressly provided in this section, belong to and be the sole property of Lessor. Lessee hereby assigns to Lessor any claim Lessee might have except for enforcement of this provision against Lessor, the leased Premises, or condemnor for diminution in value of the leasehold estate created by this 17 18 Lease or the value of the unexpired term of this Lease; provided, however, that Lessee is entitled to seek to recover from the condemnor, but not from Lessor: (i) The cost of removing any trade fixtures, furniture, or equipment from the portion of the Premises taken by condemnation; (ii) The value of any improvements installed by Lessor on the portion of the Premises taken by condemnation that Lessee has a right to remove under this Lease but that Lessee elects not to remove; and (iii) The then amortized value of all improvements made by Lessee on the portion of the Premises taken by condemnation that could not be removed by Lessee on expiration of this Lease because of provisions of this Lease. 21. DEFAULT: Lessor will provide Lessee advance written notice in the event of any default. Lessee will have ten (10) days to cure said default in the event of a monetary default, and thirty (30) days to cure said default in the event of a non-monetary default` or such longer period as may be necessary to cure such non-monetery default if not reasonably susceptible of cure within thirty (30) days provided that Lessee diligently and continuously prosecutes such cure to completion . Any one or more of the following, if not cured following notice by Lessor within the periods specified in the foregoing sentence, will constitute an event of default by Lessee hereunder, if Lessee during the Term: a) Does not pay in full within ten (10) days after notice is given of all base rent, additional rent, expenses and charges due under this Lease; or, b) Violates, fails to perform, or otherwise breaches any term, covenant, or condition of this Lease and the same is not cured after notice thereof; or, c) Permits leasehold estate or any property of Lessee to be exposed for sale or judgment or execution process by sheriff, marshal, or constable; or, d) Becomes insolvent, makes an assignment for the benefit of creditors, is adjudicated bankrupt, files a bill in equity, or otherwise initiates proceedings for the appointment of a receiver of its assets, files a voluntary petition under the provisions of the United States Bankruptcy Court or under the insolvency laws of any state, or has an involuntary petition filed against it, which involuntary petition is not discharged within ninety (90) days of filing; or, e) Records or attempts to record this Lease in any office of public recording; or, f) Assigns or sublets this Lease, except as provided herein; or, g) Fails to move into or take possession of the Leased Premises upon commencement of the Term. h) Fails to abide by the Hazardous Materials storage, handling, and discharge requirements set forth in Section 25 herein. 22. REMEDIES UPON EVENT OF DEFAULT: Upon the occurrence of an event of default, Lessor may terminate Lessee's right to possession of the Premises at any time by written notice to Lessee. If the Lessor terminates this Lease as herein provided, Lessor may retake possession, or pursue any other remedy afforded by law, provided that such default and all other defaults at the time existing have not been fully 18 19 cured, and all reasonable expenses and costs incurred by Lessor, including all reasonable attorneys' fees, in connection with enforcing this Lease, shall not have been fully paid. Any such termination shall apply to any extension or renewal of the term herein demised, and to any right or option on the part of Lessee that may be contained in this Lease or any agreement. Following an event of default as defined herein or abandonment of the leased Premises by the Lessee, in addition to all other remedies, Lessor shall have the option to declare immediately due and payable the entire base rent, and such shall then become immediately due and payable, including all applicable sales tax. Nothing herein contained shall be construed as precluding Lessor from having such remedy as may be and become necessary in order to preserve Lessor's right or interest in the leased Premises and in this Lease, even before the expiration of the grace or notice periods provided for in this Lease, if under particular circumstances then existing the allowance of such grace or the giving of such notice will prejudice or will endanger the rights and estate of Lessor in this Lease and in the leased Premises. 23. OPTION TO RENEW Provided no event of default exists and is continuing at the time of giving notice of Lessee's exercise of its option, Lessor grants to Lessee an option to renew the Lease for six (6) additional three (3) year periods, commencing at the close of the initial lease Term and each succeeding option period respectively. 