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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD
--------- TO
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COMMISSION FILE NUMBER: 0-18738
ZILOG, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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CALIFORNIA 13-3092996
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
210 EAST HACIENDA AVENUE, CAMPBELL, CA 95008
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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Registrant's telephone number, including area code: (408) 370-8000
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Securities registered pursuant to Section 12(b) of the Act:
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COMMON STOCK, NO PAR VALUE NEW YORK STOCK EXCHANGE
(TITLE OF CLASS) (NAME OF EACH EXCHANGE ON WHICH REGISTERED)
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes [X]
The aggregate market value of voting stock held by nonaffiliates of the
Registrant was approximately $342,587,578 as of February 21, 1997, based upon
the closing sale price for the Registrant's common stock reported for such date
on the New York Stock Exchange. Shares of common stock held by each officer and
director and related entities have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
At February 21, 1997, 20,150,466 shares of the Registrant's common stock
were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant is incorporating by reference into Parts II (Items 7 and 8)
and IV (Item 14) of this Form 10-K certain portions of the Registrant's 1996
Annual Report to Shareholders.
The Registrant is incorporating by reference into Part III (Items 10, 11
and 12) of this Form 10-K certain portions of the Registrant's definitive proxy
statement dated April 4, 1997 with respect to the Registrant's 1997 Annual
Meeting of Shareholders.
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TABLE OF CONTENTS
PART I
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Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Item 6. Selected Consolidated Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
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Private Securities Litigation Reform Act Safe Harbor Statement: When used in
this Report, the words "estimate," "project," "intend," and "expect" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to risks and uncertainties that could cause actual results to differ
materially. For a discussion of certain of such risks, see "Business -- Factors
That May Affect Future Results." Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. The Company undertakes no obligation to publicly release updates or
revisions to these statements.
Zilog is a registered trademark of Zilog, Inc.
Superintegration is a trademark of Zilog, Inc.
Pentium is a registered trademark of Intel Corporation
Motorola is a registered trademark of Motorola, Inc.
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PART I
ITEM 1. BUSINESS
EXECUTIVE SUMMARY
Zilog designs, develops, manufactures and markets application specific
standard integrated circuit products "ASSPs" for the datacommunications,
consumer product controller and intelligent peripheral controller markets. ASSPs
are very large scale integrated circuits which are designed for a particular
market application rather than a single customer. The Company utilizes its
proprietary Superintegration(TM) design technology to combine cores and cells
from the Company's extensive library of proprietary, customer familiar
microprocessor, microcontroller, digital signal processor, memory and logic
circuits to meet the design, cost and time to market requirements of its
customers.
Zilog has selected the datacommunications, consumer product controller and
intelligent peripheral controller markets because of its knowledge, experience,
customer relationships and proprietary core and cell designs in these areas.
Zilog's ASSPs address large markets. The Company works closely with industry
leaders in its selected markets to design innovative products. Through its
customer relationships, Zilog is better able to establish and maintain
technological leadership, attract additional customers in the same market and
create industry standards. The Company believes that it is well-positioned to
take advantage of the trends in its target market areas, which include the
networking of computers and peripherals, the increase in the complexity and
sophistication of consumer electronic products and the migration of intelligence
from the computer to its peripherals. The Company currently offers over more
than 700 product line items, (independent of ROM codes) sold in a wide selection
of package, speed grade and other options. The Company's customers include DSC
Communication, General Instrument, Hewlett-Packard, Hitachi, Lucent, Microsoft,
Motorola, Northern Telecom, NMB, Samsung, Seagate, Sony, Texas Instruments,
VeriFone and Zenith. In two of the past three years, no single customer
represented more than 8.5% of Zilog's net sales. During the period ending
December 31, 1996, Lucent represented 12.8% of sales or approximately
$38,000,000. The Company expects that in 1997 no one customer will represent
more than 10% of sales.
Zilog's strategy is to use its Superintegration library of proprietary core
and cell designs, which are optimized for particular applications in the
Company's target markets, to introduce new products on a timely basis. These
cores and cells are compatible with one another in Zilog's standard
manufacturing process. Zilog is therefore able to efficiently combine proven
cores and cells to rapidly deliver new products to its customers. Because
Zilog's core and cell library includes industry standard products, original
equipment manufacturers ("OEMs") who have designed their systems using one or
more of Zilog's products can be migrated to Superintegration solutions without
loss of software compatibility. If an end-use application requirement is not
satisfied by an existing Zilog product, the Superintegration design system
permits Zilog to compose new integrated circuits by interconnecting fully
characterized high transistor count cores and cells or by creating new cells,
thereby increasing performance and improving reliability over prior solutions.
The Company believes that the efficiency of its Superintegration design process,
coupled with Zilog's strategy of learning the requirements of an application to
create an industry standard product, will enable it to continue to develop
significant new products. By establishing partnerships with technology leaders
and important customers in the market, Zilog can often learn the technology of
the application and differentiate its products from those of its competitors.
Consistent with its strategy in its three target markets, Zilog introduced
40 and 40 and 48 major new products in 1994, 1995 and 1996 respectively. In
1996, the Company introduced 3 products for the datacommunications market, 37
products for the consumer product controller market and 8 products for the
intelligent peripheral controller market.
Unless the context otherwise requires, the terms "Zilog" and the "Company"
are used throughout this Report to refer to both the Company and its
subsidiaries. The Company's principal executive offices are located at 210 East
Hacienda Avenue, Campbell, California 95008, and the Company's telephone number
is (408) 370-8000.
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FACTORS THAT MAY AFFECT FUTURE RESULTS
A number of uncertainties exist that may affect the Company's future
operating results, including the following:
Factors Affecting Operating Results
The Company's business has been profitable for the past eight years.
However, the Company's operating results are affected by a wide variety of
factors which could adversely affect profitability. Historically, selling prices
of the Company's products have decreased over their respective product lives and
selling prices may decline in the future which could adversely affect the
Company's operating results. In addition, the Company's operating results are
subject to a number of variables which could have a material adverse effect on
the Company, including but not limited to, the Company's ability to introduce
new products and technologies on a timely basis, changes in product mix or
fluctuations in manufacturing yields which affect the Company's gross margins,
market acceptance of the Company's and customers' products, the level of orders
which are received and can be shipped in a quarter, customer order patterns and
seasonality, increases in freight costs and whether the Company's customers buy
from a distributor or directly from the Company. The Company's future operating
results will depend in part on economic conditions in the United States and the
worldwide markets that it serves. The Company's delivery times lengthened
throughout 1995. In 1996, delivery times returned to more normal levels. The
Company believes that an important competitive factor will be its ability to
continue to successfully increase production capacity to meet customer demand
and shorten delivery times. A prolonged failure of the Company to increase
production capacity or obtain wafers from outside suppliers as needed could
adversely affect the Company's operating results. During the fourth quarter of
1994, and throughout 1995, the Company experienced difficulty in obtaining
requested capacity from its outside foundry suppliers. Should the Company be
unable to obtain additional foundry capacity, the Company's ability to achieve
continued revenue growth may be restricted. Shortage of product could also
result in the loss of customers. During September 1995, the Company began
commercial production from its new facility in Nampa, Idaho. Production from
this facility increased in accordance with plan in 1996. Presently the Company
has excess capacity. Certain of the Company's products are incorporated into
disk drives, printers, keyboards and modems. As a result, a slowdown in the
demand for personal computers and related peripherals could adversely affect the
Company's operating results. A significant portion of the Company sales are to
the consumer electronics markets for use in products such as television sets,
infrared remote controls and telephone answering machines. The consumer
electronics markets are volatile and rapid changes in customer preferences for
electronics products could adversely impact the Company's results. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Dependence On New Products And Technologies
The Company's operating results will depend to a significant extent on its
ability to continue to introduce new products. The success of new product
introductions is dependent on several factors, including proper new product
selection, timely completion and introduction of new product designs,
development of support tools and collateral literature that make complex new
products easy for engineers to understand and use, and market acceptance of
customers' end products. There can be no assurance that any new products will
receive or maintain substantial market acceptance. The Company's future success
is also dependent upon its ability to develop and implement new design and
process technologies. Semiconductor design and process methodologies are subject
to rapid technological change, requiring large expenditures for research and
development. Most new products are extremely complex in design and many use the
Company's new 0.65 micron CMOS process. Manufacture of large complex die
involves a significant technological risk. If the Company is not able to
complete new product designs in time to meet market requirements and achieve
volume production of new products at acceptable yields using the new
manufacturing processes, its operating results will be adversely affected. See
"Business -- Manufacturing."
Production Yields And Need To Increase Capacity
The manufacture of semiconductor products is highly complex and sensitive
to a wide variety of factors, including the level of contaminants in the
manufacturing environment, impurities in the materials used and
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the performance of personnel and equipment. As is typical in the semiconductor
industry, the Company has from time to time experienced lower than anticipated
production yields. The Company increased its production capacity in 1995 and
1996, and must successfully further increase capacity in 1997 to support
anticipated sales volumes and maintain delivery times. The Company has used
outside wafer foundries to supply a portion of its manufacturing needs, and the
Company expects to continue to rely on one or more outside wafer foundries for a
portion of its manufacturing needs. In the fourth quarter of 1994 and throughout
1995, the Company experienced difficulty in obtaining the capacity of wafers it
requested from its outside foundry suppliers. No assurance can be given that the
Company or its outside wafer foundries will not experience production yield
problems in the future which could result in an adverse effect on the Company's
results of operations. The Company constructed and equipped a new wafer
fabrication facility which commenced commercial production in September 1995.
Production increased in accordance with plan in 1996. The failure of the Company
to further increase production capacity, including through the successful and
efficient ramping of its new facility or to obtain wafers from outside suppliers
as needed, could adversely affect the Company's operating results. The Company
also uses outside contract assemblers for packaging a portion of its production.
Shortages in contract assembly capacity could adversely impact the Company's
financial results. See "Manufacturing."
New Wafer Fabrication Facility -- Additional Fixed Costs
The Company completed the construction of a new wafer fabrication facility
adjacent to its existing wafer production facilities in Nampa, Idaho in June
1995 and commercial production began in September 1995. The facility doubled the
Company's wafer production capacity and significantly increased the Company's
annual depreciation expense. Further capacity expansion is available in the new
wafer fabrication facility. If the Company's sales do not increase commensurate
with the increase in capacity, the Company's costs of sales as a percentage of
sales will increase and the Company's results of operations would be adversely
affected. In addition, the failure of the Company to achieve sufficient
production yields in the new facility could adversely affect its results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Competition
The semiconductor industry is intensely competitive and is characterized by
price erosion, rapid technological change and foreign competition in many
markets. The industry consists of major domestic and international semiconductor
companies, many of which have substantially greater financial and other
resources than the Company with which to pursue engineering, manufacturing,
marketing and distribution of their products. Emerging companies are also
increasing their participation in the semiconductor market. The ability of the
Company to compete successfully in the rapidly evolving area of high performance
integrated circuit technology depends on factors both within and outside of its
control, including but not limited to, success in designing and manufacturing
new products that implement new technologies, protection of Company products by
effective utilization of intellectual property laws, product quality,
reliability, ease of use, price, diversity of product line, efficiency of
production, the pace at which customers incorporate the Company's integrated
circuits into their products, success of competitor's products and general
economic conditions. See "Competition."
Manufacturing Operations In The Philippines
The Company's two primary assembly and test facilities, Zilog Philippines
Inc. ("ZPI") and Zilog Electronics Philippines, Inc. ("ZEPI"), are located in
Manila and Carmona, the Philippines. The Company has a significant capital
investment at these two plants. The Company's reliance on personnel and assets
located at ZPI and ZEPI and its maintenance of inventories at ZPI entails
certain political and economic risks, including political instability and
expropriation, currency controls and exchange fluctuations, as well as changes
in tax laws, tariff and freight rates. The Company has not experienced any
significant interruptions in its business operations in the Philippines to date.
Political stability in the Philippines appears to have increased markedly during
the past three years, but no assurances of continued stability can be given.
Should such interruptions in business occur, Zilog has inventory in the United
States to enable the Company to ship most products during a temporary
interruption of service. For more lengthy losses of production or inability to
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export product from the Philippines, the Company has qualified contract
assemblers in other locations in the Far East. Additionally, the Company has
excess test capacity at its Nampa, Idaho manufacturing facility and its
Campbell, California engineering facility. The Company believes that these
contingency plans would allow continued supply of product for short term
disruptions. Nonetheless, the Company's operations could be adversely affected,
particularly if operations or air transportation from the Philippines are
disrupted for a substantial period of time. See "Business -- Manufacturing."
Intellectual Property Claims
As is typical in the semiconductor industry, from time to time, the Company
has been notified that it may be infringing certain patents and other
intellectual property rights of others. The Company is currently engaged in
discussions with two others. In the event the Company determines that such
discussions may lead to meritorious claims, the Company may seek a license.
Based on industry practice, the Company believes that in most cases any
necessary licenses or other rights could be obtained on commercially reasonable
terms. However, no assurance can be given that licenses could be obtained on
acceptable terms or that litigation will not occur. The failure to obtain
necessary licenses or other rights or the advent of litigation arising out of
such claims could have a material adverse effect on the Company's operations.
See "Patents and Licenses."
The Semiconductor Industry
The semiconductor industry has been characterized by cyclicality. The
industry has experienced significant economic downturns at various times in the
last three decades, characterized by diminished product demand, accelerated
erosion of average selling prices and production over-capacity. During 1995, the
semiconductor industry in general, including the Company, experienced a period
of increased demand. During 1996, the industry experienced a slowdown from the
phenomenal growth that it had in 1995. The Company experienced this slowdown
during the last two quarters of 1996. There is no assurance for how long this
period will last. The Company may experience substantial period-to-period
fluctuations in future operating results due to general industry conditions or
events occurring in the general economy.
Foreign Trade And Currency Exchange
Approximately 56% of the Company's net sales in 1996 were to foreign
customers. In addition, the Company purchases a substantial portion of its raw
materials and equipment from foreign suppliers. Both manufacturing and sales of
the Company's products may be adversely affected by political or economic
conditions abroad. Protectionist trade legislation in either the United States
or foreign countries such as a change in the current tariff structures, export
compliance laws or other trade policies could adversely affect the Company's
ability to manufacture or to sell in foreign markets. In countries in which the
Company is doing business, currency exchange fluctuations could adversely affect
the Company's net sales or costs.
Environmental Regulation
The Company is subject to a variety of government regulations related to
the discharge or disposal of toxic, volatile or otherwise hazardous chemicals
used in its manufacturing process. Although the Company believes that it has all
permits necessary to conduct its business, the failure to comply with present or
future regulations could result in fines being imposed on the Company,
suspension of production or cessation of operations. Such regulations could
require the Company to acquire significant equipment or to incur substantial
other expenses to comply with environmental regulations. Any failure by the
Company to control the use of, or adequately restrict the discharge of,
hazardous substances could subject it to future liabilities. See
"Environmental."
Dependence On Key Employees
The Company's future success is heavily dependent upon its ability to hire
and retain qualified technical and management personnel. The competition for
such personnel is intense and their loss as employees or managers could have a
material adverse effect on the Company.
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Possible Volatility Of Stock Price
The Company believes factors such as announcements of new products by the
Company or its competitors, quarterly fluctuations in the Company's financial
results or other semiconductor companies' financial results, general conditions
in the semiconductor industry and conditions in the financial markets could
cause the price of the Common Stock to fluctuate substantially. In addition, the
stock market has experienced extreme price and volume fluctuations, which have
particularly affected the market prices for many high technology companies and
which have often been unrelated to the operating performance of the specific
companies.
The Company's failure to meet or exceed published earnings estimates,
changes in earnings estimates or recommendations by securities analysts could
have a material adverse effect upon the Company's stock price.
Ownership By Existing Shareholder
As of February 21, 1997, Warburg, Pincus Capital Company, L.P. ("Warburg")
owned approximately 27% of the outstanding shares of the Company's voting Common
Stock. While Warburg does not have majority control of the Company, it is the
largest shareholder and has significant influence with respect to election of
directors and approval or disapproval of fundamental corporate decisions.
BACKGROUND
The semiconductor logic market has three major sectors:
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APPLICATION CUSTOMER SPECIFIC
STANDARD SPECIFIC INTEGRATED
LOGIC PRODUCTS STANDARD PRODUCTS CIRCUITS
(ASSPs) (CUSICs or ASICs)
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Standard logic products, such as the Intel Pentium and Motorola 680X0
microprocessor families, are neither application nor customer specific. They are
intended to be utilized by a large group of systems designers for a broad range
of applications. Because these products target broad markets, they usually
contain more functions than are actually required and therefore may not be cost
effective for certain specific applications. In contrast, ASICs are typically
designed to meet the particular requirements of, and are usually proprietary to,
one specific customer. Because the volume requirements for ASICs are
substantially smaller than those for standard logic products, manufacturers may
have difficulty in recovering their development costs and in achieving
manufacturing efficiencies.
A third market segment has developed for integrated circuits which have a
high degree of integration and are designed for a particular application, but
are not proprietary to a single customer. These ASSP products typically address
larger aggregate markets and generally have higher production volumes than
ASICs. As a result, the development and manufacturing costs associated with
ASSPs can be recovered over larger production volumes resulting in lower device
prices to systems manufacturers. Examples of ASSP applications include modems,
spread spectrum telephones, wireless communications, interactive television,
multimedia applications, keyboards, pointing devices, facsimile machines and
local area networks. Electronic systems designers, driven by competitive market
forces, are seeking semiconductor products with more intelligence, functionality
and control which can be used to reduce system costs and improve performance.
These needs have resulted in a growing market opportunity for ASSP
manufacturers.
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The diagram shown below represents the electronic functions which may exist
as one or more integrated circuits in the implementation of a subsystem for
almost any electronic product including those for datacommunications, computer
peripheral controller or consumer product controller applications.
[DIAGRAM]
Electronic system manufacturers combine one or more of these elements to
fit a specific application to satisfy the design requirement. The microprocessor
or microcontroller provides the intelligence which controls the subsystem. The
signal path logic provides functions specific to the end application. The signal
path logic may be implemented in many applications by a class of integrated
circuits known as a digital signal processor. The input/output circuitry may
also be application specific or an industry standard component. The memory
element, if not included on the microcontroller, is usually a standard product
and is used to store program instructions and data. Historically, these elements
of system design have been executed through multiple integrated circuits
assembled on a printed circuit board. The requirements for reduced cost and
improved system performance have created a market opportunity for semiconductor
manufacturers to integrate some or all of these elements into a single ASSP chip
or chip set. The Company believes that the ability to provide closer integration
of the microprocessor and input/output function with the signal path logic will
provide a competitive advantage in the ASSP market.
The Company believes there are four primary factors that are required for
an ASSP manufacturer to be competitive. First, the ASSP manufacturer must have
an in-depth understanding of the technology of the OEM market application. The
ASSP manufacturer's product is much more likely to be designed into the new OEM
system if the ASSP provides significant performance and cost advantages over
alternative solutions. By understanding the technology of the OEM application,
the ASSP manufacturer is able to incorporate these advantages and win the
business at the system design stage. Second, the ASSP manufacturer must possess
the engineering expertise and manufacturing capability to meet the time to
market demands of the designers of new OEM systems. Third, the ASSP supplier who
offers "software compatible" solutions to the end market will have a distinct
competitive advantage. The OEM's software investment frequently is larger than
new product hardware costs. The OEM favors an ASSP manufacturer's product which
preserves its software investment. Finally, the ASSP manufacturer must be a cost
effective producer since the success of his customer's end products is
frequently dependent upon achieving certain market price points.
MARKETS AND PRODUCTS
The Company pursues a strategy of introducing new products to market
specific applications in its three principal target markets, datacommunications,
consumer product controllers and intelligent peripheral controllers. The Company
believes these segments offer significant growth opportunities. During 1994,
1995 and 1996 Zilog introduced 40, 40 and 48 major new products, respectively.
The Company's products are available in a wide variety of package types, speed
grades and other options. Using the assistance of Zilog's technical sales
specialists, who often have knowledge and experience in the customer's end-use
application, customers can select the specific integrated circuit to fulfill the
requirements of their application.
Most of the Company's new products are created through the use of Zilog's
Superintegration library of cores and cells. The Company's core library includes
microprocessors and certain peripheral circuits which
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may be sold as stand-alone devices or combined in Superintegration products. The
cell library includes logic and memory circuits which are usually combined in
Superintegration products.
If an end-use application requirement is not satisfied by an existing Zilog
product, the Superintegration design system permits Zilog to compose new
integrated circuits by interconnecting fully characterized high transistor count
cores and cells or by designing new cells, thereby increasing performance and
improving reliability. Using the latest industry standard design tools, Zilog
can supply customers with integrated circuits that meet end product application
needs in a timely and cost effective manner. The Company believes that the
efficiency of its Superintegration design process, coupled with Zilog's strategy
of learning the requirements of an application to create an industry standard
product, will enable it to continue to develop significant new products.
