<PAGE>
As Filed with the Securities and Exchange Commission on December 17, 1997
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of
The Securities Exchange Act of 1934
LANSTAR SEMICONDUCTOR INC.
UTAH 87-0365672
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Maxie R. Smith
Chairman and Chief Executive Officer
2501 Avenue J - Suite 125
Arlington, Texas 76006
(Address of principal executive offices) (Zip Code)
Lanstar Semiconductor Inc.'s telephone number, including area code, is
(817) 640-4566
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
------------------- ------------------------------
None None
Securities to be registered pursuant to Section 12(g) of the Act:
COMMON STOCK .001 PAR VALUE
(Title of Class)
================================================================================
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
ITEM 1. BUSINESS................................... 1
ITEM 2. FINANCIAL INFORMATION...................... 12
ITEM 3. PROPERTIES................................. 23
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT...................... 24
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS........... 26
ITEM 6. EXECUTIVE COMPENSATION..................... 30
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS............................... 35
ITEM 8. LEGAL PROCEEDINGS.......................... 36
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON LSI'S
COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.................................... 36
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.... 37
ITEM 11. DESCRIPTION OF LSI'S SECURITIES TO BE
REGISTERED................................. 41
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.. 42
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 43
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE................................. 43
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.......... 43
SIGNATURE PAGE............................. 48
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
SUMMARY OF BUSINESS
Lanstar Semiconductor Inc. ("LSI"), through its subsidiaries,
manufactures and/or purchases and distributes a full product line of personal
computer ("PC") memory components, central processing units ("CPUs"),
subsystems, peripherals and PC systems to small computer retailers, value-added
resellers ("VARs"), system integrators, memory and computer product
distributors, corporations, and consumers.
Currently, LSI is completing the design of its first semiconductor 16
Meg (4X4) Dynamic Random Access Memory ("DRAM") product that will be sold as
packaged devices and Single In-line Memory Modules ("SIMMs") in various product
configurations. LSI anticipates incorporating these memory products into its PC
subsystems and complete PC systems to further enhance brand name quality and
reliability while reducing product cost.
GENERAL DEVELOPMENT
Lanstar Semiconductor Inc. ("LSI")
- ----------------------------------
LSI was organized as a Utah corporation in October 1980 as Kazmir
Kliffs, Inc. During November 1995, Kazmir Kliffs, Inc. changed its name to
Lanstar Semiconductor Inc. and entered into an agreement with Lanstar
Semiconductor Corporation ("LSC") to issue up to 8,500,000 common shares of LSI
to the stockholders of LSC and debenture holders of debentures that were
convertible into LSC common stock in exchange for all the outstanding common
shares and all the outstanding convertible rights to common shares of LSC.
Until its purchase of LSC in 1995, Kazmir Kliffs, Inc. had no activity. Unless
otherwise indicated in this Form 10, LSI includes LSI and its subsidiaries.
LSI is a holding company organized functionally with each subsidiary
specializing in the marketing, distribution and/or production of PC components,
CPUs, subsystems, peripherals and complete PC systems. The following discussion
outlines the development of and principal products and services provided by each
current and former subsidiary.
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CURRENT SUBSIDIARIES
Lanstar Semiconductor Corporation ("LSC")
- -----------------------------------------
LSC was organized as a Texas corporation in June 1995 to design,
develop, manufacture and distribute semiconductor memory DRAM, IC (Integrated
Circuit) and SIMM components. LSC is currently responsible for ongoing
semiconductor IC and SIMM design for both standard and custom proprietary memory
products. LSC acquired its operations from LCC by issuing shares to the
stockholders of LCC.
Lanstar Hong Kong Limited ("LHK")
- ---------------------------------
During December 1996, LSI acquired all the outstanding stock of LHK
from an affiliate. LHK is primarily responsible for procuring raw materials
necessary for DRAM/SIMM manufacturing. Future plans include expanding
procurement to source primarily PC related components including subsystems and
peripherals to further support the manufacturing and sales of LCP, LST and LSC.
LSI anticipates utilizing LHK for manufacturing operations in the
Pacific Rim for its subsidiaries once development of proprietary memory products
is complete.
Lanstar Computer Products, Inc. ("LCP")
- ---------------------------------------
LCP was organized as a Texas corporation in August 1997 and is a
wholly-owned subsidiary of LSI. Prior to incorporation, the business activities
of LCP were performed as a division of LSI. LCP is a full line PC memory, CPU,
subsystem, peripherals and complete PC systems wholesale distributor with
limited distribution of software. LCP markets its products primarily in the
U.S. domestic market to small computer retailers, VARs, system integrators and
other memory and computer products distributors. LCP is in the process of
developing an international sales program targeted to the Pacific Rim, European
and South American markets.
Lanstar Systems Technology, Inc. ("LST")
- ----------------------------------------
LST was organized as a Texas corporation in October 1997 and is a
wholly-owned subsidiary of LSI. LST develops, manufactures and distributes
nonbranded, private label and Lanstar brand name PC computers
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to wholesalers, computer retailers, corporations and consumers. LST also
provides ongoing repair and customer services.
LST's sales and marketing plan is designed to distribute its products
to LSI's existing dealer networks made up of small retailers, VARs, and systems
integrators. In addition, LSI anticipates developing its corporate and consumer
markets through direct sales with an increasing focus on the internet as a
medium.
FORMER SUBSIDIARIES
Lanstar Computer Corporation ("LCC")
- ------------------------------------
LCC was organized as a Texas corporation in September 1993 for the
purpose of distributing PC workstations, memory, and subsystems. During 1996,
the majority of LCC's operations were acquired by LSI and its subsidiaries.
Simmco Memory Products, Inc., a Texas corporation organized in 1994 and a
wholly-owned subsidiary of LCC, was dissolved in November 1997.
Southwest Memory International, Inc. ("SMI")
- --------------------------------------------
SMI was organized as a Texas corporation in January 1996. During
November 1996, LSI acquired all the outstanding stock of SMI from World Data
Limited, a Cayman Islands corporation. LSI retained SMI's previous management
in order to secure a smooth transition of management and to retain the advantage
of its expertise and experience in the operating of SMI. Due to differences of
opinion relating to operating methods which, in the opinion of LSI's management
could not be reconciled, SMI was subsequently resold, effective October 13,
1997, to its original shareholder.
While owned by LSI, SMI served as major distributor of semiconductor
SIMMs and CPUs to a customer base of approximately 3,517 computer retailers,
VARs and systems integrators. SMI distributed approximately 90% of its products
in the United States market with the remaining 10% of sales in European and
select South American countries.
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PRODUCTS
Historically LSI was primarily a computer memory products wholesaler to
VARs, system integrators, wholesale distributors and small computer retailers.
However, in mid-1996, LSI began an ongoing expansion of its product line and now
distributes a full line of PC components, subsystems, peripherals, and DRAMs, as
well as complete PC systems in addition to CPUs and memory products.
Prior to mid-1996, semiconductor CPU's and memory products dominated
LSI's product mix, generating upwards of 95% of all revenues. Historically,
LSI's revenues were generated as follows:
95% Distribution of non-Lanstar PC memory, CPUs, PC subsystems and
peripherals
5% Distribution of LSI manufactured memory components
Currently, LSI's revenues are generated as follows:
75% Distribution of non-LSI PC memory, CPUs, PC subsystems and peripherals
25% Distribution of complete PC systems and LSI manufactured memory
components
LSI DRAMs
- ---------
LSI is in the final stages of development of its 16 Meg (4X4) DRAM
which is scheduled for production and distribution in 1998. The initial 4 Meg
(1X4) DRAM, which was acquired from Mosaid Technology, was redesigned by LSI and
put into preproduction at Sony Semiconductor Company of America, LSI's
subcontract foundry. This pre-production was used to develop the necessary
semiconductor manufacturing processes needed to support LSI's DRAM products.
During the course of this development cycle, the market for 4 Meg (1X4) DRAM
product declined to a point where LSI management chose not to proceed to
production with this product. Management directed all engineering and
manufacturing efforts to LSI's 16 Meg product line, as well as future DRAM
products.
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LSI is currently developing product lines for both standard and
proprietary SIMMs designed primarily for PC applications. The developed
products, designed for high quality, reliability and low cost, are planned for
production and distribution in the first quarter of 1998.
PC Memory Devices, CPUs, Subsystems and Peripherals
- ---------------------------------------------------
Currently, the majority of these products are purchased domestically
from qualified high volume, low cost vendors. LSI is currently planning to
expand its supplier base in the Pacific Rim through the development of strategic
alliances.
PC Systems
- ----------
LSI is currently producing standard and multimedia PCs for home and
office applications. Business PCs, including work stations, low and high-end
systems and file servers, are sold as stand-alone or networked systems as
determined by customer needs.
RAW MATERIALS
LSI DRAM and SIMM Products
- --------------------------
Raw materials utilized by LSI's semiconductor subcontract silicon wafer
manufacturer must meet exacting product specifications. Semiconductor wafer
subcontractors (foundries) generally use multiple sources of supply but there
are only a limited number of suppliers capable of delivering certain raw
materials that meet LSI's specifications. The availability of critical raw
materials, such as silicon wafers are currently sourced by Sony Semiconductor
Company of America, LSI's subcontract foundry.
Photo masks of LSI's DRAM products are purchased directly by LSI from
its mask vendor. Management anticipates that these photo masks should be in
adequate supply and not present any shortages in the near future. Conventional
SIMM and COB SIMM products could be affected due to possible shortages in the
supply of DRAM die and standard DRAM packaged devices. Any shortage would be
due to the lack of multiple sourcing from critical vendors by LSI rather than
overall industry-wide raw material shortages.
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PC Memory, CPUs, Subsystems and Peripherals
- -------------------------------------------
The majority of these products are sourced from critical domestic high
volume, low cost vendors. Although strategic plans to expand critical vendors
in the Pacific Rim are proceeding, adequate suppliers may not be successfully
developed in a timely fashion to meet current growth plans. Management does not
believe that there will be an industry-wide raw material shortage relative to
these products.
RESEARCH AND DEVELOPMENT/INTELLECTUAL PROPERTY
LSI DRAM and SIMM Products
- --------------------------
Rapid technological change and intense price competition place a
premium on both new product and process development efforts. LSI's continued
ability to compete in the semiconductor memory market will depend in part on its
ability to continue to develop technologically advanced products and processes,
of which there can be no assurance.
LSI's research and development efforts are focused principally on
completing the design of its 16 Meg (4X4) DRAM. In parallel, priority effort is
being directed toward improving LSI's selected process technology needed to
support high yield, low cost semiconductor wafer production. This ongoing
development program with Sony Semiconductor Company of America, LSI's
subcontract semiconductor foundry, continues to strengthen LSI's overall
technology position.
Future process development efforts will be directed toward developing
.25, .18, .13 and .10 micron manufacturing technology, as required. Product
development efforts will be directed toward 16 Meg SDRAM and Rambus design
architecture for potential application to LSI's 16, 64, 256 and 1,024 Meg
devices.
LSI's initial 4 Meg DRAM design was purchased from Mosaid Technologies
Incorporated. The decision to purchase a production proven design allowed LSI
the time to develop its own internal semiconductor product design capability.
This design capability is now established and LSI's first in-house design will
be the 16 Meg DRAM followed closely by a 16 Meg SDRAM scheduled for production
in calendar 1998. Design work will continue with the 4 Meg DRAM as a product
vehicle to complete and optimize the development of LSI's 16 Meg DRAM and
supporting .35 (mu) process technologies.
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LSI plans to continue development of Chip-on-Board ("COB") based low
cost commodity SIMMs primarily designed for PC applications. This emerging
technology in packaging will also be utilized, if successfully developed, for
packaging of high pin count integrated circuits and subsystem modules.
Research and development expenses vary primarily with the number of
wafers and personnel dedicated to new product and process development. Total
research and development (R&D) expenditures for LSI from inception through 1995
were $655,704. R&D expenses for Fiscal Year 1996 were $476,055 and expenses
year-to-date through October 1997 were approximately $1,226,877.
Lanstar PC Systems
- ------------------
LST acquires all sub components from other wholesalers and so does not
currently pursue intellectual property rights in this area.
PATENTS AND COPYRIGHTS
Patents and copyrights are of great importance in the PC electronics
industry (especially for memory products) due to the technical nature and short
life cycles of the products. The semiconductor industry has experienced a
substantial amount of litigation regarding patent and other intellectual
property rights. Litigation may be necessary to enforce any future patents
issued to LSI or to protect trade secrets or intellectual property owned by LSI.
LSI may, in the future, receive communications alleging that the technology used
by LSI in the manufacture of some or all of its products infringes on product or
process technology rights held by others.
LSI currently does not own any product or process patents. However,
two potential processes and one SIMM test procedure developed by LSI are in the
final stages of development and LSI anticipates filing related patent
applications by the end of 1998.
LSI intends to pursue patent and mask work copyright protection for its
semiconductor process technologies and product designs. The process of seeking
patent protection can be long and expensive, and there is no assurance that
patents will be issued from future applications or that, if patents are issued,
they will be of sufficient scope or strength to provide meaningful protection or
any commercial advantage to LSI. In
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particular, there can be no assurance that any future patents held by LSI will
not be challenged, invalidated or circumvented.
LSI also relies on trade secret protection for its technology, in part
through confidentiality agreements. There can be no assurance that these
agreements will not be breached, that LSI will have adequate remedies for any
breach or that LSI's trade secrets will not otherwise become known to or
independently developed by others. In addition, the laws of certain other
countries in which LSI's products are or may be developed, manufactured or sold
may not protect LSI's products and intellectual property rights to the same
extent as do the laws of the United States.
TECHNOLOGY AGREEMENTS
LSI has entered into two cross-licensing agreements. On November 17,
1995, LSC entered into a non-exclusive licensing agreement with Texas
Instruments Incorporated for the right to manufacture and distribute ICs
commonly recognized in the industry by any of the following acronyms: DRAMs
(including Dynamic Random Access Memory Devices, Synchronous Dynamic Random
Access Memory Devices, Video RAMs and Field or Frame memories commonly referred
to as FRAMs); SRAMs; ROMs; PROMs; EPROMs; Flash EPROMs; or EEPROMs for a 10%
royalty on net sales billed for DRAMs and 5% of net sales billed for SRAMs,
ROMs, PROMs, EPROMs, Flash EPROMs or EEPROMs sold in the United States, Japan or
any European country. The license with Texas Instruments Incorporated expires
on December 31, 2000, but the contract provides that both parties are bound to
enter into good faith negotiations to renew the license upon request of either
party. Management believes that a renewal of the license is likely.
On July 27, 1995, LSC entered into an agreement with Mosaid
Technologies Incorporated where Mosaid Technologies Incorporated agreed to
provide an engineering design for a 4 Meg DRAM in x1 and x4 format. The Mosaid
agreement also granted a non-exclusive license to use the design to the extent
necessary to manufacture and distribute the product in exchange for an annually
graduated percent of net sales of the product beginning with 1.5% in the 12-
month period commencing on the date LSC achieves production volume and ending at
4% of net sales six years after production volume commences and thereafter. The
Mosaid agreement does not terminate until the cessation of sales by LSC of the
product.
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Notwithstanding Management's beliefs that the above licenses will be
renewed, Management is unable to predict with 100% accuracy whether these
licenses can be renewed on terms acceptable to LSI.
LSI entered into a Semiconductor Process Development Agreement with
Sony Semiconductor Company of America commencing April 15, 1997, and terminating
December 31, 1997. This agreement is based on the companies jointly developing
0.35 micron processes for DRAM production for both 4 and 16 Meg DRAM products.
Management is currently negotiating a renewal of the agreement and believes that
a renewal is likely.
EMPLOYEES
As of December 1, 1997, LSI had 39 full-time employees. Employment
levels vary depending on market conditions and the amount of research and
development activities pursued. LSI is dependent upon a limited number of key
management and technical personnel. A number of LSI's employees are highly
technically skilled engineers and LSI's continued success will depend in large
part upon its ability to retain and attract other such employees. None of LSI's
employees are represented by labor organizations; LSI has never had a work
stoppage or slowdown as a result of labor issues; and LSI considers relations
with employees to be good. The addition of the 1997 Stock Option Plan, along
with other company benefits, will enhance employees' interest in remaining with
LSI. In the future, LSI is planning to add further incentives to attract and
retain high quality personnel.
COMPETITION
LSI Memory Products
- -------------------
LSI's semiconductor memory products will experience intense competition
from a number of substantially larger foreign and domestic companies including:
Fujitsu, Ltd.; Hitachi, Ltd.; Hyundai; Micron Technology, Inc.; Mitsubishi
Electric Corp.; Motorola, Inc.; NEC Corp.; Samsung Semiconductor, Inc.; LG
Semicon; Texas Instruments Incorporated; and Toshiba Corporation. LSI will be at
a disadvantage in competing against larger manufacturers with significantly
greater capital resources or manufacturing capacities, larger engineer and
employee bases, larger portfolios of intellectual property and more diverse
product lines. LSI's larger competitors may also have long-term advantages in
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research and new product development and in their ability to withstand current
or future downturns in the semiconductor memory market. In addition, LSI
believes its competitors have sufficient resources and manufacturing capacity to
influence market pricing.
LSI's semiconductor memory products are commodity products, the price
and profitability of which are highly dependent on overall supply-demand
dynamics in the industry. Historically, the semiconductor memory industry has
experienced decline in average selling prices commensurate with the industry's
ability to reduce cost per megabit.
Personal Computer Systems
- -------------------------
Competition in the PC industry is based upon performance, price,
reliability, service and support. The PC industry is highly competitive and has
been characterized by intense pricing pressure, rapid technological advances in
hardware and software, frequent introduction of new products, low gross margin
percentages and rapidly declining component costs.
Any general decline in demand, or a decline in the rate of increase of
demand, for PC systems could increase price competition which would have a
material adverse effect on LSI's business and results of operations. To remain
competitive, LSI must introduce new products, price its products and offer
customers lead times comparable to its competitors. LSI's ability to continue
to produce competitively priced products and to establish and maintain
acceptable gross margin percentages will depend on LSI's ability to establish
high levels of sales and contain and reduce manufacturing and component costs
through volume manufacturing and/or vertical integration of LSI memory products,
subsystems and other miscellaneous components. Any failure by LSI to transition
to new products effectively or to accurately forecast demand for its products
may adversely affect LSI's business and result of operations.
LSI competes with a number of PC manufacturers which market their
products directly to consumers, including Dell Computer, Inc. and Gateway 2000,
Inc. LSI also competes with PC manufacturers, such as Apple Computer, Inc.;
Compaq Computer Corporation; Hewlett Packard Company; International Business
Machines Corporation; and Toshiba Corporation, which have traditionally sold
their products through national and regional distributors, dealers, VARs, retail
stores and direct sales. Many of LSI's PC product competitors offer broader
product lines,
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have substantially greater financial, technical, marketing and other resources
than LSI and may enjoy access to more favorable component volume purchasing
arrangements than does LSI.
PC Memory, CPUs, Subsystems and Peripherals
- -------------------------------------------
The PC industry is characterized by rapid technological change,
relatively short product life cycles, frequent product introductions and
enhancements, difficult product transitions and volatile market conditions.
LSI targets small to medium size wholesalers and small PC retailers in
the domestic PC industry. As LSI expands its target market to include mid-size
wholesale and retail distributors, LSI may be at a disadvantage in competing
against larger distributors such as Ingram Micro, TechData, Merisel and
Gates/Arrow. These larger distributors typically buy directly from major
manufacturers and, as a result, bring very competitive pricing and payment terms
to the marketplace.
CUSTOMERS
LSI does not have any customer which in the aggregate purchases
products equal to or greater than 10% of LSI's revenues.
WORKING CAPITAL PRACTICES
LSI's inventory needs are financed through private sources of capital
and proceeds from the sale of products. LSI does not have a line of credit with
a financial institution.
BACKLOG ORDERS
LSI does not have any material backlog orders. LSC plans to manufacture
and distribute the new Lanstar DRAM standard memory products by mid-1998.
Consequently, LSC does not have any material backlog orders. LCP does not have
any material backlog orders due to the nature of the business. Orders are
received via telephone and fax on a daily basis and maximum effort is made to
fill them within 24 to 48 hours. LST averages a turn around of approximately 5-6
days on
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customer orders for personal computers. Consequently, it does not have any
material backlog orders.
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
Government regulations impose various environmental controls on the
discharge of chemicals and gases used in LSI's semiconductor subcontract
manufacturing processes. LSI currently subcontracts all semiconductor
manufacturing demands to Sony Semiconductor Company of America. To management's
knowledge, compliance with federal, state and local provisions enacted or
adopted for protection of the environment has had no material effect upon LSI's
operations.
ITEM 2. FINANCIAL INFORMATION
Selected Financial Data
- -----------------------
The following selected financial data for inception through the year
ended December 31, 1996, is derived from audited consolidated and combined
financial statements of LSI. The following selected financial data for the nine
month period ended September 30, 1997, is derived from unaudited, consolidated
financial statements. The data should be read in conjunction with the
consolidated financial statements, unaudited financial statements, pro forma
financial statements and selected notes attached as exhibits in Item 15 and the
following Management's Discussion and Analysis of Financial Condition and
Results of Operations. The following selected financial data for the nine month
period ended September 30, 1996, is derived from Management's internal financial
records.
LSI acquired all the outstanding stock of SMI in November 1996. SMI
was subsequently resold to its original shareholder effective as of October 13,
1997. The selected financial data, without SMI, is based upon the pro forma
financial statements presented as of December 31, 1996, and September 30, 1997,
which are included in Item 15. The objective of the pro forma financial
information is to show what significant effects on the historical information
might have been made had the purchase of SMI never occurred. However, the pro
forma consolidated and combined (condensed) financial statements are not
necessarily indicative of the results of operations or related effects on
financial position that would have been attained had the transaction actually
occurred earlier.
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FINANCIAL INFORMATION
OF LSI/LCC
CONSOLIDATED WITH SMI
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Inception Fiscal Year Nine Months Nine Months
through Ended Ended Ended
December 31, December 31, September 30, September 30,
1995 1996 1996 1997
INCOME STATEMENT ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Sales $ 6,154 $ 57,256 $ 43,657 $ 48,101
Cost of Goods Sold (6,015) (53,056) (40,818) (43,597)
------- -------- -------- --------
Gross Profit 139 4,200 2,839 4,504
Selling, General and Administrative (1,016) (3,874) (2,708) (3,870)
Research and Development (656) (476) (195) (1,227)
Bad Debt Expense (85) (424) (239) (239)
Other Income (expense) (16) (1) (5) (37)
------- -------- -------- --------
Net Loss Before Income Tax (1,634) (575) (308) (869)
Provision for Income Tax -0- (212) -0- -0-
------- -------- -------- --------
Net Loss $(1,634) $ (787) $ (308) $ (869)
======= ======== ======== ========
Allocated to LCC (446) (9) (8) -0-
Allocated to LSI (1,188) (778) (300) (869)
Loss Per Share:
LCC $(0.10) $(0.00) $(0.00) $(0.00)
======= ======== ======== ========
LSI $(0.16) $(0.02) $(0.01) $(0.02)
======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30, September 30,
BALANCE SHEET ----------------------- ------------- -------------
1995 1996 1996 1997
----------------------- ------------- -------------
<S> <C> <C> <C> <C>
Current Assets $ 51 $7,020 $7,114 $7,090
Total Assets 335 7,629 7,523 7,785
Current Liabilities 1,565 1,851 1,584 1,253
Long-term Liabilities -0- 750 -0- -0-
Stockholders' Equity (Deficit) (1,230) 5,028 5,939 6,532
</TABLE>
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FINANCIAL INFORMATION OF LSI/LCC
WITHOUT SMI
(In thousands Except Per Share data)
<TABLE>
<CAPTION>
Inception Fiscal Year Nine Months Nine Months
through Ended Ended Ended
December 31, December 31, September 30, September 30,
1995 1996 1996 1997
INCOME STATEMENT ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Sales $ 6,154 $ 5,765 $ 4,124 $ 4,482
Cost of Goods Sold (6,015) (5,507) (4,020) (4,152)
------- ------- ------- -------
Gross Profit 139 258 104 330
Selling, General and Administrative (1,016) (1,019) (748) (1,081)
Research and Development (656) (476) (195) (1,227)
Bad Debt Expense (85) -0- -0- -0-
Other Income (Expense) (16) (7) (5) (50)
------- ------- ------- -------
Net Loss Before Income Tax (1,634) (1,244) (844) (2,028)
Provision for Income Tax -0- -0- -0- -0-
------- ------- ------- -------
Net Loss $(1,634) $(1,244) $ (844) $(2,028)
======= ======= ======= =======
Allocated to LCC $ (446) $ (9) $ (8) $ (0)
Allocated to LSI $(1,188) $(1,215) $ (836) $(2,028)
Loss Per Share:
LCC $(0.10) $(0.00) $(0.00) $(0.00)
======= ======= ======= =======
LSI $(0.16) $(0.09) $(0.06) $(0.13)
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30, September 30,
BALANCE SHEET ---------------------- ------------- -------------
1995 1996 1996 1997
---------------------- ------------- -------------
<S> <C> <C> <C>
Current Assets 51 $ 955 $ 720 $ 880
Total Assets 335 1,327 1,003 1,350
Current Liabilities 1,565 1,338 1,491 1,385
Long-term Liabilities -0- 750 -0- -0-
Stockholders' Equity (Deficit) (1,230) (761) (488) (35)
</TABLE>
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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion contains trend information and other forward-
looking statements that involve a number of risks and uncertainties. LSI's
actual future results could differ materially from its historical results of
operations and those discussed in the forward-looking statements. All period
references are to inception through December 31, 1995, LSI's fiscal year ended
December 1996 and the nine month periods ended September 30 of 1996 or 1997.
GENERAL
The following presentation sets forth Management's Discussion and Analysis
of Financial Condition and Results of Operations for inception through December
31, 1995, fiscal period ended December 31, 1996, and the nine month periods
ended September 30, 1996, and September 30, 1997, which include a discussion of
LSI with SMI as a wholly owned subsidiary. LSI acquired all the outstanding
stock of SMI in November 1996. SMI was subsequently resold to its original
shareholder effective as of October 13, 1997. SMI was incorporated in January
1996 and, accordingly, has a limited operating history.
Consequently and in order to present an adequate analysis of LSI's
financial trends, the following discussion also includes Management's Discussion
and Analysis of Financial Condition and Results of Operations of LSI, on a
stand-alone basis, as of September 30, 1996, and September 30, 1997. This
discussion is based upon internal financial records and the pro forma financial
statements presented as of September 30, 1996, and September 30, 1997.
OVERVIEW
LSI, through its subsidiaries, manufactures and/or purchases and
distributes a full product line of PC memory components, CPUs, subsystems,
peripherals and PC systems to small computer retailers, VARs, system
integrators, memory and computer product distributors, corporations, and
consumers.
Currently, LSI is completing the design of its first semiconductor 16 Meg
(4X4) DRAM that will be sold as packaged devices and SIMMs in various product
configurations. LSI anticipates incorporating these memory products into its PC
subsystems and complete PC systems to
Page 15
<PAGE>
further enhance brand name quality or reliability while reducing product cost.
The financial position of LSI was materially affected by the acquisition of SMI,
expansion of the PC components product line and the development of the PC
product line.
Acquisition of SMI
- ------------------
In November of 1996, LSI acquired SMI, a major distributor of semiconductor
SIMMs and CPUs, to computer retailers, VARs and systems integrators. The
acquisition of SMI significantly impacted every determinative factor of LSI's
financial position. From inception through December 31, 1995, to fiscal year
1996, consolidated sales increased by $51,102,000. As a result, LSI's
consolidated gross profit margin increased from 2.3% to 7.3%.
During 1996, LSI and SMI operated independently of one another. Each had
its own management team, location and capital structure. Subsequently,
Management discovered material differences of opinion relating to operating
methods which, in their opinion, could not be reconciled. Consequently, LSI
resold SMI to its original shareholder.
As a result of the acquisition, a historical trend analysis of LSI's
financial position requires a comparison of the numbers presented in the pro
forma financial statements for the periods ending June and September 1997
attached as exhibits in Item 15.
Development of a New Product Line
- ---------------------------------
LSI incorporated LST in October 1997 to manufacture and distribute personal
computers. Refer to Item 1 for a more complete discussion of LST.
Expansion of PC Components Distribution
- ---------------------------------------
In mid-1996, LSI expanded its product line from distribution of DRAMs and
memory products, computer memory and CPU products to include all PC components,
subsystems and peripherals. Refer to Item 1 for a more complete discussion of
the product line expansion.
Page 16
<PAGE>
RESULTS OF OPERATIONS
Comparison of Year Ended
December 31, 1996 and Inception Through December 31, 1995.
NET SALES
The consolidated increase in sales of $6,154,000 to $57,256,000 is
primarily attributable to the acquisition of SMI in November of 1996. Sales by
SMI accounted for $51,491,000 of LSI's combined $57,256,000 of sales for the
period ended December 31, 1996. LSI, without SMI, decreased sales by 6.3% from
inception through December 31, 1995, to fiscal year ending December 31, 1996.
This decrease was due to insufficient operating capital.
GROSS PROFIT MARGIN
The consolidated increase of gross profit margin from 2.3% to 7.3% is
principally attributable to the acquisition of SMI. For the period ended
December 31, 1996, SMI, as a stand-alone, earned a gross profit margin of 7.7%
on sales of $51,491,000. In the same period, LSI, without SMI, earned a gross
profit margin of 4.5% on sales of $5,765,000. The increase in gross profit
margin of LSI, without SMI, from 2.3% to 4.5% was the result of development of a
more experienced sales force and improved product purchasing procedures.
SELLING, GENERAL AND ADMINISTRATIVE COSTS
Consolidated selling, general and administrative expenses were equal to
16.5% of sales for the period ending December 31, 1995. Although LSI, without
SMI, increased its expenses from 16.5% to 17.7% of sales, consolidated expenses
decreased to 6.8% of sales for the period ending December 31, 1996, primarily as
a result of the acquisition of SMI and the corresponding increase in combined
sales.
RESEARCH AND DEVELOPMENT COSTS
Consolidated research and development expenses decreased from 10.7% from
inception through December 31, 1995, to .8% of sales for the period ending
December 31, 1996, due to the increase in sales resulting from the acquisition
of SMI. Prior to 1995, no research and development expenses were incurred. All
of these expenses were incurred by LSI, without SMI.
Page 17
<PAGE>
TOTAL ASSETS
Consolidated total assets increased from $335,000 to $7,629,000 due to the
acquisition of SMI. Total assets for LSI, without SMI, increased from $335,000
to $1,327,000 which reflects increases in capital raised from outside investors.
CURRENT LIABILITIES
Consolidated current liabilities increased from $1,565,000 to $1,851,000
primarily due to the acquisition of SMI. The minimal increase in current
liabilities after the purchase of SMI was due to a condition of the Stock
Purchase Agreement which specified that the purchase of SMI was conditioned upon
its delivery with a maximum allowance for liabilities owed. Current liabilities
for LSI, without SMI, actually decreased from $1,565,000 to $1,338,000 due to
capital raised from outside investors.
EQUITY
Consolidated stockholders' equity increased from a deficit of $1,230,000 to
a positive value of $5,028,000 primarily due to the acquisition of SMI.
Stockholder's equity for LSI, without SMI, also increased from a deficit of
$1,230,000 to a deficit of $761,000 as a result of capital raised from outside
investors.
ANTICIPATED TRENDS
LSI anticipates that sales will increase in fiscal year 1998 based upon the
following: (1) LSC anticipates completing the design of its 16 MEG (4x4) DRAM
by the end of 1997, and production and distribution of such product is scheduled
to commence in 1998; and (2) LSC has recently completed the design of 7 standard
and custom SIMM products with production and shipment scheduled to commence in
1998; LSC anticipates continuing the design effort of standard and custom SIMM
products in 1998 with a goal of completing in excess of 20 new product designs
by the end of 1998. While management anticipates a growth in sales in 1998, any
anticipated growth is dependent upon market acceptance of LSI's new products,
the overall condition of the PC industry and the continued percentage growth in
LSI's business.
Page 18
<PAGE>
Comparison of Year Ended
September 30, 1997 and September 30, 1996.
NET SALES
Consolidated sales increased during this period by 10.2%. This increase in
sales is primarily attributable to increases in sales of two subsidiaries. LSI,
without SMI, increased sales from $4,124,000 to $4,482,000 (8.7%) by expanding
its product line of primarily semiconductor memory products to include PC
components and subsystems. SMI's stand-alone 10.3% increase in sales is
attributable to increasing market share compensating for an overall decrease in
memory product prices.
GROSS PROFIT MARGIN
Consolidated gross profit margins increased from 6.5% to 9.4%. This
increase was primarily attributable to the acquisition of SMI. Gross profit
margin for LSI, without SMI, increased from 2.5% to 7.4%. This increase was the
result of additional operating capital and a more experienced sales force.
SELLING, GENERAL, AND ADMINISTRATIVE
Consolidated selling, general, and administrative expenses increased from
6.2% to 8% of sales primarily due to increased legal and accounting costs.
These expenses for LSI, without SMI, increased from 18.1% to 24.1% of sales.
RESEARCH AND DEVELOPMENT
Consolidated expenses increased from .4% to 2.6% of sales due to LSI's
expanding its research and development efforts in support of process and product
development of its 4 and 16 Meg products. Expenses for LSI, without SMI,
increased from 4.7% to 27.4% of sales.
TOTAL ASSETS
Consolidated total assets increased 3.5% from $7,523,000 to $7,785,000.
Total assets for LSI, without SMI, increased from $1,003,000 to $1,350,000 as a
result of capital raised from outside investors.
Page 19
<PAGE>
CURRENT LIABILITIES
Consolidated current liabilities decreased from $1,584,000 to $1,253,000 as
a result of capital raised from outside investors which decreased these
liabilities for LSI, without SMI, from $1,491,000 to $1,385,000.
EQUITY
Consolidated stockholders' equity increased from $5,939,000 to $6,532,000
as a result of capital raised from outside investors which decreased the deficit
on stockholders' equity for LSI, without SMI, from a deficit of $488,000 to a
deficit of $35,000.
TRENDS
In addition to the factors discussed elsewhere in the Form 10, the
following are important factors which could cause actual results or events to
differ materially from those contained in any forward-looking statement made by
or on behalf of LSI.
State Taxation
- --------------
Several states have enacted legislation which requires out of state direct
marketers to collect and remit sales and use taxes based on certain limited
contacts with the state. LSI and its subsidiaries could be required to pay
sales and use taxes and income and franchise taxes related to LSI's sales in
states other than Texas.
Volatility of the Semiconductor Memory Industry
- -----------------------------------------------
The semiconductor memory industry is characterized by rapid technological
change, frequent product introductions and enhancements, difficult product
transitions, relatively short product life cycles, rapid changes in market
prices and volatile market conditions. Historically, this industry has been
highly cyclical, particularly regarding the market for DRAM products, which are
LSI's primary semiconductor memory products.
The selling prices for semiconductor memory products fluctuate
significantly with changes in the balance of supply and demand for these
commodity products. The amount of capacity placed into production and future
yield improvements by LSI's competitors could dramatically increase worldwide
supply of semiconductor memory and continue
Page 20
<PAGE>
downward pressure on pricing. LSI's business plan assumes declining prices for
its products and, accordingly, requires actions to increase die count and lower
direct and overhead costs per product.
There can be no assurance that the rate of decline of average sales prices
will lessen or that market conditions will improve in the foreseeable future.
These declines have had a material adverse effect on LSI's business and results
of operations. Further declines in average sales prices for LSI's DRAM based
products could have a material adverse effect on LSI's business and results of
operations.
Year 2000 Compliance
- --------------------
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries to
distinguish twenty-first century dates from twentieth century dates. Most but
not all of LSI's approximately 50 internal computers utilized in operations and
financial reporting are Year 2000 compliant. Approximately 15 of the 50
computers are older and may not be in compliance. Management estimates the
purchase and installation of Year 2000 compliant mainboards in the 15 computers
will cost a total of approximately $2,000.
LSC's engineering and design group currently utilizes five UNIX-based Sun
Microsystem computers for semiconductor circuit design. These systems have
Solarus Version 2.6 software installed and are in full Year 2000 compliance.
LST's PC products are being manufactured with Year 2000 compliant computer
mainboards. LST has incorporated the necessary incoming quality control and
production test procedures to ensure 100% Year 2000 compliance with all its
products. LCP has also established the necessary incoming quality control test
procedures to ensure their vendors of computer mainboards are in 100% Year 2000
compliance.
Prior to December 1997, shipments of computer mainboards were not inspected
and tested as noted above. Therefore, LSI could potentially have product in the
marketplace that is not Year 2000 compliant, but management believes that the
exposure is minimal.
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<PAGE>
Fluctuations in Operating Results
- ---------------------------------
LSI's past operating results have been, and its future operating results
may be, subject to annual and quarterly fluctuations as a result of a wide
variety of factors, including, without limitation, the cyclical nature of the
semiconductor memory and PC industry, the introduction and announcement of new
products and process technologies by LSI or its competitors, pricing pressures,
the speed in which LSI reduces costs for any particular new or existing
product, fluctuations in manufacturing yields, changes in product mix, the cost
and availability of raw materials and general worldwide economic conditions.
Impact of Recently Issued Accounting Standard
- ---------------------------------------------
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. SFAS No.
128 replaces the presentation of primary earnings per share (EPS) under
Accounting Principles Board Opinion No. 15 and related Interpretations, with the
presentation of basic EPS (which primarily gives effect only to common shares
actually outstanding) and requires dual presentation of basic and diluted EPS on
the face of the income statement for all entities with complex capital
structures. LSI is required to adopt SFAS No. 128 during the fourth quarter of
1997. LSI has not completed its evaluation of the potential impact of this new
standard on EPS in future periods. However, this new standard is not expected
to have a material impact on EPS in future periods.
LIQUIDITY AND CAPITAL RESOURCES
LSI's capital resources have been met during 1996 and 1997 by equity and
short term convertible debt financing. The company received $1,500,000 in 1996
and $1,750,000 in 1997. Management believes that additional private sales of
equity and/or the exercise of outstanding warrants to acquire common stock may
occur before the end of 1998.
LSI intends to improve its cash flows through three of its operating
subsidiaries. Management anticipates that LCP will achieve profitability during
the fourth quarter of 1997 due to increased sales and higher gross profit
margins. Increased sales should continue throughout 1998 as improved market
share is realized in the U.S. domestic marketplace. In addition, Management
anticipates establishing LCP's international
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<PAGE>
program in the Pacific Rim and then expanding into Europe and certain South
American countries throughout 1998.
LSC is scheduled to start shipping its first standard and proprietary SIMM
designs in the first quarter of 1998. Additional SIMM products are planned to
be designed and introduced to the marketplace throughout 1998. LSC plans to
start shipment of its 16 Meg DRAM during 1998. LSI believes this product will
be well received in the marketplace such that strong sales will be realized. As
a result of the combined planned SIMM and DRAM sales, LSC should achieve
profitability in the third quarter of 1998.
Management anticipates that LST will achieve profitability in the second
quarter of 1998 as volume sales are increased. Management anticipates profits
will improve throughout 1998 as increased market share is achieved in selected
markets.
SAFE HARBOR STATEMENT
Forward-looking statements contained in this Form 10 involve risks and
uncertainties, including, without limitation, the following: (i) LSI's plans,
strategies, objectives, expectations and intentions are subject to change at any
time at the discretion of management and the Board of Directors; (ii) LSI's
plans and results of operations will be affected by LSI's ability to manage its
growth and working capital; and (iii) LSI's business is highly competitive and
the entrance of new competitors or the expansion of the operations by existing
competitors in LSI's markets could adversely affect LSI's plans and results of
operations.
ITEM 3. PROPERTIES
LSI's headquarters, which constitutes its principal office and distribution
center, is approximately 7,000 square feet and is located at 2501 Avenue J in
Arlington, Texas. The headquarters is subject to two leases. A lease for
approximately 3,500 square feet expires in April 1998. The second lease for
approximately 2,500 square feet expires in November, 1999.
LST's manufacturing center constitutes approximately 3,288 square feet and
is located at 801 Stadium Drive in Arlington, Texas. This location is subject
to a lease which expires in October, 1999.
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<PAGE>
Management believes that the leases are renewable on substantially similar
terms. In the event that the leases are not renewed, management believes that
current general office, PC manufacturing and distribution operations can be
continued by leasing any noncustomized facility.
LSI believes that its existing facilities are suitable and adequate for PC
manufacturing, distribution and research and development operations and that
productive capacity is being utilized. Management's intention to fully develop
a DRAM manufacturing center will ultimately entail the purchase of a fabrication
plant although short-term manufacturing needs in the future will be provided by
third party vendors under a private label and/or joint venture agreement.
LHK currently utilizes, at no charge, facilities located in Hong Kong
provided by Whitways Enterprises Limited.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to any
person known to LSI to be the beneficial owner of more than 5% of the
outstanding shares of LSI's Common Stock as of December 15, 1997. Unless
otherwise indicated, each of the following persons has sole voting and
investment power with respect to the shares of Common Stock which he
beneficially owns:
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<PAGE>
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership of Class(2)
- ------------------- -------------------- -----------
Geninvest S.A.(1) 3,193,398 9.9%
Zephyr House International Limited
Zephyr House - Fifth Floor
Mary St.
Georgetown, Grand Cayman,
Cayman Islands, British West Indies
Hawgital Company, Ltd.(1) 5,100,000 15.9%
P.O. Box 1561 GT Zephyr House
Mary Street
Grand Cayman, British West Indies
Lewis D. Rowe 2,600,000 8.1%
Zephyr International Limited
Zephyr House - Fifth Floor
Mary Street
Grand Cayman, Cayman
Islands, British West Indies
(1) Mr. Lewis D. Rowe is managing director of Geninvest S.A. and Hawgital
Company, Ltd. He disclaims beneficial ownership of these shares.
(2) Determined on the basis of 32,124,242 shares of Common Stock outstanding.
The following table sets forth certain information concerning the
beneficial ownership of LSI's Common Stock as of December 15, 1997, with respect
to each Director, Executive Officer and Directors and Executive Officers as a
group:
Page 25
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name of Beneficial Owner Beneficial Ownership of Class
- ------------------------ -------------------- ----------
<S> <C> <C>
Maxie R. Smith(3) 1,027,000 3.2%
Steven L. Porter 200,000 less than
1%
Wilton Workman 150,000 less than
1%
All Directors and Executive
Officers as a group
(3 persons) 1,377,000 4.29%
</TABLE>
(3) Mr. Maxie Smith owns 227,000 shares directly. Mr. Smith, along with Mr.
Dennis Poole, controls an additional 800,000 shares through beneficial
ownership of Jenalong Holdings, Ltd., a Hong Kong Corporation.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the directors,
executive officers and certain significant employees of LSI as of December 1,
1997. Except as otherwise stated below, the directors will serve until the next
annual meeting of stockholders or until their successors are elected or
appointed and the executive officers will serve until their successors are
appointed by the Board of Directors.
<TABLE>
<CAPTION>
Name Age Positions
- ---- --- ---------
<S> <C> <C>
Maxie R. Smith 57 Chairman of the Board, President and Chief Executive Officer of LSI
Gerald F. Brunton 62 Director, Vice President of Finance and Chief Financial Officer of LSI
Steven L. Porter 42 Director, Secretary and Treasurer of LSI
Wilton Workman 65 Vice President of Technology of LSI
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Name Age Positions
- ---- --- ---------
<S> <C> <C>
Dennis Poole 59 Director of LCC and Managing
Director of LHK
Lynn Mahanay 47 Corporate Controller of LSI
James W. Osmun, Ph.D. 50 Vice President of Process and Development for LSC
Dean Salem 27 Vice President of Sales and Marketing for LCP
Tian-Shen Tang, Ph.D. 40 Design Team Leader of LSC
</TABLE>
Maxie R. Smith. Mr. Smith is a founder of LSI and each of its
subsidiaries. Mr. Smith began his career with Texas Instruments in Dallas,
Texas, holding positions in the semiconductor materials and sensor group. He
joined Harris Semiconductor in Melbourne, Florida, where he was responsible for
developing proprietary semiconductor processes, equipment and products.
Subsequently, he joined Litronix Corporation in Cupertino, California, and was
instrumental in developing the company's Gallium Arsenide Phosphide
semiconductor materials capability, along with directing the operations of the
company's acquired MOS semiconductor company. In addition, Mr. Smith was
division manager of the newly developed digital watch manufacturing division.
In July 1978, Mr. Smith joined Commodore Business Machines, Inc. where he
was responsible for developing Commodore's early computer manufacturing
capability. As the director of offshore manufacturing, Mr. Smith was
instrumental in establishing Hong Kong production of over one million
semiconductor and LCD watch kits per month. He then joined Eagle Computer as
Vice President of Operations in January 1983. In January 1984, Mr. Smith joined
Anchron Corporation as President and Chief Executive Officer for approximately
three and one-half years. The company developed and marketed on-board computer
systems and software for the transportation industry.
Mr. Smith joined Alpha International, Inc., as interim-President, in early
1988 for approximately a six-month period.
From 1988 to 1991, Mr. Smith was involved in the transportation industry in
various consulting capacities.
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<PAGE>
Mr. Smith joined Atari in 1991 as Vice President of Quality Assurance and
worked in Taiwan, Hong Kong and China for approximately one year establishing
the necessary subcontracting manufacturers to successfully produce the company's
consumer and computer products.
Mr. Smith is the Chairman of the Board, Chief Executive Officer, Secretary
and Treasurer of LSC; Director and Chief Executive Officer of LCP; Chairman of
the Board, President, Secretary, Treasurer and Chief Executive Officer of LCC;
and Chairman of the Board and Chief Executive Officer of LST.
Gerald F. Brunton. Mr. Brunton joined LSI in March 1997. Mr. Brunton has
been in the electronic and telecommunications industries for the past 35 years,
holding positions in marketing, finance and general management as well as
various executive offices, including Chief Executive Officer. He has held key
management and executive positions with Harvey Hubbell, Crouse Hinds, Charles
Industries, Telephone and Data Systems, Woodhead Industries and International
Communications. He is a graduate of the University of Illinois, with a Bachelor
of Arts in Business Administration and holds two Masters of Business
Administration in Marketing and Finance.
Mr. Brunton is a Director, Secretary and Treasurer of LCP and a Director,
Vice President of Finance, Secretary and Treasurer of LST.
Steven Porter. Mr. Porter joined LSI in June 1994 and has spent most of
his time in marketing and sales. Mr. Porter joined Tandy's Radio Shack in
November 1989 where he managed a number of their retail stores.
Mr. Porter is a Director of LSC; Director, President and Chief Operating
Officer of LCP; Director of LCC; and Director and President of LST.
Wilton Workman. Mr. Workman has been with LSC, the semiconductor memory
products design subsidiary, for over two years and has been in the semiconductor
industry for the past 37 years, with major manufacturers such as Texas
Instruments, Eastman Kodak, ITT and VTC, a division of Control Data. He has led
teams in the site selection and construction of semiconductor facilities, as
well as been responsible for managing these facilities. Mr. Workman has a
Bachelor of Science and Master of Science in Physics from Texas A&M University.
Mr. Workman has coordinated the development and manufacture of LSI's
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<PAGE>
semiconductor products and the joint venture between LSC and Sony Semiconductor
Company of America. Mr. Workman is a Director, President and Chief Operating
Officer of LSC.
Dennis Poole. Mr. Poole is a British subject and a Chartered Mechanical
Engineer with a degree in Electronics from London University. Mr. Poole began
his career with Dehavil Aircraft Company; from there he moved to General
Electric and Standard Cable, covering the full gamut of positions leading to the
executive level. Mr. Poole has spent the last 12 years in the Pacific Rim
market in various executive roles for British, American and Hong Kong based
companies. Mr. Poole is currently Managing Director of LHK and a Director of
LCC.
Lynn Mahanay. Mr. Mahanay joined LSI in March 1997. Mr. Mahanay is a CPA
and graduate of Texas University in Arlington. He has 15 years of experience in
large corporate environments within the consumer and oil and gas industries.
Mr. Mahanay is responsible for coordinating the comptroller, internal auditing
and bookkeeping operations for LSI.
Dr. James W. "Bill" Osmun. Mr. Osmun has been with LSI for two years and
has had 27 years of experience in the manufacturing and process development of
semiconductor products. Dr. Osmun was formerly Manager of Process Development
and Transfer for Advanced Micro Devices and Vice President of Technology with
Thermco Division of Silicon Group. Dr. Osmun holds a Bachelor of Science in
Physics from Stanford University and a Masters and Doctorate of Physics from the
University of Chicago.
Dean Salem. Mr. Salem joined LSI in August 1997. Mr. Salem brings with
him a highly successful background in sales of memory and associated
semiconductor products. Formerly a Vice President of Southwest Memory, Inc., a
distributor of semiconductor memory products and a predecessor to one of LSI's
former subsidiaries, he was consistently one of the top producers of sales. He
is a co-founder of Memory Masters, Inc. where he developed a team of personnel
that averaged $4-5 million in sales monthly. Mr. Salem is a graduate of the
University of Cincinnati, with a Bachelor of Arts in English.
Dr. Tian-Shen Tang. Dr. Tang joined LSI in 1997, bringing with him an
academic background as an Associate Professor at Texas A&M University. His
experience includes consulting services with Futura
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<PAGE>
Development Co. and foundation research activities in the areas of CMOS and
SRAM. Dr. Tang received a Bachelor of Science in Mathematics from NanKai
University in China. He also holds an Electrical Engineering Degree and a Ph.D.
in Electrical Engineering from Texas A&M University.
ITEM 6. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>
Annual Compensation
----------------------------------
Other Annual
Name and Principal Year Salary Bonus Compensation
Position ($) ($)(1) ($)(2)
- ------------------ ---- ------ ------ ------------
<S> <C> <C> <C> <C>
Maxie R. Smith 1997 60,000 -0- -0-
President and 1996 60,000 (1) -0-
Chief Executive 1995 12,375 -0- -0-
Officer
</TABLE>
(1) Mr. Smith received a bonus of 500,000 shares of common stock in April
1996.
(2) All of the officers and directors of LSI are reimbursed for reasonable
out-of-pocket expenses incurred. LSI does not have any present
arrangements regarding compensation of directors for serving as a
director. No compensation for services as a director is presently
contemplated.
No officer of LSI received aggregate remuneration in excess of $100,000.
No employee of LSI has a written employment agreement.
Overview of the LSI 1997 Stock Option Plan
- ------------------------------------------
On November 21, 1997, LSI implemented the 1997 Stock Option Plan (the
"Plan"). The Plan provides for the granting of incentive stock options and
nonqualified stock options as defined in the Plan and collectively referred to
herein as "Awards". The purpose of the Plan is to enable employees of LSI, its
subsidiaries and affiliates to participate in LSI's future by offering to them
proprietary interests in LSI. The Plan is also intended to provide a means
through which LSI can attract and retain key employees of merit.
Page 30
<PAGE>
The following description is intended to be a summary of the Plan's
principal terms and is qualified in its entirety by reference to the complete
text attached as an exhibit to the Form 10.
General
- -------
The Plan authorizes the Board of Directors or its Compensation Committee
(the Board of Directors and the Compensation Committee being collectively
referred to hereinafter as the "Committee") to grant to officers and other
employees of LSI, its subsidiaries and affiliates (excluding any nonemployee
directors) stock option awards in the form of one or any combination of the
Awards. Approximately 39 employees are presently eligible to participate in the
Plan. As of December 1, 1997, incentive stock options for the right to purchase
4,090,000 shares of the corporation have been granted to 39 employees. Officers
and key personnel of the corporation were granted options in the following
amounts:
Gerald F. Brunton 300,000
Lynn Mahanay 150,000
James Osmun 75,000
Steven L. Porter 100,000
Dean Salem 300,000
Maxie Smith 400,000
Wilton Workman 150,000
---------
Total 1,475,000 shares
A maximum of 7,500,000 shares of LSI Common Stock are reserved and available for
distribution pursuant to Awards granted under the Plan, subject to adjustment to
reflect stock splits, mergers, reorganizations and other changes in corporate
structure affecting LSI Common Stock. If shares subject to an Award granted
under the Plan cease to be subject to such Awards, such shares will again be
available for distribution under the Plan. Shares may be distributed under the
Plan, in whole or in part, from authorized and unissued shares or treasury
shares. The Committee (or in the absence of a Committee, the Board of Directors)
administers the Plan. The Committee has complete discretion, subject to the
Page 31
<PAGE>
terms of the Plan, to determine, among other things, which officers and key
employees will receive Awards, the type, number and frequency of and the number
of shares subject to such Awards and, to the extent not otherwise expressly
provided in the Plan, the terms and conditions of the Awards. Options may not be
exercised by tendering outstanding shares.
Awards
- ------
Options granted under the Plan may be incentive stock options ("ISOs"), as
defined under and subject to Section 422 of the Internal Revenue Code (the
"Code"), or nonqualified stock options ("NQSOs").
The options will be exercisable at such times and subject to such terms and
conditions as the Committee may determine. All options must expire no later
than ten years from the date of grant in the case of ISOs and as determined by
the Committee at the date of grant in the case of NQSOs. Generally, options
will expire upon an optionee's termination of employment, one year following the
termination of employment due to death or one year following termination due to
permanent disability; provided, however, that options will expire prior to said
times if and at such time that the original option exercise term otherwise
expires. Generally, options may be exercised only to the extent exercisable on
the date of termination, death or disability.
The option price for any ISO will not be less than 100% of the fair market
value of LSI Common Stock as of the date of grant and will be paid by cashier's
check. The option price for a NQSO will be as set by the Committee for that
NQSO and will be paid by cashier's check.
Stock options are not transferable except by will or the laws of descent
and distribution.
Miscellaneous
- -------------
The Plan may be amended or discontinued by the Board of Directors, provided
that the Board may not, without the approval of LSI's stockholders, (a) except
as expressly provided in the Plan, increase the number of shares reserved for
distribution or decrease the option price of an ISO below 100% of the fair
market value at grant or change the pricing terms applicable to stock purchase
rights, (b) change the class of employees eligible to receive Awards under the
Plan, or (c) extend maximum exercise periods for Awards under the Plan. No
amendment or discontinuance may impair the rights of an optionee or recipient
under
Page 32
<PAGE>
an outstanding stock option or other Award without the recipient's consent.
The Committee may amend the terms of any outstanding stock option or other
Award prospectively or retroactively (but no such amendment may impair the
rights of any holder without such holder's consent) and may substitute new stock
options for previously granted stock options, including prior options with
higher exercise prices.
Under the Plan, the Committee has wide discretion and flexibility, enabling
the Committee to administer the Plan in the manner it determines to be in the
best interests of LSI. Thus, Awards may be granted in various combinations and
sequences and may be subject to various conditions, restrictions and limitations
at grant or upon exercise or payment not inconsistent with the terms of the
Plan. The Committee's determinations with respect to which employees will
receive Awards, and the form, amount and frequency and the terms and conditions
thereof, need not be uniform as to similarly situated persons. The designation
of an employee to receive one form of an Award under the Plan does not require
the Committee to designate nor entitle such employee to receive any other form
of Award.
The Plan does not limit either the number of officers or other employees
eligible to receive Awards or the type or number of shares which may be subject
to options or other Awards which may be granted to any one person. In addition,
the Plan does not limit the aggregate number of Awards that may be granted
except that the number of shares reserved for distribution under the Plan cannot
exceed 7,500,000 shares.
Federal Income Tax Aspects
- --------------------------
The following is a brief summary of LSI's understanding of the principal
anticipated federal income tax consequences of Awards made under the Plan based
upon the applicable provisions of the Code in effect on the date hereof. This
summary is not intended to be exhaustive and does not describe foreign, state or
local tax consequences.
(1) Incentive Stock Options. An optionee will not realize taxable income
at the time an ISO is granted or exercised. Company Common Stock is issued to
an optionee pursuant to the exercise of an ISO, and if no disqualifying
disposition of the shares is made by the optionee within two years of the date
of grant or within one year after exercise of the option, then (a) any gain upon
the subsequent sale of the shares will be
Page 33
<PAGE>
taxed to the optionee as a capital gain, and any loss sustained will be a
capital loss, and (b) no deduction will be allowed to LSI for federal income tax
purposes. The spread between the ISO price and the fair market value of the
shares at the time of exercise is an adjustment item for purposes of the
alternative minimum tax.
If an optionee disposes of shares acquired upon the exercise of an ISO
before the expiration of the holding periods described above, then generally (a)
the optionee will be taxed as if he had received compensation income in the
year of disposition in an amount equal to the excess, if any, of the fair market
value of the shares on the exercise date (or, if less, the amount realized on
the disposition of the shares) over the option price paid for such shares, and
(b) LSI will generally be entitled to a corresponding deduction in that year.
Any further gain or loss realized by the participant will be taxed as short-term
or long-term capital gain or loss, as the case may be, and will not result in
any deduction by LSI.
Exercise of an ISO may cause the optionee to incur alternative minimum tax.
Stock acquired through exercise of an ISO must be held for more than 18
months to obtain long-term capital gains treatment.
All stock acquired pursuant to the exercise of an ISO is subject to the
holding period rules and disqualifying disposition rules described above.
Pursuant to the Plan, an ISO can only be exercised by payment of the
consideration by cashier's check.
To the extent that the fair market value of LSI's Common Stock (determined
as of the date of grant) subject to ISOs exercisable for the first time by an
optionee during any calendar year exceeds $100,000, those options will not be
considered ISOs.
(2) Nonqualified Stock Options. An optionee will not recognize taxable
income at the time a NQSO is granted, but taxable income will be realized, and
LSI will generally be entitled to a deduction, at the time of exercise of the
NQSO. The amount of income (and LSI's deduction) will be equal to the
difference between the NQSO exercise price and the fair market value of the
shares on the date of exercise. The income realized will be taxed at ordinary
income tax rates for federal income tax purposes. Withholding is required upon
exercise of a NQSO. On subsequent disposition of the shares acquired upon
exercise of a NQSO, capital gain or loss as determined under the normal capital
asset holding
Page 34
<PAGE>
period rules will be realized in the amount of the difference between the
proceeds of sale and the fair market value of the shares on the date of
exercise.
(3) Withholding. Under the Plan, a participant must pay LSI, no later than
the date on which an amount first becomes includable in the participant's gross
income for federal income tax purposes with respect to an Award, any taxes
required to be withheld with respect to such amount. Such withholding
obligation may be settled with already owned shares, including shares that
constitute part of the Award giving rise to the withholding obligation, at the
sole option of LSI. Otherwise, withholding must be made in a manner that
provides cash to LSI. The amount of income recognized is not reduced by the
delivery of already owned shares or the retention by LSI of shares issuable
under an Award to satisfy withholding obligations; the transaction is taxed as
if the shares were sold for the amount of the withholding tax.
Other Stock Options
- -------------------
Prior to adoption of the 1997 Stock Option Plan, LSI has granted NQSOs
exercisable at 25c per share to two employees as follows:
Number of Shares
Name and Position Subject to Grant
----------------- -------------------
Mohammad Bari, 100,000
Senior Design Engineer
Nilesh Gharia, 100,000
Senior Design Engineer
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1996, Jenalong Holdings, Inc., a Texas corporation, which is owned by
Mr. Maxie R. Smith and Mr. Dennis V. Poole, advanced $45,567 for a down payment
toward the purchase of bonding and in-line production test equipment. In 1997,
Jenalong Holdings, Inc. purchased the equipment on behalf of LSC for the
approximate amount of $150,000. LSC assigned the equipment to Whitways
Enterprises Limited for use in its factory in Guan Dong Province, China. Mr.
Poole is a Vice President of Marketing for Whitways Enterprises Limited.
Page 35
<PAGE>
In 1997, LSC leased from Jenalong Holdings, Inc., Sun Microsystem UNIX-
based computer equipment in the approximate amount of $35,597. In addition, LSC
leased from Jenalong Holdings, Inc. a CST SIMM tester in the approximate amount
of $1,500.
In 1996 and 1997, Jenalong Holdings, Inc., in a series of transactions,
loaned LSI up to approximately $135,000 at an approximate interest rate of 12%
on an unsecured basis, the proceeds of which were used for working capital. LSI
has fully repaid the principal and interest on the loan.
ITEM 8. LEGAL PROCEEDINGS
LSI is not a party to any material legal proceedings.
ITEM 9. MARKET PRICE AND DIVIDENDS ON LSI'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Trading of LSI's common stock was halted, by order of the SEC, on May 3,
1996, due to questions raised regarding the adequacy and accuracy of publicly
disseminated information concerning, among other things, unusual market activity
and the tradability of shares. Since May 3, 1996, LSI has undertaken a system
wide review of its policies and procedures. As of December 17, 1997, there is no
established trading market for the stock. Upon compliance with Rule 15c2-11, LSI
intends to be traded over-the-counter and on the National Association of
Securities Dealer's Electronic Bulletin Board.
Upon becoming a 1934 Act reporting company, LSI shall furnish its
stockholders with annual reports containing audited financial statements
reported on by its independent auditors for each fiscal year and quarterly
reports containing unaudited financial statements for the first three quarters
of each fiscal year.
LSI currently has 32,124,242 shares outstanding as of December 1, 1997,
held by 411 shareholders. There are currently nonqualified stock options for
200,000 shares outstanding. LSI has 40 warrants outstanding which, if
exercised, would result in the issuance of 34,284,067 shares. LSI has no
current plans to register securities in a public offering.
Page 36
<PAGE>
On November 21, 1997, LSI adopted a 1997 Stock Option Plan whereby
employees were offered the right to purchase increasing numbers of shares of LSI
depending on their length of tenure with LSI. The following table outlines the
numbers of shares eligible to be purchased by employees in the next three years
and the amount of the corresponding investment of capital into LSI:
Year No. of Shares Total Purchase Price
Eligible to be Purchased
-----------------------------------------------------------------
1997 1,068,333 $267,083.25
1998 1,291,666 $322,916.50
1999 1,141,667 $285,416.75
2000 588,334 $147,083.50
LSI has not in the past and has no current plans to issue dividends. All
profits in the foreseeable future will be reinvested to enable further research
and development of enhanced versions of LSI's memory-based products and
operational efficiencies to decrease costs.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
The following discussion outlines all securities sold by LSI or its
subsidiaries for cash or services rendered during the previous three fiscal
years. Unless otherwise described, all of the shares sold or granted were
issued pursuant to the authority granted by the private offering exemption
outlined in Section 4(2) of the Securities Act of 1933, as amended. None of the
below mentioned "sales" were made to more than 35 nonaccredited investors and
none were made with a view toward distribution. All shares issued were
restricted and contained either a Rule 144 or Regulation S legend, as
appropriate.
In November 1994, Simmco Memory Products, Inc. ("Simmco"), a now dissolved
subsidiary of LCC, sold 1,000 shares of Restricted Common Stock to Lanstar
Computer Corporation to satisfy state incorporation requirements.
In March 1995, LCC initiated an offering of Restricted Common Stock
pursuant to Rule 504 with an aggregate offering price of $750,000. In September
1995, LCC offered and sold $407,017 of convertible debentures. The debentures
were convertible at a rate of $1 into 1 share of
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<PAGE>
LSC or any future publicly-traded company into which LCC would be merged. During
1995, the debentures were converted to 400,017 shares of LCC Restricted Common
Stock.
In March 1995, LCC issued to Henry H. Schwartz d/b/a IIBC, Incorporated,
276,316 shares of Restricted Common Stock in consideration for services
rendered.
In June 1995, LSC sold 1,000 shares of Restricted Common Stock to LCC to
satisfy state incorporation requirements.
In September 1995, LSC issued 5,183,333 shares of Restricted Common Stock
in exchange on a 1 for 1 basis with shareholders and convertible debenture
holders (for the stock underlying their debenture) of its parent, LCC, for the
purpose of spinning off LSC from its parent. LSC received an investment of
$407,017 in operating capital as consideration for the exchange.
In 1995 and 1996, LSC offered and sold, pursuant to Rule 504, $140,500 of
debentures convertible at a rate of one share of LSC or any contemplated public
parent for each $1 of the face amount of each debenture.
In November 1995, pursuant to Rule 504, LSC offered and sold $441,498 of
debentures convertible at a rate of one share of LSC for every $1.50 of the face
amount of the debenture. During 1996, 297,663 shares of Restricted Common Stock
were issued in conversion of debentures.
LSI was organized as a Utah corporation in October 1980, as Kasmir Kliffs,
Inc. During November 1995, Kazmir Kliffs, Inc., changed its name to Lanstar
Semiconductor Inc. and entered into an agreement to issue up to 8,500,000 common
shares of LSI to the stockholders of LSC and debenture holders of debentures
that were convertible into LSC common stock in exchange for all the outstanding
common shares and all the outstanding convertible rights to common shares of
LSC. Prior to the closing of the agreement, there were 1,500,000 common shares
of LSI outstanding.
Prior to November 27, 1995, LSI initiated a 2 for 1 reverse stock split
which resulted in decreasing the number of issued and outstanding shares to
1,500,000 shares of common stock.
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<PAGE>
In 1995, LSI entered into several agreements for financial consulting
services, finder's fees and preparation of disclosure documents. LSI issued
553,684 shares of Restricted Common Stock to consultants and their affiliates
pursuant to these agreements.
In 1995, LSI issued as a bonus for services rendered, a total of 750,000
shares of Restricted Common Stock to Maxie R. Smith, Wilton Workman and Steven
Porter.
Simmco offered and sold in 1996, pursuant to Rule 504, $46,000 of
debentures convertible at a rate of one share of common stock of Simmco or a
company with which Simmco exchanged shares for each dollar of the face amount of
the debenture. During 1997, Simmco redeemed $6,000 of debentures.
Effective February 28, 1996, LCC issued 40,000 shares of Restricted Common
Stock to purchase 100% of the assets of Simmco, its wholly-owned subsidiary.
In May 1996, LCC acknowledged an accounts payable debt of $463,443 to
Integrated Circuit Technology, Inc., a Cayman Islands Corporation. Pursuant to
the request of the creditor, LSI issued 111,000 shares of Restricted Common
Stock, pursuant to Regulation S, on behalf of its affiliate, LCC, in full
release of the accounts payable in order to maintain beneficial relations with
the high volume vendor and customer.
On June 10, 1996, LSI issued 120,000 shares of Restricted Common Stock to
the shareholders and debenture holders of LCC as part of the consideration for
the purchase of 100% of the assets of LCC.
On July 31, 1996, LSI offered and sold, pursuant to Regulation S, a
convertible debenture (subordinated to bank loans) for $750,000 and a warrant
for 3,000,000 shares, to Integrated Circuit Technology, Inc., a Cayman Islands
Corporation, payable on December 31, 1996, with an interest rate of 12%. The
debenture was convertible into 3,000,000 shares at a rate of 25c per share. The
warrant terms allowed the purchase of up to 3,000,000 shares at a price of $1.50
per share for three years. On August 29, 1996, Integrated Circuit Technology,
Inc. converted its debenture issued on July 31, 1996, pursuant to its terms into
3,000,040 shares of common stock of LSI. The interest due was waived.
Page 39
<PAGE>
During November 1996, LSI acquired all of the outstanding stock of SMI from
World Data Limited, a Cayman Islands Corporation, in exchange for issuing a
total of 29,000,000 shares of Restricted Common Stock of LSI of which 3,000,000
shares were allocated as a finder's fee relative to the transaction.
On December 31, 1996, LSI offered and sold, pursuant to Regulation S, a
convertible debenture and a warrant for 3,000,000 shares to Geninvest S.A., a
Panamanian Corporation, for $750,000. The debenture carried an interest rate of
12%, was subordinate to bank loans and was payable on November 29, 1997. The
debenture was convertible at a rate of 25c per share into 3,000,000 shares. The
warrant was exercisable for three years for up to 3,000,000 shares at $1.50 per
share. Geninvest S.A. converted its convertible debenture on August 26, 1997,
into 3,000,000 shares of Restricted Common Stock of LSI. LSI issued an
additional 300,000 shares as a finder's fee and 128,082 shares in payment of the
accrued interest.
In December 1996, LSI acquired the outstanding shares of LHK for $15,000.
In 1996, LSI issued 1,580,151 shares of Restricted Common Stock to
consultants and their affiliates for services rendered on behalf of LSC in 1995
and 1996.
On April 15, 1997, LSI offered and sold, pursuant to Regulation S, a
convertible debenture in the amount of $750,000 payable on April 15, 1998, with
an interest rate of 12% and a warrant for 3,000,000 shares to Geninvest S.A., a
Panamanian Corporation. The debenture was subordinate to bank loans and
convertible at 25c per share into 3,000,000 shares. The warrant was exercisable
for three years for up to 3,000,000 shares at $1.50 per share. Geninvest S.A.
converted its convertible debenture on August 26, 1997, into 3,000,000 shares of
Restricted Common Stock of LSI. LSI also issued 300,000 as a finder's fee and
97,316 shares in lieu of accrued interest.
In August 1997, LSI in connection with attempts to renegotiate and
restructure the transaction and relationship with SMI, received 8,000,000 shares
of Restricted Common Stock from World Data Limited.
On August 25, 1997, LCP issued 1,000 shares of Restricted Common Stock to
LSI in exchange for $1,000 to satisfy state incorporation requirements.
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<PAGE>
On August 26, 1997, LSI offered and sold, pursuant to Regulation S,
8,000,000 shares of Restricted Common Stock, as well as warrants for a total of
8,000,000 shares, to several offshore accredited investors in exchange for a
total of $1,000,000. The warrants are exercisable for three years at a price of
$1.50 per share.
In October 1997, LST sold 1,000 shares of Restricted Common Stock to LSI to
satisfy state incorporation requirements.
In October 1997, LSI issued a total of 200,000 shares of Restricted Common
Stock to an individual and his related company in settlement of a disputed claim
based on professional services rendered.
In October 1997, LSI issued a warrant for 18,000,000 shares to SMI pursuant
to an agreement to sell SMI to its previous shareholder. The warrant is
exercisable in any amount up to a total of 18,000,000 shares for three years at
$1.50 per share. As a result of the Stock Purchase Agreement, LSI received
25,555,000 Restricted shares of its Common Stock into treasury.
In November 1997, LSI amended 43 outstanding warrants for the right to
purchase a total of 17,000,040 shares of LSI to reduce the exercise price from
$1.50 per share to $.75 per share. Subsequently, and in consideration of the
amended exercise price, certain of those warrant holders exercised warrants and
purchased, pursuant to Regulation S, 715,973 shares of Restricted Common Stock
of LSI for $536,979.75. Management believes that additional private sales of
equity and/or the exercise of outstanding warrants to acquire Common Stock may
occur before the end of 1998.
ITEM 11. DESCRIPTION OF LSI'S SECURITIES TO BE REGISTERED
LSI is authorized to issue 250,000,000 shares of Common Stock, $0.001 par
value, of which 32,124,242 shares are currently outstanding. Holders of the
Common Stock are entitled to one vote per share on matters to be voted upon by
the stockholders, to receive dividends when and if declared by the Board of
Directors of the LSI and to share ratably in the assets of LSI legally
available for distribution to stockholders in the event of liquidation or
dissolution. The Common Stock has no preemptive rights and no subscription,
redemption or conversion privileges. The Common Stock does not have cumulative
voting rights, which
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<PAGE>
means the holders or more than one-half of the shares voting for the election of
directors can elect all of the directors. All of the outstanding shares of
Common Stock are fully paid and not liable for further call or assessment.
Interwest Transfer Co. Inc. at 1981 East 4800 South, Suite 100, Salt Lake
City, Utah 84117, is the registrar and transfer agent for its Common Stock.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 16-10a-902 of the Utah Revised Business Corporation Act (the "Act")
provides that a corporation may indemnify a director against liability in a
proceeding if: (a) his conduct was in good faith; and (b) he reasonably
believed that his conduct was not opposed to the corporation's best interests.
Section 16-10a-903 of the Act provides that a corporation shall indemnify a
director who was successful, on the merits or otherwise, in the defense of a
proceeding to which he was a party because he is or was a director of the
corporation, against reasonable expenses incurred by him in connection with the
proceeding or claim with respect to which he has been successful. Section 16-
10a-907 of the Act provides that an officer of the corporation is entitled to
mandatory indemnification under Section 16-10a-903 to the same extent as a
director.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "1933 Act"), may be permitted to directors, officers
and controlling persons of LSI pursuant to the foregoing provisions, or
otherwise, LSI has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the 1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by LSI of
expenses incurred or paid by a director, officer or controlling person of LSI in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, LSI will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of such
issue.
Page 42
<PAGE>
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data for LSI are set forth
following Item 15.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in accountants or disagreements by LSI with its
accountants on accounting or financial disclosures.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements. The following financial statements are presented
for LSI:
<TABLE>
<CAPTION>
Description of Report Date of Report Page
- ----------------------------------------------- -------------------- ------
<S> <C> <C>
Audit of consolidated and combined financial
statements of Lanstar Semiconductor Inc. and
Subsidiaries and Lanstar Computer Corporation
and Subsidiary as of December 31, 1996 and
1995 October 2, 1997 F-1
Audit of consolidated financial statements of
MG TK Corp. and Subsidiary as of December 31,
1996 and 1995 October 2, 1997 F-25
Examination of pro forma consolidated and
combined (condensed) financial statements of
Lanstar Semiconductor Inc. and Subsidiaries
and Lanstar Computer Corporation and
Subsidiary as of December 31, 1996 October 2, 1997 F-38
Review of consolidated and combined financial
statements of Lanstar Semiconductor Inc. and
Subsidiaries and Lanstar Computer Corporation
and Subsidiary as of June 30, 1997 and 1996 October 15, 1997 F-45
</TABLE>
Page 43
<PAGE>
<TABLE>
<CAPTION>
Description of Report Date of Report Page
- ----------------------------------------------- -------------------- ------
<S> <C> <C>
Review of consolidated and combined financial
statements of Lanstar Semiconductor Inc. and
Subsidiaries and Lanstar Computer Corporation
and Subsidiary as of September 30, 1997 and
1996 October 24, 1997 F-65
Review of pro forma consolidated and combined
(condensed) financial statements of Lanstar
Semiconductor Inc. and Subsidiaries and
Lanstar Computer Corporation and Subsidiary
as of June 30, 1997 and 1996 October 15, 1997 F-85
Review of pro forma consolidated and combined
(condensed) financial statements of Lanstar
Semiconductor Inc. and Subsidiaries and
Lanstar Computer Corporation and Subsidiary
as of September 30, 1997 and 1996 October 24, 1997 F-92
</TABLE>
(b) Exhibits
--------
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Reorganization by and between Kazmir
Kliffs, Inc., a Utah corporation, and Lanstar Semiconductor
Corporation, a Texas corporation, entered into in November 1995
2.2 Stock Purchase Agreement entered into as of November 4, 1996, by
and among Lanstar Semiconductor, Inc., a Utah corporation, World
Data Limited, a Cayman Islands corporation, and Southwest Memory
International, Inc., a Texas corporation
Page 44
<PAGE>
2.3 Stock Purchase Agreement executed on October 1,1997, by and among
Lanstar Semiconductor Inc., a Utah corporation, Ilya Drapkin,
World Data Limited, a Cayman Islands corporation, Southwest
Memory International, Inc., a Texas corporation, Southwest
Memory, Inc., a Texas corporation, and MG TK Corp., a Texas
corporation
3.1 Articles of Incorporation of Kazmir Kliffs, Inc. dated October
24, 1980
3.2 Amended Articles of Incorporation of Kazmir Kliffs, Inc. dated
November 30, 1995
3.3 Articles of Amendment to the Articles of Incorporation of Lanstar
Semiconductor Inc. dated September 11, 1997
3.4 Amended and Restated Bylaws of Lanstar Semiconductor Inc. dated
as of October 31, 1997
4 Sample Stock Certificate
10.1 Design and License Agreement as of July 27, 1995, by and between
Mosaid Technologies Incorporated, a Canadian corporation, and
Lanstar Semiconductor Corporation, a Texas corporation
10.2 Amendment to Design and License Agreement as of March 8, 1996, by
and between Mosaid Technologies Incorporated, a Canadian
corporation, and Lanstar Semiconductor Corporation, a Texas
corporation
10.3 License Agreement between Texas Instruments Incorporated, a
Delaware corporation, and Lanstar Semiconductor Corporation, a
Texas corporation, effective as of January 1, 1996
10.4 Addendum to License Agreement between Texas Instruments
Incorporated, a Delaware corporation, and Lanstar Semiconductor
Corporation, a Texas corporation, dated March 8, 1996
Page 45
<PAGE>
10.5 Foundry Production Agreement dated as of June 27, 1996, by and
between Sony Semiconductor Company of America and Lanstar
Semiconductor Inc.
10.6 Amendment to Foundry Production Agreement dated as of November 4,
1996
10.7 Extension of Foundry Production Agreement dated as of November
15, 1996
10.8 Amendment to Foundry Production Agreement dated as of June 13,
1997
10.9 Product Development and Fabrication Agreement dated as of January
30, 1996, by and among UTRON, MUTRON and Lanstar Semiconductor
Inc.
10.10 Assignment of Product Development and Fabrication Agreement dated
as of January 30, 1996, by and among UTRON, MUTRON and Lanstar
Semiconductor Inc. executed on September 20, 1997, to be
effective as of January 1, 1997
10.11 Lease Agreement by and between Continental Properties Joint
Venture #5 and Lanstar Semiconductor Inc. dated May 1, 1996
10.12 Lease Agreement by and between Continental Properties Joint
Venture #5 and Lanstar Semiconductor Inc. dated December 1, 1996
10.13 Lease Agreement by and between DSW Property Management and
Lanstar Systems Technology, Inc. dated October 9, 1997
10.14 Lanstar Semiconductor Inc. 1997 Stock Option Plan
11 See Financial Statements - Item 15(a) filed herewith
21 Subsidiaries of LSI
23 Consent of Cheshier & Fuller, L.L.P.
Page 46
<PAGE>
27 Financial Data Schedule
99.1 Proxy Statement for Special Meeting of Shareholders - September
9, 1997
99.2 Notice of Shareholder Action Upon Consent of a Majority Vote of
the Shareholders - October 2, 1997
Page 47
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, LSI has duly caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized.
LANSTAR SEMICONDUCTOR INC.
Date: December 17, 1997 By: /S/ MAXIE R. SMITH
------------------
Maxie R. Smith, President and
Chief Executive Officer
Page 48
<PAGE>
[LETTERHEAD OF CHESHIER & FULLER, L.L.P. APPEARS HERE]
Independent Auditor's Report
----------------------------
To the Board of Directors and
Stockholders of Lanstar Semiconductor Inc.
We have audited the accompanying consolidated and combined balance sheets of
Lanstar Semiconductor Inc. and Subsidiaries and Lanstar Computer Corporation and
Subsidiary as of December 31, 1996 and 1995, and the related consolidated and
combined statements of income, changes in stockholders' equity and cash flows
for the year ended December 31, 1996 and the period from inception through
December 31, 1995. These financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly in all
material respects, the financial position of Lanstar Semiconductor Inc. and
Subsidiaries and Lanstar Computer Corporation and Subsidiary as of December 31,
1996 and 1995, and the results of their operations and their cash flows for the
year ended December 31, 1996, and for the period from inception through December
31, 1995.
/S/ CHESHIER & FULLER, L.L.P.
-----------------------------
CHESHIER & FULLER, L.L.P.
Dallas, Texas
October 2, 1997
F-1
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Consolidated and Combined Balance Sheets
----------------------------------------
December 31, 1996 and 1995
--------------------------
ASSETS
------
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 382,125 $ 17,393
Marketable securities available for sale 530,093 -0-
Trade accounts receivable, less allowance for
doubtful accounts of $105,607 at
December 31, 1996 2,557,938 23,743
Accounts receivable - other 2,770,747 -0-
Inventory 668,768 9,423
Prepaid expenses 110,099 -0-
---------- --------
7,019,770 50,559
---------- --------
Furniture and equipment, less accumulated
depreciation of $179,999 at December 31, 1996
and $36,795 at December 31, 1995 492,529 280,410
Other assets:
Deposits 3,410 3,620
Artwork 113,000 -0-
Deferred income tax benefit -0- -0-
---------- --------
116,410 3,620
---------- --------
Total Assets $7,628,709 $334,589
========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Consolidated and Combined Balance Sheets
----------------------------------------
December 31, 1996 and 1995
--------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Current liabilities:
Accounts payable $ 458,917 $ 168,199
Account payable - Southwest Memory, Inc. -0- 469,443
Accrued expenses 785,454 505,389
Bank overdraft 115,529 71,589
Margin account 231,799 -0-
Accrued income taxes 212,122 -0-
Debentures payable - private placements 47,000 350,250
---------- ----------
1,850,821 1,564,870
Long-Term Debt:
Debenture payable - private sale 750,000 -0-
---------- ----------
Total Liabilities 2,600,821 1,564,870
Stockholders' equity:
Lanstar Computer Corporation -
Common stock - .01 par value, 10,000,000 shares
authorized, 5,183,333 shares issued and
outstanding at December 31, 1996 and 1995 51,833 51,833
Additional paid in capital 402,947 402,947
Retained deficit (454,780) (446,066)
Stockholder loans
Individual officers/stockholders (8,714)
Lanstar Semiconductor Inc.-
Common stock - .001 par value, 50,000,000 shares
authorized, 42,115,371 shares issued and
41,815,371 shares outstanding at December 31,
1996, 7,987,017 issued and outstanding at
December 31, 1995 42,115 7,987
Treasury stock at cost, 300,000 shares -0- -0-
Additional paid-in capital 7,806,188 (6,683)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Consolidated and Combined Balance Sheets
----------------------------------------
December 31, 1996 and 1995
--------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Stockholder/management loans
Southwest Memory, Inc. (580,088) -0-
Components & More/Mikhail Goldshtein (125,517) -0-
Jenalong Holdings, Inc. (45,567)
Jenalong Holdings, Ltd. (39,000) (39,000)
Individual officers/stockholders (59,243) (4,600)
Unrealized loss - marketable securities
available for sale (4,937) --
Retained deficit (1,966,063) (1,187,985)
----------- -----------
Total Stockholders' Equity (deficit) 5,027,888 (1,230,281)
----------- -----------
Total Liabilities and Stockholders' Equity (deficit) $ 7,628,709 $ 334,589
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Consolidated and Combined Statements of Income
----------------------------------------------
For the Period from Inception through December 31, 1995,
--------------------------------------------------------
and For the Year Ended December 31, 1996
----------------------------------------
<TABLE>
<CAPTION>
Inception to
December 31,
1996 1995
------------------ ------------
<S> <C> <C>
Sales $ 57,256,245 $ 6,154,060
Cost of goods sold, of which $903,000 in 1996
and $500,000 in 1995 are purchases from
Southwest Memory, Inc. (53,055,506) (6,015,155)
------------ -----------
Gross profit 4,200,739 138,905
------------ -----------
Selling, general and administrative expenses (3,874,283) (1,016,574)
Research and development (476,055) (655,704)
Bad debt expense (423,688) (84,531)
------------ -----------
(4,774,026) (1,756,809)
------------ -----------
Operating loss (573,287) (1,617,904)
Other income (expense):
Interest income 7,610 153
Interest expense (8,993) (16,300)
------------ -----------
Net loss before income tax (574,670) (1,634,051)
Provision for income tax (212,122) -0-
------------ -----------
Net loss (786,792) (1,634,051)
Allocated to Lanstar Computer Corporation (8,714) (446,066)
------------ -----------
Allocated to Lanstar Semiconductor Inc. $ (778,078) $(1,187,985)
============ ===========
Primary loss per share:
Lanstar Computer Corporation $ (0.00) $ (0.10)
============ ===========
Lanstar Semiconductor Inc. $ (0.02) $ (0.16)
============ ===========
Fully diluted loss per share:
Lanstar Computer Corporation $ (0.00) $ (0.10)
============ ===========
Lanstar Semiconductor Inc. $ (0.02) $ (0.16)
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Combined Statement of Changes in Stockholders' Equity
-----------------------------------------------------
for the Period from Inception through
-------------------------------------
December 31, 1995 and for the Year Ended December 31, 1996
----------------------------------------------------------
<TABLE>
<CAPTION>
Lanstar Computer Corporation
------------------------------------------------------
Additional Stockholder/
Par Paid-In Management Retained
Shares Value Capital Loans Deficit
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, September, 1993 - $ - $ - $ - $ -
Shares issued for subscrip-
tion receivable-private sale 3,900,000 39,000 (39,000)
Shares issued to consultants
and their affiliates for services 476,316 4,763
Shares issued to officers
for services 100,000 1,000
Private sale of common stock 300,000 3,000
Shares of Lanstar Semi-
conductor Inc. outstanding
at date of merger
Shares issued to stockholders
of Lanstar Computer Corpora-
tion and assumption of
subscription receivable 39,000
Stockholder loans (8,714)
Common stock sold - March,
1995, offering of Lanstar
Computer Corporation 407,017 4,070 402,947
Net loss - inception through
December 31, 1995 (446,066)
------------------------------------------------------
Balance, December 31, 1995 5,183,333 51,833 402,947 (8,714) (446,066)
</TABLE>
<TABLE>
<CAPTION>
Lanstar Semiconductor Inc.
----------------------------------------------------------------
Additional Stockholder/ Total
Par Paid-In Management Unrealized Retained Stockholders'
Shares Value Capital Loans Loss Deficit Equity
---------------------------------------------------------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September, 1993 - $ - $ - $ - $ - $ - $ -
Shares issued for subscrip-
tion receivable-private sale -
Shares issued to consultants
and their affiliates for services 553,684 554 5,317
Shares issued to officers
for services 750,000 750 1,750
Private sale of common stock 3,000
Shares of Lanstar Semi-
conductor Inc. outstanding
at date of merger 1,500,000 1,500 (1,500) -
Shares issued to stockholders
of Lanstar Computer Corpora-
tion and assumption of
subscription receivable 5,183,333 5,183 (5,183) (39,000) -
Stockholder loans (4,600) (13,314)
Common stock sold - March,
1995, offering of Lanstar
Computer Corporation 407,017
Net loss - inception through
December 31, 1995 (1,187,985) (1,634,051)
---------------------------------------------------------------- -------------
Balance, December 31, 1995 7,987,017 7,987 (6,683) (43,600) - (1,187,985) (1,230,281)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Consolidated and Combined Statement of Changes in Stockholders' Equity
----------------------------------------------------------------------
for the Period from Inception through
-------------------------------------
December 31, 1995 and for the Year Ended December 31, 1996
----------------------------------------------------------
<TABLE>
<CAPTION>
Lanstar Computer Corporation
---------------------------------------------------------
Additional Stockholder/
Par Paid-In Management Retained
Shares Value Capital Loans Deficit
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Stockholder loans 8,714
Treasury stock acquired
at no cost
Debentures converted to
common stock - September,
1995 offering of Lanstar
Semiconductor Corporation
Issuance of common stock in
release of trade payable
Debentures converted to
common stock - November,
1995 offering of Lanstar
Semiconductor Corporation
Shares issued to consultants
and their affiliates for services
Conversion of debenture payable
Capital contributed by stock-
holders of Southwest Memory
International, Inc. prior to merger
Unrealized loss
Net loss (8,714)
---------------------------------------------------------
Balance, December 31, 1996 5,183,333 $ 51,833 $402,947 $ - (454,780)
============ ========== =========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Lanstar Semiconductor Inc.