24. OPTION TO EXPAND Provided no event of default exists and is continuing at the time of giving notice of Lessee's exercise of its option, Lessor grants to Lessee, on July 3, 2000, an option to expand the leased Premises to include the 2,533 square foot portion of Building 56 presently occupied by Lessor's calibration laboratory as identified on Exhibit "C". Lessee shall give Lessor ninety (90) days written notice of its intent to exercise this option. The cost of reconfiguring said portion of Building 56 to suit Lessee's needs shall be at Lessee's sole expense. If Lessee does not exercise this option on July 3, 2000, the next time it may be exercised is on July 3, 2001 and every subsequent anniversary thereof, if not already exercised, until the termination date of this Lease as specified in Section 2 herein. Upon the exercise of this option, the monthly base rent shall be increased to reflect the total rentable square footage of Building 56 to be occupied by Lessee, which is 7,708 square feet (95%). The 400 square-foot Communications Equipment Room shown on Exhibit "C" is excluded from this Option, as set forth in Section 15 herein. Lessor's employees, agents, and contractors shall be allowed unrestricted access to and use of the hallway running east-west through Building 56 for purposes of traversing the Complex. 25. HAZARDOUS MATERIALS Lessee shall not use, generate, manufacture, produce, store, release, discharge, or dispose of, on, under or about the Premises or any part of the Complex, or transport to or from the Premises or any part of the Complex, any Hazardous Materials or allow its employees, agents, 19 20 contractors, invitees or any other person or entity to do so except in material compliance with all Federal, state and local laws, regulations and ordinances. The term "Hazardous Materials" shall include without limitation: (a) Those substances defined as a "Hazardous Substance" under Section 1.1 of the Asset Purchase Agreement; (b) Those substances included within the definition of "hazardous substances", "hazardous materials", "toxic substances", or "solid wastes" under CERCLA, RCRA, and the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et seq., and in the regulations promulgated pursuant to said laws. Lessee hereby acknowledges receipt of and agrees to comply with Lessor's Stormwater Pollution Prevention Plan for the handling and storage of Hazardous Materials. In addition to the foregoing, Lessee further agrees that except as previously disposed of in the conduct of the Photomask Business by Lessor without material variation, without Lessor's prior written consent which may be given or withheld in Lessor's sole discretion, only ordinary domestic sewage is permitted to be put into the sanitary waste drains of the Premises. So long as the Photomask Business operations carried on by Lessee are conducted substantially in the same way that Lessor conducted the Photomask Business prior to the Closing Date, Lessee's industrial wastewater will be treated in Lessor's wastewater treatment system and the effluent from that system will be disposed of in Lessor's deep well. If Lessee desires to put any substances other than what was disposed of prior to the Closing Date by Lessor in the industrial wastewater drains, it shall first submit to Lessor a complete description of each such substance, including its chemical composition, and a sample of such substance suitable for laboratory testing. Lessor shall properly determine whether or not the substance can be deposited into the drains and its determination shall be absolutely binding on Lessee. Upon demand, Lessee shall reimburse Lessor for the reasonable expenses incurred by Lessor in making such determination. Any change in the type or kind of chemicals used by Lessee or a material change in the volume of effluent produced by Lessee must first be approved in writing by Lessor. Lessee must furnish Material Safety Data Sheets with any new chemicals approved for use by Lessor. Regardless of whether Lessor approves of Lessee's use, storage or disposal of Hazardous Materials, Lessee shall be liable to Lessor for and indemnify and hold Lessor harmless against all direct damages (including, but not limited to, investigation, remedial costs, fines, and judgments), liabilities and claims to the extent arising out of Lessee's activities associated with storing, handling, using, or disposing of Hazardous Materials on the Complex. In the event Lessee's activities with Hazardous Materials create a contamination problem on or adjacent to the Premises or Complex, Lessee shall promptly commence investigation and remedial activities to remedy the problem. If appropriate or required by law, these activities shall be conducted in conjunction with Federal, state and local oversight and approvals and in accordance with applicable government regulations. 