<PAGE> 1
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 JANUARY 1, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-11674
LSI LOGIC CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
DELAWARE 94-2712976
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1551 MCCARTHY BOULEVARD
MILPITAS, CALIFORNIA 95035
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 433-8000
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- - --------------------------------------------------------------------------------------------
<S> <C>
Common Stock, $0.01 par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
(TITLE OF CLASS)
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 requirement 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 the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the closing price of the Common Stock on February 2,
1995 as reported on the New York Stock Exchange, was approximately
$2,188,655,275. Shares of Common Stock held by each executive officer and
director and by each person who owns 5% or more of the outstanding Common Stock
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.
As of February 2, 1995, registrant had 57,183,177 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for registrant's 1995 Annual Meeting of
Stockholders is incorporated by reference into Part III of this Form 10-K
Report.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
LSI Logic Corporation (the "Company") is a leader in the design,
development, manufacture and marketing of high performance application-specific
integrated circuits ("ASICs"). The Company uses advanced process technology and
design methodology to design and develop highly complex ASICs and other
integrated circuits. The Company's sub-micron process technologies combined with
its product libraries, including CoreWare libraries, provide the Company with
the ability to integrate system level solutions on a single chip.
The Company focuses its product marketing strategy primarily on original
equipment manufacturers in the electronic data processing, telecommunications
and certain office automation industries and, within these industries,
emphasizes digital video, networking, desktop and personal computing and
wireless communication applications. The Company increasingly directs its
marketing and selling efforts towards a limited number of customers that are
acknowledged industry leaders in these markets.
The Company has developed and uses advanced manufacturing process
technologies, including 0.6-micron and 0.5-micron complementary metal oxide
semiconductor ("CMOS") processes, for the Company's advanced product offerings.
As process technology becomes more sophisticated, allowing greater density and
increased functionality on a single chip, the system-on-a-chip is becoming the
foundation of the Company's approach to the marketplace. The Company's CoreWare
methodology and sub-micron process technologies permit customers to combine
microprocessor "engines", logic blocks (including industry standard functions,
protocols and interfaces) and memory with a customer's proprietary logic on a
single chip. This allows the customer to differentiate its product and optimize
its application.
The Company was incorporated in California on November 6, 1980 and
reincorporated in Delaware on June 11, 1987. Its principal offices are located
at 1551 McCarthy Boulevard, Milpitas, California 95035, and its telephone number
at that location is (408) 433-8000. Except where otherwise indicated, references
to the "Company" means LSI Logic Corporation and its majority- and wholly-owned
subsidiaries.
BUSINESS STRATEGY
The Company's objective is to design and manufacture highly integrated,
complex semiconductor devices that provide its customers with system-level
solutions on silicon thereby allowing customers to get to market rapidly with
differentiated systems and products. To achieve this objective, the Company has
implemented a business strategy incorporating the following key elements:
- Target Growth Markets and Selected Customers. The Company has
increasingly directed its marketing and selling efforts toward selected
customers in certain growth markets. The Company targets high growth end
markets which are characterized by increasingly shortened product cycles
and ongoing changes in technological standards and performance
requirements. As a result, customers in these markets tend to benefit
from the flexibility of the Company's customized ASIC design methodology
to help differentiate their products while still complying with existing
and emerging global industry standards such as Ethernet and ATM
(Asynchronous Transfer Mode) in the networking market, PCI bus interface
in the personal computer market and MPEG2 (Motion Picture Experts Group)
for video compression applications in the digital video market.
- Emphasize CoreWare Methodology. The Company's CoreWare product library
approach and its sub-micron process technologies permit system-level
integration of microprocessors, logic blocks (including industry standard
functions, protocols and interfaces), memory and customer specific
proprietary logic functions on a single piece of silicon. This
methodology enables customers to improve the performance and reliability
of their products and differentiate their products while shortening
product development cycles and lowering development costs.
1
<PAGE> 3
- Promote Highly Integrated Design and Manufacturing Technology. The
Company's proprietary computer-aided design tools are highly integrated
with the Company's manufacturing process requirements, thereby providing
high predictability that the product's physical performance will mirror
the computer simulation of the chip and affording high predictability of
performance of products developed using the Company's design methodology.
The Company's sophisticated design tools, advanced process technology and
sub-micron manufacturing capability are intended to provide customers
highly integrated solutions that work right the first time.