For the year ended December 31, 1996, the Z80182 product accounted for
approximately 18 percent of the Company's gross revenues. The Company does not
believe that any product will account for more than 10% of the Company's gross
revenues in 1997.
New Products Introduced In 1996
Of the Company's 48 major new products introduced in 1996, three products
were for the datacommunications market, 37 products were for the consumer
product controller market and eight products were for the intelligent peripheral
controller market. As is typical for new product introductions, full volume
production for products introduced in 1996 is not expected to occur until
subsequent years. As Zilog introduces new products, the Company also evaluates
its existing product portfolio and eliminates those products that no longer meet
the Company's criteria for price, volume or profitability.
The Company's 48 new products introduced in 1996, included a series of
DSP's, advanced digital television controllers, capable of implementing the
V-chip technology, a series of infrared remote controllers, a series of advanced
keyboard controllers and a series of new wireless processors.
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The following chart sets forth the new products introduced in 1996.
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1996 NEW PRODUCT INTRODUCTIONS
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ZILOG PRODUCT PRODUCT DESCRIPTION
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Datacommunications
Z89C25 DSP/Datacom
Z80182H Datacom MPU
Z80382 Z80 16 Bit MPU
Consumer Product Controllers
Z86393 DSP
Z86E66 Security Control
Z86133 Z8 MCU
Z86L08 Z8 MCU
Z89338 TV Controller
Z86L88 IR Remote Controller
Z86L89 IR Remote Controller
Z86160 Set Top Box Controller
Z86C71 IR Remote Controller
Z86C72 IR Remote Controller
Z86C73 IR Remote Controller
Z86C87 IR Remote Controller
Z86C84 Z8 MCU
Z89373 DSP
Z86C02 Z8 MCU
Z86E02 OTP
Z16027 Wireless
Z89423 DSP
Z89223 DSP
Z89273 DSP
Z86L04 Z8 MCU
Z86251 StarSight Database Processor
Z90210 TV Controller
Z87001 Wireless
Z86130 TV Controller
Z86131 TV Controller
Z89238 TV Controller
Z89155 DTAD Controller
Z87L10 Wireless
Z87L00 Wireless
Z86L02 Z8 MCU
Z86L43 Z8 MCU
Z90219 TV Ice Chip
Z98021 Wireless
Z86L87 IR Remote Controller
Z86743 OTP of Z86243
Z86E05 Z8
Intelligent Peripheral Controllers
Z16017 PCMCIA Interface
Z86217 Keyboard Controller
Z16067 PCMCIA Interface
Z86K13 Keyboard Controller
Z86K14 Keyboard Controller
Z86K16 Keyboard Controller
Z86K17 Keyboard Controller
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Datacommunications
The datacommunications market is growing in response to the need to connect
computer systems at distant locations and to share peripherals such as printers
and facsimile machines. By networking its computers and peripherals, it is
possible to share information files, distribute computer loads more efficiently
and facilitate communications between terminals, computers and peripherals,
thereby maximizing the benefit from the organization's investment in its
installed base of computer equipment.
Zilog sells ASSP integrated circuits optimized for use in the following
datacommunications applications: ethernet routers, bridges, data switches,
modems, terminals, printers, workstations, local area networks and wide area
networks.
Consumer Product Controllers
The increase in the use of electronics in consumer products has created a
significant market opportunity for application specific standard products.
Sophisticated integrated circuits are increasingly found in consumer products
such as spread spectrum cordless telephones, audiovisual equipment, automobiles,
telephone answering machines and household appliances.
Other consumer product controller applications that use the Company's ASSP
integrated circuits are TV controllers, infrared remote controls, internet
appliances, battery chargers, garage door openers, home security systems, cable
TV systems, VCRs, and automotive controllers.
Intelligent Peripheral Controllers
An important trend in the development of computer peripheral controllers is
the addition of increased local "intelligence" and ease of user implementation
such as plug and play and universal serial bus (USB) technology. Routine
peripherals management causes interruption of the central processor which slows
it in the performance of its basic tasks. Adding intelligence (local processing
power) to the peripherals frees the central processor from peripherals
micro-management and upgrades the performance of the system as a whole. Because
a typical computer installation may have many peripherals, the cost of the
peripherals' electronics may exceed that of the central computer. Accordingly,
there is a continuous incentive to reduce peripherals' electronics costs by
combining the multiple chips for the application into a single chip or chip set.
The typical computer system may have up to six or seven peripherals which
facilitate the human interface, provide memory functions, or service the
communications link with other computers. The most common peripherals are the
printer, keyboard, monitor, mouse, hard disk controller, floppy disk controller
and modem. The facsimile machine is now becoming a computer adjunct and may soon
be a familiar addition to the set. Zilog ASSP integrated circuits are found in
each of these applications.
TECHNOLOGY
Zilog utilizes its proprietary Superintegration design methodology to meet
the tight time to market windows important to success in ASSP markets. The
Company has developed an extensive library of proprietary cores and cells using
industry standard design tools. Many cores and cells in the Zilog
Superintegration library are individually "packed" to use silicon area
efficiently. The cores and cells in the library are fully characterized and
modeled in the Company's design software. Accordingly, the performance of the
product formed by the interconnection of the separate elements is predictable.
An important benefit of this methodology is that a cost-effective,
production-ready ASSP product is generally created in a single design cycle
without having to re-layout the design, a result which is often required with
alternative design methods to meet manufacturing cost objectives. All of the
cores and cells in Zilog's Superintegration library are produced by a subset of
the Company's standard manufacturing process. The design rules employed ensure
that the need to adjust the library is minimal as manufacturing technology
advances to smaller dimensions.
Zilog has three design centers with different specialties. The Campbell,
California design center specializes in consumer product controllers while the
Nampa, Idaho design center focuses primarily on memory cores and cells. The
Austin, Texas design center concentrates its efforts mainly on DSP products and
9
<PAGE> 12
applications. While cross-fertilization occurs, by concentrating design efforts
in these centers, engineers develop valuable expertise in their respective
areas.
The Company's design technology is fully integrated with its manufacturing
technology. At the inception of a new design for Zilog's Superintegration
library, engineering personnel write preliminary design specifications that
highlight the characteristics of the new product. Before any actual design takes
place, the process engineers specify manufacturing parameters within which the
designers must remain to ensure that the resulting design can be fabricated as a
subset of Zilog's existing master production process. Throughout the design and
manufacturing phases, designers and process engineers continue to coordinate
their efforts to make certain that maximum efficiencies in new products are
achieved.
Zilog has developed a proprietary test generation software package called
the QTST(TM) ("Quick Turn Standard Test") test system which generates software
for the Company's automatic test equipment. Additionally, the Company has
developed a series of proprietary software packages known as electronic
programmer's manuals ("EPM(TM)") that will automatically generate applications
programs to support their respective ASSP products.
SALES AND MARKETING
Zilog's direct marketing force consists of technical specialists and field
applications engineers. The Company's technical specialists are based at
corporate headquarters and focus exclusively on either datacommunications,
consumer product controller or computer peripheral controller applications.
Field application engineers are stationed in Zilog's sales offices around the
world and work directly with local customers in close consultation with the
technical specialists. Field application engineers typically develop technology
expertise in the market segment which is most prominent in their geographic
area.
The Company sells its products through its direct sales force and through
manufacturing representatives and distributors. The Company's worldwide sales
headquarters is in Campbell, California. The Company has sales offices located
in the metropolitan areas of Boston, Philadelphia, Atlanta, Austin, Minneapolis,
Tampa, Cleveland, Chicago, Dallas, Boulder, Portland, Los Angeles, Orange
County, San Diego, Toronto, Tokyo, Seoul, Hong Kong, Taipei, Singapore, Kuala
Lumpur, Munich, London, Erfurt, Germany, Shenzhen, Beijing and Shanghai, Peoples
Republic of China. These sales offices have a direct sales force who call on
large accounts and manage the activities of the Company's 29 sales
representative organizations. The Company frequently holds technical sales
conferences and training sessions for its direct sales and sales representative
personnel.
The Company also markets and sells its products through four North American
distributors and 31 international distributors. As is common in the
semiconductor industry, the Company grants price protection and limited rights
of return to distributors. Under this policy, distributors are granted a credit
for the difference between the price they were originally charged for products
in inventory at the time of a price reduction and the reduced price which the
Company subsequently charges distributors. From time to time, distributors are
also granted credit on an individual basis for Company-approved price reductions
on specific transactions to meet competition. The Company also grants
distributors limited rights to return products. The Company maintains reserves
against which these credits and returns are charged.
In 1994, 1995 and 1996, sales to unaffiliated customers located outside of
the United States aggregated approximately 56%, 57% and 56%, respectively, of
net sales for these years. Total net sales to these international customers in
each of these years were approximately $124.7 million, $150.4 million and $166.9
million, respectively.
In 1996, the Company shipped to over 950 customers either directly or
through distributors. The Company's products are sold to system manufacturers in
the computer, communications, industrial control, consumer electronics, military
and aerospace industries. During that time, no single customer represented more
than 12.8% of Zilog's net sales and no distributor accounted for more than 8.5%
of Zilog's net sales. The Company believes that its customer and geographic
balance help it to reduce volatility in operating results.
10
<PAGE> 13
BACKLOG
As of December 31, 1994, 1995 and 1996, the Company's backlog was
approximately $49 million, $110 million and $82 million, respectively. The
Company includes in its backlog all credit approved purchase orders shippable
within the next 12 months. Orders from distributors, which are recognized as
revenues when the Company ships the product, are also included as backlog. The
Company anticipates that approximately two-thirds of its backlog will be shipped
within 90 days. Orders in backlog can be cancelled at the option of the
purchaser and therefore should not be used as a measure of future revenues.
MANUFACTURING
The Company owns a substantial portion of its manufacturing resources and
believes this is an important part of its strategy. Direct control over wafer
fabrication, assembly and test operations allows Zilog to provide customers with
continuity of supply, to shorten the Company's design and production cycles, and
to capture the manufacturing margin.
The Company increased its production capacity in 1994, 1995 and 1996 and
must successfully further increase capacity in 1997 to support anticipated sales
volumes. The Company has used outside wafer foundries to supply a portion of its
manufacturing needs, and the Company expects to continue to rely on one or more
outside wafer foundries for a portion of its manufacturing needs. No assurance
can be given that the Company or its outside wafer foundries will not experience
production yield problems in the future which would result in an adverse effect
on the Company's results of operations. During the fourth quarter of 1994 and
throughout 1995, the Company experienced difficulty in obtaining requested
capacity from its outside foundry suppliers. Should the Company be unable to
obtain additional foundry capacity, the Company's ability to achieve continued
revenue growth may be restricted. During September, 1995, the Company began
commercial production from its new facility in Nampa, Idaho. Production from
this facility increased in accordance with plans in 1996. The Company also uses
the services of outside contract assemblers to package some of the Company's
production. No assurance can be given that an adequate supply of qualified
outside assembly services can be obtained in the future. Shortages in contract
assembly capacity could adversely impact the Company's financial results. The
Company's delivery times lengthened in late 1994 and 1995, but have shortened to
more traditional levels in 1996. The Company believes an important competitive
factor will be its ability to successfully increase production capacity to meet
customer demand and to maintain traditional delivery times. A prolonged failure
of the Company to further increase production capacity or obtain wafers from
outside suppliers as needed could adversely affect the Company's operating
results.
Wafer fabrication and test facilities are located in Nampa, Idaho. High
volume assembly and test operations are conducted in two facilities in Manila,
the Philippines. Zilog manufactures its products in two buildings on its Idaho
campus. These buildings contain fabrication modules equipped to produce NMOS
products or CMOS products with sub-micron dimensions.
Zilog employs the concept of "concurrent engineering." Designers and
process engineers work side by side in the product definition and design stages
to manufacture a new product that will yield a quantity of die close to
entitlement when the design cycle and fabrication processes are completed.
The Company's manufacturing operations are characterized by high
utilization of its equipped facilities. The Idaho and Philippines plants operate
24 hours per day, seven days a week. Automated data collection and analysis
systems are used to maintain efficient manufacturing line loading and to assure
that the production mix is in accord with the sales order forecast. Skilled
people are very important to high productivity in semiconductor manufacturing.
The Company maintains an extensive personnel training and certification program
in its plants and believes that this leads to lower turnover and higher worker
involvement. All of Zilog's operations are managed through the use of
statistical process control techniques.
Manufacture of large complex die involves many technological risks. If the
Company is not able to complete new product designs in time to meet market
requirements and achieve volume production of the new products at acceptable
yields using the new manufacturing processes, its operating results will be
adversely affected.
Manufacturing of semiconductor products is highly complex and sensitive to
a wide variety of factors, including the level of contaminants in the
manufacturing environment, impurities in the materials used and
11
<PAGE> 14
performance of the personnel or equipment. No assurance can be given that the
Company or its outside wafer foundries will not experience manufacturing yield
problems in the future. Any such problems would adversely affect the Company's
operating results.
The raw materials and equipment used in the production of the Company's
integrated circuits are available from several suppliers and the Company is not
dependent upon any single source of supply. The Company has not experienced any
material difficulty in obtaining raw materials or equipment.
ENVIRONMENTAL
The Company is subject to a variety of governmental regulations related to
the discharge or disposal of toxic, volatile or otherwise hazardous chemicals
used in the manufacturing process, including the Resource Conservation and
Recovery Act, the Comprehensive Environmental Response, Compensation and
Liability Act, the Superfund Amendment and Reauthorization Act, the Clean Air
Act, and the Water Pollution Control Act. The Company believes it has also
obtained all necessary environmental permits to conduct its business, which
generally relate to the discharge of hazardous wastes. Nevertheless, the failure
to comply with present or future regulations could result in fines being imposed
on the Company, suspension of production or cessation of operations. Such
regulations could require the Company to acquire significant equipment or to
incur substantial other expenses to comply with environmental regulations. Any
failure by the Company to control the use of, or adequately restrict the
discharge of, hazardous substances could subject it to future liabilities.
RESEARCH AND DEVELOPMENT
The Company believes that the continued introduction of new ASSP products
in its target markets and application support tools for these products are
essential to its growth. In 1994, 1995 and 1996 Zilog introduced 40, 40 and 48
major new products, respectively. Differences in the complexity of new products
may influence the number of new products introduced in any future year. Some of
Zilog's research and development is conducted with third parties. The Company
cannot guarantee that third party resources will always be available for such
service. Zilog employs 132 people in research and development. Expenditures for
research and development in 1994, 1995 and 1996 were approximately $23.0, $24.5
and $30.5 million, respectively, representing 10.3%, 9.3% and 10.2%,
respectively, of net sales.
The Company's future success is dependent in part upon its ability to
develop and implement new design and process technologies. Semiconductor design
and process methodologies are subject to rapid technological change, requiring
large expenditures for research and development. Most new products are extremely
complex in design and many use the Company's 0.65 micron CMOS process.
Zilog acquires knowledge of the technology requirements of end-user
applications through frequent contact between the customer and Zilog sales,
marketing and engineering personnel. Utilizing Zilog's knowledge and experience
in the relevant application, Zilog engineers design new cores and cells for the
Superintegration library that will improve the Company's products. The Company
strives to maintain an environment conducive to creativity and to maintain close
communications between marketing, design and manufacturing specialists. Zilog's
research and development efforts are also focused on improvements to
manufacturing process technology.
PATENTS AND LICENSES
Zilog has 75 U.S. Patents and 27 patent applications pending. The Company
has also filed and received one patent outside of the United States. Zilog has 7
foreign patent applications pending. The Company has 76 U.S. mask work
registrations on its products. Copyright registrations are held by the Company
to protect proprietary software employed in over 100 of its products. Zilog owns
more than 40 trademarks or servicemarks.
The Company's ability to compete may be enhanced by its ability to protect
its proprietary information, including the issuance of patents, copyrights, mask
work registrations and trademarks. Only a few of these intellectual property
rights have been litigated. While no intellectual property right of the Company
has been invalidated or declared unenforceable, there can be no assurance that
such rights will be upheld in the future. Accordingly, the Company is of the
opinion that in view of the rapid pace of technological change in the
12
<PAGE> 15
semiconductor industry, the technical experience and creative skills of its
engineers and other personnel will be extremely important in determining the
Company's future technological success.
Zilog has approximately 86 active licenses for product or technology
exchange. The purpose of these licenses has, in general, been to provide second
sources for standard products or to convey or receive rights to certain
proprietary or patented cores, cells or other technology.
As is typical in the semiconductor industry, Zilog has from time to time
received, and may in the future receive, communications from third parties
asserting patent rights, mask work rights, copyrights or trademark rights
covering certain of the Company's products, technologies or information. The
Company is currently engaged in discussions with two others, but historically,
the Company has, at times, been in such discussions. The Company believes that
it will be able to obtain licenses on reasonable terms from any such claimants
should licenses from any or all of these parties prove necessary. Nevertheless,
there can be no assurance that litigation or other administrative proceedings
will not be commenced or accelerated with any such parties in the future, or
that any necessary products, processes or technologies can be licensed upon
commercially reasonable terms.
COMPETITION
The semiconductor industry is intensely competitive and is characterized by
price erosion, rapid technological change and heightened foreign competition in
many markets. The industry consists of major domestic and international
semiconductor companies, many of which have substantially greater financial and
other resources than the Company with which to pursue engineering,
manufacturing, marketing and distribution of their products. Emerging companies
are also expected to increase their participation in the semiconductor market.
The ability of the Company to compete successfully in the rapidly evolving area
of high performance integrated circuit technology depends on elements both
within and outside of its control, including, but not limited to, success in
designing and manufacturing new products that implement new technologies,
protection of Company products by effective utilization of intellectual property
laws, product quality, reliability, ease of use and price, diversity of product
line, efficiency of production, the pace at which customers incorporate the
Company's integrated circuits into their products, customer success in their
markets, product delivery times, product introductions by the Company's
competitors and general economic conditions.
The Company competes with its licensees on certain products. With respect
to certain products the Company competes with other ASSP manufacturers which
target the same specific market segment. However, no single competitor addresses
exactly the same set of products as the Company.
The principal competitive factors in the Company's markets include design
and end-market applications expertise, product features and performance,
including the ability to preserve the customers' software, price, time to market
and manufacturing. Zilog believes its competitive strengths include its
expertise in the technology of a broad range of applications in the
datacommunications, consumer controller, and computer peripheral controller
markets its design methodology which includes its Superintegration design system
with its extensive library of customer familiar cores and cells, and its
manufacturing facilities and capabilities.
EMPLOYEES
As of December 31, 1996, the Company employed 1,601 full-time persons,
including 1,243 in manufacturing, 133 in research and development, 165 in
marketing and sales and 63 in finance and administration. Approximately one-half
of the Company's employees work at the assembly and test facilities located in
Manila, the Philippines. The Company considers its relations with its employees
to be good.
ITEM 2. PROPERTIES
The Company's headquarters and research and development activities are
located at 210 East Hacienda Avenue, Campbell, California, in an 80,000 square
foot facility leased through 1997. The Company performs wafer fabrication at
77,000 square foot and 128,000 square foot buildings located on a 65 acre site
in Nampa, Idaho. The Company owns these Idaho facilities.
13
<PAGE> 16
Assembly and test operations are performed at the Company's facilities in
Manila, the Philippines which are 54,000 square feet and 34,000 square feet,
respectively. The Company owns the larger facility which is on three acres of
land leased through 2004 and leases the second Manila facility. This lease
expires in July 1998, but has an option for the Company to renew for a term of
five years. The Company has leased a 4,000 square foot engineering design center
in Austin, Texas. This lease expires in March 1998. In addition, the Company has
short-term leases for its sales offices located around the world in the United
States, Canada, England, Germany, Korea, Japan, Hong Kong, Singapore, Malaysia,
Taiwan and the Peoples Republic of China. The Company believes that its existing
facilities are adequate to meet its requirements through 1997.
ITEM 3. LEGAL PROCEEDINGS
The Company is participating in litigation arising in the ordinary course
of business. The Company intends to defend itself vigorously in these matters.