20 21 Lessee agrees immediately to report to Lessor any unlawwful and material release on or adjacent to the Premises or Complex by Lessee of any Hazardous Materials in order to allow Lessor's Emergency Response Team ("ERT") to respond to such release. Lessee and Lessee's employees shall follow directions from the incident commander of Lessor's ERT in responding to such release. In addition, Lessee shall provide Lessor with copies of any and all correspondence between Lessee and any environmental regulatory agencies of any federal, state or local governmental authorities relating to a violation or alleged violation of environmental laws, rules or regulations by Lessee at the Premises. If Lessee performs or causes to be performed any environmental testing of the Premises, Lessee shall provide Lessor with a complete copy of the results of any such tests and any reports analyzing such results. Any testing required by an environmental regulatory agency because of a permit modification due to Lessee's operations shall be at Lessee's expense. Lessor shall have the right to enter on the Premises and any part thereof, after reasonable notice and at reasonable times during normal business hours, for the purpose of performing any of the work for which Lessor is responsible under the Lease, or to engage in any other activities deemed reasonably necessary by Lessor to ensure the compliance of the Premises with applicable environmental laws and regulations, including the performance of any such activities required to be performed by Lessee hereunder or under applicable laws or regulations, following reasonable notice and an opportunity to Lessee to cure, if appropriate in the light of the circumstances. In the event of a release or other environmental emergency at the Premises Lessor shall have the right to enter the Premises for purposes of responding to such release or emergency without giving Lessee notice in advance. Lessor reserves the right to immediately stop any wrongful or unlawful discharge by Lessee. 26. INDEMNIFICATION Lessee shall indemnify and hold Lessor harmless from and against any claims arising from Lessee's use of the Premises or from the conduct of Lessee's business or from any activity, work or things done, permitted or suffered by Lessee in or about the Premises or elsewhere, including, but not limited to, releases of Hazardous Materials or a violation of environmental laws. Lessee shall further indemnify and hold harmless Lessor from and against any claims arising from any breach or default in the performance of any obligation on Lessee's part to be performed under the terms of this Lease, and Lessee hereby waives all claims in respect thereof against Lessor. Lessee shall indemnify and save Lessor harmless from any and all direct liability, loss, damage, expense, causes of action, suits, claims, or judgments arising from injury to person or property resulting from or based upon the actual use of the Complex or Premises by Lessee's employees, agents, contractors, or guests, and shall, at its own cost and expense, defend any and all suits which may be brought against Lessor, either alone or in conjunction with others upon any such liability or claim and shall satisfy, pay and discharge any and all judgments and fines that may be recovered against Lessor in any such action, provided that Lessor shall give Lessee prompt written notice of any such claim or demand. Lessor shall indemnify and hold Lessee harmless against all direct damages (including investigation and remedial costs), liabilities and claims arising out of any and all pre- 21 22 Commencement Date activities related to the Premises associated with Hazardous Materials or a violation of environmental laws No indemnity provided by Lessee to Lessor hereunder shall apply to the extent that the applicable claim, expense, liability, loss, damage, cause of action, suit or judgment is caused by the negligence or willful misconduct of Lessor, its agents or employees. 27. ABANDONMENT OF PREMISES Lessee shall not vacate or abandon the Premises at any time during the term hereof for a period exceeding 90 days, and if Lessee shall abandon or vacate the Premises, or be dispossessed by process of law, or otherwise, any personal property belonging to Lessee left upon the Premises shall be deemed to be abandoned, at the option of Lessor. All rent due under the remaining term of this Lease shall be due and payable immediately. 28. ASSIGNMENT AND SUBLETTING Lessee shall not assign this Lease, or any interest therein, and shall not sublet the Premises, or any part thereof, or any right or privilege appurtenant thereto, or suffer any other person (the agents and servants of Lessee excepted) to occupy or use the Premises, or any portion thereof, without the written consent of Lessor first had and obtained, except that Lessee may sublet office space to their Sales Representatives for a term consistent with the Term of this Lease, subject to the rights of Lessor and obligations of Lessee in this Lease. Should Lessor cancel this Lease as provided in Section 29 herein, Lessee must immediately cancel the sublease with the Sales Representative. Lessor shall not be responsible to Lessee's Sales Representatives in any way for exercising the option to cancel. The consent to this or any other assignment, subletting, occupation or use by any other person, shall not be deemed to be a consent to any subsequent assignment, subletting, occupation or use by another person. Any such assignment or subletting without such consent shall be void, and shall at the option of Lessor, terminate this Lease. Notwithstanding the foregoing, Lessee may assign without the prior consent of Lessor, its rights hereunder to any wholly-owned subsidiary or Affiliate of Align-rite International, Inc., or to any post-Closing purchaser(s) of