- Flexibility in Design Engineering. The Company provides customers with a
comprehensive approach and a continuum of solutions for the design and
manufacture of ASICs. This allows customers substantial flexibility in
how they proceed with an ASIC design project. A customer may establish
product specifications for implementation into a particular chip design
by the customer's engineers, by the Company's engineers on a "turn-key"
basis or through a collaborative effort. The Company's design environment
includes expanded interface capabilities to certain third party EDA
software design tools from companies such as Cadence Design Systems,
Inc., Mentor Graphics Corporation and Synopsys, Inc.
- Maintain High-Quality and Cost-Effective Manufacturing. The Company
believes that owning its wafer manufacturing facilities not only provides
access to capacity but also improves quality, cost-effectiveness,
responsiveness to customers, ability to implement leading-edge process
technology and improve time-to-market as compared to companies that do
not own their own wafer fabrication facilities. The Company's
manufacturing operations are located in the United States, Japan and Hong
Kong. The Company performs substantially all of its packaging, assembly
and final test operations through third party subcontractors in various
locations. During 1994, the Company's United States production operations
received ISO-9002 certification, an important international measure for
quality.
- Offer Worldwide Services. The Company markets its products and services
on a worldwide basis through its direct sales, marketing and field
technical staff of approximately 750 employees (including its
subsidiaries in Europe, Canada and Japan), and through independent sales
representatives and distributors. The Company operates over 25 design
centers around the world to assist customers in product design
activities. The Company's network of design centers allows the Company to
provide its customers with highly experienced engineers to interact with
customer engineering management and system architects to develop designs
for new products and to provide continuing after-sale customer support.
PRODUCTS AND SERVICES
Engineering
The Company has developed and offers to customers a wide variety of
engineering design services. The Company's engineering design service approach
allows the customers to determine the level of participation which the customers
will have in the design process. The Company may provide complete "turn-key"
engineering support for design projects where the customer provides high-level
functional objectives. This type of engineering support is well suited for a
customer's system-level design project in which the Company is engaged to
utilize one or more of its CoreWare library elements for delivering a system on
a single chip. However, the customer may also perform substantial design
activity on its own using either the Company's C-MDE design tools or any of a
variety of third party EDA vendor's design tools. Access to the Company's C-MDE
design tools is available at each of the Company's design centers and for
installation at a customer's site pursuant to a licensing agreement with the
Company. See "Properties." In addition, customers' designs that have originated
through the use of certain third party EDA vendors' design tools are
transferrable into the Company's ASIC design environment for manufacture of ASIC
devices by the Company.
The Company makes available various library elements, including
semiconductor macrocells (the basic silicon structures used in the design of
logic circuits and the larger predefined functional building blocks "megacells"
and "megafunctions"), technology data bases and design automation software
programs. The
2
<PAGE> 4
most complex of the Company's library elements are called cores which are
comprised of predefined and pretested cells of industry standard functions,
protocols and interfaces.
The ultimate output of the Company's integrated circuit design system is a
pattern generation tape from which the semiconductor "masks" or production
tooling is made. The system also produces a test tape which is readable by
standard industry semiconductor testing equipment. The Company's software design
tools support and automatically perform key elements of the design process from
circuit concept through physical layout of the circuit design and preparation of
pattern generation tapes.
After completion of the engineering design effort, the Company produces and
tests prototype circuits for shipment to the customer. Thereafter, the Company
will commence volume production of integrated circuits that have been developed
through one or more of the arrangements described above in accordance with the
customer's quantity and delivery requirements. The Company generally does not
have long-term volume production contracts with its customers. Whether any
specific ASIC design will result in volume production orders and the quantities
included in any such orders are factors beyond the control of the Company.
Insufficient orders will result in underutilization of the Company's
manufacturing facilities which would adversely impact the Company's operating
results.
Components
The Company makes available product solutions based upon metal programmable
array, cell-based and Embedded Array product architectures. The Company
emphasizes its CoreWare product library approach which permits customers to
improve the performance and reliability of their products. The Company also
offers products implementing the customer's own proprietary logic. The Company
offers a wide variety of die sizes and functionality configurations which are
available in different feature sizes and are based on different process
technologies.