------------------------------------------------------------------------------------------
Additional Stockholder/ Total
Par Paid-In Treasury Management Unrealized Retained Stockholders'
Shares Value Capital Stock Loans Loss Deficit Equity
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stockholder loans (805,815) (797,101)
Treasury stock acquired
at no cost (300,000) - -
Debentures converted to
common stock - September,
1995 offering of Lanstar
Semiconductor Corporation 139,500 139 139,361 139,500
Issuance of common stock
in release of trade payable 111,000 111 463,332 463,443
Debentures converted to
common stock - November,
1995 offering of Lanstar
Semiconductor Corporation 297,663 298 441,200 441,498
Shares issued to consultants
and their affiliates
for services 1,580,151 1,580 1,580
Conversion of
debenture payable 3,000,040 3,000 747,000 750,000
Capital contributed by
stockholders of
Southwest Memory
International, Inc.
prior to merger 29,000,000 29,000 6,021,978 6,050,978
Unrealized loss (4,937) (4,937)
Net loss (778,078) (786,792)
---------------------------------------------------------------------------------------------------------
Balance,
December 31, 1996 41,815,371 $ 42,115 $7,806,188 $ - $(849,415) $ (4,937) $ (1,966,063) $5,027,888
=========== ========= =========== ========= ========== ========= ============= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Consolidated and Combined Statements of Cash Flows
--------------------------------------------------
For the Period from Inception through December 31, 1995,
--------------------------------------------------------
and For the Year Ended December 31, 1996
----------------------------------------
<TABLE>
<CAPTION>
Inception through
December 31,
1996 1995
------------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (786,792) $(1,634,051)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation 143,204 36,795
Services rendered for common stock 1,580 7,067
Bad debt expense 423,688 84,531
Amortization 15,000 -0-
(Increase) decrease in:
Trade receivables (2,957,882) (108,274)
Other receivables (2,770,747) -0-
Inventories (659,345) (9,423)
Prepaid expenses (110,099) -0-
Increase (decrease) in:
Accounts payable - trade 290,718 168,199
Account payable - Southwest Memory, Inc. -0- 469,443
Accrued expenses 274,064 505,389
Accrued income taxes 212,122 -0-
----------- -----------
Net cash used for operating activities (5,924,489) (480,324)
----------- -----------
INVESTING ACTIVITIES:
Artwork acquisitions (113,000) -0-
Furniture and equipment additions (355,324) (317,205)
(Increase) decrease in deposits 210 (3,620)
Purchase of goodwill (15,000) --
Purchase of marketable securities (303,231) --
----------- -----------
Net cash used for investing activities (786,345) (320,825)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from private sales of debentures and
common stock 7,828,727 760,267
Increase in bank overdraft 43,940 71,589
Increase in stockholder loan (797,101) (13,314)
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Consolidated and Combined Statements of Cash Flows
--------------------------------------------------
For the Period from Inception through December 31, 1995,
--------------------------------------------------------
and For the Year Ended December 31, 1996
----------------------------------------
<TABLE>
<CAPTION>
Inception through
December 31,
1996 1995
----------------- -----------------
<S> <C> <C>
Net cash provided by financing activities 7,075,566 818,542
---------- --------
Increase (decrease) in cash 364,732 17,393
Cash and cash equivalents, beginning of period 17,393 -0-
---------- --------
Cash and cash equivalents, end of period $ 382,125 $ 17,393
========== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest $ 9,053 $ 11,825
========== ========
Income Taxes $ -0- $ -0-
========== ========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
<TABLE>
<CAPTION>
<S> <C> <C>
Net change in unrealized loss on marketable
securities available for sale $ 4,937 $-0-
========== ====
Marketable securities acquired by margin debt $ 231,799 $-0-
========== ====
Convertible debentures tendered for common stock $1,330,998 $-0-
========== ====
Issuance of common stock in settlement of
accounts payable $ 463,443 $-0-
========== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
December 31, 1996 and 1995
--------------------------
Note 1 - Nature of Business and Significant Accounting Policies
------------------------------------------------------
NATURE OF BUSINESS
Lanstar Computer Corporation (LCC) was organized as a Texas
corporation in September, 1993. Its wholly-owned subsidiary, Simmco
Memory Products, Inc. (Simmco) was organized as a Texas corporation in
November, 1994. Collectively, LCC and Simmco were engaged in the
distribution of computer memory products.
Lanstar Semiconductor Corporation (LSC) was organized as a Texas
corporation in June, 1995, to develop and manufacture computer memory
products. It acquired its operations from LCC by issuing common
shares to the stockholders of LCC.
Lanstar Semiconductor Inc. (LSI) was organized as a Utah corporation
in October, 1980, as Kazmir Kliffs, Inc. During November, 1995,
Kazmir Kliffs, Inc., changed its name to Lanstar Semiconductor Inc.
and entered into an agreement to issue up to 8,500,000 common shares
of LSI to the stockholders of LSC and debenture holders of debentures
that were convertible into LSC common stock in exchange for all the
outstanding common shares and all the outstanding convertible rights
to common shares of LSC. Prior to the closing of the agreement, there
were 1,500,000 common shares of LSI outstanding. During the period
from 1989 until November, 1995, Kazmir Kliffs, Inc. had no activity.
During November, 1996, LSI acquired all of the outstanding stock of
Southwest Memory International, Inc. (SWMI) from World Data Limited in
exchange for 29,000,000 common shares of LSI of which 3,000,000 shares
were allocated as a finder's fee relative to the transaction. SWMI is
engaged in the distribution of computer memory products. SWMI was
organized as a Texas corporation in January, 1996. The operations of
SWMI were acquired from a predecessor company, Southwest Memory, Inc.,
during early 1996.
During December, 1996, LSI acquired all the outstanding stock of
Lanstar Hong Kong Limited (LHK) from an affiliate for $15,000. At the
date of the acquisition, LHK had no assets or liabilities. LHK
handles all manufacturing operations in the orient for the LSI
subsidiaries. LHK activities for the month of December only are
reflected in the financial statements.
F-10
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
December 31, 1996 and 1995
--------------------------
Note 1 - Nature of Business and Significant Accounting Policies, continued
------------------------------------------------------
NATURE OF BUSINESS
During 1996, most operations of LCC and Simmco ceased and were assumed
by LSI and its subsidiaries. As of December 31, 1996, only minor
activity was taking place in LCC and Simmco.
CONSOLIDATION AND COMBINATION POLICY
The combined financial statements are comprised of the development,
manufacture and distribution of computer memory products by LSI and
its subsidiaries and LCC and its subsidiary. Combined financial
statements are presented in a method similar to a pooling of
interests. The financial statement activity has been combined from
the inception of LCC in September, 1993, and LSC in June, 1995. The
acquisition by LCC of SIMMCO was accounted for as a purchase of a
subsidiary. The merger of LSC and LSI was accounted for as a reverse
acquisition similar to a pooling of interests. The acquisition of
SWMI was accounted for as a pooling of interests. In the case of a
pooling of interests activity of all entities are retroactively
presented to inception. The acquisition of LHK was accounted for as a
purchase of a subsidiary. All intercompany profits and transactions
have been eliminated in combination and consolidation, including those
transactions entered into with SWMI prior to the acquisition of SWMI.
LSI, SWMI, LCC, Simmco, LSC and LHK will be collectively referred to
as "the Company".
Any losses incurred by LCC and its subsidiary in excess of paid in
capital was borne by LSI and its subsidiaries.
PERIODS PRESENTED
The combined activity of both LCC, Simmco and LSC are presented from
their respective inceptions through December 31, 1995. Their combined
activity is also presented from January 1, 1996 through December 31,
1996. The activity of SWMI is presented from its inception in
January, 1996, through December 31, 1996.
F-11
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
December 31, 1996 and 1995
--------------------------
Note 1 - Nature of Business and Significant Accounting Policies, continued
------------------------------------------------------
GOODWILL
The $15,000 cost of LHK in excess of its book value was reflected as a
selling, general and administrative expense during 1996 as the value
of the asset was impaired as of December 31, 1996.
INVENTORY
Inventory values are stated at the lower of first-in, first-out (FIFO)
and average cost or market. All manufacturing is performed by a third
party. As a result no indirect costs are associated with manufactured
inventory.
MARKETABLE SECURITIES AVAILABLE FOR SALE
Securities are to be held for indefinite periods of time and are not
intended to be held to maturity or on a long-term basis. They are
classified as available for sale. Realized gains and losses on
dispositions are based on the net proceeds and the adjusted book value
of the securities sold, using the specific identification method.
Unrealized gains and losses on marketable securities available for
sale are based on the difference between book value and fair value of
each security. These gains and losses are credited or charged to
stockholders' equity, whereas realized gains and losses flow through
the Company's operations.
LOSS PER SHARE
Net loss per common share is presented for each consolidated company
presented in the accompanying combined financial statements. Loss per
share is calculated by dividing net loss of each company by the
average shares of common stock outstanding of each company during each
period presented. During a loss period, the assumed conversion of
convertible debentures have an antidilutive effect. As a result,
these shares are not included in the weighted average shares
outstanding until actual conversion to common stock occurs. In the
case of a pooling of interests or reverse acquisition, all share and
per share information have been retroactively applied to give effect
for all shares outstanding immediately after the consolidating
transactions.
F-12
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
December 31, 1996 and 1995
--------------------------
Note 1 - Nature of Business and Significant Accounting Policies, continued
------------------------------------------------------
The weighted average number of shares outstanding is as follows:
<TABLE>
<CAPTION>
Year Ended Inception through
December 31, December 31,
1996 1995
------------ -----------------
<S> <C> <C>
Lanstar Computer Corporation 5,266,583 4,496,129
Lanstar Semiconductor Inc. 37,489,225 7,335,175
</TABLE>
FURNITURE AND EQUIPMENT
Furniture and equipment are carried at cost. Depreciation is
calculated using straight-line method over the estimated useful lives
of the assets of 3 to 10 years. Depreciation expense for the period
from inception through December 31, 1995, was $36,795 and for the year
ended December 31, 1996, was $143,204.
ALLOWANCE FOR BAD DEBTS
The Company provides an allowance for uncollectible accounts based
upon prior experience and management's assessment of the
collectibility of existing specific accounts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
INCOME TAXES
Deferred tax assets and deferred tax liabilities, if any, are
recognized for taxable temporary differences. Temporary differences
are the differences between the reported amounts of assets and their
tax basis as well as the effect of net operating loss carryforwards.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than
F-13
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
December 31, 1996 and 1995
--------------------------
Note 1 - Nature of Business and Significant Accounting Policies, continued
------------------------------------------------------
INCOME TAXES, continued
not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the
effect of changes in tax laws and rates on the date of enactment.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers all cash
accounts which are not subject to withdrawal restrictions or penalties
and interest bearing accounts with maturities of 90 days or less to be
cash or cash equivalents. At December 31, 1996, certain cash deposits
exceeded federally insured limits.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of financial instruments reported on the Company's
balance sheet approximate fair value. Fair value is estimated using
published market values for similar types of instruments.
Note 2 - Inventories
-----------
At December 31, inventories consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Raw materials $ 246,900 $ -0-
Finished goods 421,868 9,423
--------- ------
$ 668,768 $9,423
========= ======
</TABLE>
Note 3 - Income Tax Matters
------------------
The provision for income tax benefit (expense) consisted of the
following:
<TABLE>
<CAPTION>
Inception to
December 31,
1996 1995
--------- ------
<S> <C> <C>
Federal:
Current $(194,847) $ -0-
Deferred -0- -0-
--------- ------
(194,847) -0-
--------- ------
</TABLE>
F-14
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
December 31, 1996 and 1995
--------------------------
Note 3 - Income Tax Matters, continued
-------------------
<TABLE>
<CAPTION>
Inception to
December 31,
1996 1995
--------- -----------
<S> <C> <C>
State:
Current (17,275) -0-
Deferred -0- -0-
--------- ---------
(17,275) -0-
--------- ---------
Total $(212,122) $ -0-
========= =========
The net deferred tax asset and liabilities consisted of the
following components as of December 31, 1996 and 1995:
1996 1995
--------- ---------
Deferred tax assets (liabilities) relating to:
Lanstar Computer Corporation -
Net operating loss carryforward $ 152,191 $ 112,088
Lanstar Semiconductor Inc.
Net operating loss carryforward 352,953 12,941
License 169,000 182,000
Start-up costs and organization expense 124,185 157,858
Allowance for bad debts 41,187 -0-
--------- ---------
1996 1995
--------- ---------
839,516 464,887
Valuation allowance (816,121) (457,897)
--------- ---------
Net deferred tax benefits 23,395 6,990
Depreciation (23,395) (6,990)
--------- ---------
$ -0- $ -0-
========= =========
</TABLE>
A reconciliation of income tax expense computed by applying the
expected Federal statutory tax rates by net loss is as follows:
F-15
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
December 31, 1996 and 1995
--------------------------
Note 3 - Income Tax Matters, continued
-------------------
<TABLE>
<CAPTION>
Inception to
December 31,
1996 1995
---------- -----------
<S> <C> <C>
Benefit at expected Federal statutory rates $ 147,664 $ 414,709
State taxes 12,293 43,231
Travel and loss of foreign corporation (13,855) (43)
Change in valuation allowance (358,224) (457,897)
--------- ---------
Provision for income tax $(212,122) $ -0-
========= =========
</TABLE>
LCC has a net operating loss carryforward of approximately $1,014,603
expiring during years 2008 through 2011. LSC has a net operating loss
of $905,007 for income tax purposes which expires in 2010 and 2011.
The realization of income tax benefits from these losses is limited by
certain code sections of the Internal Revenue Code.
Note 4 - Private Placements
------------------
During 1995 and 1996, the Company issued five private placement
memorandums for the sale of securities under Regulation "D", Rule 504
of the Securities Act of 1933, as amended. The general provision and
capital procured with each offering is summarized as follows:
<TABLE>
<CAPTION>
Name of Date of
Issuing Offering Capital General Description
Entity Memorandums Procured of Security Issued
- -------------------------------------- ------------------------- ------------------------ ---------------------------
<S> <C> <C> <C>
LCC March 3, 1995 $407,017 Common stock and
and debentures payable of LCC -
September 30, 1995 1 common share of LCC for $1
and debenture payable
convertible to LSC common
stock, or the common stock of any
public corporation into which LSC
may be merged, at the rate of 1
share for each $1 of the
debentures' face value.
</TABLE>
F-16
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
December 31, 1996 and 1995
--------------------------
Note 4 - Private Placements, continued
------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
LSC September 15, 1995 $140,500 Debentures payable of LSC-Convertible to 1 share of LSC, or the common
stock of any public parent company, for each $1 of the debentures'
face value.
LSC November 15, 1995 $441,498 Debentures payable of LSC-Convertible to 1 share of LSC common stock
at the rate of 1 share for each $1.50 of the debentures' face value.
Simmco January, 1996 $ 46,000 Debentures payable of Simmco-Convertible to 1 share of Simmco common
stock, or the common stock of a publicly held corporation with which
Simmco exchanges shares, for each $1 of the debentures face value.
</TABLE>
By December 31, 1996, all debentures issued with respect to these
private placements had been converted to common stock of LSI with the
exception of $47,000 in debentures payable. The Company is in the
process of converting this debt to equity.
No interest expense has been paid or accrued with regard to the
debentures payable.
Note 5 - Assets Pledged
--------------
Marketable securities available for sale are pledged as security on
the margin account liability.
F-17
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
December 31, 1996 and 1995
--------------------------
Note 6 - Related Parties
---------------
During 1996, SWMI purchased inventory from its predecessor, Southwest
Memory, Inc., which is wholly owned by a member of management of SWMI.
The predecessor sold the inventory to Sterling International for
approximately $827,000. The inventory was purchased by the Company
from Worldwide Memory, Inc. by SWMI for approximately $903,000. The
inventory was subsequently written down by approximately $95,000. No
amounts were due to or from the Company in regards to these
transactions at December 31, 1996.
SWMI leases furniture and equipment from, and sub-leases office space
to Southwest Memory, Inc. The furniture and equipment is leased on a
month to month basis at $6,000 per month. The office space is leased
on a month to month basis at $1,000 per month. For the year ended
December 31, 1996, $71,445 in lease expense and $10,000 in sub-lease
income was recognized. There were no leasing transactions between the
Company and Southwest Memory, Inc. during 1995.
The stockholder loans shown at December 31, 1996 and December 31, 1995
consist primarily of open accounts receivable as follows:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Southwest Memory, Inc. $580,088 $ -0-
Components and More/Mikhail Goldshtein 125,517 -0-
Jenalong Holdings, Inc. 45,567 -0-
Jenalong Holdings, Ltd. 39,000 39,000
Individual officers/stockholders 59,243 13,314
-------- -------
$849,415 $52,314
======== =======
</TABLE>
During 1995, the Company entered into several consulting agreements
for financial consulting services. Based upon the instructions of the
consultants, the Company issued stock to various individuals and
entities. Consulting expenses of $9,565 and $91,013 were recognized
during 1996 and 1995, respectively. The agreements were terminated in
July 1996.
An affiliate of a shareholder of the Company acts as the transfer
agent for the Company. The Company incurred $7,467 and $500 of
expense related to stock transfer services in 1996 and 1995,
respectively.
F-18
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
December 31, 1996 and 1995
--------------------------
Note 6 - Related Parties, continued
---------------
During 1996, the Company settled a $463,443 trade account payable to
Southwest Memory, Inc. by issuing 111,000 shares of stock of LSI to a
creditor of Southwest Memory, Inc.
During 1995, the Company purchased approximately $500,000 in inventory
from Southwest Memory, Inc.
Note 7 - Results of Operations
---------------------
Summarized consolidated results of operations of LCC and LSI and SWMI
from January 1, 1996 through the end of November 1996, the effective
date of acquisition, are as follows:
<TABLE>
<CAPTION>
LCC and
LSI SWMI
----------- -----------
<S> <C> <C>
Net sales $5,057,911 $50,014,884
========== ===========
Net income (loss) $ (963,254) $ 184,391
========== ===========
Debenture converted to common
stock of LSI - 437,163 shares $ 580,998
==========
Shares issued to consultants and their
affiliates for services - 1,580,151
shares of LSI $ 1,580
==========
Debenture converted to common stock -
3,000,040 shares of LSI $ 750,000
==========
Issuance of common stock in release of
trade payable - 111,000 shares of LSI $ 463,443
==========
Sale of common stock $ 6,050,978
===========
</TABLE>
F-19
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
December 31, 1996 and 1995
--------------------------
Note 8 - Operating Lease Commitments
---------------------------
The Company is leasing office space under three operating leases which
expire at various periods through 2003 as well as various equipment
leases which expire at various times through 2000. These leases are
reported as operating leases. Under the leases, the Company is
obligated to pay the following minimum annual rents:
<TABLE>
<CAPTION>
<S> <C>
1997 $208,088
1998 173,900
1999 157,004
2000 95,850
2001 72,375
Thereafter 81,192
--------
$788,409
========
</TABLE>
Total rent and lease expense was $217,662 for 1996 and $67,181 for the
period from inception through December 31, 1995.
Note 9 - Private Sales and Outstanding Warrants
--------------------------------------
On July 31, 1996, the Company issued a convertible debenture payable
to Integrated Circuit Technology, Inc. in the amount of $750,000. The
debenture principal along with interest at the rate of 12% per annum
was payable December 31, 1996. The debenture was subordinated to bank
debt the Company may incur.
The debenture was convertible at the option of the holder into common
shares of LSI at the rate of $0.25 per share. On August 29, 1996, the
Company issued 3,000,040 shares of LSI common stock to various
offshore entities in exchange for $750,000. Each share had attached
one warrant entitling the holder to purchase one additional share of
the common stock of LSI for $1.50 per share exercisable at any time
during a three-year period, commencing August 29, 1996.
On November 29, 1996, the Company had issued a debenture payable to
Geninvest, S.A., in the amount of $750,000. The debenture principal,
along with interest at the rate of 12% per annum, shall be payable
November 29, 1997. The debenture is subordinated to bank debt the
Company may incur.
F-20
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
December 31, 1996 and 1995
--------------------------
Note 9 - Private Sales and Outstanding Warrants, continued
--------------------------------------
The debenture is convertible at the option of the holder into common
shares of LSI at the rate of $0.25 per share. Each share so issued
will have attached one warrant entitling the holder to purchase one
additional share of the common stock of LSI for $1.50 per share,
exercisable at any time during a three-year period, commencing the
date of issuance of the shares and warrants.
Note 10 - Commitments and Contingencies
-----------------------------
As of December 31, 1996, Southwest Memory, Inc., the predecessor of
SWMI, had a working capital deficiency of approximately $1,218,218.
In addition, as of December 31, 1996, Southwest Memory, Inc. was named
as defendant in lawsuits in which plaintiffs are alleging losses in
excess of $1,290,000. It is not probable, but it is reasonably
possible, that the Company may be liable for unasserted federal taxes
of approximately $150,000 related to expenditures made to a foreign
taxpayer. The Company including SWMI, as successor to Southwest
Memory, Inc., may be liable for some or all of these amounts although,
at this time, an estimate of such losses is not determinable.
Note 11 - Subsequent Events
-----------------
RELATED PARTY TRANSACTIONS
Jenalong Holdings, Inc., a Texas corporation, which is owned by Mr.
Maxie R. Smith and Mr. Dennis V. Poole, in 1997 purchased bonding and
inline production test equipment to LSC for approximately $150,000.
LSC assigned the equipment to Whitways Enterprises Limited for use in
its factory in Guan Dong Province, China. Mr. Poole is a Vice-
President of Marketing for Whitways Enterprises Limited.
In 1997, LSC leased, from Jenalong Holdings, Inc., Sun Microsystems
unix-based computer equipment in the approximate amount of $35,597.
In addition, LSC leased from Jenalong Holdings, Inc. a CST SIMM tester
in the approximate amount of $1,500.
In 1996 and 1997, Jenalong Holdings, Inc., in a series of trans-
actions, loaned LSI up to a maximum of approximately $100,000 at an
approximate interest of 12% per annum on an unsecured basis, the
proceeds of which were used for working capital. LSI has fully repaid
the principal and interest on the loan.
F-21
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
--------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
December 31, 1996 and 1995
--------------------------
Note 11 - Subsequent Events, continued
-----------------
FINANCING ACTIVITY
On August 26, 1997, the $750,000 convertible debenture disclosed in
Note 9 was converted to 3,428,082 shares of the Company's common
stock, which included a finder's fee and accrued interest.
On April 15, 1997, a convertible debenture in the amount of $750,000
with essentially the same terms as that described in Note 9 was issued
to various offshore entities. The debenture was converted to
3,397,316 shares of the Company's common stock on August 26, 1997,
which included a finder's fee and accrued interest. Each share so
issued had attached one warrant entitling the holder to purchase one
additional share of the common stock of LSI for $1.50 per share
exercisable at any time during a three-year period, commencing the
date of issuance of the share and warrant.
On August 26, 1997, the Company sold to various offshore investors
8,000,000 shares of common stock at $0.125 per share plus warrants
entitling the holder to purchase for a three-year period a total of
8,000,000 shares of common stock for $1.50 per share.
SALE OF SOUTHWEST MEMORY INTERNATIONAL, INC.
On October 1, 1997, LSI entered into an agreement with World Data
Limited to sell 100% of the outstanding stock of SWMI for 25,555,000
common shares of LSI. Management expects the closing of this sale to
occur on October 13, 1997.
As part of the agreement, SWMI is to pay LSI $250,000 in cash and
agreed to provide to LSI inventory with a value of $250,000. In
addition, SWMI is to release LSI from any and all obligations that
were owed in connection with any intercompany receivables, advances or
distributions. In addition, SWMI agreed to extend LSI a $500,000 line
of credit to purchase inventory on a net 30 day basis with a gross
profit margin not to exceed 5% above SWMI's actual purchase price.
F-22
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
December 31, 1996 and 1995
--------------------------
Note 11 - Subsequent Events, continued
-----------------
SALE OF SOUTHWEST MEMORY INTERNATIONAL, INC., continued
As part of the agreement, LSI granted to SWMI, in exchange for a
promissory note payable to LSI in the amount of $500,000, a warrant to
purchase 18,000,000 shares of LSI common stock within three years of
October 13, 1997, at an exercise price of $1.50 per share.. The note
will become due in twelve months from the date of execution and will
bear interest of 2% above prime.
Note 12 - Advances to Suppliers
---------------------
At December 31, 1996, SWMI had advanced approximately $2,640,000 to
one major supplier/customer which was reflected as accounts receivable
- other on that date. Through June 30, 1997 approximately $1,800,000
had been collected in the form of inventory purchases delivered by the
supplier/customer. During the year ended December 31, 1996, SWMI
purchased approximately $15,100,000 in inventory from and sold
approximately $5,900,000 in inventory to this supplier/customer.
Note 13 - Changes to Previously Issued Financial Statement
------------------------------------------------
Subsequent to the issuance of its December 31, 1995 financial
statements, the Company discovered errors in recording conversion of
certain convertible debentures, and the accrual of certain expenses.
The Company also changed its method of depreciation from the double
declining balance method to straight line. The corrections and
restatement increased net loss and retained deficit from $655,495 to
$1,187,985. No income tax effects are applicable to these changes.
Note 14 - Outstanding Rights to Acquire Common Stock
------------------------------------------
As of December 31, 1996, the Company had granted, under agreements
with certain employees, the right to acquire 400,000 common shares of
LSI stock under the following terms:
F-23
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
December 31, 1996 and 1995
--------------------------
Note 14 - Outstanding Rights to Acquire Common Stock
------------------------------------------
Number of
Shares Terms
------------ -----
200,000 Contingent employee bonus to be paid in LSI shares
upon the Company's attaining certain potential
patents.
200,000 Option to purchase LSI shares at a price of $0.25
exercisable under terms of a new option agreement
to be executed.
Note 15 - Liquidity
---------
During 1996, LCC and LSI along with their respective subsidiaries
incurred a net loss of $1,243,981 exclusive of net income earned by
SWMI. From their inceptions through December 31, 1995, these entities
incurred losses of $1,634,051. As of December 31, 1996, these
entities without SWMI had a working capital deficit of approximately
$382,000.
Through October 1, 1997 the Company was able to procure distributions
of at least $1,000,000 from SWMI as explained in Note 13. Also, the
Company procured capital of $1,750,000 through the sale of equity
during 1997 as explained in Note 11.
Management believes that additional private sales of equity and/or
exercise of outstanding warrants to acquire common stock may occur
before the end of 1998. Management has also committed to the
expansion of its distribution network.
F-24
<PAGE>
[LETTERHEAD OF CHESHIER & FULLER, L.L.P. APPEARS HERE]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and
Stockholders of MG TK Corp.
We have audited the accompanying consolidated balance sheet of MG TK Corp. and
Subsidiary (Southwest Memory, Inc.) as of December 31, 1996 and 1995, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MG TK Corp. and Subsidiary
(Southwest Memory, Inc.) as of December 31, 1996 and 1995, and the results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $338,121 during the year ended December 31,
1996, and, as of that date, had a working capital deficiency of $1,218,218 and
net worth deficiency of $1,091,839. As described more fully in Note 5 to the
financial statements, the Company has no plans to raise capital or improve
operating results. Those conditions raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ CHESHIER & FULLER, L.L.P.
-----------------------------
CHESHIER & FULLER, L.L.P.
Dallas, Texas
October 2, 1997
F-25
<PAGE>
MG TK CORP. AND SUBSIDIARY
--------------------------
Consolidated Balance Sheets
---------------------------
December 31, 1996 and 1995
--------------------------
ASSETS
------
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,267 $ 630,380
Marketable securities available for sale 168,253 373,713
Trade accounts receivable, less
allowance for doubtful accounts of
$495,153 at December 31, 1995 7,562 3,982,155
Accounts receivable - employee 8,000 19,406
Accounts receivable - other 4,641 2,200,000
Inventories - finished goods 2,109 432,122
Prepaid expenses 1,162 86,950
Deferred tax benefit -0- 198,061
---------- ----------
200,994 7,922,787
---------- ----------
Furniture and equipment, less accumulated
depreciation of $113,919 and $68,500 as of
December 31, 1996 and 1995, respectively 123,106 152,935
Other assets:
Receivable from Lanstar Computer Corporation
(affiliate of Southwest Memory International, Inc.) -0- 469,443
Goodwill, less accumulated amortization of $919,274
and $848,561 as of December 31, 1996 and 1995,
respectively -0- 70,713
Deposits 3,103 21,953
Other 170 232
---------- ----------
3,273 562,341
---------- ----------
Total Assets $ 327,373 $8,638,063
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
MG TK CORP. AND SUBSIDIARY
--------------------------
Consolidated Balance Sheets
---------------------------
December 31, 1996 and 1995
--------------------------
LIABILITIES AND STOCKHOLDERS' EOUITY
------------------------------------
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
Current liabilities:
Accounts payable - trade $ 330,856 $6,363,850
Payable to Southwest Memory International, Inc. 580,088 -0-
Margin accounts payable 95,721 76,612
Notes payable to Integrated Circuit Technology, Inc. -0- 2,308,877
Payable to stockholder 92,000 92,000
Accrued expenses payable 13,487 183,146
Estimated income taxes payable 307,060 653,750
---------- ---------
Total current liabilities 1,419,212 9,678,235
---------- ---------
Stockholders' equity:
Common stock - $1 par value; authorized
1,000,000 shares; issued and outstanding
1,000 shares 1,000 1,000
Additional paid-in capital 19,723 19,723
Retained earnings (deficit) (521,660) (183,539)
Stockholder/management loans (512,718) (770,309)
Unrealized loss - marketable securities
available for sale (78,184) (107,047)
---------- ----------
Total stockholders' equity (1,091,839) (1,040,172)
---------- ----------
Total Liabilities and Stockholders' Equity $ 327,373 $8,638,063
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
MG TK CORP. AND SUBSIDIARY
--------------------------
Consolidated Statements of Income
---------------------------------
For the Years Ended December 31, 1996 and 1995
----------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------ -------------
<S> <C> <C>
Sales $ 51,361,612 $ 198,258,678
Cost of goods sold (50,701,614) (190,909,060)
Gross profit 659,998 7,349,618
------------ -------------
Selling, general and administrative expense (1,384,908) (5,613,348)
Equipment and office rent (26,659) (80,988)
Bad debt expense (4,105) (746,164)
------------ -------------
(1,415,672) (6,440,500)
------------ -------------
Operating income (loss) 755,674 909,118
------------ -------------
Other income (expense)
Interest income 356 697
Gain on sale of securities 278,030 42,847
Interest expense (9,462) (680,512)
------------ -------------
Net (income) loss before income tax (486,750) 272,150
Provisions for estimated income tax 148,629 (455,689)
------------ -------------
Net Loss $ (338,121) $ (183,539)
============ =============
Loss per share $ 338.12 183.54
============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
MG TK CORP. AND SUBSIDIARY
--------------------------
Consolidated Statements of Changes in Stockholders' Equity
----------------------------------------------------------
For the Years Ended December 31, 1996 and 1995
----------------------------------------------
<TABLE>
<CAPTION>
Additional Loans to Retained Total
Par Paid-in Stockholders/ Unrealized Earnings Stockholders'
Shares Value Capital Management Loss (Deficit) Equity
------ ------ ----------- ------------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 1,000 $1,000 $ 19,723 $ $ $ $ 20,723
Net Loss - 1995 (183,539) (183,539)
Loans to stockholders/
management - 1995 (770,309) (770,309)
Unrealized loss incurred - 1995 (107,047) (107,047)
------ ------ ----------- ------------- ---------- --------- --------------
Balance, January 1, 1996 1,000 1,000 19,723 (770,309) (107,047) (183,539) (1,040,172)
Net loss - 1996 (338,121) (338,121)
Loans to stockholders'
management - 1996 257,591 257,591
Unrealized gain
incurred - 1996 28,863 28,863
------ ------ ----------- ------------- ---------- --------- --------------
1,000 $1,000 $ 19,723 $ (512,718) $ (78,184) $(521,660) $ (1,091,839)
====== ====== =========== ============= ========== ========= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
MG TK CORP. AND SUBSIDIARY
--------------------------
Consolidated Statements of Cash Flows
-------------------------------------
For the Years Ended December 31, 1996 and 1995
----------------------------------------------
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (338,121) $ (183,539)
Adjustments to reconcile net income (loss)
to net cash used for operating activities:
Gain on sale of securities (278,030) (42,847)
Depreciation 45,419 36,732
Amortization 70,713 848,561
(Increase) decrease in
Receivables 6,181,358 (1,872,519)
Inventories 430,013 79,320
Prepaid expenses 85,788 (67,752)
Deferred tax benefit 198,061 (198,061)
Increase (decrease) in
Accounts payable to Southwest Memory
International, Inc. 580,088 -0-
Accounts payable - trade (6,032,944) 6,029,984
Accrued expenses payable (169,659) (1,479,415)
Income taxes payable (346,690) 653,750
----------- ------------
Net cash provided by (used for) operating activities 425,946 3,804,214
----------- ------------
INVESTING ACTIVITIES:
Sale of furniture and equipment -0- 27,078
Furniture and equipment additions (15,590) (103,291)
(Increase) decrease in deposits 18,850 (21,953)
Decrease in other assets 62 46,499
(Increase) decrease in receivable from
Lanstar Computer Corporation (affiliate of
Southwest Memory International, Inc.) 469,443 (469,443)
Sale of marketable securities available for sale 531,462 -0-
Purchase of marketable securities available for sale -0- (254,547)
Cash purchased with acquisition of SMI -0- 11,992
----------- ------------
Net cash provided (used for) investing activities $ 1,004,227 $ (763,665)
----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
MG TK CORP. AND SUBSIDIARY
--------------------------
Consolidated Statements of Cash Flows
-------------------------------------
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
FINANCING ACTIVITIES:
Loans from Integrated Circuit Technology, Inc. -0- 7,833,877
Reduction in loans from Integrated Technology, Inc. (1,727,295) (5,525,000)
Loans to stockholders and management (323,991) (526,837)
Reduction of bank overdrafts -0- (826,041)
Reduction in note payable to Fidelity Funding, Inc. -0- (3,372,150)
----------- ------------
Net cash provided by (used for) financing activities (2,051,286) (2,416,151)
----------- ------------
Increase (decrease) in cash (621,113) 624,398
Cash and cash equivalents,
beginning of period 630,380 5,982
----------- ------------
Cash and cash equivalents,
end of period $ 9,267 $ 630,380
=========== ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Net change in unrealized loss of marketable securities
available for sale $ (28,863) $ 107,047
=========== ============
SMI acquired with long-term debt $ -0- $ 1,570,000
=========== ============
Marketable securities acquired with margin debt $ 19,109 $ 76,612
=========== ============
Consideration delivered from stockholders/management
to Integrated Circuit Technology, Inc. on behalf of
MG TK $ 581,582 $ -0-
=========== ============
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid for interest expense $ 9,462 $ 680,512
=========== ============
Cash paid for income taxes $ -0- $ -0-
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
MG TK CORP. AND SUBSIDIARY
--------------------------
Notes to Consolidated Financial Statements
------------------------------------------
December 31, 1996 and 1995
--------------------------
Note 1 - Nature of Business and Significant Accounting Policies
NATURE OF BUSINESS
MG TK Corp. (MG TK) was organized as a Texas corporation in September, 1994.
Effective January 1, 1995, MG TK acquired all of the outstanding stock of
Southwest Memory, Inc. (SMI), the predecessor of Southwest Memory International,
Inc. for $1,570,000. SMI was organized as a Texas corporation during 1990.
During 1993 and 1994, SMI operated as a wholly-owned subsidiary of Curtis Mathes
Holding Corporation.
MG TK has operated primarily as a holding company. SMI is engaged in the
distribution of computer memory products. During early 1996, SMI ceased business
operations. MG TK and SMI will be collectively referred to as "the Company".
CONSOLIDATION POLICY
The consolidated financial statements include the accounts of the MG TK and its
wholly-owned subsidiary, SMI. The acquisition of SMI was accounted for as a
purchase of a subsidiary. All material intercompany accounts and transactions
have been eliminated in consolidation.
PERIODS PRESENTED
The consolidated activity is presented for the period from January 1, 1995, the
date of SMI's acquisition by MG TK through December 31, 1995, and for the period
from January 1, 1996, through December 31, 1996.
GOODWILL
The $919,274 cost of SMI in excess of its book value is amortized straight-line
over a thirteen month period beginning January 1, 1995. Amortization expense was
$70,713 and $848,622 for 1996 and 1995, respectively.
INVENTORY
Inventory values are stated at the lower of average cost or market.
F-32
<PAGE>
MG TK CORP. AND SUBSIDIARY
--------------------------
Notes to Consolidated Financial Statements
------------------------------------------
December 31, 1996 and 1995
--------------------------
Note 1 - Nature of Business and Significant Accounting Policies, continued
ADVERTISING
Advertising and trade show costs of $28,983 and $60,941 incurred during 1996 and
1995, respectively, were expensed as incurred.
MARKETABLE SECURITIES
Securities are to be held for indefinite periods of time and are not intended to
be held to maturity or on a long-term basis. They are classified as available
for sale. Realized gains and losses on disposition are based on net proceeds and
the adjusted book value of the securities sold, using the specific
identification method. Unrealized gains and losses on marketable securities
available for sale are based on the difference between book value and fair value
of each security. These gains and losses are credited or charged to
stockholders' equity, whereas realized gains and losses flow through the
Company's operations.
FURNITURE AND EQUIPMENT
Furniture and equipment are carried at cost. Depreciation is calculated using
straight-line method over the estimated useful lives of the assets of 5 years.
Depreciation expense was $45,419 and $36,732 for 1996 and 1995, respectively.
ALLOWANCE FOR BAD DEBTS
The Company provided for bad debt write-offs based upon collection of trade
accounts receivable after the balance sheet date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-33
<PAGE>
MG TK CORP. AND SUBSIDIARY
--------------------------
Notes to Consolidated Financial Statements
------------------------------------------
December 31, 1996 and 1995
--------------------------
Note 1 - Nature of Business and Significant Accounting Policies, continued
EARNINGS (LOSS) PER SHARE
Net income (loss) per common share is calculated by dividing net income (loss)
of the Company by the average shares of common stock outstanding during each
period presented. The weighted average number of shares outstanding was 1,000
for both 1996 and 1995.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of financial instruments reported on the Company's balance
sheet approximates fair value. Fair value is estimated using published market
values of similar types of instruments.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers all cash accounts
which are not subject to withdrawal restrictions or penalties and interest-
bearing accounts of 90 days or less to be cash and cash equivalents.
INCOME TAXES
Deferred tax assets and deferred tax liabilities, if any, are recognized for
taxable temporary differences. Temporary differences are the differences between
the reported amounts of assets and their tax basis as well as the effect of net
operating loss carryforwards. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effect of changes in tax laws
and rates on the date of enactment.
Note 2 - Assets Pledged
Marketable securities available for sale are pledged as security on the margin
account liability.
Note 3 - Related Party Transactions
During 1996, the Company sold inventory to Sterling International for
approximately $827,000. This inventory was then sold to Worldwide Memory, Inc.
by Sterling International. Worldwide Memory, Inc. then sold the inventory to
F-34
<PAGE>
MG TK CORP. AND SUBSIDIARY
--------------------------
Notes to Consolidated Financial Statements
------------------------------------------
December 31, 1996 and 1995
--------------------------
Note 3 - Related Party Transactions, continued
Southwest Memory International, Inc. The sole shareholder of MG TK Corp. is a
member of the management of Southwest Memory International, Inc. the successor
to SMI's business operations during early 1996.
The stockholder/management loans shown as of December 31, 1996 and 1995,
consists primarily of noninterest bearing open accounts receivable.
During 1995, the Company loaned $469,443 to Lanstar Computer Corporation, an
affiliate of Southwest Memory International, Inc., on an open account. During
1996, this receivable was liquidated through a transaction whereby Integrated
Circuit Technology, Inc. (ICT), a creditor of the Company, received 111,000
common shares of Lanstar Semiconductor Inc., an affiliate of Lanstar Computer
Corporation and Southwest Memory International, Inc., in return for $469,443
owed by the Company to ICT.
The Company leases furniture and equipment to, and leases office space from
Southwest Memory International, Inc. The furniture and equipment are leased on a
month-to-month basis at $6,000 per month. The office space is leased on a month-
to-month basis at $1,000 per month. For the year ended December 31, 1996,
$71,445 in lease income and $10,000 in rent expense was reflected. There were no
leasing transactions between the Company and Southwest Memory International,
Inc. during 1995.
All during 1995 and 1996 the Company owed $92,000 to the sole stockholder of
MG TK Corp. on a noninterest bearing open account payable.
Note 4 - Income Tax Matters
The provision for income tax (expense) benefit consisted of the following:
1996 1995
------ ------
Federal:
Current $ 321,932 $(572,031)
Deferred (173,303) 173,303
--------- ---------
148,629 (398,728)
--------- ---------
F-35
<PAGE>
MG TK CORP AND SUBISDIARY
-------------------------
Notes to Consolidated Financial Statements
------------------------------------------
December 31, 1996 and 1995
--------------------------
Note 4 - Income Tax Matters, continued
1996 1995
------ ------
State:
Current -0- (81,719)
Deferred -0- 24,758
--------- ---------
-0- (56,961)
--------- ---------
Total $ 148,629 $(455,689)
========= =========
The net deferred tax asset consisted of the following components as of December
31, 1996 and 1995:
1996 1995
------ ------
Allowance for bad debts $ -0- $ 198,061
--------- ---------
$ -0- $ 198,061
========= =========
Reconciliations of income tax expense computed by applying expected Federal
statutory tax rates by net income (loss) was as follows:
1996 1995
------ ------
Income tax (expense) benefit at
expected Federal statutory rates $ 170,362 $ (95,252)
State income tax 24,338 (13,608)
Amortization of goodwill (28,285) (339,424)
Entertainment and officers' life
insurance (4,553) (7,405)
State income tax loss carryforward (13,233) -0-
--------- ---------
Provision for income tax $ 148,629 $(455,689)
========= =========
Note 5 - Going Concern
As stated in Note 1, active business operations ceased in early 1996. As a
result, the Company incurred a loss from operations during 1996 and now has a
significant deficit in working capital and stockholders' equity. These factors
raise substantial doubt about the Company's ability to continue as a going
concern.
Management has no plans to raise additional capital or improve operating
results. The financial statements do not include any adjustments that might
result from failure of the Company to continue as a going concern.
F-36
<PAGE>
MG TK CORP. AND SUBSIDIARY
--------------------------
Notes to Consolidated Financial Statements
------------------------------------------
December 31, 1996 and 1995
--------------------------
Note 5 - Going Concern, continued
Management also has no plans to liquidate the Company.
Note 6 - Commitments and Contingencies
The Company is a defendant in several lawsuits alleging damages in excess of
$1,290,000. The outcome of these lawsuits is not known and an estimate of
ultimate losses which may be sustained is not determinable.
It is not probable, but it is reasonably possible, that the Company may be
liable for unasserted federal taxes of approximately $150,000 related to
expenditures made to a foreign taxpayer. The outcome of this matter is not
known.
Note 7 - Concentration Risks
At December 31, 1995, the Company had advanced approximately $2,200,000 to one
major supplier which was reflected as accounts receivable - other. During 1995,
the Company purchased approximately $112,000,000 in inventory from the supplier.
The acquisition of SMI from Curtis Mathes Holding Corporation was financed by
ICT. ICT also provided working capital loans for the Company. During 1995, the
Company purchased inventory from ICT in the amount of $9,395,833, incurred
commissions to ICT in the amount of $2,136,316 and incurred interest expense to
ICT in the amount of $506,576.
F-37
<PAGE>
[LETTERHEAD OF CHESHIER & FULLER, L.L.P. APPEARS HERE]
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors and Stockholders
of Lanstar Semiconductor Inc.
We have examined the pro forma adjustments reflecting the transactions described
in Note 1 and the application of those adjustments to the historical amounts in
the accompanying pro forma consolidated and combined (condensed) balance sheet
of Lanstar Semiconductor Inc. and Subsidiaries and Lanstar Computer Corporation
and Subsidiary as of December 31, 1996, and the related consolidated and
combined (condensed) statement of income for the year then ended. The
historical consolidated and combined (condensed) financial statements are
derived from the historical combined and consolidated financial statements of
Lanstar Semiconductor Inc. and Subsidiaries and Lanstar Computer Corporation and
Subsidiary which were audited by us (on which we have issued our report dated
October 2, 1997). Such pro forma adjustments are based upon management's
assumptions described in Note 2. Our examination was made in accordance with
standards established by the American Institute of Certified Public Accountants
and, accordingly, included such procedures as we considered necessary in the
circumstances.
The objective of this pro forma financial information is to show what the
significant effects on the historical financial information might have been had
the transaction occurred at an earlier date. However, the pro forma
consolidated and combined (condensed) financial statements are not necessarily
indicative of the results of operations or related effects on financial position
that would have been attained had the above-mentioned transaction actually
occurred earlier.
In our opinion, management's assumptions provide a reasonable basis for
presenting the significant effects directly attributable to the above-mentioned
transaction described in Note 1, the related pro forma adjustments give effect
to those assumptions, and the pro forma column reflects the proper application
of those adjustments to the historical financial statement amounts in the
related pro forma consolidated and combined (condensed) balance sheet of Lanstar
Semiconductor Inc. and Subsidiaries and Lanstar Computer Corporation and
Subsidiary as of December 31, 1996, and the related pro forma consolidated and
combined (condensed) statement of income for the year then ended.
/S/ CHESHIER & FULLER, L.L.P.
-----------------------------
CHESHIER & FULLER, L.L.P.
Dallas, Texas
October 2, 1997
F-38
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
AND LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
PRO FORMA CONSOLIDATED AND COMBINED (CONDENSED)
-----------------------------------------------
FINANCIAL STATEMENTS
--------------------
DECEMBER 31, 1996
-----------------
The pro forma data presented in the pro forma consolidated and combined
(condensed) financial statements are included in order to illustrate what the
retroactive effect on the Company's historical financial statements might have
been if the transaction explained in Note 1 to these pro forma financial
statements had occurred earlier as explained in Note 1.
These pro forma consolidated and combined (condensed) financial statements
should be read in conjunction with the Company's consolidated and combined
financial statements and notes thereto appearing elsewhere in this Form 10. The
pro forma information is not necessarily indicative of the results that would
have been reported had the corporations involved been operated independently
during 1996 nor is it indicative of the Company's future results.
F-39
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
AND LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
PRO FORMA CONSOLIDATED AND COMBINED (CONDENSED) FINANCIAL STATEMENTS
--------------------------------------------------------------------
DECEMBER 31, 1996
-----------------
ASSETS
------
<TABLE>
<CAPTION>
Historical
------------------------------------------------------------------
Pro Forma
Consolidated
Consolidated and Combined
Consolidated and Combined Balance Sheet
and Combined Consolidation Balance Sheet of of LSI and LCC
Balance Sheet Eliminating Balance Sheet LSI and LCC Pro Forma Exclusive
of LSI and LCC Entries of SWMI Exclusive of SWMI Adjustments of SWMI
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Accounts receivable - trade $2,557,938 $ - $2,519,775 $ 38,163 $ - $ 38,163
Accounts receivable - other 2,770,747 2,765,316 5,431 5,431
Accounts receivable - intercompany -0- 31,004 31,004
Other current assets 1,691,085 779,371 911,714 911,714
---------- ------- ---------- ---------- -------- ----------
Total current assets 7,019,770 31,004 6,095,466 955,308 955,308
Furniture and equipment (net) 492,529 124,424 368,105 368,105
Investment in SWMI 29,000 29,000 (29,000)
Other assets 116,410 113,000 3,410 3,410
---------- ---------- ---------- -------- ----------
Total assets $7,628,709 $60,004 $6,332,890 $1,355,823 $(29,000) $1,326,823
========== ======= ========== ========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
AND LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
PRO FORMA CONSOLIDATED AND COMBINED (CONDENSED) FINANCIAL STATEMENTS
--------------------------------------------------------------------
DECEMBER 31, 1996
-----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
Historical
------------------------------------------------------------------
Pro Forma
Consolidated
Consolidated and Combined
Consolidated and Combined Balance Sheet
and Combined Consolidation Balance Sheet of of LSI and LCC
Balance Sheet Eliminating Balance Sheet LSI and LCC Pro Forma Exclusive
of LSI and LCC Entries of SWMI Exclusive of SWMI Adjustments of SWMI
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Accounts payable - trade $ 853,245 $ $ 86,448 $ 766,797 $ $ 766,797
Accounts payable - intercompany -0- 31,004 -0- 31,004 31,004
Accrued expenses 997,576 457,766 539,810 539,810
----------- ------- ---------- ----------- ----------- -----------
Total current liabilities 1,850,821 31,004 544,214 1,337,611 1,337,611
Debentures payable 750,000 -0- 750,000 750,000
----------- ---------- ----------- ----------- -----------
Total liabilities 2,600,821 31,004 544,214 2,087,611 2,087,611
----------- ------- ---------- ----------- ----------- -----------
Common stock 93,948 1,000 1,000 93,948 (25,555) 68,393
Additional paid-in capital 8,209,135 28,000 6,049,978 2,187,157 (3,445) 2,183,712
Retained earnings (deficit) (2,425,780) 457,189 (2,882,969) (2,882,969)
Stockholder/management loans (849,415) (719,491) (129,924) (129,924)
----------- ------- ---------- ----------- ----------- -----------
Total stockholders' equity
(deficit) 5,027,888 29,000 5,788,676 (731,788) $ (29,000) $ (760,788)
----------- ------- ---------- ----------- ----------- -----------
Total Liabilities and
Stockholders' Equity
(deficit) $ 7,628,709 $60,004 $6,332,890 $ 1,355,823 $ 29,000 $ 1,326,023
=========== ======= ========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
AND LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
PRO FORMA CONSOLIDATED AND COMBINED (CONDENSED) FINANCIAL STATEMENTS
--------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------
<TABLE>
<CAPTION>
Historical
-------------------------------------------------------------------------------
Pro Forma
Consolidated Consolidated
Consolidated and Combined and Combined
and Combined Statement of Statement of
Statement of Consolidation Statement of Income of Income of
Income of Eliminating Income of LSI and LCC Pro Forma LSI and LCC
LSI and LCC Entries SWMI Exclusive of SWMI Adjustments Exclusive of SWMI
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 57,256,245 $ 2,012,698 $ 53,503,314 $ 5,765,629 $ $ 5,765,629
Cost of goods sold (53,055,506) (2,012,698) (49,560,939) (5,507,265) (5,507,265)
Expense (4,774,026) (3,278,173) (1,495,853) (1,495,853)
Other income (expense) (1,383) 5,109 (6,492) (6,492)
------------ ----------- ------------ ----------- ---------- -----------
Net (loss) income before
income taxes (574,670) -0- 669,311 (1,243,981) (1,243,981)
Provision for income tax (212,122) (212,122) -0- -0-
------------ ----------- ------------ ----------- ---------- -----------
Net (loss) income $ (786,792) $ -0- $ 457,189 (1,243,981) (1,243,981)
============ ============ ============
Loss allocated to LCC (8,714) (8,714)
----------- ----------- -----------
Loss allocated to LSI $(1,235,267) $ $(1,235,267)
=========== =========== ===========
Primary loss per share:
LCC $ (0.00)
===========
LSI $ (0.09)
===========
Fully diluted loss per share:
LCC $ (0.00)
===========
LSI $ (0.09)
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
AND LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Pro Forma Financial Statements
---------------------------------------
December 31, 1996
-----------------
Note 1 - Background
----------
During November, 1996, Lanstar Semiconductor Inc. (LSI) acquired all
of the outstanding stock of Southwest Memory International, Inc.
(SWMI) from World Data Limited, in exchange for 29,000,000 common
shares of LSI of which 3,000,000 shares were allocated as a finder's
fee relative to the transaction. In the consolidated and combined
financial statements of LSI and Subsidiaries and Lanstar Computer
Corporation (LCC) and Subsidiary, this acquisition was accounted for
as a pooling of interests. As such, the activity of SWMI was
retroactively presented from its inception in January, 1996 through
December 31, 1996, as a part of the consolidated activity of LSI. All
intercompany profits and transactions were eliminated in combination
and consolidation. Those eliminating entries have been reflected in
the columns styled "Consolidation Eliminating Entries."
On October 1, 1997, LSI entered into a stock purchase agreement with
World Data Limited to sell 100% of the outstanding stock of SWMI for
25,555,000 common shares of LSI. Management expects the closing of
this sale to occur on or before October 13, 1997.
The purpose of this pro forma financial statement is to give effect to
the sale of SWMI and to reflect the consolidated and combined
(condensed) balance sheet of LSI and Subsidiaries and LCC and
Subsidiary as of December 31, 1996, and the related consolidated and
combined (condensed) statement of income as though the sale of SWMI
had taken place on the same day as it was purchased in November, 1996
(or as though the SWMI purchase had not occurred at all).
For purposes of this pro forma financial statement, LSI and its
Subsidiaries and LCC and its Subsidiary will be referred to as "the
Company".
Note 2 - Management's Assumptions
------------------------
During 1996, the Company and SWMI operated independently of one
another. Each had its own management team, location, and capital
structure.
Upon acquisition of the outstanding stock of SWMI, the Company
reflected an investment in SWMI at the par value of the common stock
issued upon the acquisition ($29,000).
F-43
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
AND LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Pro Forma Financial Statements
---------------------------------------
December 31, 1996
-----------------
Note 2 - Management's Assumptions, continued
-----------------------------------
For the purpose of the pro forma adjustments to the balance sheet, the
investment and equity of the Company were reduced by $29,000. The par
value of the 3,445,000 common shares issued in excess of the shares
reacquired by the Company has been reflected as a reduction of
additional paid-in capital.
No pro forma adjustments were made to the Company's statement of
income, as management of the Company feels the acquisition of SWMI had
no material effect on its operations during 1996.
For purposes of the computation of LSI's loss per share, management
assumed that the 25,555,000 shares to be returned by World Data
Limited, under the October 1, 1997 stock purchase agreement, were not
outstanding during 1996. Thus, weighted average shares outstanding of
14,063,808 was used in computing the loss per common share of LSI
stock.
For purposes of computing LCC's loss per share, the weighted average
shares outstanding of 5,183,333 was used.
Under the terms of the October 1, 1997, agreement to sell SWMI, SWMI
agreed to allow LSI to retain distributions of at least $1,000,000.
As of December 31, 1996, there was an intercompany loan of
approximately $31,000. For purposes of this pro forma financial
statement, the distribution will not be reflected until after 1996.
Under the terms of the October 1, 1997, agreement to sell SWMI, the
Company agreed to sell to SWMI a warrant to purchase 18,000,000 shares
of LSI common stock within three years of October 13, 1997, at an
excercise price of $1.50 per share. This warrant had an agreed value
of $500,000. At the closing of the sale of this warrant, SWMI agreed
to execute a promissory note payable to the Company in the amount of
$500,000. The note will be due in twelve months from the date of
execution. For purposes of the pro forma financial statements, this
transaction was not reflected as a 1996 transaction.
F-44
<PAGE>
[LETTERHEAD OF CHESHIER & FULLER, L.L.P. APPEARS HERE]
Independent Accountants' Report
-------------------------------
To the Board of Directors and Stockholders
Lanstar Semiconductor Inc.
We have reviewed the accompanying consolidated and combined balance sheet of
Lanstar Semiconductor Inc. and Subsidiaries and Lanstar Computer Corporation and
Subsidiary as of June 30, 1997, and the related consolidated and combined
statements of income, changes in stockholders' equity and cash flows for the six
months ended June 30, 1997 and 1996, in accordance with Statements on Standards
for Accounting and Review Services issued by the American Institute of Certified
Public Accountants. All information included in these financial statements is
the representation of management of Lanstar Semiconductor Inc. and Subsidiaries
and Lanstar Computer Corporation and Subsidiary.
A review consists principally of inquiries of Company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
/S/ CHESHIER & FULLER, L.L.P.
---------------------------------
CHESHIER & FULLER, L.L.P.
Dallas, Texas
October 15, 1997
F-45
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Consolidated and Combined Balance Sheets
----------------------------------------
June 30, 1997
-------------
(Unaudited)
-----------
ASSETS
------
<TABLE>
<CAPTION>
<S> <C>
Current assets:
Cash and cash equivalents $ 394,245
Trade accounts receivable, less allowance for
doubtful accounts of $405,144 4,025,910
Accounts receivable - other 1,241,826
Inventory 961,347
Prepaid expenses 111,713
Other 10,000
----------
Total current assets 6,745,041
----------
Furniture and equipment, less accumulated
depreciation of $273,166 591,981
Other assets:
Deposits 3,410
Artwork 113,000
Deferred income tax benefit -0-
----------
116,410
----------
Total Assets $7,453,432
==========
</TABLE>
See accompaying notes and accountants' report.
F-46
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Consolidated and Combined Balance Sheets
----------------------------------------
June 30, 1997
-------------
(Unaudited)
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
Current liabilities:
<S> <C>
Accounts payable $ 415,095
Accrued expenses 714,811
Bank overdraft 50,052
Accrued income taxes 212,122
Debentures payable - private placements 41,000
-----------
Total current liabilities 1,433,080
Long-Term Debt:
Debenture payable - private sale 1,500,000
-----------
Total Liabilities 2,933,080
Stockholders' equity:
Lanstar Computer Corporation -
Common stock - .01 par value, 10,000,000 shares authorized,
5,183,333 shares issued and outstanding at June 30, 1997 51,833
Additional paid in capital 402,947
Retained deficit (454,780)
Lanstar Semiconductor Inc.-
Common stock - .001 par value, 50,000,000 shares authorized,
45,543,453 shares issued and 45,243,453 shares outstanding
at June 30, 1997 42,115
Treasury stock at cost, 300,000 shares -0-
Additional paid-in capital 7,806,188
Stockholder loans (1,256,985)
Retained deficit (2,070,966)
-----------
Total Stockholders' Equity 4,520,352
-----------
Total Liabilities and Stockholders' Equity $ 7,453,432
===========
</TABLE>
See accompanying notes and accountants' report.
F-47
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Consolidated and Combined Statements of Income
----------------------------------------------
For the Six Months Ended June 30, 1997 and 1996
-----------------------------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Sales $ 32,216,732 $ 29,580,088
Cost of goods sold (28,932,660) (27,959,052)
------------ ------------
Gross profit 3,284,072 1,621,036
------------ ------------
Selling, general and administrative expenses (2,549,385) (1,712,371)
Research and development (688,448) (132,474)
Bad debt expense (138,681) (196,544)
------------ ------------
(3,376,514) (2,041,389)
------------ ------------
Operating loss (92,442) (420,353)
Other income (expense):
Other income 21,740 -0-
Interest income 6,590 183
Interest expense (40,791) (1,760)
------------ ------------
Net income (loss) before income tax (104,903) (421,930)
Provision for income tax -0- -0-
------------ ------------
Net income (loss) (104,903) (421,930)
Allocated to Lanstar Computer Corporation -0- (8,714)
------------ ------------
Allocated to Lanstar Semiconductor Inc. $ (104,903) $ (413,216)
============ ============
Primary earnings (loss) per share:
Lanstar Computer Corporation $ 0.00 $ (0.00)
============ ============
Lanstar Semiconductor Inc. $ 0.00 $ (0.01)
============ ============
Fully diluted earnings (loss) per share:
Lanstar Computer Corporation $ 0.00 $ (0.00)
============ ============
Lanstar Semiconductor Inc. $ 0.00 $ (0.01)
============ ============
</TABLE>
See accompanying notes and accountants' report.
F-48
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Consolidated and Combined Statements of Changes in Stockholders' Equity
-----------------------------------------------------------------------
For the Six Months Ended June 30, 1997 and 1996
-----------------------------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
Lanstar Computer Corporation
--------------------------------------------------------------
Additional
Par Paid-In Stockholder Retained
Shares Value Capital Loans Deficit
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance,
January 1, 1997 5,183,333 $ 51,833 $ 402,947 $ - $ (454,780)
Stockholder loans
Unrealized gain
Net loss
-------------------------------------------------------------
Balance,
June 30, 1997 5,183,333 $ 51,833 $ 402,947 $ - $ (454,780)
================================================================
</TABLE>
<TABLE>
<CAPTION>
Lanstar Semiconductor Inc.
------------------------------------------------------------------------------------------
Additional Total
Par Paid-In Treasury Stockholder Unrealized Retained Stockholders'
Shares Value Capital Stock Loans Loss Deficit Equity
------------------------------------------------------------------------------------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1997 41,815,371 $ 42,115 $ 7,806,188 $ - $ (849,415) $(4,937) $(1,966,063) $5,027,888
Stockholder loans (407,570) (407,570)
Unrealized gain 4,937 4,937
Net loss (104,903) (104,903)
------------------------------------------------------------------------------------------ -------------
Balance,
June 30, 1997 41,815,371 $ 42,115 $ 7,806,188 $ - $ (1,256,985) $ - $(2,070,966) $4,520,352
========================================================================================= =============
</TABLE>
See accompanying notes and accountants' report.
F-49
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Consolidated and Combined Statements of Changes in Stockholders' Equity
-----------------------------------------------------------------------
For the Six Months Ended June 30, 1997 and 1996
-----------------------------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
Lanstar Computer Corporation
--------------------------------------------------------------
Additional
Par Paid-In Stockholder Retained
Shares Value Capital Loans Deficit
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 5,183,333 $ 51,833 $ 402,947 $ (8,714) $ (446,066)
Issuance of common stock in
release of trade payable
Net loss (8,714)
Stockholder loans 8,714
Capital contributions
Treasury stock acquired at no cost
Debenture converted to common
stock September, 1995 offering
of Lanstar Semiconductor
Corporation
Debentures converted to common
stock - November, 1995 offering
of Lanstar Semiconductor
Corporation
Shares issued to consultants and
their affiliates for services
--------------------------------------------------------------
Balance, June 30, 1996 5,183,333 $ 51,833 $ 402,947 $ - $ (454,780)
==============================================================
</TABLE>
<TABLE>
<CAPTION>
Lanstar Semiconductor Inc.
-------------------------------------------------------------------------------------- -------------
Additional Total
Par Paid-In Treasury Stockholder Unrealized Retained Stockholders'
Shares Value Capital Stock Loans Loss Deficit Equity
---------------------------------------------------------------------------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 7,987,017 $ 7,987 $ (6,683) $ - $ (43,600) $ - $(1,187,985) $ (1,230,281)
Issuance of common stock in
release of trade payable 111,000 111 463,332 463,443
Net loss (413,216) (421,930)
Stockholder loans (9,214) (500)
Capital contributions 29,000,000 29,000 6,022,000 6,051,000
Treasury stock acquired
at no cost (300,000) - -
Debenture converted to common
stock September, 1995
offering of Lanstar
Semiconductor Corporation 139,500 139 139,361 139,500
Debentures converted to common
stock - November, 1995
offering of Lanstar
Semiconductor Corporation 297,663 298 441,200 (315,347) 126,151
Shares issued to consultants
and their affiliates for
services 1,580,151 1,580 1,580
------------------------------------------------------------------------------------ ------------
Balance, June 30, 1996 38,815,331 $ 39,115 $7,059,210 $ - $ (368,161) $ - $(1,601,201) $ 5,128,963
===================================================================================== ============
</TABLE>
See accompanying notes and accountants' report.
F-50
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Consolidated and Combined Statements of Cash Flows
--------------------------------------------------
For the Six Months Ended June 30, 1997 and 1996
-----------------------------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (104,903) $ (421,930)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation 93,167 45,586
Services rendered for common stock -0- 1,580
(Increase) decrease in:
Trade receivables (1,467,971) (3,070,920)
Other receivables 1,528,922 (2,389,953)
Inventories (292,581) (602,559)
Prepaid expenses (1,614) (65,219)
Other (10,000) 2,625
Increase (decrease) in:
Accounts payable - trade (43,821) 339,710
Accrued expenses (70,654) 138,245
----------- -----------
Net cash used for operating activities (369,455) (6,022,835)
----------- -----------
INVESTING ACTIVITIES:
Furniture and equipment additions (192,619) (175,287)
Sale of marketable securities 303,231 -0-
----------- -----------
Net cash provided by investing activities 110,612 (175,287)
----------- -----------
FINANCING ACTIVITIES:
Payment on debentures payable (6,000) -0-
Proceeds from private sales of debentures
payable and common stock 750,000 6,327,748
Increase (decrease) in bank overdraft (65,467) 47,384
Increase in stockholder loan (407,570) (500)
----------- -----------
Net cash provided by financing activities 270,963 6,374,632
----------- -----------
Increase (decrease) in cash 12,120 176,510
Cash and cash equivalents, beginning of period 382,125 17,393
----------- -----------
Cash and cash equivalents, end of period $ 394,245 $ 193,903
=========== ===========
</TABLE>
F-51
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Consolidated and Combined Statements of Cash Flows
--------------------------------------------------
For the Six Months Ended June 30, 1997 and 1996
-----------------------------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest $ 9,053 $1,760
======== =======
Income Taxes $ -0- $ -0-
======== =======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Net decrease in unrealized loss on marketable
securities available for sale $ 4,937 $ -0-
======== ========
Margin debt liquidated by sale of marketable securities $231,799 $ -0-
======== ========
Issuance of LSI common stock in
settlement of accounts payable and
accrued interest $ -0- $463,443
======== ========
Convertible debentures payable tendered
for LSI common stock $ -0- $265,651
======== ========
</TABLE>
See accompanying notes and accountants' report.
F-52
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
June 30, 1997
-------------
Note 1 - Nature of Business and Significant Accounting Policies
NATURE OF BUSINESS
Lanstar Computer Corporation (LCC) was organized as a Texas
corporation in September, 1993. Its wholly-owned subsidiary, Simmco
Memory Products, Inc. (Simmco) was organized as a Texas corporation in
November, 1994. Collectively, LCC and Simmco were engaged in the
distribution of computer memory products.
Lanstar Semiconductor Corporation (LSC) was organized as a Texas
corporation in June, 1995, to develop and manufacture computer memory
products. It acquired its operations from LCC by issuing common
shares to the stockholders of LCC.
Lanstar Semiconductor Inc. (LSI) was organized as a Utah corporation
in October, 1980, as Kazmir Kliffs, Inc. During November, 1995,
Kazmir Kliffs, Inc., changed its name to Lanstar Semiconductor Inc.
and entered into an agreement to issue up to 8,500,000 common shares
of LSI to the stockholders of LSC and debenture holders of debentures
that were convertible into LSC common stock in exchange for all the
outstanding common shares and all the outstanding convertible rights
to common shares of LSC. Prior to the closing of the agreement, there
were 1,500,000 common shares of LSI outstanding. During the period
from 1989 until November, 1995, Kazmir Kliffs, Inc. had no activity.
During November, 1996, LSI acquired all of the outstanding stock of
Southwest Memory International, Inc. (SWMI) from World Data, Ltd., in
exchange for 29,000,000 common shares of LSI of which 3,000,000 shares
were allocated as a finder's fee relative to the transaction. SWMI is
engaged in the distribution of computer memory products. SWMI was
organized as a Texas corporation in January, 1996. The operations of
SWMI were acquired from a predecessor company, Southwest Memory, Inc.,
during early 1996.
During December, 1996, LSI acquired all the outstanding stock of
Lanstar Hong Kong Limited (LHK) from an affiliate for $15,000. At the
date of the acquisition, LHK had no assets or liabilities. LHK
handles all manufacturing operations in the orient for the LSC
operations.
F-53
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
June 30, 1997
-------------
Note 1 - Nature of Business and Significant Accounting Policies, continued
------------------------------------------------------
NATURE OF BUSINESS
During 1996, most operations of LCC and Simmco ceased and were assumed
by LSI and its subsidiaries. As of December 31, 1996, only minor
activity was taking place in LCC and Simmco.
CONSOLIDATION AND COMBINATION POLICY
The combined financial statements are comprised of the development,
manufacture and distribution of computer memory products by LSI and
its subsidiaries and LCC and its subsidiary. Combined financial
statements are presented in a method similar to a pooling of
interests. The acquisition by LCC of Simmco was accounted for as a
purchase of a subsidiary. The merger of LSC and LSI was accounted for
as a reverse acquisition similar to a pooling of interests. The
acquisition of SWMI was accounted for as a pooling of interests. In
the case of a pooling of interests activity of all entities are
retroactively presented to inception. The acquisition of LHK was
accounted for as a purchase of a subsidiary. All intercompany profits
and transactions have been eliminated in combination and
consolidation. LSI, SWMI, LCC, Simmco, LSC and LHK will be
collectively referred to as "the Company".
Any losses incurred by LCC and its subsidiary in excess of paid in
capital was borne by LSI and its subsidiaries.
PERIODS PRESENTED
The combined activity of LSI and its subsidiaries, LHK, LSC and SWMI,
and LCC and its subsidiary, Simmco, are presented for the six month
periods ended June 30, 1997 and 1996.
INVENTORY
Inventory values are stated at the lower of first-in, first-out (FIFO)
and average cost or market. All manufacturing is performed by a third
party. As a result no indirect costs are associated with manufactured
inventory.
F-54
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
June 30, 1997
-------------
Note 1 - Nature of Business and Significant Accounting Policies, continued
------------------------------------------------------
LOSS PER SHARE
Net loss per common share is presented for each consolidated company
presented in the accompanying combined financial statements. Loss per
share is calculated by dividing net loss of each company by the
average shares of common stock outstanding of each company during each
period presented. During a loss period, the assumed conversion of
convertible debentures have an antidilutive effect. As a result,
these shares are not included in the weighted average shares
outstanding until actual conversion to common stock occurs. In the
case of a pooling of interests or reverse acquisition, all share and
per share information have been retroactively applied to give effect
for all shares outstanding immediately after the consolidating
transactions. The weighted average number of shares of LSI
outstanding during the six month periods ended June 30, 1997 and 1996
were 41,815,371 and 33,733,349, respectively. The weight average
number of shares of LCC outstanding during the six month periods ended
June 30, 1997 and 1996 was 5,183,333.
FURNITURE AND EQUIPMENT
Furniture and equipment are carried at cost. Depreciation is
calculated using straight-line method over the estimated useful lives
of the assets of 3 to 10 years. Depreciation expense for the six
month periods ended June 30, 1997 and 1996, was $93,167 and $45,586,
respectively.
ALLOWANCE FOR BAD DEBTS
The Company provides an allowance for uncollectible accounts based
upon prior experience and management's assessment of the
collectibility of existing specific accounts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
F-55
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
June 30, 1997
-------------
Note 1 - Nature of Business and Significant Accounting Policies, continued
------------------------------------------------------
INCOME TAXES
Deferred tax assets and deferred tax liabilities, if any, are
recognized for taxable temporary differences. Temporary differences
are the differences between the reported amounts of assets and their
tax basis as well as the effect of net operating loss carryforwards.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effect of changes in tax
laws and rates on the date of enactment.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers all cash
accounts which are not subject to withdrawal restrictions or penalties
and interest bearing accounts with maturities of 90 days or less to be
cash or cash equivalents. At June 30, 1997, certain cash deposits
exceeded federally insured limits.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of financial instruments reported on the Company's
balance sheet approximate fair value. Fair value is estimated using
published market values for similar types of instruments.
Note 2 - Inventories
-----------
At June 30, 1997, inventories consisted of the following:
Raw materials $ 290,325
Finished goods 671,022
----------
$ 961,347
==========
F-56
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
June 30, 1997
-------------
Note 3 - Income Tax Matters
------------------
The provision for income taxes for the six months ended June 30, 1997,
was as follows:
1997
------------
Federal:
Current $ -0-
Deferred -0-
------------
-0-
------------
State:
Current -0-
Deferred -0-
------------
-0-
------------
Total $ -0-
============
The net deferred tax asset and liabilities consisted of the following
components as of June 30, 1997:
1997
---------
Deferred tax assets (liabilities) relating to:
Lanstar Computer Corporation -
Net operating loss carryforward $ 152,191
Lanstar Semiconductor Inc.
Net operating loss carryforward 352,953
License 162,500
Start-up costs and organization expense 107,349
Allowance for bad debts 113,435
---------
888,428
Valuation allowance (857,033)
---------
Net deferred tax benefits 31,395
Depreciation (31,395)
---------
$ -0-
=========
F-57
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
June 30, 1997
-------------
Note 3 - Income Tax Matters, continued
------------------
A reconciliation of income tax expense for the six month period ended
June 30, 1997, computed by applying the expected Federal statutory tax
rates by net loss was as follows:
1997
-----------
Benefit at expected Federal statutory rates $ 36,716
State taxes 4,196
Change in valuation allowance (40,912)
-----------
Provision for income tax $ -0-
===========
LCC has a net operating loss carryforward of approximately $1,014,603
expiring during years 2008 through 2011. LSC has a net operating loss
of $905,007 for income tax purposes which expires in 2010 and 2011.
The realization of income tax benefits from these losses is limited by
certain code sections of the Internal Revenue Code.
Note 4 - Private Placements
------------------
During 1995 and 1996, the Company completed three private placement
offerings for the sale of securities under Regulation "D", Rule 504 of
the Securities Act of 1933, as amended. The general provision and
capital procured with each offering is summarized as follows:
<TABLE>
<CAPTION>
Name of Date of
Issuing Offering Capital General Description
Entity Memorandums Procured of Security Issued
- --------------------------- ------------------ --------- ------------------------------------------------------------------------
<S> <C> <C> <C>
LSC September 15, 1995 $140,500 Debentures payable of LSC-Convertible to 1 share of LSC, or the common
stock of any public parent company, for each $1 of the debentures' face
value.
LSC November 15, 1995 $441,498 Debentures payable of LSC-Convertible to 1 share of LSC common stock at
the rate of 1 share for each $1.50 of the debentures' face value.
</TABLE>
F-58
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
June 30, 1997
-------------
Note 4 - Private Placements, continued
------------------
Simmco January, 1996 $46,000 Debentures payable of Simmco-
Convertible to 1 share of Simmco
common stock, or the common stock
of a publicly held corporation
with which Simmco exchanges
shares, for each $1 of the
debentures face value.
By June 30, 1997, all debentures issued with respect to these private
placements had been converted to common stock of LSI with the
exception of $41,000 in debentures payable. The Company is in the
process of converting this debt to equity.
No interest expense has been paid or accrued with regard to the
debentures payable.
Note 5 - Related Parties
---------------
The Company leases furniture and equipment from, and sub-leases office
space to Southwest Memory, Inc. which is wholly owned by a member of
management of SWMI. The furniture and equipment is leased on a month
to month basis at $6,000 per month. The office space is leased on a
month to month basis at $1,000 per month. For the six month periods
ended June 30, 1997, $36,000 in lease expense and $6,000 in sub-lease
income was recognized. For the six month periods ended June 30, 1996
approximately $36,000 in lease expense and $5,000 in sub-lease income
was recognized.
The stockholder loans shown at June 30, 1997 consists primarily of
open accounts receivable.
An affiliate of a shareholder of the Company acts as the transfer
agent for the Company.
During the six months ended June 30, 1996, the Company settled a
$463,443 trade account payable to Southwest Memory, Inc. by issuing
111,000 shares of stock of LSI to a creditor of Southwest Memory, Inc.
F-59
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
June 30, 1997
-------------
Note 5 - Related Parties, continued
---------------
Jenalong Holdings, Inc., a Texas corporation, which is owned by Mr.
Maxie R. Smith and Mr. Dennis V. Poole, in 1997 purchased bonding and
inline production test equipment to LSC for approximately $150,000.
LSC assigned the equipment to Whitways Enterprises Limited for use in
its factory in Guan Dong Province, China. Mr. Poole is a Vice-
President of Marketing for Whitways Enterprises Limited.
In 1997 LSC leased, from Jenalong Holdings, Inc., Sun Microsystems
unix-based computer equipment in the approximate amount of $35,597.
In addition, LSC leased from Jenalong Holdings, Inc. a CST SIMM tester
in the approximate amount of $1,500.
In 1996 and 1997, Jenalong Holdings, Inc., in a series of
transactions, loaned LSI up to a maximum of approximately $100,000 at
an approximate interest of 12% per annum on an unsecured basis, the
proceeds of which were used for working capital. LSI has fully repaid
the principal and interest on the loan.
Note 6 - Results of Operations
---------------------
Summarized consolidated results of operations of LCC and LSI and SWMI
for the six months ended June 30, 1996, prior to the effective date of
acquisition of November 1996, are as follows:
<TABLE>
<CAPTION>
LCC and
LSI SWMI
----------- -----------
<S> <C> <C>
Net sales $2,892,164 $27,768,278
========== ===========
Net income (loss) $ (436,387) $ 14,457
========== ===========
Debenture converted to common
stock of LSI - 437,163 shares $ 265,651
==========
Shares issued to consultants and their
affiliates for services - 1,580,151
shares of LSI $ 1,580
==========
Issuance of common stock in release of
trade payable - 111,000 shares of LSI $ 463,443
==========
</TABLE>
F-60
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
June 30, 1997
-------------
Note 7 - Operating Lease Commitments
---------------------------
The Company is leasing office space under three operating leases which
expire at various periods through 2003 as well as various equipment
leases which expire at various times through 2000. These leases are
reported as operating leases. Under the leases, the Company is
obligated to pay the following minimum annual rents:
1997 $208,088
1998 173,900
1999 157,004
2000 95,850
2001 72,375
Thereafter 81,192
--------
$788,409
========
Total rent and lease expense was for the six month periods ended June
30, 1997 and 1996, was $123,923 and $37,512, respectively.
Note 8 - Private Sales and Outstanding Warrants
--------------------------------------
On July 31, 1996, the Company issued a convertible debenture payable
to Integrated Circuit Technology, Inc. in the amount of $750,000. The
debenture principal along with interest at the rate of 12% per annum
was payable December 31, 1996. The debenture was subordinated to bank
debt the Company may incur.
The debenture was convertible at the option of the holder into common
shares of LSI at the rate of $0.25 per share. On August 29, 1996, the
Company issued 3,000,040 shares of LSI common stock to various
offshore entities in exchange for $750,000. Each share had attached
one warrant entitling the holder to purchase one additional share of
the common stock of LSI for $1.50 per share exercisable at any time
during a three-year period, commencing August 29, 1996.
On November 29, 1996, the Company issued a debenture payable to
Geninvest, S.A., in the amount of $750,000. The debenture principal
along with interest at the rate of 12% per annum was payable November
29, 1997. The debenture was subordinated to bank debt the Company may
incur.
F-61
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
June 30, 1997
-------------
Note 8 - Private Sales and Outstanding Warrants, continued
--------------------------------------
The debenture was convertible at the option of the holder into common
shares of LSI at the rate of $0.25 per share. On August 26, 1997, the
debenture was converted to 3,428,032 shares of the Company's common
stock, which included a finder's fee and accrued interest. Each share
so issued had attached one warrant entitling the holder to purchase
one additional share of the common stock of LSI for $1.50 per share,
exercisable at any time during a three-year period, commencing the
date of issuance of the shares and warrants.
On April 15, 1997, a convertible debenture in the amount of $750,000
with essentially the same terms as that described above was issued to
various offshore entities, and converted to 3,397,316 shares of the
Company's common stock on August 26, 1997, which included a finder's
fee and accrued interest. Each share so issued had attached one
warrant entitling the holder to purchase one additional share of the
common stock of LSI for $1.50 per share exercisable at any time during
a three-year period, commencing the date of issuance of the shares and
warrants.
On August 26, 1997, the Company sold to various offshore investors
8,000,000 shares of common stock at $0.125 per share plus warrants
entitling the holder to purchase for a three-year period a total of
8,000,000 shares of common stock for $1.50 per share.
Note 9 - Commitments and Contingencies
-----------------------------
As of December 31, 1996, Southwest Memory, Inc., the predecessor of
SWMI, had a working capital deficiency of approximately $1,218,218.
In addition, as of December 31, 1996, Southwest Memory, Inc. was named
as defendant in lawsuits in which plaintiffs are alleging losses in
excess of $1,290,000. It is not probable, but it is reasonably
possible, that the Company may be liable for unasserted federal taxes
of approximately $150,000 related to expenditures made to a foreign
taxpayer. The Company including SWMI, as successor to Southwest
Memory, Inc., may be liable for some or all of these amounts although,
at this time, an estimate of such losses is not determinable.
F-62
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
June 30, 1997
-------------
Note 10 - Advances to Suppliers
---------------------
At June 30, 1997, the Company had advanced approximately $1,161,000 to
one major supplier/customer which was reflected as accounts receivable
- other on that date. During the six months ended June 30, 1997, the
Company purchased approximately $6,012,490 in inventory from and sold
approximately $2,010,547 in inventory to this supplier/customer.
Note 11 - Sale of Southwest Memory International, Inc.
--------------------------------------------
On October 1, 1997, LSI entered into an agreement with World Data
Limited to sell 100% of the outstanding stock of SWMI for 25,555,000
common shares of LSI. The closing of this sale occurred on October
13, 1997.
As part of the agreement, SWMI paid LSI $250,000 in cash and agreed to
provide to LSI inventory with a value of $250,000. In addition, SWMI
released LSI from any and all obligations that were owed in connection
with any intercompany receivable, advances or distributions. In
addition, SWMI agreed to extend LSI a $500,000 line of credit to
purchase inventory on a net 30 day basis with a gross profit margin
not to exceed 5% above SWMI's actual purchase price.
As part of the agreement, LSI granted to SWMI, in exchange for a
promissory note payable to LSI in the amount of $500,000, a warrant to
purchase 18,000,000 shares of LSI common stock within three years of
October 13, 1997, at an exercise price of $1.50 per share. The note
will become due in twelve months from the date of execution and will
bear interest of 2% above prime.
Note 12 - Liquidity
---------
LCC and LSI along with their respective subsidiaries have incurred,
exclusive of net income earned by SWMI, losses of $1,243,981 during
1996 and $1,007,439 during the six months ended June 30, 1997. From
their inceptions through December 31, 1995, these entities incurred
losses of $1,634,051. As of June 30, 1997, these entities without
SWMI had a working capital deficit of approximately $825,144.
F-63
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
June 30, 1997
-------------
Note 12 - Liquidity, continued
---------
Through October 1, 1997 the Company was able to procure distributions
of at least $1,000,000 from SWMI as explained in Note 11. Also, the
Company procured capital of $1,750,000 through the sale of equity
during 1997 as explained in Note 8.
Management believes that additional private sales of equity and/or
exercise of outstanding warrants to acquire common stock may occur
before the end of 1998. Management has also committed to the
expansion of its distribution network.
Note 13 - Outstanding Rights to Acquire Common Stock
------------------------------------------
As of June 30, 1997, the Company had granted, under agreements with
certain employees, the right to acquire 400,000 common shares of LSI
stock under the following terms:
Number of
Shares Terms
------------ -----
200,000 Contingent employee bonus to be paid in LSI
shares upon the Company's attaining certain
potential patents.
200,000 Option to purchase LSI shares at a price of
$0.25 exercisable under terms of a new option
agreement to be executed.
F-64
<PAGE>
[LETTERHEAD OF CHESHIER & FULLER, L.L.P. APPEARS HERE]
Independent Accountants' Report
-------------------------------
To the Board of Directors and Stockholders
Lanstar Semiconductor Inc.
We have reviewed the accompanying consolidated and combined balance sheet of
Lanstar Semiconductor Inc. and Subsidiaries and Lanstar Computer Corporation and
Subsidiary as of September 30, 1997, and the related consolidated and combined
statements of income, changes in stockholders' equity and cash flows for the
nine months ended September 30, 1997 and 1996, in accordance with Statements on
Standards for Accounting and Review Services issued by the American Institute of
Certified Public Accountants. All information included in these financial
statements is the representation of management of Lanstar Semiconductor Inc. and
Subsidiaries and Lanstar Computer Corporation and Subsidiary.
A review consists principally of inquiries of Company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
/s/ CHESHIER & FULLER, L.L.P.
CHESHIER & FULLER, L.L.P.
Dallas, Texas
October 24, 1997
F-65
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Consolidated and Combined Balance Sheets
----------------------------------------
September 30, 1997
------------------
(Unaudited)
-----------
ASSETS
------
<TABLE>
<CAPTION>
Current assets:
<S> <C>
Cash and cash equivalents $ 434,279
Trade accounts receivable, less allowance for
doubtful accounts of $503,970 4,583,834
Accounts receivable - other 233,658
Inventory 1,706,735
Prepaid expenses 118,765
Other 12,500
----------
Total current assets 7,089,771
----------
Furniture and equipment, less accumulated
depreciation of $331,789 574,188
Other assets:
Deposits 3,410
Artwork 118,000
Deferred income tax benefit -0-
----------
121,410
----------
Total Assets $7,785,369
==========
</TABLE>
See accompanying notes and accountants' report.
F-66
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Consolidated and Combined Balance Sheets
----------------------------------------
September 30, 1997
------------------
(Unaudited)
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
Current liabilities:
<S> <C>
Accounts payable $ 479,631
Accrued expenses 689,550
Bank overdraft 70,782
Accrued income taxes 12,122
Debentures payable - private placements 1,000
-----------
Total current liabilities 1,253,085
Long-Term Debt:
Debenture payable - private sale -0-
-----------
Total Liabilities 1,253,085
Stockholders' equity:
Lanstar Computer Corporation -
Common stock - .01 par value, 10,000,000 shares authorized,
5,183,333 shares issued and outstanding at September 30, 1997 51,833
Additional paid in capital 402,947
Retained deficit (454,780)
Lanstar Semiconductor Inc.-
Common stock - .001 par value, 250,000,000 shares authorized,
57,050,769 shares issued and 48,750,769 shares outstanding
at September 30, 1997 57,050
Treasury stock at cost, 8,300,000 shares -0-
Additional paid-in capital 10,545,952
Stockholder loans (1,235,505)
Retained deficit (2,835,213)
-----------
Total Stockholders' Equity 6,532,284
-----------
Total Liabilities and Stockholders' Equity $ 7,785,369
===========
</TABLE>
See accompanying notes and accountant's report.
F-67
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Consolidated and Combined Statements of Income
----------------------------------------------
For the Nine Months Ended September 30, 1997 and 1996
-----------------------------------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Sales $ 48,101,204 $ 43,657,644
Cost of goods sold (43,597,504) (40,818,576)
------------ ------------
Gross profit 4,503,700 2,839,068
------------ ------------
Selling, general and administrative expenses (3,870,399) (2,708,499)
Research and development (1,226,877) (195,016)
Bad debt expense (238,698) (238,754)
------------ ------------
(5,335,974) (3,142,269)
------------ ------------
Operating loss (832,274) (303,201)
Other income (expense):
Other income 19,095 527
Interest income 9,149 1,511
Interest expense (65,120) (6,984)
------------ ------------
Net income (loss) before income tax (869,150) (308,147)
Provision for income tax -0- -0-
------------ ------------
Net income (loss) (869,150) (308,147)
Allocated to Lanstar Computer Corporation -0- (8,714)
------------ ------------
Allocated to Lanstar Semiconductor Inc. $ (869,150) $ (299,433)
============ ============
Primary earnings (loss) per share:
Lanstar Computer Corporation $ (0.00) $ (0.00)
============ ============
Lanstar Semiconductor Inc. $ (0.02) $ (0.01)
============ ============
Fully diluted earnings (loss) per share:
Lanstar Computer Corporation $ (0.00) $ (0.00)
============ ============
Lanstar Semiconductor Inc. $ (0.02) $ (0.01)
============ ============
</TABLE>
See accompanying notes and accountants' report.
F-68
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Consolidated and Combined Statements of Changes in Stockholders' Equity
-----------------------------------------------------------------------
For the Nine Months Ended September 30, 1997 and 1996
-----------------------------------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
Lanstar Computer Corporation Lanstar Semiconductor Inc.
-------------------------------------------------------------------------------------------
Additional
Par Paid-In Stockholder Retained Par
Shares Value Capital Loans Deficit Shares Value
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 5,183,333 $ 51,833 $ 402,947 $ - $ (454,780) 41,815,371 $42,115
Conversion of debentures
payable 14,865,398 14,865
Issuance of common stock in
release of trade payable 70,000 70
Treasury stock acquired at no
cost (8,000,000)
Stockholder loans
Unrealized gain
Net loss
----------- -------- --------- ------- ---------- ---------- -------
Balance, September 30, 1997 5,183,333 $ 51,833 $ 402,947 $ - $ (454,780) 48,750,769 $57,050
=========== ======== ========= ======= ========== ========== =======
</TABLE>
See accompanying notes and accountants' report.
<TABLE>
<CAPTION>
Lanstar Semiconductor Inc.