The Company believes that it is unlikely that the outcome of these matters will
have a material adverse effect on its financial position, results of operations
or cash flow.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the Registrant's fiscal year covered by this report. The Company is
submitting to its security holders at its annual meeting on May 21, 1997
proposals to elect directors, to confirm Ernst & Young, LLP as auditors for 1997
and to authorize the Board of Directors and Officers to change the state of
incorporation of the Company from California to Delaware.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since May 17, 1995, the Company's Common Stock has traded on the New York
Stock Exchange under the symbol "ZLG." Previously, the Company's Common Stock
traded on the Nasdaq National Market under the symbol "ZLOG." The following
table shows the high and low closing prices for the Common Stock of the Company
for the periods indicated, as reported by the Nasdaq National Market and the New
York Stock Exchange:
<TABLE>
<CAPTION>
HIGH LOW
----- -----
$ $
<S> <C> <C>
Year Ended December 31, 1995:
First Quarter............................................ 37 3/4 28 1/4
Second Quarter........................................... 49 5/8 34 5/8
Third Quarter............................................ 53 1/4 38 7/8
Fourth Quarter........................................... 41 1/2 29 3/4
Year Ended December 31, 1996:
First Quarter............................................ 38 7/8 30 1/8
Second Quarter........................................... 39 3/4 24
Third Quarter............................................ 26 3/4 15 1/2
Fourth Quarter........................................... 29 1/4 18 1/4
Year Ended December 31, 1997:
First Quarter (through March 7, 1997).................... 27 5/8 23 1/2
</TABLE>
As of December 31, 1996, there were approximately 1,142 shareholders of
record of the Company's Common Stock.
The Company has not paid cash dividends on its Common Stock and does not
anticipate paying any such dividends in the foreseeable future. In addition, the
Company's credit agreement prohibits the payment of dividends on its capital
stock (other than dividends payable solely in the Company's stock) without the
prior written consent of the bank. The Company intends to retain its earnings,
if any, for the development of its business.
14
<PAGE> 17
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales................................... $145,666 $202,727 $223,316 $265,122 $298,425
Costs and expenses:
Cost of sales............................. 76,492 105,727 111,288 135,066 175,319
Research and development.................. 16,257 20,833 23,048 24,546 30,548
Selling, general and administrative....... 29,798 37,619 37,790 41,943 47,934
-------- -------- -------- -------- --------
122,547 164,179 172,126 201,555 253,801
-------- -------- -------- -------- --------
Operating income............................ 23,119 38,548 51,190 63,567 44,624
Other income (expense):
Interest income, net...................... 2,123 2,463 2,496 2,676 2,443
Other, net, including license and royalty
income and expense..................... (107) 813 860 (360) (911)
-------- -------- -------- -------- --------
Income before income taxes.................. 25,135 41,824 54,546 65,883 46,156
Provision for income taxes.................. 9,340 15,057 19,637 23,418 16,155
-------- -------- -------- -------- --------
Net income.................................. $ 15,795 $ 26,767 $ 34,909 $ 42,465 $ 30,001
======== ======== ======== ======== ========
Net income per share........................ $0.94 $1.43 $1.80 $2.09 $1.47
======== ======== ======== ======== ========
Number of shares used in computing per share
amounts................................... 16,893 18,779 19,380 20,285 20,454
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................. $ 52,869 $ 88,131 $ 85,173 $102,761 $ 88,567
Total assets................................ 148,404 212,470 286,691 353,430 401,066
Shareholders' equity........................ 108,136 165,580 212,595 278,864 325,280
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is incorporated by reference from
pages 11 and 12 of the Company's 1996 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and supplementary information, included
in the 1996 Annual Report to Shareholders from pages 13 through 24 is
incorporated herein by reference:
<TABLE>
<CAPTION>
ANNUAL REPORT
PAGES
-------------
<S> <C>
Report of Ernst & Young LLP, independent auditors...................... 23
Consolidated balance sheets............................................ 14
Consolidated statements of income...................................... 13
Consolidated statements of shareholders' equity........................ 16
Consolidated statements of cash flows.................................. 15
Notes to consolidated financial statements............................. 17-22
Quarterly information (unaudited)...................................... 24
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
15
<PAGE> 18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information on directors under the heading "Election of Directors" set
forth in the 1997 Proxy Statement is incorporated herein by reference. The
information on certain executive officers under the heading "Information About
Certain of the Company's Executive Officers" set forth in the 1997 Proxy
Statement is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information under the headings "Employment Contracts and Termination of
Employment and Change-in-Control Arrangements," "Compensation of Directors,"
"Compensation Committee Interlocks and Insider Participation In Compensation
Decisions," "Summary Compensation Table," "Stock Option Grants In Last Fiscal
Year Table" and "Aggregated Option Exercises in Last Fiscal Year and FY-End
Option Values" set forth in the 1997 Proxy Statement with respect to executive
compensation is incorporated herein by reference except the Compensation
Committee Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information under the heading "Principal Shareholders" set forth in the
1997 Proxy Statement with respect to security ownership of certain beneficial
owners and management is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable.
16
<PAGE> 19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements:*
<TABLE>
<CAPTION>
ANNUAL REPORT
PAGES
-------------
<S> <C>
Report of Ernst & Young LLP, independent auditors......................... 23
Consolidated balance sheets............................................... 14
Consolidated statements of income......................................... 13
Consolidated statements of shareholders' equity........................... 16
Consolidated statements of cash flows..................................... 15
Notes to consolidated financial statements................................ 17-22
Quarterly Information (unaudited)......................................... 24
</TABLE>
- ------------
* Incorporated herein by reference from the indicated pages of the 1996 Annual
Report to Shareholders.
2. Financial Statement Schedules:
The Financial Statement Schedule listed below is filed as part of this
Report:
<TABLE>
<CAPTION>
FORM 10-K
PAGE
-------------
<S> <C>
Schedule II Valuation and Qualifying Accounts........................... S-1
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the Financial Statements or the notes thereto.
3. Exhibits:
The exhibits listed under Item 14(c) are filed as part of this Report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the fiscal
quarter ended December 31, 1996.
(c) Exhibits
The exhibits listed in the accompanying index to exhibits are filed or
incorporated by reference (as stated therein) as part of this annual report.
(d) Financial Statement Schedules
See Item 14(a)(2)
17
<PAGE> 20
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
ZILOG, INC.
Date: March 27, 1997
By: /s/ EDGAR A. SACK
(Edgar A. Sack)
(President, Chief Executive
Officer and Director)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------
<C> <S> <C>
/s/ EDGAR A. SACK President, Chief Executive March 27, 1997
(Edgar A. Sack) Officer and Director
(Principal Executive
Officer)
/s/ THOMAS J. CONNORS Director March 27, 1997
(Thomas J. Connors)
/s/ WILLIAM H. JANEWAY Director March 27, 1997
(William H. Janeway)
/s/ HENRY KRESSEL Director March 27, 1997
(Henry Kressel)
/s/ LARRY WANGBERG Director March 27, 1997
(Larry Wangberg)
/s/ ROBERT M. WHITE Director March 27, 1997
(Robert M. White)
/s/ ROBERT E. COLLINS Vice President, Finance March 27, 1997
(Robert E. Collins) (Principal Financial and
Accounting Officer)
</TABLE>
18
<PAGE> 21
SCHEDULE II
ZILOG, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
================================================================================
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS(1) END OF PERIOD
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1994:
Allowance for doubtful accounts............ $250 $154 $(154) $ 250
======== ======== ========== ==========
YEAR ENDED DECEMBER 31, 1995:
Allowance for doubtful accounts............ $250 $314 $(314) $ 250
======== ======== ========== ==========
YEAR ENDED DECEMBER 31, 1996:
Allowance for doubtful accounts............ $250 $107 $(107) $ 250
======== ======== ========== ==========
</TABLE>
- ------------
(1) Uncollectible accounts written off, net of recoveries.
S-1
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -----------
<S> <C> <C>
3.1(i) -- Amended and Restated Articles of Incorporation, as currently in effect
3.3(i) -- Bylaws, as currently in effect
3.4(iv) -- Certificate of Amendment of Articles of Incorporation, filed with the California
Secretary of State on February 1, 1993
4.1(i) -- Common and Series A Preferred Stock Purchase Agreement, dated as of June 8,
1989, among Zilog Acquisition Corporation (on behalf of the Company) and certain
investors
4.2(i) -- Investor's Rights Agreement, dated as of June 8, 1989, among Zilog Acquisition
Corporation (on behalf of the Company) and certain shareholders
10.1(i) -- Contract of Lease, dated March 22, 1979, between Zilog Phillippeans, Inc. and
Fruehauf Electronics Phils Corporation
10.2(i) -- Industrial Lease Agreement, dated March 3, 1981, between M.J.H.M. Partnership II
and ADDA Corporation, as assigned to Zilog on August 25, 1981, and addenda 1-5
thereto
10.3(ii) -- Form of Credit Agreement, dated as of December 31, 1991, among the Company and
The First National Bank of Boston and First Interstate Bank of California and
Revolving Notes thereunder
10.4(i) -- Stock Purchase Agreement, dated as of May 15, 1989, between Zilog Acquisition
Corporation (on behalf of the Company) and Exxon Corporation
10.5(i) -- Form of Employee Stock Purchase and Shareholder Agreements, dated as of June 8,
1989, between Zilog Acquisition Corporation and certain employees
10.6(i) -- 1989 Zilog Employee Founders' Stock Purchase Plan Administrative Guide
*10.7(v) -- 1994 Long-Term Stock Incentive Plan
*10.8(i) -- Form of Employee Performance Incentive Plan
10.9 -- 1997 Zilog Employee Performance Incentive Plan Administrative Guide and
Executive Bonus Administrative Guide
10.10(i) -- Zilog, Inc. Management Administration Guide
*10.11(v) -- Form of Zilog Employee Common Share Option Grant Agreement
*10.13 -- Employment Agreement, dated November 6, 1996, between Michael J. Bradshaw and
the Company
*10.14 -- Employment Agreement, dated February 1, 1997, between Edgar A. Sack and the
Company
*10.15 -- Employment Agreement, dated effective January 27, 1997 between Alan Secor and
the Company
10.16 -- Employment Agreement, dated effective November 6, 1996 between Richard L. Moore
and the Company
10.17 -- Employment Agreement, dated effective November 6, 1996 between J. James Magill
and the Company
10.18(iv) -- First Amendment dated as of November 30, 1993 and Second Amendment dated as of
February 28, 1994 to Credit Agreement, dated as of December 31, 1991, among the
Company and The First National Bank of Boston and First Interstate Bank of
California
11.1 -- Statement regarding computation of earnings per share
13.1 -- 1996 Annual Report to Shareholders. Except for the portions expressly
incorporated by reference, this Annual Report is not deemed to be filed as part
of this Annual Report on Form 10-K.
21.1(v) -- Subsidiaries of the Company
23.1 -- Consent of Ernst & Young LLP, independent auditors
27.1 -- Financial Data Schedule
</TABLE>
- ------------
* Denotes management contract or compensatory plan.
(i) Incorporated by reference from Registration Statement on Form S-1 No.
33-36080.
(ii) Incorporated by reference from Registration Statement on Form S-1 No.
33-45157.
(iii) Incorporated by reference from Registration Statement on Form S-3 No.
33-57108.
(iv) Incorporated by reference from Exhibit 10.21 of the Company's Form 10-K for
the year ended December 31, 1993.
(v) Incorporated by reference from Exhibit 10.7, 10.11, 10.12, 10.13, 10.14,
10.15 and 21.1, respectively, of the Company's Form 10-K for the year ended
December 31, 1994.
<PAGE> 1
EXHIBIT 10.9
1997
ZILOG EMPLOYEE PERFORMANCE INCENTIVE PLAN
ADMINISTRATIVE GUIDE
1.0 Purpose of the Plan
The purpose of the Zilog Employee Performance Incentive Plan
(hereinafter the "Incentive Plan") is to provide eligible employees of
Zilog (hereinafter the "Company") with an increased incentive to meet
and exceed the Company profit before interest and taxes and revenue
goals.
2.0 Objective of the Administrative Guide
The objective of this guide is to detail the specific provisions of the
Plan. This guide will serve as the source document to be used in
interpretation, administration and implementation of the Incentive
Plan.
3.0 Definitions
3.1 An "Eligible Employee" for the purposes of the Incentive Plan is a
full-time regular employee on the U.S. payroll of the Company in
position Classification Level (CL) 21 and above or a Zilog Philippines
employee in Classification Level 25B and above. Non-U.S. sales office
employees in CL 21 and above may be eligible upon approval of the
Compensation Committee.
3.2 "Profit" for the purposes of this Incentive Plan is book profit after
provision for all other costs including the Company 401(k) matching
funds and discretionary Company contribution, but excluding any
interest and taxes and provision for Awards under this Incentive Plan.
3.3 "Plan Profit" for the purposes of this Incentive Plan is the profit
before interest and taxes and any provision for Payout under this
Incentive Plan, as stated in the 1997 Step II Business Plan as approved
by the Board of Directors of the Company.
3.4 "Operating Return" for the purposes of this Incentive Plan is Profit
less Interest divided by Average Capital Employed less Cash.
-1-
<PAGE> 2
3.5 "Revenue" for the purposes of this Incentive Plan is net revenue as
stated in the 1997 Step II Business Plan as approved by the Board of
Directors of the Company.
3.6 "Average Capital Employed" for the purposes of this Incentive Plan will
be calculated in the same manner as defined in the 1997 Step II
Business Plan approved by the Board of Directors of the Company.
3.7 "Award" for the purposes of this Incentive Plan is the incentive amount
credited to the eligible employee subject to and in consequence of the
provisions of this Incentive Plan.
3.8 "Total Award" for the purposes of this Incentive Plan is the sum of all
Awards credited to all eligible employees under the provisions of this
Incentive Plan for January 1 through December 31, 1997.
3.9 "Payout" for the purposes of this Incentive Plan is the payment of an
Award to the eligible employee subject to and in consequence of the
provisions of this Incentive Plan.
3.10 "Annualized Base Salary" for the purposes of this Incentive Plan is the
employee's regular salary as of January 1, 1997 (or such later date in
1997 when the employee becomes eligible to participate in the Incentive
Plan pursuant to either Section 9.2 or Section 10.0), annualized
(excluding any one time bonus or incentive payments under this or any
other plan).
3.11 "Employee Classification Factor" for the purposes of this Incentive
Plan is a factor dependent upon the employee's exempt Classification
Level as of January 1, 1997 (or such later date in 1997 when the
employee becomes eligible to participate in the Incentive Plan pursuant
to either Section 9.2 or Section 10.0).
3.12 "Company Performance Factor" for the purposes of this Incentive Plan is
the sum of the factor determined by the Company's performance against
Plan Profit goals, per Exhibit II A, plus the factor determined by the
Company's performance against Revenue goals, per Exhibit II B.
3.13 "Individual Employee Performance Factor" for the purposes of this
Incentive Plan is a factor dependent upon the Individual Employee
Performance Rating as determined by the Compensation Committee. The
Individual Employee Performance Rating for members of the Compensation
Committee will be approved by the Board of Directors of the Company.
3.14 "Proration Factor" for the purposes of this Incentive Plan is the ratio
of the number of weeks an employee is an eligible active participant in
EPIP during the term of the Plan divided by 52 weeks.
- 2 -
<PAGE> 3
3.15 "Zilog Compensation Committee" shall consist of the CEO, the CFO, and
the Vice President of Human Resources and Administration.
3.16 "Board Compensation Committee" shall consist of two outside Board
members.
4.0 Eligibility and Participation
All domestic exempt employees who are not included in any other regular
incentive program of the Company are eligible to participate in this
Incentive Plan. However, awardees under the "General Managers Award"
program are not excepted from participation in the Incentive Plan.
Certain employees of Zilog Philippines are also eligible, as noted in
3.1 of this Guide. Non-U.S. sales office employees who are not included
in any other regular incentive program of the company are eligible upon
approval of the Compensation Committee.
5.0 Contract of Employment
Participation in this Incentive Plan shall not constitute a contract of
employment. Inclusion in the Incentive Plan shall not convey to any
employee a right to continue in the employment of the Company or to
continue to be involved in any business in which the Company may
engage.
6.0 Base Period and Term of the Incentive Plan
The base period and term of this Incentive Plan is the 1997 fiscal year
of the Company; Payouts under this Incentive Plan shall occur in 1998,
as provided under the terms of this Incentive Plan. An employee shall
have no right to accelerate or defer the receipt of any payout under
this Incentive Plan.
7.0 Provisions of the Incentive Plan
7.1 The general provisions of the Incentive Plan including the Employee
Classification Factors (Exhibit I), the Company and individual Employee
Performance Factors (Exhibits II A, II B and III), and the estimated
costs of implementation of the Incentive Plan are proposed by the Zilog
Compensation Committee and submitted for review and approval by the
Compensation Committee of the Board of Directors of the Company prior
to the Incentive Plan period (January 1 through December 31, 1997). The
recommendations of the Zilog Compensation Committee as to the amount of
the Award to each eligible employee and the total costs of the
Incentive Plan are submitted for review and approval by the Board of
Directors in the first quarter following the end of the Incentive Plan
year.
- 3 -
<PAGE> 4
7.2 Eligible employees shall be grouped in Classification Factor levels in
accord with Exhibit I, dependent upon the employee's position
Classification Level as of January 1, 1997.
7.3 The amount of the 1997 Award to each eligible employee under the
Incentive Plan is the product of the employee's Annualized Base Salary
as of January 1, 1997 times the employee's Classification Factor times
a Company Performance Factor, per Exhibits II A and II B, times an
Individual Employee Performance Factor for 1997 per Exhibit III, times
a proration factor.
7.4 "Company Performance Factor" for the purposes of this Incentive Plan is
the sum of the factor determined by the Company's performance against
Plan Profit Goals, per Exhibit II A, plus the factor determined by the
Company's performance against Revenue goals, per Exhibit II B.
7.5 The "Individual Employee Performance Factors" for the purposes of the
1997 Awards are related to the Individual Employee Performance Ratings,
per Exhibit III. The Individual Employee Performance Rating is a number
between 1.00 (highest) and 4.00 (lowest) which will be determined by
the Zilog Compensation Committee at its sole discretion and will be
related to but need not be equal to the employee's MBO, (Management By
Objectives - see PM 60-27) ratings.
7.6 The Award is payable during the first quarter of 1998.
8.0 Eligibility for Payout
To be eligible for the Payout of an Award, the employee must be on the
active payroll at the time the payments are made by the Company, with
the exception of conditions of retirement, death or disability as
defined in Section 9.0. Any eligible employee who is terminated for
cause or reduction of force, or who resigns prior to the time of a
Payout under this Incentive Plan will not be eligible for a Payout
under the terms of this Incentive Plan.
9.0 Promotion, Transfer, Retirement, Termination, Death and Disability
9.1 If an eligible employee is promoted or transferred during 1997 into a
non-eligible position, or retires (pursuant to the company's
then-current retirement policy), such employee shall be eligible to
receive a pro rata Award up to the date of promotion, transfer or
retirement.
- 4 -
<PAGE> 5
9.2 If a non-eligible employee is promoted or transferred during 1997 into
an eligible position, such employee shall be eligible to receive a pro
rata Award from the date of transfer or promotion.
9.3 If an eligible employee dies during 1997 while an active employee of
the Company, such employee's estate shall be eligible to receive a pro
rata Award to the date of the employee's death.
9.4 If an eligible employee is disabled during 1997, such employee shall be
eligible to receive a pro rata Award for the period of time actively
employed and not absent due to disability.
9.5 Payouts of pro rata Awards pursuant to this Section 9 shall be made as
provided in Section 7.6 of this Incentive Plan.
9.6 Pro rata Awards shall be based on total length of active covered
service during the 1997 term of the Incentive Plan expressed as a
percentage of the 1997 fiscal year.
9.7 An employee who resigns or is terminated for cause or reduction in
force during 1997 will not be eligible for an Award.
10.0 New Employees
Employees hired after January 1, 1997 may be designated eligible under
the provisions of Section 4.0. New employees will be considered for an
Award on the same pro rata basis as described in Section 9.2 for
employees who transfer or are promoted into assignments considered
eligible for the Incentive Plan.
11.0 Minimum Profit Requirement for Award
Notwithstanding any other provision of this Incentive Plan, no Award
will be made for any year in which the Profit does not exceed 20% of
the Plan Profit.
12.0 Minimum Business Plan Requirement for Award
Notwithstanding any other provision of this Incentive Plan, no Award
will be made for any year in which the Business Plan Operating Return
is less than 2%.
13.0 Minimum Operating Return Requirement for Dividend
Notwithstanding any other provision of this Incentive Plan, no Dividend
will be added to a Payout for any year in which Operating Return is
less than 2%.
- 5 -
<PAGE> 6
14.0 Total Award Limitation
Notwithstanding any other provision of this Incentive Plan, the Total
Award for 1997 may not be more than 7.5% of Profit. If the sum of the
Awards exceeds the Total Award, the Zilog Compensation Committee will
adjust the Awards such that the total of all Awards does not exceed
7.5% of Profit.
15.0 Disclosure, Compensation Committee Decisions Final
The Zilog Compensation Committee will periodically advise employees
eligible under this Incentive Plan of progress toward achievement of
Plan Profit, using the Zilog Operations Review program as a vehicle.