all of the capital stock of Align-Rite International, Inc. or of substantially all of its assets, and except that Lessor may assign, without the prior consent of Lessee, its rights hereunder to any wholly-owned subsidiary or Affiliate of Harris Corporation or to any post-Closing purchaser(s) of substantially all of the Semiconductor Business Unit of Harris Corporation. Notwithstanding the above, Harris covenants and agrees that in the event it sells all or substantially all of its assets related to its semiconductor business (including, but not limited to, its June 3, 1999 announced sale of its semiconductor business to a subsidiary of Sterling Holding Company, Citicorp Venture Capital investment portfolio company), it shall require as a condition of completion of such transaction that the purchaser of such assets, as well as any successors of any such purchaser, enters into an express assumption of this Agreement, as if such purchaser or such successor were the original party to this Agreement, and the form of any such assumption agreements shall be reasonably acceptable to Align-Rite. In the event of any such assignments, Harris shall be deemed to have guaranteed the performance of such purchaser's or successor's obligations hereunder and be responsible therefor. Align-Rite covenants and agrees that in the 22 23 event it sells all or substantially all of the Business Assets, it shall require that the purchaser of such assets, as well as any successors of any such purchaser, enters into an express assumption of this Agreement, as if such purchaser or such successor were the original party to this Agreement, and the form of any such assumption agreements shall be reasonably acceptable to Harris. In the event of any such assignments, Align-Rite shall be deemed to have guaranteed the performance of such purchaser's or successor's obligations hereunder and be responsible therefor. In the event Lessor disposes of the Complex or that portion containing the Premises, Lessor may assign its rights and delegate its obligations under this Lease to the purchaser without consent of the Lessee, which purchaser shall be bound by this Lease, including the obligations of the Lessor hereunder, provided that such terms of assignment are accepted in writing by the purchaser. 29. OPTION TO CANCEL Lessor agrees that Lessee may cancel its obligations under this Lease at the beginning of the twenty-fifth (25th) month of the Term hereof after providing Lessor with ninety (90) days written notice of Lessee's intent to cancel. Lessor also agrees that Lessee may cancel its obligations under this Lease at the beginning of the sixty-first (61st) month of the Term hereof after providing Lessor with one hundred eighty (180) days written notice of Lessee's intent to cancel. This option may also be exercised at the beginning of each successive thirty-six (36) month period (eg. 97th month, 133rd month, 169th month, etc.) thereafter, including all renewal option terms, upon Lessee giving Lessor one hundred eighty (180) days notice of its intent to cancel. Upon exercise of this option, Lessee shall pay Lessor the amount of four (4) times the monthly rental for the month in which notice of cancellation was given, payable upon notification to Lessor of Lease cancellation, as consideration for Lessor's cancellation of the Lease Agreement between the parties. Lessee shall vacate the Premises promptly within ninety (90) days following notification to Lessor hereunder, and in the event Lessee does not vacate promptly, the rental shall continue to be payable in accordance with the Lease, without credit for said payment of four times the monthly rental, until such time as Lessee vacates the Premises. Lessee shall vacate the Premises in the condition required under Section 40 of this Lease. Lessee agrees that Lessor may cancel its obligations under this Lease at the beginning of the twenty-fifth (25th) month of the Term hereof after providing Lessee with ninety (90) days written notice of Lessor's intent to cancel. Lessee also agrees that Lessor may cancel its obligations under this Lease at the beginning of the sixty-first (61st) month of the Term hereof after providing Lessee with one hundred eighty (180) days written notice of Lessor's intent to cancel This option may also be exercised at the beginning of each successive thirty-six (36) month period (eg. 97th month, 133rd month, 169th month, etc.) thereafter, including the renewal option terms, upon Lessee giving Lessor one hundred eighty (180) days notice of its intent to cancel. Upon exercise of this option, Lessor shall pay Lessee the amount of four (4) times the monthly rental for the month in which notice of cancellation was given, payable upon notification to Lessee of Lease cancellation, as consideration for Lessee's cancellation of the Lease Agreement between the parties. Upon cancellation of this Lease by either party, Lessor shall have, and Lessee hereby grants to Lessor, the option to repurchase all fixtures and improvements as set forth in Schedule 2.1(a)(i) 23 24 Attachment V (excluding the Exide 150 System and the Generator/Fuel system) of the Asset Purchase Agreement attached to the real property at their fair market value. 