-----------------------------------------------------------------
Additional Total
Paid-In Treasury Stockholder Unrealized Retained Stockholders'
Capital Stock Loans Loss Deficit Equity
----------------------------------------------------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 $ 7,806,188 $ - $ (849,415) $(4,937) $(1,966,063) $5,027,888
Conversion of debentures
payable 2,583,984 2,598,849
Issuance of common stock in
release of trade payable 155,780 155,850
Treasury stock acquired at no
cost - -
Stockholder loans (386,090) (386,090)
Unrealized gain 4,937 4,937
Net loss (869,150) (869,150)
----------- ----- ----------- ------- ----------- ----------
Balance, September 30, 1997 $10,545,952 $ - $(1,235,505) $ - $(2,835,213) $6,532,284
=========== ===== =========== ======= =========== ==========
</TABLE>
See accompanying notes and accountants' report.
F-69
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Consolidated and Combined Statements of Changes in Stockholders' Equity
-----------------------------------------------------------------------
For the Nine Months Ended September 30, 1997 and 1996
-----------------------------------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
Lanstar Computer Corporation Lanstar Semiconductor Inc.
-------------------------------------------------------------- --------------------------
Additional
Par Paid-In Stockholder Retained Par
Shares Value Capital Loans Deficit Shares Value
-------------------------------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 5,183,333 $ 51,833 $402,947 $(8,714) $ (446,066) 7,987,017 $7,987
Issuance of common stock in
release of trade payable 111,000 111
Net loss (8,714)
Stockholder loans 8,714
Capital contributions 29,000,000 29,000
Treasury stock acquired at no cost (300,000)
Debenture converted to common
stock September, 1995 offering
of Lanstar Semiconductor
Corporation 139,500 139
Debentures converted to common
stock - November, 1995 offering
of Lanstar Semiconductor
Corporation 297,663 298
Shares issued to consultants and
their affiliates for services 1,580,151 1,580
Conversion of debentures payable 3,000,040 3,000
--------- -------- --------- ------- --------- ---------- --------
Balance, September 30, 1996 5,183,333 $ 51,833 $ 402,947 $ - $ (454,780) 41,815,371 $ 42,115
========= ======== ========= ======= ========== ========== ========
</TABLE>
See accompanying notes and accountants' report.
<TABLE>
<CAPTION>
Lanstar Semiconductor Inc.
------------------------------------------------------------------
Additional Total
Paid-In Treasury Stockholder Unrealized Retained Stockholders'
Capital Stock Loans Loss Deficit Equity
------------------------------------------------------------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 $ (6,683) $ - $ (43,600) $ - $(1,187,985) $ (1,230,281)
Issuance of common stock in
release of trade payable 463,332 463,443
Net loss (299,433) (308,147)
Stockholder loans (378,379) (369,665)
Capital contributions 6,021,978 6,050,978
Treasury stock acquired at no cost - -
Debenture converted to common
stock September, 1995 offering
of Lanstar Semiconductor
Corporation 139,361 139,500
Debentures converted to common
stock - November, 1995 offering
of Lanstar Semiconductor
Corporation 441,200 441,498
Shares issued to consultants and
their affiliates for services 1,580
Conversion of debentures payable 747,000 750,000
---------- ----- ---------- ----- ----------- ----------
Balance, September 30, 1996 $7,806,188 $ - $ (421,979) $ - $(1,487,418) $5,938,906
========== ===== ========== ===== =========== ==========
</TABLE>
See accompanying notes and accountants' report.
F-70
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Consolidated and Combined Statements of Cash Flows
--------------------------------------------------
For the Nine Months Ended September 30, 1997 and 1996
-----------------------------------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (869,150) $ (308,147)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation 151,789 68,866
Services rendered for common stock -0- 1,580
Accrued interest converted to common stock 58,849 -0-
(Increase) decrease in:
Trade receivables (2,025,897) (3,050,370)
Other receivables 2,537,089 (2,522,038)
Inventories (1,037,967) (985,850)
Prepaid expenses (8,666) (66,783)
Note receivable (12,500) (275,000)
Other -0- 2,625
Increase (decrease) in:
Accounts payable - trade 176,565 292,651
Accrued expenses (95,903) 188,118
Accrued income taxes (200,000) -0-
----------- -----------
Net cash used for operating activities (1,325,791) (6,654,348)
----------- -----------
INVESTING ACTIVITIES:
Artwork acquisitions (5,000) -0-
Furniture and equipment additions (233,448) (196,311)
Sale of marketable securities 303,231 -0-
----------- -----------
Net cash provided by investing activities 64,783 (196,311)
----------- -----------
FINANCING ACTIVITIES:
Payment on debentures payable (6,000) -0-
Proceeds from private sales of debentures payable
and common stock 1,750,000 7,077,748
Increase (decrease) in bank overdraft (44,748) (8,828)
(Increase) decrease in stockholder loan (386,090) (54,318)
----------- -----------
Net cash provided by financing activities 1,313,162 7,014,602
----------- -----------
Increase (decrease) in cash 52,154 163,943
Cash and cash equivalents, beginning of period 382,125 17,393
----------- -----------
Cash and cash equivalents, end of period $ 434,279 $ 181,336
=========== ===========
</TABLE>
See accompanying notes and accountants' report.
F-71
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Consolidated and Combined Statements of Cash Flows
--------------------------------------------------
For the Nine Months Ended September 30, 1997 and 1996
-----------------------------------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
1997 1996
--------- -------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest $ 9,053 $6,984
======== =======
Income Taxes $200,000 $ -0-
======== =======
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
<TABLE>
<CAPTION>
<S> <C> <C>
Net decrease in unrealized loss on marketable
securities available for sale $ 4,937 $ -0-
========== ==========
Margin debt liquidated by sale of marketable securities $ 231,799 $ -0-
========== ==========
Issuance of LSI common stock in
settlement of accounts payable and
accrued interest $ 214,699 $ 463,443
========== ==========
Convertible debentures payable tendered
for LSI common stock $1,540,000 $1,330,998
========== ==========
</TABLE>
See accompanying notes and accountants' report.
F-72
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
September 30, 1997
------------------
Note 1 - Nature of Business and Significant Accounting Policies
------------------------------------------------------
NATURE OF BUSINESS
Lanstar Computer Corporation (LCC) was organized as a Texas
corporation in September, 1993. Its wholly-owned subsidiary, Simmco
Memory Products, Inc. (Simmco) was organized as a Texas corporation in
November, 1994. Collectively, LCC and Simmco were engaged in the
distribution of computer memory products.
Lanstar Semiconductor Corporation (LSC) was organized as a Texas
corporation in September, 1995, to develop and manufacture computer
memory products. It acquired its operations from LCC by issuing
common shares to the stockholders of LCC.
Lanstar Semiconductor Inc. (LSI) was organized as a Utah corporation
in October, 1980, as Kazmir Kliffs, Inc. During November, 1995,
Kazmir Kliffs, Inc., changed its name to Lanstar Semiconductor Inc.
and entered into an agreement to issue up to 8,500,000 common shares
of LSI to the stockholders of LSC and debenture holders of debentures
that were convertible into LSC common stock in exchange for all the
outstanding common shares and all the outstanding convertible rights
to common shares of LSC. Prior to the closing of the agreement, there
were 1,500,000 common shares of LSI outstanding. During the period
from 1989 until November, 1995, Kazmir Kliffs, Inc. had no activity.
During November, 1996, LSI acquired all of the outstanding stock of
Southwest Memory International, Inc. (SWMI) from World Data, Ltd., in
exchange for 29,000,000 common shares of LSI of which 3,000,000 shares
were allocated as a finder's fee relative to the transaction. SWMI is
engaged in the distribution of computer memory products. SWMI was
organized as a Texas corporation in January, 1996. The operations of
SWMI were acquired from a predecessor company, Southwest Memory, Inc.,
during early 1996.
During December, 1996, LSI acquired all the outstanding stock of
Lanstar Hong Kong Limited (LHK) from an affiliate for $15,000. At the
date of the acquisition, LHK had no assets or liabilities. LHK
handles all manufacturing operations in the orient for the LSC
operations.
F-73
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
September 30, 1997
------------------
Note 1 - Nature of Business and Significant Accounting Policies, continued
------------------------------------------------------
NATURE OF BUSINESS
During 1996, most operations of LCC and Simmco ceased and were assumed
by LSI and its subsidiaries. As of December 31, 1996, only minor
activity was taking place in LCC and Simmco.
CONSOLIDATION AND COMBINATION POLICY
The combined financial statements are comprised of the development,
manufacture and distribution of computer memory products by LSI and
its subsidiaries and LCC and its subsidiary. Combined financial
statements are presented in a method similar to a pooling of
interests. The acquisition by LCC of Simmco was accounted for as a
purchase of a subsidiary. The merger of LSC and LSI was accounted for
as a reverse acquisition similar to a pooling of interests. The
acquisition of SWMI was accounted for as a pooling of interests. In
the case of a pooling of interests activity of all entities are
retroactively presented to inception. The acquisition of LHK was
accounted for as a purchase of a subsidiary. All intercompany profits
and transactions have been eliminated in combination and
consolidation. LSI, SWMI, LCC, Simmco, LSC and LHK will be
collectively referred to as "the Company".
Any losses incurred by LCC and its subsidiary in excess of paid in
capital was borne by LSI and its subsidiaries.
PERIODS PRESENTED
The combined activity of LSI and its subsidiaries, LHK, LSC and SWMI,
and LCC and its subsidiary, Simmco, are presented for the nine month
periods ended September 30, 1997 and 1996.
INVENTORY
Inventory values are stated at the lower of first-in, first-out (FIFO)
and average cost or market. All manufacturing is performed by a third
party. As a result no indirect costs are associated with manufactured
inventory.
F-74
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
September 30, 1997
------------------
Note 1 - Nature of Business and Significant Accounting Policies, continued
------------------------------------------------------
LOSS PER SHARE
Net loss per common share is presented for each consolidated company
presented in the accompanying combined financial statements. Loss per
share is calculated by dividing net loss of each company by the
average shares of common stock outstanding of each company during each
period presented. During a loss period, the assumed conversion of
convertible debentures have an antidilutive effect. As a result,
these shares are not included in the weighted average shares
outstanding until actual conversion to common stock occurs. In the
case of a pooling of interests or reverse acquisition, all share and
per share information have been retroactively applied to give effect
for all shares outstanding immediately after the consolidating
transactions. The weighted average number of shares of LSI
outstanding during the nine month periods ended September 30, 1997 and
1996 were 41,709,304 and 36,094,049, respectively. The weight average
number of shares of LCC outstanding during the nine month periods
ended September 30, 1997 and 1996 was 5,183,333.
FURNITURE AND EQUIPMENT
Furniture and equipment are carried at cost. Depreciation is
calculated using straight-line method over the estimated useful lives
of the assets of 3 to 10 years. Depreciation expense for the nine
month periods ended September 30, 1997 and 1996, was $151,789 and
$68,866, respectively.
ALLOWANCE FOR BAD DEBTS
The Company provides an allowance for uncollectible accounts based
upon prior experience and management's assessment of the
collectibility of existing specific accounts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
F-75
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
September 30, 1997
------------------
Note 1 - Nature of Business and Significant Accounting Policies, continued
------------------------------------------------------
INCOME TAXES
Deferred tax assets and deferred tax liabilities, if any, are
recognized for taxable temporary differences. Temporary differences
are the differences between the reported amounts of assets and their
tax basis as well as the effect of net operating loss carryforwards.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effect of changes in tax
laws and rates on the date of enactment.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers all cash
accounts which are not subject to withdrawal restrictions or penalties
and interest bearing accounts with maturities of 90 days or less to be
cash or cash equivalents. At September 30, 1997, certain cash
deposits exceeded federally insured limits.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of financial instruments reported on the Company's
balance sheet approximate fair value. Fair value is estimated using
published market values for similar types of instruments.
Note 2 - Inventories
-----------
At September 30, 1997, inventories consisted of the following:
Raw materials $ 180,597
Finished goods 1,526,138
----------
$1,706,735
==========
F-76
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
September 30, 1997
------------------
Note 3 - Income Tax Matters
------------------
The provision for income taxes for the nine months ended September 30,
1997, was as follows:
1997
------------
Federal:
Current $ -0-
Deferred -0-
------------
-0-
------------
State:
Current -0-
Deferred -0-
------------
-0-
------------
Total $ -0-
============
The net deferred tax asset and liabilities consisted of the following
components as of September 30, 1997:
1997
------------
Deferred tax assets (liabilities) relating to:
Lanstar Computer Corporation -
Net operating loss carryforward $ 159,239
Lanstar Semiconductor Inc.
Net operating loss carryforward 577,540
License 159,250
Start-up costs and organization expense 98,931
Allowance for bad debts 196,548
-----------
1,191,508
Valuation allowance (1,155,089)
-----------
Net deferred tax benefits 36,419
Depreciation (36,419)
-----------
$ -0-
===========
F-77
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
September 30, 1997
------------------
Note 3 - Income Tax Matters, continued
------------------
A reconciliation of income tax expense for the nine month period ended
September 30, 1997, computed by applying the expected Federal
statutory tax rates by net loss was as follows:
1997
------------
Benefit at expected Federal statutory rates $ 300,670
State income tax 38,298
Change in valuation allowance (338,968)
-----------
Provision for income tax $ -0-
===========
LCC has a net operating loss carryforward of approximately $1,014,603
expiring during years 2008 through 2011. LSC has a net operating loss
of $905,007 for income tax purposes which expires in 2010 and 2011.
The realization of income tax benefits from these losses is limited by
certain code sections of the Internal Revenue Code.
Note 4 - Private Placements
------------------
During 1995 and 1996, the Company completed three private placement
offerings for the sale of securities under Regulation "D", Rule 504 of
the Securities Act of 1933, as amended. The general provision and
capital procured with each offering is summarized as follows:
<TABLE>
<CAPTION>
Name of Date of
Issuing Offering Capital General Description
Entity Memorandums Procured of Security Issued
------- ----------- --------- -------------------
<S> <C> <C> <C>
LSC September 15, 1995 $140,500 Debentures payable of LSC-Convertible to 1 share of LSC, or the common
stock of any public parent company, for each $1 of the debentures' face
value.
</TABLE>
F-78
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
September 30, 1997
------------------
Note 4 - Private Placements, continued
------------------
LSC November 15, 1995 $ 441,498 Debentures payable of LSC-
Convertible to 1 share of LSC
common stock at the rate of 1
share for each $1.50 of the
debentures' face value.
Simmco January, 1996 $ 46,000 Debentures payable of Simmco-
Convertible to 1 share of Simmco
common stock, or the common
stock of a publicly held
corporation with which Simmco
exchanges shares, for each $1
of the debentures face value.
By September 30, 1997, all debentures issued with respect to these
private placements had been converted to common stock of LSI with the
exception of $1,000 in debentures payable. The Company is in the
process of converting this debt to equity.
No interest expense has been paid or accrued with regard to the
debentures payable.
Note 5 - Related Parties
---------------
The Company leases furniture and equipment from, and sub-leases office
space to Southwest Memory, Inc. which is wholly owned by a member of
management of SWMI. The furniture and equipment is leased on a month
to month basis at $6,000 per month. The office space is leased on a
month to month basis at $1,000 per month. For the nine month periods
ended September 30, 1997, $54,000 in lease expense and $9,000 in sub-
lease income was recognized. For the nine month periods ended
September 30, 1996 approximately $54,000 in lease expense and $8,000
in sub-lease income was recognized.
The stockholder loans shown at September 30, 1997 consists primarily
of open accounts receivable.
F-79
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
September 30, 1997
------------------
Note 5 - Related Parties, continued
---------------
An affiliate of a shareholder of the Company acts as the transfer
agent for the Company.
During the nine months ended September 30, 1996, the Company settled a
$463,443 trade account payable to Southwest Memory, Inc. by issuing
111,000 shares of stock of LSI to a creditor of Southwest Memory, Inc.
Jenalong Holdings, Inc., a Texas corporation, which is owned by Mr.
Maxie R. Smith and Mr. Dennis V. Poole, in 1997 purchased bonding and
inline production test equipment to LSC for approximately $150,000.
LSC assigned the equipment to Whitways Enterprises Limited for use in
its factory in Guan Dong Province, China. Mr. Poole is a Vice-
President of Marketing for Whitways Enterprises Limited.
In 1997, LSC leased, from Jenalong Holdings, Inc., Sun Microsystems
unix-based computer equipment in the approximate amount of $35,597.
In addition, LSC leased from Jenalong Holdings, Inc. a CST SIMM tester
in the approximate amount of $1,500.
In 1996 and 1997, Jenalong Holdings, Inc., in a series of
transactions, loaned LSI up to a maximum of approximately $100,000 at
an approximate interest of 12% per annum on an unsecured basis, the
proceeds of which were used for working capital. LSI has fully repaid
the principal and interest on the loan.
Note 6 - Results of Operations
---------------------
Summarized consolidated results of operations of LCC and LSI and SWMI
for the nine months ended September 30, 1996, prior to the effective
date of acquisition of November 1996, are as follows:
<TABLE>
<CAPTION>
LCC and
LSI SWMI
----------- -----------
<S> <C> <C>
Net sales $4,242,699 $41,140,490
========== ===========
Net income (loss) $ (843,763) $ 535,616
========== ===========
Debenture converted to common
stock of LSI - 3,437,203 shares $1,330,998
==========
</TABLE>
F-80
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
September 30, 1997
------------------
Note 6 - Results of Operations, continued
---------------------
Shares issued to consultants
and their affiliates for
services -
1,580,151 shares of LSI $ 1,580
==========
Issuance of common stock
in release of a trade
payable $ 463,443
==========
Note 7 - Operating Lease Commitments
---------------------------
The Company is leasing office space under three operating leases which
expire at various periods through 2003 as well as various equipment
leases which expire at various times through 2000. These leases are
reported as operating leases. Under the leases, the Company is
obligated to pay the following minimum annual rents:
1997 $208,088
1998 173,900
1999 157,004
2000 95,850
2001 72,375
Thereafter 81,192
--------
$788,409
========
Total rent and lease expense was for the nine month periods ended
September 30, 1997 and 1996, was $179,023 and $70,371, respectively.
Note 8 - Private Sales and Outstanding Warrants
--------------------------------------
On July 31, 1996, the Company issued a convertible debenture payable
to Integrated Circuit Technology, Inc. in the amount of $750,000. The
debenture principal along with interest at the rate of 12% per annum
was payable December 31, 1996. The debenture was subordinated to bank
debt the Company may incur.
The debenture was convertible at the option of the holder into common
shares of LSI at the rate of $0.25 per share. On August 29, 1996, the
Company issued 3,000,040 shares of LSI common stock to various
offshore entities in exchange
F-81
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
September 30, 1997
------------------
Note 8 - Private Sales and Outstanding Warrants, continued
--------------------------------------
for $750,000. Each share had attached one warrant entitling the
holder to purchase one additional share of the common stock of LSI for
$1.50 per share exercisable at any time during a three-year period,
commencing August 29, 1996.
On November 29, 1996, the Company issued a debenture payable to
Geninvest, S.A., in the amount of $750,000. The debenture principal
along with interest at the rate of 12% per annum was payable November
29, 1997. The debenture was subordinated to bank debt the Company may
incur.
The debenture was convertible at the option of the holder into common
shares of LSI at the rate of $0.25 per share. On August 26, 1997, the
debenture was converted to 3,428,082 shares of the Company's common
stock, which included a finder's fee and accrued interest. Each share
so issued had attached one warrant entitling the holder to purchase
one additional share of the common stock of LSI for $1.50 per share,
exercisable at any time during a three-year period, commencing the
date of issuance of the shares and warrants.
On April 15, 1997, a convertible debenture in the amount of $750,000
with essentially the same terms as that described above was issued to
various offshore entities. The debenture was converted to 3,397,316
shares of the Company's common stock on August 26, 1997, which
included a finder's fee and accrued interest. Each share so issued
had attached one warrant entitling the holder to purchase one
additional share of the common stock of LSI for $1.50 per share
exercisable at any time during a three-year period, commencing the
date of issuance of the shares and warrants.
On August 26, 1997, the Company sold to various offshore investors
8,000,000 shares of common stock at $.125 per share plus warrants
entitling the holders to purchase for a three-year period a total of
8,000,000 shares of common stock for $1.50 per share.
F-82
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
September 30, 1997
------------------
Note 9 - Commitments and Contingencies
-----------------------------
As of December 31, 1996, Southwest Memory, Inc., the predecessor of
SWMI, had a working capital deficiency of approximately $1,218,218.
In addition, as of December 31, 1996, Southwest Memory, Inc. was named
as defendant in lawsuits in which plaintiffs are alleging losses in
excess of $1,290,000. It is not probable, but it is reasonably
possible, that the Company may be liable for unasserted federal taxes
of approximately $150,000 related to expenditures made to a foreign
taxpayer. The Company including SWMI, as successor to Southwest
Memory, Inc., may be liable for some or all of these amounts although,
at this time, an estimate of such losses is not determinable.
Note 10 - Major Supplier
--------------
During the nine months ended September 30, 1997, the Company purchased
approximately $9,460,837 in inventory from and sold approximately
$2,600,526 in inventory to a major supplier/customer.
Note 11 - Sale of Southwest Memory International, Inc.
--------------------------------------------
On October 1, 1997, LSI entered into an agreement with World Data
Limited to sell 100% of the outstanding stock of SWMI for 25,555,000
common shares of LSI. The closing of this sale occurred on October
13, 1997.
As part of the agreement, SWMI paid to LSI $250,000 in cash and agreed
to provide inventory with a value of $250,000. In addition, SWMI
released LSI from any and all obligations that were owed in connection
with any intercompany receivable, advances or distributions. In
addition, SWMI agreed to extend LSI a $500,000 line of credit to
purchase inventory on a net 30 day basis with a gross profit margin
not to exceed 5% above SWMI's actual purchase price.
As part of the agreement, LSI granted to SWMI, in exchange for a
promissory note payable to LSI in the amount of $500,000, a warrant to
purchase 18,000,000 shares of LSI common stock within three years of
October 13, 1997, at an exercise price of $1.50 per share. The note
will become due in twelve months from the date of execution and will
bear interest of 2% above prime.
F-83
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
and LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Consolidated and Combined Financial Statements
-------------------------------------------------------
September 30, 1997
------------------
Note 12 - Liquidity
---------
LCC and LSI along with their respective subsidiaries have incurred,
exclusive of net income earned by SWMI, losses of $1,243,981 during
1996 and $2,028,549 during the nine months ended September 30,
1997. From their inceptions through December 31, 1995, these
entities incurred losses of $1,634,051. As of September 30, 1997,
these entities without SWMI had a working capital deficit of
approximately $504,482.
Through October 1, 1997 the Company was able to procure distributions
of at least $1,000,000 from SWMI as explained in Note 10. Also, the
Company procured capital of $1,750,000 through the sale of equity
during 1997 as explained in Note 8.
Management believes that additional private sales of equity and/or
exercise of outstanding warrants to acquire common stock may occur
before the end of 1998. Management has also committed to the
expansion of its distribution network.
Note 13 - Outstanding Rights to Acquire Common Stock
------------------------------------------
As of September 30, 1997, the Company had granted, under agreements
with certain employees, the right to acquire 400,000 common shares of
LSI stock under the following terms:
Number of
Shares Terms
------------ -----
200,000 Contingent employee bonus to be paid in LSI shares
upon the Company's attaining certain potential
patents.
200,000 Option to purchase LSI shares at a price of $0.25
exercisable under terms of a new option agreement
to be executed.
F-84
<PAGE>
[LETTERHEAD OF CHESHIER & FULLER, L.L.P. APPEARS HERE]
ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders
Lanstar Semiconductor Inc.
We have reviewed the pro forma adjustments reflecting the transactions described
in Note 1 and the application of those adjustments to the historical amounts in
the accompanying pro forma consolidated and combined (condensed) balance sheet
of Lanstar Semiconductor Inc. and Subsidiaries and Lanstar Computer Corporation
and Subsidiary as of June 30, 1997, and the pro forma consolidated and combined
(condensed) statement of income for the six months then ended. The historical
consolidated and combined (condensed) financial statements are derived from the
historical unaudited consolidated and combined (condensed) financial statements
of Lanstar Semiconductor Inc. and Subsidiaries and Lanstar Computer Corporation
and Subsidiary, which were reviewed by us, appearing elsewhere in this Form 10.
Such pro forma adjustments are based on management's assumptions as described in
Note 2. Our review was conducted in accordance with standards established by
the American Institute of Certified Public Accountants.
A review is substantially less in scope than an examination, the objective of
which is the expression of an opinion on management's assumptions, the pro forma
adjustments, and the application of those adjustments to historical financial
information. Accordingly, we do not express such an opinion.
The objective of this pro forma financial information is to show what the
significant effects on the historical information might have been had the
transaction occurred at an earlier date. However, the pro forma financial
statements are not necessarily indicative of the results of operations or
related effects on financial position that would have been attained had the
above-mentioned transaction actually occurred earlier.
Based on our review, nothing came to our attention that caused us to believe
that management's assumptions do not provide a reasonable basis for presenting
the significant effects directly attributable to the above-mentioned
transactions described in Note 1, that the related pro forma adjustments do not
give appropriate effect to those assumptions, or that the pro forma column does
not reflect the proper application of those adjustments to the historical
financial statement amounts in the related pro forma consolidated and combined
(condensed) balance sheet of Lanstar Semiconductor Inc. and Subsidiaries and
Lanstar Computer Corporation and Subsidiary as of June 30, 1997, and the related
pro forma consolidated and combined (condensed) statement of income for the six
months then ended.
/s/ CHESHIER & FULLER, L.L.P.
-----------------------------------
CHESHIER & FULLER, L.L.P.
Dallas, Texas
October 15, 1997
F-85
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
AND LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
PRO FORMA CONSOLIDATED AND COMBINED (CONDENSED)
-----------------------------------------------
FINANCIAL STATEMENTS
--------------------
JUNE 30, 1997
-------------
The pro forma data presented in the pro forma consolidated and combined
(condensed) financial statements are included in order to illustrate what the
retroactive effect on the Company's historical financial statements might have
been if the transaction explained in Note 1 to these pro forma financial
statements had occurred earlier as explained in Note 1.
These pro forma consolidated and combined (condensed) financial statements
should be read in conjunction with the Company's consolidated and combined
financial statements and notes thereto appearing elsewhere in this Form 10. The
pro forma information is not necessarily indicative of the results that would
have been reported had the corporations involved been operated independently
during 1997 nor is it indicative of the Company's future results.
F-86
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
AND LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
PRO FORMA CONSOLIDATED AND COMBINED (CONDENSED) FINANCIAL STATEMENTS
--------------------------------------------------------------------
JUNE 30, 1997
-------------
(UNAUDITED)
-----------
ASSETS
------
<TABLE>
<CAPTION>
Historical
------------------------------------------------------------------------------
Pro Forma
Consolidated
Consolidated and Combined
Consolidated and Combined Balance Sheet
and Combined Consolidation Balance Sheet of of LSI and LCC
Balance Sheet Eliminating Balance Sheet LSI and LCC Pro Forma Exclusive
of LSI and LCC Entries of SWMI Exclusive of SWMI Adjustments of SWMI
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Accounts receivable - trade $4,025,910 $ $3,974,773 $ 51,137 $ $ 51,137
Accounts receivable - other 1,241,826 1,217,325 24,501 24,501
Accounts receivable -
intercompany -0- 715,109 715,109
Other current assets 1,477,305 908,243 569,062 569,062
---------- -------- ---------- ---------- ---------- ----------
Total current assets 6,745,041 715,109 6,815,450 644,700 644,700
Furniture and equipment (net) 591,981 113,113 478,868 478,868
Investment in SWMI 29,000 29,000 (29,000)
Other assets 116,410 113,000 3,410 3,410
---------- -------- ---------- ---------- ----------- ----------
Total assets $7,453,432 $744,109 $7,041,563 $1,155,978 $(29,000) $1,126,978
========== ======== ========== ========== =========== ==========
See accompanying notes and accountants' report.
</TABLE>
F-87
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
AND LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
PRO FORMA CONSOLIDATED AND COMBINED (CONDENSED) FINANCIAL STATEMENTS
--------------------------------------------------------------------
JUNE 30, 1997
-------------
(UNAUDITED)
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
Historical
---------------------------------------------------------------------------------
Pro Forma
Consolidated
Consolidated and Combined
Consolidated and Combined Balance Sheet
and Combined Consolidation Balance Sheet of of LSI and LCC
Balance Sheet Eliminating Balance Sheet LSI and LCC Pro Forma Exclusive
of LSI and LCC Entries of SWMI Exclusive of SWMI Adjustments of SWMI
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Accounts payable - trade $ 415,095 $ $ 121,958 $ 293,137 $ $ 293,137
Accounts payable -
intercompany -0- 715,109 -0- 715,109 715,109
Accrued expenses 1,017,985 556,387 461,598 461,598
----------- -------- ----------- ----------- ----------- -----------
Total current liabilities 1,433,080 715,109 678,345 1,469,844 1,469,844
Debentures payable 1,500,000 -0- 1,500,000 1,500,000
----------- ----------- ----------- ----------- -----------
Total liabilities 2,933,080 715,109 678,345 2,969,844 2,969,844
----------- -------- ----------- ----------- ----------- -----------
Common stock 93,948 1,000 1,000 93,948 (25,555) 68,393
Additional paid-in capital 8,209,135 28,000 6,049,978 2,187,157 (3,445) 2,183,712
Retained earnings (deficit) (2,525,746) 1,359,725 (3,885,471) (3,885,471)
Stockholder/management loans (1,256,985) (1,047,485) (209,500) (209,500)
----------- -------- ----------- ----------- ----------- -----------
Total stockholders' equity
(deficit) 4,520,352 29,000 6,363,218 (1,813,866) (29,000) (1,842,866)
----------- -------- ----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity (deficit) $ 7,453,432 $744,109 $ 7,041,563 $1,155,978 $ (29,000) $ 1,126,978
=========== ======== =========== =========== =========== ===========
See accompanying notes and accountants' report.
</TABLE>
F-88
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
AND LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
PRO FORMA CONSOLIDATED AND COMBINED (CONDENSED) FINANCIAL STATEMENTS
--------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1997
--------------------------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Historical
-------------------------------------------------------------------
Pro Forma
Consolidated Consolidated
Consolidated and Combined and Combined
and Combined Statement of Statement of
Statement of Consolidation Statement of Income of Income of
Income Eliminating Income of LSI and LCC Pro Forma LSI and LCC
of LSI and LCC Entries SWMI Exclusive of SWMI Adjustments Exclusive of SWMI
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 32,216,732 $ 756,657 $ 30,266,536 $ 2,706,826 $ $ 2,706,826
Cost of goods sold (28,932,660) (756,630) (27,332,223) (2,357,067) (2,357,067)
Expense (3,376,514) (2,042,231) (1,334,283) (1,334,283)
Other income (expense) (12,461) 10,454 (22,915) (22,915)
------------ --------- ------------ ----------- -----------
Net (loss) income before
income taxes (104,903) -0- 902,536 (1,007,439) (1,007,439)
Provision for income tax -0- -0- -0- -0-
------------ --------- ------------ ----------- ----------- -----------
Net (loss) income $ (104,903) $ -0- $ 902,536 (1,007,439) (1,007,439)
============ ========= ============
Loss allocated to LCC -0- -0-
----------- ----------- -----------
Loss allocated to LSI $(1,007,439) $ $(1,007,439)
=========== =========== ===========
Primary loss per share:
LCC $ -0-
===========
LSI $ (.06)
===========
Fully diluted loss per share:
LCC $ -0-
===========
LSI $ (.06)
===========
See accompanying notes and accountants' report.
</TABLE>
F-89
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
AND LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Pro Forma Financial Statements
---------------------------------------
June 30, 1997
-------------
Note 1 - Background
----------
During November, 1996, Lanstar Semiconductor Inc. (LSI) acquired all
of the outstanding stock of Southwest Memory International, Inc.
(SWMI) from World Data Limited, in exchange for 29,000,000 common
shares of LSI, of which 3,000,000 shares were allocated as a finder's
fee relative to the transaction. In the consolidated and combined
financial statements of LSI and Subsidiaries and Lanstar Computer
Corporation (LCC) and Subsidiary, this acquisition was accounted for
as a pooling of interests. As such, the activity of SWMI was
presented as a part of the consolidated activity of LSI. All
intercompany profits and transactions were eliminated in combination
and consolidation. Those eliminating entries have been reflected in
the columns styled "Consolidation Eliminating Entries".
On October 1, 1997, LSI entered into a stock purchase agreement with
World Data Limited to sell 100% of the outstanding stock of SWMI for
25,555,000 common shares of LSI. The closing of this sale occurred on
October 13, 1997.
The purpose of this pro forma financial statement is to give effect to
the sale of SWMI and to reflect the consolidated and combined
(condensed) balance sheet of LSI and Subsidiaries and LCC and
Subsidiary as of June 30, 1997, and the related consolidated and
combined (condensed) statement of income as though the sale of SWMI
had taken place during 1996.
For purposes of this pro forma financial statement, LSI and its
Subsidiaries and LCC and its Subsidiary will be referred to as "the
Company".
Note 2 - Management's Assumptions
------------------------
During 1997, the Company and SWMI operated independently of one
another. Each had its own management team, location, and capital
structure.
To reflect the acquisition of the outstanding stock of SWMI, the
Company reflected an investment in SWMI at the par value of the common
stock issued upon the acquisition ($29,000).
F-90
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
AND LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Pro Forma Financial Statements
---------------------------------------
June 30, 1997
-------------
Note 2 - Management's Assumptions, continued
------------------------
For the purpose of the pro forma adjustments to the balance sheet, the
investment and equity of the Company were reduced by $29,000. The par
value of the 3,445,000 common shares issued in excess of the shares
reacquired by the Company has been reflected as a reduction of
additional paid-in capital.
No pro forma adjustments were made to the Company's statement of
income, as management of the Company feels the acquisition of SWMI had
no material effect on its operations during 1997.
For purposes of the computation of LSI's loss per share, management
assumed that the 25,555,000 shares to be returned by World Data
Limited, under the October 1, 1997, stock purchase agreement, were not
outstanding during 1997. Thus, weighted average shares outstanding of
16,260,371 was used in computing the loss per common share of LSI
stock.
Under the terms of the October 1, 1997, agreement to sell SWMI, SWMI
agreed to allow LSI to retain distributions of at least $1,000,000.
As of June 30, 1997, there was an intercompany loan of approximately
$715,109. For purposes of this pro forma financial statement, the
distribution will not be reflected until after June 30, 1997.
Under the terms of the October 1, 1997, agreement to sell SWMI, the
Company agreed to sell to SWMI a warrant to purchase 18,000,000 shares
of LSI common stock within three years of October 13, 1997, at an
excercise price of $1.50 per share. This warrant had an agreed value
of $500,000. At the closing of the sale of this warrant, SWMI agreed
to execute a promissory note payable to the Company in the amount of
$500,000. The note will be due in twelve months from the date of
execution. For purposes of the pro forma financial statements, this
transaction is not to be reflected until October, 1997.
F-91
<PAGE>
[LETTERHEAD OF CHESHIER & FULLER, L.L.P. APPEARS HERE]
ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders
Lanstar Semiconductor Inc.
We have reviewed the pro forma adjustments reflecting the transactions described
in Note 1 and the application of those adjustments to the historical amounts in
the accompanying pro forma consolidated and combined (condensed) balance sheet
of Lanstar Semiconductor Inc. and Subsidiaries and Lanstar Computer Corporation
and Subsidiary as of September 30, 1997, and the pro forma consolidated and
combined (condensed) statement of income for the nine months then ended. The
historical consolidated and combined (condensed) financial statements are
derived from the historical unaudited consolidated and combined (condensed)
financial statements of Lanstar Semiconductor Inc. and Subsidiaries and Lanstar
Computer Corporation and Subsidiary, which were reviewed by us, appearing
elsewhere in this Form 10. Such pro forma adjustments are based on management's
assumptions as described in Note 2. Our review was conducted in accordance with
standards established by the American Institute of Certified Public Accountants.
A review is substantially less in scope than an examination, the objective of
which is the expression of an opinion on management's assumptions, the pro forma
adjustments, and the application of those adjustments to historical financial
information. Accordingly, we do not express such an opinion.
The objective of this pro forma financial information is to show what the
significant effects on the historical information might have been had the
transaction occurred at an earlier date. However, the pro forma financial
statements are not necessarily indicative of the results of operations or
related effects on financial position that would have been attained had the
above-mentioned transaction actually occurred earlier.
Based on our review, nothing came to our attention that caused us to believe
that management's assumptions do not provide a reasonable basis for presenting
the significant effects directly attributable to the above-mentioned
transactions described in Note 1, that the related pro forma adjustments do not
give appropriate effect to those assumptions, or that the pro forma column does
not reflect the proper application of those adjustments to the historical
financial statement amounts in the related pro forma consolidated and combined
(condensed) balance sheet of Lanstar Semiconductor Inc. and Subsidiaries and
Lanstar Computer Corporation and Subsidiary as of September 30, 1997, and the
related pro forma consolidated and combined (condensed) statement of income for
the nine months then ended.
/s/ CHESHIER & FULLER, L.L.P.
-------------------------------
CHESHIER & FULLER, L.L.P.
Dallas, Texas
October 24, 1997
F-92
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
AND LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
PRO FORMA CONSOLIDATED AND COMBINED (CONDENSED)
-----------------------------------------------
FINANCIAL STATEMENTS
--------------------
SEPTEMBER 30, 1997
------------------
The pro forma data presented in the pro forma consolidated and combined
(condensed) financial statements are included in order to illustrate what the
retroactive effect on the Company's historical financial statements might have
been if the transaction explained in Note 1 to these pro forma financial
statements had occurred earlier as explained in Note 1.
These pro forma consolidated and combined (condensed) financial statements
should be read in conjunction with the Company's consolidated and combined
financial statements and notes thereto appearing elsewhere in this Form 10. The
pro forma information is not necessarily indicative of the results that would
have been reported had the corporations involved been operated independently
during 1997 nor is it indicative of the Company's future results.
F-93
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
AND LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
PRO FORMA CONSOLIDATED AND COMBINED (CONDENSED) FINANCIAL STATEMENTS
--------------------------------------------------------------------
SEPTEMBER 30, 1997
------------------
(UNAUDITED)
-----------
ASSETS
------
<TABLE>
<CAPTION>
Historical
------------------------------------------------------------------------------
Pro Forma
Consolidated
Consolidated and Combined
Consolidated and Combined Balance Sheet
and Combined Consolidation Balance Sheet of of LSI and LCC
Balance Sheet Eliminating Balance Sheet LSI and LCC Pro Forma Exclusive
of LSI and LCC Entries of SWMI Exclusive of SWMI Adjustments of SWMI
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Accounts receivable - trade $4,583,834 $ $4,443,787 $ 140,047 $ $ 140,047
Accounts receivable - other 233,658 71,921 161,737 161,737
Accounts receivable - intercompany -0- 643,324 643,324 -0- -0-
Inventory 1,706,735 1,242,007 464,728 464,728
Other current assets 565,544 451,919 113,625 113,625
---------- --------- ---------- ---------- -------- ----------
Total current assets 7,089,771 643,324 6,852,958 880,137 880,137
Furniture and equipment (net) 574,188 108,209 465,979 465,979
Investment in SWMI 29,000 (29,000)
Other assets 121,410 29,000 118,000 3,410 3,410
---------- -------- ---------- ---------- -------- ----------
Total assets $7,785,369 $672,324 $7,079,167 $1,378,526 $(29,000) $1,349,526
========== ======== ========== ========== ======== ==========
See accompanying notes and accountants' report.
</TABLE>
F-94
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
AND LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
PRO FORMA CONSOLIDATED AND COMBINED (CONDENSED) FINANCIAL STATEMENTS
--------------------------------------------------------------------
SEPTEMBER 30, 1997
------------------
(UNAUDITED)
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
Historical
-------------------------------------------------------------------
Pro Forma
Consolidated
Consolidated and Combined
Consolidated and Combined Balance Sheet
and Combined Consolidation Balance Sheet of of LSI and LCC
Balance Sheet Eliminating Balance Sheet LSI and LCC Pro Forma Exclusive
of LSI and LCC Entries of SWMI Exclusive of SWMI Adjustments of SWMI
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Accounts payable - trade $ 479,631 $ $ 126,154 $ 353,477 $ $ 353,477
Accounts payable - intercompany -0- 643,324 -0- 643,324 643,324
Accrued expenses 773,454 385,636 387,818 387,818
----------- -------- ----------- ----------- ----------- ----------
Total current liabilities 1,253,085 643,434 511,790 1,384,619 1,384,619
Debentures payable -0- -0- -0- -0- -0-
----------- -------- ----------- ----------- ----------- ----------
Total liabilities 1,253,085 643,434 511,790 1,384,619 1,384,619
----------- -------- ----------- ----------- ----------- ----------
Common stock 108,883 1,000 1,000 108,883 (25,555) 83,328
Additional paid-in capital 10,948,899 28,000 6,049,978 4,926,921 (3,445) 4,923,476
Retained earnings (deficit) (3,289,993) 1,616,588 (4,906,581) (4,906,581)
Stockholder/management loans (1,235,505) (1,100,189) (135,316) (135,316)
----------- -------- ----------- ----------- ----------- ----------
Total stockholders' equity
(deficit) 6,532,284 29,000 6,567,377 (6,093) (29,000) (35,093)
----------- -------- ----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity
(deficit) $ 7,785,369 $672,324 $ 7,079,167 $ 1,378,526 $ (29,000) $ 1,349,526
=========== ======== =========== =========== =========== ===========
See accompanying notes and accountants' report.
</TABLE>
F-95
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
AND LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
PRO FORMA CONSOLIDATED AND COMBINED (CONDENSED) FINANCIAL STATEMENTS
--------------------------------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
--------------------------------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Historical
-------------------------------------------------------------
Pro Forma
Consolidated Consolidated
Consolidated and Combined and Combined
and Combined Statement of Statement of
Statement of Consolidation Statement of Income of Income of
Income Eliminating Income of LSI and LCC Pro Forma LSI and LCC
of LSI and LCC Entries SWMI Exclusive of SWMI Adjustments Exclusive of SWMI
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 48,101,204 $ 1,580,177 $ 45,198,947 $ 4,482,434 $ $ 4,482,434
Cost of goods sold (43,597,504) (1,580,177) (41,025,307) (4,152,374) (4,152,374)
Expense (5,335,974) (3,027,255) (2,308,719) (2,308,719)
Other income (expense) (36,876) 13,014 (49,890) (49,890)
------------ ----------- ------------ ----------- ----------- -----------
Net (loss) income before income
taxes (869,150) -0- 1,159,399 (2,028,549) (2,028,549)
Provision for income tax -0- -0- -0- -0- -0-
------------ ----------- ------------ ----------- ----------- -----------
Net (loss) income $ (869,150) $ -0- $ 1,159,399 (2,028,549) (2,028,549)
============ =========== ============
Loss allocated to LCC -0- -0-
----------- -----------
Loss allocated to LSI $(2,028,549) $ $(2,028,549)
=========== =========== ===========
Primary loss per share:
LCC $ -0-
===========
LSI $ (.13)
===========
Fully diluted loss per share:
LCC $ -0-
===========
LSI $ (.13)
===========
See accompanying notes and accountants' report.
</TABLE>
F-96
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
AND LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Pro Forma Financial Statements
---------------------------------------
September 30, 1997
------------------
Note 1 - Background
----------
During November, 1996, Lanstar Semiconductor Inc. (LSI) acquired all
of the outstanding stock of Southwest Memory International, Inc.
(SWMI) from World Data Limited, in exchange for 29,000,000 common
shares of LSI, of which 3,000,000 shares were allocated as a finder's
fee relative to the transaction. In the consolidated and combined
financial statements of LSI and Subsidiaries and Lanstar Computer
Corporation (LCC) and Subsidiary, this acquisition was accounted for
as a pooling of interests. As such, the activity of SWMI was
presented as a part of the consolidated activity of LSI. All
intercompany profits and transactions were eliminated in combination
and consolidation. Those eliminating entries have been reflected in
the columns styled "Consolidation Eliminating Entries."
On October 1, 1997, LSI entered into a stock purchase agreement with
World Data Limited to sell 100% of the outstanding stock of SWMI for
25,555,000 common shares of LSI. The closing of this sale occurred on
October 13, 1997.
The purpose of this pro forma financial statement is to give effect to
the sale of SWMI and to reflect the consolidated and combined
(condensed) balance sheet of LSI and Subsidiaries and LCC and
Subsidiary as of December 31, 1996, and the related consolidated and
combined (condensed) statement of income as though the sale of SWMI
had taken place during 1996.
For purposes of this pro forma financial statement, LSI and its
Subsidiaries and LCC and its Subsidiary will be referred to as "the
Company".
Note 2 - Management's Assumptions
------------------------
During 1997, the Company and SWMI operated independently of one
another. Each had its own management team, location, and capital
structure.
To reflect the acquisition of the outstanding stock of SWMI, the
Company reflected an investment in SWMI at the par value of the common
stock issued upon the acquisition ($29,000).
F-97
<PAGE>
LANSTAR SEMICONDUCTOR INC. AND SUBSIDIARIES
-------------------------------------------
AND LANSTAR COMPUTER CORPORATION AND SUBSIDIARY
-----------------------------------------------
Notes to Pro Forma Financial Statements
---------------------------------------
September 30, 1997
------------------
Note 2 - Management's Assumptions, continued
------------------------
For the purpose of the pro forma adjustments to the balance sheet, the
investment and equity of the Company were reduced by $29,000. The par
value of the 3,445,000 common shares issued in excess of the shares
reacquired by the Company has been reflected as a reduction of
additional paid-in capital.
No pro forma adjustments were made to the Company's statement of
income, as management of the Company feels the acquisition of SWMI had
no material effect on its operations during 1997.
For purposes of the computation of LSI's loss per share, management
assumed that the 25,555,000 shares to be returned by World Data
Limited, under the October 1, 1997, stock purchase agreement, were not
outstanding during 1997. Thus, weighted average shares outstanding of
16,154,304 was used in computing the loss per common share of LSI
stock.
For purposes of computing LCC's loss per share, the weighted average
shares outstanding of 5,183,333 was used.
Under the terms of the October 1, 1997, agreement to sell SWMI, SWMI
agreed to allow LSI to retain distributions of at least $1,000,000.
As of September 30, 1997, there was an intercompany loan of
approximately $643,324. For purposes of this pro forma financial
statement, the distribution will not be reflected until after
September 30, 1997.
Under the terms of the October 1, 1997, agreement to sell SWMI, the
Company agreed to sell to SWMI a warrant to purchase 18,000,000 shares
of LSI common stock within three years of October 13, 1997, at an
excercise price of $1.50 per share. This warrant had an agreed value
of $500,000. At the closing of the sale of this warrant, SWMI agreed
to execute a promissory note payable to the Company in the amount of
$500,000. The note will be due in twelve months from the date of
execution. For purposes of the pro forma financial statements, this
transaction is not to be reflected until October, 1997.
F-98
<PAGE>
Exhibit 2.1
Revised 11/22/95
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement And Plan Of Reorganization is entered into effective this
_____ day of November 1995, by and between Kazmir Kliffs, Inc. a Utah
corporation (hereinafter referred to as the "Acquiror"), and Lanstar
Semiconductor Corporation, a Texas corporation, (hereinafter referred to as the
"Acquiree")
RECITALS
Acquiree Stockholders own all of the issued and outstanding capital stock
of the Acquiree. The Acquiror desires to acquire not less than 81% of the issued
and outstanding stock of the Acquiree making the Acquiree a majority owned
subsidiary of the Acquiror and the majority of the Acquiree's stockholders
desire to make an exchange of their voting shares of Acquiree solely for voting
shares of the Acquiror's Common Stock to be exchanged as set out herein with
said Acquiree stockholders.
On October 17, 1995 the Acquiree held a Special Stockholder's Meeting for
the purpose of having the Acquiree's stockholders review the terms of this
Agreement and to approve the exchange of the Acquiree's stockholder's shares
with shares issued by the Acquiror on the basis of exchanging one of the
Acquiree's shares for one share of the Acquiror's shares as set forth herein.
The Acquiree's stockholders attending the Special Stockholders Meeting in
person or through proxies represented 90.5% of the Acquiree's issued and
outstanding shares. The terms of this Agreement was voted upon and unanimously
approved by a vote of 5,232,538 to -0-. The resolution approving the terms of
this Agreement and directing the Acquiree's Board of Directors to enter into
this Agreement is attached hereto and made a part hereof.
NOW THEREFORE, for the mutual consideration set out herein, the parties
agree as follows:
1
<PAGE>
AGREEMENT
1. Plan of Reorganization. Acquiree stockholders are the stockholders
----------------------
signing this Agreement and are the owners of 96.5% of the issued and outstanding
Common Stock of Acquiree. It is the intention of the parties hereto that not
less than 81% of the issued and outstanding shares of common voting stock of the
Acquiree ("Acquiree Shares") shall be acquired by the Acquiror in exchange sole
for the Acquiror's Common voting stock of those of the Acquiree Stockholders
that have agreed to the terms of this Agreement. It is the intention of the
parties hereto that this entire transaction qualify under U.S. tax laws as a
tax-free exchange under Section 368 or Section 351 of the Internal Revenue Code
of 1986, as amended, and related sections thereunder.
2. Exchange of Shares. The Acquiror and Acquiree Stockholders and the
------------------
Debenture Holders of Debentures that are convertible into the Acquiree's Common
Stock have agreed to the terms of this Agreement and agree that their issued and
outstanding shares of the Acquiree's Common Stock shall be exchanged at Closing
(or subsequent to the Closing as defined hereunder) with up to a maximum of
8,500,000 shares of the Acquiror's voting common stock (or such lesser number of
shares of common voting shares as agreed upon), it being the intent of this
exchange that the Acquiree's stockholders shall exchange their shares of common
voting stock for not less than eighty one percent (81%) of the total issued and
outstanding of the Acquiror's shares of all classes as calculated on a fully
diluted basis, subsequent to the Closing date.
(a) The Acquiror shares will be delivered on the Closing Date (or
subsequent to the Closing Date where required), as hereinafter defined, to
Acquiree stockholders or Holders of Debentures convertible into shares of
the Acquiree, in exchange for their Acquiree shares. With the exception of
the Acquiree's stockholders described and stipulated in Paragraph 3
hereinbelow, the Acquiree stockholders agree that they will hold such
Acquiror shares for investment purposes and not for further public
distribution and agree that the Acquiror shares shall be appropriately
restricted.
(b) Following a recent 1 for 2 reverse split approved by the Acquiror's
stockholders, the Acquiror currently has 1,500,000 shares of common stock
(representing all classes of stock issued) on a fully diluted basis
outstanding and issued.
2
<PAGE>
(c) The Acquiror shall issue up to a maximum of 8,500,000 shares of its
common voting shares in exchange for the Acquiree's common voting shares or
to Debenture Holders of the Acquiree who have elected to convert their
Debentures into shares of the Acquiree at the Closing, (or subsequent to
the Closing Date as required) representing the consideration Acquiror is
giving for the outstanding Acquiree shares. It is contemplated that the
Acquiror will issue Acquiror shares to Acquiree stockholders on a pro rata
basis for Acquiree shares acquired. Thus Acquiror will issue up to
8,500,000 Acquiror shares to Acquiree stockholders and Debenture Holders in
the event all outstanding shares of common stock of the Acquiree and all
shares issued to convert outstanding Debentures into shares of the Acquiree
are acquired from Acquiree stockholders.
(i) Up to a maximum of 6,115,500 Acquiror shares shall be restricted
in accordance with Rule 144 of the Securities Act and shall be so
noted on the face of the certificate. (Exhibit "A")
(ii) Up to a maximum of 1,996,517 Acquiror shares Exhibit "B" and "C")
shall be restricted in accordance with Paragraph 3 hereinbelow.
(d) It is the intent to make this offer to all Acquiree Stockholders and
Debenture Holders, holding Debentures that are convertible into Acquiree
shares. To the extent that any of said Acquiree stockholders and/or
Debenture Holders elect not to accept said offer, the number of Acquiror
shares to be issued will be reduced on a pro rata basis. However, this
transaction shall closed only in the event Acquiror is able to acquire at
least 81% of the outstanding Acquiree shares.
3. Shares Held For Investment. Prior to the exchange of shares as
--------------------------
contemplated by this Agreement, the Acquiree had in the aggregate and on a fully
diluted basis, inclusive of all shares that may be converted into Acquiree
shares under the terms of a series of convertible debentures issued by Acquiree
or Acquiree's founding corporation, approximately 8,500,000 issued and
outstanding common voting stock shares, including the shares underlying the
---
debentures convertible into shares, (collectively
3
<PAGE>
referred to as the "Acquiree's Securities") specimen of the debenture is
attached hereto and made a part hereof.
(a) Subsequent to the exchange of shares, up to 1,996,517 of the
Acquiree's Securities may be issued under the terms of a series of
debentures which are convertible into Acquiree shares relying on an
exemption from registration with the Securities And Exchange Commission
afforded by Rule 504 of Regulation D of Section 4(2) of the Securities And
Exchange Act of 1933. (See Exhibits "A", "B" and "C")
(b) These shares will be issued in compliance with all relevant federal
and state rules and regulations and are believed to be freely tradeable. Of
the total of 1,996,517 shares that may be issued, the Acquiree has entered
into a "market hold-off" agreement with such stockholders and debenture
holders representing a total of 946,517 shares issued or to be issued upon
the conversion of debentures preventing these shares form being offered for
sale for a period of 180 days subsequent to the Closing date and such
shares will be appropriately restricted by a legend on the face of the
certificates.
4. Delivery Of Shares. On the Closing Date or continuation thereof (as
------------------
hereinafter defined), the Acquiree stockholders and Acquiree Debenture Holders
(as the case may be) will deliver certificates representing their Acquiree
shares or the certificates underlying those debentures being offered for
conversion to shares of the Acquiree (as the case may be) to the Acquiror duly
endorsed so as to make the Acquiror the sole owner thereof, free and clear of
all claims and encumbrances; and on such Closing Date or continuation thereof,
the Acquiror will deliver to the Acquiror shares to the Acquiree stockholders
which will be appropriately restricted as to transfer (as stipulated in
Paragraphs 2c and 3 hereinabove).
- -------------------
5. Representation of Acquiree Stockholders and Debenture Holders.
-------------------------------------------------------------
Acquiree Stockholders and Debenture Holders hereby represent and warrant each
only as to its own Acquiree Shares, effective this date and the Closing Date as
follows:
(a) Except as may be set forth in any exhibit hereto, the Acquiree Shares
are free from claims, liens, or other encumbrances and at the Closing Date,
Acquiree Stockholders and Debenture Holders will have good title and the
unqualified right of transfer and dispose of such Acquiree Shares,
(inclusive of the shares underlying the outstanding convertible Debentures)
4
<PAGE>
(b) Each Acquiree Stockholder is the sole owner of the issued and
outstanding shares of common stock of Acquiree as set forth on the signature
page hereof.
6. Representations of Acquiree. Acquiree hereby represents and warrants
---------------------------
that, with respect to the Acquiree Shares and as to the Acquiree, effective this
date and the Closing Date, the representations listed below are true and
correct:
(a) The Acquiree Shares, inclusive of the Acquiree's shares underlying the
Debentures, constitute validly authorized and issued shares of Acquiree fully-
paid price and nonassessable.
(b) Audited Acquiree financial statements prepared in accordance with
generally accepted accounting principles in the United States (U.S. GAAP) , for
the period ended August 31, 1995 ("Acquiree Financial Statements") are attached
hereto as Schedule "D". Said Acquiree Financial Statements are complete,
accurate and fairly represent the financial condition of Acquiree as of the date
thereof and the results of its operations for the periods covered.
Presently there are no, and at Closing there shall be no, material
liabilities, either fixed or contingent, not reflected in the Acquiree Financial
Statements other than contracts or obligations in the ordinary and usual course
of business; and no such contracts or obligations in the usual course of
business constitute liens or other liabilities which, if disclosed, would
materially alter the financial condition of Acquiree as reflected in such
financial statements unless described in any exhibit hereto.
(c) Acquiree is not involved in any material pending litigation or
governmental investigation or proceeding not reflected in such Acquiree
Financial Statement, or otherwise disclosed in writing to Acquiror and, to the
best knowledge of Acquiree Stockholders, no litigation, claims, assessments, or
governmental investigation or proceedings are threatened against Acquiree.
(d) As of the Closing Date, Acquiree will be in good standing in its
jurisdiction of incorporation, and will be in good standing and duly qualified
to do business in each jurisdiction where required to be so qualified except
where the failure to so qualify would not have a material adverse effect on the
business of Acquiree.
(e) Acquiree has filed all governmental, tax or related returns and
reports due or required to be filed and has paid or
5
<PAGE>
accrued all taxes or assessments which have become due as of the Closing Date.
(f) Except as disclosed on any Exhibit, Acquiree has not to its knowledge
materially breached any agreement to which it is a party.
(g) Acquiree has no subsidiary corporations.
(h) The corporate financial records, contracts, minute books, and other
corporate documents and records of Acquiree are to be reasonably available to
present management of Acquiror prior to the Closing Date.
(i) The execution of this agreement will not, to the knowledge of
Acquiree, materially violate or breach any agreement, contract, or commitment to
which Acquiree or Acquiree Stockholders are a party and has been duly authorized
by all appropriate and necessary action.
(j) The authorized capitalization of Acquiree is as set forth in the
Acquiree Financial Statements. Acquiree has only the capital stock authorized as
set forth in said Acquiree Financial Statements and all outstanding shares have
been duly authorized, validly issued and are fully paid and nonassessable with
no personal liability attaching to the ownership thereof. Other than the
outstanding options and debentures listed in the notes to the Acquiree Financial
Statements, there are no outstanding convertible securities, warrants or options
which may cause authorized but unissued shares to be issued to any person.
7. Representations of Acquiror. Acquiror hereby represents and warrants
---------------------------
as follows:
(a). As of the Closing Date, the Acquiror Shares to be delivered to the
Acquiree Stockholders will be duly authorized and will constitute valid and
legally issued shares of capital stock of the Acquiror, full paid and
nonassessable, and the Acquiror Shares of Common Stock will be legally
equivalent in all respects to Common Stock of the Acquiror's issued and
outstanding shares Common Stock as of the date hereof subject to resale
restrictions under Rule 144 and pursuant to 3(b) above.
6
<PAGE>
(b). The officers and directors of the Acquiror are duly authorized to
execute this Agreement and have taken all action required by law, applicable
agreements and governing corporate instruments to properly and legally execute
this Agreement. The execution hereof and performance hereunder will not violate
the provisions of the Acquiror's Articles of Incorporation or ByLaws and will
not constitute a breach of any agreement to which the Acquiror is a party.
(c). The Acquiror has delivered audited year-end financial statements for
its prior three (3) years ending December 31, 1994, 1993 and 1992 respectively
("Acquiror's Financial Statements"), and at Closing shall deliver all of its
financial records to persons appointed as the new management of the Acquiror.
The Acquiror's Financial Statements are presently, and at Closing shall be,
true, correct, complete and accurate; there are not presently, and at the
Closing there shall be no material liabilities, either fixed or contingent, not
reflected in Acquiror's Financial Statements. Acquiror's Financial Statements
fairly and accurately reflect the financial condition of the Acquiror as of the
dates thereof and the results of operations for the periods reflected therein.
The Acquiror's Financial Statements have been prepared in accordance with the
general accepted accounting principles in the United States, consistently
applied, except as otherwise stated therein.
(d). Since the date of the Acquiror's Financial Statements there shall not
have been, and as of the Closing Date there shall not be, any material adverse
changes in the financial position of the Acquiror. The Acquiror shall have no
liabilities or debts, fixed or contingent, as of the Closing Date, and shall
have paid or made provisions to pay all of the costs of the closing of this
transaction.
(e). The Acquiror is not involved in any pending litigation, claims, or
governmental investigation or proceeding not reflected in the Acquiror's
Financial Statements or otherwise disclosed in writing to the Acquiree and the
Acquiree Stockholders and there are no lawsuits, claims, assessments,
investigations, or similar matters, to the best knowledge of the Acquiror's
management, threatened or contemplated against the Acquiror.
(f). As of the Closing Date, and the date hereof, the Acquiror is duly
organized, validly existing and in good standing under the
7
<PAGE>
laws of the state of Utah; it has the corporate power to own its assets and to
carry on its business as now being conducted and is duly qualified to do
business in any jurisdiction where so required except where the failure to
qualify would not have a material adverse effect on the Acquiror.
(g). The Acquiror has filed all federal, state, county and local income,
excise, property and other tax returns, forms or reports, which are due or
required to be filed by it prior to the date hereof and has paid or made
adequate provision for the payment of all taxes, fees, or assessments which
have, or may become, due pursuant to such returns or pursuant to any assessments
received.
(h). The Acquiror has not breached, nor is there any pending or threatened
claims that the Acquiror has breached, any of the terms or conditions of any
agreements, contracts or commitments to which it is a party or to which it is
bound and the execution and the performance of this Agreement will not violate
any provision of applicable law of any agreement to which the Acquiror is
subject. All material contracts, commitments and agreements to which the
Acquiror is a party, including all dealings or relationships with related
parties or affiliates are listed on Exhibit "A" attached hereto.
(i) As of the Closing Date, after giving affect to the 1 for 2 reverse
stock split, but prior to the issuance of up to 8,500,000 post split shares as
provided for hereunder and as described herein, the outstanding capitalization
of the Acquiror will be 1,500,000 shares of Common Stock, $.001 par value per
share.
All outstanding shares of the Acquiror have been duly authorized, validly
issued and fully paid. There are no outstanding or presently authorized
securities, warrants, options, pre-preemptive rights, rights of first refusal,
registration rights, or related commitments on behalf of the Acquiror, of any
nature not reflected in the Acquiror's Financial Statements.
(j) The Acquiror has no subsidiary corporations.
(k) The shares of restricted Common Stock of the Acquiror to be issued to
the Acquiree Stock Holders at the time of the Closing will be duly authorized,
validly issued, nonassessable and fully paid under applicable corporate law and
will be issued in a non-
8
<PAGE>
public offering and isolated transaction in compliance with all federal and
state securities laws.
(l) As of the date of this Agreement, the Acquiror has, and at the Closing
Date it will have, disclosed to the Acquiree and Acquiree's Stockholders all
events, conditions and facts materially affecting the Acquiror's business,
finances and legal status.
(m) The Acquiror's Minute Books, financial records and other documents are
available to the Acquiree prior to the Closing Date and turned over in their
entirety to the newly appointed management at the Closing.
(n) This Agreement is enforceable in accordance with its terms.
8. Closing Date. The Closing Date ("Closing Date" or "Closing") herein
------------
referred to, is expected to be held on or before November 27th, 1995, or as soon
as practicable thereafter and may continue with subsequent Closings for a period
of two weeks. At the Closing, or continuation thereof, the Acquiree Stockholders
will be deemed to have accepted delivery of the certificates of the Acquiror's
Common Stock issued in their respective names, and in connection therewith, will
make delivery of their Acquiree Stock Certificates to the Acquiror. Certain
opinions, exhibits, etc. may be delivered subsequent to the Closing Date upon
mutual agreement of the parties hereto.
9. Conditions Precedent to the Obligations of the Acquiree and Acquiree
--------------------------------------------------------------------
Stockholders. All obligations of the Acquiree and Acquiree Stockholders under
- ------------
this Agreement are subject to fulfillment, prior to or as of the Closing Date of
each of the following conditions:
(a) The representations and warranties by or behalf of the Acquiror
contained in this Agreement or in any certificate or document delivered to the
Acquiree and Acquiree Stockholders pursuant to the provisions hereof shall be
true, correct, complete and accurate in all material respects at and as of the
time of the Closing as though such representations and warranties were made at
and as of such time.
9
<PAGE>
(b) The Acquiror shall have preformed and complied with all covenants,
agreements and conditions required by this Agreement to be performed or complied
with by it prior or at the Closing on the Closing Date.
(c) The present Directors of Acquiror shall cause the appointment of all
of the Acquiree Stockholders' nominees to the Board of Directors of the Acquiror
as directed by Acquiree Stockholders. (Kurtis D. Hughes and Shirrell Hughes sole
Officers and Directors shall resign as the existing Officer and Director of the
Acquiror.)
(d) The Shareholders of Acquiror shall have approved, by majority vote in
accordance with Utah law, in a lawfully convened Stockholders' meeting, the
following matters:
1. A 1 for 2 reverse stock split.
2. The issuance of up to 8,500,000 Acquiror shares of Common Stock
to Acquiree Stockholders.
3. Election of new Directors Maxie Smith and Dennis Poole by the
Acquiree Stockholders.
4. Change of the Acquiror corporate name to Lanstar Semiconductor
Inc., or a derivative thereof as determined by the Acquiree.
5. Amendment to the Acquiror's Articles of Incorporation to adopt
provisions wherein Officers and Directors of the Corporation shall not be libel
to shareholders except in specific enumerated instances as allowed by Utah law.
(e) All instruments and documents delivered to the Acquiree's Stockholders
pursuant to the provisions hereof shall be reasonably satisfactory to legal
counsel for the Acquiree Stockholders
(f) Evidence of complete release of liability of the Acquiror (if
required) from all debts and liabilities which are reflected on the Acquiror's
Financial Statements.
10. Conditions Precedent to the Obligations of the Acquiror. All
-------------------------------------------------------
obligations of the Acquiree under this Agreement are subject to
10
<PAGE>
fulfillment, prior to or as of the Closing Date of each of the following
conditions:
(a) The representations and warranties by or behalf of the Acquiree
contained in this Agreement or in any certificate or document delivered to the
Acquiror pursuant to the provisions hereof shall be true, correct, complete and
accurate in all material respects at and as of the time of the Closing as though
such representations and warranties were made at and as of such time.
(b) The Acquiree shall have preformed and complied with all covenants,
agreements and conditions required by this Agreement to be performed or complied
with by it prior or at the Closing on the Closing Date.
(c) Acquiree Stockholders shall have delivered to the Acquiror
certificates representing the participating Acquiree Shares and a letter from
each of the Acquiree's participating Stockholders commonly known as an
"Investment Letter" acknowledging that the Acquiror shares are being acquired
for investment purposes. The form of the Investment Letter is attached hereto as
Exhibit "B".
11. Indemnification. Within the period provided for in paragraph 12 herein
---------------
and in accordance with the terms of that paragraph, the Acquiree and the
Acquiror shall indemnify and hold each other harmless (the Acquiror shall
indemnify the Acquiree as well as the Acquiree Stockholders) at all times after
the date of the Agreement from and against and in respect of any liability,
damage or deficiency, all actions, suits, proceedings, demands, assessments,
judgements, costs and expenses including attorney's fees incident to any of the
foregoing, resulting from any misrepresentations, breach of covenant or warranty
or nonfulfillment of any agreement on the part of such party under this
Agreement or from any misrepresentation in, or omission from, any certificate
furnished or to be furnished to a party hereunder.
In the event of breach hereof by the Acquiror resulting in damages to the
Acquiree or Acquiree's Stockholders in excess of $5,000, the Acquiror shall
issue additional Acquiror shares to Acquiree Stockholders so as to equal the
total damages based on the then fair market value of said Acquiror Shares.
11
<PAGE>
12. Nature and Survival of Representations. All representations,
--------------------------------------
warranties and covenants made by any party in this Agreement shall survive the
closing hereunder and the consummation of the transactions contemplated hereby
for two years from the date of the closing. All of the parties hereto are
executing and carrying out the provisions of this Agreement in reliance solely
on the representations, warranties and covenants and agreements contained in
this Agreement or at the closing of the transactions herein provided for and not
upon any investigation upon which it might have made, or any representations,
warranties, agreements, promises or information, written or oral made by the
other party or any other person other than as specifically set forth herein.
13. Documents at Closing. At the Closing, the following transactions shall
--------------------
occur, all of such transactions being deemed to occur simultaneously:
(a) The holders of Debentures that are convertible into Common Shares of
the Acquiree requesting the conversion of the Debentures into Acquiree shares
and exchanging them under the terms of this Agreement with the Acquiree will
deliver or cause to be delivered to the Acquiror the following:
(1) Debenture Certificates in an amount convertible into one (1)
share for each dollar of face value of the Debenture Certificate.
(b) Acquiree Stockholders will deliver or cause to be delivered to
Acquiror the following:
(1) Stock certificates representing the Acquiree shares being
exchanged hereunder, duly endorsed in blank.
(2) A Certificate executed by the President and the Secretary of the
Acquiree to the affect that all representations and warranties made by the
Acquiree and the Acquiree Stockholders under this Agreement are true and correct
as of the Closing, the same as though originally given to the Acquiror on that
date:
(3) A Certificate from the Acquiree's jurisdiction of Incorporation
dated at or about the date of the Closing to the affect that the Acquiree is in
good standing under the Laws of said jurisdiction.
12
<PAGE>
(4) Duly executed Investment Letters from the Acquiree Stockholders
holding Restricted Shares under Rule 144 of the Securities Act.
(5) Four copies of the duly executed Plan and Articles of Share
Exchange.
(6) Such other instruments, documents and certificates, if any, as
are reasonably required to be delivered pursuant to the provisions of this
Agreement.
Acquiror will deliver or cause to be delivered at the Closing or at
subsequent Closing for the shareholders of the Acquiree and the Debenture
holders the following:
(1) Stock Certificates approximately 8,500,000 post-split Acquiror
Shares of Common Stock issued in full consideration of the exchange of shares
with the Acquiree Shareholders or Acquiree Debenture Holders as described
herein.
(2) A Certificate of the President of Acquiror to the affect that all
representations and warranties of the Acquiror made under this Agreement are
true, correct and reaffirmed on the Closing Date, the same as though originally
given to the Acquiree and the Acquiree Stock Holders on that date.
(3) Certified copies of resolutions by the Acquiror's Board of
Directors, including the resignation of the current Acquiror's Officers and
Directors and resolutions of Stockholders authorizing this transaction;
(4) A Certificate of the Secretary of the State of Utah dated at or
about the date of the Closing that the Acquiror is in good standing under the
laws of said state.
(5) Copies of all executed Articles of Amendment to the Acquiror's
Articles of Incorporation providing for any Amendments described and/or
described herein, with certified copies provided as soon as the same are
returned from the Secretary of State's office.
(6) All of the records of the Acquiror.
13
<PAGE>
(7) All documents evidencing release of debts (if any).
(8) Such other instruments and documents as are required to be
delivered pursuant to the provisions of this Agreement including the turning
over of control of corporate assets of the Acquiror (if any).
14. Miscellaneous.
-------------
(a) Further assurances. At any time, and from time to time of the
------------------
date of this Agreement, each Party will execute such additional instruments and
take such action as may be reasonably requested by the other Party to confirm or
perfect or otherwise carry out the intent and purposes of this Agreement.
(b) Waiver. Any failure on the part of any Party hereto to comply
------
with any of its obligations, agreements or conditions hereunder may be waived in
writing by the Party to whom such compliance is owed.
(c) Brokers. Other than the services provided by IIBC, Incorporated,
-------
acting in their role as Financial Advisers to the Acquiree under the terms of an
Agreement between IIBC, Incorporated and the Acquiree, neither party has
employed any brokers or finders with regard to this Agreement.
(d) Notices. All notices and other communications hereunder shall be
-------
in writing and shall be deemed to have been given if delivered in person or sent
by pre-paid first class registered or express mail or certified mail, return
receipt requested.
(e) Headings. The section and sub-section headings in this Agreement
--------
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement or any paragraph thereof.
(f) Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
14
<PAGE>
(h) Entire Agreement. This Agreement constitutes the entire Agreement
----------------
of the parties covering everything agreed upon or understood in the transaction.
There are no oral promises, conditions, representations, understandings,
interpretations or terms of any kind as conditions or inducements to the
execution hereof.
(i) Time. Time is of the essence.
----
(j) Severability. If any part of this Agreement is deemed, to be
------------
unenforceable, the balance of the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Agreement the day,
month and year first written above.
LANSTAR SEMICONDUCTOR CORPORATION
By:
------------------------------
Secretary
By:
------------------------------
President
Kazmir Kliffs, Inc.
By: /s/ Griffin Hughes
------------------------------
Griffin Hughes Secretary
By: /s/ [SIGNATURE APPEARS HERE]
------------------------------
President
By: /s/ 3,900,000 (shares)
------------------------------
Jenalong Holdings
By: /s/ Maxie Smith 500,000 (shares)
------------------------------
Maxie Smith
By: /s/ Steve Porter 100,000 (shares)
------------------------------
Steve Porter
By: /s/ Henry A. Schwartz 68,513 (shares)
------------------------------
Henry A. Schwartz
By: /s/ Harry Schwartz 68,512 (shares)
------------------------------
Harry Schwartz
By: /s/ Marty Clare 58,513 (shares)
------------------------------
Marty Clare
By: /s/ Barry Clare 68,512 (shares)
------------------------------
Barry Clare
15
<PAGE>
(h) Entire Agreement. This Agreement constitutes the entire Agreement
of the parties covering everything agreed upon or understood in the transaction.
There are no oral promises, conditions, representations, understandings,
interpretations or terms of any kind as conditions or inducements to the
execution hereof.
(i) Time. Time is of the essence.
----
(j) Severability. If any part of this Agreement is deemed, to be
------------
unenforceable, the balance of the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Agreement the day, month
and year first written above.
LANSTAR SEMICONDUCTOR CORPORATION
By: /s/ Steve Porter
------------------------------
Steve Porter Secretary
By: /s/ Maxie R. Smith
------------------------------
Maxie R. Smith President
Kazmir Kliffs, Inc.
By:
------------------------------
Secretary
By:
------------------------------
President
By: /s/ Jenalong Holdings 3,900,000 (shares)
------------------------------
Jenalong Holdings
By: /s/ Maxie Smith 500,000 (shares)
------------------------------
Maxie Smith
By: /s/ Steve Porter 100,000 (shares)
------------------------------
Steve Porter
By: /s/ Henry A. Schwartz 68,513 (shares)
------------------------------
Henry A. Schwartz
By: /s/ Harry Schwartz 68,512 (shares)
------------------------------
Harry Schwartz
By: /s/ Marty Clare 58,513 (shares)
------------------------------
Marty Clare
By: /s/ Barry Clare 68,512 (shares)
------------------------------
Barry Clare
<PAGE>
Exhibit 2.2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into as of
this 4th day of November, 1996, by and among LANSTAR SEMICONDUCTOR, INC., a Utah
corporation, ("Purchaser"), having its principal place of business at 2501
Avenue J, Suite 125, Arlington, Texas 76006, WORLD DATA, LIMITED, a Cayman IS
corporation, (sometimes called the "Shareholder," "Seller" or "Seller Corp."),
and SOUTHWEST MEMORY INTERNATIONAL, INC., a Texas corporation having its
principal place of business at Camillton,CT (the "Corporation to be Sold").
WHEREAS, the Corporation to be Sold, which is wholly owned by Shareholder,
is engaged in the business of the sale of computer equipment and parts; and
WHEREAS, the Seller Corp. desires to sell and the Purchaser desires to buy
all of the issued and outstanding shares of the Corporation to be Sold
including all of its assets, rights and opportunities (collectively
sometimes called the "Business").
NOW, THEREFORE, in consideration of the mutual benefits to be derived and
the representations and warranties, conditions and promises herein contained,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
ARTICLE I
GENERAL
-------
1.01 Definitions. Unless otherwise stated in this Agreement, the following
------------
terms shall have the following meanings (the following definitions to be
equally applicable to both the singular and plural forms of any of the
terms herein defined):
"Accounts": As defined in Section 1.02(b)(12).
"Affiliate": Any Person that, directly or indirectly, controls, or is
controlled by or under common control with, another Person. For the
purposes of this definition "control" (including the terms "controlled by"
and "under common control with"), as used with respect to any Person,
means the power to direct or cause the direction of the management and
policies of such Person, directly or indirectly, whether through the
ownership voting securities or by contract or otherwise.
-1-
<PAGE>
"Agreement": As defined in the first paragraph hereof.
"Assets": As defined in Section 1.02(a).
"Audited Balance Sheer": As defined in Section 2.01(c)(3)(i).
"Audited Financial Statements": As defined in Section 2.01(c)(3)(i).
"Backlog Orders": As defined in Section 1.02(b)(l1).
"Balance Sheets": As defined in Section 2.01(c)(4)(ii).
"Business": As defined in the recitals of this
Agreement.
"Cash": As defined in Section 1.02(b)(13).
"Claim": As defined in Section 6.02(a).
"Closing": As defined in Section 5.01(a).
"Closing Date": As defined in Section 5.01(a).
"Code": The Internal Revenue Code of 1986, as amended.
"Confidentiality Agreement": As defined in Section 3.01(b).
"Corporation to be Sold": As defined in the opening paragraph of this Agreement.
"Customer Data": All of Corp's customer lists, sales records and other customer
data (including credit data) relating to the Business.
"Damages": As defined in Section 6.01(a).
"Disclosure Letter": The disclosure letter delivered by Seller Corp. and
Corporation to be Sold to Purchaser contemporaneously with the execution and
delivery of this Agreement, and a "Supplement" thereto means any supplemental
disclosure letter delivered pursuant to Section 3.12.
"Effective Time of Closing": As defined in Section 5.01(b).
-2-
<PAGE>
"Employees": As defined in Section 2.01(c)(1 1)(ii).
"Environmental Laws": As defined in Section 6.01(a)(3)
"Equipment": As defined in Section l.02(b)(4).
"ERISA": Employee Retirement Income Security Act of 1974, as amended.
"Financial Statements": As defined in Section 2.01(c).
"GAAP": As defined in Section 2.01(c).
"General Conveyance, Transfer and Assignment": As defined in Section 1.05.
"Governmental Body": Any court or any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign.
"Indemnitee": As defined in Section 6.02(a).
"Indemnitor": As defined in Section 6.02(a).
"Instruments": As defined in Section 2.01(c)(10).
"Intangible Assets": As defined in Section l.02(b)(7).
"Interim Balance Sheet": As defined in Section 2.01(c)(2).
"Interim Financial Statements": As defined in Section 2.01(c)(3).
"Inventories": As defined in Section l.02(b)(10).
"IRS": The Internal Revenue Service.
"Known" or "Knowledge": Whenever a statement regarding the existence or absence
of facts in this Agreement is qualified by a phrase such as "to such Person's
knowledge" or "known to such Person," it is intended by the parties that the
only information to be attributed to such Person is information actually known
to (a) the Person in the case of an individual, or (b) a current officer in the
case of a corporation or entity. Unless
-3-
<PAGE>
otherwise provided in this Agreement, no such Person is represented to have
undertaken a separate investigation in connection with the transactions
contemplated hereby to determine the existence or absence of facts in any
statement qualified by "known by" or "to the knowledge of" any Person.
"Lien": All mortgages, deeds of trust, liens, security interest, pledges,
conditional sale contracts, claims, rights of first refusal, options, charges,
agreements, liberties, easements, rights-of-way, limitations, reservations,
restrictions and other encumbrances of any kind.
"Material Adverse Effect": "Material Adverse Effect" means (a) any change,
development or effect (individually or in the aggregate) in the general affairs,
management, business, results of operations, conditions (financial or
otherwise), assets, liabilities or prospects (whether or not the result thereof
would be covered by insurance) that would be material and adverse to
Shareholder, or Corporation to be Sold, or (b) any fact or development that
would (individually or in the aggregate), impair Shareholder, or Corporation to
be Sold's ability or obligations to perform on a timely basis any material
obligations it has under this Agreement.
"Materials of Environmental Concern": As defined in Section 6.01(a)(3).
"Operative Documents": This Agreement and all other agreements, instruments,
documents, and certificates executed and delivered by or on behalf of
Shareholder, or Corporation to be Sold, or Purchaser pursuant to this Agreement.
"Order": Any order, writ, injunction, decree, judgment, award or determination
of any court or Governmental Body.
"Permits": All permits, authorizations, certificates, approvals, registrations,
variances, exemptions, rights-of-way, franchises, immunities, grants,
ordinances, licenses and other rights of every kind and character (a) under any
(1) federal, state, local or foreign statute, ordinance or regulation, (2)
Order, or (3) contract with any Governmental Body or (b) granted by any
Governmental Body.
"Permitted Encumbrances": (a) The Liens described or referred to in Appendix
--------
1.01-1 to Disclosure Letter which are approved by Purchaser, (b) Liens for
- ------
current Taxes and assessments not yet due and payable, including, but not
limited to, Liens for non-delinquent ad valorem Taxes, non-delinquent statutory
Liens arising other than by reason of any default on the part of Corporation to
be Sold, and (c) such liens, minor imperfections of title, or easements on real
property, leasehold estates, or personalty as
-4-
<PAGE>
do not in any material respect detract from the value thereof and do not
interfere with the present use of the property subject thereto.
"Person": An individual, partnership, joint venture, corporation, bank, trust,
unincorporated organization or a Governmental Body.
"Plan": As defined in Section 2.01(j).
"Products": All products manufactured, produced, marketed or distributed by
Corporation to be Sold.
"Purchase Price": As defined in Section 1.03(a).
"Purchaser": As defined in the opening paragraph of this Agreement.
"Purchaser Indemnitees": As defined in Section 6.01(a).
"Purchaser Representative": As defined in Section 3.01(b).
"Real Property": That certain leasehold located at ___________________________
___________________________, consisting of approximately ____ square feet
leased to Corporation to be Sold by ______________________ by lease
agreement referred to Appendix 1.01-2 to the Disclosure Letter.
---------------
"Records": As defined in Section l.02(b)(3).
"Release": Any spilling, leaking, pumping, pouring, emitting emptying,
discharging, injecting, escaping, leaching, dumping, or disposing into the
environment (including the abandonment or discarding of barrels, containers, and
other closed receptacles containing any hazardous substance or pollutant or
contaminant).
"Scheduled Contracts": As defined Section 1.02(b)(9).
"Seller Corp.": As defined in the opening paragraph of this Agreement.
"Seller Indemnitees": As defined in Section 6.01(b).
"Shareholder": As defined in the opening paragraph of this Agreement.
-5-
<PAGE>
"Shares": As referred to in this Agreement, means the _______ issued and
outstanding shares of the Corporation to be Sold which are being sold and
delivered by Seller to Purchaser.
"Supplier Data": All of Corporation to be Sold's supplier lists and other
supplier data relating to the purchase of raw materials, utilities and
other supplies used in connection with the Business.
"Tax Obligations": As defined in Section l.05(b)(3).
"Taxes": As defined in Section 2.0l(c)(8).
"Transaction": The sale and purchase of the Shares, the assignments and
the performance of covenants, in each case is contemplated by this
Agreement.
"Unaudited Balance Sheet": As defined in Section 2.0l(c)(3).
"U.S.": The United States of America.
1.02. Agreement to Purchase and Sell
------------------------------
(a) On and subject to the terms and conditions of this Agreement, Seller
agrees to sell, transfer and deliver to the Purchaser, free and
clear of all claims, the Shares of the Corporation to be Sold and
including the Corporation to be Sold's rights of ownership of all of
the assets, franchises and properties described in Section 1.02(b),
(all such assets, rights, franchises and properties being herein
collectively referred to as the "Assets" of the Corporation to be
Sold) the Shares and the Assets at the time of sale being free and
clear of all liens other than Permitted Encumbrances, if any. The
Shares shall be ______ shares of the Corporation to be Sold which
represent all of the issued and outstanding shares of the
Corporation to be Sold.
(b) The Assets shall consist of all assets of the Corporation to be Sold
as of the date of this Agreement and at the Effective Time of
Closing described in the following clauses (1) through (20) as
further described in the Disclosure Letter which shall be accurate
as of the date of this Agreement, and, by supplement accurate as of
the Closing Date.
(1) [INTENTIONALLY OMITTED]
-6-
<PAGE>
(2) [INTENTIONALLY OMITTED]
(3) [INTENTIONALLY OMiTTED]
(4) Equipment. All of Corporation to be Sold's furniture, equipment, machinery,
----------
apparatus, tools, appliances, vehicles, implements, spare parts, supplies
and all other tangible personal property of every kind and description
located either on the Real Property, or elsewhere insofar as any of the
foregoing relates to the Business (the "Equipment"). The Equipment
includes, without limitation, all of the items listed in Appendix
--------
1.02(b)(4) to the Disclosure Letter.
----------
(5) [INTENTIONALLY OMITTED]
(6) Permits. All right, title and interest of Corporation to be Sold in, to and
--------
under all Permits relating to the Business or all or any of the Assets,
including, without limitation, those listed in Appendix 1.02(b)(6) to the
-------------------
Disclosure Letter.
(7) Intangible Assets. All right, title and interest of Corporation to be Sold
------------------
in, to and under all patents, trademarks, technology, know-how, data,
copyrights, tradenames, servicemarks, licenses, covenants by others not to
compete, rights and privileges used in the conduct of the Business and the
right to recover for infringement thereon and all goodwill associated with
the business in connection with which the marks are used (the "Intangible
Assets"). The Intangible Assets include, without limitation, all of the
items listed in Appendix 1.02(b)(7) to the Disclosure Letter.
------------------
(8) Goodwill. The goodwill and going concern value of the Business.
---------
(9) Scheduled Contracts. All right, title and interest of Corporation to be
--------------------
Sold in, to and under the contracts, leases and agreements described in
Appendix 1.02(b)(9) to the Disclosure Letter (the "Scheduled Contracts")
--------------------
and all rights (including rights of refund and offset), privileges,
deposits, claims, causes of action and options relating or pertaining to
the Scheduled Contracts or any thereof.
(10) Inventories. All of Corporation to be Sold's inventories located either at
------------
the Real Property, or elsewhere insofar as any of the foregoing relates
-7-
<PAGE>
to the Business, including, without limitation, finished goods, work-in-
progress, raw materials, supply inventories, and other inventories (the
"Inventories"). The Inventories include, without limitation, all of the
items listed in Appendix 1.02(b)(l0) to the Disclosure Letter.
--------------------
(11) Backlog Orders. All of Corporation to be Sold's backlog of orders for
---------------
products manufactured or sold by Corporation to be Sold in the ordinary
course of business prior to the Effective Time of Closing and, in each
case, not invoiced or shipped or cancelled prior to the Effective Time of
Closing (collectively, the "Backlog Orders").
(12) Accounts. All accounts receivable of Corporation to be Sold and all other
---------
rights of Corp. to payment for goods sold or leased or for services
rendered, including without limitation those which are not evidenced by
instruments or chattel paper, whether or not they have been earned by
performance or have been written off or reserved against as a bad debt or
doubtful account in any Financial Statements; together with all instruments
and all documents of title representing any of the foregoing, all rights in
any merchandise or goods which any of the same represent, and all rights,
title, security and guaranties in favor of Corporation to be Sold with
respect to any of the foregoing, including, without limitation, any right
of stoppage in transit (the "Accounts").
(13) Cash. Cash on deposit in the bank accounts and statement of accounts of
-----
each banking institution with which Corporation to be Sold conducts or has
conducted business since January 1, 1996, described in Appendix 1.02(b)(13)
--------------------
to the Disclosure Letter (including all cash on deposit in such accounts
and uncleared deposits in such accounts), payments in transit, deposits and
all other legal tender wherever located or situated.
(14) Books and Records. All of Corporation to be Sold's books, records, papers
-----------------
and instruments of whatever nature and wherever located that relate to the
Business or the Assets or which are required or necessary in order for
Purchaser to conduct the Business for and after the Effective Time of
Closing in the manner in which it is presently being conducted, including,
without limitation, blueprints, specifications, plats, maps, surveys,
building and machinery diagrams, accounting and financial records,
maintenance and production records, personnel and labor relations records,
environmental records and reports, sales and property
-8-
<PAGE>
Tax records and returns, sales records, the Customer Data and the Supplier
Data.
(15) Prepaid Expenses and Current Assets. All right, title and interest of
-----------------------------------
Corporation to be Sold in and to all prepaid rentals, other prepaid
expenses, bonds, deposits and financial assurance requirements, and other
current assets relating to any of the Assets or the Business, including
without limitation, all prepaid expenses of the nature described in the
Interim Balance Sheet.
(16) Insurance Proceeds. All insurance proceeds and insurance claims of Corp.
-------------------
relating to all or any part of the Assets and, to the extent transferable,
the benefit of and the right to enforce the covenants and warranties, if
any, that Corporation to be Sold is entitled to enforce with respect to the
Assets against Corporation to be Sold's predecessors in title to the
Assets.