A metal programmable array, also known as a gate array, is a matrix of
uncommitted transistors contained on a single chip. The gate array is
"programmed" (i.e., customized) only in the last steps of the fabrication
process. This enables the manufacturer to produce large quantities of
uncommitted gate arrays, known as "base arrays," and to benefit from the
economies of volume chip production. These basic silicon substrates are designed
and manufactured in a fashion similar to standard integrated circuits. The
individual elements are interconnected at the metallization step in the
manufacturing process to implement user defined functions. Gate arrays, when
compared to many standard logic circuits, provide the system manufacturer with
lower cost, higher reliability, lower power consumption, increased performance
and smaller end products.
The Company emphasizes its proprietary Channel-Free gate array architecture
for gate array designs. The Company's gate array products offer high levels of
design complexity. Base arrays for the Company's different gate arrays are mass
produced in a variety of die sizes and are held in inventory by the Company for
customization at a later time. During customization, the array is programmed
quickly by the interconnection of its logic elements into the circuit specified
by the customer.
The Company's cell-based technology allows the customer to combine standard
cells, memories such as fully static random access memory (RAM), static
multi-port RAM, metal programmable read only memory (ROM) and other dedicated
very large scale integration (VLSI) building blocks called megacells on a single
chip. Through combinations of these various cell-based structures, the Company
can provide the customer with customized solutions to a wide variety of digital
design problems.
In addition, the Company offers its customers the opportunity to create
proprietary base wafers by utilizing a combination of the Company's standard
cell technology with metal programmable Channel-Free gate array technology. This
Embedded Array product option can provide the customer with both high
performance and density features normally associated with cell-based technology
and with fast turnaround times resembling those available only for gate
array-based designs.
During 1994, the Company continued expanding its ASIC product lines and its
CoreWare product library elements. CoreWare library elements are complex VLSI or
large system-level pre-designed building blocks of
3
<PAGE> 5
integrated circuit logic functions. CoreWare elements may be either developed by
the Company or acquired under technology transfer or licensing agreements
between the Company and other developers. In addition, CoreWare elements are
highly integrated for use with the Company's proprietary software design tools
and those advanced manufacturing processes to which individual cores are
targeted.
The Company intends the CoreWare libraries it offers to be based upon
industry standard functions, protocols and interfaces, thereby positioning them
to be useful in a wide variety of systems applications. The additional
capability afforded by the Company's CoreWare product libraries allows customers
to increase functional integration, including system-level applications on a
single chip. The Company's CoreWare product libraries are designed to be used
with the customer's proprietary logic in gate array, cell-based or Embedded
Array product designs based upon the Company's design methodology. Expansion of
the Company's CoreWare library elements continued during 1994 and is expected to
continue into the foreseeable future.
The Company is increasingly emphasizing engineering development and
acquisition of CoreWare libraries and integration of CoreWare libraries into its
ASIC design capabilities in the Company's transition from manufacturing products
substantially based on the customer's proprietary logic design to emphasizing
ASIC opportunities that utilize the Company's CoreWare product libraries. There
can be no assurance, however, that the cores selected for investment of the
Company's financial and engineering resources will enjoy market acceptance or
that such cores can be successfully integrated into the Company's ASIC design
environment on a timely basis. See "Marketing and Customers."
Generally, new standard products developed by the Company are
implementations of emerging industry standard functions that the Company is
targeting for inclusion in its CoreWare library as well. The Company offers a
family of high-speed digital signal and image processing devices that perform a
wide variety of common digital signal processing operations. In 1994, the
Company introduced both a single chip MPEG2 audio/video decoder as a standard
product. To address the telecommunications market, the Company also approved in
1994 a portfolio of ATM-compliant application specific devices derived from the
Company's ATMizer architecture. The Company also recently announced its HYDRA-XS
four-chip solution as a 50MHz upgrade of its HYDRA product offering designed for
Pentium processor-based symmetric multiprocessing systems.
MANUFACTURING
The Company's manufacturing operations convert a customer's design into
packaged silicon chips and support customer volume production requirements.
Manufacturing begins with fabrication of uncommitted wafers (for gate array
ASICs) or custom diffused wafers (for cell-based ASICs). Although base layers
for cell-based designs are themselves customized, gate array wafers are not and
therefore may be inventoried by the Company pending customization accomplished
in the metallization stage of fabrication. In the next stage of manufacture,
metallization, layers of metal interconnects are diffused onto the wafer using
customized masks. Wafers are then tested, cut into die and sorted. The die that
have passed initial test are then assembled (embedded in and connected to one of
a wide variety of packages) and encapsulated. The finished devices then undergo
additional tests before shipment.