30. COMPLIANCE WITH LAW Lessee shall, at Lessee's expense, comply promptly and materially with all applicable statutes, ordinances, rules, regulations, orders, covenants and restrictions of record, and requirements in effect during the term or any part of the term hereof, regulating the use by Lessee of the Premises. Lessee shall not use or permit the use of the Premises in any manner that will create a waste or a nuisance or unreasonably disturb use of the adjacent premises. 31. HOLDING OVER Any holding over after the expiration of this Lease, with the consent of Lessor, shall be construed as a month-to-month tenancy at the then existing rental rate. If Lessee fails without the consent of Lessor to vacate the Premises at the expiration of this Lease or any extension period thereof, if extended, then Lessee shall pay Lessor at 150% of the then existing rental rate for the time Lessee thus remains in possession and, in addition thereto, shall be responsible for and reimburse Lessor for all direct damages sustained by Lessor by reason of Lessee's retention of possession. The provisions of this section do not exclude Lessor's rights of re-entry or any other right or remedy of Lessor hereunder. 32. LESSOR'S RIGHT TO ENTRY AND INSPECTION Lessee shall permit and shall cooperate with Lessor or Lessor's agents to enter upon the Premises at reasonable times and upon reasonable notice, for the purpose of inspecting and/or repairing the same, and during the last six months of the Term, will permit persons desiring to purchase or lease the same to inspect the Premises thereafter upon reasonable notice to Lessee, so long as they do not disrupt Lessee's business activities. Lessor reserves the right to retain at all times pass keys to the Premises and, at any time and without notice in the event of an emergency, and otherwise upon reasonable notice and at reasonable times, to enter onto the Premises and any buildings or other improvements of the Premises to take any and all measures, including inspections, repairs, alterations, additions and improvements to the Premises, the buildings or to the land, as may be necessary or desirable for the safety, protection or preservation of the Premises, the buildings or the land or Lessor's interests, or as may be necessary or desirable in the operation or improvement of the Premises, the buildings or the land or in order to comply with all laws, order and requirements of governmental or other authority. 33. LESSOR'S RIGHT TO PERFORM LESSEE'S COVENANTS If Lessee shall at any time fail to make any payment or perform any other act on its part to be made or performed under this Lease, Lessor may, but shall not be obligated to, and without waiving or releasing Lessee from any obligation of Lessee under this Lease, make such payment 24 25 or perform such other act to the extent Lessor deems desirable, and in connection therewith, pay expenses and employ counsel. All sums so paid by Lessor and all penalties, interest, and costs in connection therewith shall be due and payable by Lessee on the next day after Lessee receives notice of any such payment by Lessor, together with interest thereon at the rate of 12 percent (12%) per annum, or the highest legal rate of interest, whichever is lower, from such date to the date of payment thereof by Lessee to Lessor plus collection costs and attorneys' fees. Lessor shall have the same rights and remedies for the non-payment thereof as in the case of default in the payment of rent. 34. LATE PAYMENT CHARGES If the rent is not paid within ten (10) days from the date same is due, Lessor, at its option, may charge a late fee of two percent (2%) per annum above the prime interest rate published in the Wall Street Journal as of the date on which payment was due, calculated on a daily basis. If the rent or any other amount due hereunder becomes more than ninety (90) days past-due, Align-Rite International, Inc. guarantees and will make payment of such amount on behalf of Lessee. 35. LIENS Lessee shall keep the Premises free from any liens arising out of any work performed, materials furnished, or obligations incurred by or on behalf of Lessee. Lessee shall cause any such lien imposed to be released of record by payment or posting of a proper bond within ten (10) days after imposition of the lien or written request by Lessor, or furnish other assurances for payment reasonably acceptable to Lessor. Lessee shall give Lessor written notice of Lessee's intention to perform work on the Premises which might result in any claim of lien at least twenty (20) days prior to the commencement of such work to enable Lessor to post and record a notice of non-responsibility or other notice deemed proper before the commencement of any such work. 36. NOTICES Any notice, demand, request, consent, approval or communication that either party desires or is required to give to the other party under this Lease shall be in writing and shall be served personally, delivered by independent messenger or overnight courier service, or sent by U.S. certified mail, return receipt requested, postage prepaid, in which event such notice shall be deemed to have been given when seventy-two (72) hours have elapsed from the time when such notice was deposited in the United States mail, addressed to the other party at the address set forth in the Lease Summary herein. Either party may change its address by giving notice of same in accordance with this paragraph. 