(17) Computers. All right, title and interest of Corporation to be Sold in
----------
computer equipment and hardware, including, without limitation, all central
processing units, terminals, disk drives, tape drives, electronic memory
units, printers, keyboards, screens, peripherals (and other input/output
devices), modems and other communication controllers, and any and all parts
and appurtenances thereto, together with all intellectual property used by
Corporation to be Sold in the operation of such computer equipment and
hardware, including, without limitation, all software, all of Corporation
to be Sold's rights under any licenses related to Corporation to be Sold's
use, at any time, of such computer equipment, hardware or software, and all
leases pursuant to which Corporation to be Sold leases any computer
equipment, hardware of software insofar and only insofar as any of the
foregoing relates to the Business or comprises any of the Assets.
(18) [INTENTIONALLY OMiTTED]
(19) [INTENTIONALLY OMITTED]
(20) Other Intangibles. All right, tide and interest of Corporation to be Sold
------------------
in, to and under all rights, privileges, claims, causes of action, and
options relating or pertaining to the Business or the foregoing Assets.
-9-
<PAGE>
(c) Seller agrees to enter into a non-competition agreement (the "Non-
Competition Agreement") with Purchaser in the form of Exhibit 1.02-1
--------------
hereto. [FORM ATTACHED].
1.03. Purchase Price.
---------------
(a) Purchase Price. The purchase price for the Shares (the "Purchase
---------------
Price") which shall be issued and delivered to the Seller constitutes
TWENTY-NINE MILLION (29,000,000) common shares of the Purchaser
representing approximately SEVENTY-ONE and 4/l0ths percent (71.4%) of
---
the issued and outstanding shares of the Purchaser, as of the time
immediately after the issue and delivery of the Purchase Price. The
common shares representing the Purchase Price shall not have been
registered pursuant to the Securities Act of 1933, as Amended (the
"Securities Act") and shall be subject to such further restrictions
and limitations all of which shall be set forth in the Shareholders
Agreement by and between the Purchaser and the Seller in the form of
Exhibit 1.03-1. [FORM ATTACHED].
---------------
(b) [INTENTIONALLY OMITTED]
1.04 Payment of Purchase Price. The Shares representing the Purchase Price
--------------------------
shall be issued and delivered to the at Closing.
1.05 Instruments of Transfer, Further Assurances. In order to consummate the
--------------------------------------------
transactions contemplated hereby, at the Closing Seller and Purchaser
shall deliver to each other (a) the certificate or certificates
representing the Shares, (b) completed General Conveyance, Transfer and
Assignment, in the form attached as Exhibit 1.05-1 hereto ("General
--------------
Conveyance, Transfer and Assignment") [FORM ATTACHED], (c) a stock power,
executed in blank by the Seller, witnessed by an officer of a bank
approved by the Purchaser, referring to each and every of the
certificates representing the Seller's ownership of the Shares of the
Corporation to be Sold, and evidencing their transfer to the Purchaser in
the form attached as Exhibit 1.05-2 [FORM ATTACHED], and (d) such other
--------------
instruments, at Closing or thereafter, as Purchaser may reasonably
request, to vest in the Purchaser full and complete ownership in the
Shares and the rights of the sole shareholder of the Corporation to be
Sold which such Shares are herein warranted to represent and which are
herein transferred to the Purchaser.
-10-
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
2.01 Representations and Warranties of Seller and Corporation to be Sold.
-------------------------------------------------------------------
Seller and Corporation to be Sold jointly and severally, represent and
warrant to Purchaser that the following are true and correct on and as of
the date of this Agreement and will be true and correct through the
Effective Time Closing as if made on and as of that date:
(a) The Seller's Representations:
----------------------------
(1) (Organization and Good Standing of Seller. Seller is a corporation duly
----------------------------------------
organized, validly existing and in good standing under the laws of
_________________and is qualified to transact business and is in
good standing in ______________________.
(2) Seller has the corporate power and authority to own, lease or operate all
properties and assets now owned, leased or operated by it and to carry on
it businesses as now conducted.
(3) Seller has heretofore delivered to Purchaser as an attachment to Appendix
--------
2.01(a)(3) to the Disclosure Letter, complete and correct copies of its
----------
Certificate of Incorporation, bylaws, each as amended and in effect on the
date hereof and a certificate of the Corporate Secretary or other official
custodian of the corporate records of Seller, certifying that the minutes
of the Board of Directors approving this transaction, the Closing and the
delivery of all those things Seller must deliver at Closing is approved.
(4) Seller is the owner of the Shares, free and clear of all liens,
encumbrances and there are no options, warrants, or conditioned sales
agreements constructively owned but unissued shares or obligations
regarding the purchase or ownership of Corporation to be Sold.
(5) The Shares, to Sellers knowledge, are fully paid and non-assessable and
represent ONE HUNDRED PERCENT (100%) of the issued and outstanding shares
of the Corporation to be Sold.
(6) The following list identifies the true owner of the shares if Seller Corp.
is registered as owner of the shares in a capacity of agent, nominee or
trustee.
-11-
<PAGE>
If the Seller Corp. owns the shares in its own right, such shall be
reflected by writing "NONE" in the space provided below:
(7) The following list identifies the names of each director and officer
of the Seller Corp. as of the date this Agreement is executed:
(8) The individuals signing the instruments relating to this transaction
in behalf of the Seller are duly elected representatives of the Seller
and have actual authority to execute and deliver this Agreement, the
Disclosure Letter, any supplements thereof, including the Closing Date
Disclosure Statement, and each and every obligation of the Seller
which shall be required to effect a closing.
(b) The Corporation to be Sold's Representations:
--------------------------------------------
(1) Organization and Good Standing of the Corporation to be Sold. The
------------------------------------------------------------
Corporation to be Sold is a corporation duly organized, validly
existing and in good standing under the laws of the State of
_______________ and is qualified to transact business and is in good
standing as a foreign corporation in every state where it maintains a
presence or is otherwise required to be qualified.
-12-
<PAGE>
(2) The Corporation to be Sold has the corporate power and authority to
own, lease or operate all properties and assets now owned, leased or
operated by it and to carry on it businesses as now conducted.
(3) The Corporation to be Sold has heretofore delivered to Purchaser as an
attachment to Appendix 201(b)(3) to the Disclosure Letter complete
-----------------
and correct copies of its Certificate of Incorporation and bylaws, as
amended and in effect on the date hereof, and a certificate of the
Corporate Secretary of the Corporation to be Sold certifying that the
officers of the Corporation to be Sold who execute any instrument
called for by this Agreement as well as this Agreement, the Disclosure
Letter and every supplement thereto, including the Closing Date,
Disclosure Statement, are duly elected and incumbent in their
respective positions as officers.
(4) The Shares have been validly issued, are outstanding and are fully
paid and non-assessable.
(5) The Shares were issued in full compliance with applicable federal and
state laws regulating the offer and sale of corporate securities.
(6) The Shares represent ONE HUNDRED PERCENT (1000%a) of the issued and
outstanding shares of the Corporation to be Sold. There are no
options, warrants, contractual rights or obligations which under any
condition or circumstance, past, present or in the future, would
obligate Corporation to be Sold to issue any additional shares of its
common stock to any person.
(c) Additional Joint Representations of Seller and Corporation to be Sold.
---------------------------------------------------------------------
(1) Consents, Authorizations and Binding Effect.
-------------------------------------------
(i) Seller is fully authorized to execute, deliver and perform this
Agreement (including without limitation execution, delivery and
performance of the Operative Documents to which Seller or
Corporation to be Sold is a party) without the necessity of
Seller obtaining any consent, approval, authorization or waiver
or giving any notice or otherwise, except for such consents,
approvals, authorizations, waivers and notices:
-13-
<PAGE>
- which have been obtained and are unconditional and are in full
force and effect and such notices which have been given, or
- which are described in Appendix 2.01(c)(1)(i) of the Disclosure
----------------------
Letter, and
- in either case approved by Purchaser prior to the Closing.
(ii) Seller and Corporation to be Sold each has the corporate power to
enter into this Agreement and to carry out its respective obligations
hereunder. This Agreement has been duly authorized, executed and
delivered by Seller and Corporation to be Sold and constitutes the
legal, valid and binding obligation of Seller and Corporation to be
Sold, enforceable against it in accordance with its terms, except as
------
may be limited by bankruptcy, reorganization, fraudulent conveyance,
insolvency and similar laws of general application relating to or
affecting the enforcement of rights of creditors and subject to
general principles of equity.
(iii) Except as described in Appendix 2.01(c)(1)(iii) of the Disclosure
------ ------------------------
Letter, the execution, delivery and performance of this Agreement by
Seller and Corporation to be Sold does not and will not:
- constitute a violation of either's Certificate of Incorporation, as
amended, or Bylaws, as amended (except for those which, singly or
------
in the aggregate, would not create or result in a Material Adverse
Effect),
- result in any Lien against the Shares or the Assets (except for
------
those which singly or in the aggregate, would not create or result
in a Material Adverse Effect),
- constitute a violation of any statute, judgment, order, decree or
regulation or rule of any Governmental body applicable or relating
to Seller, or Corporation to be Sold, or the Assets or the business
of Seller and Corporation to be Sold (except for those which,
------
singly or in the aggregate, would not create or result in a
Material Adverse Effect), or
-14-
<PAGE>
- conflict with, or constitute a breach or default under, or give
rise to any right of termination, cancellation or acceleration
under, any term or provision of any contract, agreement, lease,
commitment, license, franchise, permit, authorization or any other
instrument or obligation known to Seller and Corporation to be Sold
to which any of Seller and Corporation to be Sold is a party or by
which their respective assets are bound, or an event which with
notice, lapse of time, or both, would result in any such conflict,
breach, default or right (except for those which, singly or in the
------
aggregate, would not create or result in a Material Adverse Effect)
or other than those breaches, defaults or violations which Seller
and Corporation to be Sold shall have cured on or before the
Effective Time of Closing.
(2) Corporate Governance. Without limiting the foregoing, the execution,
--------------------
delivery and performance of the Operative Documents, and consummation of
the transactions contemplated thereby, have been duly authorized and
approved by the Board of Directors and shareholders of Seller and
Corporation to be Sold without dissent, effectively acted on by the Board
of Directors of both the Seller and the Corporation to be Sold immediately
before the Closing.
(3) Financial Statements, etc. The following audited and unaudited financial
-------------------------
statements of Corporation to be Sold have been delivered to Purchaser and
are attached as Appendix 2.01(c)(3) to the Disclosure Letter:
------------------
(i) the audited consolidated balance sheet of Corporation to be Sold as
of _______________, 19__, (the "Audited Balance Sheet") and the
related statements of operations, of stockholders equity and of cash
flows for the period ending __________, 19__, (together with related
notes and schedules), which financial statements contain a report of
____________, independent auditors, reporting thereon (such balance
sheets, the related statements of operations, of stockholder's equity
and of cash flows, and the related notes and schedules being
hereinafter together referred to as the "Audited Financial
Statements") and
-15-
<PAGE>
(ii) the unaudited balance sheet of Corporation to be Sold for the periods
ending _________________, 19__ and __________,19___ and
_______________, 19__, ("Unaudited Balance Sheet") and the related
unaudited statements of operations, of stockholder's equity and of
cash flows (together with related notes and schedules) (such balance
sheets, the related statements of operations, of stockholder's equity
and of cash flows, and the related notes and schedules being
hereinafter together referred to as the "Unaudited Financial
Statements").
(iii) the unaudited balance sheet of Corporation to be Sold as of _______,
19__ (the "Interim Balance Sheet") and the related unaudited
statement of operations of stockholders equity and of cash flow for
the _________-month period ended _______________, 19__ (the "Interim
Financial Statements").
(4) Regarding the Financial Statements.
----------------------------------
(i) The Audited Financial Statements, the Unaudited Financial Statements,
and the Interim Financial Statements (collectively, the "Financial
Statements"), including the related notes and schedules, have been
prepared from the books and records of Corporation to be Sold in
conformity with generally accepted accounting principles applied on a
basis consistent with preceding years and throughout the periods
involved ("GAAP") and present fairly the financial position of
Corporation to be Sold as of the dates of such statements, subject to
year-end adjustments made consistent with GAAP with respect to the
Interim Financial Statements.
(ii) The trade accounts and other receivables of Corporation to be Sold
which are classified as current assets on the Audited Balance Sheet,
Unaudited Balance Sheet and the Interim Balance Sheet (collectively,
the "Balance Sheets") are bona fide receivables, were acquired in the
ordinary course of business, are stated in accordance with GAAP and,
subject to the reserve for doubtful accounts, need not be written-off
as uncollectible.
-16-
<PAGE>
(iii) The inventories of Seller and Corporation to be Sold reflected on the
Interim Balance Sheets have been valued in accordance with GAAP, and
the value of obsolete materials and materials of below standard quality
has been written down or reserved against in accordance with GAAP.
There have been no write-ups of inventories or other assets.
(iv) The aggregate fair market value (on a going concern basis) of the
Equipment is at least equal to the aggregate net book value thereof as
set forth on the Interim Balance Sheet.
(v) The Corporation to be Sold has no liabilities of the type and in
amounts required to be reflected or disclosed in a balance sheet (or
notes thereto) prepared in accordance with GAAP other than:
- those set forth or reserved against in the Interim Balance
Sheet,
- those incurred since the date of the Interim Balance Sheet
in the ordinary course of business,
- those disclosed in Appendix 2.01(c)(4)(c) to the Disclosure
----------------------
Letter,
- those referred to in this Agreement or that exist by reason of
this Agreement, but only to the extent that the existence of such
liabilities is ascertainable solely by reference to this Agreement
or to the Disclosure Letter, and
(vi) Seller and Corporation to be Sold's books of account have been kept
accurately in all material respects in the ordinary course of business,
the transactions entered therein represent bona fide transactions, and
the revenues, expenses, assets and liabilities of Seller and
Corporation to be Sold have been properly recorded in such books in all
material respects.
(vii) The Corporation to be Sold, in connection with this Agreement, has in
any other way, obtained forgiveness of any of its indebtedness forgiven
or otherwise, pursuant to federal income tax
-17-
<PAGE>
law, realized any income by reason of debt forgiveness during any
reporting period.
(5) Title and Condition of Assets. The Shares owned by Seller and Assets owned
-----------------------------
by Corporation to be Sold are free and clear of Liens, other than Permitted
Encumbrances, or Liens which will be released or discharged at or prior to
the Effective Time of Closing.
The tangible Assets are in good operating condition and repair, subject to
ordinary wear and tear, and have been maintained in accordance with
standard industry practice, are capable of being used in the Business as
presently being conducted without present need for repair or replacement
except in the ordinary course of the Business, conform in all material
------
respects with all applicable legal requirements known to Seller and
Corporation to be Sold, and in the aggregate provide the capacity to enable
Corporation to be Sold to engage in commercial operation on a continuous
basis (subject to normal maintenance and repair outages in the ordinary
course).
Since the date of the Interim Balance Sheet, Corporation to be Sold has not
sold, transferred, leased, distributed or otherwise disposed of any of its
assets, or agreed to do so except for sales of products and services in the
------
ordinary course of business or the disposition of immaterial assets in the
ordinary course of business or which in the reasonable judgment of
management are not necessary or advisable to the efficient operations of
Seller and Corporation to be Sold.
All items of raw materials, work-in-process and finished goods included in
the Inventories are in such condition that they can be readily converted
into merchantable finished goods by industry standard processing procedures
currently used by Corporation to be Sold, all items of finished goods are
of good standard and merchantable quality, and none of the items is
obsolete or defective, except in each case for items which have been
------
written off or written down and so reflected on the Interim Balance Sheet
or for which reserves are provided the Interim Balance Sheet.
(6) Insurance. Appendix 2.01(c)(6) to the Disclosure Letter contains a list of
--------- -------------------
all policies of insurance maintained as of the date of this Agreement by
Corporation to be Sold, or maintained by Seller in respect of the Business
-18-
<PAGE>
and Assets including without limitation insurance providing benefits for
employees. The insurance policies set forth in Appendix 2.01(c)(6) to the
-------------------
Disclosure Letter shall provide adequate coverage less deductibles against
the risks involved in the Business and the Assets except for business
------
interruption insurance. Neither Seller nor Corporation to be Sold has
received notice from any insurance carrier of the intention of such carrier
to discontinue any insurance coverage afforded to Corporation to be Sold.
(7) Litigation and Compliance With Laws, etc. There are no claims, actions,
----------------------------------------
suits or proceedings, whether in equity or at law, or governmental or
administrative investigations pending or, to the knowledge of Seller,
threatened against Seller or Corporation to be Sold or the Shares, or any
Asset, and no claim, action, suit or proceeding, at law or in equity, which
seller or Corporation to be Sold, in good faith, anticipates might be
asserted against Seller or Corporation to be Sold or its Assets, or the
Shares, as a result of or in connection with this transaction or for the
purpose of challenging or attempting to set aside, this transaction except
------
(1) as described in Appendix 2.0l(c)(7) to Seller and Corporation to be
-------------------
Sold's Disclosure Letter, or as may arise with respect to any of the
matters described thereon, or (2) for minor product warranty claims arising
in the usual and ordinary course of business for repair of products
manufactured by Corporation to be Sold which in the aggregate may be
satisfied at nominal cost to Corporation to be Sold.
Except as described in Appendix 201(c)(7) to the Disclosure Letter:
------ ------------------
(i) Seller and Corporation to be Sold, in all material respects, are in
compliance with, has conducted for the past three years and does
conduct their respective businesses and operations in compliance
with, and is not in default or violation in any respect under any
law, regulation, writ, injunction, decree or order applicable to the
Seller, the Corporation to be Sold or its Assets, including without
limitation all safety and health, antitrust, consumer protection,
labor, equal opportunity or discrimination laws, rules and
regulations,
(ii) to Seller and Corporation to be Sold's knowledge, there are no
judgments outstanding and unsatisfied against them or their Assets,
and
-19-
<PAGE>
(iii) to Seller and Corporation to be Sold's knowledge, there is no basis
for any claim against or liability of Corporation to be Sold on
account of product warranties or with respect to the manufacture,
sale or rental of defective products (other than minor claims arising
in the usual and ordinary course of business for the repair of
Corporation to be Sold's products which may be satisfied at nominal
cost to Corporation to be Sold).
(8) Taxes. Except as described in Appendix 2.01(c)(8) to the Disclosure Letter
----- ------ ------------------
(i) Seller and Corporation to be Sold have duly filed when due, including
any extensions, all Tax reports and returns in connection with and in
respect of Seller and Corporation to be Sold's business, assets and
employees, and have timely paid and discharged all Tax Obligations
shown thereon. Seller and Corporation to be Sold have made available
to Purchaser, to the extent requested by Purchaser, all Tax reports
and returns of Corporation to be Sold for all periods ending prior to
the Closing Date.
(ii) Seller and Corporation to be Sold have not received notice of any Tax
deficiency outstanding, proposed or assessed against or allocable to
Corporation to be Sold, nor have any of them executed any waiver of
any statute of limitations on the assessment or collection of any Tax
or executed or filed with the IRS or any other Governmental Body
extending the period for assessment or collection of any Taxes
against Corporation to be Sold.
(iii) To Seller and Corporation to be Sold's knowledge, there are not Tax
Liens upon, pending against or, to the knowledge of Seller or
Corporation to be Sold, threatened against any Asset.
(iv) Consummation of the transactions herein contemplated will not result
in the imposition or creation of any Tax Obligations on the Shares or
the Assets, except for (1) Tax Obligations which remain the liability
------
of Seller or (2) Tax Obligations resulting from any Tax election made
by Purchaser after the Effective Time of Closing, or (3) additional
income, gains or other Tax Obligations of Seller arising out of the
transactions contemplated hereunder.
-20-
<PAGE>
(9) Intangible Assets. Appendix 2.01(c)(9) to Seller and Corporation to be
----------------- -------------------
Sold's Disclosure Letter sets forth:
(i) all patents, patent applications, trademarks, servicemarks (i) which
Corporation to be Sold owns or (ii) which are used in any way in, or
are necessary for the conduct of, the Business, and
(ii) all license agreements with respect to any of the foregoing as to
which Corporation to be Sold is licensor or licensee.
(iii) There are no pending or, to the knowledge of Seller and Corporation
to be Sold threatened, infringement claims against Corporation to be
Sold by any Person with respect to any of the items listed in
Appendix 1.02(b)7 to the Disclosure Letter, nor has any such item
-----------------
been declared invalid or been limited by any court or agreement.
Subject to any required third party consents, the Intangible Assets
will afford Purchaser at all times after the Effective Time of
Closing the rights to use all technology, proprietary information,
know-how or patented ideas, designs, inventions, trademarks,
copyrights, tradenames and servicemarks owned by Corporation to be
Sold or others necessary for the conduct of the Business as presently
being conducted. To Seller and Corporation to be Sold's knowledge and
subject to any required third party consents, the use of the
Intangible Assets will not and, the conduct of the Business as
presently conducted, does not infringe on the rights of any Person.
(10) Instruments in Full Force and Effect. Possession under Leases. The
-------------------------------------------------------------
Scheduled Contracts, (collectively "Instruments") are valid, binding and in
full force and effect, have not been amended or supplemented in any manner
or respect which singly or in the aggregate would result in a Material
Adverse Effect except as disclosed in Appendix 1.02(c)(10) to Seller and
------ --------------------
Corporation to be Sold's Disclosure Letter will be enforceable by
Corporation to be Sold or its assignees in accordance with their respective
terms, except as may be limited by bankruptcy, reorganization, fraudulent
------
conveyance, insolvency and similar laws of general application relating to
or affecting the enforcement of rights of creditors and subject to general
principles of equity. There are no defaults by Corporation to be Sold
thereunder and Corporation to be Sold knows of no defaults
-21-
<PAGE>
thereunder by any other party thereto, and, to Seller and Corporation to be
Sold's knowledge, no event has occurred that with the lapse of time or
action or inaction by any party thereto would result in a violation thereof
or a default thereunder. Subject to any required third party consents, none
of the rights under the Instruments will be impaired by the consummation of
the transactions contemplated by this Agreement, and all such rights will
inure to and be enforceable by Purchaser after the Effective Time of
Closing without the authorization, consent, approval, permit or licenses
of, or filing with, any other Person. Corporation to be Sold enjoys
peaceful and undisturbed possession under all leases included in the
Scheduled Leases.
(11) Employees and Employee Plans and Agreements.
-------------------------------------------
(i) Appendix 2.01(c)(11)(i) to the Seller and Corporation to be Sold's
-----------------------
Disclosure lists (a) all full time employees of the Company, and (b) all
employment agreements between Corporation to be Sold and each such listed
employee, or an affirmative statement to the effect that, as to such named
employee, no written employment agreement exists.
(ii) Appendix 2.0l(c)(11)(ii) to Seller and Corporation to be Sold's
------------------------
Disclosure Letter (a) lists all of the profit sharing plans and all of the
retirement, stock option, stock purchase, incentive, bonus, life, medical,
vision, health, disability or accident plans, deferred compensation plans,
and other employee compensation or benefit or pension plans, agreements,
written policies, contracts, arrangements or commitments, including without
limitation severance agreements, holiday, vacation or other similar
matters, other "employee welfare benefit plans" (as defined in Section 3(1)
or ERISA), and "Employee Pension Benefit Plans" (as defined in Section 3(2)
of ERISA and not exempted under Section 4(b) or 201 or ERISA) relating to
officers or employees (including former officers or employees) of
Corporation to be Sold or any of its Affiliates who perform services to, in
the name of or for the benefit of the Business ("Employees") (collectively
the "Plans" and individually a "Plan"), and (b) identifies each of the
Plans which purports to be a tax-qualified plan under Section 401(a) of
the Code and identifies any trust funding any of such plans which
-22-
<PAGE>
purports to be a tax exempt trust under Section 501(c)(9) of the
Code.
(iii) Except as reflected in Appendix 2.01(c)(11)(iii), all contributions
-------------------------
made to or accrued with respect to all of the Disclosure Letter,
Employee Plans are deductible under Section 404 or 162 of the Code.
No amounts, nor any assets or any Employee Plan are subject to Tax as
unrelated business taxable income under Sections 511, 512, or 419A of
the Code.
(iv) To Seller's and Corporation to be Sold's knowledge, no facts exist
which could result in a material increase in premium costs of Plans
for which benefits are insured.
(v) No Plan provides (or has any obligation or commitment to provide)
health, medical, disability, life or other similar benefits with
respect to any current or former employees (or beneficiary thereof)
of Corporation to be Sold beyond their retirement or other
termination of service (other than coverage mandated by Title I,
Subtitle B, Part 6 of ERISA, which coverage is fully paid by the
former employee or his dependents).
(12) Labor and Employee Relations.
(i) Except as set forth in Appendix 2.01(c)(12) to the Disclosure Letter,
------ --------------------
there exists (a) no charge of discrimination or lawsuit involving any
alleged violation of any fair employment law, wage payment law,
occupational safety and health law, and (b) no threatened or pending
litigation arising out of any employment relationship, or other
employment-related law, whether federal, state or local, and (c) no
threatened or pending litigation arising out of any employment
relationship, presently threatened or pending, by any applicant,
employee or former employee of Corporation to be Sold, or any
representative of any such Person or Persons. No charge or claim
involving any of the facilities or employees of Corporation to be Sold
is pending before any administrative agency, local, state or federal,
and no lawsuit involving any of such facilities or employees is
pending with respect to equal employment opportunity, age
discrimination, occupational
-23-
<PAGE>
safety, or any other form of alleged employment practice or unfair
labor practice.
(ii) Corporation to be Sold complies in all material respects with all
applicable laws, rules and regulations relating to the employment of
labor, including but without limitation, those relating to wages,
hours, concerted activity, non-discrimination, occupational health
and safety and the payment and withholding of Taxes, and Corporation
to be Sold has no accrued liability for any arrears of wages or any
Taxes or penalties for failure to comply with any of the foregoing.
(iii) Corporation to be Sold shall be solely responsible for all
grievances, arbitrations, claims, demands, or charges of any nature
whatsoever including, but not limited to, any such grievances,
arbitrations, claims, demands, or charges whether now known or not
yet made by any employees, bargaining agents, or governmental
agencies, which result from or arise out of any event occurring
prior to the date of Closing; and, Corporation to be Sold agrees to
hold harmless and indemnity Purchaser for all such claims, if any,
asserted against Purchaser.
(13) Real Property. Except as set forth in Appendix 2.01(c)(13), the Real
------------- ------ --------------------
Property does not violate in any material respect any provisions of any
applicable building code, fire, health or safety regulations, or other
governmental ordinances, orders or regulations. No condition exists with
respect to the Real Property which would prevent, or require repair or
modification thereof as a prerequisite to, Purchaser using the Real
Property in the ordinary conduct of the Business except with respect to
------
ordinary wear and tear and scheduled maintenance and repair.
(14) Absence of Certain Changes, etc. Since _____________________, 19__,
------------------------------
and except as disclosed in Appendix 2.01(c)(14) to the Disclosure Letter,
------ -------------------
Corporation to be Sold has:
(i) conducted its operations in the ordinary course,
(ii) not entered into any material transaction or contract, or amended or
terminated any material transaction or contract, except normal
------
-24-
<PAGE>
transactions or contracts consistent in nature and scope with prior
practices and entered into in the ordinary course of business,
(iii) not mortgaged, sold, transferred, distributed or otherwise disposed
of any of its material Assets, except in the ordinary course of
------
business,
(iv) not experienced any damage, destruction or loss to or of any of its
material Assets except in the ordinary course of business and except
------ ------
to the extent that any Asset damaged, destroyed or lost has been
repaired or replaced,
(v) not made or agreed to make any capital expenditures for additions to
property, plant or equipment, except for expenditures and
------
commitments not exceeding $5,000.00 in the aggregate, or
(vi) not made or agreed to make any change in the compensation payable to
any employee, except for increases in compensation in the ordinary
------
course of business substantially consistent with past practices of
Seller Corp.
(15) Subsidiaries. There is no corporation, partnership, joint venture, business
------------
trust or other legal entity in which Corporation to be Sold, either
directly or indirectly through one or more intermediaries, owns or holds
beneficial or record ownership of any outstanding voting shares.
(16) Material Contracts, etc. Appendix 2.01(c)(10) to the Disclosure Letter
----------------------- --------------------
lists all contracts, leases, written agreements and instruments material to
the Business or requiring the performance by Corporation to be Sold of any
material obligations of Corporation to be Sold which are not heretofore
described as Scheduled Contracts.
(17) Licenses and Permits. Except as reflected in Appendix 2.01(c)(17)
-------------------- ------ --------------------
Corporation to be Sold owns, holds and possesses all the Permits necessary
under law or otherwise for Corporation to be Sold to conduct the Business
as now being conducted and to construct, own, operate, maintain and use the
Assets in the manner in which they are now being constructed, operated,
maintained and used. Each of such Permits and Corporation to be Sold's
rights with respect thereto (1) is valid and subsisting, in full
-25-
<PAGE>
force and effect, and enforceable by Corporation to be Sold subject to
administrative powers of regulatory agencies having jurisdiction, and (2)
following consummation of the transactions contemplated hereby, will
continue to be valid and subsisting in full force and effect, and subject
to any requisite governmental consents, enforceable by Purchaser without
any consent or approval of any Governmental Body or third party; or, in
lieu of such existing Permits, replacement or substitute Permits, if
indicated in Appendix 1.02(cb(17) to the Disclosure Letter, will be
--------------------
available to or obtainable by Purchaser at little or no cost in the
ordinary course without any interruption of the conduct of the Business
following the Effective Time of Closing, assuming timely application
therefor and reasonable diligence in pursuit thereof by Purchaser.
Corporation to be Sold is in compliance in all material respects with the
terms of such Permits and none of such Permits have been, or to the
knowledge of Seller and Corporation to be Sold, are threatened to be,
revoked, cancelled, suspended or modified except as indicated in Appendix
------ --------
1.02(b)17) to the Disclosure Letter.
----------
(18) [INTENTIONALLY OMITTED]
(19) [INTENTIONALLY OMITTED]
(20) Excluded Assets. None of Corporation to be Sold's Assets are being excluded
---------------
from the Assets owned by the Corporation to be Sold.
(21) Pricing. Attached hereto as Appendix 2.01(c)(21) of the Disclosure Letter
------- --------------------
is a complete and accurate list of Corporation to be Sold's standard prices
and any applicable discounts by customer name.
(22) Absence of Certain Business Practices. Neither Seller nor Corporation to be
-------------------------------------
Sold, or any officer, employee or agent of Seller or Corporation to be
Sold, nor any other Person acting on its behalf, has, directly or
indirectly, within the past three years, given or agreed to give any gift
or similar benefit to any customer, supplier, government employee or other
Person who is or may be in a position to help or hinder the business of
Corporation to be Sold (or to assist Corporation to be Sold in connection
with any actual or proposed transaction) which (1) might subject
Corporation to be Sold to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, (2) if not given in the past, might
have had a Material Adverse Effect on the assets, business or operations
-26-
<PAGE>
of Corporation to be Sold as reflected in the Financial Statements, or (3)
if not continued in the future, might Materially Adversely Effect the
assets, business operations or prospects of Corporation to be Sold or which
might subject Corporation to be Sold to suit or penalty in a private or
governmental litigation or proceeding.
(23) Corporate Name. To Seller and Corporation to be Sold's knowledge, the use
--------------
of the corporate name of Corporation to be Sold does not infringe the right
of any third party nor is it confusingly similar with the corporate name of
any third party. After the Closing Date, no Person or business entity other
than Purchaser will be authorized directly or indirectly to use the
corporate name of Corporation to be Sold or any name deceptively or
confusingly similar thereto.
(24) Customers and suppliers. Appendix 2.01(b)(24) to the Disclosure Letter sets
----------------------- --------------------
forth (1) a true and correct list of (i) the ten (10) largest customers of
Corporation to be Sold in terms of sales during the fiscal year ended
_____________________, 19__, and (ii) the ten (10) largest customers of
Corporation to be Sold in terms of sales during the five (5) months ended
_____________________, 19__, showing the approximate total sales to each
such customer during each of such periods; (2) a true and correct list of
(x) the ten (10) largest suppliers of Corporation to be Sold in terms of
purchases during the fiscal year ended ________________,19__ and (y) the
ten (10) largest suppliers of Corporation to be Sold in terms of purchases
during the five (5) months ended ____________________, 19__, showing the
approximate total purchases from each such supplier during such respective
periods. Except to the extent set forth in Appendix 2.01(b)(24) to the
------ --------------------
Disclosure Letter, there has not been any Material Adverse Change in the
business relationship of Corporation to be Sold with any customer or
supplier so named in the disclosure statement. Except for the customers and
------
suppliers named in Appendix 2.01(b)(4) to the Disclosure Letter,
-------------------
Corporation to be Sold has not had any customer which accounted for more
than five percent (5%) of its sales during the period from
_______________________, 19__ through and including the month ending prior
to date hereof, or any supplier from whom it purchased more than 5% of the
total goods or services purchased by it during such period.
-27-
<PAGE>
(25) [INTENTIONALLY OMITTED]
(d) Disclosure.
----------
(1) Seller and Corporation to be Sold have fully provided the Purchaser or
its representatives with all the information that the Purchaser has
requested for deciding whether to consummate the purchase of the
Shares pursuant to the terms and conditions of this Agreement.
(2) No representation or warranty of Seller and Corporation to be Sold
contained in this Agreement or statement in the Seller and Corporation
to be Sold's Disclosure Letter contains any untrue statement either at
the date this Agreement is executed, the Date the Disclosure Letter is
delivered to the Purchaser, and the date of each supplement thereto,
and the Closing Date. No representation or warranty of Seller
contained in this Agreement or statement in the Seller and Corporation
to be Sold's Disclosure Letter or any supplement omits to state a
material fact necessary in order to make the statements herein or
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that notwithstanding any provision to
the contrary herein, (i) Purchaser shall be entitled only to rely on
the latest version of information furnished to Purchaser by Seller and
Corporation to be Sold which supersedes previous information furnished
to Purchaser if the supplementary information to the Purchaser is
delivered to Purchaser in written form, expressly identifying the
prior information which is being superseded and provides an
explanation of how the superseding information was obtained and why
the Seller and Corporation to be Sold, in good faith, believed the
superseded information was true when it was provided to Purchaser, and
(ii) Seller and Corporation to be Sold shall have no liability with
respect to estimates or projections which may be or may have been
furnished to Purchaser, regarding estimates or projections which may
be or may have been furnished to Purchaser, including estimates of
future revenues, earnings or profits or estimates of amounts required
to satisfy future obligations, but all estimates or projections
communicated by any of Seller and Corporation to be Sold to Purchaser
shall be reasonably made, in good faith and based upon assumptions
reasonable under the circumstances.
-28-
<PAGE>
(3) No record regarding Seller or Corporation to be Sold, furnished
pursuant to Section 7.16 will contain any untrue statement. No
supplement to the Seller and Corporation to be Sold's Disclosure
Letter made pursuant Section 3.12 will contain any untrue
statements or omit to state a material fact necessary in order to
make the statements therein or in this Agreement, in light of the
circumstances under which they were made, not misleading.
(4) There is no fact known to Seller which has specific application
to the Seller, the Corporation to be Sold, the Shares, the Assets
or the Business (other than general economic or industry
conditions) that could have a Material Adverse Effect which has
not been set forth in this Agreement or the Seller and
Corporation to be Sold's Disclosure Letter.
2.02 Representations and Warranties of Purchaser. Purchaser represents and
-------------------------------------------
warrants to Seller that the following are true and correct on and as of the
date of this Agreement and will be true and correct through the Effective
Time of Closing as if made on and as of that date:
(a) Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the State of Utah and is qualified to
transact business and is in good standing as a foreign corporation in
the jurisdictions where it is required to qualify in order to conduct
its businesses as presently conducted.
(b) Purchaser has the corporate power and authority to own, lease or
operate all properties and assets now owned, leased or operated by it
and to carry on its businesses as now conducted.
(c) Purchaser may execute, deliver and perform this Agreement without the
necessity of Purchaser obtaining any consent, approval, authorization
or waiver or giving any notice or otherwise, except for such consents,
------
approvals, authorizations, waivers and notices which have been
obtained and are unconditional and are in full force and effect and
such notices which have been given.
(d) The execution, delivery and performance of this Agreement do not and
will not:
(1) constitute a violation of the Articles of Incorporation, as
amended, or the Bylaws, as amended, as the case may be, of
Purchaser,
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(2) constitute a violation of any statute, judgment, order, decree or
regulation or rule of any court, governmental authority or
arbitrator applicable or relating to Purchaser, or
(3) constitute a default under any contract to which Purchaser is a
party except where such default would not have a material adverse
------
effect upon the ability of Purchaser to perform its obligations
under this Agreement.
(e) This Agreement has been duly authorized, executed and delivered by
Purchaser. This Agreement constitutes the legal, valid and binding
obligation, of Purchaser enforceable in accordance with its terms,
except as may be limited by bankruptcy, reorganization, insolvency and
------
similar laws of general application relating to or affecting the
enforcement of rights of creditors.
(f) Purchaser acknowledges that it has sufficient knowledge and expertise
in business and financial matters to evaluate the merits and risks
associated with the transactions contemplated by this Agreement.
Purchaser has made its decision to enter into this Agreement and to
consummate the transactions contemplated hereby without relying upon
any express or implied representations from Seller except as set forth
------
in this Agreement.
ARTICLE III
CONDUCT AND TRANSACTIONS PRIOR TO CLOSING
-----------------------------------------
3.01 Access to Records and Properties: Confidentiality.
-------------------------------------------------
(a) Between the date of this Agreement and the Effective Time of Closing,
Seller shall cause Corporation to be Sold to give, and Corporation to
be Sold shall give, to Purchaser and its advisors such access to the
premises, books and records of Corporation to be Sold, and to cause
the officers, employees and accountants of Corporation to be Sold to
furnish such financial and operating data and other information with
respect to Corporation to be Sold as Purchaser shall from tune to time
reasonably request. Without limiting the generality of the foregoing,
Seller shall cause Corporation to be Sold to give, and Corporation to
be Sold shall give, to Purchaser and its representatives access during
normal business hours to the facilities and operations of Corporation
to be Sold so that Purchaser may (1) obtain evaluations of the Assets
and (2) perform any and all assessing, testing, monitoring and
investigating that Purchaser deems necessary in its sole discretion
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<PAGE>
with respect to Corporation to be Sold's assets and the operation of
the business. Any investigation pursuant to this Section 3.01 shall be
conducted in such manner as not to interfere unreasonably with the
business and operations of Corporation to be Sold.
(b) In connection with the transactions contemplated by this Agreement, in
addition to, and not by way of limitation of, any other obligations of
Purchaser under or pursuant to any other agreement, whether written or
oral, with Seller or any other obligations of Purchaser at law or in
equity, all information furnished to Purchaser or to any other Person
for the benefit of Purchaser will be kept confidential by Purchaser,
such other Person and their respective associates, Affiliates, agents,
employees, consultants and advisors (collectively, "Purchaser
Representatives") prior to payment in full of the Purchase Price, or
in the event the Closing does not occur at all times, and will not be
used in any manner adverse to the furnishing party. During such time,
Purchaser will hold and will cause the Purchaser Representatives to
hold in strict confidence, unless compelled to disclose by judicial or
administrative process or, in the opinion of its counsel, by other
requirements of law, all documents and information concerning Seller
which is furnished to Purchaser or any Purchaser Representative by
Seller or any of their representatives in connection with the
transactions contemplated by this Agreement (except to the extent that
------
such information can be shown to have been (1) previously available to
the Person to which it was furnished on a non-confidential basis prior
to its disclosure, (2) in the public domain or (3) available on a non-
confidential basis from a Person other than a Person not bound by any
confidentiality agreement). Purchaser may release or disclose such
information to any Purchaser Representative in connection with this
Agreement prior to the Closing Date or in the event the Closing does
not occur only if the Purchaser Representatives are informed of the
confidential nature of such information and they agree in writing
(substantially similar in substance to the matters contained in this
Section 3.01(b)) to such confidential treatment of all such
information. If the transactions contemplated by this Agreement are
not consummated, Purchaser agrees to remain bound by (x) the
Confidentiality Agreement previously executed by Purchaser and
Corporation to be Sold, a copy of which is attached hereto as
Exhibit 3.01-1, [FORM ATTACHED] (the "Confidentiality Agreement") and
--------------
incorporated herein for all purposes.
3.02 Operation of Corporation to be Sold. Between the date hereof and the
-----------------------------------
Closing Date, except as contemplated herein or except with the prior
------ ------
consent of Purchaser, which
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<PAGE>
consent will not be unreasonably withheld or delayed, Seller and
Corporation to be Sold shall:
(a) cause Corporation to be Sold to operate the business as presently
operated, only in the ordinary course, and in compliance with all
laws, regulations, writs, injunctions, decrees or orders applicable to
Corporation to be Sold or its Assets, including without limitation all
environmental, safety and health, antitrust, consumer protection,
labor, equal opportunity or discrimination laws, rules and
regulations,
(b) cause the tangible assets (except for sales from Inventory) to be
------
maintained and repaired in accordance with past practices of
Corporation to be Sold,
(c) not dispose of, or commit to dispose of, any Assets (other than the
liquidation and settlement of Accounts and the sale and delivery of
Inventory and products covered by Backlog Orders, all in the ordinary
and customary course of Corporation to be Sold's business),
(d) actively market the Products and services of Corporation to be Sold in
accordance with its usual practices, and
(e) continue in effect until immediately following the Effective Time of
Closing all present insurance coverage with respect to the Assets, the
Business and the Employees.
All risk of loss arising out of fire and casualty and all liability to
third parties or to Employees arising out of operations of the
Business prior to the Effective Time of Closing shall be that of
Seller and Corporation to be Sold, and Purchaser shall have no
obligation or liability in connection therewith.
Seller and Corporation to be Sold shall not effect any amendment to
the Certificate of Incorporation or the Bylaws of Corporation to be
Sold and shall not cause or permit the issuance of any additional
shares of the capital stock or equity interest (or options, warrants
or other rights to acquire capital stock or equity securities) of
Corporation to be Sold.
Seller and Corporation to be Sold shall use best efforts to operate
and maintain, or to cause to be operated and maintained, the Business
and the Assets in such a manner so that the representations and
warranties of Seller and Corporation to
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<PAGE>
be Sold contained herein shall continue to be true and correct in all
material respects on and as of the Effective Time of Closing as if
made on and as of the Effective Time of Closing.
Seller and Corporation to be Sold shall advise Purchaser promptly in
writing of any condition or circumstance, known to Seller, occurring
from the date hereof up to and including the Effective Time of Closing
that would cause the respective representations and warranties of
Seller and Corporation to be Sold contained herein to become untrue in
any material respect. Seller shall deliver to Purchaser a Supplement
to the Seller and Corporation to be Sold's Disclosure Letter promptly
after Seller becomes aware of any event which changes any
representation or warranty made by Seller and Corporation to be Sold
in this Agreement or any statement made in the Seller and Corporation
to be Sold's Disclosure Letter or in any Supplement.
3.03 Consents. Seller and Corporation to be Sold shall use their respective
--------
reasonable efforts to obtain any consents of Governmental Bodies,
suppliers, distributors, and other Persons required in order for Seller and
Corporation to be Sold to sell and transfer the Business pursuant to this
Agreement. Purchaser agrees to use its best efforts to assist Seller and
Corporation to be Sold in obtaining such consents. If any of the foregoing
shall require the consent of any party thereto other than Corporation to be
Sold, then this Agreement shall not constitute an agreement to assign the
same, and such items shall not be assigned to or assumed by Purchaser if an
actual or attempted assignment thereof would constitute a breach or default
thereunder. Corporation to be Sold shall use its reasonable efforts to
obtain such consents to the extent required of such other parties. If any
such consent cannot be obtained, Corporation to be Sold will cooperate in
any reasonable arrangement designed to obtain for Purchaser all benefits
and privileges of the applicable instrument, contract, license, document or
permit while protecting Corporation to be Sold from continuing liabilities
or obligations thereunder.
3.04 No Public Announcements or Negotiation with Others.
--------------------------------------------------
(a) The parties hereto shall not issue any press release or make any
public statement regarding the transactions contemplated by this
Agreement without obtaining the prior consent of the other party,
which consent shall not be unreasonably withheld.
(b) Unless and until this Agreement shall have been terminated by
Purchaser or Seller and Corporation to be Sold pursuant to Section
5.02, neither Shareholder,
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Corporation to be Sold nor any of the officers or directors of
Corporation to be Sold, nor any Affiliates of any of them whom they
are able to influence, without the consent of Purchaser shall:
(1) directly or indirectly, encourage, solicit, initiate or
participate in any discussions or negotiations with any
corporation, partnership, Person or other entity or group (other
than to Purchaser or an affiliate or an associate of Purchaser)
concerning any merger, sale of substantial assets, business
combination, sale of shares of capital stock or similar
transactions involving the business of Corporation to be Sold or
any Asset, whether by providing non-public information or
otherwise; or
(2) disclose, directly or indirectly, any information not customarily
disclosed to any Person concerning their business and properties,
afford to any other Person access to their properties, books or
records or otherwise assist or encourage any Person in connection
with any of the foregoing.
In the event Seller and Corporation to be Sold shall receive any
offer for a transaction of the type referred to in this Section
3.04, Seller and Corporation to be Sold shall promptly inform
Purchaser as to any such offer.
3.05 Best Efforts to Satisfy Conditions. Seller and Corporation to be Sold
----------------------------------
shall use their respective reasonable efforts to cause the conditions to
the obligations of Purchaser contained in Section 4.01 to be satisfied to
the extent that the satisfaction of such conditions is reasonably in the
control of Seller and Corporation to be Sold, and Purchaser shall use its
best efforts to cause the conditions to the obligations of Seller and
Corporation to be Sold contained in Section 4.02 to be satisfied to the
extent that the satisfaction of such conditions is in the control of
Purchaser.
3.06 [INTENTIONALLY OMITTED]
3.07 Payment of Taxes. Seller shall pay when due any sales, transfer or
----------------
similar Taxes which may become applicable in respect of Seller's sale of the
Business or any of the Assets to Purchaser.
3.08 [INTENTIONALLY OMITTED]
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<PAGE>
3.09 [INTENTIONALLY OMITTED]
3.10 [INTENTIONALLY OMITTED]
3.11 [INTENTIONALLY OMITTED]
3.12 Update Seller's Disclosure Letter. Seller shall deliver to Purchaser a
---------------------------------
Supplement to the Seller's Disclosure Letter promptly after Seller becomes
aware of any event which changes any representation or warranty made by
Seller in this Agreement or any previous statement made in the Seller's
Disclosure Letter or in any Supplement, and a supplement titled "Closing
Date Disclosure Statement", dated the Closing Date affirmatively stating
that all disclosures not updated or supplemented, as of the Closing Date,
remain true, do not omit from such Disclosure, any material fact or
circumstance and otherwise conform to the requirements of this Agreement.
ARTICLE IV
CONDITIONS OF CLOSING
---------------------
4.01 Conditions of Obligations of Purchaser. The obligations of Purchaser to
--------------------------------------
consummate the purchase and sale under this Agreement are subject to the
satisfaction of the following conditions, each of which may be waived in
writing by Purchaser:
(a) Representations and Warranties, Performance of Obligations.
----------------------------------------------------------
(1) The representations and warranties of Seller and Corporation
to be Sold set forth in Section 2.01 hereof and in each
certificate, agreement, document or instrument delivered
pursuant hereto on or before the Closing Date or in connection
with the transactions contemplated hereby, subject to such
changes as contemplated herein on the Closing Date, shall have
been and shall be true and correct in all material respects on
and as of the date of this Agreement and shall be true and
correct in all material respects on and of the Closing Date,
as though made on and as of the Closing Date.
(2) Seller and Corporation to be Sold shall have performed in all
material respects the covenants, agreements and obligations
required to be performed by it under this Agreement prior to
and on the Closing Date.
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<PAGE>
(3) Seller and Corporation to be Sold shall have delivered to
Purchaser its certificate confirming the satisfaction of the
conditions set forth in subparagraphs (1) and (2) above and
such other matters that Purchaser may reasonably request.
(b) Delivery of Instruments. Seller shall have delivered to Purchaser
-----------------------
(i) the certificate or certificates evidencing ownership of all of
the issued and outstanding shares of the Corporation to be Sold,
(ii) the duly authorized and executed General Conveyance, Transfer
and Assignment, (iii) letters of resignation from all of the
officers and directors of the Corporation to be Sold, and (iv) such
other conveyance documents that Purchaser may reasonably request to
effect the transfer and conveyance of control of Corporation to be
Sold to Purchaser.
(c) Opinion of Counsel to Seller. Purchasers shall have received the
----------------------------
opinion of Seller's counsel, dated the Closing Date, in the form of
Exhibit 4.01-1 hereto [FORM ATTACHED].
(d) Purchaser accepts the condition of the Assets and the Business as
reflected in the Disclosure Letter and the Supplements.
(e) Consents, Notices and Approvals. All consents and approvals of all
-------------------------------
Persons necessary for the consummation of the Transaction under
Seller's Certificate of Incorporation or bylaws or any agreement,
permit, law or regulation shall have been received and delivered to
Purchaser, all notices to any Person required by any of the
foregoing to be given in respect of the Transaction prior to
Closing shall have been duly given, and all necessary action shall
have been taken to permit Purchaser to exercise the rights, as
owner of all of the issued and outstanding shares of the
Corporation to be Sold.
(f) [INTENTIONALLY OMITTED]
(g) Non-Competition Agreement. Seller and its shareholders shall have
-------------------------
delivered the duly authorized and executed Non-Competition
Agreement pursuant to Section 1.02(e).
(h) Other Matters. Seller shall have delivered to Purchaser, in form
-------------
and substance reasonably satisfactory to counsel for Purchaser,
such certificates and other evidence as Purchaser may reasonably
request as to the satisfaction of the conditions contained in this
Section 4.01.
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<PAGE>
4.02 Conditions of Obligations of Seller. The obligations of Seller to
-----------------------------------
consummate the sale and purchase under this Agreement are subject to the
satisfaction of the following conditions, each of which may be waived in
writing by Seller:
(a) Representations and Warranties, Performance of Obligations.
----------------------------------------------------------
(1) The representations and warranties of Purchaser set forth in
Section 2.02 hereof and in each certificate, agreement,
document or instrument delivered pursuant hereto on or before
the Closing Date or in connection with the transactions
contemplated hereby on the Closing Date shall have been and be
true and correct in all material respects on and as of the
date of this Agreement and as of the Closing Date as though
made on and as of the Closing Date.
(2) Purchaser shall have performed in all material respects the
covenants, agreements and obligations necessary to be
performed by it under this Agreement prior to the Closing
Date.
(3) Purchaser shall have delivered to Seller its certificate
confirming the satisfaction of the conditions set forth in
subparagraphs (1) and (2) above and such other matters that
Seller may reasonably request.
(b) Payment. Purchaser shall have delivered the shares representing the
-------
Purchase Price and other instruments required to be made or
delivered on the Closing Date.
(c) Opinion of Counsel to Purchaser. Seller shall have received the
-------------------------------
opinion of Earl Bentley, dated the Closing Date, in the form of
Exhibit 4.02(c) hereto [FORM ATTACHED].
---------------
(d) Other Matters. Purchaser shall have delivered to Seller, in form
-------------
and substance reasonably satisfactory to Seller's counsel, such
certificates and other evidence as Seller may reasonably request as
to the satisfaction of the conditions contained in this Section
4.02.
4.03 [INTENTIONALLY OMITTED]
4.04 Opportunity to Cure. In the event that Purchaser shall notify Seller, or
-------------------
Seller shall notify Purchaser, of its decision not to consummate the
sale and purchase of the Business hereunder due to the failure of any of
the conditions contained in Section 4.01 or 4.02
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<PAGE>
hereof to be satisfied, Seller, or Purchaser, as the case may be, shall
have the opportunity for a reasonable period of time to take such
actions as may be necessary to remedy the circumstances which have
resulted in the failure of such condition or conditions to be satisfied.
ARTICLE V
CLOSING DATE AND TERMINATION OF AGREEMENT
-----------------------------------------
5.01 Closing Date.
------------
(a) Subject to the right of (1) Seller and (2) Purchaser to terminate
this Agreement pursuant to Section 5.02 hereof, the closing for the
consummation of the purchase and sale contemplated by this
Agreement (the "Closing") shall, unless another date or place is
agreed to in writing by Seller and Purchaser, take place at the
offices of Purchaser at 10:00 a.m., local time on December 18,
1996, or such other date as the parties may agree upon (the
"Closing Date").
(b) For all purposes hereof, the term "the Effective Time of Closing"
shall occur upon the delivery to Purchaser of the (i) Shares, (ii)
the General Conveyance, Transfer and Assignment, (iii) the Closing
Date Disclosure Statement, and (iv) the other Operative Documents
as contemplated herein on the Closing Date.
5.02 Termination of Agreement.
------------------------
(a) This Agreement may, by written notice given at or prior to Closing
in the manner hereinafter provided, be terminated or abandoned:
(1) In the event that the Closing shall not have occurred on or
before December 18, 1996, by Seller or by Purchaser;
(2) By Purchaser, if a material default or breach shall be made by
Seller with respect to the due and timely performance of any
of their covenants and agreements contained herein, or with
respect to the correctness of or due compliance with any of
their representations and warranties contained in Article II
hereof, and such default cannot be cured and has not been
waived; if Seller shall notify Purchaser of any default or
breach by Seller hereunder and Purchaser chooses not to
terminate this Agreement, Purchaser shall be deemed to have
waived such default or breach;
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<PAGE>
(3) By Seller if a material default or breach shall be made by
Purchaser with respect to the due and timely performance of
any of its covenants and agreements contained herein, or with
respect to the correctness of or due compliance with any of
its representations and warranties contained in Article III
hereof, and such default cannot be cured and has not been
waived; if Purchaser shall notify Seller of any default or
breach by Purchaser and Seller chooses not to terminate this
Agreement, Seller shall be deemed to have waived such default
or breach;
(4) By mutual consent of Seller and Purchaser; or
(5) By Purchaser if any Supplement to the Disclosure Letter
contains disclosures of any fact or condition which makes
untrue, or shows to have been untrue, any representation or
warranty by Seller in this Agreement or any statement made in
the Disclosure Letter, unless concurrently with the delivery
of the Supplement Seller represents and warrants that the
disclosed fact or condition can and will be corrected at
Seller's expense prior to Closing, or such supplemental
disclosure is otherwise materially significant and adverse as
regards the value of the Shares, the Assets or the Business.
(b) In the event this Agreement is terminated pursuant to Section
5.02(a), all further obligations of the parties hereunder shall
terminate, except that the obligations set forth in Sections
------
3.01(b), 7.02 and 7.03 shall survive; provided, however, that if
this Agreement is so terminated by one party because one or more
of the conditions to such party's obligation hereunder is not
satisfied as a result of the other party's failure to comply with
Section 3.05 or any of its obligations under any other provision
of this Agreement, it is expressly agreed and understood that the
terminating party's right to pursue all legal remedies for breach
of contract and damages shall also survive such termination
unimpaired.
ARTICLE VI
INDEMNIFICATION
---------------
6.01 Indemnity.
---------
(a) Seller's Indemnification to Purchase. Subject to Section 6.01(b)
------------------------------------
and (d) hereof, Seller and Corporation to be Sold agree to
indemnity and hold Purchaser and Purchaser's officers and directors
("Purchaser Indemnitees") harmless from any
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<PAGE>
and all actual damages, losses, liabilities (joint or several),
payments, obligations, penalties, claims, litigation, demands,
defenses, judgments, suits, proceedings, costs, disbursements or
expenses (including without limitation, fees, disbursements and
expenses of attorneys, accountants and other professional advisors
and of expert witnesses and costs of investigation and preparation)
of any kind or nature whatsoever (collectively "Damages"),
resulting from, relating to or arising out of.
(1) any breach of or inaccuracy in any representation or warranty
of Seller contained in Section 2.01 of this Agreement or a
representation or warranty contained in any Operative
Document;
(2) any breach or non-performance, partial or total, by either
Seller or Corporation to be Sold of any covenant or agreement
of Seller (or any affiliate or subsidiary thereof) contained
in this Agreement or in any Operative Document;
(3) any actual violation of or non-compliance with, or remedial
obligation arising under, any Environmental Laws arising from
any event, condition, circumstance, activity, practice,
incident, action or plan existing or occurring prior to the
Effective Time of Closing relating in any way to the assets or
the business of Corporation to be Sold (including without
limitation the ownership, operation or use of the Assets and
the conduct of the business of Corporation to be Sold prior to
the Effective Time of Closing; the products manufactured or
sold by Corporation to be Sold prior to the Effective Time of
Closing; the presence of any Materials of Environmental
Concern other than in compliance with Environmental Laws on,
in, under or affecting all or any portion of Corporation to be
Sold's properties or any surrounding areas, and any Release or
threatened Release with respect to such underground storage
tanks or Materials of Environmental Concern; and the storage,
disposal or treatment, or transportation for storage, disposal
or treatment, of Materials of Environmental Concern; but
excluding any violation of or non-compliance with, or remedial
---------
obligation arising under, any Environmental Laws that is
attributable to a change by Purchaser in the structure, use or
condition of any of the Assets after the Effective Time of
Closing). "Materials of Environmental Concern" as used herein
means any solid or hazardous waste, hazardous substance,
pollutant, contaminant, oil, petroleum product, commercial
product or other substance (x) which is listed, regulated or
designated as toxic or hazardous (or words of similar meaning
-40-
<PAGE>
and regulatory effect), or with respect to which remedial
obligations may be imposed, under any Environmental Laws or
(y) exposure to which may pose a health or safety hazard;
(4) the ownership, management or use of the Assets prior to the
Effective Time of Closing; the conduct of the Business prior
to the Effective Time of Closing; the products manufactured or
sold by Corporation to be Sold prior to the Effective Time of
Closing (other than Damages attributable to defects that are
in Products in Inventory at the Effective Time of Closing to
the extent the defects resulted from Purchaser's negligence
after the Effective Time of Closing); all contracts,
agreements, obligations, commitments and liabilities of
Corporation to be Sold of every kind of character relating in
any way to the assets or the business of Corporation to be
Sold; and, all pension, retirement, bonuses, severance pay,
salaries and all other compensation and benefits of whatsoever
nature (including all liabilities to any Person under ERISA
and all liabilities to any Governmental Body) attributable to
service or to employment by Corporation to be Sold prior to
the Effective Time of Closing;
(5) any losses or costs of defending against any claims which may
be made against Purchaser or against the Corporation to be
Sold by any Person claiming violations of any local, state, or
federal laws relating to the employment relationship,
including, but not limited to, wages, hours, concerted
activity, discrimination, occupational health and safety, the
payment and withholding of Taxes, or claims related to any
affiliated person, predecessors-in-ownership of the Assets or
Business where such claims arise out of circumstances
occurring prior to the Closing Date.
(b) Purchaser's Indemnities to Seller. Subject to Section 6.01(d)
---------------------------------
hereof, Purchaser shall indemnify and hold Seller and its
respective officers, directors and shareholders ("Seller
Indemnitees") harmless from, any and all Damages resulting from or
arising out of:
(1) any breach of any representation or warranty of Purchaser
contained in Section 2.02;
(2) the non-performance, partial or total, of any covenant or
agreement of Purchaser contained in this Agreement, any
Operative Document or any instrument or agreement delivered
pursuant to this Agreement.
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<PAGE>
(c) Known Matters. In no event shall any party be able to assert a
-------------
claim for indemnification hereunder or bring any action of any kind
or nature, whether as a claim for indemnification pursuant to this
Agreement or otherwise, with respect to any matter for which
indemnification might otherwise be available which was a matter
known by or brought to the attention of an officer or director of
Purchaser or Seller, as applicable, prior to the Closing Date.
6.02 Notice, Participation and Duration.
----------------------------------
(a) If a claim by a third party is made against a party indemnified
pursuant to this Article VI ("Indemnitee"), and if such Indemnitee
intends to seek indemnity with respect thereto under this Article
VI, the Indemnitee shall promptly, and in any event within 90 days
after the assertion of any claim or the discovery of any fact upon
which Indemnitee intends to base a claim for indemnification under
this Agreement ("Claim"), notify the party or parties from whom
indemnification is sought ("Indemnitor") of such Claim. In the
event of any Claim, Indemnitor, at its option, may assume (with
legal counsel reasonably acceptable to the Indemnitee) the defense
of any claim, demand, lawsuit or other proceeding in connection
with the Indemnitee's Claim, and may assert any defense of
Indemnitee or Indemnitor, provided that Indemnitee shall have the
right at its own expense to participate jointly with Indemnitor in
the defense of any claim, demand, lawsuit or other proceeding in
connection with the Indemnitee's Claim and provided further that
failure to give such notice shall not preclude Indemnitee making
any Claim thereon if the failure or delay in giving such notice did
not prejudice Indemnitee. In the event that Indemnitor elects to
undertake the defense of any Claim hereunder, Indemnitee shall
cooperate with Indemnitor to the fullest extent possible in regard
to all matters relating to the Claim (including, without
limitation, corrective actions required by applicable law,
assertion of defenses and the determination, mitigation,
negotiation and settlement of all amounts, costs, actions,
penalties, damages and the like related thereto) so as to permit
Indemnitor's management of same with regard to the amount of
Damages payable by the Indemnitor hereunder. Neither Purchaser nor
Seller shall be entitled to settle any Claim without the prior
written consent of the other, which consent shall not unreasonably
be withheld or delayed.
(b) No Claim for indemnification under this Section 6.02 may be made
after the fifth anniversary of the Effective Time of Closing,
except that Claims for indemnification in respect of breaches of
------
the representations and warranties contained in Section 2.01(g)
hereof (concerning Taxes), or claims under Section
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<PAGE>
6.01(a)(6) (concerning Taxes), may be made so long as any claim may be
made in respect of such matters under any applicable statute of
limitations; provided, however, that the foregoing shall not affect
any claim made in good faith prior to the date of such expiration.
6.03 Indemnification in the Event of Negligence of Indemnitee. The
--------------------------------------------------------
indemnification provided in this Article VI shall be applicable whether or
not negligence of the Indemnitee is alleged or proven.
6.04 Reimbursement. In the event that the Indemnitor shall undertake, conduct
-------------
or control the defense or settlement of any Claim and it is later
determined that such Claim was not a Claim for which the Indemnitor is
required to indemnify the Indemnitee under this Article VI, the Indemnitee
shall reimburse the Indemnitor for all its costs and expenses with respect
to such settlement or defense, including reasonable attorneys' fees and
disbursements.
6.05 The Purchaser as Indemnitee pursuant to the provisions of this ARTICLE VI
shall have the right of offset any amounts for which it or any other
Purchaser Indemnitee is entitled to indemnification under this Article IV,
against the shares of Purchaser issued and delivered to Seller as part of
the Purchase Price, the shares value, for purposes of this offset being
valued at the market price of such shares on the day notice of the claim
is made by Purchaser to Seller. In the event Purchaser shall claim such
right of offset, it shall be entitled to cancel such shares issued to
Seller as the Purchase Price and instruct the transfer agent to cancel the
shares recorded as owned by the Seller and the Purchaser and transfer
agent shall record such cancelled shares, thereafter as treasurer shares
of Purchaser. The Seller's execution of this Agreement shall constitute a
stock power of Seller, authorizing Purchaser or its representatives to
effect the herein-described cancellation. The cancellation of shares
shall, in any event, constitute Purchaser's sole remedy as against the
Seller to recover a claim for indemnity.
ARTICLE VII
MISCELLANEOUS
-------------
7.01 Further Actions. From time to time, as and when requested by Purchaser or
---------------
Seller, Seller or Purchaser shall execute and deliver, or cause to be executed
and delivered, such documents and instruments and shall take, or cause to be
taken, such further or other actions as may be reasonably necessary to
effectuate the Transaction, transfer, assign and deliver to Purchaser or its
permitted assigns the Business (or to evidence the foregoing)
-43-
<PAGE>
and to consummate and to effect the other transactions expressly required
to be performed by Seller hereunder.
7.02 No Broker. Seller and Purchaser represent and warrant each to the other
---------
that they have no obligation or liability to any broker or finder by
reason of the transactions which are the subject of this Agreement. Each
of (a) Seller and (b) Purchaser agree to indemnity the other against, and
to hold the others harmless from, at all times after the date hereof, any
and all liabilities and expenses (including without limitation legal fees)
resulting from, related to or arising out of any claim by any Person for
brokerage commissions or finder's fees, or rights to similar compensation,
on account of services purportedly rendered on behalf of Seller or
Purchaser, as the case may be, in connection with this Agreement or the
transactions contemplated hereby.
7.03 Expenses. Except as otherwise specifically provided herein, Seller and
-------- ------
Purchaser shall each bear their own legal fees, accounting fees and other
costs and expenses with respect to the negotiation, execution and delivery
of this Agreement and the consummation of the transactions hereunder.
7.04 Entire Agreement. This Agreement, the Exhibits hereto (including without
---------------- --------
limitation the Confidentiality Agreement referred to in Section 3.01
(b), the Seller's Disclosure Letter and any Supplement thereto) contain,
and are intended by the parties as a formal expression of, the entire
agreement between Seller and Purchaser with respect to the transactions
contemplated by this Agreement and, except as provided in Section
------
3.01(b), supersedes all prior oral or written agreements, arrangements or
understandings with respect thereto, including without limitation the
Letter of Intent (except to the extent provided in Section 3.01(b) in
respect of its confidentiality provisions).
7.05 Descriptive Headings. The descriptive headings of this Agreement are for
--------------------
convenience only and shall not control or affect the meaning or
construction of any provision of this Agreement.
7.06 Notices. All notices or other communications which are required or
-------
permitted hereunder shall be in writing and shall be delivered either (i)
personally, or (ii) by telegram, telex, telecopy or similar facsimile
means, and by registered or certified mail (postage prepaid and return
receipt requested), or by express courier or deliver service, addressed as
follows:
-44-
<PAGE>
If to Seller:
--------------------------------
--------------------------------
--------------------------------
Telephone:
----------------------
Fax:
----------------------------
If to Purchaser:
Lanstar Semiconductor, Inc.
c/o Maxie R. Smith
2501 Avenue J, Suite 104
Arlington, TX 76006
With a copy to:
Earl Bentley
Earl Bentley & Associates, P.C.
710 N. Watson Road, Ste. 102
Arlington, TX 76011-5327
Telephone: (817) 652-4390
Fax: 1/800 323-4518
or at such other address and number as either party shall have previously
designated by written notice given to the other party in the manner hereinabove
set forth. Notices shall be deemed given when received, if sent by telegram,
telex, telecopy or similar facsimile means (confirmation of such receipt by
confirmed facsimile transmission being deemed receipt of communications sent by
telex, telecopy or other facsimile means); and when delivered and receipted for
(or upon the date of attempted delivery where delivery is refused), if hand-
delivered, sent by express courier or delivery service, or sent by certified or
registered mail.
-45-
<PAGE>
7.07 Governmental Law. This Agreement shall be governed by and construed in
----------------
accordance with the laws of the State of Texas (other than the choice of
law principles thereof).
7.08 Assignability. This Agreement shall not be assignable otherwise than by
-------------
operation of law by any party without the prior written consent of the
other parties, and any purported assignment by any party without the prior
written consent of the other parties shall be void.
7.09 Waivers and Amendments. Any waiver of any term or condition of this
----------------------
Agreement, or any amendment or supplementation of this Agreement, shall be
effective only if in writing. A waiver of any breach or failure to enforce
any of the terms or conditions of this Agreement shall not in any way
affect, limit or waive a party's rights hereunder at any time to enforce
strict compliance thereafter with every term or condition of this
Agreement.
7.10 Third Party Rights. Notwithstanding any other provision of this Agreement,
------------------
this Agreement shall not create benefits on behalf of any Person who is
not a party to this Agreement (including without limitation any broker or
finder, notwithstanding the provisions of Section 7.02 hereof), and this
Agreement shall be effective only as between the parties hereto, their
successors and permitted assigns; provided, however, that Purchaser
Indemnitees are intended third party beneficiaries hereof to the extent
provided in Sections 6.01 and 6.05.
7.11 Illegalities. In the event that any provision contained in this Agreement
------------
shall be determined to be invalid, illegal or unenforceable in any respect
for any reason, the validity, legality and enforceability of any such
provision in every other resect and the remaining provisions of this
Agreement shall not, at the election of the party for whose benefit the
provision exists, be in any way impaired.
7.12 Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart hereof shall be deemed to be an
original instrument, but all such counterparts together shall constitute
but one Agreement.
7.13 Survival; Exclusivity of Remedies. The representations, warranties,
---------------------------------
covenants and agreements of the parties hereto shall survive the Closing,
and the indemnification provided by Section 6.01 shall not be the
exclusive remedy available to the parties hereto.
-46-
<PAGE>
7.14 Access to Records.
-----------------
(a) Following the Effective Time of Closing, Purchaser shall give to
Seller free and unrestricted access to (and the right to make copies
at the expense of Seller) the Records and to the extent that such
were purchased by Purchaser hereunder and relate to the Business, its
operations income, expenses or the Assets of the Corporation to be
Sold existing on, accruing or arising prior to or occurring prior to
Effective Time of Closing, but any access pursuant to this Section
7.15 shall be conducted in such manner as not to interfere
unreasonably with the operation of the Business following the
Effective Time of Closing.
(b) Any access to Records pursuant to this Section shall be subject to
the confidentiality obligations stated in Sections 3.01(b) and (c).
7.15 Cost of Litigation. If any legal action or other proceeding is brought for
------------------
the enforcement of this Agreement or because of an alleged dispute,
breach, default or misrepresentation in connection with this Agreement or
the transactions contemplated hereby, the successful or prevailing party
or parties shall be entitled to recover reasonable attorneys' fees and
other costs incurred in connection with such action or proceeding, in
addition to any other relief to which it or they may be entitled, subject
to Section 6.01(b).
IN WITNESS WHEREOF, the undersigned have executed this Stock Purchase
Agreement as of the date first above written.
PURCHASER: LANSTAR SEMICONDUCTOR, INC.
By: /s/ Maxie R. Smith Chairman/CEO
----------------------------------
SHAREHOLDER: WORLD DATA, LIMITED
By: /s/ L. D. Rowe President
----------------------------------
CORPORATION TO BE SOLD: SOUTHWEST MEMORY INTERNATIONAL, INC.
By: /s/ Z. Margulis President
----------------------------------
-47-
<PAGE>
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT, as of the___ day of_______ 1996, (this
"Non-competition Agreement), among WORLD DATA, LIMITED, a _______________
corporation ("Seller Corp"), ("Seller"), and LEWIS D. ROWE and
_____________________________________________, (collectively called "Promisors")
and LANSTAR SEMICONDUCTOR, INC., a Utah corporation ("Purchaser").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to the Stock Purchase Agreement dated the________ day
of _________________, 1996 (the "Purchase Agreement") among Seller Corp.
and Purchaser, Seller Corp. has agreed to sell to Purchaser, and Purchaser
has agreed to purchase from Seller Change Crop., the issued and outstanding
shares of stock in SOUTHWEST MEMORY INTERNATIONAL, INC. and CORPORATION TO
BE SOLD, the business and substantially all of the assets of CORPORATION TO
BE SOLD described therein on the terms and subject to the conditions set
forth therein.
NOW, THEREFORE, in consideration of the transactions pursuant to the
Purchase Agreement, the receipt and sufficiency of which by Purchaser are hereby
acknowledged, Purchaser, Seller and Promisors DO HEREBY agree to the following
(capitalized terms used but not defined herein shall have the respective
meanings assigned thereto in the Purchase Agreement):
1. Non-Competition.
Subject to the provisions of Section 2 below:
a. For a period of three (3) years from the date hereof, Seller and
Promisors agree they will not, directly or indirectly, whether as
an employer, consultant, agent, principal, partner, stockholder or
any other capacity, engage or participate in any business that, at
the Effective Time of Closing, is in competition in any manner
whatsoever with the Business of the CORPORATION TO BE SOLD within
the United States which Seller Corp. does business at the Effective
Time of Closing.
b. Seller and Promisors agree that a breach or violation of this
covenant
-1-
<PAGE>
not to compete shall entitle the Purchaser, as a matter of right,
to an injunction issued by any court of competent jurisdiction,
restraining any further or continued breach or violation of this
covenant. Such right to an injunction shall be cumulative and in
addition to, and not in lieu of, any other remedies to which the
Purchaser may show itself justly entitled. Further, during any
period in which Seller and/or Promisors are in breach of this
covenant not to compete, the time period of this covenant shall be
extended for an amount of time that Seller and/or Promisors are in
breach hereof.
c. In addition to the restrictions set forth above, Seller and
Promisors shall not, for a period ending three (3) years from the
date hereof, either directly or indirectly, (i) make known to any
person, firm or corporation the names and addresses of any of the
customers of CORPORATION TO BE SOLD or Purchaser or contacts of
CORPORATION TO BE SOLD or Purchaser within the pharmacy computer
industry or any other information pe g to such person, or (ii)
call on, solicit, or take away, or attempt to call on, solicit or
take away any of such customers.
d. The parties to this Agreement agree that the limitations contained
in this Section 1 with respect to geographic area, duration, and
scope of activity are reasonable. However, if any court shall
determine that the geographic area, duration, or scope of activity
of any restriction contained in this Section 1 is unenforceable, it
is the intention of the parties that such restrictive covenant set
forth herein shall not thereby be terminated but shall be deemed
amended to the extent required to render it valid and enforceable.
Nothing herein shall be construed as preventing Seller or Promisors
from making investments in other businesses or enterprises.
Seller Corp. and Purchaser agree that this Agreement is subject to the terms and
conditions of the Purchase Agreement and that, notwithstanding anything
contained herein to the contrary, this Non-Competition Agreement shall not be
deemed to limit, enlarge or extinguish any obligation of Seller, Promisors or
Purchaser under the Purchase Agreement, all of which obligations shall survive
the delivery of this Non-Competition Agreement in accordance with the terms of
the Purchase Agreement.
-2-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Non-Competition
Agreement as of the date first above written.
SELLER CORP: SOUTHWEST MEMORY
WORLD DATA, LIMITED INTERNATIONAL, INC.
By: /s/ Lewis D. Rowe By: /s/ Z. Margulis
----------------------------------- ----------------------------
Lewis D. Rowe, President
THE PURCHASER:
LANSTAR SEMICONDUCTOR, INC.
By: /s/ Maxie R.Smith
-----------------------------------
Maxie R. Smith
Chief Executive Officer and
Chairman of the Board
-3-
<PAGE>
GENERAL CONVEYANCE, TRANSFER and ASSIGNMENT
THIS GENERAL CONVEYANCE, TRANSFER and ASSIGNMENT ("Bill of Sale") effective
as of this ______ day of ________________________, 1996, (effective at time of
Closing) is between WORLD DATA, LIMITED, a _______________ corporation
("Grantor") and LANSTAR SEMICONDUCTOR, INC., a Utah corporation ("Grantee")
W I N E S S E T H:
- - - - - - - - -
WHEREAS, Grantor is the seller of all of the Shares of stock issued and
outstanding by SOUTHWEST MEMORY INTERNATIONAL, INC., a Texas corporation
having its principal place of business located at _________________________
________________________________; and
WHEREAS, in order to effectuate the sale and purchase of the Shares,
Assignor is executing and delivering this Assignment.
NOW, THEREFORE, in consideration of the premises, mutual covenants and
agreements contained herein and the Acquisition Agreement, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Grantor hereby acts and agrees as follow:
1. Conveyance of Shares. Contemporaneously with the execution and
--------------------
delivery of this Agreement, Grantor does deliver Share Certificate(s)
No(s). ___________________________________ which evidence _______
shares of SOUTHWEST MEMORY INTERNATIONAL, INC. ("Corporation to
be Sold"), and the delivery of this General Conveyance, Transfer and
Assignment, and the Shares, conclusively deemed to be a conveyance by
seller of all of the Shares owned by the seller, as evidenced by the
above-numbered Share Certificates. The execution and delivery of this
Agreement and the certificates evidencing the Shares shall further be
conclusively deemed to be an outright conveyance with no reserve
rights, for security or any other purpose.
2. Defined Terms. All TERMS used herein without definitions shall have
-------------
the meaning assigned to them in the Stock Purchase Agreement.
3. Counterparts. This Bill of Sale may be executed in any number of
-------------
counterparts, and each counterpart hereof shall be deemed to be an
original instrument, but all such counterparts shall constitute but
one (1) Bill of Sale.
4. Further Assurances. From time to time, as and when requested by
------------------
Grantee, Grantor shall execute and delivery, or cause to be executed
and delivered, such documents and instruments and shall take, or cause
to be taken, such further or other actions as may be reasonable and
necessary to carry out the purposes of this Bill of Sale.
5. Controlling Agreement. It is contemplated that Grantor may, at any
---------------------
time or from
<PAGE>
time to time, execute, acknowledge and deliver one or more separate
instruments an assignment or conveyance relating to the Shares. No set
separate instrument of assignment or conveyance shall limit the scope
of effect of this Bill of Sale and in the event of a conflict between
the terms of this Bill of Sale and any other separate instrument of
assignment, the terms and provisions of this Bill of Sale shall govern
and be controlling.
6. Exhibits. Attached hereto is a true copy of each and every of the
--------
certificates conveyed by the Grantor to the Grantee, as evidenced by
this Bill of Sale, collectively marked as Exhibit A and Stock Powers
also executed by the Grantor pertaining to the certificate or
certificates, collectively marked as Exhibit B. All exhibits
referenced herein are attached hereto, and by such reference and
attachment, incorporated herein for all purposes.
7. Governing Law. The validity of this Bill of Sale shall be governed by
-------------
and construed in accordance with the laws of the State of Texas.
8. Successors and Assigns. This Bill of Sale shall bind the Grantor and
----------------------
its successors and assigns and inure to the benefit of the Grantee and
its successors and assigns.
SIGNED as of the date first above written.
WORLD DATA, LIMITED
By: /s/ L. D. Rowe
--------------------------------------
L. D. ROWE, President
LANSTAR SEMICONDUCTOR, INC.
By: /s/ Maxie R. Smith
--------------------------------------
Maxie R. Smith
Chief Executive Officer and
Chairman of the Board
- --------------------------------------------------------------------------------
GENERAL CONVEYANCE, TRANSFER and ASSIGNMENT Page 2
<PAGE>
STOCK POWER
FOR VALUE RECEIVED, WORLD DATA, LIMITED ("WDL"), hereby assigns and
transfers its shares of common stock in SOUTHWEST MEMORY INTERNATIONAL, INC.
("SWMI"), being 1,000 shares, no par value, issued by SWMI (the "Corporation"),
and represented by Share Certificate No. 002 standing in the name of ICT in
the stock transfer records of the Corporation, as follows:
WDL further hereby irrevocably constitutes and appoints MAXIE R. SMITH as
its attorney and agent to transfer such securities on the books of the
Corporation with full power to substitute another attorney or agent to complete
such transfer.
DATED, 14th November, 1996.
WORLD DATA, LIMITED
By: /s/ L. D. Rowe
---------------------------------
Its President
- --------------------------------------------------------------------------------
STOCK POWER Solo Page
<PAGE>
[LETTERHEAD OF WORLD DATA LIMITED APPEARS HERE]
14th. November 1997
LANSTAR SEMICONDUCTOR, INC.
2501 Avenue J, Suite 104
Arlington, TX 76006
RE: Seller and Corporation to be Sold's Disclosure Letter
Gentlemen:
We refer to the Stock Purchase Agreement (the "Purchase Agreement") to be
entered into among WORLD DATA, LIMITED ("Seller"), SOUTHWEST MEMORY
INTERNATIONAL, INC. ("Corporation to be Sold") and LANSTAR SEMICONDUCTOR, Inc.
("Purchaser") pursuant to which Seller has agreed to sell to Purchaser and
Purchaser has agreed to purchase from Seller all of the issued and outstanding
shares (the "Shares") of the Corporation to be Sold, on the terms and conditions
set forth in the Purchase Agreement.
This letter constitutes the Seller's Disclosure Letter referred to in Section
1.05 of the Purchase Agreement, et seq. The representations and warranties of
Seller and the Corporation to be Sold set forth in Article II of the Purchase
Agreement are made and given subject to the disclosures in this Seller's
Disclosure Letter. The disclosures in this Disclosure Letter are taken as
relating to the representations and warranties of the Seller and Corporation to
be Sold, singly or collectively, set forth in Article II of the Purchase
Agreement, and the genuineness of documents attached to this Disclosure Letter
and the truthfulness, without the omission of any material fact regarding the
information revealed in this Disclosure Letter, all of which is made to the
Purchaser by the Seller and the Corporation to be Sold with full knowledge that
each and every item of disclosure herein shall be relied on by the Purchaser in
connection with its decision to consummate the transactions contemplated by the
Stock Purchase Agreement.
<PAGE>
Disclosure Letter
Page Two
The attached documents and disclosures delivered to the Purchaser with this
Disclosure Letter are hereby incorporated herein for all purposes.
Sincerely,
SELLER:
WORLD DATA LIMITED
By /s/ L. D. Rowe
-------------------------------
L. D. Rowe, President
CORPORATION TO BE SOLD:
SOUTHWEST MEMORY
INTERNATIONAL, INC.
By /s/ Z. Margulis
-------------------------------
Z. Margulis, President
Attachments
<PAGE>
Exhibit 2.3
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made and executed on
---------
this the 1st day of October, 1997 (the "Date of This Agreement"), by and among
----------------------
LANSTAR SEMICONDUCTOR INC., a Utah corporation ("Lanstar"), ILYA DRAPKIN
-------
("Drapkin"), and WORLD DATA LIMITED, a Cayman Islands corporation ("WDL").
------- ---
SOUTHWEST MEMORY INTERNATIONAL, INC., a Texas corporation ("SMI"), SOUTHWEST
---
MEMORY, INC., a Texas corporation ("SWM"), and MG TK CORP., a Texas corporation
---
("MG TK"), have also executed this Agreement to make certain representations,
-----
warranties and covenants and to indemnify Lanstar as provided herein. Lanstar,
Drapkin, WDL, SMI, SWM and MG TK are collectively sometimes called the
"Signatories to this Agreement".
-----------------------------
RECITALS:
WHEREAS, Lanstar, SMI and WDL executed that certain Stock Purchase
Agreement dated as of November 4, 1996 (the "Original Agreement"), to permit
------------------
Lanstar to acquire all of the outstanding shares of SMI solely in exchange for
voting common stock of Lanstar; and
WHEREAS, the share exchange contemplated by the Original Agreement closed
in 1996; and
WHEREAS, Article VI of the Original Agreement provided that WDL would
indemnify Lanstar against breaches of representations and warranties; and
WHEREAS, the Signatories to this Agreement have irreconcilable differences
regarding certain liabilities and the future operations of SMI; and
STOCK PURCHASE AGREEMENT - Page 1 of 21 Pages
- ------------------------
<PAGE>
WHEREAS, WDL wishes to acquire One Hundred Percent (100%) of the issued and
outstanding shares of SMI which are owned by Lanstar (collectively, the "SMI
---
Shares"); and
- ------
WHEREAS, Lanstar desires to sell the SMI Shares, and WDL wishes to purchase
the SMI Shares; and
WHEREAS, Lanstar desires to acquire all of the Lanstar shares owned by WDL
and Drapkin, and WDL and Drapkin desire to sell all of their Lanstar shares; and
WHEREAS, the Signatories to this Agreement desire to set forth certain
indemnities, representations, warranties and covenants made by each to the
others as an inducement to the execution and delivery of this Agreement and
certain additional agreements related to the transactions contemplated hereby,
including, without limitation, Exhibit A - Individuals' Representations,
-----------------------------------------
Warranties, Covenants and Indemnities, attached hereto and incorporated herein
- -------------------------------------
for all purposes;
NOW, THEREFORE, for and in consideration of the premises, the agreements
that are set forth herein and other good and valuable consideration, the
receipt, sufficiency and adequacy of which are hereby acknowledged, the
Signatories to this Agreement agree as follows:
(1) RECITALS. The foregoing recitals are true, correct and complete and
--------
constitute the basis for this Agreement and they are incorporated into this
Agreement for all purposes.
(2) PURCHASE AND SALE. At the Closing (which term is hereinafter
-----------------
defined), WDL agrees to purchase from Lanstar and Lanstar agrees to sell,
transfer, assign and deliver to WDL, for the purchase price hereinafter
specified, all of the SMI Shares. The transfer of the SMI
STOCK PURCHASE AGREEMENT - Page 2 of 21 Pages
- ------------------------
<PAGE>
Shares shall be effective for all purposes at the Closing which shall occur ten
(10) days after the giving of notice to Lanstar's shareholders as required by
Utah law (the "Closing").
-------
(3) PURCHASE PRICE. In exchange for the SMI Shares, Ten Dollars ($10.00)
--------------
paid to Drapkin and other good and valuable consideration, the receipt, adequacy
and sufficiency of which are hereby acknowledged, Drapkin and WDL agree to
deliver the following consideration and cause the following actions to occur:
(A) Lanstar shall retain the Eight Million (8,000,000) shares of
Lanstar common stock, having a value of Twenty-Five Cents
($.25) per share (collectively, the "Prior Shares"), previously
------------
delivered to it by WDL; and
(B) WDL and Drapkin hereby sell, transfer, assign and deliver to
Lanstar an aggregate of Seventeen Million Five Hundred Fifty-
Five Thousand (17,555,000) shares of Lanstar's common stock,
having an agreed value of Twenty-Five Cents ($.25) per share
(collectively, the "Balance Shares") in addition to the Prior
--------------
Shares described above.
(4) WARRANT. At the Closing, Lanstar shall grant to SMI a warrant to
-------
purchase up to Eighteen Million (18,000,000) shares of Lanstar's common stock
within three (3) years of the Date of This Agreement with an exercise price of
One Dollar and Fifty Cents ($1.50) per share, such warrant having an agreed
value of Five Hundred Thousand Dollars ($500,000.00). The Warrant shall be in
the form marked Exhibit B, attached hereto and incorporated herein for all
---------
purposes. At the Closing of the Warrant sale, SMI will execute a Promissory Note
in the form marked Exhibit C, attached hereto and incorporated herein for all
---------
STOCK PURCHASE AGREEMENT - Page 3 of 21 Pages
- ------------------------
<PAGE>
purposes, in the amount of Five Hundred Thousand Dollars ($500,000.00) payable
to the order of Lanstar with a maturity of twelve (12) months and an interest
rate of prime plus Two Percent (2%).
(5) PRE-CLOSING MATTERS.
-------------------
(A) SMI hereby releases Lanstar from any and all obligations that
may be owed in connection with any intercompany receivables,
advances or distributions as of the Closing.
(B) By 2:00 P.M. on October 1, 1997, SMI will wire the amount of
Two Hundred Fifty Thousand Dollars ($250,000.00) into Lanstar's
account at Merrill Lynch. Lanstar will receive from SMI Three
Thousand Six Hundred (3,600) pieces of Lanstar 8Meg SIMM
inventory valued at Seventy-Nine Thousand Two Hundred Dollars
($79,200.00) by Wednesday, October 1, 1997, at 5:00 P.M. SMI
will pay One Hundred Seventy Thousand Eight Hundred Dollars
($170,800.00) to Lanstar in the form of 16 and/or 32Meg SIMM
inventory, with the cost and product type to be agreed upon by
SMI and Lanstar in the form marked Exhibit D - Consideration in
----------------------------
the Form of SIMM Inventory, attached hereto and incorporated
--------------------------
herein for all purposes, such agreement to be reached by
Wednesday, October 1, 1997, at 5:00 P.M. and delivery to be
made by 5:00 P.M. on October 1, 1997.
(C) SMI hereby confirms that as of October 1, 1997, SMI will extend
to Lanstar a line of credit (which will not be released by
Section [5][A] above or by the Closing) to purchase inventory
in the amount of Five Hundred Thousand Dollars ($500,000.00) on
a net thirty (30) day basis. Inventory will be sold by SMI to
Lanstar at a gross profit margin not to exceed Five Percent
(5%) based upon SMI's actual purchase price.