Employees are encouraged to discuss the factors which influence their
MBO and Individual Employee Performance Ratings with their supervisor
but the decision of the Zilog Compensation Committee as to an
Individual Employee Performance Rating is final and is not subject to
adjustment.
16.0 Awards Unfunded, Unsecured; Taxable Status
Any awards under this Incentive Plan shall be provisional until payout,
shall be unfunded and unsecured and shall represent a general
obligation of the Company. All payouts shall have appropriate amounts
for any federal, state or local income or other taxes withheld from
such payouts and the net amount thereof shall be paid to the employee.
17.0 Amendment and Termination of the Plan
17.1 This Incentive Plan applies to fiscal year 1997 only (with Payout in
1998).
17.2 The Incentive Plan may be continued, discontinued or amended by the
Board of Directors of the Company for fiscal years 1998 and beyond.
Amendments of this Incentive Plan after 1997 will not affect payout of
Awards granted under the 1997 Plan.
- 6 -
<PAGE> 7
EXHIBIT I
Zilog
1997 Employee Performance Incentive Plan
<TABLE>
<CAPTION>
Employee
Classification Classification
Level Factor
----- ------
<S> <C>
37 0.45
33 0.36
31 0.335
29-30 0.24
27 0.18
25-26 0.13
23 0.10
21 0.08
</TABLE>
- 7 -
<PAGE> 8
EXHIBIT II A
ACHIEVEMENT OF 1997 PLAN PROFIT
<TABLE>
<CAPTION>
0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 200%
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.0 (1.0, 200%)
0.9
0.8
0.7
0.6
0.5 (0.5, 100%)
0.4
0.3
0.2
0.1
0
</TABLE>
COMPANY PERFORMANCE FACTOR
- 8 -
<PAGE> 9
EXHIBIT II B
ACHIEVEMENT OF 1997 REVENUE
<TABLE>
<CAPTION>
0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 200%
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.0 (1.0, 200%)
0.9
0.8
0.7
0.6
0.5 (0.5, 100%)
0.4
0.3
0.2
0.1
0
</TABLE>
COMPANY PERFORMANCE FACTOR
- 9 -
<PAGE> 10
EXHIBIT III
1997 INDIVIDUAL EMPLOYEE PERFORMANCE RATING
(BY COMPENSATION COMMITTEE)
<TABLE>
<CAPTION>
4 3.75 3.50 3.25 3 2.75 2.50 2.25 2 1.75 1.50 1.25 1
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2.0 (2.00, 1.00)
1.9
1.8
1.7
1.6
1.5
1.4
1.3
1.2
1.1
1.0 (1.00, 2.25)
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0 (0, 3.25)
</TABLE>
INDIVIDUAL PERFORMANCE FACTOR
-10-
<PAGE> 11
1997
ZILOG EMPLOYEE PERFORMANCE INCENTIVE PLAN
EXECUTIVE BONUS
ADMINISTRATIVE GUIDE
1.0 Purpose of the Plan
The purpose of the Zilog Employee Performance Incentive Plan Executive
Bonus (hereinafter the "Plan") is to provide eligible employees of
Zilog (hereinafter the "Company") with an increased incentive to meet
and exceed the Company Profit before interest and taxes and revenue
goals. This Plan is a supplement to the Zilog Employee Performance
Incentive Plan (EPIP).
2.0 Objective of the Administrative Guide
The objective of this guide is to detail the specific provisions of the
Plan. This guide will serve as the source document to be used in
interpretation, administration and implementation of the Plan.
Unless otherwise noted, all terms and conditions of the 1997 Zilog
Employee Performance Incentive plan apply equally to the Executive
Bonus Plan.
3.0 Eligibility and Participation
3.1 All employees in Classification Level (CL) 29 and above who are not
included in the Field Sales Incentive Plan are eligible to participate
in this Plan. Certain employees in CL 27 may be eligible upon approval
of the Compensation Committee.
4.0 Base Period and Term of the Plan
The base period and term of this Plan is the 1997 fiscal year of the
Company; Payouts under the Plan shall occur in 1999 and 2000, as
provided under the terms of this plan.
5.0 Provisions of the Incentive Plan
5.1 The recommendations of the Zilog Compensation Committee as to the
amount of the Executive Bonus award to each eligible employee and the
total costs of the Plan are submitted for review and approval by the
Board of Directors in the first quarter following the end of the Plan
year.
5.2 The amount of the 1997 Executive Bonus award to each eligible employee
under the Plan is a percentage of his/her 1997 Employee Performance
Incentive Plan Award, as follows: CL 27-30: 100%, CL 31 and above: 80%.
-1-
<PAGE> 12
5.3 The Executive Bonus award will be payable in two halves during the
first quarters of 1999 and 2000, and may be modified per paragraph 5.4
hereafter.
5.4 The award may be enhanced by "dividends" proposed by the Compensation
Committee and reviewed and approved by the Board. If so approved, any
such "dividend" for 1998 (which would enhance both the 1999 and the
2000 payouts) will be based upon, but will not be greater than, the
Company Operating Return for fiscal year 1998; the "dividend" for 1999
(which would enhance the 2000 payout) will be based upon, but will not
be greater than, the Company Operating Return for the fiscal year 1999.
5.5 Pro rata payments of Executive Bonus awards shall be made according to
the administrative guidelines established in Section 9 of the 1997 EPIP
Administrative Guide. Employees who become ineligible to participate in
the Plan for reasons specified in paragraph 9.1 of the 1997 EPIP
Administrative Guide still receive the Executive Bonus payments
provided that they meet the requirements of Section 8.0 of the 1997
EPIP Administrative Guide.
6.0 Total Award Limitation
Notwithstanding any other provision of the Plan, the total of the
Executive Bonus Awards for 1997 may not exceed 100% of the 1997 EPIP
Awards for the Executive Bonus Plan participants in CL 27 through CL 30
plus 80% of the 1997 EPIP Awards for participants in CL 31 and above.
7.0 Amendment and Termination of the Plan
7.1 This Plan applies to fiscal year 1997 only (with payouts in 1999 and
2000).
7.2 The Plan may be continued, discontinued or amended by the Board of
Directors of the Company at any time for the remainder of 1997 after
written notice of termination is circulated or for fiscal years 1998
and beyond. Amendments of this Incentive Plan after 1997 will not
affect payout of Awards granted under the 1997 Plan.
- 2 -
<PAGE> 1
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
This Agreement supersedes the Employment Agreement between Zilog and Michael J.
Bradshaw which extends to December 15, 1996.
This Agreement is made by and between Zilog, Inc., a California corporation
(hereinafter "Zilog") and Michael J. Bradshaw (hereinafter "Bradshaw"), whereby
Zilog and Bradshaw agree that Bradshaw accepts employment as Sr. Vice President,
Operations of Zilog, under the following terms and conditions:
1. Term. Zilog and Bradshaw agree that Bradshaw will be Sr. Vice
President, Operations of Zilog for a period of twenty four (24) months,
commencing on November 6, 1996 and ending November 5, 1998. This
Agreement may be extended upon written agreement of Zilog and Bradshaw.
2. Extent of Services. Bradshaw shall devote his entire time, attention
and energies to his position as Sr. Vice President, Operations of Zilog
and shall not, during the term of this Employment Agreement be engaged
in any other business activity whether or not such business activity is
pursued for gain, profit or other pecuniary advantage; provided, that
Bradshaw may engage in personal investment activities consistent with
Zilog's Conflict of Interest Policy.
1
<PAGE> 2
3. Compensation.
A. Salary. For each month of employment, Zilog will pay, or cause
to be paid, to Bradshaw the sum of at least $17,500 as base
salary. Such sum will be paid in monthly installments or such
other normal periodic payment schedule as Zilog may establish
for its executives. Bradshaw's salary will be reviewed
periodically in accordance with established salary review
procedures and adjustments to his salary, if any, will be
based upon such reviews.
B. Employee Performance Incentive Plan and Executive Bonus Plan.
Bradshaw will be eligible to receive Awards and Payouts in
accordance with the terms of the Zilog Employee Performance
Incentive Plan (hereinafter "EPIP"), and the EPIP Executive
Bonus Plan (hereinafter "Executive Bonus") as such plans may
be modified from time to time and as modified by this
Agreement.
C. Zilog Employee Stock Option Plan. Zilog has provided to
Bradshaw stock options under the 1990 Zilog Employee Stock
Option Plan (hereinafter "ZSOP") and the 1994 Long Term
Incentive Plan (hereinafter "LTIP"), copies of such plans
being attached hereto. Vesting will continue in accordance
with the plan provisions during the term of this Agreement.
2
<PAGE> 3
4. Benefits. As an employee of Zilog, Bradshaw will be entitled to such
benefits as Zilog normally provides its employees. In addition, Zilog
will provide Bradshaw with Directors and Officers (D & O) insurance in
an amount deemed appropriate by the Company.
5. Company Policies. Bradshaw agrees to be bound by all Zilog Company
Policies applicable to its employees including but not limited to
Business Ethics, Conflict of Interest, Proprietary Information and
Antitrust Compliance, and he agrees to sign any such documents as Zilog
requests evidencing such agreement.
6. Termination of Employment. Zilog reserves the right to terminate the
employment of Bradshaw at any time during the term of this Agreement,
for any reason or for no reason, with or without cause, by giving
Bradshaw at least thirty (30) days written notice of such termination
or compensation in lieu of notice; and Bradshaw may terminate his
employment by giving at least thirty (30) days written notice to Zilog.
Zilog reserves the right to accelerate any deferred resignation date
given it by Bradshaw, and any such acceleration of such date will not
alter the character of such termination from voluntary to involuntary.
7. Payment Upon Termination. Notwithstanding any other provisions of this
Agreement to the contrary, Zilog's obligations to Bradshaw, if his
employment with Zilog is terminated prior to the end of this Agreement,
shall be as follows:
3
<PAGE> 4
A. If Bradshaw voluntarily resigns his employment for 1) other than Good
Reason (as defined in Paragraph 7.B. below) or 2) other than Retirement
(as defined in Paragraph 7.C. below) prior to the termination date of
this Agreement, he will be entitled to: (1) base salary then due and
owing for services previously performed, (2) Payouts under EPIP which
become payable to Bradshaw pursuant to the terms of EPIP prior to the
effective date of resignation, and (3) Payouts under the Executive
Bonus which become payable to Bradshaw pursuant to the terms of the
Executive Bonus prior to the effective date of resignation. Upon
payment of the foregoing items, Zilog will have no further obligation
to Bradshaw.
B. If Bradshaw voluntarily resigns his employment for Good Reason, as
defined herein, prior to the termination date of this Agreement, he
will be entitled to the benefits provided in Paragraph 7.D. below. Good
Reason, as used herein, shall mean:
(i) assignment to Bradshaw of duties, responsibilities or titles
materially inconsistent with his status as Sr. Vice
President, Operations of Zilog;
4
<PAGE> 5
(ii) a reduction in Bradshaw's base salary other than in connection
with a general reduction applicable to the Vice Presidents of
Zilog who are members of the Management Committee;
(iii) a reduction in form and effect or cessation of any benefit or
compensation plan, except EPIP, the Executive Bonus, the
Deferred Compensation Plan, or those that may occur for the
Zilog employee group in general in accord with a general
policy change;
(iv) a change in Bradshaw's principal work location from the area
of Campbell, California, or Nampa, Idaho, except for required
travel on Zilog's business to an extent substantially
consistent with Bradshaw's normal business travel obligations
and except as might occur in the event of a relocation of the
Zilog Corporate Headquarters;
(v) any material breach of this Agreement on the part of Zilog not
fully remedied by Zilog within sixty (60) days after written
notice by Bradshaw of such breach.
5
<PAGE> 6
C. If Bradshaw retires as defined in PM60-05 prior to the termination date
of this Agreement, he will be entitled to the following at the
effective date of retirement: (1) base salary then due and owing for
services previously performed, (2) Payouts under EPIP for Awards made
prior to the effective date of the retirement, and (3) Payouts under
the Executive Bonus for Awards made prior to the effective date of the
retirement. EPIP and Executive Bonus Awards may also be granted at
Zilog's sole discretion for the year in which the retirement occurs,
prorated to the date of the retirement. Payouts for all Awards will be
made at the same time and on the same schedule as those for active
employees. Upon the payment of the foregoing items, Zilog will have no
further obligation to Bradshaw.
D. If Zilog terminates Bradshaw's employment during the term of this
Agreement other than for Cause or Detrimental Activity as defined in
7.E. below, he will be entitled to receive the following: (1) the then
current base salary for the period remaining in this Agreement, (2)
Payouts under EPIP for Awards made prior to the effective date of
termination of employment which Payouts are payable to Bradshaw
pursuant to the terms of EPIP prior to expiration of the term of this
Agreement, and (3) Payouts under the
6
<PAGE> 7
Executive Bonus for Awards made prior to the effective date of
termination of employment which Payouts are payable to Bradshaw
pursuant to the terms of the Executive Bonus prior to expiration of the
term of this Agreement. Bradshaw will not be eligible for Awards under
EPIP or the Executive Bonus made after the date on which his employment
at Zilog ceased or for Payouts made on any Awards after the expiration
date of this Agreement. Vesting of common stock and stock options
granted under ZSOP and LTIP will continue for the period remaining in
this Agreement. Upon the payment of the foregoing items, Zilog will
have no further obligation to Bradshaw.
E. If Zilog terminates Bradshaw during the term of this Agreement for
Cause, or for Detrimental Activity as defined herein, Zilog will have
no further monetary obligation to Bradshaw other than: (1) any base
salary then due and owing for services previously performed, (2)
Payouts under EPIP which become payable to Bradshaw pursuant to the
terms of EPIP prior to the effective date of termination, and (3)
Payouts under the Executive Bonus which become payable to Bradshaw
pursuant to the terms of the Executive Bonus prior to the effective
date of termination. Cause or Detrimental Activity shall be a willful
violation of a major company
7
<PAGE> 8
policy, conviction of any criminal or civil law involving
moral turpitude, willful misconduct which results in a
material reduction in Bradshaw's effectiveness in the
performance of his duties, or willful and reckless disregard
for the best interests of the Company.
F. If Bradshaw ceases to be an employee of Zilog during the term
of this Agreement because of total and permanent disability or
death, Zilog's obligations to Bradshaw or his beneficiaries
will be limited solely to: (1) any base salary then due and
owing for services previously performed, (2) Payouts in
accordance with the terms of EPIP, (3) Payouts in accordance
with the terms of the Executive Bonus, and (4) any benefits
including ZSOP and LTIP benefits normally provided by Zilog to
its employees due to or on account of total and permanent
disability or death.
8. Bradshaw Representations. Bradshaw represents to Zilog that to the best
of his knowledge he is under no obligation to any employer or third
party which would preclude his full, complete and unfettered discharge
of his duties under this Agreement.
8
<PAGE> 9
9. Notices. Any notices required to be given hereunder shall be in
writing, and if by Zilog shall be addressed to Bradshaw as indicated in
Zilog's personnel records or such other address as Bradshaw shall
specify in writing and if by Bradshaw to Zilog at:
Zilog, Inc.
210 East Hacienda Avenue
Campbell, California 95008-6600
Attn: Vice President, Human Resources and
Administration
Such addresses may be changed by written notice from either Zilog or
Bradshaw, to the other.
10. Amendment. This Agreement may be amended only in writing, signed by
both parties hereto.
11. Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon Zilog, its successors and assigns. Bradshaw may not
assign, transfer, pledge or hypothecate any of his rights or
obligations hereunder, Awards or Payouts under EPIP or the Executive
Bonus or other compensation to which he may be entitled hereunder.
9
<PAGE> 10
12. Waiver of Breach. The waiver by Zilog of a breach of any provisions of
this Agreement by Bradshaw shall not operate or be construed as a
waiver of any subsequent breach by Bradshaw.
13. Severability. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any
other provision hereof.
14. Entire Agreement. This entire Agreement consists of this document,
together with the following documents:
A. EPIP, attached as Exhibit I;
B. Executive Bonus, attached as Exhibit II;
C. Zilog Employee Stock Option Plan, attached as Exhibit III;
D. Zilog 1994 Long Term Incentive Plan, attached as Exhibit IV;
E. Employee Proprietary Rights and Non-Disclosure Agreement,
attached as Exhibit V;
F. Conflict of Interest Statement, attached as Exhibit VI;
G. Statement addressed to "Human Resources," attached as Exhibit
VII;
H. Policy on Business Ethics, attached as Exhibit VIII; and
I. PM60-05, attached as Exhibit IX.
10
<PAGE> 11
15. Governing Law. This Employment Agreement shall be governed by the laws
of the State of California, without regard to conflict of laws
principles.
Executed effective November 6, 1996
By: /s/ Michael J. Bradshaw By: /s/ E. A. Sack
------------------------------- -------------------------------
Michael J. Bradshaw E. A. Sack, President and CEO
Dated: 11-11-96 Dated: 11-13-96
---------------------------- ----------------------------
11
<PAGE> 1
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
This Agreement is made by and between Zilog, Inc., a California corporation
(hereinafter "Zilog") and Dr. Edgar A. Sack, Jr. (hereinafter "Sack"), whereby
Zilog and Sack agree that Sack accepts employment as President, Chief Executive
Officer, and Chairman of the Board of Directors of Zilog, under the following
terms and conditions:
1. Term. Zilog and Sack agree that Sack will be President, Chief Executive
Officer, and Chairman of the Board of Zilog for a period of thirteen
(13) months, commencing on February 1, 1997 and ending February 28,
1998. This Agreement may be extended upon written agreement of Zilog
and Sack.
2. Extent of Services. Sack shall devote his entire time, attention and
energies to his position as President, Chief Executive Officer, and
Chairman of the Board of Zilog and shall not, during the term of this
Employment Agreement be engaged in any other business activity whether
or not such business activity is pursued for gain, profit or other
pecuniary advantage; provided, that Sack may engage in personal
investment activities consistent with Zilog's Conflict of Interest
Policy.
1
<PAGE> 2
3. Compensation.
A. Salary. For each month of employment, Zilog will pay, or cause
to be paid, to Sack the sum of at least $42,166.00 as base
salary. Such sum will be paid in monthly installments or such
other normal periodic payment schedule as Zilog may establish
for its executives. Sack's salary will be reviewed
periodically in accordance with established salary review
procedures and adjustments to his salary, if any, will be
based upon such reviews.
B. Employee Performance Incentive Plan and Executive Bonus Plan.
Sack will be eligible to receive Awards and Payouts in
accordance with the terms of the Zilog Employee Performance
Incentive Plan (hereinafter "EPIP"),and the EPIP Executive
Bonus Plan (hereinafter "Executive Bonus") as such plans may
be modified from time to time and as modified by this
Agreement.
C. Zilog Employee Stock Option Plan. Zilog has provided to Sack
stock options under the 1990 Zilog Employee Stock Option Plan
(hereinafter "ZSOP"), and the 1994 Long Term Incentive Plan
(hereinafter "LTIP"), copies of such plans being attached
hereto. Vesting will continue in accordance with the plan
provisions during the term of this Agreement and as modified
by this Agreement.
2
<PAGE> 3
4. Benefits. As an employee of Zilog, Sack will be entitled to such
benefits as Zilog normally provides its employees.
5. Company Policies. Sack agrees to be bound by all Zilog Company Policies
applicable to its employees including but not limited to Business
Ethics, Conflict of Interest, Proprietary Information and Antitrust
Compliance, and he agrees to sign any such documents as Zilog requests
evidencing such agreement.
6. Termination of Employment. Zilog reserves the right to terminate the
employment of Sack at any time during the term of this Agreement, for
any reason or for no reason, with or without cause, by giving Sack at
least thirty (30) days written notice of such termination or
compensation in lieu of notice; and Sack may terminate his employment
by giving at least thirty (30) days written notice to Zilog. Zilog
reserves the right to accelerate any deferred resignation date given it
by Sack, and any such acceleration of such date will not alter the
character of such termination from voluntary to involuntary.
7. Payment Upon Termination. Notwithstanding any other provisions of this
Agreement to the contrary, Zilog's obligations to Sack, if his
employment with Zilog is terminated prior to the end of this Agreement,
shall be as follows:
3
<PAGE> 4
A. If Sack voluntarily resigns his employment for 1) other than Good
Reason (as defined in Paragraph 7.B. below) or 2) other than retirement
(as defined in Paragraph 7.C. below) or 3) other than the sale, merger
or change in ownership of Zilog (as defined in Paragraph 7.D. below)
prior to the termination date of this Agreement, he will be entitled
to: (1) base salary then due and owing for services previously
performed, (2) Payouts under EPIP which become payable to Sack pursuant
to the terms of EPIP prior to the effective date of resignation, and
(3) Payouts under the Executive Bonus which become payable to Sack
pursuant to the terms of the Executive Bonus prior to the effective
date of resignation. Upon payment of the foregoing items, Zilog will
have no further obligation to Sack.