37. QUIET ENJOYMENT Upon the performance by Lessee of all of the agreements herein set forth, Lessee may quietly hold and occupy the Premises without any interruption (except as expressly contemplated by this Lease) by Lessor or persons claiming through or under Lessor. Lessor's liability under 25 26 the covenants of this section is limited to the abatement of rent, unless Lessee is dispossessed by an act of bad faith on the part of Lessor or persons claiming through or under Lessor, in which case Lessee shall be also entitled to reimbursement for actual documented moving expenses up to a maximum of $150,000, but shall not include any consequential or incidental damages incurred by Lessee. Nonetheless, Lessor shall not be barred from bringing any valid action on the Lease. Any lawsuit brought by Lessor to enforce the terms of this Lease or seeking a declaration of Lessor's rights pursuant to this Lease shall not be deemed a violation of this clause. 38. SECURITY DEPOSIT No security deposit is required under this Lease. 39. SUCCESSORS AND ASSIGNS The covenants and conditions herein contained shall, subject to the provisions as to assignment, apply to and bind the heirs, successors, executors, administrators and assigns of all of the parties hereto, and all of the administrators and assigns of all of the parties hereto, and all of the parties hereto shall be jointly and severally liable hereunder. 40. SURRENDER OF PREMISES On the last day of the Term hereof, or on any sooner termination, Lessee shall surrender the Premises to Lessor in the same condition as when received, ordinary wear and tear excepted, clean and free of debris. Lessee shall repair any damage to the Premises occasioned by the installation or removal of Lessee's trade fixtures, furnishings and equipment. Lessee shall remove the cleanroom. Lessee shall decontaminate Building 60 and remove all hazardous substances, toxic substances, solid waste and hazardous materials (as described in Section 25(b) herein) from all ceilings, floors and walls and any permanent structures remaining within Building 60. In the event Lessee is surrendering the premises due to Lessor's expressed desire to reoccupy Building 60, Lessor shall be responsible for decontaminating Building 60. Lessee shall remove all signs installed on the Complex under Section 11 herein. Any clean-up and/or repairs required to restore the Premises to the condition it was in at the commencement of this Lease not performed by Lessee as of the last day of the term hereof shall be performed by Lessor or Lessor's agent at Lessee's expense, unless otherwise provided herein. 41. TRANSFER OF PROPERTY BY LESSOR Except as may be provided in Section 28, in the event of any conveyance of the Complex and assignment by Lessor of this Lease, Lessor shall be and is hereby entirely freed and relieved of all liability under any and all of its covenants and obligations contained in or derived from this Lease occurring after the consummation of such conveyance and assignment so long as Lessor's successor agrees and covenants to assume all of Lessor's obligations under this Lease occurring after the consummation of such conveyance assignment. 26 27 42. ESTOPPEL CERTIFICATE AND SUBORDINATION a) Lessee shall upon Lessor's written request, promptly execute and deliver to Lessor, without charge, a statement certifying that this Lease is in full force and effect in its original form or is in full force and effect as modified, and if applicable, the date to which the rent has been prepaid and any other information as may be reasonably required by Lessor. b) Lessee agrees to promptly execute and deliver to Lessor, upon written request, without charge, in such form as may be reasonably required by any prospective lender to Lessor, an instrument or instruments whereby Lessee will agree to subordinate this Lease to the lien of said lender's mortgage or deed of trust or other encumbrance, and in the case of foreclosure will attorn to such mortgagee or holder acquiring title by foreclosure; provided such new Lessor shall agree that Lessee may continue to occupy the Premises in accordance with this Lease. As used herein, the term "foreclosure" shall include both judicial proceedings and the exercise of a power of sale under any mortgage or deed of trust without recourse to judicial proceedings. c) In the event such instruments are required for the sale of the Complex, Lessee further agrees to promptly execute and deliver said instruments to Lessor, upon which delivery Lessee shall attorn to the buyer of the Complex. 