STOCK PURCHASE AGREEMENT - Page 4 of 21 Pages
- ------------------------
<PAGE>
(6) WARRANTIES AND REPRESENTATIONS BY LANSTAR. To induce WDL and Drapkin
-----------------------------------------
to enter into this Agreement, Lanstar warrants and represents to WDL and Drapkin
as follows, which representations and warranties shall survive the closing of
all transactions contemplated herein:
(A) Lanstar is the lawful owner in every respect, legal and
equitable, direct and indirect, of the SMI Shares.
(B) Lanstar has not executed any assignment, option, pledge,
security agreement, financing statement or hypothecation
agreement with respect to the SMI Shares.
(C) Lanstar has the complete and unrestricted right, power, and
authority to sell, transfer and assign the SMI Shares pursuant
to this Agreement. Lanstar has not executed any agreement to
place any liens, claims, encumbrances or restrictions on the
SMI Shares.
(D) Lanstar has taken no action that would fail to cause SMI to be
a duly organized and validly existing Texas corporation, in
good standing, with all requisite corporate power and authority
to carry on its business as presently conducted. Lanstar has
taken no action to cause SMI to possess any subsidiaries or any
other direct or indirect equity interest in any other firm,
corporation or business enterprise.
(E) Lanstar has taken no action to amend the Articles of
Incorporation of SMI in any way or to otherwise cause a
restructuring of its capital. Lanstar has not caused the
creation of any outstanding options, contracts, commitments,
warranties, agreements or other rights of any character
affecting or relating in any manner to the issuance of stock of
SMI or other securities
STOCK PURCHASE AGREEMENT - Page 5 of 21 Pages
- ------------------------
<PAGE>
entitling anyone to acquire stock of SMI or other securities of
SMI.
(F) Except for any agreement between Cheshier & Fuller, L.L.P. and
Lanstar in connection with the audit of Lanstar, Lanstar has
not executed any agreement to cause SMI or its assets to be
subject to any indebtedness or other contractual obligations.
(G) Lanstar has no actual knowledge of any legal actions, suits,
arbitrations or other legal administrative or governmental
proceedings pending or threatened against SMI, its properties,
assets or business except for the following:
(i) NECX, Plaintiff vs. Southwest Memory, Inc., Defendant,
United States District Court, District of Massachusetts,
Cause No. 97-10190-EFH;
(ii) Vanstar Corporation vs. Southwest Memory, Inc., United
States District Court For the Western District of
Washington at Seattle, C96-1714-Z; and
(iii) Progressive Technology, Inc. vs. Southwest Memory, Inc.
and Southwest Memory International, Inc., in the Supreme
Court of the County of York, State of Maine, Docket No.
CV-96-531.
(H) To the best of Lanstar's actual knowledge, Lanstar has not
unilaterally caused the business and operation of SMI to be
conducted in violation of any applicable law, rule or
regulation of any authorities.
(I) To the best actual knowledge and belief of Lanstar, Lanstar has
taken no affirmative action to divest SMI of title to its
assets.
STOCK PURCHASE AGREEMENT - Page 6 of 21 Pages
- ------------------------
<PAGE>
(J) Except as provided in this Agreement and except for
distributions, intercompany receivables and intercompany
advances prior to the Date of This Agreement, there is no
declaration of a dividend from SMI to Lanstar.
(K) From the Date of This Agreement to the Closing, Lanstar will
not interfere with the business of SMI.
(7) TRANSFER OF THE SMI SHARES. For and in consideration of the payment
--------------------------
of the consideration described herein, Lanstar agrees to sell, assign, transfer
and convey all of Lanstar's right, title and interest in and to the SMI Shares
to WDL at the Closing. Lanstar will relinquish all of its rights as a
Shareholder in SMI at the Closing. At the Closing, Lanstar will relinquish all
right, power and authority which Lanstar has or may have had to act for and/or
on behalf of SMI and/or to bind SMI. Each party to this Agreement shall be
solely responsible for its/his federal tax consequences.
(8) ACCEPTANCE OF TRANSFER OF THE SMI SHARES. WDL will accept the
----------------------------------------
transfer of the SMI Shares.
(9) RELEASE. WDL, Drapkin, SMI, SWM and MG TK for themselves and their
-------
respective heirs, personal representatives, executors, administrators,
successors and assigns hereby fully, finally and forever release and discharge
Lanstar, its officers, directors, shareholders, employees, agents, legal
counsel, accountants and representatives and their respective heirs, personal
representatives, executors and administrators, of and from any and all claims,
actions and causes of action and damages (collectively, the "Claims") of every
------
kind, whether known or unknown, whether contingent or matured, regardless of
when such
STOCK PURCHASE AGREEMENT - Page 7 of 21 Pages
- ------------------------
<PAGE>
Claims arose, but only Claims arising through the effective time of Closing.
(10) REPRESENTATIONS AND WARRANTIES BY WDL AND DRAPKIN. To induce Lanstar
-------------------------------------------------
to enter into this Agreement, WDL and Drapkin represent and warrant to Lanstar
and to Lanstar's successors, assigns and legal representatives as follows, which
representations and warranties shall survive the closing of all transactions
contemplated herein:
(A) There are no agreements whether written or oral with respect to
ownership of the Prior Shares or the Balance Shares. Neither
WDL, nor Drapkin nor or any person or entity acting on their
behalf in any capacity has executed any assignment, rights
agreement, warrant, option, pledge, security agreement,
financing statement, trust, power of attorney, voting
agreement, nominee agreement, hypothecation or any agreement of
any type with respect to the Prior Shares or the Balance
Shares.
(B) The Prior Shares and the Balance Shares are free and clear of
any liens, trusts, charges, restrictions on transfer, options,
warrants, rights to purchase, security interests, powers of
attorney, claims, pledges, rights of offset and encumbrances
whatsoever.
(C) SMI has not knowingly engaged in or conspired to engage in any
deceptive labeling, remarking or misrepresentation of the
quality, capacity or capability of any inventory purchased or
sold by SMI prior to the effective time of the Closing.
(11) OTHER REPRESENTATIONS AND WARRANTIES. To induce Lanstar to enter
------------------------------------
into this Agreement, SMI, SWM and MG TK hereby each
STOCK PURCHASE AGREEMENT - Page 8 of 21 Pages
- ------------------------
<PAGE>
represent and warrant to Lanstar that SMI has not knowingly engaged in or
conspired to engage in any deceptive labeling, remarking or misrepresentation of
the quality, capacity or capability of any inventory purchased or sold by SMI
prior to the effective time of the Closing.
(12) COVENANTS REGARDING FINANCIAL STATEMENTS. To induce Lanstar to enter
----------------------------------------
into this Agreement, SMI, SWM, WDL, MG TK and Drapkin (collectively, the
"Covenantors") hereby each covenant to Lanstar as follows:
-----------
(A) The auditors of Lanstar shall be allowed complete access to the
books and records of MG TK, SWM and SMI for the purpose of
preparing tax returns and financial statements for Lanstar for
any period ending on or before October 31, 1997, for which such
information is relevant in the reasonable judgment of Lanstar's
auditors. Management of MG TK, SWM and SMI shall give
management representations considered necessary in the
reasonable judgment of Lanstar's auditors, which
representations shall be accurate and complete. In the event of
violation of this Section (12), the Signatories to this
Agreement agree that damages to Lanstar would be impossible to
calculate and an insufficient remedy. Therefore, upon any
breach or threatened breach of this provision, the Signatories
to this Agreement agree that Lanstar shall be entitled to seek
specific performance and/or injunctive relief of this provision
in a court of competent jurisdiction.
(B) The Covenantors agree to reasonably cooperate with Lanstar in
the future in connection with any securities filing,
investigation, audit, administrative proceeding, collection
action or other administrative action to which Lanstar may be
or become subject.
STOCK PURCHASE AGREEMENT - Page 9 of 21 Pages
- ------------------------
<PAGE>
(C) SMI shall furnish unaudited financial statements of SMI to
Lanstar's auditors for the nine-month period ending September
30, 1997, and for the ten-month period ending October 31, 1997,
which statements will be accurate, correct and complete in all
respects and will have been prepared in accordance with
generally accepted accounting principles, applied on a
consistent basis throughout the periods indicated. Each balance
sheet will present fairly the financial condition of SMI as of
the dates indicated thereon, and each income statement and
statement of operations will present fairly the results of
operations of SMI for the periods indicated thereon. None of
such financial statements, as of the dates and the periods
thereof, will misstate or omit to state any liability, absolute
or contingent, the omission of which renders such financial
statements misleading.
(13) INDEMNIFICATION. To induce Lanstar to enter into this Agreement,
---------------
WDL, Drapkin, SMI, SWM and MG TK (collectively, the "Indemnitors") hereby
-----------
jointly and severally for themselves and their respective heirs, personal
representatives, executors, administrators, successors and assigns hereby
indemnify and agree to hold harmless Lanstar, its officers, directors,
shareholders, employees, agents, legal counsel, accountants and representatives
and their respective heirs, personal representatives, executors and
administrators, of and from any and all Claims and Damages of every kind
(collectively, the "Indemnified Items"), whether known or unknown, whether
-----------------
contingent or matured, regardless of when such Indemnified Items arose, which
relate to, result from, or are caused by the following:
(A) Any liability of any Indemnitor including, without limitation,
any tax or withholding liabilities;
STOCK PURCHASE AGREEMENT - Page 10 of 21 Pages
- ------------------------
<PAGE>
(B) Any misrepresentation, breach of warranty or breach of covenant
made by Indemnitors contained in this Agreement; or
(C) Any act or omission of any Indemnitor or any officer, director,
shareholder, employee, agent or representative of any
Indemnitor.
The foregoing indemnity shall apply to all litigation liabilities and all
tax liabilities of SMI, SWM and/or MG TK without regard to any act or failure to
act by Lanstar, but the foregoing indemnity shall not apply in other cases where
Lanstar, its officers and directors solely caused the liability.
Lanstar and the other indemnified persons shall act in good faith, but
shall have the exclusive right to control the defense, concession or settlement
of any claim with respect to an indemnified liability. The Indemnitors shall
have the right to reasonably consult and reasonably participate at their expense
in connection with any defense or settlement. Lanstar and the other indemnified
persons shall be entitled to be paid in cash for any loss or Damages with
respect to indemnified liabilities. "Damages" as used herein, include direct
-------
damages, interest, penalties, punitive damages, court costs, legal fees,
accounting costs, expert costs and all costs of collection or enforcement of
this indemnity including reasonable legal fees. An indemnified person shall be
deemed damaged when a liability arises whether by court judgment, settlement or
concession. Payment of any loss or Damages by the indemnified person shall not
be a condition precedent to collection of the indemnity payment from any party
hereto. No indemnifying party shall be entitled to a right of offset or
reduction in its indemnity obligation as a result of any tax benefits accruing
to the indemnified person.
STOCK PURCHASE AGREEMENT - Page 11 of 21 Pages
- ------------------------
<PAGE>
(14) INVENTORY. WDL and Drapkin acknowledge and agree that certain
---------
items of SMI's inventory are obsolete and/or slow moving and that neither WDL
nor Drapkin nor SMI shall have any recourse against Lanstar with respect to any
inventory of SMI.
(15) DISCLAIMER OF WARRANTIES; LIMITATION OF LIABILITY. EXCEPT FOR THE
-------------------------------------------------
EXPRESS WARRANTIES GIVEN BY LANSTAR IN THIS AGREEMENT OR IN ANY OTHER DOCUMENT,
INSTRUMENT OR AGREEMENT EXECUTED BY LANSTAR PURSUANT TO THIS AGREEMENT, LANSTAR
HEREBY DISCLAIMS ANY AND ALL EXPRESS AND IMPLIED REPRESENTATIONS AND WARRANTIES
WITH RESPECT TO SMI, LANSTAR, THE BUSINESS OF SMI AND/OR THE PROPERTY AND ASSETS
OF SMI. Notwithstanding any provision of this Agreement to the contrary, Lanstar
shall not incur any liability to WDL or Drapkin for any representation or
warranty contained in this Agreement, including the documents, instruments and
agreements to be executed and/or delivered by Lanstar pursuant hereto, which is
false, misleading or untrue as of the Date of This Agreement or as of the
Closing if WDL or Drapkin had actual knowledge of such false, misleading or
untrue representation or warranty, and failed to notify Lanstar in writing that
WDL or Drapkin had such actual knowledge on or before the Closing. For purposes
of this Section (14), the actual knowledge of WDL or Drapkin shall include the
actual knowledge of the employees of either WDL or Drapkin and their agents and
affiliates.
(16) VALIDITY OF AGREEMENT. This Agreement and all other documents
---------------------
executed and delivered or to be executed and delivered by any Signatory to this
Agreement, pursuant to or in connection with this
STOCK PURCHASE AGREEMENT - Page 12 of 21 Pages
- ------------------------
<PAGE>
Agreement, as appropriate, have been, or will be on or before the Closing, duly
authorized, executed and delivered by such party and constitute or will
constitute the legal, valid and binding obligation of such party, enforceable
against such party in accordance with their respective terms, subject to
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
creditors' rights and to equitable principles which may affect the availability
of specific performance, injunctive and other forms of equitable relief.
(17) NO CONFLICT WITH OTHER INSTRUMENTS. The execution and delivery of
----------------------------------
this Agreement and the consummation of the transactions contemplated hereby by
WDL and Drapkin will not (i) result in any breach of any of the terms or
conditions of, or constitute a default under, the Articles of Incorporation of
SMI or WDL or the Bylaws of SMI or WDL; or (ii) to the best knowledge of WDL and
Drapkin, result in any violation of any law, or any rule or regulation of any
administrative, agency or governmental body or any order, injunction or decree
of any court, administrative agency or governmental body. The execution,
delivery and performance of this Agreement and all other documents executed and
delivered in connection herewith by WDL and Drapkin to the best knowledge of WDL
and Drapkin will not result in a violation or breach of any term or provision
of, or constitute a default or accelerate the performance required under, any
indenture, mortgage, deed of trust, commitment, note, bond, license or other
contract, agreement, or obligation to which WDL or Drapkin is a party or by
which WDL or Drapkin or their assets are bound, or violate any order, writ,
injunction or decree of any court, administrative agency or governmental body.
STOCK PURCHASE AGREEMENT - Page 13 of 21 Pages
- ------------------------
<PAGE>
(18) NO CONFLICT WITH OTHER INSTRUMENTS. The execution and delivery of
----------------------------------
this Agreement and the consummation of the transactions contemplated hereby by
Lanstar will not (i) result in any breach of any of the terms or conditions of,
or constitute a default under, the Articles of Incorporation of Lanstar or the
Bylaws of Lanstar; or (ii) to the best knowledge of Lanstar, result in any
violation of any law, or any rule or regulation of any administrative, agency or
governmental body or any order, injunction or decree of any court,
administrative agency or governmental body. The execution, delivery and
performance of this Agreement and all other documents executed and delivered in
connection herewith by Lanstar to the best knowledge of Lanstar will not result
in a violation or breach of any term or provision of, or constitute a default or
accelerate the performance required under, any indenture, mortgage, deed of
trust, commitment, note, bond, license or other contract, agreement, or
obligation to which Lanstar is a party or by which Lanstar or its assets are
bound, or violate any order, writ, injunction or decree of any court,
administrative agency or governmental body.
(19) INVESTMENT INTENT. The SMI Shares being acquired by WDL hereunder
-----------------
are being purchased for its account and not with the view to, or for resale in
connection with, any distribution or public offering thereof within the meaning
of the Securities Act of 1933, as amended (the "Securities Act"). WDL
--------------
understands that the SMI Shares have not been registered under the Securities
Act or any applicable state laws by reason of their issuance in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act and such laws, and that they must be held indefinitely unless
they are registered
STOCK PURCHASE AGREEMENT - Page 14 of 21 Pages
- ------------------------
<PAGE>
under the Securities Act and any applicable state laws or are exempt from
registration. WDL has such knowledge and experience in financial and business
matters and is capable of evaluating the merits and risks of the prospective
investment in the SMI Shares. WDL has had access to SMI, its books and records
and to SMI's executive officers and directors for a reasonable period of time
prior to the Closing. WDL has had the opportunity to ask questions of and to
receive answers concerning the SMI Shares and SMI and to obtain any additional
information which SMI possessed or could acquire without unreasonable effort or
expense.
(20) SURVIVAL OF INDEMNITIES, REPRESENTATIONS, WARRANTIES, COVENANTS
---------------------------------------------------------------
AND AGREEMENTS. All of the indemnities, representations, warranties, covenants
- --------------
and agreements that are made in this Agreement shall survive the closing and
shall not be merged therein.
(21) TIME OF THE ESSENCE. Time is of the essence in the performance of this
-------------------
Agreement.
(22) ENTIRE AGREEMENT. This Agreement and the exhibits attached hereto
----------------
supersede any and all other understandings and agreements, either oral or in
writing, between any and/or all of the Signatories to this Agreement and
constitute the sole and only agreement between the Signatories to this
Agreement. All prior negotiations and agreements between the Signatories to this
Agreement with respect to the sale are merged into this Agreement. The
Signatories to this Agreement agree that no representations, inducements,
statements, promises or agreements, orally or otherwise, have been made by any
of them or by anyone acting on behalf of any of them which are not set forth in
this Agreement and in the attached exhibits and that any representation,
inducement,
STOCK PURCHASE AGREEMENT - Page 15 of 21 Pages
- ------------------------
<PAGE>
statement, promise or agreement that is not set forth in this Agreement or the
attached exhibits shall not be valid or binding or of any force or effect.
(23) GENDER AND NUMBER. Words of any gender that are used in this
-----------------
Agreement shall be held and construed to include any other gender, and words in
the singular number shall be held to include the plural, and vice versa, unless
the context requires otherwise.
(24) MODIFICATION. No change or modification of this Agreement shall be
------------
valid or binding upon the Signatories to this Agreement unless the change or
modification is in writing and signed by the Signatories to this Agreement.
(25) HEADINGS. The headings that are used in this Agreement are used
--------
for reference and convenience purposes only and do not constitute substantive
matters to be considered in construing the terms and provisions of this
Agreement.
(26) TEXAS LAW TO APPLY. THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED
------------------
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (EXCLUDING ANY
CONFLICTS-OF-LAW RULE OR PRINCIPLE OF TEXAS LAW THAT MIGHT REFER THE GOVERNANCE,
CONSTRUCTION OR INTERPRETATION OF THIS AGREEMENT TO THE LAWS OF ANOTHER STATE).
(27) LEGAL CONSTRUCTION. In the event that any one or more of the
------------------
terms, provisions or agreements that are contained in this Agreement shall be
held by a court of competent jurisdiction to be invalid, illegal or
unenforceable in any respect for any reason, the invalid, illegal or
unenforceable term, provision or agreement shall not affect any other
STOCK PURCHASE AGREEMENT - Page 16 of 21 Pages
- ------------------------
<PAGE>
term, provision or agreement that is contained in this Agreement and this
Agreement shall be construed as if the invalid, illegal or unenforceable term,
provision or agreement had never been contained herein.
The Signatories to this Agreement acknowledge that each of them and
their respective counsel have reviewed this Agreement and that the rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement.
No provision of this Agreement shall be deemed to have been waived
unless the waiver is in writing and signed by the Signatories to this Agreement.
No custom or practice which may evolve between the Signatories to this Agreement
after the Date of This Agreement shall be deemed or construed to waive or lessen
the right of any of them to insist upon strict compliance with the terms of this
Agreement.
(28) PLACE OF PERFORMANCE AND VENUE. The obligations of the Signatories
------------------------------
to this Agreement under this Agreement shall be and are performable in Dallas
County, Texas. The Signatories to this Agreement consent and agree that venue of
any action brought in state or federal court under this Agreement shall be in
Dallas County, Texas. All Signatories to this Agreement hereby submit to the
jurisdiction of the state and federal courts that are located in Dallas County,
Texas.
(29) SIGNATORIES TO THIS AGREEMENT BOUND. The terms, provisions,
-----------------------------------
warranties, representations, covenants and agreements that are contained in this
Agreement shall apply to, be binding upon and inure to the benefit of the
Signatories to this Agreement and their
STOCK PURCHASE AGREEMENT - Page 17 of 21 Pages
- ------------------------
<PAGE>
respective heirs, executors, administrators, legal representatives, successors
and assigns.
(30) NOTICE. Any notice that is required or permitted to be given or
------
delivered hereunder shall be deemed to be given or delivered only when actually
received by the party to whom the notice is addressed or when actually delivered
to the address of that party, as evidenced by a receipt signed by a person at
the appropriate address, at the addresses set forth below, or at any other
addresses that they have theretofore specified by written notice delivered in
accordance herewith. Notice may be given by facsimile to the telecopy number for
each party that is set forth below (provided that receipt of such facsimile is
confirmed by the sender).
(A) Notice to Lanstar shall be addressed and delivered as follows:
LANSTAR SEMICONDUCTOR INC.
2501 AVENUE J - SUITE 125
ARLINGTON, TEXAS 76006
ATTENTION: MAXIE R. SMITH
CHIEF EXECUTIVE OFFICER
TELECOPIER NUMBER: 817-640-1411
CONFIRMATION NUMBER: 817-640-4566
With a copy thereof delivered to:
RALPH S. JANVEY, ESQ.
KASMIR & KRAGE, L.L.P.
2001 BRYAN TOWER - SUITE 2700
DALLAS, TEXAS 75201-3059
TELECOPIER NUMBER: 214-220-0230
CONFIRMATION NUMBER: 214-969-7500
STOCK PURCHASE AGREEMENT - Page 18 of 21 Pages
- ------------------------
<PAGE>
(B) Notice to Drapkin, SMI, SWM and MG TK shall be addressed and
delivered as follows:
SOUTHWEST MEMORY INTERNATIONAL, INC.
3330 KELLER SPRINGS - SUITE 208
CARROLLTON, TEXAS 75006-5076
ATTENTION: ILYA DRAPKIN
CHIEF EXECUTIVE OFFICER
TELECOPIER NUMBER: 972-934-0528
CONFIRMATION NUMBER: 972-934-8373
(C) Notice to WDL shall be addressed and delivered as follows:
WORLD DATA LIMITED
C/O ZEPHYR INTERNATIONAL LIMITED
ZEPHYR HOUSE - FIFTH FLOOR
MARY STREET
GEORGETOWN GRAND CAYMAN,
CAYMAN ISLANDS, BRITISH WEST INDIES
ATTENTION: LEWIS D. ROWE
MANAGING PARTNER
TELECOPIER NUMBER: 345-949-0324
CONFIRMATION NUMBER: 345-949-0370
Rejection or other refusal to accept or the inability to deliver
because of changed address of which no notice was actually received shall be
deemed to be receipt of the notice.
STOCK PURCHASE AGREEMENT - Page 19 of 21 Pages
- ------------------------
<PAGE>
IN WITNESS WHEREOF, the Signatories to this Agreement have executed
this Stock Purchase Agreement as of the Date of This Agreement.
LANSTAR SEMICONDUCTOR INC.
BY:/s/ MAXIE R. SMITH
--------------------------
MAXIE R. SMITH
CHIEF EXECUTIVE OFFICER
/s/ ILYA DRAPKIN
-----------------------------
ILYA DRAPKIN
INDIVIDUALLY
WORLD DATA LIMITED
BY:/s/LEWIS D. ROWE
--------------------------
LEWIS D. ROWE
PRESIDENT
SOUTHWEST MEMORY
INTERNATIONAL, INC.
BY:/s/ ILYA DRAPKIN
--------------------------
ILYA DRAPKIN
CHIEF EXECUTIVE OFFICER
STOCK PURCHASE AGREEMENT - Page 20 of 21 Pages
- ------------------------
<PAGE>
SOUTHWEST MEMORY, INC.
BY:/s/ ILYA DRAPKIN
--------------------------
ILYA DRAPKIN
PRESIDENT
MG TK CORP.
BY:/s/ M. GOLDSHTEIN
--------------------------
MIKHAIL GOLDSHTEIN
PRESIDENT
STOCK PURCHASE AGREEMENT - Page 21 of 21 Pages
- ------------------------
<PAGE>
EXHIBITS TO STOCK PURCHASE AGREEMENT
EXHIBIT A - INDIVIDUALS' REPRESENTATIONS, WARRANTIES, COVENANTS AND INDEMNITIES
EXHIBIT B - WARRANT
EXHIBIT C - PROMISSORY NOTE
EXHIBIT D - CONSIDERATION IN THE FORM OF SIMM INVENTORY
EXHIBITS TO
- -----------
STOCK PURCHASE AGREEMENT - Page Solo
- ------------------------
<PAGE>
EXHIBIT A -
INDIVIDUALS' REPRESENTATIONS, WARRANTIES,
COVENANTS AND INDEMNITIES
In order to induce LANSTAR SEMICONDUCTOR INC., a Utah corporation
("Lanstar"), to enter into that certain Stock Purchase Agreement dated October
-------
1, 1997, to which this letter is Exhibit A, the undersigned ZINOVY MARGULIS
---------
("Margulis") and MIKHAIL GOLDSHTEIN ("Goldshtein") agree as follows:
-------- ----------
(1) RELEASE. Margulis and Goldshtein for themselves and their respective
-------
heirs, personal representatives, executors and administrators hereby fully,
finally and forever release and discharge Lanstar, its officers, directors,
shareholders, employees, agents, legal counsel, accountants and representatives
and their respective heirs, personal representatives, executors and
administrators, of and from any and all claims, actions and causes of action and
damages (collectively, the "Claims") of every kind, whether known or unknown,
------
whether contingent or matured, regardless of when such Claims arose, but only
Claims arising through the effective time of Closing.
(2) REPRESENTATIONS AND WARRANTIES. Margulis and Goldshtein hereby each
------------------------------
represent and warrant to Lanstar that SMI has not knowingly engaged in or
conspired to engage in any deceptive labeling, remarking or misrepresentation of
the quality, capacity or capability of any inventory purchased or sold by SMI
prior to the effective time of the Closing.
(3) COVENANTS REGARDING FINANCIAL STATEMENTS. Margulis and Goldshtein
----------------------------------------
(collectively, the "Covenantors") hereby each covenant to Lanstar as follows:
-----------
EXHIBIT A - INDIVIDUALS' REPRESENTATIONS,
- ----------------------------------------
WARRANTIES, COVENANTS AND INDEMNITIES - Page 1 of 5 Pages.
- -------------------------------------
<PAGE>
(A) The auditors of Lanstar shall be allowed complete access to the
books and records of MG TK, SWM and SMI for the purpose of
preparing tax returns and financial statements for Lanstar for
any period ending on or before October 31, 1997, for which such
information is relevant in the reasonable judgment of Lanstar's
auditors. Management of MG TK, SWM and SMI shall give management
representations considered necessary in the reasonable judgment
of Lanstar's auditors, which representations shall be accurate
and complete. In the event of violation of this Section (3), the
Signatories to this Agreement agree that damages to Lanstar would
be impossible to calculate and an insufficient remedy. Therefore,
upon any breach or threatened breach of this provision, the
Signatories to this Agreement agree that Lanstar shall be
entitled to seek specific performance and/or injunctive relief of
this provision in a court of competent jurisdiction.
(B) The Covenantors agree to reasonably cooperate with Lanstar in the
future in connection with any securities filing, investigation,
audit, administrative proceeding, collection action or other
administrative action to which Lanstar may be or become subject.
(C) SMI shall furnish unaudited financial statements of SMI to
Lanstar's auditors for the nine-month period ending September 30,
1997, and for the ten-month period ending October 31, 1997, which
statements will be accurate, correct and complete in all respects
and will have been prepared in accordance with generally accepted
accounting principles, applied on a consistent basis throughout
the periods indicated. Each balance sheet will present fairly the
financial condition of SMI as of the dates indicated thereon, and
each income statement and statement of operations will present
fairly the results
EXHIBIT A - INDIVIDUALS' REPRESENTATIONS,
- ----------------------------------------
WARRANTIES, COVENANTS AND INDEMNITIES - Page 2 of 5 Pages.
- -------------------------------------
<PAGE>
of operations of SMI for the periods indicated thereon. None of
such financial statements, as of the dates and the periods
thereof, will misstate or omit to state any liability, absolute
or contingent, the omission of which renders such financial
statements misleading.
(4) INDEMNIFICATION. Margulis and Goldshtein (collectively, the
---------------
"Indemnitors") hereby jointly and severally for themselves and their respective
-----------
heirs, personal representatives, executors and administrators hereby indemnify
and agree to hold harmless Lanstar, its officers, directors, shareholders,
employees, agents, legal counsel, accountants and representatives and their
respective heirs, personal representatives, executors and administrators, of and
from any and all Claims and Damages of every kind (collectively, the
"Indemnified Items"), whether known or unknown, whether contingent or matured,
-----------------
regardless of when such Indemnified Items arose, which relate to, result from,
or are caused by the following:
(A) Any liability of any Indemnitor including, without limitation,
any tax or withholding liabilities;
(B) Any misrepresentation, breach of warranty or breach of covenant
made by the Covenantors contained in this letter; or
(C) Any act or omission of any Indemnitor or any officer, director,
shareholder, employee, agent or representative of any Indemnitor.
The foregoing indemnity shall apply to all litigation liabilities and all
tax liabilities of Margulis and Goldshtein without regard to any act or failure
to act by Lanstar, but the foregoing indemnity shall not apply in other cases
where Lanstar, its officers and directors solely caused the liability.
EXHIBIT A - INDIVIDUALS' REPRESENTATIONS,
- ----------------------------------------
WARRANTIES, COVENANTS AND INDEMNITIES - Page 3 of 5 Pages.
- -------------------------------------
<PAGE>
Lanstar and the other indemnified persons shall act in good faith, but
shall have the exclusive right to control the defense, concession or settlement
of any claim with respect to an indemnified liability. The Indemnitors shall
have the right to reasonably consult and reasonably participate at their expense
in connection with any defense or settlement. Lanstar and the other indemnified
persons shall be entitled to be paid in cash for any loss or Damages with
respect to indemnified liabilities. "Damages" as used herein, include direct
-------
damages, interest, penalties, punitive damages, court costs, legal fees,
accounting costs, expert costs and all costs of collection or enforcement of
this indemnity including reasonable legal fees. An indemnified person shall be
deemed damaged when a liability arises whether by court judgment, settlement or
concession. Payment of any loss or Damages by the indemnified person shall not
be a condition precedent to collection of the indemnity payment from any party
hereto. No indemnifying party shall be entitled to a right of offset or
reduction in its indemnity obligation as a result of any tax benefits accruing
to the indemnified person.
IN WITNESS WHEREOF, ZINOVY MARGULIS and MIKHAIL GOLDSHTEIN have executed
this Exhibit A - Individuals' Representations, Warranties, Covenants and
-------------------------------------------------------------------
Indemnities on this the 1st day of October, 1997.
- -----------
/s/ Z. Margulis
---------------------------------
ZINOVY MARGULIS
INDIVIDUALLY
EXHIBIT A - INDIVIDUALS' REPRESENTATIONS,
- ----------------------------------------
WARRANTIES, COVENANTS AND INDEMNITIES - Page 4 of 5 Pages.
- -------------------------------------
<PAGE>
/s/ M. Goldshtein
---------------------------------
MIKHAIL GOLDSHTEIN
INDIVIDUALLY
EXHIBIT A - INDIVIDUALS' REPRESENTATIONS,
- ----------------------------------------
WARRANTIES, COVENANTS AND INDEMNITIES - Page 5 of 5 Pages.
- -------------------------------------
<PAGE>
EXHIBIT B
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES
OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER SAID ACT OR UNDER APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR
EXEMPTIONS FROM SUCH REGISTRATION.
OCTOBER 13, 1997 WARRANT NO. WA97-028
LANSTAR SEMICONDUCTOR INC.
STOCK PURCHASE WARRANT
Registered Owner: Southwest Memory International, Inc.
For value received, LANSTAR SEMICONDUCTOR INC., a Utah corporation (the
"Corporation"), grants the following rights to the registered owner of this
Warrant.
(a) RESTRICTED STOCK; REGISTRATION. The shares of Common Stock of the
Corporation purchased upon exercise of this Warrant ("Restricted Stock") or
purchasable upon exercise of this Warrant ("Underlying Stock") shall not be
transferable except upon the conditions stated below, which are intended to
insure compliance with federal and state securities laws. If, at the time of
exercise of this Warrant by the registered owner, the representations and
warranties made by the registered owner in a Subscription Agreement are
acceptable to the Corporation, the Corporation will undertake to cause the
Underlying Stock to be issued to the registered owner pursuant to Section 4(2)
of the Securities Act of 1933, as amended. The certificates representing these
shares of stock shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"The securities represented by this Certificate have not been registered
under the Securities Act of 1933, as amended, or the securities laws of any
state. The securities have been acquired for investment and may not be
sold, offered for sale or transferred in
- 1 -
<PAGE>
the absence of an effective registration under the Securities Act of 1933,
as amended, and any applicable state securities laws or an opinion of
counsel satisfactory in form and substance to counsel for the Corporation
that the transaction shall not result in a violation of state or federal
securities laws".
(b) ISSUE. Upon tender to the Corporation (as defined in paragraph (f)
hereof), the Corporation shall issue to the registered owner hereof up to the
number of shares specified in paragraph (c) hereof of fully paid and
nonassessable shares of Common Stock of the Corporation that the registered
owner is otherwise entitled to purchase.
(c) NUMBER OF SHARES. The total number of shares of Common Stock of the
Corporation that the registered owner of this Warrant is entitled to receive
upon complete exercise of this Warrant is EIGHTEEN MILLION (18,000,000) shares.
The Corporation shall at all times reserve and hold available sufficient shares
of Common Stock to satisfy all conversion and purchase rights represented by
outstanding convertible securities, options and warrants, including this
Warrant. The Corporation covenants and agrees that all shares of Common Stock
that may be issued upon the exercise of this Warrant shall, upon issuance, be
duly and validly issued, fully paid and nonassessable, and free from all taxes
and liens with respect to the purchase and the issuance of the shares.
(d) EXERCISE PRICE. The exercise price of this Warrant, the price at
which the shares of stock purchasable upon exercise of this Warrant may be
purchased, is ONE and 50/100 DOLLARS ($1.50) per share.
(e) EXERCISE PERIOD. Provided, that this Warrant may only be exercised up
to and including October 13, 2000 ("Exercise Period"). If not exercised during
this period, this Warrant and all rights granted under this Warrant shall expire
and lapse.
(f) TENDER. The exercise of this Warrant must be accomplished by actual
delivery of the Exercise Price for the requested number of shares in cash in the
form of a cashier's check and by actual delivery of a duly executed exercise
form, a copy of which is attached to this Warrant as Exhibit 1, properly
executed by the registered owner of this Warrant, and by surrender of this
Warrant. The payment and exercise form must be delivered, personally or by mail,
to the registered office of the Corporation. Documents sent by mail shall be
deemed to be delivered when they are received by the Corporation.
- 2 -
<PAGE>
IN WITNESS WHEREOF, the Corporation has signed this Warrant by its duly
authorized officer effective as of the date first above written.
LANSTAR SEMICONDUCTOR INC.
By:
----------------------------
Maxie R. Smith
Chief Executive Officer and
Chairman of the Board
- 3 -
<PAGE>
EXHIBIT 1
WARRANT EXERCISE FORM
TO: LANSTAR SEMICONDUCTOR INC.
The undersigned hereby: (1) irrevocably subscribes for and offers to
purchase up to _____________________ (_______________) shares of restricted
Common Stock of LANSTAR SEMICONDUCTOR INC., pursuant to Warrant No. WA97-028
heretofore issued to the undersigned on October 13, 1997; (2) encloses payment
of ______________________________ ($________________) for these shares at a
price of ONE and 50/100 DOLLARS ($1.50) per share; and (3) requests that a
certificate for the shares be issued in the name of Southwest Memory
International, Inc. and delivered to the undersigned at the address specified
below:
Date:
---------------------
INVESTOR NAME: Southwest Memory International, Inc.
By:
------------------------------------
Printed Name:
------------------------------------
Title:
------------------------------------
Address:
------------------------------------
------------------------------------
Signature guaranteed by: ------------------------------------
EXHIBIT 1 - WARRANT EXERCISE FORM - Page Solo
<PAGE>
EXHIBIT C
PROMISSORY NOTE
FOR VALUE RECEIVED, SOUTHWEST MEMORY INTERNATIONAL, INC., a Texas
corporation (hereinafter called the "Maker"), promises to pay to the order of
-----
LANSTAR SEMICONDUCTOR INC., a Utah corporation (hereinafter called the "Payee"),
-----
the principal amount of Five Hundred Thousand Dollars ($500,000.00), together
with interest from the date of this Promissory Note on the unpaid principal
balance, all as set forth below. All sums that are due under this Promissory
Note are payable at such place in Arlington, Tarrant County, Texas, as the Payee
may designate in writing.
(1) INTEREST RATE. The unpaid principal balance of this Promissory Note
-------------
shall bear interest at a rate that is equal to the prime commercial rate
established from time to time by Bank One, Texas, N.A. plus Two Percent (2%).
(2) PAYMENT OF PRINCIPAL AND INTEREST. The principal of this Promissory
---------------------------------
Note, together with all accrued interest, shall be due and payable on or before
twelve (12) months from the date of execution of this Promissory Note
(hereinafter called the "Due Date").
--------
(3) PREPAYMENT. The Maker shall have the right and privilege at any time
----------
to prepay, in whole or in part, the principal balance of this Promissory Note
without premium or penalty and interest shall immediately cease on any amount so
prepaid.
(4) RECEIPT OF INTEREST. All agreements between the Maker and the Payee
-------------------
are hereby expressly limited so that in no contingency or event whatsoever shall
the amount paid, or agreed to be paid, to the
PROMISSORY NOTE - Page 1 of 3 Pages
- ---------------
<PAGE>
Payee for the use, forbearance or detention of the money to be loaned hereunder
exceed the maximum amount permissible under Texas law. If, from any
circumstances whatsoever, fulfillment of any provision of this Promissory Note
at the time performance of such provision shall be due shall involve
transcending the limit of validity prescribed by Texas law, then, ipso facto,
the obligation to be fulfilled shall be reduced to the limit of such validity,
and if from any circumstances the Payee should ever receive, as interest, an
amount that would exceed the highest lawful rate, then such amount that would be
excessive interest shall be applied to the reduction of the principal amount
owing and not to the payment of interest.
(5) TEXAS LAW TO APPLY. THIS PROMISSORY NOTE SHALL BE GOVERNED BY,
------------------
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS
(EXCLUDING ANY CONFLICTS-OF-LAW RULE OR PRINCIPLE OF TEXAS LAW THAT MIGHT REFER
THE GOVERNANCE, CONSTRUCTION OR INTERPRETATION OF THIS PROMISSORY NOTE TO THE
LAWS OF ANOTHER STATE).
(6) NOTICE. Within ten (10) days of the Due Date, the Payee shall mail
------
written notice that the principal of this Promissory Note, together with all
accrued interest, is due and payable on or before the Due Date to the Maker at
the address that is set forth below the signature line by certified mail, return
receipt requested, postage prepaid.
(7) ATTORNEY'S FEES. If this Promissory Note is not paid as set forth
---------------
herein and is placed in the hands of an attorney for collection, or if it is
collected through a bankruptcy, a probate or any other court after maturity,
then the Payee shall be entitled to reasonable attorney's fees for collection.
PROMISSORY NOTE - Page 2 of 3 Pages
- ---------------
<PAGE>
IN WITNESS WHEREOF, the Maker, SOUTHWEST MEMORY INTERNATIONAL, INC., has
executed this Promissory Note on this the 13th day of October, 1997.
SOUTHWEST MEMORY
INTERNATIONAL, INC.
MAKER
BY:
--------------------------------
ILYA DRAPKIN
CHIEF EXECUTIVE OFFICER
ADDRESS FOR NOTICE:
------------------
3330 KELLER SPRINGS-SUITE 208
CARROLLTON, TEXAS 75006-5076
ATTENTION: ILYA DRAPKIN
PROMISSORY NOTE - Page 3 of 3 Pages
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<PAGE>
EXHIBIT D - CONSIDERATION IN
THE FORM OF SIMM INVENTORY
Purchaser: LANSTAR SEMICONDUCTOR INC.
- ---------
Seller: SOUTHWEST MEMORY INTERNATIONAL, INC.
- ------
Product Mix
- -----------
to be Delivered: 3125 16Meg SIMM Inventory
- ---------------
685 32Meg SIMM Inventory
Brand of Product: Hyundai 16Meg SIMM Inventory
- ----------------
Panasonic 32Meg SIMM Inventory
Cost Per Unit: $38.00/16Meg SIMM Inventory Unit
- -------------
$76.00/32Meg SIMM Inventory Unit
Delivery Date: October 1, 1997, on or before 5:00 P.M.
- -------------
Total Market Value
- -----------------
of Inventory Sold: $170,800
- -----------------
EXHIBIT D - CONSIDERATION IN
- ----------------------------
THE FORM OF SIMM INVENTORY - Page Solo
- --------------------------
<PAGE>
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
KAZMIR KLIFFS, INC.
[]
WE, THE UNDERSIGNED NATURAL PERSONS OF THE AGE OF TWENTY-ONE YEARS OR
[]
MORE, ACTING AS INCORPORATORS OF THE CORPORATION UNDER THE UTAH BUSINESS
[]
CORPORATIONS ACT (HEREINAFTER CALLED THE 'ACT') ADOPT THE FOLLOWING ARTICLES
OF INCORPORATION FOR SUCH CORPORATION.
88907
88907
ARTICLE I
---------
NAME. THE NAME OF THE CORPORATION (HEREINAFTER CALLED THE 'CORPORATION')
----
IS KAZMIR KLIFFS, INC.
ARTICLE II
----------
PERIOD OF DURATION. THE PERIOD OF DURATION OF THE CORPORATION IS
-------------------
PERPETUAL.
ARTICLE III
-----------
PURPOSES AND POWERS. THE PURPOSE FOR WHICH THIS CORPORATION IS ORGANIZED
--------------------
IS TO INVEST IN REAL AND PERSONAL PROPERTY, TANGIBLE OR INTANGIBLE, AND TO
ENGAGE IN ALL OTHER LAWFUL BUSINESS.
ARTICLE IV
----------
CAPITALIZATION. THE CORPORATION SHALL HAVE THE AUTHORITY TO ISSUE
---------------
50,000,000 SHARES OF STOCK EACH HAVING A PAR VALUE OF ONE-TENTH OF ONE CENT
(1 MIL). ALL STOCK OF THE CORPORATION SHALL BE OF THE SAME CLASS AND SHALL
HAVE THE SAME RIGHTS AND PREFERENCES. FULLY-PAID STOCK OF THE CORPORATION
SHALL NOT BE LIABLE FOR FURTHER CALL OR ASSESSMENT. THE AUTHORIZED TRADING
SHARES SHALL BE ISSUED AT THE DISCRETION OF THE DIRECTORS.
ARTICLE V
---------
INCORPORATORS. THE. NAME AND POST OFFICE ADDRESS OF, EACH. INCORPORATOR
-------------
IS
CLIFFORD D. HUGHES
2929 HILLSDEN DRIVE
SALT LAKE CITY, UTAH 84117
<PAGE>
[]
[]
[]
[]
[] PAUL EVAN KRUEGER
[] 5225 GRAVENSTEINE PARK
[] MURRAY, UTAH 84107
[]
[] MELINDA K. ORTH
2139 EAST 2700 SOUTH
SALT LAKE CITY, UTAH 84109
ARTICLE VI
----------
DIRECTORS. THE CORPORATION SHALL BE GOVERNED BY A BOARD OF DIRECTORS
----------
CONSISTING OF NO LESS THAN THREE (3) AND-NO MORE THAN NINE (9) DIRECTORS.
DIRECTORS NEED NOT BE STOCKHOLDERS IN THE CORPORATION BUT SHALL BE ELECTED
BY THE STOCKHOLDERS OF THE CORPORATION. THE NUMBER OF DIRECTORS CONSTITUTING
THE INITIAL BOARD OF DIRECTORS IS THREE (3) AND THE NAME AND POST OFFICE
ADDRESS OF THE PERSONS WHO SHALL SERVE AS DIRECTORS UNTIL THEIR SUCCESSORS
ARE ELECTED AND QUALIFIED ARE
CLIFFORD D. HUGHES
2929 HILLSDEN DRIVE
SALT LAKE CITY, UTAH 84117
[]
PAUL EVAN KRUEGER
[]
5225 GRAVENSTEINE PARK
MURRAY, UTAH 84107
[]
MELINDA K. ORTH
[]
2139 EAST 2700 SOUTH
[]
SALT LAKE CITY, UTAH 84109
[]
[]
ARTICLE VII
-----------
[]
--
[]
- --
<PAGE>
COMMENCEMENT OF BUSINESS. THE CORPORATION SHALL NOT COMMENCE BUSINESS
[]
UNTIL AT LEAST ONE THOUSAND DOLLARS ($1,000.00) HAS BEEN RECEIVED BY THE
[]
CORPORATION AS CONSIDERATION FOR THE ISSUANCE OF ITS SHARES.
ARTICLE VII
-----------
PREEMPTIVE RIGHTS. THERE SHALL BE NO PREEMPTIVE RIGHT TO ACQUIRE
------------------
UNISSUED AND/OR TREASURY STOCK OF THE SHARES OF THE CORPORATION.
ARTICLE IX
----------
VOTING OF SHARES. EACH OUTSTANDING SHARE OF COMMON STOCK OF THE
-----------------
CORPORATION SHALL BE ENTITLED TO ONE VOTE ON EACH MATTER SUBMITTED TO A
VOTE AT THE MEETING OF THE STOCKHOLDERS. EACH STOCKHOLDER SHALL BE ENTITLED
TO VOTE HIS OR ITS SHARES IN PERSON OR BY PROXY,
<PAGE>
[]
[]
[]
[]
[]
EXECUTED IN WRITING BY SUCH STOCKHOLDERS, OR BY HIS DULY AUTHORIZED
[]
ATTORNEY-IN-FACT. AT EACH ELECTION OF DIRECTORS, EVERY STOCKHOLDER ENTITLED
[]
TO VOTE IN SUCH ELECTION SHALL HAVE THE RIGHT TO VOTE IN PERSON OR BY PROXY
THE NUMBER OF SHARES OWNED BY HIM OR IT FOR AS MANY PERSONS AS THERE ARE
DIRECTORS TO BE ELECTED AND FOR WHOSE ELECTION HE OR IT HAS THE RIGHT TO
VOTE, BUT THE SHAREHOLDER SHALL HAVE NO RIGHT TO ACCUMULATE HIS OR ITS VOTES
WITH REGARD TO SUCH ELECTION.
ARTICLE X
---------
INITIAL REGISTERED OFFICE AND INITIAL REGISTERED AGENT. THE ADDRESS OF
-------------------------------------------------------
THE INITIAL REGISTERED OFFICE OF THE CORPORATION IS 1549 SOUTH 1300 EAST,
SALT LAKE CITY, UTAH 84105 AND THE INITIAL REGISTERED AGENT OF THE
CORPORATION AT SUCH ADDRESS IS W. STERLING MASON, JR.
STATE OF UTAH )
: SS
COUNTY OF SALT LAKE)
ON THE 22nd DAY OF October, 1980, PERSONALLY APPEARED BEFORE ME CLIFFORD
---- --------
0. HUGHES, PAUL EVAN KRUEGER AND MELINDA K. ORTH AND DULY ACKNOWLEDGED TO ME
THAT THEY ARE THE PERSONS WHO SIGNED THE FOREGOING INSTRUMENT AS
INCORPORATORS AND THAT THEY HAVE READ THE FOREGOING INSTRUMENT AND KNOW THE
CONTENTS THEREOF AND THAT THE SAME IS TRUE OF THEIR OWN KNOWLEDGE AS TO
THOSE MATTERS UPON WHICH THEY OPERATE ON INFORMATION AND BELIEF AND AS TO
THOSE MATTER BELIEVE THEM TO BE TRUE.
---------------------------------
NOTARY PUBLIC
RESIDING IN SALT LAKE CITY, UTAH
MY COMMISSION EXPIRES
AUGUST 14, 1981
---------------
<PAGE>
Exhibit 3.2
<TABLE>
<S> <C>
[]
State of Utah COO 88907
[]
Department of Commerce
[]
Division of Corporation and Commercial Code
[]
[]
[]
I Hereby certify that the foregoing has been filed NOV 30 1995
and approved on the 30 day of Nov. 1995 Utah Div. of Corp. & Comm. Code
[]
in the office of this Division and hereby issue
this Certificate thereof.
[]
</TABLE>
[]
[]
ARTICLES OF INCORPORATION
[]
OF
[]
[]
KAZMIR KLIFFS, INC.
[]
Pursuant to the provisions of Section 16-10a-1006 of the Utah
Revised Business Corporation Act, the undersigned hereby adopts the
following Articles of Amendment to its Articles of Incorporation. The
Amendments as set-forth herein were duly adopted by the stockholders of
the corporation at a meeting held October 23, 1995, in the manner
prescribed by the Utah Revised Corporation Act.
AMENDED ARTICLE I
NAME. The name of the corporation (hereinafter the
-----
"corporation") shall be, and hereby is, changed to:
[]
LANSTAR SEMICONDUCTOR INC.
[]
The Articles of Incorporation, with the above stated Amendment
to Article I, are hereby restated.
In addition to the foregoing Amendment, the stockholders of
the Corporation approved a reverse split of the issued and outstanding
stock of the Corporation on a ratio of two for one (2=1). In the event
that such ration results in a fractional share the fractional share
shall be issued as a whole share. The shareholder action as adopted
does not provide for any exchange, reclassification or cancellation of
issued shares and specifically maintains the present authorized capital
of
<PAGE>
the Corporation at 50,000,000 shares of common stock with a par value
of $0.001 (1 Mil).
The number of shares of the Company that were outstanding and
entitled to vote on the date of the adoption of the above state
Amendment and reverse stock split was 4,400,002 shares. A total of
3,490,051 shares were present and entitled to vote on each of these
actions and all said shares were voted in favor thereof. No shares were
voted against or abstained from said vote.
<PAGE>
[]
[]
[]
[]
Dated this 28TH day of NOVEMBER 1995.
[]
[]
IN WITNESS WHEREOF, the undersigned President and Secretary,
having been duly authorized, have executed the foregoing Articles of
Amendment for the corporation under
penalty f perjury this 28TH day of NOVEMBER 1995.
----------------------------
Kurtis D. Hughes, President
----------------------------
[]
Shirrell Hughes, Secretary
[]
[]
STATE OF: UTAH
[]
COUNTY OF: SALT LAKE
[]
[]
SUBSCRIBED AND SWORN TO BEFORE ME THIS 28TH DAY OF NOVEMBER, 1995
[]
------------------------------------------
NOTARY PUBLIC
COMMISSION EXPIRES: 4-15-96
Notary Public
MELINDA K. ORTH
9939 So. Orchard View DR.
South Jordan, Utah 84065
My Commission Expires
April 15, 1996
State of Utah
<PAGE>
Exhibit 3.3
[]
[]
[]
State of Utah
Department of Commerce
Division of Corporation and Commercial Code
I Hereby certify that the foregoing has been filed and approved on the 11 day of
Sept. 1997 in the office of this Division and hereby issue this Certificate
thereof. ARTICLES OF AMENDMENT
Examiner Date 9/12/97
-----------
TO THE
----------------
KORLA T. WOODS ARTICLES OF INCORPORATION
Division Director
[]
OF
LANSTAR SEMICONDUCTOR INC.
Pursuant to the provision of Section 16-10a-1006 of the Utah Revised
Business Corporation Act, the undersigned hereby adopts the following Articles
of Amendment to its Articles of Incorporation:
ARTICLE I
---------
[]
- --
The name of the Corporation is LANSTAR SEMICONDUCTOR INC.
[]
ARTICLE II
----------
[]
- --
The following amendment to the Articles of Incorporation was
unanimously adopted by the Board of Directors of the Corporation effective as of
August 26, 1997, and by the Shareholders of the Corporation on September 9,
1997, for the purpose of increasing the number of authorized shares. The
amendment alters Article IV of the original Articles of Incorporation, and the
full text of Article IV, as hereby amended, is as follows:
[]
CAPITALIZATION. THE CORPORATION SHALL HAVE
--------------
[]
THE AUTHORITY TO ISSUE 250,000,000 SHARES OF
[]
STOCK EACH HAVING A PAR VALUE OF ONE-TENTH OF
ONE CENT (1 MIL). ALL STOCK OF THE CORPORATION
[]
SHALL BE OF THE SAME CLASS AND SHALL HAVE THE
[]
SAME RIGHTS AND PREFERENCES. FULLY PAID STOCK
<PAGE>
OF THE CORPORATION SHALL NOT BE LIABLE FOR
FURTHER CALL OR ASSESSMENT. THE AUTHORIZED
TRADING SHARES SHALL BE ISSUED AT THE DISCRETION
OF THE DIRECTORS.
-1-
<PAGE>
[]
[]
[]
[]
ARTICLE III
[] -----------
- --
[]
The number of shares of the Corporation that were outstanding and
entitled to vote on the date of the adoption of the above-stated amendment was
48,763,269 shares. A total of 28,320,648 shares were present and entitled to
vote on the above stated amendment. A total of 28,216,598 shares were voted in
favor of the amendment. A total of 101,925 shares were voted agaiinst the
amendment. A total of 2,125 shares abstained from said vote.
IN WITNESS WHEREOF, the undersigned Chairman, having been duly
authorized, has executed the foregoing Articles of Amendment for the Corporation
under penalty of perjury this 10th day of September, 1997.
---------------------------
MAXIE R. SMITH, CHAIRMAN
STATE OF TEXAS
COUNTY OF DALLAS
This Articles of Amendment to the Articles of Incorporation of
Lanstar Semiconductor Inc. was acknowledged before me on this the
10th day of September, 1997, by Maxie R. Smith.
----------------------------
CHERYL L. MOSELEY
Notary Public, State of Texas
My Commission Expires:
3-22-98
<PAGE>
EXHIBIT 3.4
AMENDED AND RESTATED BYLAWS
OF
LANSTAR SEMICONDUCTOR INC.
(FORMERLY KNOWN AS KAZMIR KLIFFS, INC.)
ARTICLE I - OFFICES
SECTION 1. Registered Office. The Registered Office of the Corporation in
-----------------
the State of Utah is located at c/o CT Corporation System, 50 West Broadway,
Salt Lake City, Salt Lake County, Utah 84101. The location of the Registered
Office of the Corporation in the State of Utah may be changed from time to time
in the discretion of the Board of the Board of Directors.
SECTION 2. Additional Offices. The Corporation may also have offices at
------------------
other places, within or without the State of Utah, in any state where the
Corporation is qualified to do business, as the business of the Corporation may
require and as the Board of Directors may from time to time designate.
ARTICLE II - SHAREHOLDERS' MEETINGS
SECTION 1. Annual Meeting. The annual meeting of the shareholders shall
--------------
be held on the 18th day of May of each year beginning on May 18, 1998, at the
hour of 3:00 o'clock P.M., for the purpose of electing Directors and for the
transaction of such other business as may come before the meeting. If the day
fixed for the annual meeting shall be a legal holiday in the State of Utah, such
meeting shall be held on the next succeeding business day. If the election of
Directors shall not be held on the day designated herein for any annual meeting
of the shareholders, or at any adjournment thereof, the Board of Directors shall
cause the election to be held at a special meeting of the shareholders as soon
thereafter as conveniently may be.
SECTION 2. Place of Meetings. Meetings of the Shareholders shall be held
-----------------
at any place, either within or without the State of Utah, that is designated by
the Board of Directors pursuant to authority hereinafter
-1-
<PAGE>
granted to the Board of Directors or by the written consent of all persons
entitled to vote thereat. In the absence of any such designation, Shareholders'
meetings shall be held at the principal office of the Corporation.
SECTION 3. Notice of Meeting. Notice of all meetings of the Shareholders
-----------------
stating the place, day and hour of the meeting, and, in case of a special
meeting, the purpose or purposes for which the meeting is called, shall be given
in writing to each Shareholder who is entitled to vote at the meeting at least
ten (10) but not more than sixty (60) days before the date of the meeting either
personally or by mail or other means of written communication, addressed to the
Shareholder at the address appearing on the books of the Corporation. If
mailed, the notice shall be deemed to be delivered when deposited in the United
States mail, with postage prepaid, properly addressed to the Shareholder.
Notice of adjourned meetings is not necessary unless the meeting is adjourned
for thirty (30) days or more, in which case notice of the adjourned meeting
shall be given in the same manner as any special meeting.
SECTION 4. Special Meetings. Special meetings of the Shareholders may be
----------------
called by the President, the Board of Directors or by the holder or holders of
at least one tenth (1/10) of all the shares entitled to vote at the meeting. No
question may be voted upon at a special meeting of the Shareholders unless the
notice of said meeting states that one of the purposes of the meeting will be to
act upon the question or unless the meeting is attended by all of the
Shareholders entitled to vote upon the question and all the Shareholders vote
that the question may then be voted upon at that meeting.
SECTION 5. Quorum and Manner of Action. The holders of a majority of
---------------------------
shares entitled to vote, represented in person or by proxy, shall be required to
constitute a quorum at a meeting of Shareholders. If less than all of the
outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without notice other than
announcement at the meeting until a quorum shall be present. At a reconvened
meeting at which a quorum is represented, any business may be transacted which
might have been transacted at the meeting as originally noticed. When a quorum
is represented at any meeting, the affirmative vote of the holders of all of the
shares entitled to vote and represented at the meeting shall be required to
decide any question that is brought before the Shareholders, unless the question
is one upon which, by express provision of the statutes, the Articles of
Incorporation or of these Amended and Restated
-2-
<PAGE>
Bylaws, a different vote is required, in which case the express provision shall
govern and control the vote required for decision upon the question.
SECTION 6. Voting of Common Shares. Each outstanding share of common
-----------------------
stock shall be entitled to one (1) vote on each matter submitted to a vote at a
meeting of Shareholders.
SECTION 7. Eligible Shareholders. For the purpose of determining
---------------------
Shareholders entitled to notice of and to vote at any meeting of Shareholders or
at any adjournment thereof, for the purpose of determining Shareholders entitled
to receive payment of any dividend or other distribution or in order to make a
determination of Shareholders for any other purpose, the Board of Directors of
the Corporation may provide that the share transfer books shall be closed for a
stated period, not to exceed, in any case, sixty (60) days. If the share
transfer books shall be closed for the purpose of determining Shareholders
entitled to notice of or to vote at a meeting of Shareholders, the books shall
be closed for at least ten (10) days immediately preceding the meeting. In
lieu of closing the share transfer books, the Board of Directors may fix in
advance a date as the record date for such determination of Shareholders, the
date in any case to be not more than sixty (60) days and, in case of a meeting
of Shareholders, not less than ten (10) days prior to the date on which the
particular action requiring the determination of Shareholders is to be taken.
If the share transfer books are not closed and no record date is fixed for the
determination of Shareholders entitled to notice of and to vote at a meeting of
Shareholders or Shareholders entitled to receive payment of a dividend or other
distribution, the date on which notice of the meeting is mailed or the date on
which the resolution of the Board of Directors declaring the dividend or other
distribution is adopted, as the case may be, shall be the record date for the
determination of Shareholders. When a determination of Shareholders entitled to
vote at any meeting of Shareholders has been made as provided in this Section,
the determination shall apply to any adjournment thereof.
SECTION 8. Voting List. The Officer or agent having charge of the
-----------
Corporation's share transfer books shall make, at least ten (10) days before
each meeting of Shareholders, a complete list of the Shareholders entitled to
vote at the meeting or at any adjournment thereof. The list shall be arranged
in alphabetical order with the address of each Shareholder and the number of
shares owned by each Shareholder. The list, for a period of ten (10) days prior
to the meeting, shall be kept on file at the Registered Office of the
Corporation and shall be subject to inspection by any Shareholder at
any time during usual and ordinary business
-3-
<PAGE>
hours. The list shall also be produced and kept open at the time and place of
the meeting and shall be subject to the inspection of any Shareholder during the
whole time of the meeting. The original share transfer books shall be prima
facie evidence as to the Shareholders who are entitled to examine the list and
transfer books and to vote at any meeting of Shareholders.
SECTION 9. Proxies. At any meeting of Shareholders, a Shareholder may
-------
vote in person or by proxy executed in writing by the Shareholder or by his duly
authorized attorney-in-fact. The proxy shall be filed with the Secretary of the
Corporation before or at the time of the meeting. No proxy shall be valid after
eleven (11) months from the date of its execution, unless otherwise specifically
provided in the proxy. Each proxy shall be revocable unless the proxy form
conspicuously states that the proxy is irrevocable and the proxy is coupled with
an interest.
SECTION 10. Action Without Meeting. Any action which, under any provision
----------------------
of the Utah Revised Business Corporation Act, may be taken at a meeting of the
Shareholders, may be taken without a meeting if a consent or consents in writing
setting forth the action so taken shall be signed by or on behalf of all of the
Shareholders who would be entitled to vote on such action at a meeting and filed
with the Secretary of the Corporation. Any signed consent or consents, or a
signed copy thereof, shall be placed in the Minute Book of the Corporation.
SECTION 11. Consent of Absentees. No defect in the calling or noticing of
--------------------
a Shareholders' meeting will affect the validity of any action at the meeting if
a quorum was present and if each Shareholder not present in person or by proxy
signs a written waiver of notice, consent to the holding of the meeting or
approval of the Minutes, either before or after the meeting and the waivers,
consents or approvals are filed with the corporate records or made a part of the
Minutes of the meeting.
SECTION 12. Election Inspector. In advance of any meeting of
------------------
Shareholders, the Board of Directors may appoint any person, other than a
nominee for office, as inspector of election to act at the meeting or any
adjournment thereof. If an inspector of election is not so appointed, the
Chairman of the meeting may, and on the request of Shareholders or their proxies
holding a majority of the votes entitled to be cast at the meeting, shall,
appoint an inspector of election at the meeting. In case the person appointed
as inspector fails to appear or fails or refuses to act, the vacancy may
be filled by appointment by the Board of Directors in advance of the meeting or
at the meeting by the person acting as
-4-
<PAGE>
Chairman. The inspector of election shall determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum, the authenticity, validity and effect of proxies,
receive votes, ballots or consents, hear and determine all challenges and
questions in any way arising in connection with the right to vote, count and
tabulate all votes or consents, determine the result, and do such acts as may be
proper to conduct the election or vote with fairness to all Shareholders. The
inspector of election shall perform his duties impartially, in good faith, to
the best of his ability and as expeditiously as is practical. On request of the
Chairman of the meeting or of any Shareholder or his proxy, the inspector shall
make a report in writing of any challenge or question or matter determined by
him and execute a certificate of any fact found by him. Any report or
certificate made by him shall be prima facie evidence of the facts stated
therein.
SECTION 13. Conduct of Meeting. At every meeting of the Shareholders, the
------------------
Chairman of the Board, or if there is no such Officer or in his absence, the
President, or in their absence, the Vice President designated by the Board of
Directors, shall act as Chairman. The Secretary of the Corporation, or in his
absence, the Assistant Secretary (in order of seniority if more than one), or in
their absence, any person appointed by the presiding officer, shall act as
Secretary of the meeting.
SECTION 14. Cumulative Voting. Cumulative voting by the Shareholders of
-----------------
the Corporation at any election for Directors is expressly prohibited. The
Shareholders entitled to vote for Directors in an election shall be entitled to
cast one (1) vote for each Director to be elected for each share held and no
more.
SECTION 15. Voting of Shares of Certain Holders.
-----------------------------------
(A) Shares standing in the name of another corporation may be voted by the
Officer, agent or proxy as the Amended and Restated Bylaws of the
other corporation may authorize, or in the absence of an
authorization, as the Board of Directors of the other corporation may
determine.
(B) Shares held by an administrator, executor, guardian or conservator may
be voted by him so long as the shares are in the possession and
forming a part of the estate being served by him, either in person or
by proxy, without a transfer of the shares into his name. Shares
standing in the name of a trustee may be voted by him, either in
person or by proxy,
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<PAGE>
but no trustee shall be entitled to vote shares held by him without a
transfer of the shares into his name as trustee.
(C) Shares standing in the name of a receiver may be voted by the
receiver, and shares held by or under the control of a receiver may be
voted by him without the transfer thereof into his name if authority
to do so is contained in an appropriate order of the court by which he
was appointed.
(D) A shareholder whose shares are pledged shall be entitled to vote the
shares until they have been transferred into the name of the pledgee.
Thereafter, the pledgee shall be entitled to vote the transferred
shares.
(E) Treasury shares, shares of its own stock that are owned by another
corporation the majority of the voting stock of which is owned or
controlled by the Corporation, and shares of its own stock held by the
Corporation in a fiduciary capacity shall not be voted, directly or
indirectly, at any meeting, and shall not be counted in determining
the total number of outstanding shares at any given time.
SECTION 16. Telephone Meetings. Subject to applicable notice
------------------
requirements, meetings of the Shareholders may be held by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other. Participation in a telephone
meeting shall constitute presence in person at such meeting, except where a
person participates in the meeting for the express and limited purpose of
objecting to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
ARTICLE III - DIRECTORS
SECTION 1. Powers. The business and affairs of the Corporation shall be
------
managed by the Board of Directors which shall exercise all the powers of the
Corporation and do all lawful acts and things as are not by statute, by the
Articles of Incorporation or by these Amended and Restated Bylaws directed or
required to be exercised or done by the Shareholders.
-6-
<PAGE>
SECTION 2. Number and Qualifications. The Board of Directors shall
-------------------------
consist of three (3) Directors. The number of Directors may be increased or
decreased from time to time by amendment to these Amended and Restated Bylaws;
provided, however, that no decrease in the number of Directors shall have the
effect of shortening the term of any incumbent Director. Directors need not be
Shareholders of the Corporation or residents of the State of Utah.
SECTION 3. Term of Office. The Director named in the Articles of
--------------
Incorporation shall hold office until the first annual meeting of Shareholders
and until his successor or successors are elected and qualified, either at an
annual or a special meeting of Shareholders, unless he shall have previously
resigned, been removed or become disqualified to serve. Directors other than
the Director named in the Articles of Incorporation shall hold office until the
next annual meeting and until their successors are elected and qualified, unless
they shall have previously resigned, been removed or become disqualified to
serve.
SECTION 4. Vacancies. Vacancies on the Board of Directors shall exist in
---------
the case of the happening of any of the following events: (A) the death,
resignation or removal of any Director; (B) the authorized number of Directors
is increased; or (C) at any annual, regular or special meeting of Shareholders
at which any Director is elected, the Shareholders fail to elect the full
authorized number of Directors to be voted for at that meeting. In addition,
the Board of Directors may declare vacant the office of a Director if he is
adjudged incompetent by an order of Court or convicted of a felony. Vacancies
may be filled by the unanimous vote of the remaining Directors, though less than
a quorum, if necessary, or by a sole remaining Director. Each Director so
elected shall hold office until his successor is elected at an annual, regular
or special meeting of the Shareholders. The Shareholders may elect a Director
at any time to fill any vacancy that is not filled by the Directors. If the
Board of Directors accepts the resignation of a Director tendered to take effect
at a future time, the Board of Directors or the Shareholders may elect a
successor to take office when the resignation becomes effective. A reduction of
the authorized number of Directors shall not remove any Director prior to the
expiration of his term of office.
SECTION 5. Removal. The entire Board of Directors or any individual
-------
Director may be removed from office, either with or without cause, by a vote of
Shareholders holding a majority of the shares entitled to vote at an election of
Directors. If any or all Directors are so removed, new Directors may be elected
at the same meeting.
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<PAGE>
SECTION 6. Place of Meetings. All meetings of the Board of Directors
-----------------
shall be held at any place, within or without the State of Utah, which has been
designated from time to time by resolution of the Board of Directors or by
written consent of all members of the Board of Directors. Any regular or
special meeting is valid, wherever held, if held on written consent of all
members of the Board of Directors given either before or after the meeting that
it filed with the Secretary of the Corporation.
SECTION 7. Annual Meetings. Annual meetings of the Board of Directors
---------------
shall be held, without call or notice, immediately following each annual meeting
of the Shareholders of this Corporation.
SECTION 8. Regular Meetings and Special Meetings. Regular meetings of the
-------------------------------------
Board of Directors may be held at such times as the Board of Directors may from
time to time determine, and if so determined, notices thereof need not be given.
Special meetings of the Board of Directors shall be called by the President, by
any Vice President or by any Director.
SECTION 9. Notice of Special Meetings. Written notice of the time, place
--------------------------
and purpose of special meetings of the Board of Directors shall be delivered
personally to each Director or sent to each Director by mail or by other form of
written communication, at least three (3) days before the meeting. If the
address of a Director is not shown on the records and is not readily
ascertainable, notice shall be addressed to him at the city or place in which
meetings of the Directors are regularly held. Notice of the time and place of
holding of an adjourned meeting of a meeting need not be given to absent
Directors if the time and place are fixed at the meeting adjourned.
SECTION 10. Quorum and Manner of Action. At all meetings of the Board of
---------------------------
Directors, the presence of all of the Directors shall be required to constitute
a quorum for the transaction of business and the affirmative vote of all of the
Directors shall be required to decide any question that is brought before the
Board of Directors. If a quorum shall not be present at any meeting of
Directors, the Directors present may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present. At a reconvened meeting at which a quorum is present any business may
be transacted which might have been transacted at the meeting as originally
noticed. Each Director who is present at a meeting will be deemed to have
assented to any action taken at the meeting unless his dissent to
-8-
<PAGE>
the action is entered in the Minutes of the meeting or unless he shall file his
written dissent thereto with the Secretary of the meeting or shall forward the
dissent by registered mail to the Secretary of the Corporation immediately after
the meeting.
SECTION 11. Action Without Meeting. Any action required or permitted to
----------------------
be taken by the Board of Directors or any committee of Directors under any
provision of the Utah Revised Business Corporation Act may be taken without a
meeting, if all members of the Board of Directors or of the committee of
Directors shall individually or collectively consent in writing to the action.
The written consent or consents shall be filed with the Minutes of the
proceedings of the Board of Directors. The action by written consent shall have
the same force and effect as a unanimous vote of the Directors. Any certificate
or other document filed under any provision of the Utah Revised Business
Corporation Act which relates to action so taken shall state that the action was
taken by unanimous written consent of the Board of Directors without a meeting
and that these Amended and Restated Bylaws authorize the Directors to so act and
the statement shall be prima facie evidence of such authority.
SECTION 12. Validation of Meeting Defectively Called. The transactions of
----------------------------------------
any meeting of the Board of Directors, however called and noticed or wherever
held, are as valid as though had at a meeting duly held after regular call and
notice, if a quorum is present and if, either before or after the meeting, each
of the Directors not present signs a waiver of notice, a consent to the holding
of the meeting or an approval of the Minutes thereof. All waivers, consents or
approvals shall be filed with the corporate records or made a part of the
Minutes of the meeting.
SECTION 13. Conduct of Meetings. The Chairman of the Board, if there is
-------------------
such an Officer, and if not, the President, or, in their absence, the Vice
President designated by the Board of Directors, shall preside at meetings of the
Board of Directors. The Secretary of the Corporation, or in his absence, the
Assistant Secretary (in order of seniority if more than one), or in their
absence, any person appointed by the presiding officer, shall act as Secretary
of the meeting.
SECTION 14. Compensation. Directors may receive compensation for their
------------
services as Directors as may be determined from time to time by resolution of
the Board of Directors. Any Director may serve the Corporation in any other
capacity as an Officer, agent, employee or otherwise and receive compensation
therefor.
-9-
<PAGE>
SECTION 15. Interested Directors and Officers. Any contract or other
---------------------------------
transaction between the Corporation and any of its Directors or Officers (or any
corporation or firm in which any of its Directors or Officers is financially
interested) shall be valid for all purposes notwithstanding the presence of the
Director or Officer at the meeting of the Board of Directors or the committee
thereof which authorizes the contract or transaction, or his participation in
the meeting, or that his vote is counted for such purpose; provided, however,
that the foregoing shall apply only if:
(A) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board of Directors or committee in
good faith authorizes the contract or transaction by the affirmative
vote of a majority of the disinterested Directors, even though the
disinterested Directors be less than a quorum; or
(B) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Shareholders
entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the Shareholders; or
(C) The contract or transaction is fair as to the Corporation.
Common or interested Directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee which authorizes
the contract or transaction.
SECTION 16. Committees. The Board of Directors may designate one or more
----------
committees, each committee to consist of one or more of the Directors of the
Corporation. The Board of Directors may designate one or more Directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of
any member of such committee or committees, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution, shall
have and may exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of
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<PAGE>
the Corporation, and may authorize the seal of the Corporation to be affixed to
all papers which may require it. However, no such committee shall have power or
authority to take any action that is specifically required by statute to be
taken by the entire Board of Directors. Such committee or committees shall have
such name or names as may be determined from time to time by resolution adopted
by the Board of Directors. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
SECTION 17. Telephone Meetings. Subject to applicable notice
------------------
requirements, meetings of the Board of Directors or of any committee designated
by the Board of Directors may be held by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other. Participation in a telephone meeting shall
constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE IV - OFFICERS
SECTION 1. Officers. The Officers of the Corporation shall be a
--------
President, one or more Vice Presidents, with such additional designations as the
Board of Directors may determine, a Secretary and a Treasurer. The Corporation
may also have, at the discretion of the Board of Directors, a Chairman of the
Board, one or more Assistant Vice Presidents, one or more Assistant Secretaries,
one or more Assistant Treasurers and other Officers as may be appointed by the
Board of Directors in accordance with the provisions of Section Three of this
Article. One Person may hold two or more offices. Officers need not be
Shareholders of the Corporation, residents of the State of Utah, or, unless
otherwise specified in these Amended and Restated Bylaws or in resolutions
adopted by the Board of Directors, members of the Board of Directors.
SECTION 2. Election. The Officers of the Corporation shall be elected
--------
annually by the Board of Directors and each shall hold his office until he shall
resign or shall be removed or otherwise disqualified to serve, or his successor
shall be elected and qualified.
SECTION 3. Additional Officers. The Board of Directors may appoint the
-------------------
other Officers or agents as the business of the Corporation
-11-
<PAGE>
may require, each of whom shall hold office for the period, have the authority
and perform the duties as are provided in these Amended and Restated Bylaws and
as the Board of Directors may from time to time determine.
SECTION 4. Compensation. The compensation of the Officers and the rest of
------------
the employees of the Corporation shall be fixed by the Board of Directors.
SECTION 5. Removal and Resignation. Any Officer may be removed, either
-----------------------
with or without cause, by a majority of the Directors, at any regular or special
meeting of the Board of Directors; provided, however, that the removal shall be
without prejudice to the contract rights, if any, of the person removed. Any
Officer may resign at any time by giving written notice to the Board of
Directors or to the President or to the Secretary of the Corporation. A
resignation shall take effect at the date of the receipt of the notice or at any
later time specified therein; and, unless otherwise specified therein, the
acceptance of the resignation shall not be necessary to make it effective.
SECTION 6. Vacancies. If the office of any Officer becomes vacant by
---------
reason of death, resignation, removal or otherwise, the Board of Directors shall
elect a successor who shall hold office for the unexpired term and until his
successor is elected.
SECTION 7. Chairman of the Board. The Chairman of the Board, if there is
---------------------
such an Officer, shall be a member of the Board of Directors, shall, if present,
preside at all meetings of the Board of Directors and of the Shareholders, and
shall exercise and perform such other powers and duties as may be from time to
time assigned to the Chairman of the Board by the Board of Directors or
prescribed by these Amended and Restated Bylaws. The Chairman of the Board
shall be ex officio a member of and the Chairman of the Executive Committee, if
any.
SECTION 8. President. Subject to such supervisory powers, if any, as may
---------
be given by the Board of Directors to the Chairman of the Board, if there is
such an Officer, the President shall be the Chief Executive Officer of the
Corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and Officers of the
Corporation and shall have the general powers and duties of management usually
vested in the office of President of a corporation and shall have other powers
and duties as may be prescribed by the Board of Directors or the Amended and
Restated Bylaws. Within this authority and in the course of his duties he
shall:
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<PAGE>
(A) In the absence of the Chairman of the Board or if there is none,
preside at all meetings of the Board of Directors and of the
Shareholders, and shall be ex officio a member of the Executive
Committee, if any;
(B) Sign certificates of stock of the Corporation, in conjunction with the
Secretary or an Assistant Secretary;
(C) When and to the extent authorized by the Board of Directors, execute
in the name of the Corporation deeds, conveyances, notices, leases,
checks, drafts, bills of exchange, warrants, promissory notes, bonds,
debentures, contracts and other papers and instruments in writing and,
unless the Board of Directors shall order otherwise, by resolution,
make such contracts as the ordinary conduct of the Corporation's
business may require; and
(D) Appoint and remove, employ and discharge and prescribe the duties and
fix the compensation of all agents, employees and clerks of the
Corporation other than the duly appointed Officers, subject to the
approval of the Board of Directors, and control, subject to the
direction of the Board of Directors, all of the Officers, agents,
employees and clerks of the Corporation.
SECTION 9. Vice President. In the absence or disability of the President,
--------- --------------
the Vice President designated by the Board of Directors shall perform all the
duties of the President and, when so acting, shall have the powers of and be
subject to all the restrictions on the President. The Vice President or Vice
Presidents shall have such other powers and perform other duties as from time to
time may be prescribed for him or them by the Board of Directors or the Amended
and Restated Bylaws.
SECTION 10. Secretary. The Secretary shall:
---------- ---------
(A) Sign, with the President, certificates for shares of the Corporation;
(B) Attest and keep at the principal office of the Corporation the
original or a copy of its Amended and Restated Bylaws as amended or
otherwise altered to date;
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<PAGE>
(C) Keep at the principal office of the Corporation or the other place as
the Board of Directors may order, a book of Minutes of all meetings of
its Directors, Shareholders and Executive Committee, with the time and
place of holding, whether regular or special, and, if special, how
authorized, the notice thereof given, the names of those present at
Directors' meetings, the number of shares or members present or
represented at Shareholders' meetings and the proceedings thereof;
(D) Sign or attest the documents as may be required by law or the business
of the Corporation and keep the corporate seal and affix it to the
instruments as may be necessary or proper;
(E) Be custodian of the records and of the seal of the Corporation;
(F) See that all notices are duly given in accordance with the provisions
of these Amended and Restated Bylaws or as required by law;
(G) Keep at the principal office of the Corporation a share register or
duplicate share register showing the names of the Shareholders and
their addresses; the number, date of issue, and class of shares
represented by each outstanding share certificate; and the number and
date of cancellation of each certificate surrendered for cancellation;
(H) See that the books, reports, statements, certificates and all other
documents and records required by law are properly kept and filed; and
(I) In general, perform all duties incident to the office of Secretary and
other duties as from time to time may be assigned by the Board of
Directors.
SECTION 11. Treasurer. The Treasurer shall:
---------- ---------
(A) Have charge and custody of, and be responsible for, all funds and
securities of the Corporation and deposit all the funds in the name of
the Corporation in the banks, trust companies
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<PAGE>
or other depositories as shall be selected by the Board of Directors;
(B) Receive, and give receipt for, moneys due and payable to the
Corporation from any source whatsoever:
(C) Disburse or cause to be disbursed, the funds of the Corporation as may
be directed by the Board of Directors, taking proper vouchers for
disbursements;
(D) Keep and maintain adequate and correct accounts of the Corporation's
properties and business transactions including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, surplus
and shares;
(E) Render to the President and the Board of Directors, whenever they
request it, an account of all transactions as Treasurer and of the
financial condition of the Corporation;
(F) Prepare, or cause to be prepared, and certify the financial statements
to be included in the annual report to Shareholders and statements of
the affairs of the Corporation, when requested by Shareholders holding
a majority of the outstanding shares of the Corporation; and
(G) In general, perform all the duties incident to the office of Treasurer
and other duties as from time to time may be assigned by the Board of
Directors.
ARTICLE V - EXECUTION OF INSTRUMENTS
SECTION 1. Authority for Execution of Instruments. The Board of
--------------------------------------
Directors, except as otherwise provided in these Amended and Restated Bylaws,
may authorize any Officer or Officers, agent or agents, to enter into any
contract or execute and deliver any instrument in the name of and on behalf of
the Corporation and that authority may be general or confined to specific
instances. Unless so authorized, no Officer, agent or employee shall have any
power or authority to bind the Corporation by any contract or engagement or to
pledge its credit or to render it liable pecuniary for any purpose or in any
amount.
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<PAGE>
SECTION 2. Execution of Instruments. Unless otherwise specifically
------------------------
determined by resolution of the Board of Directors or otherwise required by law,
formal contracts of the Corporation, promissory notes, deeds of trust, mortgages
and other evidences of indebtedness of the Corporation and other corporate
instruments or documents and certificates of shares of stock owned by the
Corporation shall be executed, signed or endorsed by the President and may have
the corporate seal affixed thereto. However, unless otherwise specifically
determined by resolution of the Board of Directors or otherwise required by law
or these Amended and Restated Bylaws, neither the attestation or joinder of the
Secretary or any other Officer of this Corporation nor the affixation of the
corporate seal shall be required in connection with the execution, signing or
endorsement of any corporate instrument or other document, and the failure to so
attest or join in the execution of, or to affix the corporate seal to, any such
corporate instrument or other document shall not affect the validity or binding
effect thereof.
ARTICLE VI - DEPOSIT OF FUNDS
SECTION 1. Bank Accounts. All funds of the Corporation shall be deposited
-------------
from time to time to the credit of the Corporation with the banks, trust
companies or other depositories as the Board of Directors may select.
SECTION 2. Signing of Checks. All checks, drafts or other orders for
-----------------
payment of money, notes or other evidences of indebtedness, issued in the name
of or payable to the Corporation, shall be signed or endorsed by the person or
persons and in the manner as shall be determined from time to time by resolution
of the Board of Directors.
ARTICLE VI - FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of January
and end on the last day of December in each year.
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<PAGE>
ARTICLE VIII - ISSUANCE AND TRANSFER OF SHARES
SECTION 1. Issuance of Stock. The Board of Directors may offer for sale
-----------------
and issue shares of the common stock of the Corporation as authorized in the
Articles of Incorporation.
SECTION 2. Certificates for Fully Paid Shares. Neither shares nor
----------------------------------
certificates representing shares may be issued by the Corporation until the full
amount of the consideration has been paid. When the consideration has been paid
to the Corporation, the shares shall be deemed to have been issued and the
certificate representing the shares shall be issued to the Shareholder.
SECTION 3. Consideration for Shares. The consideration paid for the
------------------------
issuance of shares shall consist of money paid, labor done or property actually
received. Neither promissory notes nor the promise of future services shall
constitute payment or part payment for shares of the Corporation.
SECTION 4. Certificates Representing Shares. Certificates in the form as
--------------------------------
may be determined by the Board of Directors and as shall conform to the
requirements of the statutes, the Articles of Incorporation and these Amended
and Restated Bylaws shall be delivered representing all shares to which
Shareholders are entitled. The certificates shall be consecutively numbered and
shall be entered in the books of the Corporation as they are issued. Each
certificate shall be signed by the President of the Corporation and by the
Secretary of the Corporation and shall be sealed with the seal of the
Corporation. The signature of any corporate Officer on the certificate may be a
facsimile. Each certificate shall state the following upon the face thereof:
(A) That the Corporation is organized under the laws of the State of Utah;
(B) The name of the person to whom issued;
(C) The number and class of shares and the designation of the series, if
any, which the certificate represents; and
(D) The par value of each share represented by the certificate, or a
statement that the shares are without par value.
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<PAGE>
In case any Officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such Officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he were such
Officer, transfer agent or registrar at the date of issue.
SECTION 5. Replacement of Certificates. No new certificates shall be
---------------------------
issued until the former certificate for the shares represented thereby shall
have been surrendered and canceled, except in the case of lost or destroyed
certificates for which the Board of Directors may order new certificates to be
issued upon the terms, conditions and guarantees as the Board of Directors may
see fit to impose, including the filing of sufficient indemnity.
SECTION 6. Transfer Agents and Registrars. The Board of Directors may
------------------------------
appoint one or more transfer agents and may appoint one or more registrars who
shall be appointed at the times and places as the requirements of the
Corporation may necessitate and as the Board of Directors may designate.
SECTION 7. Transfer of Shares. Shares of stock shall be transferable only
------------------
on the books of the Corporation by the holder thereof in person or by his duly
authorized attorney. Upon surrender to the Corporation or transfer agent of the
Corporation of a certificate or certificates representing shares, duly endorsed
or accompanied by a proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate or
certificates to the person entitled thereto, to cancel the old certificate or
certificates and to record the transfer upon its books. The transferee in any
transfer of shares shall be deemed to have full notice of, and to consent to,
the Amended and Restated Bylaws of the Corporation to the same extent as if he
had signed a written assent thereto. Whenever any transfer of shares shall be
made for collateral security, and not absolutely, and written notice thereof
shall be given to the Secretary of the Corporation or its transfer agent, if
any, that fact shall be stated in the entry of the transfer.
SECTION 8. Registered Shareholders. The Corporation shall be entitled to
-----------------------
treat the holder of record of any share or shares of stock as the holder in fact
thereof, and, accordingly, shall not be bound to recognize any equitable or
beneficial claim to or interest in the share or shares on the part of any other
person.
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<PAGE>
SECTION 9. Reasonable Doubt as to Right to Transfer. When a transfer of
----------------------------------------
shares is requested and there is reasonable doubt as to the right of the person
seeking the transfer, the Corporation or its transfer agent, if any, before
recording the transfer of the shares on its books or issuing any certificate
therefor, may require from the person seeking the transfer reasonable proof of
his right to the transfer. If there remains a reasonable doubt of the right to
the transfer, the Corporation may refuse a transfer unless the person gives
adequate security or a bond of indemnity executed by a corporate surety or by
two (2) individual sureties satisfactory to the Corporation as to form, amount
and responsibility of sureties. The bond shall be conditioned to protect the
Corporation, its Officers, transfer agents and registrars, if any, or any of
them, against any loss, damage, expense or other liability to the owner of the
shares by reason of the recordation of the transfer or the issuance of a new
certificate for shares.
SECTION 10. Restriction on Preemptive Right. No holder of any shares of
-------------------------------
the Corporation shall have any preemptive right to subscribe for or acquire any
additional, unissued or treasury shares of the Corporation or any securities of
the Corporation which are convertible into or which carry a right to subscribe
for or acquire shares of the Corporation.
ARTICLE IX - CORPORATE
RECORDS, REPORTS AND SEAL
SECTION 1. Minutes of Meetings. The Corporation shall keep and maintain a
-------------------
book of Minutes of all meetings of its Directors and of its Shareholders with
the time and place of holding, whether regular or special, and, if special, how
authorized, the notice given, the names of those present at Directors' meetings,
the number of shares present or represented at Shareholders' meetings and the
proceedings of the meeting.
SECTION 2. Books of Account. The Corporation shall keep and maintain
----------------
adequate and correct accounts of its properties and business transactions,
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, capital, surplus and shares.
SECTION 3. Share Register. The Corporation shall keep and maintain a
--------------
share register, showing the names of the Shareholders and their addresses, the
number and classes of shares held by each, the
-19-
<PAGE>
number and date of certificates issued for shares and the number and date of
cancellation of every certificate surrendered for cancellation.
SECTION 4. Form of Records. Any records maintained by the Corporation in
---------------
the regular course of its business, including, without limitation, its share
register, books of account and minute books, may be kept on, or be in the form
of, punch cards, magnetic tape, photographs, microphotographs or any other
information storage device, provided that the records so kept can be converted
into clearly legible form within a reasonable time. The Corporation shall so
convert any records so kept upon the request of any person entitled to inspect
the same.
SECTION 5. Inspection of Records by Shareholder. Any person who shall
------------------------------------
have been a Shareholder for at least six (6) months immediately preceding his
demand or who is the holder of at least Five Percent (5%) of all of the
outstanding shares of the Corporation, on written demand stating the purpose
thereof, shall have the right to examine, in person or by agent, accountant or
attorney, at any reasonable time or times, for any proper purpose, its books and
records of account, Minutes and record of shareholders and is entitled to make
extracts therefrom.