B. If Sack voluntarily resigns his employment for Good Reason, as defined
herein, prior to the termination date of this Agreement, he will be
entitled to the benefits provided in Paragraph 7.E. below. Good Reason,
as used herein, shall mean:
(i) assignment to Sack of duties, responsibilities or titles
materially inconsistent with his status as President, Chief
Executive Officer, and Chairman of the Board of Zilog;
4
<PAGE> 5
(ii) appointment of a Chairman of the Zilog Board of Directors
other than Sack;
(iii) a reduction in Sack's base salary other than in connection
with a general reduction applicable to the members of the
Zilog Management Committee;
(iv) a reduction in form and effect or cessation of any benefit or
compensation plan, except EPIP, the Executive Bonus, the
Deferred Compensation Plan or those that may occur for the
Zilog employee group in general in accord with a general
policy change;
(v) a change in Sack's principal work location from the area of
Campbell, California, except for required travel on Zilog's
business to an extent substantially consistent with Sack's
normal business travel obligations and except as might occur
in the event of a relocation of the Zilog Corporate
Headquarters;
(vi) any material breach of this Agreement on the part of Zilog not
fully remedied by Zilog within sixty (60) days after written
notice by Sack of such breach.
5
<PAGE> 6
C. If Sack retires as defined in PM60-05 prior to the termination date of
this Agreement, he will be entitled to the following at the effective
date of retirement: (1) base salary then due and owing for services
previously performed, (2) Payouts under EPIP for Awards made prior to
the effective date of the retirement, and (3) Payouts under the
Executive Bonus for Awards made prior to the effective date of the
retirement. EPIP and Executive Bonus Awards may also be granted at
Zilog's sole discretion for the year in which the retirement occurs,
prorated to the date of the retirement. Payouts for all Awards will be
made at the same time and on the same schedule as those for active
employees. Upon the payment of the foregoing items, Zilog will have no
further obligation to Sack.
D. If Sack leaves his employment, either voluntarily or involuntarily, as
a result of the sale, merger or change in ownership of Zilog prior to
the termination date of this Agreement, he will be entitled to receive
the following: (1) the then current base salary for the period
remaining in this Agreement, (2) Payouts under EPIP for Awards made
prior to the effective date of termination of employment, and (3)
Payouts under the Executive Bonus for Awards made prior to the
effective date of termination of employment. EPIP and Executive Bonus
Awards may also be granted at Zilog's sole discretion for the year in
which the termination occurs.
6
<PAGE> 7
Payouts for all Awards will be made at the same time and on the same
schedule as those for active employees. All outstanding unvested stock
options granted under ZSOP and LTIP will fully vest effective the last
date of Sack's active employment. They will be subject to exercise on
the same terms as all other vested options, as provided for under the
"Retirement" provisions of the ZSOP and LTIP. Upon payment of the
following items, Zilog will have no further obligation to Sack.
E. If Zilog terminates Sack's employment during the term of this Agreement
for 1) other than Cause or Detrimental Activity (as defined in 7.F.
below), or 2) other than sale or change in ownership of Zilog (as
defined in Paragraph 7.D. above), he will be entitled to receive the
following: (1) the then current base salary for the period remaining in
this Agreement, (2) Payouts under EPIP for Awards made prior to the
effective date of termination of employment which Payouts are payable
to Sack pursuant to the terms of EPIP prior to expiration of the term
of this Agreement, and (3) Payouts under the Executive Bonus for Awards
made prior to the effective date of termination of employment which
Payouts are payable to Sack pursuant to the terms of the Executive
Bonus prior to expiration of the term of this Agreement. Sack will not
be eligible for Awards under EPIP or the Executive Bonus made after the
date on which his
7
<PAGE> 8
employment at Zilog ceased or for Payouts made on any Awards after the
expiration date of this Agreement. Vesting of common stock and stock
options granted under ZSOP and LTIP will continue for the period
remaining in this Agreement. Upon the payment of the foregoing items,
Zilog will have no further obligation to Sack.
F. If Zilog terminates Sack's employment during the term of this Agreement
for Cause, or for Detrimental Activity as defined herein, Zilog will
have no further monetary obligation to Sack other than (1) any base
salary then due and owing for services previously performed, (2)
Payouts under EPIP which become payable to Sack pursuant to the terms
of EPIP prior to the effective date of termination, and (3) Payouts
under the Executive Bonus which become payable to Sack pursuant to the
terms of the Executive Bonus prior to the effective date of
termination. Cause or Detrimental Activity shall be a willful violation
of a major company policy, conviction of any criminal or civil law
involving moral turpitude, willful misconduct which results in a
material reduction in Sack's effectiveness in the performance of his
duties, or willful and reckless disregard for the best interests of the
Company.
8
<PAGE> 9
G. If Sack ceases to be an employee of Zilog during the term of
this Agreement because of total and permanent disability or
death, Zilog's obligations to Sack or his beneficiaries will be
limited solely to: (1) any base salary then due and owing for
services previously performed, (2) Payouts in accordance with
the terms of EPIP, (3) Payouts in accordance with the terms of
the Executive Bonus, and (4) any benefits including ZSOP and
LTIP benefits normally provided by Zilog to its employees due to
or on account of total and permanent disability or death.
8. New President and CEO. In the event that Zilog hires a new President
and CEO, Sack will retain his position as Chairman of the Board of
Directors of Zilog and will also remain an employee of Zilog. If his
responsibilities become solely those of Chairman of the Board, Sack's
base compensation will be at an amount mutually agreed upon by Sack and
the Board but will not be less than 67% of his then current full time
base rate. If Sack is terminated from the Board as a result of the
sale, merger or change in ownership of Zilog or for any other reason,
all outstanding unvested stock options granted under ZSOP and LTIP will
fully vest effective the last date of Sack's membership on the Board.
They will be subject to exercise on the same terms as all other vested
options, as provided for under the "Retirement" provisions of the ZSOP
and LTIP. Other provisions of this Agreement shall remain in effect
except as modified by this paragraph.
9
<PAGE> 10
9. Sack Representations. Sack represents to Zilog that to the best of his
knowledge he is under no obligation to any employer or third party
which would preclude his full, complete and unfettered discharge of his
duties under this Agreement.
10. Notices. Any notices required to be given hereunder shall be in
writing, and if by Zilog shall be addressed to Sack as indicated in
Zilog's personnel records or such other address as Sack shall specify
in writing and if by Sack to Zilog at:
Zilog, Inc.
210 East Hacienda Avenue
Campbell, California 95008-6600
Attn: Vice President
Human Resources and Administration
Such addresses may be changed by written notice from either Zilog or
Sack, to the other.
11. Amendment. This Agreement may be amended only in writing, signed by
both parties hereto.
10
<PAGE> 11
12. Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon Zilog, its successors and assigns. Sack may not
assign, transfer, pledge or hypothecate any of his rights or
obligations hereunder, Awards or Payouts under EPIP or the Executive
Bonus or other compensation to which he may be entitled hereunder.
13. Waiver of Breach. The waiver by Zilog of a breach of any provisions of
this Agreement by Sack shall not operate or be construed as a waiver of
any subsequent breach by Sack.
14. Severability. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any
other provision hereof.
15. Entire Agreement. This entire Agreement consists of this document,
together with the following documents:
A. EPIP, attached as Exhibit I;
B. Executive Bonus, attached as Exhibit II;
C. Zilog Employee Stock Option Plan, attached as Exhibit III;
D. Zilog Employee 1994 Long Term Stock Incentive Plan, attached
as Exhibit IV;
11
<PAGE> 12
E. Employee Proprietary Rights and Non-Disclosure Agreement,
attached as Exhibit V;
F. Conflict of Interest Statement, attached as Exhibit VI;
G. Statement addressed to "Human Resources," attached as Exhibit
VII;
H. Policy on Business Ethics, attached as Exhibit VIII; and
I. PM60-05, attached as Exhibit IX.
16. Governing Law. This Employment Agreement shall be governed by the laws
of the State of California, without regard to conflict of laws
principles.
Executed effective February 1, 1997
By /s/ Edgar A. Sack By /s/ William H. Janeway
------------------------------ ------------------------------
Edgar A. Sack William H. Janeway
Dated: February 12, 1997 Dated: February 3, 1997
-------------------------- --------------------------
12
<PAGE> 1
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
This Agreement supersedes the Employment Agreement between Zilog and Al Secor
which extends to January 14, 1998.
This Agreement is made by and between Zilog, Inc., a California corporation
(hereinafter "Zilog") and Al Secor (hereinafter "SECOR"), whereby Zilog and
Secor agree that Secor accepts employment as Vice President and General Manager,
Consumer & Peripherals Business Unit of Zilog, under the following terms and
conditions:
1. Term. Zilog and Secor agree that Secor will be Vice President and
General Manager, Consumer & Peripherals Business Unit of Zilog for the
period commencing on January 27, 1997 and ending November 5, 1998. This
Agreement may be extended upon written agreement of Zilog and Secor.
2. Extent of Services. Secor shall devote his entire time, attention and
energies to his position as Vice President and General Manager,
Consumer & Peripherals Business Unit of Zilog and shall not, during the
term of this Employment Agreement be engaged in any other business
activity whether or not such business activity is pursued for gain,
profit or other pecuniary advantage; provided, that Secor may engage in
personal investment activities consistent with Zilog's Conflict of
Interest Policy.
1
<PAGE> 2
3. Compensation.
A. Salary. For each month of employment, Zilog will pay, or cause
to be paid, to Secor the sum of at least $16,500 as base
salary. Such sum will be paid in monthly installments or such
other normal periodic payment schedule as Zilog may establish
for its executives. Secor's salary will be reviewed
periodically in accordance with established salary review
procedures and adjustments to his salary, if any, will be
based upon such reviews.
B. Employee Performance Incentive Plan and Executive Bonus Plan.
Secor will be eligible to receive Awards and Payouts in
accordance with the terms of the Zilog Employee Performance
Incentive Plan (hereinafter "EPIP"), and the EPIP Executive
Bonus Plan (hereinafter "Executive Bonus") as such plans may
be modified from time to time and as modified by this
Agreement.
C. Zilog Employee Stock Option Plan. Zilog has provided to Secor
stock options under the 1990 Zilog Employee Stock Option Plan
(hereinafter "ZSOP") and the 1994 Long Term Incentive Plan
(hereinafter "LTIP"), copies of such plans being attached
hereto. Vesting will continue in accordance with the plan
provisions during the term of this agreement.
2
<PAGE> 3
4 Benefits. As an employee of Zilog, Secor will be entitled to such
benefits as Zilog normally provides its employees.
5. Company Policies. Secor agrees to be bound by all Zilog Company
Policies applicable to its employees including but not limited to
Business Ethics, Conflict of Interest, Proprietary Information and
Antitrust Compliance, and he agrees to sign any such documents as Zilog
requests evidencing such agreement.
6. Termination of Employment. Zilog reserves the right to terminate the
employment of Secor at any time during the term of this Agreement, for
any reason or for no reason, with or without cause, by giving Secor at
least thirty (30) days written notice of such termination or
compensation in lieu of notice; and Secor may terminate his employment
by giving at least thirty (30) days written notice to Zilog. Zilog
reserves the right to accelerate any deferred resignation date given it
by Secor, and any such acceleration of such date will not alter the
character of such termination from voluntary to involuntary.
7. Payment Upon Termination. Notwithstanding any other provisions of this
Agreement to the contrary, Zilog's obligations to Secor, if his
employment with Zilog is terminated prior to the end of this Agreement,
shall be as follows:
3
<PAGE> 4
A. If Secor voluntarily resigns his employment for 1) other than
Good Reason (as defined in Paragraph 7.B. below) or 2) other
than Retirement (as defined in Paragraph 7.C. below) prior to
the termination date of this Agreement, he will be entitled
to: (1) base salary then due and owing for services previously
performed, (2) Payouts under EPIP which become payable to
Secor pursuant to the terms of EPIP prior to the effective
date of resignation, and (3) Payouts under the Executive Bonus
which become payable to Secor pursuant to the terms of the
Executive Bonus prior to the effective date of resignation.
Upon payment of the foregoing items, Zilog will have no
further obligation to Secor.
B. If Secor voluntarily resigns his employment for Good Reason,
as defined herein, prior to the termination date of this
Agreement, he will be entitled to the benefits provided in
Paragraph 7.D. below. Good Reason, as used herein, shall mean:
(i) assignment to Secor of duties, responsibilities or
titles materially inconsistent with his status as
Vice President and General Manager, Consumer &
Peripherals Business Unit of Zilog;
4
<PAGE> 5
(ii) a reduction in Secor's base salary other than in
connection with a general reduction applicable to the
Vice Presidents of Zilog who are members of the
Management Committee;
(iii) a reduction in form and effect or cessation of any
benefit or compensation plan, except EPIP, the
Executive Bonus, the Deferred Compensation Plan, or
those that may occur for the Zilog employee group in
general in accord with a general policy change;
(iv) a change in Secor's principal work location from the
area of Campbell, California, except for required
travel on Zilog's business to an extent substantially
consistent with Secor's normal business travel
obligations and except as might occur in the event of
a relocation of the Zilog Corporate Headquarters;
(v) any material breach of this Agreement on the part of
Zilog not fully remedied by Zilog within sixty (60)
days after written notice by Secor of such breach.
5
<PAGE> 6
C. If Secor retires as defined in PM60-05 prior to the
termination date of this Agreement, he will be entitled to the
following at the effective date of retirement: (1) base salary
then due and owing for services previously performed, (2)
Payouts under EPIP for Awards made prior to the effective date
of the retirement, and (3) Payouts under the Executive Bonus
for Awards made prior to the effective date of the retirement.
EPIP and Executive Bonus Awards may also be granted at Zilog's
sole discretion for the year in which the retirement occurs,
prorated to the date of the retirement. Payouts for all Awards
will be made at the same time and on the same schedule as
those for active employees. Upon the payment of the foregoing
items, Zilog will have no further obligation to Secor.
D. If Zilog terminates Secor's employment during the term of this
Agreement other than for Cause or Detrimental Activity as
defined in 7.E. below, he will be entitled to receive the
following: (1) the then current base salary for the period
remaining in this Agreement, (2) Payouts under EPIP for Awards
made prior to the effective date of termination of employment
which Payouts are payable to Secor pursuant to the terms of
EPIP prior to expiration of the term of this Agreement, and
(3) Payouts under the
6
<PAGE> 7
Executive Bonus for Awards made prior to the effective date of
termination of employment which Payouts are payable to Secor
pursuant to the terms of the Executive Bonus prior to
expiration of the term of this Agreement. Secor will not be
eligible for Awards under EPIP or the Executive Bonus made
after the date on which his employment at Zilog ceased or for
Payouts made on any Awards after the expiration date of this
Agreement. Vesting of common stock and stock options granted
under ZSOP and LTIP will continue for the period remaining in
this Agreement. Upon the payment of the foregoing items, Zilog
will have no further obligation to Secor.
E. If Zilog terminates Secor during the term of this Agreement
for Cause, or for Detrimental Activity as defined herein,
Zilog will have no further monetary obligation to Secor other
than: (1) any base salary then due and owing for services
previously performed, (2) Payouts under EPIP which become
payable to Secor pursuant to the terms of EPIP prior to the
effective date of termination, and (3) Payouts under the
Executive Bonus which become payable to Secor pursuant to the
terms of the Executive Bonus prior to the effective date of
termination. Cause or Detrimental Activity shall be a willful
violation of a major company policy, conviction
7
<PAGE> 8
of any criminal or civil law involving moral turpitude,
willful misconduct which results in a material reduction in
Secor's effectiveness in the performance of his duties, or
willful and reckless disregard for the best interests of the
Company.
F. If Secor ceases to be an employee of Zilog during the term of
this Agreement because of total and permanent disability or
death, Zilog's obligations to Secor or his beneficiaries will
be limited solely to: (1) any base salary then due and owing
for services previously performed, (2) Payouts in accordance
with the terms of EPIP, (3) Payouts in accordance with the
terms of the Executive Bonus, and (4) any benefits including
ZSOP and LTIP benefits normally provided by Zilog to its
employees due to or on account of total and permanent
disability or death.
8. Secor Representations. Secor represents to Zilog that to the best of
his knowledge he is under no obligation to any employer or third party
which would preclude his full, complete and unfettered discharge of his
duties under this Agreement.
8
<PAGE> 9
9. Notices. Any notices required to be given hereunder shall be in
writing, and if by Zilog shall be addressed to Secor as indicated in
Zilog's personnel records or such other address as Secor shall specify
in writing and if by Secor to Zilog at:
Zilog, Inc.
210 East Hacienda Avenue
Campbell, California 95008-6600
Attn: Vice President
Human Resources and Administration
Such addresses may be changed by written notice from either Zilog or
Secor, to the other.
10. Amendment. This Agreement may be amended only in writing, signed by
both parties hereto.
11. Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon Zilog, its successors and assigns. Secor may not
assign, transfer, pledge or hypothecate any of his rights or
obligations hereunder, Awards or Payouts under EPIP or the Executive
Bonus or other compensation to which he may be entitled hereunder.
9
<PAGE> 10
12. Waiver of Breach. The waiver by Zilog of a breach of any provisions of
this Agreement by Secor shall not operate or be construed as a waiver
of any subsequent breach by Secor.
13. Severability. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any
other provision hereof.
14. Entire Agreement. This entire Agreement consists of this document,
together with the following documents:
A. EPIP, attached as Exhibit I;
B. Executive Bonus, attached as Exhibit II;
C. Zilog Employee Stock Option Plan, attached as Exhibit III;
D. Zilog 1994 Long Term Incentive Plan, attached as Exhibit IV;
E. Employee Proprietary Rights and Non-Disclosure Agreement,
attached as Exhibit V;
F. Conflict of Interest Statement, attached as Exhibit VI;
G. Statement addressed to "Human Resources," attached as Exhibit
VII;
H. Policy on Business Ethics, attached as Exhibit VIII; and
I. PM60-05, attached as Exhibit IX.
10
<PAGE> 11
15. Governing Law. This Employment Agreement shall be governed by the laws
of the State of California, without regard to conflict of laws
principles.
Executed effective 01-27-97
By /s/ Al Secor By /s/ E. A. Sack
------------------------------ ------------------------------
Al Secor E. A. Sack
President, CEO, and Chairman
of the Board
Dated: 2-3-97 Dated: 2-4-97
--------------------------- --------------------------
11
<PAGE> 1
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
This Agreement is made by and between Zilog, Inc., a California corporation
(hereinafter "Zilog") and Richard L. Moore (hereinafter "Moore"), whereby Zilog
and Moore agree that Moore accepts employment as Sr. Vice President, Technology
of Zilog, under the following terms and conditions:
1. Term. Zilog and Moore agree that Moore will be Sr. Vice President,
Technology of Zilog for a period of twenty four (24) months, commencing
on November 6, 1996 and ending November 5, 1998. This Agreement may be
extended upon written agreement of Zilog and Moore.
2. Extent of Services. Moore shall devote his entire time, attention and
energies to his position as Sr. Vice President, Technology of Zilog and
shall not, during the term of this Employment Agreement be engaged in
any other business activity whether or not such business activity is
pursued for gain, profit or other pecuniary advantage; provided, that
Moore may engage in personal investment activities consistent with
Zilog's Conflict of Interest Policy.
1
<PAGE> 2
3. Compensation.
A. Salary. For each month of employment, Zilog will pay, or cause
to be paid, to Moore the sum of at least $16,667 as base
salary. Such sum will be paid in monthly installments or such
other normal periodic payment schedule as Zilog may establish
for its executives. Moore's salary will be reviewed
periodically in accordance with established salary review
procedures and adjustments to his salary, if any, will be
based upon such reviews.
B. Employee Performance Incentive Plan and Executive Bonus Plan.
Moore will be eligible to receive Awards and Payouts in
accordance with the terms of the Zilog Employee Performance
Incentive Plan (hereinafter "EPIP"), and the EPIP Executive
Bonus Plan (hereinafter "Executive Bonus") as such plans may
be modified from time to time and as modified by this
Agreement.
C. Zilog Employee Stock Option Plan. Zilog has provided to Moore
stock options under the 1994 Long Term Incentive Plan
(hereinafter "LTIP"), a copy of such plan being attached
hereto. Vesting will continue in accordance with the plan
provisions during the term of this Agreement.
2
<PAGE> 3
4. Benefits. As an employee of Zilog, Moore will be entitled to such
benefits as Zilog normally provides its employees. In addition, Zilog
will provide Moore with Directors and Officers (D & 0) insurance in an
amount deemed appropriate by the Company.
5. Company Policies. Moore agrees to be bound by all Zilog company
Policies applicable to its employees including but not limited to
Business Ethics, Conflict of Interest, Proprietary Information and
Antitrust Compliance, and he agrees to sign any such documents as Zilog
requests evidencing such agreement.