43. GENERAL a) The meaning of terms not defined in this Lease shall be the same as that defined in said Asset Purchase Agreement or Site Services Agreement. b) The captions used in this lease are for the purpose of convenience only and shall not be construed to limit or extend the meaning of any part of this Lease. c) Any executed copy of this Lease Agreement shall be deemed an original for all purposes. d) In case any one or more of the provisions contained herein shall for any reason be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Lease, but this Lease shall be construed as if such invalid, illegal, or unenforceable provision had not been contained herein. e) When the context of this Lease requires, the neuter gender includes the masculine, the feminine, a partnership, corporation, or joint venture, and the singular includes the plural. f) The waiver by Lessor of any breach of any term, condition, or covenant of this Lease shall not be deemed a waiver of such provision or any subsequent breach of the same or any other term, condition, or covenant of this Lease. g) The words "herein", "hereof", "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision. 44. GOVERNING LAW 27 28 This Lease and the relationship between Lessor and Lessee shall be governed by and construed in accordance with the laws of the State of Florida. 45. FORCE MAJEURE Neither party shall be liable in damages for any delay or default in the performances of any or all obligations of this Lease, if such delay or default is caused by conditions beyond its control, including, but not limited to: acts of the elements, fires, explosions, floods or other casualties, governmental orders or restrictions, and the inability despite diligent efforts to obtain necessary governmental approvals. The party incurring the delay shall promptly notify the other party in writing, and performance shall be extended one day for each day of delay. 46. ENTIRE AGREEMENT This Lease, together with the Asset Purchase Agreement and the Site Services Agreement, contains all of the terms, covenants and conditions agreed to by Lessor and Lessee, integrates all discussions and understandings leading up to this Agreement, supersedes all prior agreements between the parties pertaining to the subject matter herein, and may not be modified orally or in any manner other than by an agreement in writing signed by all of the parties to this Lease or their respective successors in interest. 47. ATTORNEYS' FEES In case suit should be brought for recovery of the Premises, or for any sum due hereunder, for the enforcement or interpretation of any of the terms or conditions of this Lease, or because of any act which may arise out of the possession of the Premises, by either party, the prevailing party shall be entitled to all costs incurred in connection with such action, including a reasonable attorney's fee. 48. AUTHORITY Lessee and Lessor warrant and represent that their respective representatives executing this Lease each have the full power and authority to execute this Lease on behalf of Lessee and Lessor, respectively, and that this Lease, once executed by the signatory of Lessee or Lessor, as the case may be, shall constitute a legal and binding obligation of that party and is fully enforceable in accordance with its terms. IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease Agreement as of the day and year first written above. 28 29 Harris Corporation Align-Rite, Inc. Semiconductor Business Unit - --------------------------- -------------------------------------- By: W. Russ Morcom By: James L. MacDonald V.P.-GM Operations Chairman of the Board As to the gaurantees, Align-Rite International, Inc. -------------------------------------- By: James L. MacDonald Title: Chairman of the Board and Chief Executive Officer 29 30 [GRAPHIC OMITTED] 30 31 Exhibit B Description of demised Premises: BUILDING 60 Building 60 is part of the Complex located at 2401 Palm Bay Road NE, Palm Bay, FL 32907, and is approximately fifty (50) feet north of Building 53, to the east of Building 56 and to the west of Building 54 as shown on Exhibit "A". It contains approximately 25,567 square feet of space, including 16,279 sq. ft. under air, 4,883 sq. ft. of facilities service area on the first floor, and 4,405 sq. ft. of facilities service area on the second floor, and all improvements thereon and appurtenances thereto. BUILDING 56 Building 56 is part of the Complex located at 2401 Palm Bay Road NE, Palm Bay, FL 32907, and is adjacent to the north side of Building 53, to the east of Building 52 and to the west of Building 60 as shown on Exhibit "A". It contains approximately 8,108 square feet, of which ITG uses 4,170 rentable square feet as shown on Exhibit "C". The rentable square foot area does not include the 400 square-foot Communications Equipment Room (CER) identified on Exhibit "C". Lessee shall have access to and use of the 486 square-foot area located on the second floor of Building 56 as identified on Exhibit "D", but shall not be charged for such usage. Lessor will retain title to the Real Property on which Buildings 56 and 60 are located, including all fixtures, improvements, and appurtenances thereto. Lessor will also retain title to the Real Property on which an entry-way to building 60 is constructed as set forth in Section 13 herein as well as the Real Property on which the six parking spaces designated for use by Lessee are located as set forth in Section 12 herein. 31 32 [GRAPHIC OMITTED] 32 33 [GRAPHIC OMITTED] 33 -----END PRIVACY-ENHANCED MESSAGE-----