SECTION 6. Inspection of Records by Directors. Every Director shall have
----------------------------------
the absolute right at any reasonable time to inspect all books, records,
documents of every kind and the physical properties of the Corporation.
Inspection by a Director may be made in person or by agent or attorney and the
right of inspection includes the right to make extracts therefrom.
SECTION 7. Financial Reports. The Board of Directors must, when requested
-----------------
by the holders of a majority of the outstanding shares of the Corporation,
present written reports concerning the situation and business of the
Corporation.
SECTION 8. Corporate Seal. The Board of Directors may adopt, use and
--------------
thereafter alter the corporate seal.
SECTION 9. Dividends. The Board of Directors may declare and the
---------
Corporation may pay dividends on its outstanding shares in cash, property or its
own shares, pursuant to law and subject to the provisions of its Articles of
Incorporation.
SECTION 10. Loans. No loans shall be contracted on behalf of the
-----
Corporation and no evidence of indebtedness shall be issued in its name
-20-
<PAGE>
unless authorized by a resolution of the Board of Directors. This authority may
be general or confined to specific instances.
SECTION 11. Reserves. The Board of Directors may by resolution create a
--------
reserve or reserves out of surplus for any purpose or purposes, and may abolish
any reserve in the same manner.
ARTICLE X - INDEMNIFICATION
OF OFFICERS, DIRECTORS AND OTHERS
SECTION 1. Indemnification. The Corporation shall indemnify any person
---------------
who is or was a Director, Officer, agent or employee of the Corporation, and any
nominee or designee of the Corporation who is not or was not a Director,
Officer, agent or employee of the Corporation but who is or was serving at the
Corporation's request as a Director, Officer, partner, venturer, proprietor,
trustee, employee, agent or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, other
enterprise or employee benefit plan, against judgments, penalties (including
excise and similar taxes), fines, settlements and reasonable expenses actually
incurred by the person in connection with any action, suit, inquiry,
investigation or other proceeding of any kind or nature, in which the person
was, is or is threatened to be made a named defendant or respondent, and in
connection with that person's appearance as a witness or other participation in
such a proceeding at a time when he is not a named defendant or respondent in
the proceeding, because the person is or was serving in one or more of the
aforementioned capacities, to the full extent authorized or permitted under the
laws of the State of Utah, as the same may be modified or amended from time to
time. In connection therewith, the Corporation may advance expenses to or for
the benefit of any such person and may purchase and maintain insurance or
another arrangement on behalf of such person to the full extent authorized or
permitted under the laws of the State of Utah, as the same may be modified or
amended from time to time.
SECTION 2. Nonexclusive. The indemnification provided by this Article
------------
Nine shall not be exclusive of, but shall be in addition to, any other rights to
which a person may be entitled by law, bylaw, agreement, vote of Shareholders or
Directors, or otherwise, to the extent permitted by law.
-21-
<PAGE>
ARTICLE XI - SURETY BONDS
When the Board of Directors so directs, Officers and agents of the
Corporation shall be bonded for the faithful performance of their duties and for
the restoration to the Corporation of, in case of their death, resignation,
retirement, disqualification or removal from office, all books, papers,
vouchers, money and other property of whatever kind in their possession or under
their control belonging to the Corporation, in the amounts and by the surety
companies as the Board of Directors may determine. The premiums on the bonds
shall be paid by the Corporation and the bonds so furnished shall be in the
custody of the Secretary.
ARTICLE XII - WAIVER OF NOTICE
Whenever notice is required to be given under any provision of applicable
law, the Articles of Incorporation or these Amended and Restated Bylaws, a
written waiver, signed by the person entitled to notice, whether before or after
the time stated therein or before or after the meeting specified therein, shall
be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business which has been or is to be transacted at, nor
the purpose of, any annual, regular or special meeting of the Shareholders,
Directors or members of a committee of Directors need be specified in any
written waiver of notice.
ARTICLE XIII - AMENDMENT OF
AMENDED AND RESTATED BYLAWS
These Amended and Restated Bylaws may be altered, amended or repealed and
new Bylaws may be adopted by the unanimous vote of the Board of Directors or by
the unanimous vote of the Shareholders.
The foregoing set of Amended and Restated Bylaws was unanimously adopted as
the Amended and Restated Bylaws of Lanstar Semi-
-22-
<PAGE>
conductor Inc. (formerly known Kazmir Kliffs, Inc.) as by the Board of Directors
as of October 31, 1997.
s/s Maxie R. Smith
------------------
MAXIE R. SMITH
DIRECTOR
s/s Steven L. Porter
--------------------
STEVEN L. PORTER
DIRECTOR
s/s Gerald F. Brunton
---------------------
GERALD F. BRUNTON
DIRECTOR
ATTEST:s/s Steven L. Porter
--------------------
STEVEN L. PORTER
SECRETARY
-23-
<PAGE>
Exhibit 4.0
NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT
INCORPORATED UNDER THE LAWS OF THE STATE OF UTAH
CUSIP. NO. 516507 10 0
NUMBER SHARES
3044
---------- ----------
[LOGO OF LANSTAR SEMICONDUCTOR, INC. APPEARS HERE]
AUTHORIZED: 50,000,000 SHARES
$.001 PAR VALUE
THIS CERTIFIES THAT
SPECIMEN
IS THE RECORD HOLDER OF
LANSTAR SEMICONDUCTOR, INC.
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
[SIGNATURE APPEARS HERE] [SIGNATURE APPEARS HERE]
- ------------------------ ------------------------
SECRETARY PRESIDENT
[SEAL OF LANSTAR SEMICONDUCTER,INC. APPEARS HERE]
INTERWEST TRANSFER CO. INC. P.O. BOX 17136/SALT LAKE CITY, UTAH 64117
COUNTERSIGNED & REGISTERED
-------------------------------------------------
COUNTERSIGNED Transfer Agent-Authorized Signature
<PAGE>
NOTICE: Signature must be guaranteed by a firm which is a member of a
registered national stock exchange, or by a bank (other than a saving
bank), or a trust company. The following abbreviations, when used in the
inscription on the face of this certificate, shall be construed as though
they were written out in full according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants
in common
UNIF GIFT MIN ACT - Custodian
(Cust) (Minor)
under Uniform Gifts to Minors
Act..........................
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, _____ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- ---------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ----------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
-------------------------------
--------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS APPLICANT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
<PAGE>
Exhibit 10.1
DESIGN AND LICENSE AGREEMENT
THIS AGREEMENT is made as of the 27th day of July, 1995 by and between:
MOSAID Technologies Incorporated, an Ontario corporation with principal
place of business at 2171 McGee Side Road, Carp, in the Township of
West Carleton, Ontario, Canada (hereinafter referred to as "MOSAID"),
AND
LANSTAR SEMICONDUCTOR CORPORATION, a Texas corporation with its
registered head office at 2501 Avenue J, Suite 125, Arlington, Texas,
USA 76006 (Hereinafter referred to as "LANSTAR")
RECITALS
WHEREAS LANSTAR is engaged in the business of the development, design
and manufacture and sale of integrated circuits; and
WHEREAS MOSAID is engaged in the business of engineering and designing
integrated circuits for use by its clients; and
WHEREAS LANSTAR desires that MOSAID provide it with the engineering
design of a 4 Megabit Dynamic Random Access Memory (DRAM) chip in x1 and x4
format; and
WHEREAS MOSAID is willing to engineer and design the chip in accordance
with the manufacturing requirements as specified herein; and
1 of 35
Ver. 1. 1
<PAGE>
WHEREAS MOSAID has agreed to grant a license to LANSTAR to use certain
of MOSAID's intellectual property for the manufacture and sale of such chip
by LANSTAR in accordance with the terms and conditions contained herein; and
WHEREAS each of the parties hereto will disclose to the other certain
confidential information regarding its business and affairs which is
confidential and proprietary in nature including trade secrets, patents or
other intellectual property, as well as technical, financial, business, or
market-related information, data or plans, residing on any type of medium
whatsoever.
NOW THEREFORE in consideration of the premises and the mutual covenants
herein and other good and valuable consideration (the receipt and
sufficiency of which is hereby acknowledged by each of the parties) the
parties hereto covenant and agree as follows:
ARTICLE I
1. DEFINITIONS
In this Agreement, unless the context otherwise specifies or requires,
the following terms shall have the following meanings:
1.1 "Agreement", "hereto", "herein", "hereof", "hereunder"
and similar expressions refer to this Agreement and not to any
particular section, paragraph or particular portion of this Agreement
and include all schedules or exhibits attached to this Agreement;
2 of 35
Ver. 1.1
<PAGE>
1.2 "Chip" shall mean the chip described in Schedule "B" attached
hereto;
1.3 "Delivery Date" shall mean any date on which any part of the Work is
shipped from the MOSAID Canadian facility, currently located at 2171
McGee Side Road, Carp, Ontario;
1.4 "Derivative Chip" shall mean a chip the design of which is
substantially similar to the design of the Chip, including either
architecture or circuit techniques, which may be designed by MOSAID
LANSTAR or by any other party for LANSTAR;
1.5 "Effective Date" shall have the meaning ascribed thereto in
paragraph 6.1 hereof;
1.6 "Feel, shall have the meaning ascribed thereto in paragraph 2.8
hereof;
1.7 "Functional Specifications" shall have the meaning ascribed thereto
in Schedule "B" attached hereto;
1.8 "Licensed Product" shall mean the Chip or any versions of the Chip
described in Schedule "B" attached hereto;
1.9 "Manufacturing Specifications" shall have the meaning ascribed
thereto in Schedule "B" attached hereto;
1.10 "Milestone" shall have the meaning ascribed thereto in Schedule "A"
attached hereto;
Ver. 1.1 3 of 35
<PAGE>
1.15 "Proprietary information" shall mean any and all data and
information relating to the business and affairs of either MOSAID or
LANSTAR, as the case may be, and disclosed by MOSAID or LANSTAR to the
other verbally, in writing or in machine readable form, but shall not
include data and information which:
1.15.1 was prior to the date hereof in the possession of either
MOSAID or LANSTAR as the receiving party without obligation of
secrecy, or was in the public domain, was common knowledge or was
in published literature at the time of receipt by the receiving
party;
1.15.2 following its disclosure to either MOSAID or LANSTAR as
the receiving party, it was received by the receiving party from a
third party source free to disclose such information or data,
without any obligation on the part of the receiving party hereto
not to disclose it;
1.15.3 has, through no fault on the part of either MOSAID or
LANSTAR as the receiving party, subsequently become part of the
public domain or is in published literature which is generally
available to the public;
1.15.4 was independently developed by either MOSAID or LANSTAR as
the receiving party; or
1.15.5 was provided to either MOSAID or LANSTAR as the receiving
party without notice by the party providing information and data
that the information is
5 of 35
Ver. 1.1
<PAGE>
proprietary or confidential information or that there are
any secrecy or confidentiality obligations relating to such
information;
1.16 "Rejection Notice" shall have the meaning ascribed thereto in
paragraph 2.5 hereof;
1.17 "Royalty Payment" shall have the meaning ascribed thereto in
paragraph 3.3 hereof;
1.18 "Specifications" shall include both the Functional
Specifications and the Manufacturing Specifications; and
1.19 "Work" shall have the meaning ascribed thereto in paragraph 2.1
hereof.
ARTICLE II
2. WORK AND PAYMENT
2.1 Subject to the provisions of this Agreement, MOSAID shall perform
the engineering and design services and shall deliver the data and
schematics as more specifically described in Schedule "A" attached
hereto (hereinafter referred to as the "Work") in order to provide
LANSTAR with a full and complete engineering design of the Chip.
2.2 The Chip shall be designed by MOSAID in accordance with the
Functional Specifications and the Manufacturing
Specifications.
6 of 35
Ver. 1.1 1
<PAGE>
2.3 The Work shall be divided into separate phases (a "Phase") as
described in Schedule "A" attached hereto, and each Phase of the Work
shall be performed as set forth in Schedule "All attached hereto.
2.4 Changes to any one or more of the Work , the Functional
Specifications or the Manufacturing Specifications during the term of
this Agreement may be made only upon the mutual written agreement of the
parties hereto.
2.5 LANSTAR shall, not later than 30 days following the achievement of a
Milestone by LANSTAR or the delivery by MASAID to LANSTAR of (a) written
notice of the achievement of a Milestone, or (b) a deliverable relating
to a Milestone, if any, give written notice to MASAID of LANSTAR's
acceptance or rejection of such Milestone. LANSTAR may reject any
Milestone solely on the basis that such Milestone fails to conform to
the Specifications, provided that LANSTAR does so in writing within the
30 day period referred to in this paragraph 2.5. Any such written notice
of rejection (a "Rejection Notice") shall include a complete list of
detailed and specific descriptions of each deficiency. In the event of
the failure by LANSTAR to deliver to MOSAID a Rejection Notice within
the 30 day period referred to in this paragraph 2.5, LANSTAR shall be
deemed to have accepted such Milestone. In the event that LANSTAR fails
to deliver to MASAID a notice indicating that it has achieved Milestone
5 or 6 and does not deliver a Rejection Notice relating to Milestone 5
or Milestone 6 as provided in paragraph 2.6 hereof, each of such
Milestones shall be deemed to have been achieved 12 months following the
achievement of the immediately preceding Milestone and the installment
of the Fee relating to Milestone 5 or
7 of 35
Ver. 1.1
<PAGE>
milestone 6, as the case may be, shall thereupon be due and payable by
LANSTAR to MOSAID immediately following the expiry of such 12 month
period.
2.6 Upon LANSTAR's rejection of any Milestone, MOSAID shall have a
period of 60 days from the date of receipt by MOSAID of the Rejection
Notice to correct any deficiency specified in the Rejection Notice,
unless such 60 day period is increased or decreased pursuant to
paragraph 2.4 hereof. In the event that MOSAID has remedied all of the
deficiencies set out in a Rejection Notice relating to Milestones 5 or
6, if any, and LANSTAR fails to fabricate the number of prototypes or
Chips required pursuant to Milestones 5 and 6, respectively, each of
Milestones 5 and 6 shall be deemed to have been achieved and accepted 12
months following the date on which MOSAID remedies such deficiencies, if
any, and the installment of the Fee relating to Milestone 5 or Milestone
6, as the case may be, shall thereupon be due and payable by LANSTAR to
MOSAID immediately following the expiry of such 12 month period.
2.7 The following shall not be allowed as criteria for the rejection by
LANSTAR of a Milestone:
2.7.1 the inability of LANSTAR to attain any specific yield or
performance standards, stated explicitly or not, by virtue of
deficiency of process implementation, process control, process
equipment, raw material, in-process materials or environment, test
and evaluation equipment or procedures including all human and
material issues;
8 of 35
Ver. 1.1
<PAGE>
2.7.2 the inability of LANSTAR to achieve the processing
performance as characterized by the Specifications;
2.7.3 the inability of LANSTAR to evaluate completely a
Milestone or a deliverable relating to a Milestone, if any, within
the time periods provided for in paragraph 2.5 of this Agreement;
or
2.7.4 the mutual agreement of the parties hereto to accept
changes to either the Work or the Specifications after Work has
commenced or after one or more Phases have been completed by
MOSAID resulting in the incompatibility between Phases already
completed and a subsequent Milestone.
2.8 LANSTAR shall pay to MOSAID a fee (the "Fee") in the total amount
of $500,000 US as provided in Schedule "C" attached hereto.
2.9 The Fee for Milestone I is to be transferred to the MOSAID bank
account as specified herein within 30 days of the execution of this
Agreement. milestones 2, 3, 4, 5, 6 are to be guaranteed via a letter of
credit to be established no later than 30 days after the execution of
this Agreement and is to be opened with a banking institution acceptable
to MOSAID All costs for the establishment of letters of credit are the
responsibility of LANSTAR As each Milestone is achieved MOSAID shall
invoice LANSTAR for the full amount of the Fee relating to such
Milestone, if any, as provided in Schedule "C" attached hereto. Such
invoices shall, subject to paragraph 2.5 hereof, be paid in full by
LANSTAR
9 of 35
Ver. 1.1
<PAGE>
within 30 days of the date of an invoice. Notwithstanding the provisions
of paragraph 2.5 hereof, the installment of the Fee relating to the
first Milestone shall be paid by LANSTAR to MOSAID within 30 days of the
Effective Date.
2.10 The payment of the Fee shall be exclusive of any and all tax, duty,
or tariffs levied by any foreign government including, but not limited
to withholding taxes, sales taxes, goods and services taxes and value
added taxes required to be paid directly or indirectly by MOSAID or by
LANSTAR on behalf of MOSAID and any such payment by LANSTAR shall be the
sole responsibility of LANSTAR. MOSAID shall be responsible for any tax,
duty, or tariffs levied by any Canadian taxing authority relating to the
Fee.
2.11 LANSTAR shall pay to MOSAID interest upon any and all installments
of the Fee that are at any time overdue and payable by LANSTAR to MOSAID
at the rate of 2% per month (24% per annum) from the date on which such
installment of the Fee is due and payable as provided herein to the date
of payment by LANSTAR.
2.12 Payment of the Fee and the Royalty Payments by LANSTAR to MOSAID
shall be made by wire transfer directly to MOSAID's account at the
following bank:
THE ROYAL BANK OF CANADA
90 Sparks Street, Main Branch
Ottawa, Ontario
K1P 5T6
CANADA
Account Number: 402-277-8
Transit Number: 00006
10 of 35
Ver. 1.1
<PAGE>
2.13 LANSTAR shall provide and be responsible for any and all customs
clearances and approvals required in connection with the execution of
this Agreement.
ARTICLE III
3. INTELLECTUAL PROPERTY, LICENSES AND ROYALTIES 3.1 The ownership of the
intellectual property relating to the Work and the Chip shall be
governed by the following provisions:
3.1.1 Any and all copyrights, maskwork or equivalent rights, designs
(including integrated circuit designs), inventions (previously
patented, patentable or otherwise), schematics, know-how or other
intellectual property created, invented, or discovered by MOSAID other
than in the course of performing the Work (hereinafter referred to as
the "MOSAID Previous Results") shall be the sole and exclusive
property of MOSAID.
3.1.2 Any and a copyrights, maskwork or equivalent rights, designs
(including integrated circuit designs), inventions (patentable or
otherwise), schematics, know-how or other intellectual property
created, invented or discovered by LANSTAR other than in the course of
performing the Work (hereinafter referred to as the "LANSTAR Previous
Results") shall be the sole and exclusive property of LANSTAR.
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Ver. 1. 1
<PAGE>
3.1.3 Any and all copyrights, maskwork or equivalent rights,
designs (including integrated circuit designs), inventions
(patentable or otherwise), schematics, know-how or other results
created, invented or discovered or otherwise disclosed by MOSAID to
LANSTAR regarding the Work or in the course of performing the Work
(hereinafter referred to as the "MOSAID Results") solely by MOSAID,
shall be the sole and exclusive property of MOSAID.
3.1.4 Any and all copyrights, maskwork or equivalent rights,
designs (including integrated circuit designs), inventions
(patentable or otherwise), schematics, know-how or other results
created, invented discovered or otherwise disclosed by LANSTAR to
MOSAID regarding the Work or in the course of performing the Work
solely by LANSTAR (hereinafter referred to as the "LANSTAR
Results"), shall be the sole and exclusive property of LANSTAR.
3.1.5 Any and all copyrights, maskwork or equivalent rights,
designs (including integrated circuit designs), inventions
(patentable or otherwise), schematics, know-how or other results
jointly created, invented, discovered or otherwise disclosed by
either party hereto to the other regarding the Work, or in the
course of performing the Work (hereinafter referred to as the
"Joint Results") shall be jointly owned by MOSAID and LANSTAR and
each of MOSAID and LANSTAR shall have a non-exclusive, independent,
royalty free, irrevocable, non-assignable world-wide right and
license to use, including the right to sub-license, the
12 of 35
Ver. 1.1
<PAGE>
Joint Results in the ordinary course of their respective
businesses.
3.2 Subject to MOSAID's completion of the Work, LANSTAR's acceptance or
deemed acceptance thereof, 'LANSTAR's payment in full of the portion of
the Fee relating to each Milestone and the timely payment by LANSTAR to
MOSAID of the Royalty Payments in accordance with the terms hereof,
MOSAID hereby grants to LANSTAR a non-exclusive, non-assignable,
world-wide right and license to use the MOSAID Results and the MOSAID
Previous Results relating to the Work, for the term of this Agreement,
only to the extent such licensed use is necessary in the manufacture and
sale of the Chip by LANSTAR. The license granted by MOSAID to LANSTAR
pursuant to this paragraph 3.2 shall include the right to fabricate the
Chip at any fabrication facility whether owned by LANSTAR or third party
entities, but shall not include the right to sub-license.
3.3 Subject to LANSTAR establishing a letter of credit to guarantee
payment of the total production license fee, MOSAID will grant the right
to LANSTAR to produce and sell the Chip. LANSTAR shall pay to MOSAID a
royalty calculated at the royalty rate applicable to Year 1 as provided
in Schedule "D" attached hereto with respect to Net Sales of the first
10,000 Licensed Products. Commencing in the year in which LANSTAR
achieves Production Volume, LANSTAR shall pay to MOSAID the amounts
("Royalty Payments") calculated at the per year rates based on Net Sales
in accordance with the provisions of Schedule "D" attached hereto. The
Royalty Payments will be calculated and paid by LANSTAR within 30 days
following the end of each MOSAID fiscal quarter.
13 of 35
Ver. 1.1
<PAGE>
LANSTAR shall provide to MOSAID an estimate of the Royalty Payment for
each such MOSAID fiscal quarter within 5 business days of the end of
each such quarter. LANSTAR shall maintain complete and accurate
financial and production records of all Chips manufactured, sold, used
and returned in a manner and form which will enable the verification of
same by MOSAID. Once each calendar year, MOSAID shall have the right to
audit such records, without notice to LANSTAR and at MOSAID's own
expense by itself or through an independent accounting firm or such
other professional adviser or advisers as MOSAID in its sole discretion
may require, to verify compliance with the terms of this Agreement. Such
records shall be treated as Proprietary Information in accordance with
the provisions of this Agreement.
3.4 In the event that MOSAID conducts or has conducted an examination,
audit or inspection of the records of LANSTAR and, as a result of such
examination, audit or inspection of the records of LANSTAR, it is
determined that there are unreported Royalties payable to MOSAID, such
Royalties shall be deemed to have been payable when due and LANSTAR
shall immediately pay to MOSAID such Royalties and any interest due
thereon in accordance with the provisions of Paragraph 3.6. In addition,
if the unreported Royalties exceed either three percent (3%) of the
amount paid theretofore by LANSTAR to MOSAID in the twelve (12) month
period preceding the examination, audit or inspection, or aggregate
three thousand dollars ($3,000.00) or more, LANSTAR shall reimburse
MOSAID for its out-of-pocket expenses in conducting such examination,
inspection or audit, as well as any legal and accounting fees and
disbursements incurred by MOSAID in connection therewith.
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Ver. 1. I
<PAGE>
3.5 MOSAID shall be responsible for any tax, duty, or tariffs levied by
any Canadian or foreign taxing authority relating to the Royalty
Payments. In the event that withholding taxes are payable by LANSTAR,
LANSTAR shall withhold such withholding taxes and shall promptly remit
such taxes to the appropriate taxing authority. Upon making such
remittance, LANSTAR shall promptly provide MOSAID with documentation
evidencing such payment of taxes by LANSTAR and any other documentation
reasonably required by MOSAID in order to obtain a foreign tax credit in
Canada.
3.6 LANSTAR shall pay to MOSAID interest upon any and all Royalty
Payments that are at any time overdue and payable by LANSTAR to MOSAID
at the rate of 2% per month (24% per annum) from the date on which a
Royalty Payment is due and payable as provided herein to the date of
payment by LANSTAR.
3.7 LANSTAR shall mark the Chips produced by LANSTAR pursuant to this
Agreement with the following maskwork and copyright notices:
MOSAID, LANSTAR 199x
(where x denotes the earlier of the first year of commercial
exploitation or the year of registration under applicable maskwork or
copyright legislation)
3.8 LANSTAR shall take all such action as is necessary to protect the
copyright, maskwork, topography or equivalent rights in the Chip in the
joint names of MOSAID and LANSTAR, including all required filings and
registrations and the maintenance of such filings and registrations, and
shall be
15 of 35
Ver. 1.1
<PAGE>
responsible for all of the costs, fees and expenses relating thereto.
MOSAID shall cooperate with LANSTAR with respect to the protection of
the copyright, maskwork, topography and equivalent rights in the Chip in
the joint names of MOSAID and LANSTAR and LANSTAR shall, if so requested
by MOSAID, provide MOSAID with copies of all communications received
from or sent to the agency or agencies responsible for such matters.
3.9 LANSTAR shall supply the Chip, and subject to paragraph 3.10 hereof,
any Derivative Chip and any Next Generation Chip to MOSAID on a most
favored customer basis as follows:
3.9.1 LANSTAR grants to MOSAID the right, but MOSAID has no
obligation, to purchase from LANSTAR for resale by MOSAID up to 10%
of the monthly wafer output from any wafer fabrication facility
owned in whole or in part by LANSTAR at a cost of $950 U.S. per
wafer.
3.9.2 LANSTAR grants to MOSAID the right, but MOSAID has no
obligation, to purchase from LANSTAR for resale by MOSAID up to 10%
of LANSTAR's available monthly wafer output from a sub-contracted
fabrication facility for the amount of LANSTAR's U.S. dollar cost
per wafer plus 10% of the LANSTAR cost per wafer.
3.10 It is hereby acknowledged by LANSTAR that no rights to a Derivative
Chip or a Next Generation Chip are granted by MOSAID to LANSTAR and that
any use by LANSTAR of the MOSAID Previous Results or the MOSAID Results
as they relate to the Derivative Chip or the Next Generation Chip shall
require a separate agreement between MOSAID and LANSTAR.
16 of 35
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<PAGE>
3.11 MOSAID agrees to enter into similar agreements with LANSTAR for any
Derivative Chip and/or Next Generation Chip in substantially similar
form, and on the identical Royalty basis as this Agreement, however, the
terms and conditions relating to the work and the fees in any such
agreements shall be negotiated by the parties.
3.12 LANSTAR grants to MOSAID a non-exclusive , non-assignable, world-
wide right entitling MOSAID to manufacture and sell the Chip including
LANSTAR know-how and license others to do so. MOSAID shall pay to
LANSTAR a Royalty of 1.5% based on Net Sales of the Chip by MOSAID or a
Licensee.
ARTICLE IV
4. PROPRIETARY INFORMATION
4.1 MOSAID shall use LANSTAR's Proprietary Information only to the
extent such use is necessary in the design of the Chip.
4.2 Proprietary Information when provided in tangible form shall be
clearly labeled as such. Non-tangible disclosures including, but not
limited to, verbal communications, must be clearly indicated to be such
upon disclosure and must be defined as such by delivering written notice
within 30 days of the initial disclosure and before the information is
revealed to any third party. Notwithstanding the foregoing, disclosed
information shall be construed as Proprietary Information if in the
clear and obvious judgment of the recipient, the information is
prejudicial to the interests of the disclosure.
17 of 35
Ver. 1. 1
<PAGE>
4.3 The parties hereto shall take all reasonable steps to maintain the
confidentiality of the Proprietary Information, including advising their
employees and agents that such information is confidential and that it
is to be treated with the same care as would be taken to protect their
own confidential information.
4.4 The parties hereto shall not, either during or after expiration of
this Agreement, use, disclose, distribute, or otherwise disseminate or
communicate the Proprietary Information to third parties except as
provided herein. Disclosures of Proprietary Information to third parties
may be made only after the prior written approval of the disclosing
party has been obtained. The parties hereto shall return, upon the
completion of the development of the Chip, all tangible data, drawings,
specifications, tapes, samples, and documents disclosed or made
available to the other, and an officer of each of MOSAID and LANSTAR
shall certify to the effect that each party has not retained any copies
thereof. The parties shall assign and deliver to the disclosing party
any inventions, ideas, test results, data, or reports that are produced
or result directly from the Proprietary Information of the disclosing
party.
4.5 LANSTAR may provide Proprietary Information to its employees,
directors, officers and third party financial institutions in the normal
course of its business without the written approval of MOSAID, providing
that such employees, directors, officers and third party financial
institutions have entered into a "confidentiality" agreement whose terms
are substantially equal to the terms dealing with Proprietary
Information in this Agreement.
18 of 35
Ver. 1.1
<PAGE>
4.6 The obligations of the parties under this Article 4 shall continue
for a period of twenty-four (24) months after the termination of this
Agreement. Any disclosure made by one of the parties hereto to the other
subsequent to the expiration or termination hereof shall not be regarded
as Proprietary Information.
4.7 MOSAID and LANSTAR will make the existence of this Agreement known
through one or more press releases to be jointly approved in writing by
the presidents of both companies prior to public release. once the
content has been mutually approved for public release, MOSAID will be
free to use the subject matter in the press release in other corporate
documents. Press releases may include details indicating the nature of
the design activity between LANSTAR and MOSAID including basic operating
specifications but will not disclose the financial details or terms of
the Agreement or any other technical information. For this purpose basic
operating specifications means the clock speed of the Chip, access times
and number of megabits. No other information releases of any nature are
provided for unless such disclosure is directly or indirectly related to
the performance of this Agreement or LANSTAR's current or future funding
and approved in writing by the presidents of both companies.
4.8 Notwithstanding the provisions of paragraphs 4.1 through 4.7 hereof,
the parties hereto recognize that the government authorities or agencies
in the jurisdictions in which they carry on their respective businesses
may require disclosure to them of information or data which may
compromise the Proprietary Information. Such government authorities or
agencies shall be advised by each of the
Ver. 1.1 19 of 35
<PAGE>
parties hereto that such information is commercially sensitive and is
subject to the provisions of this Agreement. The parties hereto shall
use their best efforts to resist the disclosure of such information to
such government agencies and shall take all reasonable action to ensure
the continued confidentiality of such information following the
disclosure of such information to a governmental agency.
ARTICLE V
5. WARRANTIES AND INDEMNIFICATION
5.1 MOSAID hereby warrants and represents to LANSTAR that
the Work is done in accordance with the Specifications and is based on
its own knowledge and expertise in the field of integrated circuit
design and analysis, and not upon confidential or proprietary data
received from a third party. MOSAID further warrants that the design of
the Chip, when manufactured by LANSTAR by a process conforming to the
Manufacturing Specifications, will meet or exceed the Functional
Specifications. Except for the foregoing express limited warranties,
MOSAID DISCLAIMS ANY AND ALL OTHER WARRANTIES OR CONDITIONS REGARDING
THE WORK, INCLUDING, BUT NOT LIMITED TO, ALL WARRANTIES OR CONDITIONS,
STATUTORY, EXPRESS OR IMPLIED, OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
5.2 In the event that MOSAID fails to remedy any substantial or
fundamental deficiency which is the cause of the rejection by LANSTAR of
any Phase, or in the event of a breach by MOSAID of any representation,
warranty, or
20 of 35
Ver. 1.1
<PAGE>
obligation contained herein or in the event of any third party claim
against LANSTAR relating to a representation or warranty made by MOSAID
in paragraph 5.1 hereof, the maximum aggregate liability of MOSAID to
LANSTAR hereunder, shall not exceed one-half of the aggregate of all
payments made by LANSTAR to MOSAID in respect of the Fee to the date of
the breach by MOSAID or the third party claim referred to in this
paragraph 5.2.
5.3 Except as herein provided, MOSAID shall not be liable to LANSTAR for
any damages whatsoever, including but not limited to, lost profits, lost
savings, or other special, indirect, incidental, or consequential
damages, legal fees, and court costs, arising out of or in any way
relating to the use or the inability to manufacture the Chip or use the
Work by LANSTAR, even if MOSAID has been advised of the possibility of
such damages.
5.4 LANSTAR shall indemnify and hold MOSAID harmless from and against
any and all claims and liabilities for damages, losses, expenses, or
costs (including legal, accounting and other professional fees and
expenses) arising out of or relating to the Work performed by MOSAID for
LANSTAR pursuant to the terms hereof, including:
5.4.1 any infringement or claim of infringement of patents,
trade-marks, maskwork or copyrights of Canada, the United States,
Japan or any foreign country;
5.4.2 misappropriation or claim of misappropriation of trade
secrets or other tangible or intangible proprietary information or
data delivered to MOSAID by LANSTAR;
21 of 35
Ver. 1.1
<PAGE>
5.4.3 any claim by way of product liability, negligence, or a claim
relating to any other defect in the Work or in any commercial or other
product produced or resulting from the Work.
ARTICLE VI
6. TERM AND TERMINATION
--------------------
6.1 This Agreement shall commence on the later of the date 30 days
from the date hereof (the "Effective Date"), and shall terminate upon
the first to occur of any of the events specified in Section 6.3
hereof.
6.2 The provisions of paragraphs 4.1 through 4.8 hereof shall survive
the termination of this Agreement for the period of time specified in
paragraph 4.6 hereof
6.3 This Agreement shall terminate:
6.3.1 30 days after MOSAID and LANSTAR have completely performed
all of their respective obligations hereunder, including the
obligation of LANSTAR to pay all Royalty Payments to MOSAID;
6.3.2 10 days after either party hereto gives written notice to
the other party that a material breach of its obligations hereunder
was not remedied within 30 days after receipt of notice of such
material breach, other than the delivery by LANSTAR to MOSAID of a
Rejection Notice; or
22 of 35
Ver. 1.1
<PAGE>
6.3.3 immediately upon either party hereto becoming insolvent or
voluntarily filing for or is being placed in involuntary bankruptcy
or receivership (whether court ordered or private) or after ceasing
to carry on business for a period of two consecutive calendar
months.
6.4 In the event that either party terminates this Agreement under
paragraph 6.3.3 hereof, the non-defaulting party may exercise all
remedies available to it under the applicable law.
ARTICLE VII
7. NOTICES
-------
7.1 Any notice or other written communication required or permitted
hereunder shall be in writing and:
7.1.1 delivered personally to the party or, if the party is a
corporation, an officer of the party to whom it is directed;
7.1.2 sent by registered mail, postage prepaid, return receipt
requested (provided that such notice or other written communication
shall not be forwarded by mail if on the date of mailing there
exists an actual or imminent postal service disruption in the city
from which such communication is to be mailed or in which the
address of the recipient is found); or
7.1.3 sent by confirmed telecopier.
23 of 35
Ver. 1.1
<PAGE>
7.2 All such notices shall be addressed to the party to whom it is
directed at the following addresses:
if to: MOSAID Technologies Incorporated
Post office Box 13579
Kanata, Ontario CANADA
K2K 1X6
Attention: General Manager,
Semiconductor Division
Tel: (613) 836-3134
Fax: (613) 831-0796
if to: LANSTAR SEMICONDUCTOR CORPORATION
2501 Avenue J, Suite 125
Arlington, Texas
USA 76006
Attention: Maxie R. Smith
Tel: (817) 640-2001
Fax: (817) 640-1411
by mail or personal delivery: same
7.3 Any such notice or other written communication shall, if mailed as
aforesaid be effective fourteen (14) days from the date of posting; if
given by telecopier, shall be effective on the first business day after
the sending thereof; and if given by personal delivery shall be
effective on the day of delivery.
7.4 Either party may at any time change its address by giving notice
of such change of address to the other party in the manner specified in
this paragraph.
24 of 35
Ver. 1.1
<PAGE>
ARTICLE VIII
8. PROVISIONS OF GENERAL APPLICATION
---------------------------------
8.1 This Agreement shall be governed by and construed in accordance
with the laws of the Province of Ontario and the laws of Canada
applicable therein.
8.2 Nothing contained in this Agreement is intended (or to be
construed) to make MOSAID and LANSTAR partners or joint venturers, or
to make the employees, agents, or representatives of the respective
parties hereto into employees, agents, or representatives of the other
party hereto. It is intended that the relationship of MOSAID and
LANSTAR to each other be at all times that of an independent
contractor. No party to this Agreement 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.
8.3 This Agreement may not be assigned in whole or in part by either
party without the prior written consent of the other party.
8.4 The parties hereto shall do all further acts and things and
execute all further documents reasonably required in the circumstances
to effect the provisions and intent of this Agreement.
8.5 Time shall be of the essence hereof.
25 of 35
Ver. 1.1
<PAGE>
8.6 All fees and other amounts referred to in and payments made under
this Agreement shall, unless otherwise specified, be in United States
dollars.
8.7 During the term of this Agreement and for a period of one year
following the termination of this Agreement LANSTAR shall not, directly
or indirectly, attempt to hire or encourage to leave MOSAID's employ,
any individual who will have been an employee of MOSAID at any time
during the previous one year period or who shall have been an employee
of MOSAID at any time during the one year period prior to the date of
the termination of this Agreement, whether for or on behalf of LANSTAR
or for any entity in which LANSTAR shall have a direct or indirect
interest.
8.8 It is the desire of the parties hereto that this Agreement be
accorded a liberal interpretation consistent with its declared intent
and purpose.
8.9 The headings appearing throughout this Agreement are inserted for
convenience only and form no part of the Agreement.
8.10 The invalidity or unenforceability of any provision of this
Agreement will not affect the validity or enforceability of any other
provision hereof and any such invalid or unenforceable provision will
be deemed to be severable.
8.11 This Agreement together with the Schedules attached hereto
constitutes the entire agreement between the parties and supersedes all
prior and contemporaneous agreements, understandings and discussions,
whether oral or written, and
26 of 35
Ver. 1. 1
<PAGE>
there are no other warranties, agreements or representations between
the parties except as expressly set forth herein. The following
schedules are attached hereto and form an integral part of this
Agreement:
Schedule A - The Work
Schedule B - Specifications
Schedule C - Fees
Schedule D - Royalty Payments
8.12 No amendment, waiver or termination of this Agreement will be
binding unless executed in writing by the parties to be bound hereby.
No waiver of any provision of this Agreement will be deemed or will
constitute a waiver of any other provision, nor will any such waiver
constitute a continuing waiver unless expressly provided.
8.13 This Agreement may be executed in several counterparts, all of
which together shall constitute one and the same instrument.
8.14 This Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and permitted
assigns.
1
Ver. 1.1 27 of 35
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this
Agreement.
SIGNED, SEALED AND DELIVERED
MOSAID Technologies Incorporated
Per:
-----------------
Title: Vice President CFO
Name: Christine A. Baburek
Date: July 26, 1995
---------------
LANSTAR SEMICONDUCTOR CORP
Per:
-----------------
Title: President
Name: Maxie R. Smith
Date:
-----------
Ver. 1.1 28 of 35
<PAGE>
SCHEDULE "A"
------------
THE WORK
With regard to the Agreement dated July 27, 1995 by and between MOSAID
and LANSTAR, the Work to be performed by MOSAID shall be as described in
this Schedule "A" and shall be divided into the following phases (a "Phase")
and each Phase shall have the milestone or milestones (one or more of which
is referred to as a "Milestone" or "Milestones", respectively) described
below. The achievement of the Milestones described below as well as the
additional Milestones referred to in Schedule "C" attached hereto shall
result in the obligation of LANSTAR to pay to MOSAID that portion of the Fee
set forth opposite each Milestone in Schedule "C" attached hereto.
Phase
-----
1. Preliminary design Delivery by MOSAID of preliminary documentation
2. Layout design Delivery by MOSAID of layout database
3. Design optimization Delivery of related documentation
Ver. 1.1 29 of 35
<PAGE>
MOSAID Technologies Incorporated - Semiconductor Division
ENGINEERING CHANGE REQUEST (ECR)
--------------------------------
CUSTOMER NAME:__________________________
PROJECT TITLE:_____________________________
Date:______________
Charge No:______________
ECR No:______________
1. TITLE OF CHANGE REQUESTED:_________________________________________
____________________________________________________________________
2. REASON FOR CHANGE:__________________________________________________
____________________________________________________________________
3. PERSON REQUESTING CHANGE:___________________________________________
____________________________________________________________________
4. DESCRIPTION OF CHANGE: (attach any additional documentation)
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
MOSAID'S RESPONSE TO THE ECR:
----------------------------
1. Feasibility:________________________________________________________
____________________________________________________________________
2. Impact:_____________________________________________________________
____________________________________________________________________
3. Estimated Extra Cost:_______________________________________________
____________________________________________________________________
COMMENTS: (attach any additional documentation)
________
Approval:
________
Client (if applicable) Technical:_________________ Date:____________
Administrative:_______________ Date:____________
MOSAID Technical:__________________ Date:____________
Administrative:______________ Date:____________
30 of 35
<PAGE>
SCHEDULE "B"
------------
SPECIFICATIONS
With regard to the Agreement dated July 27, 1995 by and between MOSAID
and LANSTAR, the Functional and Manufacturing Specifications are set forth
below:
The following is a formal list of the functional and parametric
requirements of the Chip and the manufacturing and processing
characteristics pursuant to which LANSTAR shall manufacture the Chip. The
following items shall be completed and supplied to MOSAID prior to the
commencement of the Work by MOSAID.
1.0 FUNCTIONAL SPECIFICATION:
------------------------
1.1 Complete Functional Description of the device including descriptive
text, timing waveforms and discrete specifications.
1.2 Pinout diagram and pin description list.
1.3 DC operating conditions (including maximum values).
1.4 DC electrical characteristics.
1.5 AC characteristics.
1.6 Pin capacitance's.
1.7 Test features.
1.8 Metal mask or bond options.
1.9 A complete list of all versions of the circuit required for the
contract. 1
2.0 ELECTRICAL DEFINITION OF THE PROCESS (FAST, SLOW & TYPICAL):
------------------------------------------------------------
2.1K', VTO, GAMMA, DW, DL and NSUB for all types of MOSFET devices used
by the process.
2.2SPICE LEVEL 3 MOSFET models (DC and AC parameters) for all types of
MOSFET devices used by the process.
2.3Measured IDS-VDS curves for all types of MOSFET devices used by the
process including (a) a large square device and (b) an average
width, typical length device.
2.4Measured ring oscillator performance for all operating conditions plus an
accurate schematic for the ring oscillator.
ver. 1.1 31 of 35
<PAGE>
2.5 Junction depths for the tub (s) ana n+/p+ diffusions.
2.6 Junction breakdown voltages for the tub (s) and n+/p+ diffusions.
2.7 MOSFET punch-through voltage characteristics.
2.8 Process cross-section including dielectric material descriptions,
permitivities, thickness and interconnect layer thickness.
2.9 Resistance characteristics of interconnect layers and interlayer
contacts.
2.10 Capacitance of minimum width conductor layers per unit length for
various conditions of neighboring conductor layers (i.e. metal 1 over
substrate, Metal I over substrate and covered by Metal 2, Metal 2 over
Metal 1, etc. for the cases where there are adjacent tracks with typical
layer to layer spacing).
2.11 Capacitance values for (a) the wordline per 'In" cells, (b) the entire
bitline and (c) the memory cell.
2.12 DC and AC Metal migration guidelines.
2.13 Latch-up prevention guidelines.
2.14 Layout cell of a proven ESD protection structure.
2.15 Test wafer with sample transistors (if available).
3.0 GEOMETRICAL DEFINITION OF THE PROCESS:
3.1 A complete list of all layer names with layer definitions and numbering
convention.
3.2 A complete set of geometrical design rules (array and periphery rules).
3.3 A list highlighting the unusual geometrical design rules which require
more involved DRC checking procedures.
3.4 A diagram showing which layers are connected by which contacts.
3.5 Seal ring geometric design rules.
3.6 Minimum acceptable layout grid size.
Ver.1.1 32 of 35
<PAGE>
3.7A GDSII tape containing the layout of (a) the memory cell layout, (b)
the "friendly" or "edge" memory cell layout, (c) the wordline shunt
layout and (d) the bitline sense amplifier layout (if available) plus
documentation describing how to construct the cell arrays.
3.8 DRACULA DRC layout verification input file (if available).
3.9 DRACULA ERC layout verification input file (if available).
3.10 DRACULA LPE layout verification input file (if available).
4.0 DIE REQUIREMENTS:
4.1 Maximum die size allowable.
4.2 A complete list of special marks required to be on the die (i.e. laser
alignment marks, logos, part numbers, etc.) with the layout cells or
cell dimensions supplied.
4.3 A detailed description of the required seal ring.
4.4 Bonding Pad and special mark rules.
4.5 Lead frame design and bonding pad position limitations.
4.6 A list of all proposed packages for the chip.
4.7 Space required for special marks such as laser alignment marks, logos,
part numbers, etc.
4.8 Any requirements for the inclusion of specific parametric test
structures (i.e. test MOSFET's, etc.).
5.0 MISCELLANEOUS:
5.1 A list of standard circuitry required on the die which is not directly
required by the active circuitry (i.e. special signature circuits,
special test circuits, etc.)
Changes to either the Functional Specifications or the Manufacturing
Specifications during the term of this Agreement may be made only upon the
mutual written agreement of the parties hereto.
33 of 35
Ver. 1
<PAGE>
SCHEDULE "C"
------------
FEES
With regard to the Agreement dated July 27, 1995 by and between MOSAID and
LANSTAR,the following is the Fee payment schedule.
The following are the installments of the Fee payable to MOSAID by LANSTAR
upon the achievement of each of the following Milestones. The total Fee is
$500,000 U.S. The Fee for Milestone 1 is to be transferred to the MOSAID bank
account as specified herein within 30 days of the execution of this Agreement.
No work will be initiated until the full Fee of Milestone 1 is received by
MOSAID. Milestones 2,3,4,5,6 are to be guaranteed via a letter of credit to be
established no later than 30 days after the execution of this Agreement and is
to be opened with a banking institution acceptable to MOSAID. All costs for the
establishment of letters of credit are the responsibility of LANSTAR.
MILESTONE INSTALLMENT OF FEE
1. Execution of this Agreement $ 150,000 U.S.
2. Delivery of preliminary documentation $ 20,000 U.S.
3. Delivery of layout database $ 20,000 U.S.
4. Delivery of related documentation $ 20,000 U.S.
5. Upon achievement of 10 Working Prototypes $ 20,000 U.S.
6. Upon achievement of 10 Chips meeting
all Specifications $ 20,000 U.S.
7. Production license $ 250,000 U.S.
The production license will be paid to MOSAID in 6 equal installments. The
full amount of $250,000 U.S. is to be guaranteed via a letter of credit to be
established no later than January 1, 1996 and is to be opened with a banking
institution acceptable to MOSAID. Payments will be monthly beginning January 15,
1996 and finishing with the final payment on June 15, 1996.
Each of MOSAID and LANSTAR hereby recognize and acknowledge that it is
necessary for LANSTAR to fabricate 10 Working Prototypes of the Chip to achieve
Milestone 5 and ten Chips to achieve Milestone 6 and Production Volume to
achieve Milestone 7 and accordingly, in the event that MOSAID has remedied all
of the deficiencies set out in a Rejection Notice or Rejection Notices relating
to Milestone 5 or Milestone 6 and does not fabricate the prototypes of the Chip
or does not proceed to Volume Production, as the case may be, within 12 months
following the later of the achievement of Milestone 5 or Milestone 6 or the date
on which MOSAID remedies such deficiencies, if any, then each of Milestone 5 and
Milestone 6 and Milestone 7 shall be deemed to have been achieved and the Fee
relating to each such Milestone shall be immediately due and payable by LANSTAR
to MOSAID.
ver. 1.1 34 of 35
<PAGE>
SCHEDULE "D"
------------
ROYALTY PAYMENTS
With regard to the Agreement dated July'27, 1995 by and between MOSAID
and LANSTAR, the Royalty Payments are set forth below:
Royalty Payments are calculated from information provided by LANSTAR of
the Net Sales of the Chip for the calendar quarter.
Royalty Payments shall be calculated by multiplying the Net Sales of
the Chip by the rates set forth in the following schedule:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PRODUCT YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6
And And
before after
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The Chip 1.5% 2.5% 3.0% 3.5% 4.0% 4.0%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Year 1 shall mean the 12 month period commencing on the date on which
LANSTAR achieves Production Volume.
Ver. 1.1 35 of 35
<PAGE>
Exhibit 10.2
AMENDMENT TO DESIGN AND LICENSE AGREEMENT
-----------------------------------------
THIS AMENDMENT is made and entered into this 8th day of March 1996 by and
between:
MOSAID Technologies Incorporated, a corporation incorporated and
existing under the laws of Ontario and having its head office and principal
place of business at 2171 McGee Side Road, Carp, in the Township of West
Carleton, Ontario, Canada KOA 1LO, and a mailing address at P.O. Box 13579,
Kanata, Ontario, Canada, K2K 1X6 (hereinafter referred to as "MOSAID");
and
LANSTAR Semiconductor Corporation, A Texas corporation with its
registered head office at 2501 Avenue J, Suite 125, Arlington, Texas, USA
76006 (hereinafter referred to as "LANSTAR");
RECITALS
- --------
WHEREAS LANSTAR and MOSAID have entered into a DESIGN AND LICENSE AGREEMENT,
dated July 27th 1995 (hereinafter referred to as "the Agreement") with respect
to the engineering design of a 4 Megabit Dynamic Random Access Memory (DRAM)
chip in x1 and x4 format; and
WHEREAS LANSTAR desires for MOSAID to modify the Agreement to modify the terms
of payment of Non-Recurring Engineering fees and the terms by which MOSAID may
purchase wafer output from LANSTAR; and
WHEREAS LANSTAR and MOSAID are willing to modify the Agreement as described
herein;
NOW, THEREFORE the parties agree as follows:
1.0 Clause 3.9.1 and 3.9.2 of the agreement are hereby amended and replaced as
follows:
3.9.1 LANSTAR grants to MOSAID the right, but MOSAID has no obligation,
to purchase from LANSTAR for resale by MOSAID up to 10% of the monthly
wafer output or finished packaged and tested DRAMs that may be produced
by LANSTAR through third party facilities or in any facilities owned in
whole or in part by LANSTAR at the cost of manufacture plus and amount
of ton (10%) percent. it is expressly agreed that the manufacturing
cost shall be calculated inclusive of all license and/or royalties paid
or payable.
rev 1.0
<PAGE>
2.0 Schedule "C' of the agreement is hereby amended and replaced as follows:
The following are the installments of the Fee payable to MOSAID by LANSTAR
upon the achievement of each of the following Milestones. LANSTAR will
provide MOSAID with a participation of one percent (1 %) of LANSTAR's net
revenues (gross less returns and non-payments) from all sources, paid
monthly up to a maximum of $350,000 which represents the balance of the
"Fees" required to be paid in accordance with paragraph 2.8 of the current
Design and Licensing Agreement.
<TABLE>
<CAPTION>
MILESTONE INSTALLMENT OF FEE
<S> <C>
1. Execution of this Agreement $150,000 U.S. (received)
BALANCE OF PAYMENTS LANSTAR FORECAST
(attached)
2. MOSAID participation payment (Mar/Apr-96) $ 40,000 U.S.
3. MOSAID participation payment (Apr/May-96) $ 60,000 U.S.
4. MOSAID participation payment (May/Jun-96) $ 80,000 U.S.
5. MOSAID participation payment (Jun/Jul-96) $100,000 U.S.
6. MOSAID participation payment (Jul/Aug-96) $ 70,000 U.S.
</TABLE>
3.0 CONFIRMATION OF REMAINING PROVISIONS
Both parties understand and agree that all other provisions of the Agreement
shall continue unamended in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement by their
respective, duly authorized officers on the dates indicated below.
MOSAID Technologies Incorporated LANSTAR Semiconductor Corporation
an Ontario corporation a Texas corporation
By: By:
Title: Vice President Title: President
Name: lain H. Scott Name: Maxie Smith
Date: 8 March 1996 Date: 14 March 1996
<PAGE>
<TABLE>
<CAPTION>
LANSTAR SEMICONDUCTOR INC. MOSAID PARTICIPATION STUDY CONFIDENTIAL
- ------------------------------------------------------------------------------------------------------------------------------------
MONTH MAR/APR APR/MAY MAY/JUN JUN/JUL JUL/AUG CUM
- ------------------------------------------------------------------------------------------------------------------------------------
($'S IN 000)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LANSTAR
REVENUE-
PRIVATE
LABEL/4MEG
& 16MEG $4,000 $6,000 $8,000 $10,000 $12,0000 $40,000
- ------------------------------------------------------------------------------------------------------------------------------------
LANSTAR/MOSAID
REVENUE-4MEG $0 $0 $0 $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
PARTICIPATION
1%-BASED ON *NOTE
MOSAID
CERTIFICATE OF
PARTICIPATION $40 $60 $80 $100 $120 $400
- ------------------------------------------------------------------------------------------------------------------------------------
PARTICIPATION
1.5% BASED ON
MOSAID 4MEG $0 $0 $0 $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* NOTE: GUARANTEED MINIMUM PAYMENT OF 20K BY END OF APRIL
<PAGE>
EXHIBIT 10.3
LICENSE AGREEMENT
BETWEEN
TEXAS INSTRUMENTS INCORPORATED
AND
LANSTAR SEMICONDUCTOR CORPORATION
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 .................................................................4
DEFINITIONS OF TERMS
SUBSIDIARY .........................................................4
EFFECTIVE DATE
PATENTS ............................................................4
LANSTAR PATENTS ....................................................5
TI PATENTS
INTEGRATED CIRCUIT .................................................6
LICENSED PRODUCTS ..................................................6
NET SALES BILLED ...................................................6
ROYALTY BEARING COUNTRY ............................................8
ROYALTY FREE COUNTRY ...............................................9
ARTICLE 2 ..................................................................10
MUTUAL RELEASES
ARTICLE 3 ..................................................................11
GRANT OF LICENSES
ARTICLE 4 ..................................................................17
SUBLICENSES TO SUBSIDIARIES
ARTICLE 5 ..................................................................20
ROYALTIES
ARTICLE 6 ..................................................................24
ACCOUNTING FOR ROYALTIES AND TAXES
ARTICLE 7 ..................................................................28
TERM & TERMINATION
ARTICLE 8 ..................................................................33
MISCELLANEOUS PROVISIONS
<PAGE>
LICENSE AGREEMENT
THIS AGREEMENT is made by and between TEXAS INSTRUMENTS INCORPORATED
("TI") a Delaware corporation having a place of business at 13500 North Central
Expressway, Dallas, Texas 75265, U. S. A., and LANSTAR SEMICONDUCTOR CORPORATION
("LANSTAR"), a Texas corporation having a place of business at 2501 Avenue J,
Ste. 125, Arlington, Texas 76006.
WITNESSETH:
WHEREAS, TI owns or controls and has or may have rights under various
patents and utility models and applications therefor in various countries of the
world as to which LANSTAR desires to acquire licenses as hereinafter provided;
WHEREAS, LANSTAR owns or controls and has or may have rights under
various patents and utility models and applications therefor in various
countries of the world as to which TI desires to acquire licenses as hereinafter
provided;
WHEREAS, TI and LANSTAR are engaged in continuing research, development
and engineering in regard to LICENSED PRODUCTS (as hereinafter defined) and
contemplate the possibility of filing applications for the patenting of
inventions resulting therefrom;
2
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the parties hereby agree as follows:
3
<PAGE>
ARTICLE 1
DEFINITIONS OF TERMS USED IN THIS AGREEMENT
1.1 "SUBSIDIARY" means any corporation, company or other entity more
than fifty percent (50%) of the outstanding shares or stock entitled to vote for
the election of directors (other than any shares or stock whose voting rights
are subject to restriction) of which is owned or controlled by either party
hereto, directly or indirectly, now or hereafter during the term of this
Agreement.
Any corporation, company or other entity which would at any time be a SUBSIDIARY
of LANSTAR or TI, by reason of the foregoing shall be considered a SUBSIDIARY
for the purposes of this Agreement only so long as the ownership or control,
directly or indirectly, by LANSTAR or TI, as the case may be, meets the
conditions set forth above. "SUBSIDIARIES" of LANSTAR or TI means, respectively,
all corporations, companies or other entities which qualify as a SUBSIDIARY
under the foregoing.
1.2 The "EFFECTIVE DATE" of this Agreement shall be January 1, 1996.
1.3 "PATENTS" means patents, utility models, and applications therefor
of all countries of the world, which convey legally enforceable rights, in any
country, prior to the date of expiration or termination of this Agreement.
PATENTS includes Japanese applications for patents and utility models which have
4
<PAGE>
been published for opposition ("Koukoku"), but does not include "laid-open"
applications, of any country, such as a Japanese "Kokai" (with the understanding
that neither LANSTAR nor TI shall take any steps to enforce such "laid-open"
applications against the other until and unless they become PATENTS as defined
herein) PATENTS does not include design patents, except for any design patents
which cover packaging, or housing, for LICENSED PRODUCTS. PATENTS does not
include any of the foregoing in this Article 1.3 for which payments or other
consideration to third parties is required, for the right to grant licenses and
releases of the scope of the rights granted herein, except for payments to a
SUBSIDIARY o f TI or LANSTAR as the case may be or payments made to said third
parties for inventions made while employed by LANSTAR or TI, as the case may be,
or by such party's SUBSIDIARY.
1.4 "LANSTAR PATENTS" means PATENTS which, at any time during the term
of this Agreement, LANSTAR owns or controls and under which LANSTAR has the
right to grant releases or licenses of the scope granted pursuant to Articles
2.1 and 3.2 of this Agreement.
1.5 "TI PATENTS" means PATENTS which, at any time during the term of
this Agreement, TI owns or controls and under which TI has ;,he right to grant
releases or licenses of the scope granted pursuant to Articles 2.2 and 3.1 of
this Agreement.
5
<PAGE>
1.6 "INTEGRATED CIRCUIT" shall mean an integral unit including a
plurality of active and/or passive circuit elements formed at least in part of
semiconductor material and associated on or in one substrate comprising the
first level of packaging for such elements and including any enveloping, cooling
and fastening means, terminal members and leads, such unit forming, or
contributing to the formation of, a circuit for performing electrical or
electronic function.
1.7 "LICENSED PRODUCTS" means an INTEGRATED CIRCUIT of a type which is
commonly recognized in the industry by any of the following acronyms: DRAMs
(including but not limited to Dynamic Random Access Memory devices, Synchronous
Dynamic Random Access Memory devices, Video RAMs (VRAMs), and Field or Frame
memories commonly referred to in the industry as FRAMs); SRAMs; ROMs; PROMs;
EPROMs; FLASH EPROMs; or EEPROMs.
1.8 "NET SALES BILLED" means:
(a) the total amount billed to any third party by LANSTAR or by any of
its SUBSIDIARIES sublicensed hereunder (excluding transactions between LANSTAR
and any of its SUBSIDIARIES or between such SUBSIDIARIES) pursuant to a bona
fide, arms length transaction unaffected by reason of affiliation or any other
cause, in connection with the sale, lease or other disposition anywhere in
6
<PAGE>
the world, of LICENSED PRODUCTS which are royalty bearing under the provisions
of Article 5 (including sales resulting from licensed activities permitted by
Article 3.4, for which royalties are not excluded under Article 5.3), less (i)
sales, excise taxes and other taxes (other than taxes measured by LANSTAR's or
such SUBSIDIARIES' income) levied in respect to such worldwide sales, leases or
other disposition, where such amounts are included in the amount billed, (ii)
returned sales, (provided that, upon termination or expiration of this
Agreement, the royalties previously paid for such returned sales shall be
refunded to LANSTAR; otherwise, such royalties shall be offset against future
royalties), (iii) trade* or quantity discounts but only if they are expressly
documented, (iv) transportation and insurance costs where such amounts are
included in the amount billed and (v) import duties; or
(b) the fair market value of such royalty bearing products not sold,
leased or otherwise disposed of to said unaffiliated third parties but used or
incorporated by LANSTAR, or any of its SUBSIDIARIES sublicensed hereunder,
anywhere in the world, in any product or in providing services or replacements
anywhere in the world. For purposes of this Article 1.8 (b), fair market value
of a particular royalty bearing product shall be determined as follows:
Total worldwide sales revenue, less the deductions specified above in
Article 1.8(a), for the applicable
7
<PAGE>
calendar semi-annual reporting period for a product which is the same
or similar to said particular LICENSED PRODUCT, divided by the total
units of that product sold, leased or otherwise disposed of worldwide
during said calendar semi-annual reporting period 0 unaffiliated
third parties to determine the average sales price f or such same or
similar product. Such average sales price shall be multiplied by the
total units used by LANSTAR, or by any of its SUBSIDIARIES
sublicensed hereunder, in the instance of (b) above.
For each such same or similar product that has no sales revenue anywhere
in the world for the calendar semi-annual reporting period, f air market value
shall be the same as that reported for such same or similar product in the
immediately preceding calendar semi-annual reporting period or, if there were no
value established for the immediately preceding calendar semi-annual reporting
period, then the fair market value, as determined above, shall be applied for
the nearest related standard part offered by LANSTAR that substantially performs
the same functions as such same or, similar product.
1.9 "ROYALTY BEARING COUNTRY" means the United States, ,Japan, or any
country of Europe.
8
<PAGE>
1. 10 "ROYALTY FREE COUNTRY" means any country of the world other than
the United States, Japan, or a country of Europe.
9
<PAGE>
ARTICLE 2
MUTUAL RELEASES
2.1 LANSTAR hereby releases, acquits and forever discharges TI and all
of its SUBSIDIARIES sublicensed hereunder from any and all claims or liability
for infringement or alleged infringement of any LANSTAR PATENTS under which a
license is herein granted by LANSTAR with respect to performance by TI or any or
all of its SUBSIDIARIES sublicensed hereunder, prior to the EFFECTIVE DATE of
acts which if performed on or after the EFFECTIVE DATE would be acts licensed
hereunder.
2.2 TI hereby releases, acquits and forever discharges LANSTAR and all
of its SUBSIDIARIES sublicensed hereunder from any and all claims or liability
for infringement or alleged infringement of any TI PATENTS under which a license
is herein granted by TI with respect to performance by LANSTAR or any or all of
its SUBSIDIARIES sublicensed hereunder, prior to the EFFECTIVE DATE of acts
which if performed on or after the EFFECTIVE DATE would be acts licensed
hereunder.
10
<PAGE>
ARTICLE 3
GRANT OF LICENSES
3.1 TI grants and agrees to grant to LANSTAR non-exclusive licenses under any
TI PATENTS to make LICENSED PRODUCTS. T I further grants to LANSTAR the right
to use, to lease, to sell, and otherwise to dispose of, LICENSED PRODUCTS made
only by LANSTAR or its SUBSIDIARIES sublicensed pursuant to Article 4. The
grant to make LICENSED PRODUCTS shall include the right, under any TI PATENTS,
for LANSTAR to use (i) manufacturing processes; and (ii) manufacturing
equipment and test equipment and systems, made by LANSTAR or any other party;
for the purpose of making such LICENSED PRODUCTS.
3.2 LANSTAR grants and agrees to grant to TI non-exclusive licenses
under any LANSTAR PATENTS to make LICENSED PRODUCTS.
LANSTAR further grants to TI the right to use, to lease, to sell, and otherwise
to dispose of, LICENSED PRODUCTS made only by TI or its SUBSIDIARIES
sublicensed pursuant to Article 4. The grant to make LICENSED PRODUCTS shall
include the right, under any LANSTAR PATENTS, for TI to use (i) manufacturing
processes; and (ii) manufacturing equipment and TEST EQUIPMENT AND SYSTEMS made
by TI or any other party; for the purpose of making such LICENSED PRODUCTS.
<PAGE>
3 .3 Each party hereto shall ensure that each of its
SUBSIDIARIES, (excluding any existing company acquired by a party
hereto and to which the non-acquiring party withheld its consent
pursuant to Article 4.2.), whether sublicensed hereunder or not,
grants to the other party hereto licenses under any PATENTS of such
SUBSIDIARY, wherein such licenses are identical in scope as set
forth in Articles 3.1 and 3.2, without royalty payment, except as
provided in this Agreement. If a party hereto fails to so ensure,
that party shall indemnify and hold harmless the other party hereto
against any costs or damages incurred defending against a claim of
infringement asserted by any such SUBSIDIARY, including attorney's
fees.
3.4 (a) With respect to the licenses granted in Articles 3.1
through 3.3, a license to a party:
(i)does not include the right of a party licensed herein (a "Licensed Party")
under any TI PATENTS or LANSTAR PATENTS, as the case may be, to make
LICENSED PRODUCTS either in finished or semifinished form (by way of
example, "semifinished form" includes (i) semiconductor wafers at any
stage of their manufacture, (ii) foundry services, and (iii) assembly)
for, or f or sale to, any third party to use, to lease, to sell, or
otherwise to dispose of, such LICENSED PRODUCTS under the trademark, trade
name, or other commercial indicia, of such
12
<PAGE>
third party in any instance where the manufacturing drawings and
specifications are originated by, or on behalf of such third party. In the
event of any such activity by a Licensed Party, the exclusive remedy for the
other party for any claim of patent infringement shall be against such third
party.
(ii)does include the right to have a third party make LICENSED PRODUCTS either
in finished or semifinished form (by way of example, "semifinished form"
includes (i) semiconductor wafers at any stage of their manufacture, (ii)
foundry services and (iii) assembly) for the sole account of a Licensed
Party, but only if said LICENSED PRODUCTS are to be sold, used or leased or
otherwise disposed of, by the Licensed Party under the trademark, tradename,
or other commercial indicia, of the Licensed Party, and are made by the
third party using manufacturing drawings and specifications originated by
the Licensed Party, or originated by any third party specifically and
exclusively for the Licensed Party, as work for hire; provided however that
such right shall not extend to standard off-the-shelf products of such third
party nor to products originally designed by such third party and to which
only minor revisions are made to conform to specifications of a
Licensed Party.
13
<PAGE>
(b) With respect to the licenses granted in Articles 3. 1 through 3.3, and
notwithstanding anything in Article 3.4 (a) (ii) to the contrary, a license to
a Licensed Party " to use, to lease, to sell, and otherwise to dispose of
LICENSED PRODUCTS made" by the Licensed Party, does include the right of the
Licensed Party to use, to lease, to sell, and otherwise to dispose of,
standard, off-the-shelf products of any third party, which then shall be deemed
LICENSED PRODUCTS, provided that such LICENSED PRODUCTS are used, leased, sold,
or otherwise disposed of, under the trademark, tradename or other commercial
indicia, of the Licensed Party, or of any of its SUBSIDIARIES sublicensed
hereunder, and further provided that in the case of LANSTAR, the royalty
provisions of Article 5 are complied with fully.
(c)With respect to the licenses granted in Articles 3.1 through 3.3, and
except as provided otherwise in Article 3.4(b), a license to a Licensed
Party "to lease, to sell, and otherwise to dispose of" LICENSED
PRODUCTS:
(i)does not include any right for the Licensed Party to act as a sales
agent, commission agent, broker or factor of products made by third
parties; and
14
<PAGE>
(i does not include any right for a Licensed Party to act as a distributor
or reseller of products made by third parties.
(d) A party shall have the right to terminate any license (the
"License") under TI PATENTS or LANSTAR PATENTS, as the case may be,
with respect to any products manufactured by the other party
according to manufacturing drawings and specifications originated
by, or on behalf of a third party, and where said products are
primarily for the sole account of said third party, upon the
occurrence of the following conditions
(i)such third party has brought a patent infringement action against said party
based upon an activity or product which would be a LICENSED PRODUCT,
or the manufacture thereof, if done under this Agreement; and
(ii)said party provides written notice of such termination,
to the other party.
3.5 Specifically excluded from the grants of licenses pursuant
to this Agreement, is any license, direct or implied, under the U.S.
Semiconductor Chip Protection Act of 1984, the Japanese Law
concerning Semiconductor Integrated Circuit Layouts of 1985, or
equivalents thereof in any other country.
15
<PAGE>
3.6 Specifically excluded from the grants of licenses pursuant to this
Agreement, is any license, direct or implied, under any copyrights, trademarks,
trade names, or trade secrets.
3.7 Specifically excluded from the grants of licenses pursuant to this
Agreement is any license, direct or implied, under any design patents, except
for any design patents which cover packaging, or housing, for LICENSED
PRODUCTS.
16
<PAGE>
ARTICLE 4
SUBLICENSES TO SUBSIDIARIES
4.1 Subject to compliance with the terms and conditions of the provisions of
Article 4.2, each party hereto shall have the right to grant to any of its
SUBSIDIARIES sublicenses under the licenses granted to it pursuant to this
Agreement but without any right to sublicense further.
4.2 Each party hereto shall have the right to grant sublicenses during the
term of this Agreement pursuant to Article 4.1 only to those of its
SUBSIDIARIES which (i) shall grant to such party licenses under all PATENTS of
each such SUBSIDIARY which relate to LICENSED PRODUCTS, and (ii) shall grant to
the other party hereto rights, under said PATENTS of such SUBSIDIARY, of a
nature which results in the inclusion of all such PATENTS of each such
SUBSIDIARY within the definitions of TI PATENTS or within the definitions of
LANSTAR PATENTS, as the case may be, for the purposes of this Agreement,
provided, however, that, in the case of an existing company acquired by either
party as a SUBSIDIARY after the execution date of this Agreement, which company
has at any time prior to acquisition by such party engaged in the manufacture
of LICENSED PRODUCTS, the consent of the non-acquiring party hereto shall be
required for the acquired company to receive a license under PATENTS of the
non-acquiring party. Any such consent by the
17
<PAGE>
non-acquiring party shall not be unreasonably withheld. Such shall be in
writing upon request of the acquiring party.
For purposes of this Article 4.2, a SUBSIDIARY of either party which
satisfies all of the following conditions ("a Spin-off SUBSIDIARY" shall not be
deemed an existing company acquired by that party after the execution date of
this Agreement:
(a) It is a SUBSIDIARY in which that party owns or controls, directly, or
indirectly through a wholly-owned SUBSIDIARY, ninety-five percent (95%)
or more of the outstanding shares or stock entitled to vote for the
election of directors (other than any shares or stock whose voting
rights are subject to restriction); and
(b)It is a SUBSIDIARY all or substantially all of whose entire assets and other
properties are owned or controlled, directly or indirectly, by that
party immediately prior to the formation of said SUBSIDIARY, which
assets and other properties, at the time of said formation, primarily
are used for the manufacture, assembly and/or test of LICENSED
PRODUCTS; and
(c)It is a SUBSIDIARY which is not intended, nor is, at least within the
remaining term of this Agreement: (i)
18
<PAGE>
to be utilized as a vehicle for joint venture, partnership or the
like, with a third party; or (ii) to be combined, consolidated or
merged, with any third party, corporation, company or other entity,
as a result of which the Spin-Off SUBSIDIARY no longer qualifies as a
SUBSIDIARY of that party.
4.3 In the event that the relationship of a SUBSIDIARY of a
party hereto changes so that a corporation, company, or other entity
ceases to be such a SUBSIDIARY, the sublicense extended to such
corporation, company or other entity under 'this Agreement shall
automatically terminate as of the date such relationship changes, but
the licenses granted either directly or indirectly by such
corporation, company or other entity to the other party hereto under
this Agreement shall continue until expiration or termination of this
Agreement; provided, however, that such sublicense shall not
terminate, if the sole reason that such corporation, company, or
other entity ceases to be such a SUBSIDIARY of such party, is that
the ownership or control of such party becomes fifty percent (50%) or
less by reason of a public offering, in which case such sublicense
shall continue in full force and effect so long as such party
continues to be the largest percentage shareholder or owner in such
corporation, company, or other entity and any royalties due are paid
and all other terms and conditions of this Agreement are
fulfilled by such corporation, company, or other entity.
19
<PAGE>
ARTICLE 5
ROYALTIES
5.1 In partial consideration for the licenses granted hereunder by TI to
LANSTAR during the period commencing on January 1, 1996 through the date of
expiration or termination of this Agreement, LANSTAR shall pay to TI royalties,
in United States dollars, at the rate of ten percent (10%) of NET SALES BILLED,
for all DRAMs that are directly or indirectly: used, leased, sold, imported or
otherwise disposed of by LANSTAR or any of its SUBSIDIARIES sublicensed
hereunder, in any ROYALTY BEARING COUNTRY, and at the rate of five percent (5%)
of NET SALES BILLED, for all SRAMs, ROMs, PROMs, EPROMs, FLASH EPROMS, or
EEPROMs that are directly or indirectly: used, leased, sold, imported or
otherwise disposed of by LANSTAR or any of its SUBSIDIARIES sublicensed
hereunder, in any ROYALTY BEARING COUNTRY.
5.2 With respect to LICENSED PRODUCTS which are leased, sold or
otherwise disposed of by LANSTAR in any ROYALTY FREE COUNTRY and which are not
made totally or in substantial part in a ROYALTY BEARING COUNTRY, the following
provisions shall apply:
W subject to the provisions of Article 5.2 (ii), such LICENSED PRODUCTS
shall be presumed to be indirectly used,
20
<PAGE>
leased, sold, imported or otherwise disposed of n a ROYALTY BEARING COUNTRY
and shall therefore be subject to royalty payments as provided in Article
5.1; however (ii) LANSTAR may render such sales non-royalty bearing by
providing TI with proof that such LICENSED PRODUCTS are not, subsequently
used, leased, sold, imported or otherwise disposed of in any ROYALTY BEARING
COUNTRY. Such proof may include a certification by LANSTAR's lessee,
customer or other recipient that the LICENSED PRODUCTS are not intended to
be, nor will they be, exported to any ROYALTY BEARING COUNTRY, either
standing alone or as a part of a larger equipment. Any such proofs provided
by LANSTAR are subject to audit in accordance with the provisions of Article
6.1.
By way of example, "made in substantial part" shall encompass the manufacture
or partial manufacture of semiconductor wafers, or the process of assembly.
5.3 Royalties shall not be due from LANSTAR to TI, under Articles 5.1 through
5.2, for any LICENSED PRODUCTS (i) the manufacture, use, lease, importation,
sale or other disposition of which is not licensed hereunder; (ii) which are
supplied directly to TI or any of its SUBSIDIARIES; (iii) which are
manufactured
21
<PAGE>
under the "have made" right of a third party licensed by TI; or (iv) obtained
from a third party by LANSTAR pursuant to Article 3.4(b); provided, that, in
the cases of (iii) and (iv), LANSTAR obtains from TI (in the case of (iii) and
with respect to the period after the EFFECTIVE DATE: prior to such manufacture,
use, lease, sale, or other disposition, by LANSTAR) written confirmation that
such third party has a license from TI permitting such activities.
5.4 The parties acknowledge that the royalty amounts and rates specified in
Article 5.1 take into consideration the value of the licenses granted to TI in
this Agreement, and the method for calculating royalties.
5.5 All royalty payments shall be made to TI in U.S. dollars by telegraphic
transfer to TI's bank account at Nations Bank of Texas, Account 'No. 125 210
4040, Dallas, Texas, or to such other financial institution and account number
as TI may designate in writing to LANSTAR. If LANSTAR fails to make such
payments on or before the required dates, a supplemental royalty equal to one
percent (1%) of the amount due shall be paid by LANSTAR for each month, or part
of a month, that such payment is late.
5.6 LICENSED PRODUCTS shall be deemed to be put into use, or sold,
leased or otherwise disposed of, when billed by LANSTAR, or a
22
<PAGE>
SUBSIDIARY of LANSTAR sublicensed hereunder, to a third party, or upon use by
LANSTAR or any of its SUBSIDIARIES sublicensed hereunder, whichever event
occurs first. once royalty has been accounted for, for any LICENSED PRODUCT, no
further royalty shall be payable thereon under this Agreement.
23
<PAGE>
ARTICLE 6
ACCOUNTING FOR ROYALTIES AND TAXES
6.1 All computations relating to determination of the amounts of royalties
due and payable pursuant to this Agreement shall be made in accordance with
internationally recognized and generally accepted accounting principles as
reflected in the practice of certified independent public accountants of
international reputation. Upon the reasonable request of TI, LANSTAR and its
SUBSIDIARIES sublicensed pursuant to Article 4 hereof, shall permit access to
their books and. records by an independent accounting firm selected by TI and
approved by LANSTAR, which approval shall not be unreasonably withheld, for the
sole purpose of verifying the calculation of royalties due and payable pursuant
to this Agreement. TI shall seek permission for an audit no more than once each
calendar year with respect to royalties due and payable pursuant to Article 5
and no more than once after expiration of this Agreement with respect to any
royalties due and payable after such expiration, and shall bear the costs of
the independent accounting firm. All information concerning the use, lease,
sale or other disposition of LICENSED PRODUCTS, including without limitation,
sales prices and customers and other confidential business information of
LANSTAR shall be made available to the independent accounting firm to the
extent necessary to verify the calculation of royalties; provided such
24
<PAGE>
information shall not be made available to TI by the independent accounting
firm. Neither LANSTAR nor any of its SUBSIDIARIES shall be required to keep and
maintain such books and records for the purpose of such access for more than
one (1) year after the termination or expiration of this Agreement.
6.2 All royalties payable pursuant to Articles 5.1 and 5.2 of this
Agreement, in respect of the licenses and sublicenses granted pursuant to this
Agreement, shall be paid in respect of each calendar semi-annual period
commencing on January 1st and ending on June 30th, and commencing on July 1st
and ending on December 31st, respectively, during the term of this Agreement,
provided, however, that, for the calendar semi-annual period (or fraction
thereof) commencing with January 1st or July 1st, as the case may be, in any
calendar year during the term of this Agreement immediately preceding the date
on which the term of this Agreement shall terminate pursuant to Article 7
hereof, and ending on the date of such termination of the term of this
Agreement as aforesaid, such royalties shall be paid in respect of such
semiannual period (or fraction thereof) concerned in each case.
6.3 All royalties payable pursuant to Articles 5.1 and 5.2 of this
Agreement, shall be made on or before sixty (60) days after June 30th and
December 31st of each calendar year during the term of this Agreement, or any
renewal or extension thereof, or after
25
<PAGE>
the last day of any shorter period as provided for in Article 6.2. Royalties
accounted for in any currency other than United States Dollars shall be
converted to United States dollars by using the prevailing rate of exchange for
such currency and United States dollars quoted in the New York Foreign Exchange
Market on the last business day of the reporting period in question.
6.4 On or before the date by which each royalty payment is to be paid under
Articles 5.1 and 5.2, LANSTAR shall furnish to TI a written statement in the
English language, certified by an authorized representative of LANSTAR,
concerning the computation of royalties due and payable to TI in respect of the
applicable calendar semi-annual period in the case of royalties due under
Articles 5.1 and 5.2. Each such certified statement shall contain information in
sufficient detail to permit the accuracy of each royalty payment due and payable
under this Agreement to be readily determined, and, in particular, shall set
forth the following:
(a) in the case of royalties due under Articles 5.1 and 5.2, the total NET
SALES BILLED for such calendar semi-annual reporting period, including
an itemized listing of the NET SALES BILLED in the currency in which
it was billed, the exchange rates used and the final United States
dollar value; and
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(b) such additional information as TI may reasonably prescribe from time
to time to enable TI to ascertain the computation of royalties.
27
<PAGE>
ARTICLE 7
TERM & TERMINATION
7.1 Except as otherwise provided in Article 7, this Agreement and the
licenses granted pursuant hereto shall remain in force until December 31, 2000.
At any time subsequent to December 31, 1999, either party may request
negotiations to consider the possible renewal or extension of this Agreement. In
such event, both parties agree to enter into good faith negotiations to
determine whether a mutually acceptable extension or renewal can be agreed upon
prior to expiration of the Agreement. No extension or renewal shall be effective
until a definitive agreement is executed by both parties.
7.2 if a party fails to make any payment fully or timely as required by
this Agreement, or in the event of any other material breach of this Agreement
by either party or any of its SUBSIDIARIES sublicensed hereunder, and if such
failure or other material breach is not corrected within forty-five (45) days
after written notice complaining thereof is given to the defaulting party, then
this Agreement may be terminated forthwith in its entirety by written notice to
that effect from the complaining party, provided that such termination shall not
affect any royalty or other obligation arising prior to such termination.
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7.3 at any time during the term of this Agreement: (1 either party
consolidates with or merges with or into another corporation, company or other
entity, notwithstanding that such party may be the surviving entity of such
consolidation or merger, unless immediately after such consolidation or merger,
shareholders of such party prior to the consolidation or merger continue to own
more than fifty percent (50%) of the outstanding shares of stock entitled to
vote for the election of directors of such new or surviving entity; or (2)
either party sells or otherwise transfers substantially all of its business or
assets relating to LICENSED PRODUCTS (other than to a Spin-Off SUBSIDIARY); then
the other party may terminate this Agreement by written notice, provided that
such party exercises such right no later than thirty (30) days after receiving
written notice from the other party of the event.
7.4 The licenses granted in Articles 3.1 through 3.4 are intended to
provide each party a license under PATENTS of the other party: (1) which it
needs in order to make, use, lease, sell, or otherwise dispose of LICENSED
PRODUCTS within the scope of the rights granted in those articles; and (2) which
include the right to analyze or evaluate the concepts or techniques embodied in
the "mask work" (as defined in the U.S. Semiconductor Chip Protection Act of
1984) or the circuitry, logic flow, or organization of components used in the
mask work of a product of the other party, and to incorporate the results of
such analysis or evaluation in
29
<PAGE>
its own original mask work. SUBSIDIARIES sublicensed under Article 4. 1 shall
acquire the same rights The licenses granted in Articles 3.1 through 3.4, and
the sublicenses permitted under Article 4.1 are not intended to permit the
licensee to make a substantially similar copy of an original mask work of the
other party.
1-1 one party or its SUBSIDIARIES, makes, uses, leases, sells, or otherwise
disposes of a LICENSED PRODUCT that includes a mask work that is a substantially
similar copy of an original mask work of the other party, or its sublicensees,
and if said original mask work is entitled to be, or is, registered under the
Law Concerning Semiconductor integrated Circuit Layouts of Japan or the
Semiconductor Chip Protection Act of the United States or any other
corresponding legislation of any other country, as the case may be, then said
other party shall upon forty-five (45) days advance written notice have the
right to terminate all licenses and sublicenses granted pursuant to Articles 3.1
through 3.4 with respect to the product resulting from the mask work in
question.
In determining whether there is a substantially similar copy of an original
mask work, the provisions of the U.S. Semiconductor Chip Protection Act of 1984
shall govern.
30
<PAGE>
7.5 Except as provided in Article 7. 6, all licenses and sublicenses
granted pursuant to this Agreement in respect of TI PATENTS and LANSTAR PATENTS
shall cease forthwith as of the date of expiration or termination for any reason
of this Agreement.
7.6 In the event of termination of this Agreement or any of the licenses
granted under this Agreement by one party ("the Terminating Party") pursuant to
Articles 7.2, or 7.3, licenses granted to the Terminating Party pursuant to
Article 3 and the sublicenses granted to SUBSIDIARIES by the Terminating Party
pursuant to Article 4 shall survive until December 3.1, 2000.
7.7 If at any time during the term of this Agreement, any government or
agency thereof takes any action against or makes recommendations to either or
both parties requiring, directly or indirectly, formally or informally,
alteration or modification of any term or condition of this Agreement or of the
performance of the parties that materially or adversely affects one party, then
if said one party makes written request to the other party within sixty (60)
days from said action or recommendation of the government or agency thereof, the
parties shall enter into good faith negotiations with the objective of
restructuring the relationship between the parties in a manner such that the
adverse effect of said alteration or modification of this Agreement will be
minimized. if the parties cannot reach an acceptable licensing
31
<PAGE>
arrangement within six (6) months from the date of said written request, or
within such longer period of time as mutually agreed upon, either party shall
have the right to terminate this Agreement forthwith in its entirety by giving
written notice to that effect to the other party. All other provisions of this
Article 7 notwithstanding, in the event this Agreement is terminated pursuant to
this Article 7.8 all rights and licenses under TI PATENTS and LANSTAR PATENTS
shall cease and terminate. Each party agrees that in the event of such
termination, neither party will incur any liability to the other party for any
alleged default or breach in the performance of this Agreement arising from the
exercise of the termination right.
7.8 For the convenience of the parties hereto, this Agreement is made in
consideration of the exchange of patent licenses under a group of patents of
each party. A determination or action by a court of competent jurisdiction,
regulatory authority or governmental agency: (i) finding that one or more of the
patents of one party are invalid; or (ii) granting a temporary or permanent
injunction or restraining order under one or more of the patents; shall not give
rise to a right of termination by either party nor shall such determination or
action be regarded as justification for a change in the royalty rates.
32
<PAGE>
ARTICLE 8
MISCELLANEOUS PROVISIONS
8.1 (a) Each party represents and warrants that it has the right to grant to
the other the licenses granted hereunder and to give the releases provided in
this Agreement.
(b) LANSTAR represents and warrants that, as set out in Articles 5 and
6 of this Agreement, royalties or other monies payable hereunder will be timely
paid directly to TI pursuant to such articles, and will not be paid to any
other person, firm or entity, including, without limitation, any court, court
clerk, escrow fund or escrow agent.
(c) The parties acknowledge that they have bargained f or the right to
use all of the PATENTS licensed herein but are free not to use any if they so
choose; LANSTAR's full royalty obligation, however, exists regardless of the
number of patents used.
(d) The representations and warranties set out in this Article 8.1
survive the execution and EFFECTIVE DATE of this Agreement and are binding on
both parties during the entire term of this Agreement. in addition to other
remedies available under law,
33
<PAGE>
equity or this Agreement, breach of any such representations or warranties
constitutes a material breach of this Agreement.
8.2 Each party recognizes that this Agreement shall remain fully executory
until executed by both parties.
8.3 It is recognized that TI, LANSTAR or their SUBSIDIARIES may have
contracted, or may after the EFFECTIVE DATE, contract with a third party who is
not a party to this Agreement, such as a national or other sovereign
government, governmental agency or intergovernmental authority, to do work
financed. by such third party and to assign to such third party its/their right
to grant, or may now or hereafter be restrained by such third party from
granting, licenses (other than by a parent to its SUBSIDIARIES or by a
SUBSIDIARY to its parent or by a SUBSIDIARY to another SUBSIDIARY of the
parent) under patents for inventions arising out of such work. The inability,
for such a reason, of any of the parties hereto, or any one of their
SUBSIDIARIES, to grant 'the licenses herein agreed to be granted shall not be
considered a breach of this Agreement (but may result in application of various
provisions in Article 3).
34
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8.4 Nothing contained 4 n this Agreement shall be construed as:
(a) a warranty or representation by any of the parties to this Agreement as
to the validity or scope of any PATENTS; or
(b) a warranty or representation that any manufacture, sale, lease, import,
use or other disposition of LICENSED PRODUCTS hereunder will be free
from infringement of patents, or utility models, copyrights, mask work
rights, trade secrets, trademarks, trade names, or the like, of third
parties; or
(c) an agreement to bring or prosecute actions or suits against third
parties for infringement or conferring any right to bring or prosecute
actions or suits against third parties for infringement; or
(d) conferring any right to use in advertising, publicity, or otherwise, any
trademark, trade name or names, or any contraction, abbreviation or
simulation thereof, of either party; or
(e) conferring by implication, estoppel or otherwise, upon any party
licensed hereunder, any license or other right under any patent or
utility model, copyright, mask work
35
<PAGE>
right, trade secret, trademark, trade name or the like, except the
licenses and rights expressly granted hereunder. For example, no
release or license is granted by either party, or any SUBSIDIARY
sublicensed hereunder, either directly or by implication, estoppel or
otherwise, under any patent, release, waiver, license, or other right
hereunder, to either party or third parties acquiring product from
either party or any SUBSIDIARY sublicensed hereunder for the
combination of separate LICENSED PRODUCTS with each other or with any
other product. This is meant to exclude from the license granted,
products that utilize a LICENSED PRODUCT or which utilize a plurality
of separate LICENSED PRODUCTS; or
(f) an obligation to furnish any technical assistance or information or
knowhow.
9.5 This Agreement and the licenses granted herein shall inure to the benefit
of the parties and, insofar as is provided in this Agreement, to SUBSIDIARIES
of the parties hereto. Neither party nor any SUBSIDIARY sublicensed hereunder
shall assign or transfer any of its rights, privileges or obligations hereunder
without the prior written consent of a duly authorized representative of the
other party.