6. Termination of Employment. Zilog reserves the right to terminate the
employment of Moore at any time during the term of this Agreement, for
any reason or for no reason, with or without cause, by giving Moore at
least thirty (30) days written notice of such termination or
compensation in lieu of notice; and Moore may terminate his employment
by giving at least thirty (30) days written notice to Zilog. Zilog
reserves the right to accelerate any deferred resignation date given it
by Moore, and any such acceleration of such date will not alter the
character of such termination from voluntary to involuntary.
7. Payment Upon Termination. Notwithstanding any other provisions of this
Agreement to the contrary, Zilog's obligations to Moore, if his
employment with Zilog is terminated prior to the end of this Agreement,
shall be as follows:
3
<PAGE> 4
A. If Moore voluntarily resigns his employment for 1) other than
Good Reason (as defined in Paragraph 7.B. below) or 2) other
than Retirement (as defined in Paragraph 7.C. below) prior to
the termination date of this Agreement, he will be entitled
to: (1) base salary then due and owing for services previously
performed, (2) Payouts under EPIP which become payable to
Moore pursuant to the terms of EPIP prior to the effective
date of resignation, and (3 Payouts under the Executive Bonus
which become payable to Moore pursuant to the terms of the
Executive Bonus prior to the effective date of resignation.
Upon payment of the foregoing items, Zilog will have no
further obligation to Moore.
B. If Moore voluntarily resigns his employment for Good Reason,
as defined herein, prior to the termination date of this
Agreement, he will be entitled to the benefits provided in
Paragraph 7.D. below. Good Reason, as used herein, shall mean:
(i) assignment to Moore of duties, responsibilities or
titles materially inconsistent with his status as Sr.
Vice President, Technology of Zilog;
4
<PAGE> 5
(ii) a reduction in Moore's base salary other than in
connection with a general reduction applicable to the
Vice Presidents of Zilog who are members of the
Management Committee;
(iii) a reduction in form and effect or cessation of any
benefit or compensation plan, except EPIP, the
Executive Bonus, the Deferred Compensation Plan, or
those that may occur for the Zilog employee group in
general in accord with a general policy change;
(iv) a change in Moore's principal work location from the
area of Campbell, California, except for required
travel on Zilog's business to an extent substantially
consistent with Moore's normal business travel
obligations and except as might occur in the event of
a relocation of the Zilog Corporate Headquarters;
(v) any material breach of this Agreement on the part of
Zilog not fully remedied by Zilog within sixty (60)
days after written notice by Moore of such breach.
5
<PAGE> 6
C. If Moore retires as defined in PM60-05 prior to the
termination date of this Agreement, he will be entitled to the
following at the effective date of retirement: (1) base salary
then due and owing for services previously performed, (2)
Payouts under EPIP for Awards made prior to the effective date
of the retirement, and (3) Payouts under the Executive Bonus
for Awards made prior to the effective date of the retirement.
EPIP and Executive Bonus Awards may also be granted at Zilog's
sole discretion for the year in which the retirement occurs,
prorated to the date of the retirement. Payouts for all Awards
will be made at the same time and on the same schedule as
those for active employees. Upon the payment of the foregoing
items, Zilog will have no further obligation to Moore.
D. If Zilog terminates Moore's employment during the term of this
Agreement other than for Cause or Detrimental Activity as
defined in 7.E. below, he will be entitled to receive the
following: (1) the then current base salary for the period
remaining in this Agreement, (2) Payouts under EPIP for Awards
made prior to the effective date of termination of employment
which Payouts are payable to Moore pursuant to the terms of
EPIP prior to expiration of the term of this Agreement, and
(3) Payouts under the
6
<PAGE> 7
Executive Bonus for Awards made prior to the effective date of
termination of employment which Payouts are payable to Moore
pursuant to the terms of the Executive Bonus prior to
expiration of the term of this Agreement. Moore will not be
eligible for Awards under EPIP or the Executive Bonus made
after the date on which his employment at Zilog ceased or for
Payouts made on any Awards after the expiration date of this
Agreement. Vesting of common stock and stock options granted
under ZSOP and LTIP will continue for the period remaining in
this Agreement. Upon the payment of the foregoing items, Zilog
will have no further obligation to Moore.
E. If Zilog terminates Moore during the term of this Agreement
for Cause, or for Detrimental Activity as defined herein,
Zilog will have no further monetary obligation to Moore other
than: (1) any base salary then due and owing for services
previously performed, (2) Payouts under EPIP which become
payable to Moore pursuant to the terms of EPIP prior to the
effective date of termination, and (3) Payouts under the
Executive Bonus which become payable to Moore pursuant to the
terms of the Executive Bonus prior to the effective date of
termination. Cause or Detrimental Activity shall be a willful
violation of a major company policy, conviction of
7
<PAGE> 8
any criminal or civil law involving moral turpitude, willful
misconduct which results in a material reduction in Moore's
effectiveness in the performance of his duties, or willful and
reckless disregard for the best interests of the Company.
F. If Moore ceases to be an employee of Zilog during the term of
this Agreement because of total and permanent disability or
death, Zilog's obligations to Moore or his beneficiaries will
be limited solely to: (1) any base salary then due and owing
for services previously performed, (2) Payouts in accordance
with the terms of EPIP, (3) Payouts in accordance with the
terms of the Executive Bonus, and (4) any benefits including
LTIP benefits normally provided by Zilog to its employees due
to or on account of total and permanent disability or death.
8. Moore Representations. Moore represents to Zilog that to the best of
his knowledge he is under no obligation to any employer or third party
which would preclude his full, complete and unfettered discharge of his
duties under this Agreement.
8
<PAGE> 9
9. Notices. Any notices required to be given hereunder shall be in
writing, and if by Zilog shall be addressed to Moore as indicated in
Zilog's personnel records or such other address as Moore shall specify
in writing and if by Moore to Zilog at:
Zilog, Inc.
210 East Hacienda Avenue
Campbell, California 95008-6600
Attn: Vice President, Human Resources and
Administration
Such addresses may be changed by written notice from either Zilog or
Moore, to the other.
10. Amendment. This Agreement may be amended only in writing, signed by
both parties hereto.
11. Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon Zilog, its successors and assigns. Moore may not
assign, transfer, pledge or hypothecate any of his rights or
obligations hereunder, Awards or Payouts under EPIP or the Executive
Bonus or other compensation to which he may be entitled hereunder.
9
<PAGE> 10
12. Waiver of Breach. The waiver by Zilog of a breach of any provisions of
this Agreement by Moore shall not operate or be construed as a waiver
of any subsequent breach by Moore.
13. Severability. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any
other provision hereof.
14. Entire Agreement. This entire Agreement consists of this document,
together with the following documents:
A. EPIP, attached as Exhibit I;
B. Executive Bonus, attached as Exhibit II;
C. Zilog 1994 Long Term Incentive Plan, attached as Exhibit III;
D. Employee Proprietary Rights and Non-Disclosure Agreement,
attached as Exhibit IV;
E. Conflict of Interest Statement, attached as Exhibit V;
F. Statement addressed to "Human Resources," attached as Exhibit
VI;
G. Policy on Business Ethics, attached as Exhibit VII; and
H. PM60-05, attached as Exhibit VIII.
10
<PAGE> 11
15. Governing Law. This Employment Agreement shall be governed by the laws
of the State of California, without regard to conflict of laws
principles.
Executed effective November 6, 1996
By /s/ Richard L. Moore By /s/ E. A. Sack
------------------------------------ ------------------------------------
Richard L. Moore E. A. Sack, President and CEO
Dated: November 10, 1996 Dated: 11-29-96
-------------------------------- --------------------------------
11
<PAGE> 1
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
This Agreement is made by and between Zilog, Inc., a California corporation
(hereinafter "Zilog") and James J. Magill (hereinafter "Magill"), whereby Zilog
and Magill agree that Magill accepts employment as Vice President and General
Manager, Datacom Division of Zilog, under the following terms and conditions:
1. Term. Zilog and Magill agree that Magill will be Vice President and
General Manager, Datacom Division of Zilog for a period of twenty four
(24) months, commencing on November 6, 1996 and ending November 5,
1998. This Agreement may be extended upon written agreement of Zilog
and Magill.
2. Extent of Services. Magill shall devote his entire time, attention and
energies to his position as Vice President and General Manager, Datacom
Division of Zilog and shall not, during the term of this Employment
Agreement be engaged in any other business activity whether or not such
business activity is pursued for gain, profit or other pecuniary
advantage; provided, that Magill may engage in personal investment
activities consistent with Zilog's Conflict of Interest Policy.
1
<PAGE> 2
3. Compensation.
A. Salary. For each month of employment, Zilog will pay, or cause
to be paid, to Magill the sum of at least $13,334 as base
salary. Such sum will be paid in monthly installments or such
other normal periodic payment schedule as Zilog may establish
for its executives. Magill's salary will be reviewed
periodically in accordance with established salary review
procedures and adjustments to his salary, if any, will be
based upon such reviews.
B. Employee Performance Incentive Plan and Executive Bonus Plan.
Magill will be eligible to receive Awards and Payouts in
accordance with the terms of the Zilog Employee Performance
Incentive Plan (hereinafter "EPIP"), and the EPIP Executive
Bonus Plan (hereinafter "Executive Bonus") as such plans may
be modified from time to time and as modified by this
Agreement.
C. Zilog Employee Stock Option Plan. Zilog has provided to Magill
stock options under the 1990 Zilog Employee Stock Option Plan
(hereinafter "ZS0P") and the 1994 Long Term Incentive Plan
(hereinafter "LTIP"), copies of such plans being attached
hereto. Vesting will continue in accordance with the plan
provisions during the term of this Agreement.
2
<PAGE> 3
4. Benefits. As an employee of Zilog, Magill will be entitled to such
benefits as Zilog normally provides its employees. In addition, Zilog
will provide Magill with Directors and Officers (D & 0) insurance in an
amount deemed appropriate by the Company.
5. Company Policies. Magill agrees to be bound by all Zilog Company
Policies applicable to its employees including but not limited to
Business Ethics, Conflict of Interest, Proprietary Information and
Antitrust Compliance, and he agrees to sign any such documents as Zilog
requests evidencing such agreement.
6. Termination of Employment. Zilog reserves the right to terminate the
employment of Magill at any time during the term of this Agreement, for
any reason or for no reason, with or without cause, by giving Magill at
least thirty (30) days written notice of such termination or
compensation in lieu of notice; and Magill may terminate his employment
by giving at least thirty (30) days written notice to Zilog. Zilog
reserves the right to accelerate any deferred resignation date given it
by Magill, and any such acceleration of such date will not alter the
character of such termination from voluntary to involuntary.
7. Payment Upon Termination. Notwithstanding any other provisions of this
Agreement to the contrary, Zilog's obligations to Magill, if his
employment with Zilog is terminated prior to the end of this Agreement,
shall be as follows:
3
<PAGE> 4
A. If Magill voluntarily resigns his employment for 1) other than
Good Reason (as defined in Paragraph 7.B. below) or 2) other
than Retirement (as defined in Paragraph 7.C. below) prior to
the termination date of this Agreement, he will be entitled
to: (1) base salary then due and owing for services previously
performed, (2) Payouts under EPIP which become payable to
Magill pursuant to the terms of EPIP prior to the effective
date of resignation, and (3) Payouts under the Executive Bonus
which become payable to Magill pursuant to the terms of the
Executive Bonus prior to the effective date of resignation.
Upon payment of the foregoing items, Zilog will have no
further obligation to Magill.
B. If Magill voluntarily resigns his employment for Good Reason,
as defined herein, prior to the termination date of this
Agreement, he will be entitled to the benefits provided in
Paragraph 7.D. below. Good Reason, as used herein, shall mean:
(i) assignment to Magill of duties, responsibilities or
titles materially inconsistent with his status as
Vice President and General Manager, Datacom Division
of Zilog;
4
<PAGE> 5
(ii) a reduction in Magill's base salary other than in
connection with a general reduction applicable to the
Vice Presidents of Zilog who are members of the
Management Committee;
(iii) a reduction in form and effect or cessation of any
benefit or compensation plan, except EPIP, the
Executive Bonus, the Deferred Compensation Plan, or
those that may occur for the Zilog employee group in
general in accord with a general policy change;
(iv) a change in Magill's principal work location from the
area of Campbell, California, except for required
travel on Zilog's business to an extent substantially
consistent with Magill's normal business travel
obligations and except as might occur in the event of
a relocation of the Zilog Corporate Headquarters;
(v) any material breach of this Agreement on the part of
Zilog not fully remedied by Zilog within sixty (60)
days after written notice by Magill of such breach.
5
<PAGE> 6
C. If Magill retires as defined in PM60-05 prior to the
termination date of this Agreement, he will be entitled to the
following at the effective date of retirement: (1) base salary
then due and owing for services previously performed, (2)
Payouts under EPIP for Awards made prior to the effective date
of the retirement, and (3) Payouts under the Executive Bonus
for Awards made prior to the effective date of the retirement.
EPIP and Executive Bonus Awards may also be granted at Zilog's
sole discretion for the year in which the retirement occurs,
prorated to the date of the retirement. Payouts for all Awards
will be made at the same time and on the same schedule as
those for active employees. Upon the payment of the foregoing
items, Zilog will have no further obligation to Magill.
D. If Zilog terminates Magill's employment during the term of
this Agreement other than for Cause or Detrimental Activity as
defined in 7.E. below, he will be entitled to receive the
following: (1) the then current base salary for the period
remaining in this Agreement, (2) Payouts under EPIP for Awards
made prior to the effective date of termination of employment
which Payouts are payable to Magill pursuant to the terms of
EPIP prior to expiration of the term of this Agreement, and
(3) Payouts under the
6
<PAGE> 7
Executive Bonus for Awards made prior to the effective date of
termination of employment which Payouts are payable to Magill
pursuant to the terms of the Executive Bonus prior to
expiration of the term of this Agreement. Magill will not be
eligible for Awards under EPIP or the Executive Bonus made
after the date on which his employment at Zilog ceased or for
Payouts made on any Awards after the expiration date of this
Agreement. Vesting of common stock and stock options granted
under ZSOP and LTIP will continue for the period remaining in
this Agreement. Upon the payment of the foregoing items, Zilog
will have no further obligation to Magill.
E. If Zilog terminates Magill during the term of this Agreement
for Cause, or for Detrimental Activity as defined herein,
Zilog will have no further monetary obligation to Magill other
than: (1) any base salary then due and owing for services
previously performed, (2) Payouts under EPIP which become
payable to Magill pursuant to the terms of EPIP prior to the
effective date of termination, and (3) Payouts under the
Executive Bonus which become payable to Magill pursuant to the
terms of the Executive Bonus prior to the effective date of
termination. Cause or Detrimental Activity shall be a willful
violation of a major company policy, conviction of
7
<PAGE> 8
any criminal or civil law involving moral turpitude, willful
misconduct which results in a material reduction in Magill's
effectiveness in the performance of his duties, or willful and
reckless disregard for the best interests of the Company.
F. If Magill ceases to be an employee of Zilog during the term of
this Agreement because of total and permanent disability or
death, Zilog's obligations to Magill or his beneficiaries will
be limited solely to: (1) any base salary then due and owing
for services previously performed, (2) Payouts in accordance
with the terms of EPIP, (3) Payouts in accordance with the
terms of the Executive Bonus, and (4) any benefits including
ZSOP and LTIP benefits normally provided by Zilog to its
employees due to or on account of total and permanent
disability or death.
8. Magill Representations. Magill represents to Zilog that to the best of
his knowledge he is under no obligation to any employer or third party
which would preclude his full, complete and unfettered discharge of his
duties under this Agreement.
8
<PAGE> 9
9. Notices. Any notices required to be given hereunder shall be in
writing, and if by Zilog shall be addressed to Magill as indicated in
Zilog's personnel records or such other address as Magill shall specify
in writing and if by Magill to Zilog at:
Zilog, Inc.
210 East Hacienda Avenue
Campbell, California 95008-6600
Attn: Vice President, Human Resources and
Administration
Such addresses may be changed by written notice from either
Zilog or Magill, to the other.
10. Amendment. This Agreement may be amended only in writing, signed by
both parties hereto.
11. Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon Zilog, its successors and assigns. Magill may not
assign, transfer, pledge or hypothecate any of his rights or
obligations hereunder, Awards or Payouts under EPIP or the Executive
Bonus or other compensation to which he may be entitled hereunder.
9
<PAGE> 10
12. Waiver of Breach. The waiver by Zilog of a breach of any provisions of
this Agreement by Magill shall not operate or be construed as a waiver
of any subsequent breach by Magill.
13. Severability. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any
other provision hereof.
14. Entire Agreement. This entire Agreement consists of this document,
together with the following documents:
A. EPIP, attached as Exhibit I;
B. Executive Bonus, attached as Exhibit II;
C. Zilog Employee Stock Option Plan, attached as Exhibit III;
D. Zilog 1994 Long Term Incentive Plan, attached as Exhibit IV;
E. Employee Proprietary Rights and Non-Disclosure Agreement,
attached as Exhibit V;
F. Conflict of Interest Statement, attached as Exhibit VI;
G. Statement addressed to "Human Resources," attached as Exhibit
VII;
H. Policy on Business Ethics, attached as Exhibit VIII; and
I. PM60-05, attached as Exhibit IX.
10
<PAGE> 11
15. Governing Law. This Employment Agreement shall be governed by the laws
of the State of California, without regard to conflict of laws
principles.
Executed effective November 6, 1996
By: /s/ James J. Magill By: /s/ E. A. Sack
---------------------------------- ----------------------------------
James J. Magill E. A. Sack, President and CEO
Dated: 11-6-96 Dated: 11-25-96
------------------------------- -------------------------------
11
<PAGE> 1
EXHIBIT 11.1
STATEMENT REGARDING
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Net Income................................................ $34,909 $42,465 $30,001
PRIMARY:
Common shares outstanding................................. 18,332 19,173 19,897
Common equivalent shares:
Common shares under stock options outstanding........... 1,048 1,112 557
------- ------- -------
Common and common equivalent shares used in computing
net income per share................................. 19,380 20,285 20,454
======= ======= =======
Net Income Per Share (Primary)............................ $1.80 $2.09 $1.47
======= ======= =======
FULLY DILUTED SHARES:
Common shares outstanding................................. 18,332 19,173 19,897
Common equivalent shares:
Common shares under stock options outstanding........... 1,072 1,289 634
------- ------- -------
Common and common equivalent shares used in computing
net income per share, assuming full dilution......... 19,404 20,462 20,531
======= ======= =======
Net Income Per Share (Fully Diluted)...................... $1.80 $2.08 $1.46
======= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 13.1
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SALES NET INCOME CAPITAL EXPENDITURES SHAREHOLDERS' EQUITY
----- ---------- -------------------- --------------------
(Dollars in Millions)
<S> <C> <S> <S> <S>
1992...................... 145.7 15.8 27.1 108.1
1993...................... 202.7 26.8 39.7 165.6
1994...................... 223.3 34.9 68.7 212.6
1995...................... 285.1 42.5 79.3 278.9
1996...................... 298.4 30.0 117.1 325.3
</TABLE>
9
<PAGE> 2
SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
===============================================================================================================
FIVE FISCAL YEARS ENDED DECEMBER 31, 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $ 298,425 $ 265,122 $ 223,316 $ 202,727 $ 145,666
Net income $ 30,001 $ 42,465 $ 34,909 $ 26,767 $ 15,795
Net income per share $ 1.47 $ 2.09 $ 1.80 $ 1.43 $ 0.94
Number of shares used in computing
per share amounts 20,454 20,285 19,380 18,779 16,893
Capital expenditures $ 117,065 $ 79,346 $ 68,708 $ 39,658 $ 27,083
Working capital $ 88,567 $ 102,761 $ 85,173 $ 88,131 $ 52,869
Total assets $ 401,066 $ 353,430 $ 286,691 $ 212,470 $ 148,404
Shareholders' equity $ 325,280 $ 278,864 $ 212,595 $ 165,580 $ 108,136
===============================================================================================================
</TABLE>
10
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis provides information concerning the
Company's business environment, consolidated results of operations and
liquidity and capital resources. In addition to historical information,
management's discussion and analysis includes certain forward-looking
statements regarding events and financial trends that may effect the Company's
future operating results and financial position. Such statements are subject
to risks and uncertainties that could cause the Company's actual results and
financial position to differ materially. Such risks and uncertainties include,
but are not limited to those specifically discussed below as well as those set
forth in Item 1 of the Company's annual report on Form 10-K for the year ended
December 31, 1996 under the caption "Business Factors That May Affect Future
Results." Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The
Company expressly disclaims any obligation or undertaking to publicly release
any updates or revisions to these forward-looking statements to reflect events
or circumstances that occur or arise after the date hereof to reflect the
occurrence of anticipated events.