36
<PAGE>
8.6 Neither party nor any of its SUBSIDIARIES sublicensed hereunder shall be
required by anything contained in this Agreement to file in any country an
application for patent on any invention, or to secure any patent, or once
having filed an application for patent or obtained a patent, to maintain the
patent application or patent in force.
8.7 This Agreement is in the English language only, which language shall be
controlling in all respects, and all versions hereof in any other language
shall be for accommodation only and shall not be binding upon the parties
hereto. All communications to be made or given pursuant to this Agreement shall
be in the English language.
8.8 All notices required or permitted to be given hereunder shall be in
writing and shall be valid and sufficient if dispatched by registered airmail,
postage prepaid, in any post office in the United States, or by facsimile with
receipt confirmed, addressed as follows:
If to TI: Texas Instruments Incorporated
13500 North Central Expressway
Post office -Box 225474
Mail Station 229
Dallas, Texas 75265
U. S. A.
Attention: Manager, Patent Licensing
If to LANSTAR: Lanstar Semiconductor Corporation
2501 Avenue J, Suite 125
Arlington, Texas 76006
37
CONFIDENTIAL
<PAGE>
Attention: President
Either party may change its address by a notice given to the other party in
the manner set forth above. Notices given as herein provided shall be
considered to have been given fourteen (14) days after the mailing thereof or
upon facsimile receipt confirmation, as the case may be.
8.9 No oral explanation or oral information by either party hereto shall
alter the meaning or interpretation of this Agreement.
No modification, alteration, addition or change in the terms hereof shall be
binding on either party unless reduced to writing and executed by a duly
authorized representative of each party.
8.10 This Agreement and matters connected with the performance thereof shall
be construed, interpreted, applied and governed in all respects in accordance
with the laws of the State of Texas, United States of America, applicable to
agreements made and to be performed entirely within that state.
8.11 Neither party nor its SUBSIDIARIES sublicensed hereunder shall commence
any litigation against the other arising out of this Agreement or the
termination thereof as to any matter except in a Federal Court located in the
State of Texas. Each party consents to jurisdiction over it by such court.
38
<PAGE>
8.12 The parties shall keep the terms of this Agreement confidential and
shall not now or hereafter divulge the same or any part thereof to any third
party except:
(a) with the prior written consent of the other party; or
(b) to any governmental body or judicial entity having jurisdiction and calling
therefor; or
(c) as otherwise may be required by law and the rules or regulations,
pertaining to such laws, including but not limited to, the U.S. Securities
and Exchange Commission; or
(d) to legal counsel representing either party.
Prior notification of any disclosure under a court order shall be provided by
the disclosing party to the non-disclosing party.
All reasonable efforts to preserve the confidentiality of the terms of this
Agreement shall be expended by the disclosing party in complying with such an
order, including a protective order to the extent possible.
8.13 Should any clause, sentence, or paragraph of this Agreement judicially
be declared to be invalid, unenforceable, or void, such decision shall not have
the effect of invalidating or voiding the remainder of this Agreement. The
parties agree that the part or parts of this Agreement so held to be invalid,
39
<PAGE>
unenforceable, or void shall be deemed to have been stricken, and the remainder
shall have the same force and effect as if such part or parts had never been
included herein.
8.14 This Agreement sets forth the entire agreement and understanding
between the parties as to the subject matter of this Agreement and merges all
prior discussions between them. Neither of the parties shall be bound by any
modification of this Agreement, other than as expressly provided in this
Agreement or as duly set forth on or subsequent to the date hereof in writing
and signed by a duly authorized representative of both parties.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Agreement, on the dates below indicated.
TEXAS INSTRUMENTS INCORPORATED LANSTAR SEMICONDUCTOR
CORPORATION
BY: BY:
------------------------- ---------------------
Roland Darnell Maxie R. Smith
TITLE: Sr. Vice President Corp. Staff TITLE: President
DATE: 20 November 1995 DATE: 17 November 1995
40
<PAGE>
Exhibit 10.4
TEXAS
INSTRUMENTS
Post Office Box 655474
Dallas, Texas 75265
13500 North Central Expressway
Dallas, Texas 75243
(214)995-2011
Mr. Wilton Workman
President & CEO
Lanstar Semiconductor Inc.
2501 Avenue J, Ste. 125
Arlington, TX 76006
Re: Addendum to License Agreement between TI and Lanstar
Enclosed please find duplicate originals of the Addendum which I have signed on
behalf of TI.
Please sign both documents and return one to us for our files. You will note
that I dated my signature March 8, 1996 since that was the date that we
originally signed the document by facsimile.
Yours very truly,
Richard L. Donaldson
Senior Vice President and
General Patent Counsel
RLD/clw
Enclosures
<PAGE>
ADDENDUM
--------
This ADDENDUM is made by and between TEXAS INSTRUMENTS INCORPORATED
("TI) and LANSTAR SEMICONDUCTOR CORPORATION ("LANSTAR").
WITNESSETH:
WHEREAS, TI and LANSTAR are parties to a license agreement having an
effective date of January 1, 1996 (hereinafter the "LICENSE AGREEMENT"),
WHEREAS, the parties wish to modify the provisions of that LICENSE
AGREEMENT,
WHEREAS, UTRON TECHNOLOGY, INC. ("UTRON") is a Taiwanese corporation
having a place of business at 1f., No. 11, RED 2nd Rd., Science-Based Industrial
Park, Kein-Chu, Taiwan, R.O.C.,
NOW THEREFORE, in consideration of the mutual covenants contained in the
LICENSE AGREEMENT and in this ADDENDUM and other good and valuable
consideration, the parties hereby agree as follows:
Terms expressed in this ADDENDUM in capital letters shall have the
meanings set forth in Article 1 of the LICENSE AGREEMENT.
LANSTAR may grant to UTRON a sublicense, in writing, under TI PATENTS
upon the same terms and conditions as apply to LANSTAR under the LICENSE
AGREEMENT. The granting of said sublicense by LANSTAR shall in no way relieve
LANSTAR from accounting directly to TI under this LICENSE AGREEMENT for the
notions or conduct of it s sublicense UTRON, the acts of said sublicense being,
for all purposes herein, the acts and conduct of LANSTAR. LANSTAR
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shall include, as a separate line item, all use, lease, sale, or other disposal
of LICENSED PRODUCTS by UTRON in Lanstar s statements to TI, as provided in
Article 6.4 of the LICENSE AGREEMENT, and pay royalties thereon to TI as though
all such disposals by UTRON were in fact made by LANSTAR hereunder. With respect
to LICENSED PRODUCTS which are made by or for UTRON and sold to LANSTAR for
further use, lease, sale, or other disposal under the trademark, trade name, or
other commercial indicia of LANSTAR, the NET SALES BILLED for such LICENSED
PRODUCTS shall be the amount billed by LANSTAR or any of its SUBSIDIARIES
sublicensed hereunder. With respect to LICENSED PRODUCTS which are made by or
for UTRON and sold to parties other than LANSTAR, and not intended for ultimate
use, lease, sale, or other disposal under the trademark, trade name, or other
commercial indicia of LANSTAR, the NET SALES BILLED for such LICENSED PRODUCTS
shall be the amount billed by UTRON or any of its SUBSIDIARIES sublicensed
hereunder. Any sublicense granted to UTRON by LANSTAR shall include the auditing
provisions of Article 6.1 of the LICENSE AGREEMENT, to the effect that TI shall
have the right to audit the books and records of both LANSTAR and UTRON pursuant
to the terms of Article 6.1. Any sublicense granted to UTRON by LANSTAR shall
include the provisions of Article 2.1 of the LICENSE AGREEMENT to the effect
that the release, acquittal, and discharge provided for therein shall be granted
by UTRON to TI. In the event that LANSTAR should grant a sublicense to UTRON,
the written statements provided for in Article 6.4 of the LICENSE AGREEMENT
shall be submitted thereafter on a quarterly basis, such statements to then be
due on or before sixty (60) days after March 31st, June 30th, September 30th,
and December 31st of each calendar year during the remaining term of this
Agreement, or any renewal or extension thereof, or after the last day of any
shorter period as provided for in Article 6.2.
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<PAGE>
LANSTAR agrees to deliver to TI a true and correct copy of any
sublicense entered into with UTRON within thirty (30) days after execution
thereof and shall promptly advise TI in writing of any modification or
termination of such sublicense.
Upon termination of this LICENSE AGREEMENT for any cause, any existing
sublicense to UTRON shall thereupon automatically terminate, but the licenses
and releases granted to TI under the sublicense shall survive December 31, 2000.
This shall be made a condition of any such sublicense that may be granted by
LANSTAR.
The provisions of Article 8.12 of the LICENSE AGREEMENT notwithstanding,
LANSTAR may disclose the provisions of the LICENSE AGREEMENT to UTRON, but for
the sole purpose of discussing with UTRON the possibility of taking a
sublicense, and in the event that UTRON does accept such sublicense, to enable
UTRON to perform under the provisions of the LICENSE AGREEMENT.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this ADDENDUM on the dates below indicated.
TEXAS INSTRUMENTS INCORPORATED LANSTAR SEMICONDUCTOR
CORPORATION
By: By:
---------------------------- ---------------------------
Richard L. Donaldson Wilton Workman
Title: Senior Vice President Title: President
Corporate Staff
Date: March 8, 1996 Date: March 8, 1996
3
<PAGE>
Exhibit 10.5
I FOUNDRY PRODUCTION AGREEMENT
----------------------------
This Agreement ("Agreement") dated as of June 27, 1996 (the "Effective
Date") is entered into by and among Sony Semiconductor Company of America, a
division of Sony Electronics Inc., having an address at One Sony Place, San
Antonio, Texas 78245-2100 ("Sony") and Lanstar Semiconductor Inc., having its
principal place of business at 2501 Ave J, Suite 125, Arlington, Texas 76006
("Customer").
RECITALS
A. Customer is a design, technology, development and/or marketing company of
semiconductor products.
B. Sony is engaged in the business of providing semiconductor wafer foundry
service.
C. Customer wishes to obtain, and Sony wishes to provide, wafer foundry
service for certain products designed and developed by or for Customer.
NOW, THEREFORE, the panics agree as follows:
1.0 DEFINITIONS
-----------
1.1 "Product (s)" shall mean those products and wafers designed by Customer
which Sony manufactures for customer under this Agreement. A list of
Products is attached as Exhibit A Additional products may be added by
mutual written agreement.
1.2 "Mask Work Rights" shall mean those rights relating to an integrated
circuit, as specified by the United States Protection Act of 1984 or an,
analogous statute of any other country of the world, which have a first
effective filing date in any country prior to the expiration or
termination of this Agreement.
1.3 "Patents" shall mean all classes or types of patents, utility models and
design patents of all countries of the world, applications for which have
a first effective filing date in any country of the world prior to the
date of expiration or termination of this Agreement.
2.0 MANUFACTURE OF PRODUCTS
-----------------------
2.1 Subject to the terms and conditions of this Agreement, Customer grants
Sony a royalty-free, non-exclusive, revocable, non-transferable and non-
assignable license, without right to sublicense, to make the Products for
the sole purpose of sales to Customer.
2.2 Sony shall manufacture the Products designed by Customer exclusively for
Customer pursuant to the terms of this Agreement.
2.3 Customer will provide Sony at no cost to Sony technical support and
assistance in bringing up the Products at Sony's manufacturing site upon
terms and conditions agreed to by Customer and Sony.
2.4 Customer will assist, if needed by Sony, in bringing up process and test
capabilities for Products at Sony's manufacturing site upon terms and
conditions agreed to by Customer and Sony.
2.5 Customer shall provide Sony with a full reticle set compliant with Sony's
requirements for each Product to be manufactured. The Customer shall have
full responsibility for the reticle(s) cost.
2.6 Sony maintains the fight to use any processes developed in connection
with the work- performed under this Agreement for itself or other
customers.
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3.0 OWNERSHIP OF PRODUCTS
---------------------
3.1 Customer will retain and own exclusively throughout the world all right,
title, and interest in the Products and designs, Patents, copyrights,
Mask Work Rights and proprietary information related to the Products,
subject only to the specific manufacturing license rights granted to Sony
herein.
3. 2 Sony will purchase for Customer silicon substrates to support the
manufacturing plan. The purchase of substrates will be approved in
writing by Customer, and Customer will reimburse Sony for any unused
substrate inventory within 30 days of notification by Sony. Upon receipt
of payment Sony will ship such inventory to Customer.
4.0 MINIMUM PRODUCTION OF PRODUCTS
------------------------------
4.1 Subject to the terms of this Agreement, and mutually agreed yield targets
if reached, Sony will ramp up to provide mutually agreed upon capacity
that is referenced in Exhibit B. Such capacity goal may be modified by
---------
mutual written agreement.
4.2 Sony will use reasonable commercial efforts to manufacture a sufficient
quantity of Products to meet Customer's requirements, as reflected by
purchase orders accepted by Sony pursuant to Section 5 below.
5.0 PRICING, DELIVERY AND REL RASP SCHEDULE
---------------------------------------
5.1 Pricing: The purchase price and cost charged to Customer for Products and
other services purchased from Sony under this Agreement will be per
attached Exhibit C. Such purchase price may be changed by mutual written
---------
agreement.
5.2 Customer shall provide Sony by the fifteenth (15) day of each month a six
(6) month rolling forecast for Products. Such forecast shall constitute a
binding commitment by Customer to purchase one hundred percent (100%) of
the Products indicated in the first three (3) months of the forecast. The
remaining months data will be provided for planning purposes only and no
obligation to purchase or supply Products (other than those committed to
in the first three (3) months) shall exist on the part of Customer or
Sony, respectively.
5.3 Sony shall provide a response to each six (6) month forecast within five
(5) working days of Sony's receipt of such forecast. Within five (5)
working days of receipt of Sony's response, Customer shall issue to Sony,
a purchase order for the upcoming three (3) months of such forecast.
5.4 Sony shall make reasonable commercial efforts to achieve on-time
delivery. Delivery of Products shall be to purchase order release dates
specified on the purchase order. Sony will be deemed to have shipped
completed quantities, if the quantity shipped is +/- 5% of the quantities
specified in the purchase order release. Customer may reject any other
Products that do not meet quantity or shipping window allowances.
5.5 Sony will make reasonable efforts to provide linear weekly shipments.
5.6 Upon request, Sony and Customer shall negotiate in good faith with
respect to placing certain lots or orders on hold, the number of units to
be held, the place in line where they will be held and the period of time
they will be held. Lots on hold by customer's request will be subject to
inventory charges per Exhibit D.
---------
6.0 RELIABILITY AND QUALITY
------------------------
6.1 Subject to the terms a Non-Disclosure Agreement in the form attached as
Exhibit F Sony will provide, upon written request, its available
---------
reliability and quality data regarding Products throughout the term of
this Agreement.
6.2 Sony and Customer shall jointly establish Quality and Reliability
Standards consistent with those reflected in Exhibit F for the foundry
---------
wafer process involved in manufacturing Products under this Agreement, as
well as the actual Products manufactured under this Agreement. Once such
Quality and Reliability Standards are jointly agreed to in writing, the
portion of such standards as relate to specific Product performance
characteristics, and are specifically identified as "Product Warranty
Characteristics", shall provide the basis for Sony's warranty in Section
7.2. Should the parties be unable to agree on Quality and Reliability
Standards, this Agreement shall be terminated.
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<PAGE>
6.3 Sony shall give Customer at least two (2) weeks written notice Of any
proposed changes in material or to its existing manufacturing process
that, to the best of Sony's knowledge might affect the to fit,
performance, maintainability, operation, function, reliability,
interface, interconnectability, compatibility, design rules, models, of
am of the products (the proposed Change Notice). Such Proposed Change
Notices shall describe the nature of the proposed change, including the
reasons for the change and arty relevant performance consideration.
Customer shall accept or reject such proposed change promptly, but not
later than five (5) business days after receipt of the Proposed Change
Notice. If Customer disapproves of such proposed change, Sony shall
continue to manufacture and deliver unchanged Products in accordance with
this Agreement, for at least six (6) months from the date Sony issues the
proposed change notice. Upon the expiry of such six (6) months, Sony at
its discretion may stop manufacturing and delivery of the Product without
any liability. Reliability and quality data that is available will be
provided by Sony to Customer prior to scheduled conversion or
introduction. All changes will be subject to the Quality and Reliability
Standards established pursuant to Paragraph 6.2 or contained in any other
specifications agreed to in writing by Sony and Customer.
6.4 Customer reserves the right to make any changes it deems appropriate to
the design of the Products. Such changes shall be documented by Change
Notices. After a prototype run for a particular Product has been made,
any changes to processes or materials for Product requested by Customer
shall be subject to Sony's consent and Customer's payment of applicable
costs, if any, related to such change. The Customer is limited to two (2)
wafer qualification lots in process at any one time.
6.5 Sony and Customer shall establish yield criteria based on the initial ten
(10) production lots after the yield has stabilized.
6.6 Sony, at its option, may provide wafer sort and chip probing services at
the price(s) set forth in Exhibit C
---------
6.7 During the term of this Agreement, Sony shall maintain FAB and test lot
traceability for Products manufactured under this Agreement, but not to
exceed three years from date of manufacture.
6.8 Sony will promptly and in writing after discovery, advise Customer of
defects and non-conformities discovered by it in Products already shipped
and in lots currently in manufacture. Customer will promptly and in
writing after discovery, advise Sony of defects and non-conformities in
Products shipped by Sony, whether this discovery is by the Customer or
Customer's customers.
7.0 WARRANTY AND ACCEPTANCE
-----------------------
7.1 Sony warrants and represents that Customer will acquire good title to the
Products free and clear of all claims, liens and encumbrances.
7.2 Sony, warrants that the Product at Lime of delivery to Customer will meet
the written Quality and Reliability Standards jointly developed by Sony -
arid Customer as referenced in Section 6.2 hereof. Upon receipt of
written request by Customer, and subject to section 7.8 below, Sony will
immediately stop shipment of products, which fail to meet the criteria,
specified in Section 6.2. If Sony is responsible for the failure, and is
unable to correct such failure within thirty (30) days of receipt of such
a written request, Customer may reject the nonconforming Products and
cancel any then committed purchase order for those Products which are
subject to the failure, by sending written notice of cancellation to Sony
within sixty (60) days of the written request to stop shipment. Such a
notice shall be effective on receipt by Sony.
7.3 Products which am the subject of warranty claims shall be returned in
component form (removed from boards) to Sony pursuant to a mutually
agreeable return material authorization procedure to be established by
Sony and -Customer. Customer shall make any warranty claim under this
Agreement not more than six (6) months after delivery by Sony to Customer
of the Products which are subject to the claim.
7.4 Sony shall at Sony's option either (1) replace any Products not meeting
the warranty provided in Sections 7.1 and 7.2 with an equivalent number
of replacement Products without charge, or (2) refund the payments made
to Sony for such Products, all within thirty (30) calendar days of
receipt by Sony of such Products.
3
<PAGE>
7.5 The foregoing is Sony's sole responsibility and the exclusive remedy of
Customer for any breach the warranties contained in this Agreement Sony
shall - not be responsible for defects caused by design application or
assembly by third parties.
7.6 THE WARRANTIES STATED IN THIS AGREEMENT ARE THE ONLY WARRANTIES THAT
APPLY TO PRODUCTS MANUFACTURED HEREUNDER AND THESE WARRANTIES ARE IN LIEU
OF ANY AND ALL OTHER WARRANTIES EXPRESS OR IMPLIED, INCLUDING THE
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. AND
THERE ARE NO OTHER REPRESENTATIONS OR WARRANTIES, EITHER EXPRESS OR
IMPLIED INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY AND
FITNESS REGARDING THE PRODUCT EXCEPT AS EXPRESSLY STATED IN MS AGREEMENT.
The warranties hereunder will survive the termination of this Agreement.
7.7 Upon Customer's written request, Sony's written consent, and mutually
satisfactory arrangements for payment to Sony for the costs involved,
Sony agrees to perform failure analysis of Products returned to Sony. If
the defects are found to be the result of Sony's failure to comply with
its warranties hereunder, Sony will not be entitled to payment from
Customer for the cost of the failure analysis performed by Sony of the
specific Products subject to the defect.
7.8 If Customer requests Sony to stop shipment of any Products which are
subsequently determined in good faith by Sony and Customer to have been
processed in accordance with Sony's standard processing specifications,
Sony shall be entitled to full payment under the terms of this Agreement
for completed products as well as all work in progress. In this
situation, payment for completed Products will be at the purchase order
price thereof determined according to Exhibit D. In addition, the
---------
inventory charges determined according to Exhibit D will be paid by the
---------
Customer to Sony.
8.0 SHIPMENT/TERMS OF PAYMENT
-------------------------
8.1 Subject to the terms of this Agreement, Sony agrees to honor and fill any
purchase order submitted pursuant to this Agreement by Customer and
accepted by Sony pursuant to Section 5.3. Customer guarantees the payment
of any and all obligations accrued pursuant to such purchase orders.
Invoices for Products sold to Customer shall be paid at net 30 days of
invoice date, delinquent payments may at Sony's sole option, accrue
interest at 1 %/month Invoices for Products shipped shall show the price
of such Products in U.S. dollars. In case a payment due day is a holiday
or weekend, payment will be made on the next regular business day.
Payment shall be made in U.S dollars from Customer to Sony Electronics
Inc., Sony Semiconductor Company of America, One Sony Place, San Antonio,
Texas 78245-2100. Failure by Customer to make payments will permit Sony
to (a) declare all unpaid amounts immediately due and (b) cancel all
outstanding Purchase Orders and decline new ones.
8.2 Sony shall deliver Products FOB Sony's facility in San Antonio, Texas.
Title and risk of loss will pass to Customer upon delivery to such FOB
point.
8.3 In event that any payment under this Agreement becomes restricted for any
reason, the party whose payment obligation is restricted agrees, at its
own expense, to immediately take whatever steps or actions may be
necessary to assure such payment.
9.0 REPRESENTATIONS AND WARRANTIES
------------------------------
9.1 Sony and Customer each represent and warrant that:
a) It has the full right and title or adequate rights to all of the
information and intellectual property to be delivered or utilized by
it under this Agreement; and
b) It has the right and power to enter into this Agreement.
9.2 Sony represents and warrants that the Sony manufacturing processes do not
infringe any patent, trade secret, mask work right, trademark, copyright
or other proprietary right of any-person or entity. If Sony's manufacture
of Products or process is the basis for a charge of infringement of a
third party's patent, trade secret, mask work right trademark copyright
or other proprietary right, Sony will indemnify Customer for all costs
associated with defense of an action for infringement (including
reasonable attorney fees) and for all damages awarded by a court of last
resort as a result of such action
4
<PAGE>
9.3 Customer represents and warrants that the Product and any process
information given by Customer to process required of Sony do not infringe
any patent, tradesecret, mask work right, trademark, copyright, or other
proprietary right of any third person or entity, if Customer's Product or
process is the basis for a charge of infringement of a third party's
patent, trade secret mask work right, trademark, copyright or other
propriety right, Customer will indemnify Sony for all costs associated
with the defense of an action for infringement (including reasonable
attorney fees) and for all damages awarded by a court of last resort as a
result of such action.
9.4 A party's indemnification obligation pursuant to Sections 9.2 and 9.3
above is conditioned on the following: (i) the indemnifying party is
notified promptly in writing by the indemnified party of any notice of
such claim but in no event later than ten (10) days after the indemnified
party shall have received any notice thereof; (ii) the indemnifying party
shall have, at its option, sole control of the defense of any action on
such claim and all negotiations for its settlement or compromise and
(iii) the indemnified party shall fully cooperate with the indemnifying
party in the defense and all related settlement negotiations at the
expense of the indemnifying party.
10.0 LIMITATIONS OF LIABILITY
------------------------
10.1 IN NO EVENT SHALL ONE PARTY BE LIABLE TO THE OTHER FOR ANY LOST PROFITS,
LOSS OF USE, COST OF OBTAIN1NG SUBSTITUTE GOODS OR SERVICES, OR ANY
INCIDENTAL, CONSEQUENTIAL, SPECIAL, INDIRECT, EXEMPLARY OR PUNITIVE
DAMAGES ARISING UNDER OR IN ANY WAY RELATING TO THIS AGREEMENT. IN NO
EVENT SHALL SONY's LIABILITY TO CUSTOMER FOR ANY CLAIM OR CLAIMS RELATING
TO THE PRODUCTS OR THIS AGREEMENT EXCEED THE PURCHASE PRICE RECEIVED BY
SONY FROM CUSTOMER FOR THE PRODUCTS TO WHICH SUCH CLAIMS RELATE.
11.0 TERM AND TERMINATION
--------------------
11.1 This Agreement shall remain in effect for three (3) years from the
Effective Date, unless terminated sooner pursuant to this Section 11.
Subject to the other terms herein, Sony or Customer may terminate this
Agreement by giving three (3) months prior notice in writing of the
intention to terminate, provided that such notice may not be given within
four (4) months of the Effective Date.
11.2 Notwithstanding Section 11.1, this Agreement may be terminated by a party
effective immediately and without liability upon the occurrence of any
one of the following events:
a) The other parry files a voluntary petition in bankruptcy or otherwise
seeks protection under any law for the protection of debtors;
b) A proceeding is instituted against the other party under any provision of
the U.S. Fed Bankruptcy Case, which is not dismissed within sixty (60)
days;
c) The other party is adjudged a bankrupt;
d) A court assumes jurisdiction of the assets of the other party under a
federal reorganization act;
e) A trustee or receiver is appointed by a court for all or a substantial
portion of the assets of the other party;
f) The other party becomes insolvent, ceases or suspends business;
g) The other party makes an assignment of its assets for the benefit of its
creditors;
h) The other party admits in writing its inability to pay its debts as they
become due
i) The continued performance of this Agreement by the other party would
result in a violation of then current applicable export regulations;
j) There is a transfer of majority invest in the equity or assets of the
other party to a competitor of terminating party; or
k) the other party assigns this Agreement without the consent of the
terminating party.
11.3 Notwithstanding Section 11.1, if any party fails to perform or violates
any material obligation under this Agreement, upon thirty (30) days
written notice to the breaching party specifying such (the "Default
Notice"), the non-breaching parry may terminate this Agreement, without
liability, unless:
5
<PAGE>
a) the breach specified in die, Default Nonce his been cured within the
thirty (30) day period; or
b) the default reasonably requires mom than thirty (30) days to correct
(specifically excluding any failure to pay more money), and the
defaulting party has begun substantial corrective action to remedy the
default within such thirty (30) day period and diligently pursues such
action, in which event termination shall not be effective unless sixty
(60) days expired from the date of defaulting party's receipt of the
Default Notice without such corrective "on being completed and the
default remedied.
In the event of a breach of a material provision of this Agreement by a
party, the non-breaching party shall provide a detailed written description
of the breach as well as any available information reasonably useful or
necessary to enable a cure. The breaching party shall meet with the non-
breaching party within seven (7) working days following receipt of notice
of breach, and shall submit a plan to remedy the breach within twenty (20)
days of receipt of such notice. The non-breaching party will accept or
reject the plan (giving reasons thereof in the case of rejection) within
(5) days of receipt. If the breach is not cured or a plan reasonably
acceptable to the non-breaching party is not agreed upon within thirty (30)
days from initial receipt of the notice of breach, subject to the other
terms arid procedures stated herein and the requirements of law, the non-
breaching party may terminate this Agreement immediately upon written
notice to the other party.
11.4 If Customer terminates this Agreement for any of the reasons stated in
Sections 11.2 or 11.3, upon receipt of written request from Customer, Sony
will:
(1) cease all production required by Customer purchase orders under this
Agreement;
(2) deliver all completed Products manufactured pursuant to Customer's
purchase orders and invoice customer for the same completed Products.
11.5 If Sony terminates this Agreement for any of the reasons stated in Section
11.2 or 11.3, Sony shall be entitled to payment in full from Customer upon
delivery of all completed Products manufactured pursuant to outstanding
purchase orders issued under this Agreement, as well as to reimbursement
for all reasonable direct costs and expenses associated with all work then
in progress. Work-in-progress value shall be determined according to
Exhibit D.
---------
11.6 The parties' rights and remedies herein are in addition to any other rights
they may have at law or in equity, except as expressly disclaimed or
limited herein.
12.0 PROPRIETARY RIGHTS
------------------
12.1 Each party agrees that information furbished to a party by the other party
under this Agreement will be protected against disclosure to any third
party or use for any purpose other than performing this Agreement in
accordance with the terms of the attached Non-Disclosure Agreement
Exhibit E
---------
12.2 All discoveries, improvements and inventions, conceived or first reduced to
practice, as those terms are used before the U.S. Patent Office in the
performance of this Agreement solely by one party and without reliance upon
confidential or proprietary information of the other party shall remain the
property of the first party and such party shall retain any and all rights
to file at its sole discretion any, patents applications thereon.
13.0 CONTINGENCIES
-------------
13.1 No party shall be in breach hereunder for any failure to perform due to
causes beyond its reasonable control, including but not Limited to acts of
God, war, riot, embargoes, or other causes beyond its reasonable control,
for maximum period of sixty (60) days.
13.2 This Agreement shall only become effective on the date it is fully executed
by both parties and approved, to the extent necessary, by applicable
government authorities. The parties agree to make their best faith efforts
to obtain such approval as soon as possible.
6
<PAGE>
14.0 PUBLICITY
---------
14.1 Sony and Customer agree that the existence of details connected with this
Agreement shall am be published or disclosed to any third party, except as
required by law or by auditors, without the other party's written
permission. In the event of a required disclosure, the other party shall be
notified first of such pending disclosure.
15.0 ASSIGNMENT
----------
15.1 Neither Sony nor Customer may delegate any obligation under this Agreement
or assign any interest or right hereunder without the prior written consent
of the other, and any such attempt shall be void. Notwithstanding the
foregoing Sony may assign all or any part of its rights or obligations
hereunder to any of Sony's direct or indirect parent(s) and/or wholly-owned
subsidiaries of such parents. The assigning party shall remain jointly and
severally responsible for its obligations hereunder.
15.2 Upon any merger, consolidation or change in control of any party to this
Agreement, the surviving organization resulting therefrom shall be bound by
the terms of this Agreement.
16.0 COMPLIANCE WITH THE LAW
-------------------------
16.1 The parties agree that they will comply with all applicable laws, including
laws regarding export of Products supplied under the terms of this
Agreement.
16.2 Each party to this Agreement shall do all things necessary to obtain all
licenses and approvals necessary and to comply with all applicable laws,
rules and regulations in fulfilling its obligations hereunder.
17.0 CONTROLLING LAW: VENUE
----------------------
17.1 This Agreement shall be governed by and construed in accordance with the
laws of the State of California. Any dispute arising out of this agreement
shall be subjected to exclusive jurisdiction of the U.S. District Courts of
the Northern District of California and/or in the Santa Clara County
Superior Court of the State of California.
18.0 NOTICES
-------
18.1 All notices required to be sent to the parties under this Agreement will be
sent by courier service, facsimile or telex to the address set forth below
or to such other addresses as may subsequently be designated in writing:
If to Sony: If to Customer:
Sony Electronics, Inc. Lanstar Semiconductor Inc.
San Jose Law Department 2501 Avenue J
3300 Zanker Road Suite 125
San Jose, CA 95135-1901 Arlington, Texas76006
19.0 INDEPENDENT CONTRACTORS
-----------------------
19.1 Performance by the parties under this Agreement shall be as independent
contractors. Nothing contained herein or done under the terms of this
Agreement shall constitute any party agent of the other party for any
purpose. Nothing in this Agreement shall prohibit Customer from purchasing
Products and/or foundry services from other suppliers or Sony from
performing such services or selling similar products to the Products to any
other customers.
20.0 SURVIVAL
--------
20.1 The-provisions of Section 1, 3, 7, 9, 10, 12, 17, 18, 20, 21, 22, 23,
and 24 shall survive the expiration or termination of this Agreement.
7
<PAGE>
21.0 CONTROLLING LANGUAGE
--------------------
21.1 This Agreement is written only in English and, even if translated, the
English language version of this agreement shall control.
22.0 WAIVER OF TRIAL BY JURY
-----------------------
22.1 BOTH PARTIES HEREBY WAIVE ALL RIGHT OR ENTITLEMENT TO TRIAL BY JURY IN
CONNECTION WITH ANY DISPUTE THAT ARISES OUT OF OR RELATES IN ANY WAY TO
THIS AGREEMENT.
23.0 ATTORNEY's FEE'S
----------------
23.1 The prevailing party in any litigation shall be entitled to recover its
costs and reasonable attorney's fees.
24.0 ENTIRE AGREEMENT
----------------
24.1 This Agreement is the entire understanding among the parties with respect
to the subject matter hereof and supersedes all prior agreements, dealings
and negotiations. No modifications, alterations, or amendments shall be
effective unless in writing and signed by all parties. All purchase orders
under this Agreement shall be governed exclusively by the terms and
conditions hereof, and shall not be altered or modified in any way by the
terms of any purchase order form or acknowledgment form. No waiver of any
breach shall be held to be a waiver of any other or subsequent breach.
IN WITNESS WHEREOF, each representative signing below, and each party
for whom that representative signs, represents and warrants that such
representative is authorized and has authority to enter into this Agreement.
AGREED TO:
SONY SEMICONDUCTOR COMPANY CUSTOMER
OF AMERICA, a division of Sony Electronics, Inc.
- ---------------------------------------------- ----------------------------
Signature Signature
Print Name: Merrill Hammon Print Name: Wilton Workman
Title: Exec. V.P. Title: President / C.O.O.
Date: 6/27/96 Date: 6/27/96
8
<PAGE>
Exhibit A
---------
Products to be produced by Sony for Customer:
In wafer form:
.5 micron 1 x 4 megabit DRAM
with metal options determining mode:
Fast Page Mode (FPM)
or Enhanced Data Output (EDO)
with metal options determining organization
4 Meg: 1x4, 4xl, 256xg
The following devices are planned by Customer Production dates and prices
will be subject to negotiation at a later date. Feature sizes are
approximate.
.4 micron 4 Meg
DRAM
.4 micron 16 Meg
DRAM
Subject to same metal options as above.
9
<PAGE>
Exhibit B
---------
Upon completion of Section 6.5, the following ramp schedule will be
followed:
Month 1 1000
Month 2 1500
Month 3 2000
10
<PAGE>
Exhibit C
---------
$1200.00/wafer with 2PC (Sort) yield Moo 80-85% repaired.
$ 1200.00/wafer plus 1.50/die for any wafer over 85% yield repaired.
Wafers with yield less than 80% are priced at $2.75/die (repaired). These lower
yield wafers will be purchased by Customer. Should Customer request Sony to test
the produced wafers, the cost will be $ 100.00/hr test time, above listed costs.
Customer agrees to sell its assembled and marked products incorporating the
Products to Sony, at Sony's sole request, at a 5% discounted purchase price from
Customer's bona fide selling price to unaffiliated third parties.
Customer agrees to purchase sufficient Product to cover Sony's development costs
for such Product (which shall include equipment modifications, module
development services, process integration services, direct and indirect
materials associated with such development and other reasonable expenses that
may be incurred, which shall in no event be charged at a rate above prevailing
industry averages). Such development costs will be determined by documented time
and materials and reviewed with Customer quarterly. For purposes of this
Exhibit, ten percent (10%) of Product price shall be attributable to Sony
development cost recovery. Upon termination of this Agreement, in the event
Company does not purchase sufficient Product to allow Sony to recover Sony
development costs at the agreed upon 10- 1 ratio, Company shall, within 30 days,
reimburse any unrecovered amount to Sony.
Example:
- --------
If Customer issues P.O. for $100,000 of Product and Sony ships the entire P.O.
value, $10,000 of this invoice would be applied to development costs.
11
<PAGE>
Exhibit D
---------
The value of material will be established by taking the selling price thereof
and dividing by the number of mask layers in the process. The selling prices of
the work-in-progress shall be deemed $1200.00/wafer.
Example: Assumes selling price is $1200.00 and 18 layers
- --------
$1200.00 + $66.67/mask layer
- --------
18
This number will be multiplied by the number of mask steps completed to
establish the value of the material.
Should the material remain on-hold for more than 15 calendar days, Customer will
pay Sony .025% per day interest on the value of the material beyond the initial
15 calendar days, as determined above
All material holds and releases must be confirmed by dated written agreement.
12
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Exhibit E
---------
CONFIDENTIALITY AND NONDISCLOSURE AGREEMENT
THIS AGREEMENT, is made and entered into as of June 27, 1996 ("Effective
Date") between Sony Semiconductor Company of America, a division of Sony
Electronics Inc., a Delaware corporation, with an office at 3300 Zanker Road,
San Jose, California 95134 ("Sony"); and Lanstar Semiconductor Inc., having its
principal office at 2501 Ave J, Suite 125, Arlington, Texas 76006 ("Company");
W I T N E S S E T H:
--------------------
WHEREAS, Sony and Company are each willing to disclose to the other and to
receive certain "Confidential Information" (as hereinafter defined) from the
other parry, subject to the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the foregoing premises and mutual promises
hereinafter contained, Sony and Company agree as follows:
1. The purpose of the disclosures hereunder shall be for the parties to
conduct the activities contemplated by that Foundry Production agreement
between the parties dated as of June 27, 1996 (the "Foundry Agreement").
The parties agree to use the Confidential Information only for such purpose
and only in accordance with the terms of this Agreement.
2. The parties hereto understand that each may now market or have under
development products which are competitive with products or services now
offered or which may be offered by the other. Subject to the terms and
conditions of this agreement, discussions and/or communications between the
parties hereto will not serve to impair the right of either party to
develop, make, use, procure, and/or market products or services now or in
the future which may be competitive with those offered by the other; nor
require either party to disclose any planning or other information to the
other.
The term "ConridCnti2l Information" shall mean and refer to all
confidential or proprietary information, documents and materials, whether
printed or in machine-readable form or otherwise, and designated by the
disclosing party as "Confidential" hereunder, developed, owned, licensed or
under the control of the disclosing party including all processes,
hardware, software, inventions, trade secrets, ideas, designs, research,
know-how, business methods, production plant and marketing plans relating
to: (i) products and processes, in case of information disclosed by
Company-, and (ii) process capability, in case of information disclosed by
Sony.
All Confidential Information shall be submitted in writing by the
disclosing party to the receiving party and marked "Confidential" or if
transmitted orally or visually, shall be identified at that Lime as
"Confidential" and within thirty (30) days thereafter shall be reduced to
writing and confirmed as "Confidential".
4. The term for disclosure of Confidential Information shall be from the
Effective Date to termination of the Foundry Agreement ("Disclosure
Period"). Subject to Sections 5 and 6 hereof during the Disclosure Period
and for a period of two (2) years after the expiration of the Disclosure
Period, each party hereto agrees to use the same degree of care and
scrutiny as the receiving party would use with respect to its own
Confidential Information to avoid disclosure, (including, but not limited
to, disclosure to the United States Government or any agency or department
thereof). publication, dissemination or use of any or all of the
Confidential Information
(i) disclosed by the other parry,. its agents or
employees hereunder, or
(ii) obtained from the other party as a result of the activities
contemplated hereunder.
5. The parties agree that with respect to the other party's Confidential
Information reach will:
(i) disclose such Confidential Information to only those employees
whose duties justify a "need-to-know" and who have executed a
confidentiality agreement in which such employee has agreed to hold
confidential and not to disclose or use, all Confidential
Information and materials (inclusive of those of third parties)
which may be disclosed to them or to which they may have access
during the course of their duties;
(ii) ensure that each document containing the Confidential Information -
made available to any employee of a receiving party bears a legend
to the effect that the information contained therein is proprietary
to the disclosing party;
13
<PAGE>
(iii) at the disclosing party's request return promptly. to such party
any and all portions of-" Confidential Information disclosed under
this Agreement together with all copies thereof, provided that the
receiving party nay retain one copy thereof in its confidential.
restricted access files for archival purposes. The parties agree to
maintain any such copy in accordance with the provisions of this
Agreement.
(iv) not disclose to any third party or use in any manner whatsoever any
Confidential Information, including, by way of example and not by
Limitation. the specifications, schematics or any other information
relating to the Company transport design, for any purpose other
than as contemplated by this Agreement.
6. Sony may disclose the Confidential Information to Sony Corporation of
America, or to Sony Corporation (Tokyo, Japan) or to any other entity
directly or indirectly controlled by either of the foregoing entities
("Sony Group"), provided that they agree to be bound to this Agreement to
the same extent that Sony is bound.
7. It is understood, however that the foregoing restrictions in Sections 1, 4,
5 and 6 above, shall not apply to any portion of the Confidential
Information which:
(i) was previously known to a receiving party or to the Sony Group
without obligation of confidentiality; or
(ii) is obtained after the date hereof from a third party which is
lawfully in possession of such information and not in violation of
any contractual or legal obligation to a disclosing party with
respect to such information, or
(iii) is or becomes part of the public domain through no fault of
receiving part), the Sony Group or its employees; or
(iv) is independently ascertained or developed by receiving party, its
employees or the Sony Group or its employees; or
(v) is required to be disclosed by administrative or judicial action
provided that the receiving part), immediately after receiving
notice of such action notifies disclosing party of such action to
give disclosing parry the opportunity to seek any other legal
remedies to maintain such Confidential Information in confidence;
or
(vi) is approved for release by written authorization of a disclosing
party.
8. Company acknowledges that the Sony Group does not need or desire to receive
either: (1) U.S. government classified information; or (2) any otherwise
restricted information, the receipt, disclosure, use or retention of which
is made a crime by any provision of the United States Code. The parties
accordingly agree that such information will not be provided, either orally
or in writing, to the Sony Group, under this Agreement, or under any
subsequent contract or subcontract between the parties which relates to the
Confidential Information disclosed under this Agreement.
9. Company hereby gives assurance to Sony that it will not knowingly, unless
it has obtained prior written authorization 'from the U.S. Department of
Commerce or is otherwise permitted by the U.S. Department of Commerce.
Export Administration Regulations, export or otherwise disclose, directly
or indirectly, any technology or software received from Sony nor allow the
direct product thereof to be shipped, either directly or indirectly, to any
destination that is proscribed under Part 779 of the U.S. Department of
Commerce Export Administration Regulations.
10. The parties hereby represent each to the other that the disclosure of the
Confidential Information by Company or Sony, as may be the case, will not
violate any proprietary rights of third parties. including.' without
limitation. confidential relationships, patent and copyright rights, or
other trade secrets. and that the disclosure by Company to Sony and/or by
Sony to Company, as may be the case hereunder, will not violate any
contractual obligations which Company or Sony may have to any third party.
11. All the Confidential Information disclosed, delivered to, or acquired by a
receiving parry from a disclosing party hereunder, shall be and remain the
sole property of the disclosing party.
14
<PAGE>
12. Disclosure of the Confidential Information disclosed by one party to the
other hereunder shall not constitute any option, grant or license to the
recipient of such Confidential information under any patent., know-how or
other rights heretofore now or hereinafter held by the disclosing party.
It is understood and agreed that the disclosure by either party hereto of
the Confidential Information hereunder shall not result in any obligation
on the part of either party to enter into any further agreement with the
other with respect to the subject matter hereof or otherwise.
No modification of this Agreement shall be effective unless in writing and
signed by both parties hereto.
14. Notices hereunder shall be in writing and shall be deemed duly given upon
delivery to:
If to Sony: Merrill Hammon
If to Company: Wilton Workman
15. Each party agrees to comply, and do all things necessary for the other
party to comply, with all applicable Federal, State, and local laws,
regulations and ordinances, including but not limited to the Regulations of
the United States Department of Commerce relating to the Export of
Technical Data. insofar as they relate to the activities to be performed
under this Agreement. Sony or Company, as may be the case, agree to obtain
the required government documents and approvals prior to export of any
technical data disclosed to it or the direct product related thereto.
16. Either party's waiver of any breach or failure to enforce any of the terms
and conditions of this Agreement at any time shall not in any way affect,
limit or waive such party's right thereafter to enforce and compel strict
compliance with every term and condition thereof.
17. This Agreement shall be construed and enforced in accordance with the local
law of the State of California. The parties hereby consent to and submit to
the jurisdiction of the federal and state courts located in the State of
California, and any action or suit under this Agreement shall only be
brought by the parties in any federal or state court with appropriate
jurisdiction over the subject matter established or sitting in the State of
California. The parties shall not raise in connection therewith, and
hereby waive, any defenses based upon the venue, the inconvenience of the
forum, the lack- of personal jurisdiction, the sufficiency of service of
process or the like in any such action or suit brought in the State of
California. Sony and Company each waive any right they may have to a trial
by jury in any action, proceeding or counterclaim arising hereunder or
relating hereto.
18. This Agreement constitutes the complete agreement between the parties
hereto and supersedes and cancels any and all prior communications and
agreements between the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto by their duly authorized
representatives have executed this confidentiality and Nondisclosure Agreement
upon the date first set forth above.
Sony Semiconductor Company of America
a division of
SONY ELECTRONICS, INC. LANSTAR SEMICONDUCTOR INC.
By: By:
------------------------------ -----------------------------
Print Name: Merrill Hammon Print Name: Wilton Workman
Title: Exec. V.P. Title: President C.O.O.
15
<PAGE>
EXHIBIT F
---------
Sony agrees to process Customer's wafers using the standard operating procedures
provided for in the Sony Specification System used in Sony's San Antonio
facility.. Sony will notify Customer of any event that results in deviation
from specification limits agreed to in writing prior to the start of mass
production, defined as 500 or more wafer starts per month. Such agreed
specification limits relating to each Product shall provide the basis of Sony's
warranty, which in each case will be memorialized by a written addendum to this
Agreement signed by both parties.
Customer agrees that, notwithstanding anything in this Agreement to the
contrary, dice passing Customer's Wafer Sort (2PC) Test program are deemed
acceptable for purchase by Customer.
Customer agrees to report to Sony any material that fails the percentage defect
acceptance level to be mutually established by Customer and Sony prior to start
of mass production, regardless of whether such failure could be considered a
warranty failure.
16
<PAGE>
EXHIBIT 10.6
SONY
October 11, 1996
Mr. Wilton Workman
President/C.O.O.
Lanstar Semiconductor Inc.
2501 Avenue J, Suite 125
Arlington, Texas 76006
Re: DEVELOPMENT COSTS
Dear Wilton:
Sony proposes to Lanstar that Lanstar pays, beginning Nov. 1996, S40.000/month
thru. 3/97 (total $200K) for development work associated with the 4 meg device
and any work done on other Lanstar products during this time frame.
Lanstar has requested Sony to accelerate the Introduction Schedule for the 4 meg
device. Should your new goal be met, Sony proposes Lanstar pay a performance
bonus of $75K. Goal to be defined in writing.
Regards,
Merrill Hammon
<PAGE>
Contract
- --------
This is an extension of the November 15, 1996 process development agreement
between Sony Semiconductor of America and Lanstar Semiconductor Inc. This is in
addition to the terms and conditions of that agreement.
Lanstar Semiconductor Inc and Sony Semiconductor of America will jointly develop
0.35 micron process for DRAMs using shallow trench isolation, non overlap
contacts, high aspect ratio poly and dielectric etch processes ( approximately
6:1 ), TiN barriers, CMP planarization of dielectric and tungsten, three levels
of poly, and two levels of metal.
Agreement
- ---------
The term of this agreement will be 8 months starting on April 15, 1997 and
ending December 31, 1997.
Offer
- -----
Lanstar will supply computer simulation of the processes and direct engineering
support as required. Additionally Lanstar will supply reticles for 4 and 16 meg
DRAMs.
Sony will use best efforts to provide engineering and silicon processing as
required to produce a working process for introduction into pilot production by
July 15, 1997. Sony will make use of its present equipment set for this
development activity. Sony will process one lot (24) wafers per week of 0.5
micron, 4 Meg DRAM's until the 16 Meg reticles are available.
Consideration
- -------------
Lanstar will pay Sony forty thousand USD ($ 40,000) per month net 30 days for a
total of two hundred thousand USD ($360,000) with first payment due May 15, 1997
and the last due January 15, 1998. Lanstar will pay Sony for the 0.5 micron, 4
Meg DRAM's per the original foundry agreement.
Contractual Capacity
- --------------------
Lanstar will use Sony's manufacturing capabilities to produce these devices (
.35micron, 16 meg EDO DRAMs ) in the during this development activity. Terms and
conditions are to be those found in the original foundry agreement. During and
following this development phase the option to take the production to alternate
factories will be given to Lanstar and price per wafer will be renegotiated
Acceptance
- ----------
Wilton Workman
President & COO
Lanstar Semiconductor Inc
Maxie Smith
Chairman & CEO
Lanstar Semiconductor Inc
Merrill Hammon
Sr. Vice President
Sony Semiconductor Company of America
San Antonio Operations
<PAGE>
EXHIBIT 10.7
Contract
--------
This is an extension of the November 15, 1996 process development agreement
between Sony Semiconductor of America and Lanstar Semiconductor Inc. This is
in addition to the terms and conditions of that agreement.
Lanstar Semiconductor Inc. and Sony Semiconductor of America will jointly
develop 0.35 micron PROCESSES FOR DRAMS using shallow trench isolation, non
overlap contacts, high aspect ratio poly and dielectric etch processes
(approximately 6:1), TIN barriers, CMP planarization of dielectric and
tungsten, three levels of poly, two levels of metal, and ONO dielectric for
the cell Capacitor.
Agreement
---------
The term of this agreement will be 8 months starting on April 15, 1997 and
ending December 31, 1997.
Offer
-----
Lanstar will supply computer simulation of the processes and direct
engineering support as required. Additionally Lanstar will supply reticles
for 4 And 16 Meg DRAMs,
Sony will use best efforts to provide engineering and silicon processing as
required to produce a working process for introduction into pilot production
by September 15, 1997. Where practical, Sony will make use of its present
equipment set for this development activity. Where new equipment that is not
in Sony's planned technologies, Lanstar will assist Sony by leasing
equipment until development period has expired.
Consideration
-------------
Lanstar will pay Sony forty thousand USD ($40,000) per month net 30 days for
a total of three hundred and sixty thousand USD ($360,000) with first
payment due May 15, 1997 and the last. due January 15, 1998.
<PAGE>
Contractual Capacity
--------------------
Lanstar will use Sony's manufacturing Capabilities to Produce these
devices (0.35 micron, 4 and 16 Meg EDO DRAMs) during this development
activity. Terms and conditions are to be those round in the original
foundry agreement. During and following this development phase the option
to take the production to alternate factories will be given to Lanstar and
price per water will be renegotiated
Acceptance
----------
Date:
-------------------------------- ------------------
Wilton Workman
president & COO
Lanstar Semiconductor, Inc.
Date:
-------------------------------- ------------------
Maxie Smith
Chairman & CEO
Lanstar Semiconductor, Inc.
Date:
-------------------------------- ------------------
Merrill Hammon
Sr. Vice President
Sony Semiconductor Company of America
San Antonio Operations
<PAGE>
EXHIBIT 10.8
Contract
- --------
This is an extension of the November 15, 1996, process development agreement
between Sony Semiconductor of America and Lanstar Semiconductor Inc. This is in
addition to the terms and conditions of that agreement.
Lanstar Semiconductor Inc. and Sony Semiconductor of America will jointly
develop 0.35 micron processes for DRAMs using shallow trench isolation,
nonoverlap contacts, high aspect ratio poly and dielectric etch processes
(approximately 6:1), TIN barriers, CMP planarization of dielectric and tungsten,
three levels of poly, two levels of metal, and ONO dielectric for the cell
capacitor.
Agreement
- ---------
The term of this agreement will be 8 months starting on April 15, 1997, and
ending December 31, 1997.
Offer
- -----
Lanstar will supply computer simulation of the processes and direct engineering
support as required. Additionally Lanstar will supply reticles for 4 and 16 Meg
DRAMs.
Sony will use best efforts to provide engineering and silicon processing as
required to produce a working process for introduction into pilot production by
September 15, 1997. Where practical, Sony will make use of its present
equipment set for this development activity. Where new equipment that is not in
Sony's planned technologies, Lanstar will assist Sony by leasing equipment until
development period has expired.
Consideration
- -------------
Lanstar will pay Sony forty thousand USD ($40,000) per month net 30 days for a
total of three hundred sixty thousand USD ($360,000) with first payment due May
15, 1997, and the last due January 15, 1998.
s/Merrill Hammon
----------------------------
Merrill Hammon
6/13/97
<PAGE>
Contractual Capacity
- --------------------
Lanstar will use Sony's manufacturing capabilities to produce these devices
(0.35 micron, 4 and 16 Meg EDO DRAMS) during this development activity. Terms
and conditions are to be those found in the original foundry agreement. During
and following this development phase, the option to take the production to
alternate factories will be given to Lanstar and price per wafer will be
renegotiated.
Acceptance
- ----------
/s/ Wilton Workman Date: 5/23/97
- -------------------------------- -----------
Wilton Workman
President & COO
Lanstar Semiconductor Inc.
/s/ Maxie R. Smith Date: 5/23/97
- -------------------------------- -----------
Maxie R. Smith
Chairman & CEO
Lanstar Semiconductor Inc.
/s/ Merrill Hammon Date: 6/13/97
- -------------------------------- -----------
Merrill Hammon
Sr. Vice President
Sony Semiconductor Company of America
San Antonio Operations
<PAGE>
Exhibit 10.9
P. 01
Effective as of 30 Jan 1996
PRODUCT DEVELOPMENT AND FABRICATION AGREEMENT
This agreement made the 30 day of January 1996 ("Agreement") by and between
URON Technology Inc., with a principal office located at IF, No.11, R&D 2nd
Road, Hsin-Chu Science-Based Industrial Park, Hsin-Chu, Taiwan, R.O.C.
hereinafter referred to as "UTRON"): and MU-TRON company with a principal office
located at 1239 Canton Road, Messanine Floor. Kowlung, Hong Kong (hereinafter
referred to as "MU-TRON"); and Lanstar Semiconductor Inc. with a principal
office at 2501 Avenue J, Arlington Texas U.S.A. (hereinafter refer-red to as
"LANSTAR:).
WITNESSETH
WHEREAS, LANSTAR, UTRON AND MU-TRON ('hereinafter referred to as the "PARTIES")
desire to establish a business relationship (Joint-Venture) in order to
fabricate, manufacture and distribute LANSTAR Dynamic Random Access Memory
semiconductor devices ("PRODUCTS") utilizing certain allocation and fabrication
agreements; and
WHEREAS, The PARTIES which to define their respective contributions and
participation in the ownership and distribution of the PRODUCTS developed and
fabricated as a result of this Agreement.
NOW THEREFORE, the PARTIES agree as follows:
1. The above Preamble is incorporated into and made a part of this Agreement.
2. The term of this Agreement shall be for two (2) years. Renewal of this
Agreement shall be subject to both parties business plans.
(a) UTRON shall, working in concert with LANSTAR processing engineering group,
receive approval from UTRON's third party fabricator.
(b) In the event that third party fabricator approval is not received within
four weeks from the date first written above, either party shall terminate this
Agreement without any on-going liability to the other party.
3. UTRON agrees to provide to LANSTAR a portion of UTRON's allocation of Wafer
starts to be fabricated at a third party foundry, The percentage of the
allocated portion to LANSTAR shall be utilized to fabricate and manufacture
LANSTAR PRODUCTS in accordance with the terms of this Agreement,
4. LANSTAR agrees to supply resources and confidential information including
engineering information, technical drawings. specifications, production and
testing methods, processing information to fulfill R&D function to modify
existing processing technologies as well as the initial set of the reticles plus
pellicles. The delivery and provisions of all of the above will be subject to
the completion and signing of a Confidentiality Agreement attached hereto and a
part hereof. UTRON shall provide wafer foundry allocation and technical liaison
with
<PAGE>
fabricators-
(a) This confidential I information shall be provided by LANSTAR at no cost to
the joint venture.
(b) In The event of wafer and reticles plus pellicles for the development of the
PRODUCTS are required as a result of additional iterations caused by design
and/or engineering changed, then in those events the costs for such additional
reticles and pellicles shall be solely at the cost of LANSTAR. Both LANSTAR and
UTRON shall split the cost of wafers, reticles and pellicles only when the wafer
yield reaches 80% or higher percentage.
5, UTRON shall make available a Third party foundry (fabrication) facility that
is willing and technically equipped and competent with 8 inch wafer processing
capabilities (the third party fabricator to fabricate LANSTAR PRODUCTS which
Third Party Fabricator shall be reviewed and approved by LANSTAR.
6. UTRON shall provide at it own costs the technical know-how for the purpose of
maintaining the technical liaison with the Third Party Fabricator in order to
ensure the viability of success of the fabrication and manufacturing of LANSTAR
PRODUCTS.
7. To induce LANSTAR to enter into this Agreement and in consideration of
LANSTAR contributions hereunder, UTRON represents that it can allocate a minimum
of three hundred (300) wafer starts for the use of the fabrication of LANSTAR
PRODUCTS to be utilized for the PILOT RUNS of LANSTAR PRODUCTS.
UTRON agrees that subsequent to any PILOT RUN having a Gross Device Yield of
Five Hundred and Eighty (580) packaged units, UTRON shall use its best efforts
to increase the minimum wafer starts allocated for the manufacture and
fabrication of LANSTAR PRODUCTS.
8. The manufactured PRODUCTS fabricated and manufactured under the terms of this
Agreement shall be fifty percent (50%) to LANSTAR, Forty percent (40%) to UTRON,
and Ten percent (10%) to MU-TRON.
Notwithstanding anything contained in this paragraph, MU-TRON may elect not
accept its share of the allocated PRODUCTS. In this case the allocation of
manufactured Products to MU-TRON will revert to LANSTAR.
9. For bookkeeping reasons and the payment of royalties and/or license fees, all
information relating to the PILOT and MANUFACTURING production runs including
but not limited to production records (at the fabricator/foundry) shipment
records, sales records and all related information shall be shared between the
Parties.
10, The cost of the manufactured PRODUCTS shall include the fabrication cost of
ate wafer starts at actual cost in accordance with the current agreement between
the Third Party Fabricator and UTRON. all licenses and/or royalties payable, all
testing, pack-aging and related costs.
<PAGE>
(a) All foundry costs shall be mutually approved by the Parties prior to the
establishing a commencement date for the fabrication of the PRODUCTS PILOT RUN.
(b) Payment to the Third Party Fabricator for the wafer starts shall be made by
Letter of Credits opened in favor of UTRON prior to wafer start. UTRON shall
deliver wafer to LANSTAR to test and package vendors service. LANSTAR and UTRON
shall negotiate: separately based on UTRON turn key operation or through several
vendors service.
11. Each of the Parties hereunder shall be responsible to advance and pay for
its own engineering, general and administration, travel and management costs
related to the manufacturing of LANSTAR PRODUCTS.
12. The PRODUCTS may be labeled by each of the Panics hereto in any manner that
does not infringe any third party trademarks, logos, or in any way misrepresents
the source of the PRODUCTS,
Notwithstanding anything in the paragraph to the contrary, the license and/or
royalties payable, to Texas Instrument and others must be properly accounted for
and paid in accordance with the terms of the License Agreement between LANSTAR
and Texas Instrument copy of which License Agreement is attached hereto and made
a part. hereof as relates solely to those paragraphs in this license relating to
the accounting for and payment of the royalties.
13. The PRODUCTS allocated to each Party hereunder may be marketed by each of
the Panics freely without any territorial rights or restrictions.
14. LANSTAR agrees to offer to UTRON for inclusion under the terms of this
Agreement to be defined as LANSTAR PRODUCTS its first arid second generation of
16 Meg Dynamic Random Access Memory semiconductor devices
(a) LANSTAR shall use its best efforts to provide the engineering material,
drawings etc. for the first generation of its 16 Meg PRODUCTS by July, 1996 and
the second generation by the last quarter of 1996,
(b) The 16 Meg PRODUCTS shall be allocated under terms similar to the terms for
the fabrication of its current 4 Meg Dynamic Random Access Memory semiconductor
device with the following exception:
(c) LANSTAR will have the right to withhold it 16 Meg PRODUCTS from inclusion
into this Agreement as on of LANSTAR PRODUCTS in the event the Parties can riot
reach agreement as to the total number of wafer starts to be assigned by UTRON
to be utilized for the fabrication of LANSTAR 16 Meg PRODUCTS.
(d) UTRON shall have the unilateral right to reject the inclusion of LANSTAR 16
Meg PRODUCTS to be fabricated under the terms of this Agreement.
15. LANSTAR or UTRON shall have the sole right to unilaterally terminate this
Agreement by providing the other Party its notice to terminate with ninety (90)
days written notification
<PAGE>
Of its intent to terminate in the event of any of the following events.
Subsequent to the following events, either UTRON or LANSTAR survives the right
to continue DRAM operation until the expiring date which this Agreement was
originally agreed upon:
(a) The cost of the fabricated wafer shall exceed US dollars Three Thousand
Dollars (3,000).
(b) The spot selling price for the PRODUCTS averaged over the three largest
manufacturers of DRAMs shall no less than One Hundred and Twenty Percent
(120%)of the manufacturing costs (inclusive of all royalty and licenses
payable).
(c) If either LANSTAR or UTRON files for bankruptcy or enters into an agreement
for reorganization with its creditors.
(d) If either party does not fulfill its commitments to pay any moneys due to
royalties and or cost of manufacturing on a timely basis.
16. All confidential information and technical know-how shall remain the
property of LANSTAR and shall not be utilized for any other reason except for
the manufacture of the PRODUCTS as contemplated under the terms of this
agreement.
In the event of the termination of this agreement as provided for hereinabove,
all such material drawings, confidential material whether printed, drawings or
audio tapes shall be forthwith returned to LANSTAR and not copies shall be kept
in the files of UTRON or MUTRON.
17. In the event of dispute between any of the parties hereunder, the dispute
shall be submitted to the Courts of the State of Texas, United States and/or
International Court having jurisdiction over the dispute.
18. This agreement represents the total agreement between the Parties and may
not be modified or change without a written agreement of the changes signed by
all Parties.
IN WITNESS whereof, the Parties have affixed their respective signatures on the
date first written above.
LANSTAR SEMICONDUCTOR, INC. MU-TRON
Mr. Maxie Smith Mr. John Tsang
Chairman Proprietor
UTRON TECHNOLOGY, INC.
Mr. Jeng-Jong Guo Mr. Edward LI
President Witness
<PAGE>
LANSTAR agrees to deliver to TI a true and correct copy of any sublicense
entered into with UTRON within thirty (30) days after execution thereof and
shall promptly advise TI in writing of any modification or termination of such
sublicense.
Upon termination of this LICENSE AGREEMENT for any cause, any existing
sublicense to UTRON shall thereupon automatically terminate, but the licenses
and releases granted to TI under the sublicense shall survive until December 31,
2000. This shall be made a condition of any such sublicense that may be granted
by LANSTAR.
The provisions of Article 8.12 of the LICENSE AGREEMENT notwithstanding,
LANSTAR may disclose the provisions of the LICENSE AGREEMENT to UTRON, but for
the sole purpose of discussing with UTRON the possibility of taking a
sublicense, and in the event that UTRON does accept such sublicense, to enable
UTRON to perform under the provisions of the LICENSE AGREEMENT.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this ADDENDUM on the dates below indicated.
TEXAS INSTRUMENTS INCORPORATED LANSTAR SEMICONDUCTOR CORPORATION
BY: Richard L. Donaldson BY: Wilton Workman
TITLE: Senior Vice President TITLE: President
Corporate Staff
DATE: DATE:
<PAGE>
Exhibit 10.10
ASSIGNMENT AGREEMENT
This Assignment Agreement is made and entered into by and between LANSTAR
SEMICONDUCTOR INC. (hereinafter called the "Assignor") and LANSTAR SEMICONDUCTOR
--------
CORPORATION (herein-after called the "Assignee").
--------
(1) The Assignor has heretofore entered into an agreement with UTRON
Technology Inc. and MU-TRON Company for the fabrication, manufacture and
distribution of semiconductor devices and, in connection therewith, has executed
that certain Product Development and Fabrication Agreement, dated January 30,
1996 (hereinafter called the "Agreement").
---------
(2) For good and valuable consideration, the receipt, adequacy and
sufficiency of which are hereby acknowledged, the Assignor does hereby sell,
assign, transfer and convey to the Assignee all of the Assignor's right, title
and interest in, to and under the Agreement and the Assignee hereby accepts the
foregoing assignment and agrees to assume and perform all the duties and
obligations to be performed by the Assignor under the Agreement the same as if
the Assignee had originally been named in and had originally executed the
Agreement. The Assignee hereby indemnifies and agrees to hold the Assignor
harmless for any liability for performance or nonperformance of the duties and
obligations that are herein accepted and assumed by the Assignee.
IN WITNESS WHEREOF, LANSTAR SEMICONDUCTOR INC., the Assignor, has executed
this Assignment Agreement on this the 20th day of September, 1997, to be
effective as of January 1, 1997.
LANSTAR SEMICONDUCTOR INC.
ASSIGNOR
BY: /s/ Maxie R. Smith
--------------------------------
MAXIE R. SMITH
PRESIDENT
ASSIGNMENT AGREEMENT - Page 1 of 2 Pages
- --------------------
<PAGE>
IN WITNESS WHEREOF, LANSTAR SEMICONDUCTOR CORPORATION, the Assignee, has
executed this Assignment Agreement on or about the 20th day of September, 1997,
to be effective as of January 1, 1997.
LANSTAR SEMICONDUCTOR
CORPORATION
ASSIGNEE
BY: /s/ Wilton Workman
--------------------------------
WILTON WORKMAN
PRESIDENT
ASSIGNMENT AGREEMENT - Page 2 of 2 Pages
- --------------------
<PAGE>
Effective as of 30 Jan 1996
PRODUCT DEVELOPMENT AND FABRICATION AGREEMENT
This agreement made the 30 day of January 1996 ("Agreement") by and between URON
Technology Inc., with a principal office located at IF, No.11, R&D 2nd Road,
Hsin-Chu Science-Based Industrial Park, Hsin-Chu, Taiwan, R.O.C. hereinafter
referred to as "UTRON"): and MU-TRON company with a principal office located at
1239 Canton Road, Messanine Floor. Kowlung, Hong Kong (hereinafter referred to
as "MU-TRON"); and Lanstar Semiconductor Inc. with a principal office at 2501
Avenue J, Arlington Texas U.S.A. (hereinafter referred to as "LANSTAR:).
WITNESSETH
WHEREAS, LANSTAR, UTRON AND MU-TRON (hereinafter referred to as the "PARTIES")
desire to establish a business relationship (Joint-Venture) in order to
fabricate, manufacture and distribute LANSTAR Dynamic Random Access Memory
semiconductor devices ("PRODUCTS") utilizing certain allocation and fabrication
agreements; and
WHEREAS, The PARTIES which to define their respective contributions and
participation in the ownership and distribution of the PRODUCTS developed and
fabricated as a result of this Agreement.
NOW THEREFORE, the PARTIES agree as follows:
1. The above Preamble is incorporated into and made a part of this Agreement.
2. The term of this Agreement shall be for two (2) years. Renewal of this
Agreement shall be subject to both parties business plans.
(a) UTRON shall, working in concert with LANSTAR processing engineering group,
receive approval from UTRON's third party fabricator.
(b) In the event that third party fabricator approval is not received within
four weeks from the date first written above, either party shall terminate this
Agreement without any on-going liability to the other party.
3. UTRON agrees to provide to LANSTAR a portion of UTRON's allocation of Wafer
starts to be fabricated at a third party foundry, The percentage of the
allocated portion to LANSTAR shall be utilized to fabricate and manufacture
LANSTAR PRODUCTS in accordance with the terms of this Agreement,
4. LANSTAR agrees to supply resources and confidential information including
engineering information, technical drawings. specifications, production and
testing methods, processing information to fulfill R&D function to modify
existing processing technologies as well as the initial set of the reticles plus
pellicles. The delivery and provisions of all of the above will be subject to
the completion and signing of a Confidentiality Agreement attached hereto and a
part hereof. UTRON shall provide wafer foundry allocation and technical liaison
with
<PAGE>
fabricators.
(a) This confidential information shall be provided by LANSTAR at no cost to
the joint venture.
(b) In the event of wafer and reticles plus pellicles for the development of the
PRODUCTS are required as a result of additional iterations caused by design
and/or engineering changed, then in those events the costs for such additional
reticles and pellicles shall be solely at the cost of LANSTAR. Both LANSTAR and
UTRON shall split the cost of wafers, reticles and pellicles only when the wafer
yield reaches 80% or higher percentage.
5. UTRON shall make available a Third party foundry (fabrication) facility that
is willing and technically equipped and competent with 8 inch wafer processing
capabilities (the third party fabricator to fabricate LANSTAR PRODUCTS which
Third Party Fabricator shall be reviewed and approved by LANSTAR.
6. UTRON shall provide at it own costs the technical know-how for the purpose of
maintaining the technical liaison with the Third Party Fabricator in order to
ensure the viability of success of the fabrication and manufacturing of LANSTAR
PRODUCTS.
7. To induce LANSTAR to enter into this Agreement and in consideration of
LANSTAR contributions hereunder, UTRON represents that it can allocate a minimum
of three hundred (300) wafer starts for the use of the fabrication of LANSTAR
PRODUCTS to be utilized for the PILOT RUNS of LANSTAR PRODUCTS.
UTRON agrees that subsequent to any PILOT RUN having a Gross Device Yield of
Five Hundred and Eighty (580) packaged units, UTRON shall use its best efforts
to increase the minimum wafer starts allocated for the manufacture and
fabrication of LANSTAR PRODUCTS.
8. The manufactured PRODUCTS fabricated and manufactured under the terms of this
Agreement shall be fifty percent (50%) to LANSTAR, Forty percent (40%) to UTRON,
and Ten percent (10%) to MU-TRON.
Notwithstanding anything contained in this paragraph, MU-TRON may elect not
accept its share of the allocated PRODUCTS. In this case the allocation of
manufactured Products to MU-TRON will revert to LANSTAR.
9. For bookkeeping reasons and the payment of royalties and/or license fees, all
information relating to the PILOT and MANUFACTURING production runs including
but not limited to production records (at the fabricator/foundry) shipment
records, sales records and all related information shall be shared between the
Parties.
10. The cost of the manufactured PRODUCTS shall include the fabrication cost of
ate wafer starts at actual cost in accordance with the current agreement between
the Third Party Fabricator and UTRON. all licenses and/or royalties payable, all
testing, packaging and related costs.
<PAGE>
(a) All foundry costs shall be mutually approved by the Parties prior to the
establishing a commencement date for the fabrication of the PRODUCTS PILOT RUN.
(b) Payment to the Third Party Fabricator for the wafer starts shall be made by
Letter of Credits opened in favor of UTRON prior to wafer start. UTRON shall
deliver wafer to LANSTAR to test and package vendors service. LANSTAR and UTRON
shall negotiate: separately based on UTRON turn key operation or through several
vendors service.
11. Each of the Parties hereunder shall be responsible to advance and pay for
its own engineering, general and administration, travel and management costs
related to the manufacturing of LANSTAR PRODUCTS.
12. The PRODUCTS may be labeled by each of the Panics hereto in any manner that
does not infringe any third party trademarks, logos, or in any way misrepresents
the source of the PRODUCTS,
Notwithstanding anything in the paragraph to the contrary, the license and/or
royalties payable, to Texas Instrument and others must be properly accounted for
and paid in accordance with the terms of the License Agreement between LANSTAR
and Texas Instrument copy of which License Agreement is attached hereto and made
a part. hereof as relates solely to those paragraphs in this license relating to
the accounting for and payment of the royalties.
13. The PRODUCTS allocated to each Party hereunder may be marketed by each of
the Panics freely without any territorial rights or restrictions.
14. LANSTAR agrees to offer to UTRON for inclusion under the terms of this
Agreement to be defined as LANSTAR PRODUCTS its first arid second generation of
16 Meg Dynamic Random Access Memory semiconductor devices
(a) LANSTAR shall use its best efforts to provide the engineering material,
drawings etc. for the first generation of its 16 Meg PRODUCTS by July, 1996 and
the second generation by the last quarter of 1996,
(b) The 16 Meg PRODUCTS shall be allocated under terms similar to the terms for
the fabrication of its current 4 Meg Dynamic Random Access Memory semiconductor
device with the following exception:
(c) LANSTAR will have the right to withhold it 16 Meg PRODUCTS from inclusion
into this Agreement as on of LANSTAR PRODUCTS in the event the Parties can riot
reach agreement as to the total number of wafer starts to be assigned by UTRON
to be utilized for the fabrication of LANSTAR 16 Meg PRODUCTS.
(d) UTRON shall have the unilateral right to reject the inclusion of LANSTAR 16
Meg PRODUCTS to be fabricated under the terms of this Agreement.
15. LANSTAR or UTRON shall have the sole right to unilaterally terminate this
Agreement by providing the other Party its notice to terminate with ninety (90)
days written notification
<PAGE>
of its intent to terminate in the event of any of the following events.
Subsequent to the following events, either UTRON or LANSTAR survives the right
to continue DRAM operation until the expiring date which this Agreement was
originally agreed upon:
(a) The cost of the fabricated wafer shall exceed US dollars Three Thousand
Dollars ($3,000).
(b) The spot selling price for the PRODUCTS averaged over the three largest
manufacturers of DRAMs shall no less than One Hundred and Twenty Percent
(120%) of the manufacturing costs (inclusive of all royalty and licenses
payable).
(c) If either LANSTAR or UTRON files for bankruptcy or enters into an agreement
for reorganization with its creditors.
(d) If either party does not fulfill its commitments to pay any moneys due to
royalties and or cost of manufacturing on a timely basis.
16. All confidential information and technical know-how shall remain the
property of LANSTAR and shall not be utilized for any other reason except for
the manufacture of the PRODUCTS as contemplated under the terms of this
agreement.
In the event of the termination of this agreement as provided for hereinabove,
all such material drawings, confidential material whether printed, drawings or
audio tapes shall be forthwith returned to LANSTAR and not copies shall be kept
in the files of UTRON or MUTRON.
17. In the event of dispute between any of the parties hereunder, the dispute
shall be submitted to the Courts of the State of Texas, United States and/or
International Court having jurisdiction over the dispute.
18. This agreement represents the total agreement between the Parties and may
not be modified or change without a written agreement of the changes signed by
all Parties.
IN WITNESS whereof, the Parties have affixed their respective signatures on the
date first written above.
LANSTAR SEMICONDUCTOR, INC. MU-TRON
/s/ Maxie L. Smith
- ---------------------------- ---------------------------
Mr. Max Smith Mr. John Tsang
Chairman Proprietor
UTRON TECHNOLOGY, INC.
/s/ Jeng Jong Guo /s/ Edward LI
- ---------------------------- ---------------------------
Mr. Jeng-Jong Guo Mr. Edward LI
President Witness
Managing Director,
Eastern Enterprises, Ltd.
<PAGE>
of its intent to terminate in the event of any of the following events.
Subsequent to the following events, either UTRON or LANSTAR survives the right
to continue DRAM operation until the expiring date which this Agreement was
originally agreed upon:
(a) The cost of the fabricated wafer shall exceed US dollars Three Thousand
Dollars ($3,000).
(b) The spot selling price for the PRODUCTS averaged over the three largest
manufacturers of DRAMs shall no less than One Hundred and Twenty Percent
(120%) of the manufacturing costs (inclusive of all royalty and licenses
payable).
(c) If either LANSTAR or UTRON files for bankruptcy or enters into an agreement
for reorganization with its creditors.
(d) If either party does not fulfill its commitments to pay any moneys due to
royalties and or cost of manufacturing on a timely basis.
16. All confidential information and technical know-how shall remain the
property of LANSTAR and shall not be utilized for any other reason except for
the manufacture of the PRODUCTS as contemplated under the terms of this
agreement.
In the event of the termination of this agreement as provided for hereinabove,
all such material drawings, confidential material whether printed, drawings or
audio tapes shall be forthwith returned to LANSTAR and not copies shall be kept
in the files of UTRON or MUTRON.
17. In the event of dispute between any of the parties hereunder, the dispute
shall be submitted to the Courts of the State of Texas, United States and/or
International Court having jurisdiction over the dispute.
18. This agreement represents the total agreement between the Parties and may
not be modified or change without a written agreement of the changes signed by
all Parties.
IN WITNESS whereof, the Parties have affixed their respective signatures on the
date first written above.
LANSTAR SEMICONDUCTOR, INC. MU-TRON
/s/ Maxie L. Smith /s/ John Tsang
- -------------------------------- ---------------------------
Mr. Max Smith Mr. John Tsang
Chairman Proprietor
UTRON TECHNOLOGY, INC.
/s/ Jeng Jong Guo /s/ Edward LI
- -------------------------------- ---------------------------
Mr. Jeng-Jong Guo Mr. Edward LI
President Witness
Managing Director,
Eastern Enterprises, Ltd.
<PAGE>
Exhibit 10.11
LEASE CONTRACT
GREATER FORT WORTH BOARD OF REALTORS, INC
LEASE AGREEMENT
This Lease Agreement, made and entered into by and between
LANDLORD Continental Properties Joint Venture #5
2501 Avenue J, Suite 103
Arlington, TX 76006
Hereinafter referred to as "Landlord", and
TENANT Lanstar Semiconductor, Inc.
2501 Ave. J, Suite 110
Arlington, TX 76006
Hereinafter referred to as "Tenant"
PREMISES 1. WITNESSETH: That Landlord in consideration of the covenants and
agreements to be performed by Tenant and upon the terms and
conditions hereinafter stated does hereby lease, demise and let
unto Tenant certain office space in the Corporate East Building
located at 2501 Avenue J, Arlington, Texas 76006 Texas, known as
Suite No. 110, as shown on the floor plan attached hereto as
Addendum "A" and containing the floor area indicated on said
Addendum "A".
TERM For a term of 36 months, commencing on the 1st day of December
1996 and ending on the 30th day of November 1999
USE 2. The leased premises shall be used for no other purpose than
GENERAL OFFICE
Tenant shall not perform or carry on any practices which may injure the
building or be a it nuisance to other tenants in the building, or use the
premises for any business or purpose which is unlawful or violative of any
public or city ordinances.
RENT 3. Tenant agrees to pay to the Principal Realtor or to whomever the
Landlord designates in writing at 2501 Ave J, Suite 110,
Arlington, Texas, for the account of Landlord rent for said
premises at the rate of two thousand four hundred fifteen Dollars
($2415.00) per month in advance. One such monthly installment
shall be due and payable on or before (the commencement date of
this lease as set forth in paragraph I above, and a like monthly
installment shall be due and payable on or before the same day of
each succeeding calendar month during the term hereof. With the
execution of this Lease, Tenant does hereby pay and deliver to
Principal Realtor the sum of four thousand eight hundred thirty
Dollars ($4830.00) the receipt of which is hereby acknowledged by
Principal Realtors, said sum to be applied to the first and last
months of the term Lease.
last month's payment has been credited from previous payments
<PAGE>
POSSESSION 4. In the event the leased premises have been constructed and
completed at the time this Lease is executed, the Tenant shall
accept and occupy the same in "as is" condition except as may
be provided in an Addendum if any, attached hereto and signed
by Landlord and Tenant. If the leased premises have not been
completed at the time this lease is executed, the construction
and completion by the landlord or same shall be performed in
accordance with the terms and provisions of an Addendum
attached hereto and signed by Landlord and Tenant.
MAINTENANCE 5a. Landlord shall at this expense maintain only the root,
foundation, underground pipes, all outside plumbing, common
building corridors, stairways and common building facilities
and the structural soundness of the exterior walls of the
building in good repair and condition, except for reasonable
wear and tear. Landlord be responsible for replacement of
windows and side lights unless the breakage or damage results
from negligence or intentional act of Tenant or Tenant's
employees, agents, guests, or invitees. Landlord shall not be
responsible or liable to Tenant for interruption of building
services or for interference with Tenants use and occupancy due
to building pairs. Tenant shall give immediate written notice
to Landlord of the need for repairs or corrections and Landlord
shall proceed promptly to make such repairs or Corrections.
MAINTENANCE 5b. Tenant shall at all times maintain the interior of the DEMISED
premises and all facilities therein in BY good condition and
repair and Tenant shall commit no waste or damage to said
premises. In the event Tenant should neglect to maintain the
demised premises, Landlord shall have the right but not the
obligation to cause repairs or corrections to be made and any
reasonable cost, therefor shall be payable by Tenant to
Landlord as additional rental on the next rental installment
date. Upon termination of this Lease, Tenant Shall deliver up
the demised premises in good repair and condition, reasonable
wear and tear, and damage by fire, windstorm or other casualty
only excepted. Tenant shall repair any damage caused by
Tenant's negligence or default hereunder, or negligence of
Tenant's invitees, employees or customers.
SERVICES 6. Landlord agrees to furnish Tenant while occupying the l
premises the allowing services In the manner and to the extent
deemed by Landlord to be standard.
(a) Water, at those points of supply provided for general use
of tenants.
(b) Electric service
(c) Heated and refrigerated air conditioning in Season, service
on Sunday and holidays to be optional part of Landlord.
(d) Janitorial cleaning service
(e) Electric lighting for public areas and special service
areas of the building.
Failure to any extent to furnish or any stoppage of these
defined services, resulting from causes beyond control of
landlord or from any cause, shall not render Landlord liable in
any respect for damages to either person or property nor be
construed as an eviction of Tenant or work in abatement of
rent, nor relieve Tenant from fulfillment of any covenant or
agreement hereof. Should any equipment or machinery breakdown,
or for any cause cease to function properly, Landlord shall use
reasonable diligence to repair same Promptly, but Tenant shall
have no claim for a late of rent or damages on account of any
interruptions in marvel cc occasioned thereby or resulting
therefrom.
<PAGE>
SIGNS 7. Tenant shall not erect or install any exterior at interior
sips of advertising media or window or door lettering in, to,
or on said premises, or introduce any electric apparatus,
wires of plumbing therein without the prior written consent of
the Landlord.
ALTERATIONS a. Tenant shall not create any openings in the roof or exterior
walls, nor make any alterations, additions, or improvements to
the demised premises without prior written consent of
Landlord. Consent for non-structural alterations, or
improvements shall not be unreasonably withhold by Landlord.
All fixtures including floor coverings and heating and air
conditioning units, all electrical apparatus, and all
alterations, additions and improvements except trade fixtures,
installed at the expense of the Tenant shall be the property
of the Landlord and shall remain upon and be surrendered with
the demised promises as a part thereof at the termination of
this Lease.
LIABILITIES 9 (a) Personal Injuries. Landlord shall not be liable or responsible
for any injury death or inconvenience to Tenant or to Tenant's
employees, agents, invitees or guests, that may occur in or on
the building, the parking garage, or the land on which same
are located unless resulting solely from the negligence of
Landlord, its employees, or agents. Tenant agrees to indemnify
and save the Landlord harmless of and from any liability,
responsibility, costs and expenses that may be occasioned by
or result from any such occurrence as a result of the
negligence of Tenant, his employees or agents.
(b) Damages to Contents of Leased Premises. All of Tenant's
personal property and trade fixtures in or upon the leased
premises and all personal property of Tenant's employees,
agents, invitees or guests, in or upon the leased premises
shall be at the sole risk Tenant, and Landlord shall not be
responsible to Tenant or any other party for damages to or
loss thereof whether same may occur from theft, fire, water,
bursting or leaking pipes, collapse or otherwise, even if
caused by the negligence of Landlord, its employees or agents.
(c) Waiver of Subrogation. Both of the parties hereto agrees that
it will obtain from any insurance carrier with which it
carries fire or extended coverage policies covering any of its
property or improvements a waiver of subrogation rights as
against the other party to this Lease.
INSURANCE 10. Tenant shall not keep anything upon the premises, or do
anything in or about the Premises except the usage specified
herein which will increase the rates for fire and standard
extended coverage Insurance upon the building or buildings
which are a part of the leased promises. Tenant agrees to pay
on demand any increase in insurance premiums that may be
charged to landlord during the term of this Lease resulting
from deviation, from the usage specified herein or from any
other cause within Tenant's control.
ASSIGNMENT 11. Tenant shall not assign this agreement or sublet the premises,
or any part thereof without the consent of the Landlord in
writing; which consent Landlord agrees it will not
unreasonably withhold, but no assignment subletting shall
release Tenant from any obligations hereunder.
DAMAGE TO 12. In the event the demised premises or any part of the building
PREMISES premises or any part of the building used in common with other
Tenant's which directly affects Tenant's use of its demised
premises are partially damaged or destroyed or rendered
partially unfit for occupancy by fire, tornado or other
casualty, Tenant shall give immediate notice to Landlord, who
shall thereupon at his expense repair the damage and restore
the premises to substantially the condition in which they were
immediately prior to the happening of the casualty, and
landlord shall allow Tenant a fair diminution of rent during
the time the premises are partially unfit for occupancy
however, If the demised premises are totally destroyed or
deemed by the landlord to be rendered wholly unfit for
occupancy by fire, tornado of other casualty, or if the
Landlord shall decide not to repair or rebuild , this Lease
shall terminate and the rent shall be paid to the time of such
destruction of casualty.
BANKRUPTCY 13. In the event that the Tenant shall become bankrupt or shall
make a voluntary assignment for benefit of creditors, or in
the event that a receiver of all or substantially all of the
assets of the Tenant shall be appointed, then, at the option
of the Landlord and upon five ( 5) days notice to the Tenant
of the exercise of such option, this Lease shall terminate.
<PAGE>
DEFAULT OF 14. In case of default in any of the covenants herein, or If
Tenant abandons the premises, the Landlord may enforce the
performance of the Lease in any modes provided by law, and
this Lease may be forfeited at Landlord's discretion. if such
default continue for a period of five days after Landlord
notifies said Tenant in writing of such default and his
intention to declare the Lease forfeited; such notice to be
sent by the Landlord by mail or otherwise to the demised
premises; and thereupon (unless the Tenant shall have
completely removed or cured said default) this Lease shall
cease and come to an end as it that were the day originally
fixed herein for the expiration of the term hereof, end
Landlord's agent or attorney shall have the right, without
further notice or demand, to re-enter and remove all persons
and Tenant's property therefrom without being deemed guilty of
any manner of trespass, and without prejudice to any remedies
for arrears of rent or breach of covenant; or Landlord's agent
or attorney may resume Possession of the Premises and re-let
the same for the remainder of the term at the best rent said
agent or attorney may obtain for account of the Tenant, who
shall make good any deficiency; and Landlord shall have a lien
as security for the rent aforesaid upon all goods, wares,
chattels, implements, fixtures, furniture, tools and other
personal property which are or may be put on the demised
premises; If, on account of breach or default by Tenant of any
of Tenant's obligations, hereunder, it shall become necessary
for the Landlord to employ an attorney to enforce or defend
any of Landlord's rights or remedies hereunder, then in any
such event any reasonable amount incurred by Landlord as
attorney's fees shall be paid by Tenant. Failure of Landlord
to insist in any one or more instances upon the strict
performance of any of the covenants or conditions of the Lease
shall not operate as a waiver of any future breach by Tenant
of any said covenants or conditions.
HOLDING 15. In the event Tenant holds over after the expiration of the
OVER Lease, it shall be deemed to be occupying said premises
as a Tenant from month to month at a monthly rental of 150% of
the last monthly rental amount paid hereunder; such tenancy
shall be subject to all the other conditions. Provisions and
obligations of this Lease insofar as the same are applicable
to a month to month tenancy. This provision shall not be
construed as an extension of this Lease but is to define any
holding over, with or without consent of the Landlord.
SUBJECT TO 16. It this Lease is in fact sublease, Tenant accepts this Lease
subject to all of the terms and conditions of the underlying
Lease under which Landlord holds the demised premises as
lessee. Tenant covenants that it will do no act or thing which
would constitute a violation by Landlord of its obligations
under such underlying, case, a copy of which in attached
hereto and made part hereto.
ACCESS 17. Landlord may during the term of this Lease, at reasonable
times, enter the premises to view, inspect, repair and show to
prospective purchasers or leasees.