The following discussion and analysis of the Company's results of
operations and financial condition should be read in conjunction with "Selected
Financial Information" and the Financial Statements and related notes included
elsewhere herein.
RESULTS OF OPERATIONS
Sales The Company's sales increased from $223.3 million in 1994 to $265.1
million in 1995, or 18.7%, and to $298.4 million in 1996, or 12.6% from 1995.
The growth in 1996 sales over 1995 was driven by increased unit volumes of
products in the Company's data communications and consumer sectors.
The Company's products are sold to system manufacturers in the data
communications, consumer electronics and computer peripherals industries. No
single customer accounted for more than 8.5% of sales in 1994 and 1995, and no
more than 12.8% of sales in 1996, see note 7.
International sales represented 56%, 57% and 56% of sales in 1994, 1995
and 1996, respectively. International sales have been predominantly in the Far
East and Europe.
A number of uncertainties exist that may affect the Company's future
operating results, including uncertain political and general economic
conditions, market acceptance of the Company's new products, the Company's
ability to introduce new products and technologies on a timely basis, changes
in product mix or fluctuations in manufacturing yield that affect the Company's
gross margins, and numerous competitive factors. A prolonged slump in one or
more industries which the Company serves may continue to affect the Company's
future operating results.
During 1996, Zilog introduced a total of 48 new products for its
consumer, peripheral controller and data communications product lines. The
success of these new products is dependent on a number of factors, including
the Company's ability to continue to achieve design wins for these products and
the Company's ability to manufacture the products in sufficient quantities to
meet anticipated demand. New products may exhibit technological defects which
may impede market acceptance if these defects are not resolved promptly. There
can be no assurance that any new products will receive or maintain substantial
market acceptance, nor can there be assurance that the Company will continue to
introduce new products at a similar pace to that established over the past year.
<TABLE>
<CAPTION>
==================================================================================================================================
Year Ended December 31,
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales 100.0% 100.0% 100.0%
Costs and Expenses:
Cost of Sales 58.7 50.9 49.9
Research and Development 10.2 9.3 10.3
Selling, General and Administrative 16.1 15.8 16.9
------ ------ ------
Total Cost and Expenses 85.0 76.0 77.1
------ ------ ------
Operating Income 15.0 24.0 22.9
Other Income (expense):
Interest Income, net 0.8 1.0 1.1
Other, net, including license and royalty income (0.3) (0.2) 0.4
------ ------ ------
Income before income taxes 15.5 24.8 24.4
Provision for income taxes 5.4 8.8 8.8
------ ------ ------
Net income 10.1% 16.0% 15.6%
====== ====== ======
==================================================================================================================================
</TABLE>
Cost of Sales Zilog's cost of sales represents the cost of its wafer
fabrication, assembly and test operations. Cost of sales increased as a
percentage of sales from 49.9% in 1994 to 50.9% in 1995 and 58.7% in 1996. The
increase in the percentage of cost of sales to sales for 1996 was primarily
attributable to additional depreciation expenses and production overhead
costs. In late 1995, the Company began production in its new eight-inch,
submicron facility in Nampa, Idaho. Depreciation expenses related to the
capital additions at the new facility are expected to increase during the first
half of 1997. The financial impact of the additional depreciation will be, in
part, determined by the volume of products produced, product mix and
manufacturing productivity.
Research and Development The Company plans to invest a major portion of its
capital expenditures for 1997 in a new research facility with the capabilities
of designing to a .35 micron feature size in so-called mixed signal processes.
The Company believes that these processes are important to its continued
introduction of new products.
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Selling, General and Administrative Expenses The Company's selling, general
and administrative expenses as a percentage of sales decreased from 16.9% in
1994 to 15.8% in 1995 and increased to 16.1% in 1996. The increase in 1996 was
primarily attributable to the costs associated with a litigation settlement.
Operating Income The Company's operating income increased from $51.2 million
in 1994 to $63.6 million in 1995 or 24.2%, and decreased to $44.6 million or
29.9% in 1996. As a percentage of sales, operating income increased from 22.9%
in 1994 to 24.0% in 1995 and decreased to 15.0% in 1996. The decrease in 1996
was primarily due to a higher percentage of costs of goods sold as a result of
increased depreciation charges and production overhead associated with a new
eight-inch, submicron fabrication facility.
Interest Income The Company's interest income, net, was $2.5 million, $2.7
million and $2.4 million in 1994, 1995 and 1996, respectively. The decrease of
$0.3 million in 1996 reflected the lower average cash and short-term investment
balances held during 1996, primarily as a result of the use of internal funds
to finance the new fabrication facility.
Other Income, Net, Including License and Royalty Income and Expenses The
Company has entered into various license agreements in the semiconductor
industry, involving both payments to and by the Company. These arrangements
have provided for both one-time up-front payments, as well as ongoing royalty
provisions. Also included in other income is the effect of foreign currency
exchange gains of losses which tend to fluctuate from time to time. Although
approximately 56%, 57% and 56% of sales during 1994, 1995 and 1996, respectively
were to unaffiliated customers located outside of the United States,
approximately 9% of sales in 1994 and 1995, and 7% in 1996 were not denominated
in United States dollars and therefore subject to foreign currency fluctuations.
The Company is also subject to foreign currency fluctuations on its working
capital in the Philippines. The Company does not utilize derivative financial
instruments in conjunction with this foreign currency risk.
Provision for Income Taxes The Company's effective tax rate was 36% for 1994,
35.5% for 1995 and 35% for 1996. These rates differ primarily because of the
Company's increased investment in tax exempt securities and state income tax
credits. In 1996, the Company generated additional state investment tax
credits primarily related to its new fabrication facility in Nampa, Idaho.
Liquidity and Capital Resources The Company funded its capital expenditure and
working capital needs during 1994 through 1996 by cash generated from
operations and by stock options exercised. As of December 31, 1996, the
Company's principal sources of liquidity consisted of cash, cash equivalents
and short term investments totaling $68.9 million.
The Company made capital expenditures of $68.7 million, $79.3 million
and $117.1 million in 1994, 1995 and 1996 respectively, primarily for the
expansion of production capacity and the addition of research and development
equipment. The Company expects to make capital expenditures of approximately
$50 million in 1997 for expansion of research and development facilities, as
well as equipment for the Company new wafer fabrication facility in Nampa,
Idaho.
The Company believes that its current cash, cash equivalent and
short-term investment balances, together with funds expected to be generated
from operations, will provide adequate cash to fund the Company's anticipated
liquidity needs for at least the next twelve months. The Company may also use
bank borrowings and capital leases depending on the terms available. The
Company's cash requirements in the future may also be financed by a combination
of additional equity or debt financing.
PRICE RANGE OF COMMON STOCK
Since of May 17, 1995, the Company's Common Stock has been traded on
the New York Stock Exchange under the symbol of "ZLG". Previously the
Company's Common Stock traded on the Nasdaq National Market under the symbol
"ZLOG." The following table shows the high and low closing prices for the
Common Stock of the Company for the periods indicated, as reported by the
Nasdaq National Market and the New York Stock Exchange:
<TABLE>
<CAPTION>
===================================================================================================================================
High Low
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Year Ended December 31, 1995:
First Quarter $ 37 3/4 $ 28 1/4
Second Quarter 49 1/8 34 5/8
Third Quarter 53 1/4 38 7/8
Fourth Quarter 41 1/2 29 3/4
Year Ended December 31, 1996:
First Quarter 38 7/8 30 1/8
Second Quarter 39 3/4 24
Third Quarter 26 3/4 15 1/2
Fourth Quarter 29 1/4 18 1/4
Year Ended December 31, 1997:
First Quarter (through January 24, 1997) 27 3/8 24 3/8
===================================================================================================================================
</TABLE>
(1) As of December 31, 1996, there were approximately 1,142 holders of record
of the Company's Common Stock.
The Company has not paid cash dividends. It is the present policy of
the Company to reinvest earnings in the Company to finance expansion of the
Company's operations, and the Company does not expect to pay dividends in the
foreseeable future.
12
<PAGE> 5
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
=============================================================================================================================
YEAR ENDED DECEMBER 31,
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES $ 298,425 $ 265,122 $ 223,316
Costs and expenses
Cost of sales 175,319 135,066 111,288
Research and development 30,548 24,546 23,948
Selling, general and administrative 47,934 41,943 37,790
---------- ---------- ---------
253,801 201,555 172,126
---------- ---------- ---------
Operating income 44,624 63,567 51,190
Other income (expense):
Interest income, net 2,443 2,676 2,496
Other, net, including license and royalty and expense (911) (360) 860
---------- ---------- ---------
Income before income taxes 46,156 65,883 54,546
Provision for income taxes 16,155 23,418 19,637
---------- ---------- ----------
Net income $ 30,001 $ 42,465 $ 34,909
========== ========== ==========
Net income per share $ 1.47 $ 2.09 $ 1.80
========== ========== ==========
Number of shares used in computing per share amounts 20,454 20,285 19,380
========== ========== ==========
=============================================================================================================================
</TABLE>
See accompanying notes.
13
<PAGE> 6
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
===================================================================================================================
DECEMBER 31,
1996 1995
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS Current assets:
Cash and cash equivalents $ 15,511 $ 7,784
Short-term investments 53,412 73,824
Accounts receivable, less allowance for
doubtful accounts of $250 in 1996 and 1995 29,395 43,061
Inventories 34,469 28,152
Prepaid expenses, deferred income taxes and other
current assets 15,516 16,071
---------- ----------
Total current assets 148,303 168,892
Property, plant and equipment, at cost:
Land, buildings and leasehold improvements 34,061 31,869
Machinery and equipment 345,867 232,242
---------- ----------
379,928 264,111
Less accumulated depreciation and amortization (131,217) (84,771)
---------- ----------
Net property, plant and equipment 248,711 179,340
Other Assets 4,052 5,198
---------- ----------
$ 401,066 $ 353,430
========== ==========
-------------------------------------------------------------------------------------------------------------------
LIABILITIES AND Current liabilities:
SHAREHOLDERS' Accounts payable $ 28,786 $ 36,207
EQUITY Accrued compensation and employee benefits 17,545 14,747
Other accrued liabilities 5,116 6,574
Income taxes payable 8,289 8,603
---------- ----------
Total current liabilities 59,736 66,131
Deferred income taxes 16,050 8,435
Commitments and contingencies
Shareholders' equity:
Common Stock, no par value; 75,000,000 authorized,
20,127,976 shares issued and outstanding in 1996
and 19,455,627 in 1995 161,800 145,313
Retained earnings 163,375 133,374
Net unrealized gains on securities (Net of tax effect) 105 177
---------- ----------
Total shareholders' equity 325,280 278,864
---------- ----------
$ 401,066 $ 353,430
========== ==========
===================================================================================================================
</TABLE>
See accompanying notes.
14
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
(INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (IN THOUSANDS))
<TABLE>
<CAPTION>
================================================================================================================
Years Ended December 31,
1996 1995 1994
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS Net income $ 30,001 $ 42,465 $ 34,909
FROM Adjustments to reconcile net income to cash
OPERATING provided by operating activities:
ACTIVITIES Depreciation and amortization 48,315 27,214 20,858
Less from disposition of equipment 100 386 513
Deferred income taxes 3,811 4,794 2,235
Changes in assets and liabilities
Accounts receivable 13,666 (5,640) (12,126)
Inventories (6,317) (7,171) 4,401
Prepaid expense, and other assets 5,000 (9,956) (6,347)
Accounts payable (7,421) (2,620) 20,168
Accrued compensation and employee benefits 2,798 2,068 2,006
Other accrued liabilities and income taxes
payable 1,683 3,322 6,981
------ ------ ------
Cash provided by operating activities 91,636 54,862 73,598
================================================================================================================
CASH FLOWS Capital expenditures (117,065) (79,346) (68,708)
FROM Short-term investments:
INVESTING Purchases (55,006) (112,240) (129,013)
ACTIVITIES Proceeds from sales 45,035 87,121 80,480
Proceeds from maturities 30,095 33,076 36,537
------- ------- ---------
Cash used for investing activities (96,941) (71,389) (80,704)
----------------------------------------------------------------------------------------------------------------
CASH FLOWS Proceeds from issuance of stock 13,032 16,276 9,480
FROM ------ ------ -------
FINANCING Cash provided by financing activities 13,032 16,276 9,480
ACTIVITIES
------- ------- ------
Increase (decrease) in cash and cash
equivalents 7,727 (251) 2,374
Cash and cash equivalents--beginning of
period 7,784 8,035 5,661
------- ------- -------
Cash and cash equivalents--end of period $15,511 $ 7,784 $8,035
====== ====== =====
Supplemental disclosures of cash flow
information--
Cash paid for:
Income taxes $ 9,249 $12,754 $14,277
===== ====== ======
===============================================================================================================
SEE ACCOMPANYING NOTES.
</TABLE>
15
<PAGE> 8
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
===================================================================================================================================
Net Unrealized Gain Total
Common Stock Retained (Loss) on Shareholders'
------------------------------ Earnings Securities Equity
Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994 17,898,497 $ 109,580 $ 56,000 $ --- $ 165,580
Issuance of Common Stock under stock
option and stock purchase plans,
including tax benefit of $3,452 601,468 12,932 --- --- 12,932
Adjustment to unrealized gains
(losses) on available-for-sale
securities, net of tax --- --- --- (826) (826)
Net income --- --- 34,909 --- 34,909
----------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1994 18,499,965 122,512 90,909 (826) 212,595
Issuance of Common Stock under stock
option and stock purchase plans,
including tax benefit of $6,525 955,662 22,801 --- --- 22,801
Adjustments to unrealized gains
(losses) on available-for-sale
securities, net of tax --- --- --- 1,003 1,003
Net income --- --- 42,465 --- 42,465
----------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1995 19,455,627 145,313 133,374 177 278,864
Issuance of Common Stock under stock
option and stock purchase plans,
including tax benefit of $3,455 672,349 16,487 --- --- 16,487
Adjustments to unrealized gains
(losses) on available-for-sale
securities, net of tax --- --- --- (72) (72)
Net income --- --- 30,001 --- 30,001
----------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1996 20,127,976 $ 161,800 $ 163,375 $ 105 $ 325,280
=========== ========== ========== ========== ==========
===================================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
16
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 1. Summary of Significant Accounting Policies
Nature of Business: Zilog designs, develops, manufactures and markets
application specific standard integrated circuit products (ASSPs) for the data
communications, consumer product controller and intelligent peripheral
controller markets.
Principles of Consolidation: The consolidated financial statements include the
accounts of Zilog, Inc. and all its subsidiaries. All significant transactions
and accounts between the Company and these subsidiaries have been eliminated in
consolidation.
Revenue Recognition: Certain of the Company's sales are made through
distributors under agreements allowing limited right of return and price
protection on merchandise unsold by the distributors. Revenue is recognized at
the time of shipment with appropriate reserves provided for returns and price
allowances. Royalty income is recognized on a quarterly basis when the income
is earned and received from the licensees.
Foreign Currency Translation: Accounts denominated in foreign currencies have
been translated using the U.S. dollar as the functional currency. Accordingly,
monetary accounts and transactions are remeasured at current exchange rates,
and nonmonetary accounts are remeasured at historical rates. Revenues and
expenses are remeasured at the average exchange rates for each period, except
for depreciation expense which is remeasured at historical rates. Foreign
currency exchange gains and (losses) were included in determining results of
operations and aggregated $(540,000), $(508,000) and $213,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
Fair Values of Financial Instruments: The Company's short-term investments
consist primarily of various State and Municipal bonds. Cash and cash
equivalents consists primarily of cash in bank accounts and overnight
investments in commercial paper. The following methods and assumptions were
used by the Company in estimating its fair value disclosures for financial
instruments:
Cash and Cash Equivalents: The carrying amount (at cost), in the balance
sheet for cash and cash equivalents at December 31, 1996 and 1995 were
$15,511,000 and $7,784,000 respectively, which approximates fair value, due
to their short maturities.
Short-Term Investments: The fair values for marketable debt securities are
based on quoted market prices. Investments consist primarily of marketable
debt securities which are classified as available-for-sale and are carried at
fair value. Unrealized gains and losses, net of tax, are reported in
shareholders' equity. The cost basis of investments is adjusted for
amortization of premiums and accretion of discounts to maturity, which is
included in interest income. Realized gains and losses are included in other
income. The cost of securities sold is based on the specific information
method.
The following is a summary of available-for-sale securities as of December
31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
===================================================================================================================================
1996 1995
-------------------- -----------------------------------------------
U.S. Government
Municipal Municipal and Agency Total
Bonds Bonds Securities Debt Securities
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cost $ 53,250 $ 68,717 $ 4,830 $ 73,547
Gross Unrealized Gains 173 325 6 331
Gross Unrealized (Losses) (11) (54) --- (54)
---------- ---------- ---------- ----------
Estimated Fair Value $ 53,412 $ 68,988 $ 4,836 $ 73,824
========== ========== ========== ==========
===================================================================================================================================
</TABLE>
The gross realized gains and (losses) on sales for the year ended December 31,
1996, 1995 and 1994 were not significant. The adjustment for unrealized
holding gains and (losses) in shareholders' equity, net of tax effect, totaled
$105,000 and $177,000 at December 31, 1996 and 1995, respectively.
The maturities for the marketable debt securities at December 31, 1996 and 1995
are shown below (in thousands):
<TABLE>
<CAPTION>
===================================================================================================================================
1996 1995
----------------------------------- -----------------------------------
Estimated Estimated
Cost Fair Value Cost Fair Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in 1 year or less $ 30,831 $ 30,921 $ 30,345 $ 30,473
Due after 1 year through 3 years 22,419 22,491 36,471 36,552
Due after 3 years (less than 5) --- --- 6,731 6,799
----------- ----------- ----------- -----------
$ 53,250 $ 53,412 $ 73,547 $ 73,824
========== ========== ========== ===========
===================================================================================================================================
</TABLE>
17
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
Inventories: Inventories are stated at the lower of standard cost (which
approximates actual cost on a first-in, first-out basis) or market and consist
of the following (in thousands):
<TABLE>
<CAPTION>
===================================================================================================================================
December 31, December 31,
1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 5,385 $ 3,195
Work-in-process 23,412 22,077
Finished goods 5,672 2,880
------- --------
$ 34,469 $ 28,152
======== ========
==================================================================================================================================
</TABLE>
Property, plant and equipment: Depreciation is computed using the straight-line
method over the estimated economic lives of the assets which are generally five
years for machinery and equipment and thirty years for buildings. Amortization
of leasehold improvements is computed using the shorter of the remaining terms
of the leases or the estimated economic lives of the improvements.
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 financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk: Financial instruments which potentially subject
the Company to concentrations of credit risk consist primarily of cash
equivalents, short-term investments and trade accounts receivable. By policy,
the Company places its investments only with high credit quality financial
institutions. Almost all of the Company's trade accounts receivable are derived
from sales to electronics distributors and to manufacturers of consumer
products, intelligent computer peripherals and products which network computers
and peripherals. The Company performs ongoing credit evaluations of its
customers' financial condition and limits its exposure to accounting losses by
limiting the amount of credit extended whenever deemed necessary and generally
does not require collateral.
Long lived Assets: The Company has no long-lived assets used in operations that
currently requires impairment losses to be recorded as required by FASB
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of.
Other Assets: Other assets are primarily licensing agreements stated at cost.
Amortization is computed using the straight line method over the estimated
economic lives of the assets which are generally five years. Accumulated
amortization amounted to approximately $4,495,000 and $2,684,000 at December
31, 1996 and 1995, respectively.
Stock Awards: The Company accounts for employee stock awards in accordance with
APB Opinion No. 25, Accounting for Stock Issued to Employees. As stock option
grants are issued with an exercise price equal to the fair value of the stock,
the Company recognizes no compensation expense for stock option grants.
Additionally, as the Stock Purchase Plan qualifies as an "Employee Stock
Purchase Plan" under Section 423 of the Code, no compensation expense is
recorded. Pro forma information required by FASB Statement No. 123, Accounting
for Stock Based Compensation is presented in Note 4, below.
Net income per share: Net income per share is calculated using the weighted
average number of common and common equivalent shares outstanding from dilutive
stock options under the treasury stock method.
NOTE 2. CREDIT AGREEMENT
Effective December 31, 1991, the Company originally entered into a
three-year unsecured credit agreement, which has been extended to February 28,
1997, with two banks which provides for a total of $20,000,000 in available
borrowings. There have been no borrowings under this agreement and no amounts
are outstanding as of December 31, 1996. Currently, the Company is evaluating
its financial options and has made no decision regarding renewing a bank line
of credit.
Under the provisions of this agreement, the banks restrict the
declaration or payment of dividends (other than dividends payable solely in the
Company's Common Stock) without prior written consent, restrict the Company
from entering into certain transactions and require the Company to maintain
minimum levels of working capital, net income, tangible net worth and certain
other financial ratios. Borrowings under this agreement will bear interest at
defined formula rates based on certain options elected by the Company. There
was no interest expense from borrowings for the years ended 1996, 1995 and 1994.
NOTE 3. EMPLOYEE BENEFIT PLANS
Employee Performance Incentive Plan: Under the amended 1987 Employee Performance
Incentive Plan (the Incentive Plan), domestic exempt employees not included in
any other Company incentive program are eligible to participate in incentive
awards. The Incentive Plan provided for awards of up to 7.5% of pretax profit
(as defined) for the periods 1996, 1995, and 1994 dependent upon the attainment
of certain operating results. Results of operations were charged approximately
$2,141,000, $3,893,000 and $3,840,000 in the years ended December 31, 1996,
1995 and 1994, respectively, under this plan. The Incentive Plan may be
continued, discontinued or amended by the Company's Board of Directors.
18
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
Savings Plan: The Company has an employee savings plan that qualifies as a
deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
Under the plan, participating U.S. employees may defer a portion of their pretax
earnings, up to the Internal Revenue Service annual contribution limit ($9,500
for calendar year 1996). The Company may make matching contributions on behalf
of each participating employee in an amount equal to 100% of the participant's
deferral contribution, up to 1-1/2% of the participant's compensation on a
quarterly basis. The Company may also make additional discretionary
contributions to the 401(k) Plan up to a limit set by federal tax law. Matching
contributions to the savings plan were approximately $589,000, $549,000 and
$436,000 in 1996, 1995 and 1994, respectively. The discretionary contributions
for 1996, 1995 and 1994 were approximately $2,354,000, $1,308,000 and
$1,581,000, respectively.
NOTE 4. SHAREHOLDERS' EQUITY
Stock purchase plan: During 1990, the Company adopted an employee purchase plan
(the "Stock Purchase Plan") allowing eligible employees to purchase shares of
the Company's Common Stock. The total number of shares of Common Stock
authorized for issuance under the plan is 600,000. All full-time employees of
the Company are eligible to participate, subject to certain limited exceptions.
The Stock Purchase Plan provides a means for the Company's employees to purchase
stock through payroll deductions of up to 10% of their gross compensation. The
purchase price for shares offered under the Stock Purchase Plan is equal to 85%
of the lower of the closing price of the Common Stock on the first day of the
six month offer period, or the last day of the six month offer period. As of
December 31, 1996, a total of 395,151 shares had been purchased.
Stock Option Plans: The Zilog New Employee and Employee Promotion Common Share
Option Plan (the "1989 Option Plan") and The Zilog Employee Common Share Option
Plan (the "1990 Option Plan") expired during 1995, and no further stock options
may be granted under these plans. In April 1994, the 1994 Long-Term Stock
Incentive Plan (the "1994 Option Plan") was adopted, effective January 1, 1994.
Under the 1994 Option Plan, the Company may grant to eligible employees:
restricted shares, stock units, incentive stock options, nonqualified stock
options or stock appreciation rights, to purchase up to a total of 3,385,187
shares as of December 31, 1996. The exercise price for incentive stock options,
nonqualified stock options and stock appreciation rights will be determined by
the Board of Directors. Under the terms of the plan, restricted shares and stock
units may be awarded to eligible employees at no cost.
Options under the plans generally vest 25% at the end of one year from
the date of grant and 25% on each anniversary of the grant date thereafter.
Eligible employees under the option plans are new employees and employees at
certain position classification levels within the Company. Effective January 1,
1995 and on each January 1 thereafter for the remaining term of the Plan, an
additional 1,000,000 Common Shares shall be reserved for award as Restricted
Shares, Stock Units, Options and SARs. Any Common Shares that have been reserved
but not awarded as Restricted Shares, Stock Units, Options and SARs during any
calendar year shall not remain available for award in any subsequent calendar
year. All options granted have 10 year terms.
Shares granted and cancelled for 1996, include a Stock Option
Replacement offered by the Company to existing grant holders of unexercised
shares of the 1994 plan which were granted prior to October 18, 1996. Under the
terms of the Stock Option Replacement offer, 2,494,352 shares were cancelled and
re-granted at FMV, at the election of the grant holder. These new grants are not
otherwise exercisable for one year from the date of the stock option replacement
on November 6, 1996, but with the same vesting schedule and expiration date of
the original grants.
The following table summarizes activity under the 1989, 1990 and 1994 Option
Plans:
<TABLE>
<CAPTION>
================================================================================
Shares Options Outstanding
Available Price per
for Grant Shares Share
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1993 1,686,751 4,169,659 $ 0.13-$34.63
Granted (1,464,350) 1,464,350 $26.50-$35.25
Exercised - (545,988) $ 0.13-$27.50
Cancelled 210,781 (425,161) $ 0.13-$34.63
---------- ---------
Balance at December 31, 1994 433,182 4,662,860 $ 0.13-$35.25
Shares reserved 1,000,000 - -
Granted (1,644,600) 1,644,600 $29.75-$47.75
Exercised - (907,787) $ 0.13-$35.25
Cancelled 248,913 (549,149) $ 2.67-$47.75
---------- ---------
Balance at December 31, 1995 37,495 4,850,524 $ 0.13-$47.75
========== =========
================================================================================
</TABLE>
19
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
A summary of the Company's stock option activity, and related information for
the year ended December 31, 1996 follows:
<TABLE>
<CAPTION>
====================================================================================================================================
1996
----------------------------------------------
Shares Options
Available Shares Weighted-Average
for Grant Outstanding Exercise Price
----------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1996 37,495 4,850,524 $ 27.1266
Shares reserved 1,000,000 -- --
Granted (3,598,502) 3,598,502 $ 25.5675
Exercised -- (607,262) $ 19.1244
Cancelled 2,561,007 (3,171,491) $ 33.1675
--------- ---------
Balance at December 31, 1996 -- 4,670,273 $ 20.6779
========= =========
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
Options Outstanding Options Exercisable
------------------------------------------------------- ------------------------------------
Number Weighted Average Weighted Number
Range of Outstanding Remaining Average Exercisable Weighted Avg.
Exercisable Prices at 12/31/96 Contractural Life Exercisable Price at 12/31/96 Exercise Price
------------------------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.1333 - $10.00 219,50 3.94 $ 5.8763 219,100 $ 5.8767
$10.6666 - $20.00 2,815,958 8.79 $19.3131 868,877 $17.8181
$20.1666 - $30.00 1,337,117 6.83 $23.1422 997,593 $21.9937
$30.1250 - $47.75 297,948 8.52 $33.4088 106,267 $31.9914
--------- ---- -------- ------- --------
$0.1333 - $47.75 4,670,273 7.99 $20.6777 2,191,837 $19.2121
========= =========
The weighted average fair value of options granted in 1996 and 1995 were $9.2311 and $12.2639 per share, respectively.
====================================================================================================================================
</TABLE>
Pro forma Stock Based Compensation: Pro forma information regarding net income
and earnings per share is required by FASB Statement 123, which also required
that the information be determined as if the Company has accounted for its
employee options granted subsequent to December 31, 1994 under the fair value
method of that statement. The fair value for these options was estimated at the
date of grant utilizing a Black-Scholes option pricing model with a multiple
option approach. The following weighted-average assumptions for 1995 and 1996,
respectively, were used: risk-free interest rates (annual average) of 6.4% and
5.5%; dividend yields of zero; volatility factors of the expected market price
of the Company's common stock of .40 and .67; and a weighted-average expected
life of the option of 4.5 years.
To comply with the pro forma reporting requirements of FAS No. 123 for stock
awards granted under the employee stock purchase plan, compensation cost is
estimated for the fair value of the employees' purchase rights using the
Black-Scholes model with the following assumptions for those rights granted in
1995 and 1996; dividend yield of 0.0%; an expected life ranging up to .5 years;
expected volatility factor of .42 and .61; and a risk free interest rate of
6.1% and 5.4%. The weighted average fair value of those purchase rights granted
in March 1995, September 1995, March 1996, and September 1996 were $3.23,
$3.75, $3.59, and $3.54 respectively.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in managements opinion, the existing models do not necessarily provide a
reliable, single measure of the fair value of its employee stock options.
For purposes of pro forma disclosure, the expense amortization of the options'
fair value is allocated over the options' vesting period (4 years). The
Company pro forma information follows (in thousands except for earnings per
share information):
<TABLE>
<CAPTION>
====================================================================================================================================
YEAR ENDED DECEMBER 31,
1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Pro forma net income $10,413 $36,957
Pro forma earnings per share; Primary 0.54 1.86
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
For pro forma disclosure in accordance with FAS No. 123, the Stock Option
Replacement offer options are treated as a modification of an award. Any
additional compensation arising from the modification is recognized over the
remaining vesting period of the new grant. FAS No. 123 is effective for options
granted by the Company commencing January 1, 1995. All options granted before
January 1, 1995 have not been valued and no pro forma compensation expense has
been recognized. However any option granted before January 1, 1995 that was
repriced in 1996 is treated as a new grant within 1996 and valued accordingly.
In addition, as compensation expense is recognized over the vesting period of
the option, which is typically four years, and pro forma disclosure is only
required commencing with 1995, the initial impact on pro forma income may not be
representative of pro forma compensation expense in future years.
20
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 5. Income Taxes
The provision for income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
================================================================================
Year Ended December 31,
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current $10,076 $15,998 $14,310
Deferred 3,360 4,074 1,960
------- ------- -------
13,436 20,072 16,270
State:
Current 966 1,478 2,062
Deferred 636 684 235
------- ------- -------
1,602 2,162 2,297
Foreign:
Current 1,302 1,148 1,030
Deferred (185) 36 40
------- ------- -------
1,117 1,184 1,070
------- ------- -------
Provision for income taxes $16,155 $23,418 $19,637
======= ======= =======
</TABLE>
================================================================================
The tax benefits associated with the exercise of stock options reduce taxes
currently payable as shown above by $3,455,000, $6,525,000 and $3,452,000 in
1996, 1995 and 1994 respectively. Such benefits are credited to additional
paid-in-capital when realized.
Pretax income from foreign operations was $4,678,000, $3,901,000 and
$2,680,000, for the years ended December 31, 1996, 1995 and 1994, respectively.
Unremitted foreign earnings that are considered to be permanently invested
outside the United States and on which no deferred taxes have been provided
amounted to approximately $13,000,000 at December 31, 1996. If such amounts were
remitted, the residual U.S. tax liability (net of foreign tax credits), would be
approximately $2,000,000.
The provision for income taxes differs from the amount computed by
applying the statutory federal income tax rate to income before taxes. The
sources and tax effects of the differences are as follows (in thousands):
<TABLE>
<CAPTION>
================================================================================
Year Ended December 31,
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed expected provision $16,155 $23,059 $19,091
State tax, net of federal benefit 1,042 1,405 1,486
Tax exempt interest income (745) (710) (761)
Other (297) (336) (179)
------- ------- -------
$16,155 $23,418 $19,637
======= ======= =======
</TABLE>
================================================================================
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax liabilities and assets are as follows
(in thousands):
<TABLE>
<CAPTION>
================================================================================
Year Ended December 31,
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $(16,046) $(8,830)
Valuation of investment portfolio (57) (100)
-------- -------
(16,103) (8,930)
Deferred tax assets:
Inventory valuation adjustment and reserves 4,106 1,028
Accruals not currently deductible 2,297 1,624
Prepaid expenses and other 537 719
------- -------
6,940 3,371
------- -------
Net deferred tax liabilities $(9,163) $(5,559)
======= =======
</TABLE>
===============================================================================
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 6. Commitments and Contingencies
The Company leases certain of its facilities under noncancelable
operating leases which expire in 1997 through 2004. The facilities lease
agreements generally provide for base rental rates which increase at various
times during the terms of the leases and also provide for renewal options at
fair market rental value.
Minimum future payments under these noncancelable operating leases at
December 31, 1996 are as follows (in thousands):
<TABLE>
================================================================================
<S> <C>
1997 $2,141
1998 867
1999 292
2000 213
2001 173
Thereafter 412
------
$4,098
======
</TABLE>
================================================================================
Total rental expense, including month-to-month rentals, was $2,778,000.
$2,732,000 and $2,311,000, for the years ended December 31, 1996, 1995 and
1994, respectively.
The Company is participating in litigation arising in the ordinary course of
business. The Company will defend itself vigorously. The Company believes that
it is unlikely that the outcome of these matters will have a material adverse
effect on its financial position, results of operations, or cash flow. The
estimate of the potential impact on the Company's financial position or overall
results of operations for the above legal proceedings could change in the
future.
Note 7. Geographic Information
The Company operates in one industry segment and is primarily engaged
in the design, development, manufacturing and marketing of application specific
standard semiconductor products. The Company sells its products to system
manufacturers in a broad range of industries. During the period ending December
31, 1996 one customer, Lucent Technologies, represented 12.8% of sales or
approximately $38,000,000. No single customer accounted for more than 8.5% of
sales during the period ended December 31, 1995 and 1994.
Export sales to unaffiliated customers located outside the United
States, expressed as a percentage of consolidated sales, consist of the
following:
<TABLE>
<CAPTION>
================================================================================
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Far East 42% 40% 39%
Europe 9 10 11
Other 5 7 6
-- -- --
56% 57% 56%
== == ==
</TABLE>
================================================================================
The Company's operating results are subject to the risks inherent in
international sales and purchases, including, but not limited to various
regulatory requirements, political and economic changes and disruptions,
transportation delays, foreign currency fluctuations, export/import controls,
tariff regulations, higher freight rates, difficulties in staffing and managing
foreign sales operations, greater difficulty in accounts receivable collection,
and potentially adverse tax consequences. Duty, tariff and freight costs can
materially increase the cost of crucial components for the Company's products.
Foreign exchange fluctuations may render the Company's products less
competitive relative to locally manufactured product offerings, or could result
in foreign exchange losses. The Company remains subject to the transaction
exposures that arise from foreign exchange movements between the dates foreign
currency export sales or purchase transactions are recorded and the dates cash
is received or payments are made in foreign currencies. There can be no
assurance that the Company's current or any future currency exchange strategy
will be successful in avoiding exchange related losses or that any of the
factors listed above will not have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's operations outside the United States consist of two
assembly plants in the Philippines and sales offices in certain foreign
countries. Domestic operations are responsible for the design, development and
wafer fabrication of all products, as well as the coordination of production
planning and shipping to meet world-wide customer commitments. The Philippine
assembly plants are reimbursed in relation to value added during assembly, and
the foreign sales offices receive a commission on export sales within their
territory. Accordingly, for financial statement purposes, it is not meaningful
to segregate revenues or operating profits for the assembly and foreign sales
operations. Identifiable assets by geographic area are as follows (in
thousands):
<TABLE>
<CAPTION>
================================================================================
December 31,
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
United States (including
corporate assets) $329,304 $304,953
Philippines 70,388 47,310
Other 1,374 1,167
-------- --------
Total assets $401,066 $353,430
======== ========
</TABLE>
================================================================================
<PAGE> 15
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
Zilog, Inc.
We have audited the accompanying consolidated balance sheets of Zilog,
Inc. as of December 31, 1996 and 1995, and the related consolidated statements
of income, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Zilog,
Inc. at December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
San Jose, California
January 22, 1997
<PAGE> 16
QUARTERLY INFORMATION
QUARTERLY RESULTS
The following table presents unaudited quarterly results and those
results as a percentage of net sales for the eight quarters of 1995 and 1996.
The Company believes that all necessary adjustments, consisting only of normal
recurring adjustments, have been included in the amounts stated below to state
fairly the selected quarterly information when read in conjunction with the
Consolidated Financial Statements. The Company's year-end is December 31, with
interim results based on fiscal quarters of thirteen weeks of duration ending
on the last Sunday of each quarter. The operating results for any quarter are
not necessarily indicative of results for any subsequent period.
QUARTERLY INFORMATION (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
===================================================================================================================================
QUARTERS ENDED
APRIL 2, JULY 2, OCT. 1 DEC. 31, MAR. 31, JUN. 30, SEP. 29, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $62,710 $66,729 $62,715 $72,968 $80,999 $85,459 $63,803 $68,164
Costs and expenses:
Cost of sales 31,246 33,474 32,264 38,082 42,941 47,534 41,178 43,666
------- ------- ------- ------- ------- ------- ------- -------
Gross margin 31,464 33,255 30,451 34,886 38,058 37,925 22,625 24,498
Research and development 6,089 6,740 5,562 6,155 7,587 7,412 7,360 8,189
Selling, general and administrative 10,311 10,852 9,159 11,621 12,037 11,477 12,838 11,582
------- ------- ------- ------- ------- ------- ------- -------
Total costs and expenses 47,656 51,066 46,985 55,858 62,565 66,423 61,376 63,437
------- ------- ------- ------- ------- ------- ------- -------
Operating income 15,064 15,663 15,730 17,110 18,434 19,036 2,427 4,727
Other income (expense) net:
Interest income, net 613 593 826 645 562 623 555 613
Other, net, including license
and royalty income and expense 1 769 (418) (713) (368) (726) (157) 340
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes 15,678 17,025 16,138 17,042 18,718 18,933 2,825 5,680
Provision for income taxes 5,644 6,129 5,810 5,835 6,645 6,533 989 1,988
------- ------- ------- ------- ------- ------- ------- -------
Net income $10,034 $10,896 $10,328 $11,207 $12,073 $12,400 $ 1,836 $ 3,692
======= ======= ======= ======= ======= ======= ======= =======
Net income per share $ 0.51 $ 0.54 $ 0.50 $ 0.55 $ 0.59 $ 0.60 $ 0.09 $ 0.18
======= ======= ======= ======= ======= ======= ======= =======
As a Percentage of Sales
- -----------------------------------------------------------------------------------------------------------------------------------
Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales 49.0 50.2 51.4 52.2 53.0 55.6 64.5 64.1
------- ------- ------- ------- ------- ------- ------- -------
Gross margin 50.2 49.8 48.6 47.8 47.0 44.4 35.5 35.9
Research and development 9.7 10.1 8.9 8.4 9.4 8.7 11.5 12.0
Selling, general and administrative 16.5 16.2 14.6 15.9 14.9 13.4 20.1 17.0
------- ------- ------- ------- ------- ------- ------- -------
Total costs and expenses 76.0 76.5 74.9 76.5 77.3 77.7 96.1 93.1
------- ------- ------- ------- ------- ------- ------- -------
Operating income 24.0 23.5 25.1 23.5 22.7 22.3 3.9 6.9
Other income (expense) net:
Interest income, net 1.0 0.9 1.3 0.9 0.8 0.7 0.8 0.9
Other, net, including license
and royalty income and expense 0.0 1.1 (0.7) (1.0) (0.4) (0.9) (0.2) 0.5
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes 25.0 25.5 25.7 23.4 23.1 22.1 4.5 8.3
Provision for income taxes 9.0 9.2 9.2 8.0 8.2 7.6 1.6 2.9
------- ------- ------- ------- ------- ------- ------- -------
Net income 16.0% 16.3% 16.5% 15.4% 14.9% 14.5% 2.9% 5.4%
======= ======= ======= ======= ======= ======= ======= =======
===================================================================================================================================
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Zilog, Inc. of our report dated January 22, 1997 included in the 1996
Annual Report to Shareholders of Zilog, Inc.
Our audits also included the financial statement schedule of Zilog, Inc.
listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8 Nos. 33-67938 and 33-95110) pertaining to the 1990 Zilog
Employee Common Share Option Plan, the 1990 Zilog Employee Stock Purchase Plan
and the 1994 Long-Term Stock Incentive Plan and in the related Prospectuses of
our report dated January 22, 1997 with respect to the consolidated financial
statements and schedules included or incorporated by reference in this Annual
Report (Form 10-K) of Zilog, Inc.
ERNST & YOUNG LLP
San Jose, California
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 15,511
<SECURITIES> 53,412
<RECEIVABLES> 29,645
<ALLOWANCES> 250
<INVENTORY> 34,469
<CURRENT-ASSETS> 148,303
<PP&E> 379,928
<DEPRECIATION> 131,217
<TOTAL-ASSETS> 401,066
<CURRENT-LIABILITIES> 59,736
<BONDS> 0
0
0
<COMMON> 161,800
<OTHER-SE> 163,480
<TOTAL-LIABILITY-AND-EQUITY> 401,066
<SALES> 298,425
<TOTAL-REVENUES> 298,425
<CGS> 175,319
<TOTAL-COSTS> 175,319
<OTHER-EXPENSES> 30,548
<LOSS-PROVISION> 107
<INTEREST-EXPENSE> 290
<INCOME-PRETAX> 46,156
<INCOME-TAX> 16,155
<INCOME-CONTINUING> 30,001
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,001
<EPS-PRIMARY> 1.47
<EPS-DILUTED> 1.46
</TABLE>