CONDEMNATION 20. If the whole of the premises of access thereto should be taken
under live power of eminent domain or condemnation, or a sale
made under threat thereof then this lease shall cease as of
the date of the taking without further liability upon either
Landlord or Tenant. If only a portion of the Premises or
access thereto is taken under the power of eminent domain or
condemnation, or sale made under the threat thereof. And the
portion remaining will not, in the reasonable opinion of the
Tenant, be adequate for Tenant's continued Tenant shall have
the option to terminate this Lease by giving Landlord notice
thereof within thirty (30) days after the date of the taking.
If this Lease in not so terminated Landlord shall promptly
restore the portion remaining to an integral unit resembling
as much as Possible the premises prior to the taking. Any and
all proceeds resulting from a taking in whole or part of the
premises under the power of continent domain, or condemnation
or sale under threat thereof, shall be paid directly to
landlord and shall be Landlord's property.
MORTGAGE 21. This Lease, at the option of Landlord, shall be subordinate to
the lien of any mortgage or dead of trust or other security
instrument that is now or which hereafter may be placed on the
land and building of which said leased promises are a part, or
any building or buildings that hereafter may be placed on said
land; and the Tenant agrees to execute and deliver such
instrument or instruments as may be necessary or required by
Landlord or any mortgagee to evidence the subordination of
this lease to any such mortgage, deed of trust, or other
security agreement or instrument; provided such subordination
shall be conditioned that the Mortgagee will permit the Lease
to remain in effect as long as Tenant in not in default
hereunder.
<PAGE>
RULES AND 22. Tenant covenants and agrees that the attached rules, and
REGULATIONS regulations, and stipulations, if any, and such other and
further rules and regulations as the Landlord may make, being,
in the Landlord's judgment needful for safety care and
cleanliness of the building and premises, or the comfort of
the Tenant's, shall be faithfully kept, observed, and
performed by Tenant, and to the best of Tenant's efforts, by
the agents, clerks, servants, invitees, guests and visitors of
the Tenant, unless waived in writing by the Landlord.
SOLE 23. Tenant and landlord agree thus, unless and except as
AGREEMENT hereinafter specified, there are no verbal representations,
understandings, stipulations, agreements or promises
pertaining hereto not incorporated herein. And in addition, no
provisions of this Lease shall be altered, waived, amended, or
extended, except in writing signed by both Tenant and
Landlord.
EXHIBITS 24. All exhibits attachments, annexed instruments and addenda
referred to herein shall be considered a part hereof for all
purposes with same force and effect as if copied at full
length herein.
LANGUAGE 25. Words of any gender used in this Lease shall be held and
construed to include the plural, unless the context otherwise
requires.
CAPTIONS 26. The captions or headings of paragraphs in this Lease are
inserted for convenience only, and shall not be considered in
construing the provisions hereof if any question of intent
should arise.
SUCCESSORS 27. The terms, conditions and covenants contained In this Lease,
shall apply to inure of the benefit of, and be binding upon
the parties hereto and their respective successors in interest
and legal representatives except as otherwise herein expressly
provided. All rights, powers, privileges, immunities, and
duties of Landlord under this Lease, including but not limited
to any notices required or permitted to be delivered by
Landlord to Tenant hereunder, may, at Landlord's option, be
exercised or performed by Landlord's agent or attorney.
NOTICES 28. Any notices or documents required or Permitted to be delivered
hereunder shall be deemed to be delivered whether actually
received or not when deposited in the United States Mail,
postage prepaid, registered or certified mail, return receipt
requested, addressed to Parties hereto at the respective
addresses set out opposite their names below, or at such other
address as they have theretofore specified by written notice
delivered in accordance herewith:
Tenant: Lanstar Semiconductor
2501 Avenue J, Suite 110
Arlington, Texas 76006
Landlord: Continental Properties J.V. #5
2501 Avenue J, Suite 103
Arlington, Texas 76006
SPECIAL 29. EXPENSE STOP: Landlord and Tenant agree to establish 1997 as
PROVISIONS base year for building operating expenses. It is agreed that
this Lease comprises 10% (ten percent) of the building.
<PAGE>
EXECUTED this the 20th day of November 1996
LANDLORD
Continental Properties J. V. #5
By:
----------------------------------
Terry Dunlap, Sr.
Title: Managing partner
----------------
TENANT
- ----------------------------
PRINCIPAL REALTOR, MEMBER OF THE
FORT WORTH BOARD OF REALTORS Lanstar Semiconductor, Inc.
By: By:
----------------------- -----------------------
Maxie Smith
Cooperating Realtor TITLE: Chairman/CEO
-------------------
<PAGE>
Exhibit 10.12
LEASE CONTRACT
GREATER FORT WORTH BOARD OF REALTORS, INC
LEASE AGREEMENT
This Lease Agreement, made and entered into by and between
LANDLORD Continental Properties Joint Venture #5
2501 Avenue J, Suite 103
Arlington, TX 76006
Hereinafter referred to as "Landlord", and
TENANT Lanstar Semiconductor, Inc.
2501 Ave. J, Suite 125
Arlington, TX 76006
Hereinafter referred to as "Tenant"
PREMISES 1. WITNESSETH: That Landlord in consideration of the covenants and
agreements to be performed by Tenant and upon the terms and
conditions hereinafter stated does hereby lease, demise and let unto
Tenant certain office space in the Corporate East Building located
at 2501 Avenue J, Arlington, Texas 76006 Texas, known as Suite No.
125, as shown on the floor plan attached hereto as Addendum "A" and
containing the floor area indicated on said Addendum "A".
TERM For a term of 24 months, commencing on the 1st day of May 1996 and
ending on the 30th day of April 1998
USE 2. The leased premises shall be used for no other purpose than
GENERAL OFFICE
Tenant shall not perform or carry on any practices which may injure the
building or be a it nuisance to other tenants in the building, or use the
premises for any business or purpose which is unlawful or violative of any
public or city ordinances.
RENT 3. Tenant agrees to pay to the Principal Realtor or to whomever the
Landlord designates in writing at 2501 Ave J, Suite 103, Arlington,
Texas, for the account of Landlord rent for said premises at the
rate of three thousand six hundred twenty Dollars ($3,620.00) per
month in advance. One such monthly installment shall be due and
payable on or before (the commencement date of this lease as set
forth in paragraph I above, and a like monthly installment shall be
due and payable on or before the same day of each succeeding
calendar month during the term hereof. With the execution of this
Lease, Tenant does hereby pay and deliver to Principal Realtor the
sum of three thousand six hundred twenty Dollars (3,620.00 the
receipt of which is hereby acknowledged by Principal Realtors, said
sum to be applied to the first and XX months of the term Lease.
last month's payment has been credited from previous payments
<PAGE>
POSSESSION 4. In the event the leased premises have been constructed and
completed at the time this Lease is executed, the Tenant shall
accept and occupy the same in "as is" condition except as may
be provided in an Addendum if any, attached hereto and signed
by Landlord and Tenant. If the leased premises have not been
completed at the time this lease is executed, the construction
and completion by the landlord or same shall be performed in
accordance with the terms and provisions of an Addendum
attached hereto and signed by Landlord and Tenant.
MAINTENANCE 5a. Landlord shall at this expense maintain only the root,
foundation, underground pipes, all outside plumbing, common
building corridors, stairways and common building facilities
and the structural soundness of the exterior walls of the
building in good repair and condition, except for reasonable
wear and tear. Landlord be responsible for replacement of
windows and side lights unless the breakage or damage results
from negligence or intentional act of Tenant or Tenant's
employees, agents, guests, or invitees. Landlord shall not be
responsible or liable to Tenant for interruption of building
services or for interference with Tenants use and occupancy due
to building pairs. Tenant shall give immediate written notice
to Landlord of the need for repairs or corrections and Landlord
shall proceed promptly to make such repairs or Corrections.
MAINTENANCE 5b. Tenant shall at all times maintain the interior of the DEMISED
premises and all facilities therein in BY good condition and
repair and Tenant shall commit no waste or damage to said
premises. In the event Tenant should neglect to maintain the
demised premises, Landlord shall have the right but not the
obligation to cause repairs or corrections to be made and any
reasonable cost, therefor shall be payable by Tenant to
Landlord as additional rental on the next rental installment
date. Upon termination of this Lease, Tenant Shall deliver up
the demised premises in good repair and condition, reasonable
wear and tear, and damage by fire, windstorm or other casualty
only excepted. Tenant shall repair any damage caused by
Tenant's negligence or default hereunder, or negligence of
Tenant's invitees, employees or customers.
SERVICES 6. Landlord agrees to furnish Tenant while occupying the l
premises the allowing services In the manner and to the extent
deemed by Landlord to be standard.
(a) Water, at those points of supply provided for general use
of tenants.
(b) Electric service
(c) Heated and refrigerated air conditioning in Season, service
on Sunday and holidays to be optional part of Landlord.
(d) Janitorial cleaning service
(e) Electric lighting for public areas and special service
areas of the building.
Failure to any extent to furnish or any stoppage of these
defined services, resulting from causes beyond control of
landlord or from any cause, shall not render Landlord liable in
any respect for damages to either person or property nor be
construed as an eviction of Tenant or work in abatement of
rent, nor relieve Tenant from fulfillment of any covenant or
agreement hereof. Should any equipment or machinery breakdown,
or for any cause cease to function properly, Landlord shall use
reasonable diligence to repair same Promptly, but Tenant shall
have no claim for a late of rent or damages on account of any
interruptions in marvel cc occasioned thereby or resulting
therefrom.
<PAGE>
SIGNS 7. Tenant shall not erect or install any exterior at interior
sips of advertising media or window or door lettering in, to,
or on said premises, or introduce any electric apparatus,
wires of plumbing therein without the prior written consent of
the Landlord.
ALTERATIONS a. Tenant shall not create any openings in the roof or exterior
walls, nor make any alterations, additions, or improvements to
the demised premises without prior written consent of
Landlord. Consent for non-structural alterations, or
improvements shall not be unreasonably withhold by Landlord.
All fixtures including floor coverings and heating and air
conditioning units, all electrical apparatus, and all
alterations, additions and improvements except trade fixtures,
installed at the expense of the Tenant shall be the property
of the Landlord and shall remain upon and be surrendered with
the demised promises as a part thereof at the termination of
this Lease.
LIABILITIES 9 (a) Personal Injuries. Landlord shall not be liable or responsible
for any injury death or inconvenience to Tenant or to Tenant's
employees, agents, invitees or guests, that may occur in or on
the building, the parking garage, or the land on which same
are located unless resulting solely from the negligence of
Landlord, its employees, or agents. Tenant agrees to indemnify
and save the Landlord harmless of and from any liability,
responsibility, costs and expenses that may be occasioned by
or result from any such occurrence as a result of the
negligence of Tenant, his employees or agents.
(b) Damages to Contents of Leased Premises. All of Tenant's
personal property and trade fixtures in or upon the leased
premises and all personal property of Tenant's employees,
agents, invitees or guests, in or upon the leased premises
shall be at the sole risk Tenant, and Landlord shall not be
responsible to Tenant or any other party for damages to or
loss thereof whether same may occur from theft, fire, water,
bursting or leaking pipes, collapse or otherwise, even if
caused by the negligence of Landlord, its employees or agents.
(c) Waiver of Subrogation. Both of the parties hereto agrees that
it will obtain from any insurance carrier with which it
carries fire or extended coverage policies covering any of its
property or improvements a waiver of subrogation rights as
against the other party to this Lease.
INSURANCE 10. Tenant shall not keep anything upon the premises, or do
anything in or about the Premises except the usage specified
herein which will increase the rates for fire and standard
extended coverage Insurance upon the building or buildings
which are a part of the leased promises. Tenant agrees to pay
on demand any increase in insurance premiums that may be
charged to landlord during the term of this Lease resulting
from deviation, from the usage specified herein or from any
other cause within Tenant's control.
ASSIGNMENT 11. Tenant shall not assign this agreement or sublet the premises,
or any part thereof without the consent of the Landlord in
writing; which consent Landlord agrees it will not
unreasonably withhold, but no assignment subletting shall
release Tenant from any obligations hereunder.
DAMAGE TO 12. In the event the demised premises or any part of the building
PREMISES premises or any part of the building used in common with other
Tenant's which directly affects Tenant's use of its demised
premises are partially damaged or destroyed or rendered
partially unfit for occupancy by fire, tornado or other
casualty, Tenant shall give immediate notice to Landlord, who
shall thereupon at his expense repair the damage and restore
the premises to substantially the condition in which they were
immediately prior to the happening of the casualty, and
landlord shall allow Tenant a fair diminution of rent during
the time the premises are partially unfit for occupancy
however, If the demised premises are totally destroyed or
deemed by the landlord to be rendered wholly unfit for
occupancy by fire, tornado of other casualty, or if the
Landlord shall decide not to repair or rebuild , this Lease
shall terminate and the rent shall be paid to the time of such
destruction of casualty.
BANKRUPTCY 13. In the event that the Tenant shall become bankrupt or shall
make a voluntary assignment for benefit of creditors, or in
the event that a receiver of all or substantially all of the
assets of the Tenant shall be appointed, then, at the option
of the Landlord and upon five ( 5) days notice to the Tenant
of the exercise of such option, this Lease shall terminate.
<PAGE>
DEFAULT OF 14. In case of default in any of the covenants herein, or If
Tenant abandons the premises, the Landlord may enforce the
performance of the Lease in any modes provided by law, and
this Lease may be forfeited at Landlord's discretion. if such
default continue for a period of five days after Landlord
notifies said Tenant in writing of such default and his
intention to declare the Lease forfeited; such notice to be
sent by the Landlord by mail or otherwise to the demised
premises; and thereupon (unless the Tenant shall have
completely removed or cured said default) this Lease shall
cease and come to an end as it that were the day originally
fixed herein for the expiration of the term hereof, end
Landlord's agent or attorney shall have the right, without
further notice or demand, to re-enter and remove all persons
and Tenant's property therefrom without being deemed guilty of
any manner of trespass, and without prejudice to any remedies
for arrears of rent or breach of covenant; or Landlord's agent
or attorney may resume Possession of the Premises and re-let
the same for the remainder of the term at the best rent said
agent or attorney may obtain for account of the Tenant, who
shall make good any deficiency; and Landlord shall have a lien
as security for the rent aforesaid upon all goods, wares,
chattels, implements, fixtures, furniture, tools and other
personal property which are or may be put on the demised
premises; If, on account of breach or default by Tenant of any
of Tenant's obligations, hereunder, it shall become necessary
for the Landlord to employ an attorney to enforce or defend
any of Landlord's rights or remedies hereunder, then in any
such event any reasonable amount incurred by Landlord as
attorney's fees shall be paid by Tenant. Failure of Landlord
to insist in any one or more instances upon the strict
performance of any of the covenants or conditions of the Lease
shall not operate as a waiver of any future breach by Tenant
of any said covenants or conditions.
HOLDING 15. In the event Tenant holds over after the expiration of the
OVER Lease, it shall be deemed to be occupying said premises as a
Tenant from month to month at a monthly rental of 150% of the
last monthly rental amount paid hereunder; such tenancy shall
be subject to all the other conditions. Provisions and
obligations of this Lease insofar as the same are applicable
to a month to month tenancy. This provision shall not be
construed as an extension of this Lease but is to define any
holding over, with or without consent of the Landlord.
SUBJECT TO 16. It this Lease is in fact sublease, Tenant accepts this Lease
subject to all of the terms and conditions of the underlying
Lease under which Landlord holds the demised premises as
lessee. Tenant covenants that it will do no act or thing which
would constitute a violation by Landlord of its obligations
under such underlying, case, a copy of which in attached
hereto and made part hereto.
ACCESS 17. Landlord may during the term of this Lease, at reasonable
times, enter the premises to view, inspect, repair and show to
prospective purchasers or leasees.
CONDEMNATION 20. If the whole of the premises of access thereto should be taken
under live power of eminent domain or condemnation, or a sale
made under threat thereof then this lease shall cease as of
the date of the taking without further liability upon either
Landlord or Tenant. If only a portion of the Premises or
access thereto is taken under the power of eminent domain or
condemnation, or sale made under the threat thereof. And the
portion remaining will not, in the reasonable opinion of the
Tenant, be adequate for Tenant's continued Tenant shall have
the option to terminate this Lease by giving Landlord notice
thereof within thirty (30) days after the date of the taking.
If this Lease in not so terminated Landlord shall promptly
restore the portion remaining to an integral unit resembling
as much as Possible the premises prior to the taking. Any and
all proceeds resulting from a taking in whole or part of the
premises under the power of continent domain, or condemnation
or sale under threat thereof, shall be paid directly to
landlord and shall be Landlord's property.
MORTGAGE 21. This Lease, at the option of Landlord, shall be subordinate to
the lien of any mortgage or dead of trust or other security
instrument that is now or which hereafter may be placed on the
land and building of which said leased promises are a part, or
any building or buildings that hereafter may be placed on said
land; and the Tenant agrees to execute and deliver such
instrument or instruments as may be necessary or required by
Landlord or any mortgagee to evidence the subordination of
this lease to any such mortgage, deed of trust, or other
security agreement or instrument; provided such subordination
shall be conditioned that the Mortgagee will permit the Lease
to remain in effect as long as Tenant in not in default
hereunder.
<PAGE>
RULES AND 22. Tenant covenants and agrees that the attached rules, and
REGULATIONS regulations, and stipulations, if any, and such other and
further rules and regulations as the Landlord may make, being,
in the Landlord's judgment needful for safety care and
cleanliness of the building and premises, or the comfort of
the Tenant's, shall be faithfully kept, observed, and
performed by Tenant, and to the best of Tenant's efforts, by
the agents, clerks, servants, invitees, guests and visitors of
the Tenant, unless waived in writing by the Landlord.
SOLE 23. Tenant and landlord agree thus, unless and except as
AGREEMENT hereinafter specified, there are no verbal representations,
understandings, stipulations, agreements or promises
pertaining hereto not incorporated herein. And in addition, no
provisions of this Lease shall be altered, waived, amended, or
extended, except in writing signed by both Tenant and
Landlord.
EXHIBITS 24. All exhibits attachments, annexed instruments and addenda
referred to herein shall be considered a part hereof for all
purposes with same force and effect as if copied at full
length herein.
LANGUAGE 25. Words of any gender used in this Lease shall be held and
construed to include the plural, unless the context otherwise
requires.
CAPTIONS 26. The captions or headings of paragraphs in this Lease are
inserted for convenience only, and shall not be considered in
construing the provisions hereof if any question of intent
should arise.
SUCCESSORS 27. The terms, conditions and covenants contained In this Lease,
shall apply to inure of the benefit of, and be binding upon
the parties hereto and their respective successors in interest
and legal representatives except as otherwise herein expressly
provided. All rights, powers, privileges, immunities, and
duties of Landlord under this Lease, including but not limited
to any notices required or permitted to be delivered by
Landlord to Tenant hereunder, may, at Landlord's option, be
exercised or performed by Landlord's agent or attorney.
NOTICES28. Any notices or documents required or Permitted to be delivered
hereunder shall be deemed to be delivered whether actually
received or not when deposited in the United States Mail,
postage prepaid, registered or certified mail, return receipt
requested, addressed to Parties hereto at the respective
addresses set out opposite their names below, or at such other
address as they have theretofore specified by written notice
delivered in accordance herewith:
Tenant: Lanstar Semiconductor
2501 Avenue J, Suite 125
Arlington, Texas 76006
Landlord: Continental Properties J.V. #5
2501 Avenue J, Suite 103
Arlington, Texas 76006
SPECIAL 29. EXPENSE STOP: Landlord and Tenant agree to establish 1995 as
PROVISIONS base year for building operating expenses. It is agreed that
this Lease comprises 15% (fifteen percent) of the building.
<PAGE>
EXECUTED this the 5th day of May 1996
LANDLORD
Continental Properties J. V. #5
By:
----------------------------
Terry Dunlap, Sr.
Title: Managing partner
----------------
TENANT
- --------------------------------
PRINCIPAL REALTOR, MEMBER OF THE
FORT WORTH BOARD OF REALTORS Lanstar Semiconductor, Inc.
By: By:
------------------------ -------------------------
Steve Porter
Cooperating Realtor TITLE: Vice President
------------------- ---------------
<PAGE>
EXHIBIT 10.13
COMMERCIAL LEASE AGREEMENT
THIS LEASE AGREEMENT hereafter referred to as "Lease" is made and entered
into between DSW Property Management hereafter to as "Lessor" and of Lanstar
Systems Technology, Inc. a subsidiary of Lanstar Semiconductor, Inc.
Hereafter referred to as "Lessee".
1. LEASED PREMISES: In consideration of the rents, terms, provisions and
covenants of this Lease Agreement, Lessor hereby leases, lets and demises to
Lessee the following described premises (referred to as "Leased Premises") and
containing approximately 3288+/- square feet situated at 801 Stadium Drive,
Suites 103 & 104, Arlington, TX 76011, described in exhibit A attached hereto.
2. TERM: Subject to and upon the conditions set forth below, the term of
this Lease shall commence on October 11, 1997 and shall terminate October 31,
1999.
3. RENT: Shall be as follows (subject to possible escalation's in property
taxes, insurance, utilities and or any adjustments to rent spelled out under
SPECIAL PROVISIONS.)
Total monthly rent payment: $2350.00
which amount shall be payable to Lessor at the address shown below on the first
day of the month. One monthly installment of rent shall be due and payable on
the date of execution of this Lease by Lessee for the first month's rent and a
like monthly installment shall be due and payable on or before the first day of
each calendar month succeeding the "commencement date" during the lease term
provided, that if the "commencement date" should be a date other than the first
day of a calendar month, the monthly rental set forth above shall be prorated to
the end of that calendar month, and all succeeding installments of rent shall be
payable on or before the first day of each succeeding calendar month during the
lease term.
a. On the date of execution of this Lease by Lessee, a security deposit
shall be paid by Lessee in the amount of $2350.00 and is held for the
performance by Lessee of Lessee's covenants and obligations under this Lease, it
being expressly understood that the deposit shall not be considered an advance
payment of rental or a measure of Lessor's damage in case of default by Lessee.
Upon the occurrence of any event of default by Lessee or breach by Lessee of
Lessee's covenants under this Lease, Lessor may, from time to time without
prejudice to any other remedy, use the security deposit to the extent necessary
to make good any arrears of rent and/or any damage, injury, expense or liability
caused to Lessor by the event of default or breach of covenant and Lessee shall
immediately restore said security deposit to the full amount required under this
Lease.
b. If any increase in the fire and extended coverage insurance premiums
paid by Lessor for the building in which Lessee occupies space is caused by
Lessee's use and occupancy of the Leased Premises, or if Lessee vacates the
Leased Premises and causes an increase in such premiums, then Lessee shall pay
as additional rental the amount of such increase to Lessor.
c. Other remedies for non payment of rent notwithstanding, if the monthly
rental payment is not received by Lessor (U. S. Postmark date accepted as date
received) on or before the tenth day of the month for which rent is due, or if
any other payment due Lessor by Lessee is not received by Lessor on or before
the tenth day of the month an additional TEN PERCENT (10%) each month of such
past due amount shall become due and payable in addition to such amounts owed
under this Lease. Partial payments of rent and or monies due from Lessee and
accepted by Lessor do not constitute payment in fall. All checks for rents and
or monies due under the terms of this Lease received by Lessor from Lessee and
returned for insufficient funds will incur an additional twenty five
dollar($25.00) charge to be paid by Lessee to Lessor along with the original
amount plus any applicable late fees in a cashable legal tender form and
delivered in person by Lessee and or its agent at Lessor's official address.
4. SIGNS: No signs, pictures, notices or advertisements may be displayed
on any part of the exterior of the building on the Leased Premises without the
prior approval of Lessor as to location, size, color, material and manner of
attachment. Lessee shall maintain the Lessor-approved sign in good condition.
5. USAGE: Lessee warrants and represents to Lessor that the Leased
Premises shall be used and occupied only for the purposes of office
ace/warehouse usage. Lessee shall occupy the Leased Premises, conduct its
business, and control its agents, employees, invitees and visitors in such a way
as is lawful, reputable, safe and will not create any nuisance or otherwise
interfere
<PAGE>
with, annoy or disturb any other tenant in its normal business operations or
Lessor in its management of the building. Lessee shall not commit, or suffer to
be committed, any waste on the Leased Premises.
6. INSURANCE: Lessee shall not permit the Leased Premises to be used in
any way which would, in the opinion of Lessor, be unusually hazardous because of
fire or would in any way increase or render void the fire insurance on leasehold
improvements or contents belonging to any tenant in the building. If at any time
during the term of this Lease the State Board of Insurance or other insurance
authority disallows any of Lessor's sprinkler credits or imposes an additional
penalty or surcharge in Lessor's insurance premiums because of Lessee's original
or subsequent placement or use of storage rack or bins, method of storage or
nature of Lessee's inventory or any other act of Lessee, Lessee agrees to pay as
additional rental the increase in Lessor's insurance premiums. If an increase in
the fire and extended coverage premiums paid by Lessor for the building in which
Lessee occupies space is caused by Lessee's use or occupancy of the Leased
Premises, then Lessee shall pay as additional rental the amount of such increase
to Lessor.
7. UTILITY SERVICE: Lessor shall provide the normal utility service
connections into the Leased Premises. Lessor also reserves the right to change
utility services without liability for interruption of service. Lessee shall pay
the cost of all utility services, including, but not limited to, initial
connection charges, all charges for gas, water and electricity used on the
Premises, or tubes, Lessee shall pay all costs caused by Lessee introducing
excessive pollutants into the sanitary sewer system, including permits, fees and
charges levied by any governmental subdivision for any pollutants or solids
other than ordinary human waste. Lessee shall be responsible for the
installation and maintenance of any dilution tanks, holding tanks, setting
tanks, sewer sampling devices, sand traps, grease traps or similar devices as
may be required by the governmental subdivision for Lessee's use of the sanitary
sewer system. If the Leased Premises are in a multi-occupancy building, Lessee
shall pay all surcharges levied due to Lessee's use of sanitary sewer or waste
removal services insofar as such surcharges effect Lessor or other tenants in
the building. Lessor shall not be required to pay for any services, supplies or
upkeep in connection with the Leased Premises. However, in a multi-occupancy
building Lessor may provide water and or other services to the Leased Premises
in which case Lessee agrees to pay to Lessor the stipulated amount or amounts
under this Lease for such services.
8. TAXES, INSURANCE, AND UTILITY INCREASES: If during the first year or
any subsequent year of this Lease, there should be increases in the cost of any
of the following: the property taxes, building insurance, commercial water,
sewer, and garbage fees, then such increases may at 1,essors discretion, be
passed on to the Lessee by raising the rent upon one full months notice thereof
from Lessor to Lessee. The increase in the monthly rental payment and fees shall
increase by taking amount of the monthly increases times the percent of the
Lessee's leased space square footage to the total buildings square footage.
9. REPAIRS AND MAINTENANCE: (a) Unless otherwise expressly provided
herein, Lessor shall not be required to make any improvements, replacements or
repairs of any kind or character to the Leased Premises during the term of this
Lease except such repairs as are set forth in this subparagraph. Lessor shall
maintain only the roof, foundation, underground plumbing, outside and
underground electrical, outside maintenance, and the structural soundness of the
exterior walls (excluding all windows, window glass, plate glass and all doors)
of the building in good repair and condition except for reasonable wear and
tear. Lessee shall repair and pay for any damage caused by Lessee's negligence
or default. Lessee shall give written notice to lessor of the need for Lessor
obligated repairs, which repairs shall then be reasonably made by Lessor. Lessor
shall not be liable to Lessee, except as expressly provided in this Lease, for
any damage or inconvenience, and Lessee shall not be entitled to any abatement
or reduction of rent by reason of any repairs, alterations or additions made by
Lessor under this Lease.
a. Lessee shall, at its own risk and expense, maintain all other parts of
the building and other improvements on the Leased Premises in good repair and
condition (including all necessary replacements), including, but not limited to
the electrical fixtures, light bulb replacement, plumbing fixtures, pest
control, air conditioning equipment, etc. Lessee shall take good care of all the
property and its fixtures. Should Lessee neglect to keep and maintain the Leased
Premises, then Lessor shall have the right, but not the obligation, to have the
work done and any reasonable costs therefore shall be charged to Lessee as
additional rental and shall become payable by Lessee with the payment of the
rental next due thereunder.
b. All requests for repairs or maintenance that are the responsibility of
Lessor pursuant to any provision of this lease must be made in writing to Lessor
at the address set forth below.
10. COMPLIANCE WITH LAWS, RULES AND REGULATIONS: Lessee shall comply with
all laws, ordinances, orders, rules and regulations of state, federal, municipal
or other agencies or bodies having jurisdiction relating to the use, condition
and occupancy of the Leased Premises. Lessee further agrees to comply with the
following:
<PAGE>
a. Nothing to be stored on the outside of the building.
b. No inoperative or unlicensed vehicles are to be left in the parking
area.
c. User shall keep the immediate area outside its Leased Premises clean of
trash.
d. Lessee shall not disturb adjoining tenants with offensive materials,
odors, or loud noises.
e. Lessee shall use the trash dumpsites for on-site created garbage use
only and shall break down all empty cartons in order to use the dumpsters
effectively.
f. Lessee shall be required to furnish its own garbage dumpster if Lessee's
use is determined by Lessor to be excessive.
g. Lessee shall not at any time occupy any part of the Leased Premises as
sleeping or lodging quarters.
h. No pets or animals are allowed in Leased Premises.
11. ALTERATIONS AND IMPROVEMENTS: Lessee shall not make or allow to be
made any alterations or physical additions in or to the Leased Premises without
first obtaining the written consent of Lessor. Any alterations, physical
additions or improvements to the Leased Premises made by Lessee shall at once
become the property of Lessor and shall be surrendered to Lessor upon the
termination of this Lease. This clause shall not apply to moveable Trade
Fixtures owned by Lessee that may be removed by Lessee at the end of the term of
this Lease if Lessee is not then in default and if Trade Fixtures are not then
subject to any other rights, hens and interests of Lessor.
12. CONDEMNATION: If the Leased Premises shall be taken or condemned for
any public purpose or for any reason whatsoever to such an extent to render it
untenantable Lessor or Lessee shall have the option to terminate this Lease
effective as of the date of taking or condemnation and any prepaid future rents
paid to Lessor by Lessee shall be refunded. Should a portion or all of the
Property of which the Leased Premises is a part be taken or condemned for any
public purpose or for any reason whatsoever Lessor may at his sole option
terminate this Lease effective as of the date of taking or condemnation if such
option is exercised by Lessor, Lessor shall be obligated to refund any prepaid
future rents paid to Lessor by Lessee. Any awards and or proceeds from any
taking or condemnation shall be for Lessors benefit and Lessee waives all claims
thereto.
13. FIRE AND CASUALTY: a. If the Leased Premises should be totally
destroyed by fire, tornado or other casualty, or if the Leased Premises should
be so damaged so that rebuilding or repairs cannot reasonably be completed
within one hundred eighty (180) working days after the date of written
notification by Lessee to Lessor of the destruction, this Lease shall terminate
and the rent shall be abated for the unexpired portion of the Lease, effective
as of the date of the written notification.
a. If the Leased Premises should be partially damaged by fire, tornado or
other casualty, and rebuilding or repairs can reasonably be completed within
ninety (90) working days from the date of written notification by Lessee to
Lessor of the destruction, this Lease shall not terminate, but Lessor may at its
sole risk and expense proceed with reasonable diligence to rebuild or repair the
building or other improvements to substantially the condition in which they
existed prior to the damage. If the Leased Premises are to be rebuilt or
repaired and are untenable in whole or in part following the damage, and the
damage or destruction was not caused or contributed to by act or negligence of
Lessee, its agents, employees, invitees or those for whom Lessee is responsible,
the rent payable under this Lease during the period for which the Leased
Premises are untenable shall be adjusted to such an extent as may be fair and
reasonable under the circumstances. In the event that Lessor fails to complete
the necessary repairs or rebuilding within ninety (90) working days from the
date of written notification by Lessee to Lessor of the destruction, Lessee may
at its option terminate this Lease by delivering written notice of termination
to Lessor, whereupon all rights and obligations under the Lease shall cease to
exist.
14. CASUALTY INSURANCE: Lessor shall at all times during the term of this
Lease maintain a policy or policies of insurance with the premiums paid in
advance, issued by and binding upon some solvent insurance company, insuring the
building against loss or damage by fire, explosion or other hazards and
contingencies; provided, that Lessor shall not be obligated in any way or manner
to insure any personal property (including but not limited to, any furniture,
machinery, goods or supplies) of Lessee or which Lessee may have upon or within
the Leased Premises or any fixtures installed by or paid for by Lessee upon or
within the Leased Premises or any additional improvements which Lessee may
construct on the Leased Premises. Lessor shall in no way be obligated or liable
to replace, repair or reimburse Lessee for any damages to Lessee's personal
property (including but not
<PAGE>
limited to any Trade Fixtures, inventory, goods or supplies) and or any
interruption of Lessee's business no matter whom or what caused such damages. It
is highly recommended that Lessee obtain sufficient insurance to cover its
personal property. Any insurance which may be carried by Lessor or Lessee
insuring against damage to the building or buildings and or any contents therein
shall be for the sole benefit of the party carrying such insurance and under its
sole control.
15. HOLD HARMLESS: Lessor, its employees and agents, shall not be liable
to Lessee and or Lessee's employees, agents, invitees, licensees or visitors, or
to any other person, for any injury or death to person or damage to property on
or about the Leased Premises caused by the negligence or misconduct of Lessee,
its agents, servants or employees, or of any other person entering upon or about
the Leased Premises under express or implied invitation by Lessee, or caused by
the building and or buildings and improvements located there on of which the
Leased Premises is a part, becoming out of repair, or caused by leakage of gas,
oil, water or steam or by electricity emanating from the Leased Premises. Lessee
agrees to indemnify and hold harmless Lessor it's employees and agents from any
loss, attorney's fees, expenses or claims arising out of any such damage or
injury. It is highly recommended that Lessee add the Lessor as an additional
insured on their liability insurance policy.
16. QUIET ENJOYMENT: Lessor warrants that he has full right to execute and
to perform this Lease and to grant the estate demised and that Lessee, upon
payment of the required rents and performing the terms, conditions, covenants
and agreements contained in this Lease, shall peaceably and quietly have, hold
and enjoy the Leased Premises during the full term of this Lease as well as any
extension or renewal thereof.
17. LESSOR'S RIGHT OF ENTRY: Lessor shall have the right, at all
reasonable hours, to enter the Leased Premise for the following reasons:
inspection, cleaning or making repairs, making alterations or additions as
Lessor may deem necessary or desirable, determining Lessee's use of the Leased
Premises, or determining if an act of default under this Lease has occurred.
Lessor shall have the right to (during the last 30 days of this lease and during
business hours) to show the Leased Premises to prospective tenant.
18. ASSIGNMENT OR SUBLEASE: Lessee shall have the right to transfer and
assign, in whole or in part, its rights and obligations in the building and
property that are the subject of this Lease with the following exceptions
(unacceptable businesses are automotive repair, restaurant, paint and body shop,
private club, high personnel usage business or business in Lessor's sole opinion
not compatible with the business complex). Lessee shall not assign this Lease or
sublet all or any part of the Leased Premises without the prior written consent
of Lessor which consent shall not be unreasonably withheld. Lessor shall have
the option, upon receipt from Lessee of written request for Lessor's consent to
subletting or assignment, to cancel this Lease as of the date the requested
subletting or assignment is to be effective. The option shall be exercised, if
at all, within fifteen (15) days following Lessor's receipt of written notice by
delivery to Lessee of written notice of Lessor's intention to exercise the
option. In the event of any assignment or subletting, Lessee shall nevertheless
at all times, remain fully responsible and liable for the payment of the rent
and for compliance with all of its other obligations under the terms, provisions
and covenants of this Lease. Upon the occurrence of an "event of default' as
defined below, if all or any part of the Leased Premises are then assigned or
sublet, Lessor, in addition to any other remedies provided by this Lease or
provided by law, may, at its option, collect directly from the assignee or
subtenant all rents becoming due to Lessee by reason of the assignment or
sublease, and Lessor shall have a security interest in all properties on the
Leased Premises to secure payment of such sums. Any collection directly by
Lessor from the assignee or subtenant shall not be construed to constitute a
notation or a release of Lessee from the further performance of obligations
wider this Lease.
19. LANDLORD'S LIEN: As security for Lessee's payment of rent, damages and
all other payments required to be made by this Lease, Lessee hereby grants to
Lessor a hen upon all property of Lessee now or subsequently located upon the
Leased Premises. If Lessee abandons or vacates any substantial portion of the
Leased Premises or in default in the payment of any rentals, damages or other
payments required to be made by this Lease or is in default of any other
provision of this Lease, Lessor may enter upon the Leased Premises without
liability for trespass, by picking or changing locks if necessary, and take
possession of all or any part of the personal property, and may sell all or any
part of the personal property at a public or private sale, in one or successive
sales with or without notice, to the highest bidder for cash, and on behalf of
Lessee, sell and convey all or pan of their personal property to the highest
bidder, delivering to the highest bidder all of Lessee's title and interest in
the personal property sold him. The proceeds of the sale of the personal
property shall be applied by Lessor toward the reasonable costs and expenses of
the sale, including attorney's fees, and then toward the payment of all sums
then due by Lessee to Lessor under the terms of this Lease; any excess remaining
shall be paid to Lessee or any other person entitled thereto by law.
20. UNIFORM COMMERCIAL CODE: To the extent, if any, this Lease grants
Lessor any hen or hen rights greater than provided by the laws of this State
(the State in which the Leased Premises are located) pertaining to "Landlord's
Liens", this Lease is intended as and constitutes a security
<PAGE>
agreement within the meaning of the Uniform Commercial Code of this State and,
Lessor, in addition to the rights prescribed in this Lease, shall have all of
the rights, titles, hens and interests in and to Lessee's property now or
hereafter located upon the Leased Premises which are granted a secured party, as
that term is defined, under this State's Uniform Commercial Code to secure the
payment to Lessor of the various amounts provided in this Lease. Lessee will on
request execute and deliver to Lessor a financing statement for the purpose of
perfecting Lessor's security interest under this Lease or Lessor may file this
Lease or a copy thereof as a financing statement.
21. DEFAULT: The following shall be deemed to be events of default by
Lessee wider this Lease:
a. Failure to pay when due any designated installment of rent or any other
payment required pursuant to this lease and such failure shall continue for a
period of fifteen (15) days.
b. Failure to correct any other breach of a condition or requirement of
this lease, other than the payment of Rent or any other payment required
pursuant to this lease, within ten (10) days after written notice to Lessee.
c. Adjudication as a bankruptcy, insolvency, assignment for the benefit of
creditors, proceedings under the National Bankruptcy Act or the appointment of a
receiver or trustee of all of or substantially all of Lessee's assets.
d. The substantial abandonment of the Leased Premises by Lessee or failure
of Lessee to operate its business from the Leased Premises and the continuance
of such failure for thirty (30) days.
22. LESSOR'S REMEDIES: Upon occurrence of an event of default, the Lessor
may pursue any one or more of the following remedies:
a. REMEDIES, TENANT REMAINING IN POSSESSION: Upon the occurrence of any
event of default enumerated in paragraph 21 hereof, Lessor shall have the option
of (i) terminating the lease, by written notice thereof to Lessee, (ii)
continuing this lease in full force and effect, or (iii) curing such default on
behalf of Lessee
(1) In the event Lessor shall terminate this lease, the following shall
occur. Upon written notice to Lessee, this lease shall be ended to Lessee
and all persons holding under Lessee, and all of Lessee's rights shall be
forfeited and lapsed, as if this lease had expired by lapse of time and
there shall immediately become due and payable the amount by which (i) the
total of the rent and the benefits which would have accrued to Lessor under
this Lease for the remainder of the term if the terms and provisions of
this lease had been fully complied with by Lessee exceeds (ii) the then-
fair-market rental value of the premises for the balance of the term (it
being the intention of both parties hereto that Lessor shall receive the
benefit of its bargain); and the Lessee shall immediately surrender the
Leased Premises to Lessor. If Lessee shall fail to do so Lessor may without
notice and prejudice to any other remedy available enter and take
possession of the Leased Premises and remove Lessee and or anyone occupying
the Leased Premises and its effects without being liable to prosecution or
any claim for damages, in addition to the sum immediately due from Lessee
under the foregoing provision, there shall be recoverable from Lessee:
(a) the cost of restoring said Leased Premises to good condition,
normal wear and tear excepted;
(b) all accrued sums, plus interest at the rate of ten percent
(10%) per annum and late charges, if in arrears, under the terms of
this lease up to the date of termination:
(c) Lessor's cost of recovering possession of the Leased Premises;
and
(d) rent and sums accruing subsequent to the date of termination
pursuant to the holdover provisions of paragraph 8.
(2) In the event that Lessor shall elect to continue this Lease in full
force and effect and Lessee shall continue to be liable for all rents,
Lessor shall nevertheless have all the rights of re-entry upon said Leased
Premises without becoming liable for damages, or guilty of a trespass and
Lessor after re-entry may relet the Leased Premises or any part thereof,
for a period of time equal to or lesser or greater than the remainder of
the term on whatever terms and conditions Lessor, at Lessor's sole
discretion, deems advisable. Against the rents and sums due from Lessee to
Lessor during the remainder of the term, credit shall be given Lessee in
the net amount of rent received from the new tenant after deduction by
Lessor for: (i) the cost incurred by Lessor in reletting the Leased
Premises (including, without limitation, remodeling costs, brokerage fees
and the like; (ii) the accrued sums,
<PAGE>
plus interest and late charges if in arrears, under the terms of this
lease; (iii) Lessor's cost of recovering possession of the Leased Premises;
and (iv) the cost of storing any of Lessee's property left the Leased
Premises after re-entry.
Notwithstanding any provision in this paragraph 23 to the contrary, upon
the default of any substitute tenant or upon the expiration of the lease
term of such substitute tenant before the expiration of the term hereof,
Lessor may, at Lessor's election, either relet to still another substitute
tenant, or terminate this lease and exercise its rights under this
paragraph 22.
(3) In the event Lessor shall elect to cure the default of Lessee at
Lessor's expense, the cost of such cure plus interest thereon at the rate
of ten percent (10%) per annum shall become additional rent and shall
become due immediately.
b. REMEDIES, ABANDONMENT: Upon abandonment, Lessor shall have the
option of either: (1) terminating this Lease by written notice thereof
to Lessee, or (2) continuing this Lease in full force and effect.
22a(l) shall be applicable except subparagraph (c) (costs of recovering
possession) and subparagraph (d) (holdover rent). In the event Lessor
shall continue this lease in full force and effect, Lessor may from
time to time sue Lessee to recover all amounts accrued to the date of
suit under the terms and provisions of the Lease (plus legal costs)
without such suit constituting termination of this lease or relet the
Leased Premises under all the terms and provisions hereof except costs
of recovering the Leased Premises.
23. WAIVER OF DEFAULT OR REMEDY: Failure of Lessor to declare an event of
default immediately upon its occurrence, or delay in taking any action in
connection with an event of default, shall not constitute a waiver of the
default, but Lessor shall have the right to declare the default at any time and
take such action as is lawful or authorized under this Lease. Pursuit of any one
or more of the remedies set forth in paragraph 22 above shall not preclude
pursuits of any one or more of the other remedies provided elsewhere in this
Lease or provided by law, nor shall pursuit of any remedy provided constitute a
forfeiture or waiver of any rent or damages accruing to Lessor by reason of the
violation of any of the terms, provisions or covenants of this Lease. Failure by
Lessor to enforce one or more of the remedies provided upon an event of default
shall not be deemed or construed to constitute a waiver of the default or of any
other violation or breach of any of the terms, provisions and covenants
contained in this Lease.
24. SURRENDER AT TERMINATION: At the expiration or termination of this
Lease, Lessee shall peaceably vacate the Leased Premises and deliver all
alterations and additions thereto in good repair and condition, reasonable wear
and tear expected, restoring the Leased Premises wherever necessary and leaving
it clean and neat. Any of Lessee's trade fixture's and or personal property not
removed at the expiration or other termination of this Lease (or within seventy
two (72) hours after a termination by reason of Lessee's default may be
appropriated, sold, destroyed or otherwise disposed of by Lessor without notice
or obligation to compensate Lessee or to account for such disposition, Lessee
shall pay to Lessor all costs incurred by Lessor in connection therewith.
Lessee's obligations under this section shall survive expiration or other
termination of this Lease.
25. ACTS OF GOD: Lessor shall not be required to perform any covenant or
obligation in this lease, or be liable in damages to Lessee, so long as the
performance or non-performance of the covenant or obligation is delayed, caused
by or prevented by an act of God or force majeure.
26. ATTORNEY'S FEES: In the event Lessee defaults in the performance of
any of the terms, covenants, agreements or conditions contained in this Lease
and Lessor places in the hands of an attorney the enforcement of all or any part
of this lease, the collection of any rent due or to become due or recovery of
the possession of the Leased Premises, Lessee agrees to pay Lessor reasonable
attorney's fees for the services of the attorney, whether suit is actually filed
or not. In no event shall the attorney's fees be less than fifteen percent (15%)
of the outstanding balance owed by Lessee to Lessor.
27. HOLDING OVER: a. Unless otherwise notified by lessor, if Lessee shall
continue to occupy the Leased Premises following the expiration of this Lease
Agreement such occupancy shall be deemed a mouth-to-mouth tenancy. During such
tenancy all terms, provisions and conditions of the Lease Agreement shall apply
to the mouth-to-mouth tenancy except those terms, provisions and conditions
pertaining to the Lease Term. Such mouth-to-month tenancy may be terminated by
either Lessor or Lessee with at least one full months previous written notice to
the other party.
a. If Lessee continues to occupy the Leased Premises after the expiration
or earlier termination of this Lease Agreement against Lessor's will or if
Lessee fails to renew this Lease Agreement at Lessors request prior to the
expiration of this Lease Agreement or under a month-to-month tenancy one full
month after notice of such lease renewal request from Lessor to Lessee, Lessee
agrees to pay Lessor as Liquidated damages for each month of continued occupancy
an amount equal to one and a half (1.5) times the rent being paid for the month
the Lease Agreement expires or
<PAGE>
is terminated. No receipt of money after the expiration or termination of this
Lease Agreement shall reinstate or extend this Lease or affect any prior notice
given by Lessor to Lessee.
28. RIGHTS OR MORTGAGEE: Lessee accepts this Lease subject and subordinate
to any recorded mortgage, deed of trust or other lien presently existing upon
the Leased Premises. Lessor is hereby irrevocably vested with full power and
authority to subordinate Lessee's interest under this Lease to any mortgage,
deed of trust or other lien hereafter placed on the Leased Premises, and Lessee
agrees upon demand to execute additional instruments subordinating this lease as
Lessor may require. If the interests of Lessor under this Lease shall be
transferred by reason of foreclosure or other proceedings for enforcement of any
mortgage on the Leased Premises, Lessee shall be bound to the transferee
(sometimes called the "Purchaser") under the terms covenants and conditions of
this Lease for the balance of the term remaining, and any extensions or
renewals, with the same force and effect as if the Purchaser were Lessor under
this Lease, and Lessee agrees to attorney to the Purchaser, including the
mortgagee under any such mortgage if it be the Purchasers as its Lessor, the
attornment to be effective and self-operative without the execution of any
further instruments upon the Purchaser succeeding to the interest of Lessor
under this Lease. The respective rights and obligations of Lessee and the
Purchaser upon the attornment, to the extent of the then remaining balance of
the term of this Lease,. and any extensions and renewals, shall be and are the
same as those set forth in this Lease.
29. LIABILITY OF LESSOR: SALE BY LESSOR- Lessee shall look solely to
Lessor's interest in the building and land upon which the Leased Premises is
situated, for recovery of any judgment against Lessor. A sale, conveyance, or
assignment of Lessor's interest in the Leased Premises shall operate to release
Lessor from all the covenants, terms, and conditions of this Lease, expressed or
implied, and Lessee agrees to look solely to the successor in interest of the
Lessor for the performance of such obligations.
30. ESTOPPEL CERTIFICATES: Lessee agrees to furnish promptly, from time to
time, upon request of Lessor or Lessor's mortgagee, a statement certifying that
Lessee is in possession of the Leased Premises; the Leased Premises are
acceptable; the Lease is in full force and effect; the Lease is unmodified;
Lessee claims no present charge, hen, or claim of offset against rent; the rent
is paid for the current month, but is not paid and will not be paid for more
than one month in advance; there is no existing default by reason of some act or
omission by Lessor; and such other matters as may be reasonable required by
Lessor or Lessor's mortgagee.
31. SUCCESSORS: This Lease shall be binding upon and inure to the benefit
of Lessor and Lessee and their respective heirs, personal representatives,
successors and assigns. It is hereby covenanted and agreed that should Lessor's
interest in the Leased Premises cease to exist for any reason during the term of
the Lease then notwithstanding the happening of such event this Lease
nevertheless shall remain unimpaired and in full force and effect and Lessee
hereunder agrees to attorney to the then owner of the Leased Premises.
32. RENT TAX: If applicable in the jurisdiction where the Leased Premises
are situated, Lessee shall pay and be liable for all rental, sales and use taxes
or other similar taxes, if any, levied or imposed by any city, state, county or
other governmental body having authority, such payments to be in addition to all
other payments required to be paid to Lessor by Lessee under the terms of this
Lease. Any such payment shall be paid concurrently with the payment of the rent
upon which the tax is based as set forth above.
33. NOTICE: a. All rent and other payments required to be made by Lessee
shall be payable to Lessor at the address set forth below, or any other address
Lessor may specify from time to time by written notice delivered to Lessee.
a. All payments required to be made by Lessor to Lessee shall be payable to
Lessee at the address set forth below, or at any other address within the United
States as Lessee may specify from time to time by written notice.
b. Any notice or document required or permitted to be delivered by this
Lease shall be deemed to be delivered (whether or not actually received) when
deposited in the United States Mail, postage Prepaid certified or registered
mail, return receipt requested, addressed to the parties at the respective
addresses (Legal Address) set out at the end of the main body of this Lease.
34. DEFINITIONS: These definitions apply to the terms defined as those
terms used throughout this Lease.
a. "Abandon" means the vacating of all or a substantial portion of the
Leased Premises by Lessee, whether or not Lessee is in default of the rental
payments due under this Lease.
b. An "act of God" or "force majeure" is defined for purpose of this Lease
as strikes, lockouts, sit-downs, material or labor restrictions by any
governmental authority, riots, floods-, washouts, explosions, earthquakes, fire,
storms, acts of the public enemy, wars, insurrections and
<PAGE>
any other cause not reasonable within the control of Lessor and which by the
exercise of due diligence Lessor is unable, wholly or in part, to prevent or
overcome.
c. The "commencement date" shall be the date set forth in paragraph 2. The
"commencement date" shall constitute the commencement of this Lease Agreement
for all purposes, whether or not Lessee has actually taken possession.
d. "Real property tax" means all city, state and county taxes and
assessments including special district taxes or assessments.
e. The captions appearing in this Lease are inserted only as a matter of
convenience and in no way define, limit, construe or describe the scope or
intent of such paragraph.
35. ACCEPTANCE OF LEASED PREMISES: Lessee acknowledges that it has
inspected the Leased Premises and accepts the same and the improvements erected
thereon in their present condition as suitable for the purpose for which the
same are leased.
36. SEVERABILITY: Should any part or provision of this Lease or the
application thereof to any person or circumstance be invalid or unenforceable to
any extent, the remainder of this Lease and the application of such provisions
to other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
37. CORPORATE AUTHORITY: If Lessee executes this Lease as a corporation,
the person or persons executing this Lease on behalf of Lessee do hereby
personally represent and warrant that Lessee is a duly authorized and existing
corporation and the Lessee is qualified to do business in the state in which the
Leased Premises are located. That the corporation has full.111 right and
authority to enter into this Lease, and that each person signing on behalf of
the corporation is authorized to do so. In the event any representation or
warranty is false, all persons who execute this Lease shall be liable,
individually, as Lessee.
38. ENTIRE AGREEMENT AND LIMITATION OF WARRANTIES: IT IS EXPRESSLY AGREED
BY LESSEE, AS A MATERIAL CONSIDERATION FOR THE EXECUTION OF THIS LEASE, THAT
THIS LEASE, WITH THE SPECIFIC REFERENCES TO WRITTEN EXTRINSIC DOCUMENTS, IS THE
ENTIRE AGREEMENT OF THE PARTIES, THAT THERE ARE, AND WERE, NO VERBAL
REPRESENTATIONS, WARRANTIES, UNDERSTANDINGS, STIPULATIONS, AGREEMENTS OR
PROMISES AND OR IMPLICATIONS BY WAY OF LESSORS ACTIONS OR LACK THEREOF
PERTAINING TO THIS LEASE OR THE EXPRESSLY MENTIONED WRITTEN EXTRINSIC DOCUMENTS
NOT INCORPORATED IN WRITING IN TIES LEASE. LESSOR AND LESSEE EXPRESSLY AGREE
THAT THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS OR
OF ANY OTHER KIND ARISING OUT OF THIS LEASE. IT IS LIKEWISE AGREED THAT THIS
LEASE MAY NOT BE ALTERED. WAIVED, AMENDED OR EXTENDED EXCEPT BY AN INSTRUMENT IN
WRITING SIGNED BY BOTH LESSOR AND LESSEE.
39. PLACE OF PERFORMANCE: Any legal suit arising from or relating to this
Lease shall be brought in Collin County in the state of Texas except eviction
proceedings which shall take place in the county where the Leased Premises lies.
40. SPECIAL PROVISIONS: Lessor agrees to warrant the Heating and air
conditioning system for a period of 90 days commencing 1997'and Ending -11 ,
1997., which shall not include routine maintenance,or damage to HVAC as a
result of neglect or vandalism. In slireff2 for Lessor to make repairs under
this warranty, Lessor must offer and perform the repairs. Lessor agrees to
respond to a request for repair within a reasonable period of request, which
shall mean inspection and commencement of repairs within two (2) business-days
of request received.
Lessee acknowledges that parking is limited to 10 spaces immediately in
front and back of the leased premises. Other parking may take place on a not to
interfere basis with other tenants elsewhere in the complex. Of parking becomes
excessive, Lessee will be required to lease parking from adjacent properties.
<PAGE>
Executed the 9th day of October, 1997.
LESSOR: LESSEE:
DSW Property Management Lanstar Systems Technology, Inc.
A subsidiary of Lanstar Semiconductor Inc.
A General Partnership a (Business Type Corporation)
By: by:
------------------------ ---------------------------
Signature Signature
Harold Sickler, Owner/Managing Steve Porter, Vice President
Partner
(Name/Title) (Name/Title)
Ph# (O) (214) 248-1091 Ph# (O)
(H) (214) 790-9733 (H)
LESSOR'S LESSEE'S
LEGAL ADDRESS LEGAL ADDRESS
6825 LEVELLAND DR., SUITE 3A 801 STADIUM DR., SUITE 103
DALLAS, TX 75252 ARLINGTON, TX 76011
<PAGE>
Exhibit 10.14
LANSTAR SEMICONDUCTOR INC.
1997 STOCK OPTION PLAN
This Lanstar Semiconductor Inc. 1997 Stock Option Plan (hereinafter called
the "Plan") was adopted by the Board of Directors of Lanstar Semiconductor Inc.,
----
a Utah corporation (hereinafter called the "Company"), on November 21, 1997.
-------
The date of approval of the Plan (hereinafter called the "Date of Approval") is
----------------
fixed at November 21, 1997. The Plan will be submitted to the Shareholders of
the Company for approval within one (1) year of the Date of Approval.
(1) PURPOSE AND SCOPE. The purposes of this Plan are to encourage stock
-----------------
ownership by employees of the Company and its subsidiaries, to provide an
incentive for such employees to expand and improve the profits of the Company
and its subsidiaries, and to assist the Company and its subsidiaries in
attracting and retaining key personnel through the grant of incentive stock
options and nonqualified stock options to purchase shares of the Company's
common stock.
(2) DEFINITIONS. For purposes of this Plan, the following terms shall
-----------
have the following meanings:
(A) "Board" shall mean the Board of Directors of the Company.
-----
(B) "Committee" shall mean the Compensation Committee, which shall be
---------
appointed by the Board.
(C) "Company" shall mean Lanstar Semiconductor Inc., a Utah
-------
corporation.
(D) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
LANSTAR SEMICONDUCTOR INC.
- --------------------------
1997 STOCK OPTION PLAN - Page 1 of 11 Pages
- ----------------------
<PAGE>
(E) "ISO" shall mean an incentive stock option within the meaning of
---
Section 422 of the Code to purchase Stock, granted pursuant to
this Plan.
(F) "NQSO" shall mean a nonqualified stock option to purchase Stock,
----
granted pursuant to this Plan.
(G) "Option Price" shall mean the purchase price for Stock pursuant
------------
to a Stock Option as determined in Section (6) of this Plan.
(H) "Participant" shall mean an employee of the Company, or of any
-----------
subsidiary of the Company, to whom a Stock Option is granted
under this Plan.
(I) "Plan" shall mean this Lanstar Semiconductor Inc. 1997 Stock
----
Option Plan.
(J) "Stock" shall mean the common stock of the Company, par value
-----
One-Tenth of One Cent (1 mil) per share.
(K) "Stock Option" shall mean an ISO or NQSO.
------------
(3) STOCK TO BE OPTIONED; DESIGNATION OF INCENTIVE STOCK OPTIONS. Subject
------------------------------------------------------------
to the provisions of Section (10) of this Plan, the maximum number of shares of
Stock that may be optioned or sold under this Plan is Seven Million Five Hundred
Thousand (7,500,000) shares, all of which may be designated as ISOs. The shares
shall be either treasury or authorized but unissued shares of Stock of the
Company. Options or portions of options granted under this Plan to employees
may, in the discretion of the Committee, be designated as ISOs or as NQSOs. In
addition to any other term or provision of this Plan applicable to an ISO, any
option designated as an ISO shall also be
LANSTAR SEMICONDUCTOR INC.
- --------------------------
1997 STOCK OPTION PLAN - Page 2 of 11 Pages
- ----------------------
<PAGE>
subject to the condition that the aggregate fair market value (determined at the
time the options are granted) of the Company's Common Stock with respect to
which incentive stock options are exercisable for the first time by any
individual employee during any calendar year (under this Plan and all other
similar plans of the Company and its subsidiaries hereafter adopted) shall not
exceed One Hundred Thousand Dollars ($100,000.00).
(4) ADMINISTRATION. This Plan shall be administered by the Committee or,
--------------
in the absence of a Committee, by the Board. The Committee shall be responsible
to the Board for the operation of this Plan, and shall make recommendations to
the Board with respect to participation in this Plan by employees of the Company
and its subsidiaries, and with respect to the terms, limitations, restrictions,
conditions and extent of that participation. The interpretation and
construction of any provision of this Plan by the Committee shall be final,
unless otherwise determined by the Board. No member of the Board or the
Committee shall be liable for any action or determination made by that member in
good faith relating to the Plan or any award thereunder.
(5) ELIGIBILITY. The Board, upon recommendation of the Committee or upon
-----------
its own action, may grant Stock Options to any employee (including an employee
who is also a Director or an Officer) of the Company or its subsidiaries. The
Board shall designate the Stock Options as ISOs or NQSOs. In making its
selection and in determining the amount of awards to recommend, the Committee
may consider any factors it deems relevant including the individual's functions,
responsibilities, value of services to the Company and past and potential
contri-
LANSTAR SEMICONDUCTOR INC.
- --------------------------
1997 STOCK OPTION PLAN - Page 3 of 11 Pages
- ----------------------
<PAGE>
butions to the Company's profitability and growth. Stock Options may be awarded
by the Board at any time and from time to time to new Participants, or to then
Participants, or to a greater or lesser number of Participants, and may include
or exclude previous Participants, as the Board shall determine in its sole
discretion. Except as required by this Plan, Stock Options granted at different
times need not contain similar provisions. The Committee's determinations under
the Plan (including without limitation determinations of the employees to
receive awards, the form, amount and timing of such awards, the terms and
provisions of such awards and the agreements evidencing same) need not be
uniform and may be made by it selectively among employees who receive, or are
eligible to receive, awards under the Plan, whether or not those employees are
similarly situated.
(6) OPTION PRICE FOR ISOs AND NQSOs. For any Participant who is not deemed
-------------------------------
to be a Ten Percent (10%) Shareholder under the rules applicable to ISOs under
422 of the Code (a "10% Shareholder"), the Option Price for each share to be
---------------
acquired pursuant to an ISO shall be One Hundred Percent (100%) of the fair
market value of the share as determined by the Board of the Common Stock on the
date the ISO is granted. For any Participant who is deemed to be a 10%
Shareholder under the rules applicable to ISOs under Section 422 of the Code,
the Option Price for each share to be acquired pursuant to an ISO shall be One
Hundred Ten Percent (110%) of the fair market value of the share. The Option
Price for any NQSO shall be as determined by the Board of the Common Stock on
the date the NQSO is granted. In addition, the Board shall include in any NQSO
granted pursuant to this Plan a condi-
LANSTAR SEMICONDUCTOR INC.
- --------------------------
1997 STOCK OPTION PLAN - Page 4 of 11 Pages
- ----------------------
<PAGE>
tion that, upon exercise of the NQSO and prior to the issuance of any stock
certificate to the Participant, the Participant shall remit to the Company the
amount of any federal, state or local employment taxes required to be withheld
upon exercise of the NQSO. The Participant may (i) make a direct payment to the
Company to satisfy this obligation, (ii) increase withholding on his cash
compensation on the date the NQSO is exercised, and/or (iii) use the procedure
described in the following provisions of this Subsection (6). One (1) month
prior to exercise of a NQSO, the Participant may deliver a notice of withholding
election to the Company. The notice shall state that the Company is to (i)
calculate the amount of withholding tax due as if all shares for which a NQSO is
to be exercised were delivered, (ii) reduce that number of shares made available
for delivery so that the fair market value of the shares withheld on the
exercise date approximates the Company's withholding tax obligation, and (iii)
pay the cash to the Internal Revenue Service and other applicable taxing
authorities on the Participant's behalf instead.
(7) TERMS AND CONDITIONS OF OPTIONS. Stock Options granted pursuant to
-------------------------------
this Plan shall be authorized by the Board and shall be evidenced by a written
Stock Option Agreement or Agreements in such form as the Board, upon
recommendation of the Committee, shall from time to time approve. Any Stock
Option granted pursuant to this Plan must be granted within ten (10) years of
the earlier of the date of adoption of this Plan or the approval of this Plan by
the Company's Shareholders. Such agreements shall comply with and be subject to
the following terms and conditions:
LANSTAR SEMICONDUCTOR INC.
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1997 STOCK OPTION PLAN - Page 5 of 11 Pages
- ----------------------
<PAGE>
(A) DEATH OF PARTICIPANT.
--------------------
(i) Notwithstanding Section 7(B) of this Plan, upon the death of
the Participant, any Stock Option exercisable on the date of
death may be exercised by the Participant's estate or by a
person who acquires the right to exercise such Stock Option
by bequest or inheritance or by reason of the death of the
Participant, provided that such exercise occurs within both
the remaining option term of the Stock Option and within
twelve (12) months after the Participant's death.
(ii) The provisions of this Subsection (7)(A) shall apply
notwithstanding the fact that the Participant's employment
may have terminated prior to death, and if the Stock Option
remains exercisable but only to the extent of any Stock
Options exercisable on the date of death.
(B) DISABILITY. Upon the termination of the Participant's employment
----------
by reason of permanent disability (as determined by the Board),
the Participant may, within twelve (12) months from the date of
such termination of employment, exercise any Stock Options to the
extent such Stock Options were exercisable at the date of such
termination of employment due to disability.
(C) TERMINATION FOR OTHER REASONS. Except as provided in Sections
-----------------------------
(7)(A) and (7)(B) or except as otherwise determined by the Board,
all Stock Options shall automatically terminate upon the
termination of the Participant's employment.
(D) TIME AND METHOD OF PAYMENT. The Option Price and any other
--------------------------
amounts payable upon exercise of a Stock Option shall be paid
in full in cash at the time a Stock Option is exercised under
this Plan. Otherwise, an exercise of any
LANSTAR SEMICONDUCTOR INC.
- --------------------------
1997 STOCK OPTION PLAN - Page 6 of 11 Pages
- ----------------------
<PAGE>
Stock Option granted under this Plan shall be invalid and of no
effect. Promptly after the exercise of a Stock Option and the
payment of the Option Price and any other required amounts, the
Participant shall be entitled to the issuance of a stock
certificate evidencing his ownership of such Stock. A Participant
shall have none of the rights of a shareholder until certificates
for shares are issued to him, and no adjustment will be made for
dividends or other rights for which the record date is prior to
the date such stock certificate is issued.
(E) NUMBER OF SHARES. Each Stock Option Agreement shall state the
----------------
total number of shares of Stock to which it pertains.
(F) GENERAL OPTION PERIOD AND LIMITATIONS ON EXERCISE OF OPTIONS.
------------------------------------------------------------
Subject to the provisions of Section (3) of this Plan, the Board
may, in its discretion, provide that a Stock Option may not be
exercised in whole or in part for any period or periods of time
or beyond any date specified in the Stock Option Agreement.
Except as provided in the Stock Option Agreement, a Stock Option
may be exercised in whole or in part at any time during its term.
Notwithstanding any other provision of this Plan, an ISO granted
to a Participant who is not deemed to be a 10% Shareholder may
not be exercised after the expiration of ten (10) years from the
date it is granted. Notwithstanding any other provision of this
Plan, no ISO granted to a Participant who is deemed to be a 10%
Shareholder may be exercised after the expiration of five (5)
years from the date it is granted. No Stock Option may be
exercised for a fractional share of Stock.
(8) NO OBLIGATION TO EXERCISE STOCK OPTION. The granting of a Stock Option
--------------------------------------
shall impose no obligation upon the Participant to exercise that Stock Option.
LANSTAR SEMICONDUCTOR INC.
- --------------------------
1997 STOCK OPTION PLAN - Page 7 of 11 Pages
- ----------------------
<PAGE>
(9) NONASSIGNABILITY. Stock Options shall not be transferable other than
----------------
by will or by the laws of descent and distribution, and during a Participant's
lifetime shall be exercisable only by such Participant.
(10) EFFECT OF CHANGE IN STOCK SUBJECT TO THIS PLAN. The aggregate number
----------------------------------------------
of shares of Stock available for Stock Options under this Plan, the shares
subject to any Stock Option and the price per share shall each be
proportionately adjusted for any increase or decrease in the number of issued
shares of Stock subsequent to the effective date of this Plan resulting from (1)
a subdivision or consolidation of shares or any other capital adjustment, (2)
the payment of a Stock dividend, or (3) other increase or decrease in such
shares effected without receipt of consideration by the Company. If the Company
shall be the surviving corporation in any merger or consolidation, any Stock
Option shall pertain, apply and relate to the securities to which a holder of
the number of shares of Stock subject to the Stock Option would have been
entitled after the merger or consolidation. Upon dissolution or liquidation of
the Company, or upon a merger or consolidation in which the Company is not the
surviving corporation, all Stock Options outstanding under this Plan shall
terminate; provided, however, that each Participant (and each other person
entitled to exercise a Stock Option) shall have the right, immediately prior to
such dissolution or liquidation, or such merger or consolidation, to exercise
such Participant's Stock Options in whole or in part, but only to the extent
that such Stock Options are otherwise exercisable under the terms of this Plan.
LANSTAR SEMICONDUCTOR INC.
- --------------------------
1997 STOCK OPTION PLAN - Page 8 of 11 Pages
- ----------------------
<PAGE>
(11) AGREEMENT AND REPRESENTATION OF EMPLOYEES. As a condition to the
-----------------------------------------
exercise of any portion of a Stock Option, the Company may require the person
exercising such Stock Option to represent and warrant at the time of such
exercise that any shares of Stock acquired at exercise are being acquired only
for investment and without any present intention to sell or distribute such
shares, if, in the opinion of counsel for the Company, such representation is
required under the Securities Act of 1933, as amended, the Securities Exchange
Act of 1934, as amended, or any other applicable law, regulation or rule of any
governmental agency.
(12) RESERVATION OF SHARES OF STOCK. The Company, during the term of this
------------------------------
Plan, will at all times reserve and keep available the number of shares of Stock
that shall be sufficient to satisfy the requirements of this Plan.
(13) EFFECTIVE DATE OF PLAN. The Plan shall be effective from the date
----------------------
that this Plan is approved by the Board.
(14) TAX REPORTING FOR ISO EXERCISE. The Company or a subsidiary of the
------------------------------
Company, as appropriate, shall furnish a statement to any Participant exercising
an ISO on or before January 31 of the calendar year following the calendar year
in which an ISO exercise occurs in compliance with Section 6039(a) of the Code.
The statement shall contain the following information:
(A) The employer corporation's name, address and taxpayer
identification number;
(B) The name, address and taxpayer identification number of the
person to whom the ISO shares are transferred;
(C) The name and address of the Company;
LANSTAR SEMICONDUCTOR INC.
- ---------------------------
1997 STOCK OPTION PLAN - Page 9 of 11 Pages
- ----------------------
<PAGE>
(D) The date the ISO was granted;
(E) The date the shares were transferred pursuant to the exercise of
the ISO;
(F) The fair market value of the Stock on date of exercise;
(G) The number of shares transferred upon exercise of the ISO;
(H) A statement that the ISO was an ISO; and
(I) The total cost of the shares.
(15) RIGHTS OF EMPLOYEES. No person shall have any rights or claims under
-------------------
the Plan except in accordance with the provisions of the Plan. Nothing
contained in the Plan shall be deemed to give any employee the right to be
retained in the service of the Company or its subsidiaries.
(16) USE OF PROCEEDS. Proceeds from the sale of shares pursuant to Stock
---------------
Options granted under this Plan shall constitute general funds of the Company.
(17) AMENDMENTS. The Board of Directors may discontinue the Plan and the
----------
Committee may amend the Plan from time to time, but no amendment, alteration or
discontinuation shall be made which, without the approval of the stockholders,
would:
(A) Except as provided in Section (10) of the Plan, increase the
total number of shares reserved for the purposes of the Plan;
(B) Decrease the Option Price of an ISO to less than the amounts
shown in Section (6) of the Plan; or
LANSTAR SEMICONDUCTOR INC.
- --------------------------
1997 STOCK OPTION PLAN - Page 10 of 11 Pages
- ----------------------
<PAGE>
(C) Extend the duration of the Plan.
Except as provided in Section (10) of the Plan, neither shall any
amendment, alteration or discontinuation impair the rights of any holder of a
Stock Option theretofore granted without his consent; provided, however, that if
the Committee after consulting with management of the Company determines that
application of an accounting standard in compliance with any statement issued by
the Financial Accounting Standards Board concerning the treatment of employee
stock options would have a significant adverse effect on the Company's financial
statements because of the fact that Stock Options granted before the issuance of
such statement are then outstanding, then the Committee in its absolute
discretion may cancel and revoke all outstanding Stock Options to which such
adverse effect is attributed and the holders of those Stock Options shall have
no further rights in respect thereof. Such cancellation and revocation shall be
effective upon written notice by the Committee to the holders of such Stock
Options.
LANSTAR SEMICONDUCTOR INC.
- --------------------------
1997 STOCK OPTION PLAN - Page 11 of 11 Pages
- ----------------------
<PAGE>
Exhibit 21
ITEM 21. SUBSIDIARIES OF LSI
Lanstar Computer Products, Inc. Texas
Lanstar Hong Kong Limited Hong Kong
Lanstar Semiconductor Corporation Texas
Lanstar Systems Technology, Inc. Texas
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Form 10 to be filed by Lanstar Semiconductor Inc.
of the following reports which are described below:
<TABLE>
<CAPTION>
Description of Report Date of Report
--------------------- --------------
<S> <C>
Audit of consolidated and combined financial statements
of Lanstar Semiconductor Inc. and Subsidiaries and
Lanstar Computer Corporation and Subsidiary as of
December 31, 1996 and 1995 October 2, 1997
Audit of consolidated financial statements of MG TK
Corp. and Subsidiary as of December 31, 1996 and 1995 October 2, 1997
Audit of pro forma consolidated and combined
(condensed) financial statements of Lanstar Semiconductor
Inc. and Subsidiaries and Lanstar Computer Corporation
and Subsidiary as of December 31, 1996 October 2, 1997
Review of consolidated and combined financial statements
of Lanstar Semiconductor Inc. and Subsidiaries and
Lanstar Computer Corporation and Subsidiary as of June
30, 1997 and 1996 October 15, 1997
Review of consolidated and combined financial statements
of Lanstar Semiconductor Inc. and Subsidiaries and
Lanstar Computer Corporation and Subsidiary as of
September 30, 1997 and 1996 October 24, 1997
Review of pro forma consolidated and combined
(condensed) financial statements of Lanstar Semiconductor
Inc. and Subsidiaries and Lanstar Computer Corporation
and Subsidiary as of June 30, 1997 and 1996 October 15, 1997
Review of pro forma consolidated and combined
(condensed) financial statements of Lanstar Semiconductor
Inc. and Subsidiaries and Lanstar Computer Corporation
and Subsidiary as of September 30, 1997 and 1996 October 24, 1997
</TABLE>
S/CHESHIER & FULLER, L.L.P.
CHESHIER & FULLER, L.L.P.
Dallas, Texas
October 24, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 09/30/97
REVIEWED FINANCIALS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> SEP-30-1997 SEP-30-1996
<CASH> 434,279 382,125
<SECURITIES> 0 530,093
<RECEIVABLES> 233,658 2,557,938
<ALLOWANCES> 503,970 105,607
<INVENTORY> 1,706,735 668,768
<CURRENT-ASSETS> 7,089,771 7,019,770
<PP&E> 905,977 672,528
<DEPRECIATION> 331,789 179,999
<TOTAL-ASSETS> 7,785,369 7,628,709
<CURRENT-LIABILITIES> 1,253,085 1,850,821
<BONDS> 0 47,000
0 0
0 0
<COMMON> 6,532,284 5,027,888
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 7,785,369 7,628,709
<SALES> 48,101,204 57,256,245
<TOTAL-REVENUES> 48,101,204 57,256,245
<CGS> 43,597,504 53,055,506
<TOTAL-COSTS> 43,597,504 53,055,506
<OTHER-EXPENSES> 5,335,974 4,774,026
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (55,971) (1,383)
<INCOME-PRETAX> (869,150) (574,670)
<INCOME-TAX> 0 (212,122)
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (869,150) (786,792)
<EPS-PRIMARY> (0.02) (0.02)
<EPS-DILUTED> (0.02) (0.02)
</TABLE>
<PAGE>
Exhibit 99.1
August 27, 1997
Dear Shareholders:
The purpose of this letter is to advise you of a Special Meeting of
Shareholders to be held on Tuesday, September 9, 1997, at 10:00 a.m. in our
corporate offices. The purpose of this Special Meeting of Shareholders is to
authorize an amendment to increase the number of authorized shares of common
stock from 50,000,000 to 250,000,000 shares. As discussed in more detail in the
enclosed Proxy Statement, the purpose of the increase in authorized shares is to
provide for, among other things, flexibility for management of Lanstar
Semiconductor Inc. (the "Company") to raise additional capital in the future, as
well as to be used in connection with possible acquisitions of other companies.
As discussed in more detail in the Proxy Statement, the increase in the number
of authorized shares is also necessary to cover the potential exercise of
outstanding Warrants, as well as options issued to certain employees.
This letter shall also serve as an update on our progress relating to the
Company's Form 10 and audited financial statements. We anticipate filing with
the Securities and Exchange Commission a Form 10 prior to the end of September
1997. In addition, management anticipates holding a meeting of Shareholders in
the spring of 1998.
We look forward to seeing you at the Special Meeting of Shareholders.
Please feel free to contact me or Gerald Brunton if you have any questions.
Very truly yours,
Maxie R. Smith
Chairman and President
Enclosures
<PAGE>
LANSTAR SEMICONDUCTOR INC.
2501 AVENUE J - SUITE 125
ARLINGTON, TEXAS 76006
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS - SEPTEMBER 9, 1997
This Proxy Statement and the accompanying Notice of Special Meeting of
Shareholders and proxy are being furnished to shareholders of Lanstar
Semiconductor Inc. (the "Company") in connection with the solicitation by the
Board of Directors of proxies to be voted at the Special Meeting of
Shareholders. These proxy materials are being furnished on or about August 27,
1997, to all shareholders of record as of August 27, 1997.
The matter to be presented to the Company's shareholders at the Special
Meeting is a proposal to amend the Articles of Incorporation to increase the
number of authorized shares from 50,000,000 to 250,000,000. Approval of the
proposal requires the affirmative vote of a majority of the votes cast with a
quorum present. Only holders of record of shares of Common Stock on August 27,
1997, will be entitled to vote at the meeting, and each share will have one
vote. At the close of business on August 27, 1997, there were 48,763,269 shares
of the Common Stock of the Company outstanding and entitled to vote at the
meeting. Abstentions and broker non-votes do not affect the majority vote
required for approval of the proposal.
The expense of printing and mailing proxy materials will be borne by
the Company. The solicitation of proxies will generally be by mail. In some
instances, solicitations may be made by telephone or facsimile, the costs of
which will be borne by the Company. The Company may also reimburse brokers,
custodians, nominees and other fiduciaries for reasonable out-of-pocket and
clerical expenses in forwarding proxy materials to their principals.
A shareholder who has given a proxy has the power to revoke the proxy
at any time before it is exercised. Such right of revocation is not limited by
or subject to compliance with any formal procedure.
PROPOSAL TO INCREASE
AUTHORIZED SHARES OF COMMON STOCK
TO AMEND ARTICLE IV OF THE ARTICLES OF INCORPORATION OF THE COMPANY TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK, ONE-TENTH OF ONE CENT
(1 MIL) PAR VALUE, FROM 50,000,000 TO 250,000,000 SHARES.
On August 26, 1997, the Board of Directors unanimously adopted a
resolution proposing that the number of authorized shares of Common Stock be
increased from 50,000,000 to 250,000,000 (the "Proposal"). As of August 27,
1997, the Company had issued and outstanding 48,763,269 shares of Common Stock.
The Proposal to increase the authorized number of shares is
PROXY STATEMENT - Page 1 of 5 Pages
- ---------------
<PAGE>
submitted so as to provide a source of financing: (1) in order to cover the
previous issuance by the Company of Warrants to purchase 17,000,000 shares of
Common Stock; (2) for use in future equity; (3) for use in connection with any
possible future acquisitions of companies or entities; and (4) for use in
connection with stock option plans to be implemented by the Company for the
benefit of employees.
During 1996 and 1997, the Company successfully raised working capital
in the form of $2,250,000 of Convertible Subordinated Debentures (collectively,
the "Debentures"). The Debentures were sold in accordance with the requirements
of Regulation S which regulates the offer and sale of securities to non-U.S.
persons. During 1996 and 1997, the Debenture holders executed their rights of
conversion and purchased 9,000,000 shares of Common Stock and Warrants to
purchase up to 17,000,000 shares of Common Stock over a three-year period at
$1.50 per share for $25,500,000. Certain key employees have outstanding options
to purchase up to 1,300,000 shares of Common Stock. The proposed increase in
authorized shares of Common Stock will provide the Company with the needed
shares of Common Stock, in the event that the Warrants and options are
exercised.
While management has no current plans to raise additional equity, the
increase in the number of authorized shares will enable the Company to raise
additional working capital in the future. In addition, the increase in
authorized shares will enable the Company to evaluate and negotiate potential
business combinations or acquisitions of assets which, if accomplished, might
enhance shareholder value.
Except for the Proposal as contemplated and discussed above, the
Company has no specific plans or proposals for the use of the additional shares,
the authorization of which is sought hereby.
The affirmative vote of the holders of record of a majority of the
outstanding shares of stock entitled to vote thereon is necessary to adopt the
proposed amendment to Article IV. The Board of Directors has unanimously
recommended that the Shareholders approve that amendment to the Articles.
If the Proposal is adopted, the amended portion of Article IV of the
Articles will read as follows:
PROXY STATEMENT - Page 2 of 5 Pages
- ---------------
<PAGE>
ARTICLE IV
CAPITALIZATION. THE CORPORATION SHALL HAVE THE AUTHORITY TO
--------------
ISSUE 250,000,000 SHARES OF STOCK EACH HAVING A PAR VALUE OF ONE-TENTH
OF ONE CENT (1 MIL). ALL STOCK OF THE CORPORATION SHALL BE OF THE SAME
CLASS AND SHALL HAVE THE SAME RIGHTS AND PREFERENCES. FULLY-PAID STOCK
OF THE CORPORATION SHALL NOT BE LIABLE FOR FURTHER CALL OR ASSESSMENT.
THE AUTHORIZED TRADING SHARES SHALL BE ISSUED AT THE DISCRETION OF THE
DIRECTORS.
STOCK OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT
The Directors and Executive Officers of the Company and its operating
subsidiaries are as follows:
Maxie R. Smith Chairman, Chief Executive Officer and President
of Lanstar Semiconductor Inc.
Steven Porter Director, Vice President of Marketing and Sales
of Lanstar Semiconductor Corporation
Gerald F. Brunton Director, Vice President of Finance and Chief
Financial Officer of Lanstar Semiconductor Inc.
Ilya Drapkin Chairman and Chief Executive Officer of
Southwest Memory International, Inc.
Wilton Workman President of Lanstar Semiconductor Corporation
The following table shows the number of shares of the Company's Common
Stock beneficially owned by (i) each person known to the Company to beneficially
own more than 5% of the outstanding Common Stock, (ii) each director and (iii)
each executive officer. The Directors and Executive Officers as a group own or
control 6,527,000, which shares represent 13.4% of the total issued and
outstanding shares.
PROXY STATEMENT - Page 3 of 5 Pages
- ---------------
<PAGE>
Maxie R. Smith 4,127,000/(1)/
Steven Porter 200,000
Gerald F. Brunton 50,000/(2)/
Ilya Drapkin 2,000,000
Wilton Workman 150,000/(3)/
- --------------
(1) Mr. Smith owns 227,000 shares. In addition, Mr. Smith controls 3,900,000
shares through Jenalong Holdings, Ltd. of which he is the principal owner.
(2) In addition, Mr. Brunton will receive a bonus of 50,000 shares once the
Company's shares are trading and he has a one-year option to purchase an
additional 50,000 shares at $.25/share.
(3) In addition, Mr. Workman has an option to purchase 200,000 shares at
$.01/share.
<TABLE>
<CAPTION>
NAME OF 5% BENEFICIAL OWNER NUMBER OF SHARES
--------------------------- ----------------
<S> <C>
World Data Ltd. 13,621,666
Lewis D. Rowe(4) 4,900,000
Jenalong Holdings, Ltd. 3,900,000
Geninvest, S.A. 3,193,398
</TABLE>
(4) In connection with arranging financing for the Company, Mr. Lewis D. Rowe
is entitled to receive an additional 800,000 shares.
THE BOARD OF DIRECTORS URGES ALL SHAREHOLDERS, REGARDLESS OF THE NUMBER OF
SHARES HELD BY THEM, TO VOTE THEIR SHARES IN FAVOR OF THE PROPOSAL. THE BOARD OF
DIRECTORS BELIEVES, FOR THE REASONS SET FORTH ABOVE, THAT APPROVAL OF THE
PROPOSAL IS IN THE BEST INTEREST OF THE COMPANY. FAILURE TO APPROVE THE PROPOSAL
PROMPTLY WOULD ADVERSELY AFFECT THE COMPANY, SEVERELY LIMITING ITS ABILITY TO
OBTAIN ADDITIONAL CAPITAL RESOURCES THAT MUST BE OBTAINED TO PREVENT A DEFAULT
ON CERTAIN NOTES AND AVOID LOSS OF CORPORATE ASSETS.
PROXY STATEMENT - Page 4 of 5 Pages
- ---------------
<PAGE>
OTHER MATTERS
Management knows of no matters to be presented for action at the
meeting other than those described above. However, if any other matters properly
come before the meeting, it is intended that the persons named in the
accompanying form of proxy will vote on such matters in accordance with their
judgment of the best interest of the Company.
By Order of the Board of Directors
Maxie R. Smith
Chief Executive Officer and President
Arlington, Texas
August 27, 1997
PROXY STATEMENT - Page 5 of 5 Pages
- ---------------
<PAGE>
Exhibit 99.2
October 2, 1997
Dear Shareholders:
The purpose of this letter is to advise you of a sale of corporate assets
pursuant to Sections 16-10a-704 and 16-10a-1202 of the Utah Revised Business
Corporation Act. As discussed in more detail in the enclosed Notice, the sale
of corporate assets was negotiated by the Board of Directors of Lanstar
Semiconductor Inc. (the "Company") and approved by more than 70% of the
-------
outstanding shares entitled to vote.
I also want to update you on our progress relating to the Company's audited
financial statements and filing of a Form 10 with the Securities and Exchange
Commission. In the interest of advising you of the sale of corporate assets in
a timely manner, the Company has issued this Notice without financial
statements. However, the Company anticipates mailing a copy of the audited
financial statements as of December 31, 1996, and unaudited interim financial
statements as of June 30, 1997, to the Shareholders no later than the week of
October 20, 1997. The Company should file the Form 10 in early November, 1997.
Please call me or Gerald F. Brunton if you have questions concerning these
matters.
Very truly yours,
Maxie R. Smith
Chairman and President
Enclosure
ws3\3709
<PAGE>
LANSTAR SEMICONDUCTOR INC.
NOTICE OF SHAREHOLDER ACTION UPON
CONSENT OF A MAJORITY
VOTE OF THE SHAREHOLDERS
TO THE SHAREHOLDERS OF LANSTAR SEMICONDUCTOR INC. (the "Corporation"):
-----------
NOTICE IS HEREBY GIVEN pursuant to Sect. 16-10a-704(2)(a) of the Utah
Revised Business Corporation Act that the following proposal:
To sell 100% of the issued and outstanding shares of common stock of
Southwest Memory International, Inc. ("SMI") to World Data Limited, a
---
Cayman Islands corporation,
was recommended by the Board of Directors and approved without a Shareholders'
meeting by the written consent of the holders of more than 70% of the
outstanding shares of the Corporation, which is greater than the minimum number
of votes that would be necessary to take the action if it had been taken at a
Shareholders' meeting where the holders of all shares entitled to vote on the
action were present and voted.
The recommendation of the Board of Directors is founded on the following:
(1) The Corporation purchased SMI in November, 1996, from World Data
Limited in exchange for shares of the Corporation.
(2) The Corporation retained SMI's previous management after the
purchase in order to secure a smooth transition of management and
to retain the advantage of its expertise and experience in
operating SMI.
(3) To prepare for filing of the Form 10, management has conducted
audits and other due diligence efforts. In the course of these
ongoing due diligence efforts, management has discovered
differences of opinion relating to operating methods and
financial reporting which, in the opinion of management, cannot
be reconciled.
-1-
<PAGE>
(4) The Board of Directors determined that the best interests of the
Corporation would be served by the resale of SMI to the
organization from which it was purchased.
(5) As a result of the transaction, the Corporation has received or
will receive the following:
(A) 25,555,000 shares of the Corporation's stock;
(B) A Promissory Note in the amount of $500,000.00;
(C) $250,000.00 in cash;
(D) Memory inventory valued at $250,000.00;
(E) A line of credit with SMI to purchase inventory in the
amount of $500,000.00 on a net 30 day basis at a cost per
unit not to exceed 5% gross profit margin over SMI's actual
purchase price;
(F) Various representations, warranties and indemnities for
liabilities arising out of SMI's management's decisions; and
(G) Continuous access to books and records of SMI for the
limited purpose of filing the Corporation's financial
statements.
(6) As a result of the transaction, World Data Limited will receive
100% of the issued and outstanding shares of stock of SMI. SMI
will receive a Warrant to purchase up to 18,000,000 shares of
stock of the Corporation expiring at the end of 3 years with an
exercise price of $1.50 per share.
-2-
<PAGE>
The written consents of the requisite number of shares required to
authorize the action described above were received by the Corporation on October
2, 1997. The transaction will close on October 13, 1997.
Dated: October 2, 1997. Lanstar Semiconductor Inc.
By:
--------------------------------
Maxie R. Smith
Chief Executive Officer and
Chairman
-3-