Currently, the Company's manufacturing facilities are located in the United
States, Japan and the Far East. Management and control of manufacturing
operations is performed by the Company's Hong Kong affiliate. Substantially all
of the Company's wafers are manufactured at its two wafer fabrication facilities
in Japan. In the first quarter of 1995, the Company became the sole owner of
those Japanese facilities, through the purchase of the former co-owner's
minority interest. Final assembly and test operations are conducted by the
Company's Hong Kong affiliate through independent subcontractors, and through
the Company's Fremont, California facility. In July 1997, Hong Kong will come
under the complete control of the Chinese government. There can be no assurance
that the Company and its affiliates will not experience a disruption in the flow
of products as a result of a reversion of control of Hong Kong to China, which
would cause a material adverse impact on the Company's operating results. In
addition to the possible reversion of Hong Kong to Chinese control, any
political or economic disruptions in the countries where the subcontractors are
located, could result in a material adverse impact on the Company's operating
results.
4
<PAGE> 6
The Company utilizes various high performance CMOS process technologies in
the volume manufacture of its products. The Company's newest facility in Japan
utilizes advanced process technologies in conjunction with computer integrated
manufacturing to produce both 0.6-micron products containing up to 600,000 gates
(or up to 2.4 million transistors on a single chip) and 0.5-micron products
containing up to 1.5 million gates (or up to 9 million transistors on a single
chip) and offers customers a high-volume, reliable source for manufacturing.
This 50,000 square foot facility has a highly automated production line,
providing greater productivity and product quality. Decisions such as
prioritization of specific customer requirements or maximizing machine
efficiencies can be made rapidly with the aid of computer integrated
manufacturing. The equipment installed at this facility accommodates both
current and expected future process requirements and automation standards. When
fully utilized, the new facility will double the Company's manufacturing
capacity provided by its other facilities.
Disruption of operations at any of the Company's primary manufacturing
facilities, particularly the Company's Japanese facilities, or any of its
subcontractors for any reason, including work stoppages, fire, earthquake or
other natural disasters, would cause delays in shipments of the Company's
products. There can be no assurance that alternate capacity, particularly wafer
production capacity, would be available on a timely basis or at all, or that if
available, they could be obtained on favorable terms. The Company has been
operating most of its manufacturing facilities at or close to capacity during
the last year. Although the Company currently has plans to increase its
production capacity through the installation of new production equipment at its
Japanese manufacturing facilities and its other facilities and is evaluating
other ways to increase capacity, there is no assurance that the Company will be
able to expand its manufacturing capacity to meet expected future demand, which
could result in a loss of customers and could materially and adversely affect
the Company's operating results. In addition, if demand for the Company's
products does not absorb the additional capacity, the increase in fixed costs
and operating expenses related to increases in production capacity may
materially and adversely affect the Company's operations. The Company has in the
past and will in the future, consider developing foundry relationships with
certain other semiconductor manufacturers whereby the Company may purchase
quantities of wafers (both unmetallized and metallized) that are manufactured to
the Company's specifications.
The semiconductor industry is capital intensive. In order to remain
competitive, the Company must continue to make significant investments in new
facilities and capital equipment. In the last four years, the Company has
expended approximately $490 million for property and equipment. The Company
expects to spend approximately $150 million for capital expenditures during 1995
and significant amounts in subsequent periods on facilities and capital
equipment. There can be no assurance that the Company will have the resources
available when needed to meet these requirements. The Company may be required to
seek additional equity or debt financing to fund further expansion of its
fabrication capacity or for other purposes. There can be no assurance that such
additional financing will be available when needed or, if available, will be on
satisfactory terms. In addition, these significant capital expenditures result
in a relatively high level of fixed costs. Accordingly, fluctuations in revenues
may significantly affect profitability.
In the assembly process, the fabricated circuit is encapsulated into
ceramic or plastic packages. The Company has developed a network of offshore
third-party assembly and final test subcontractors for plastic packaging.
Plastic packaging is normally associated with lower cost, commercially oriented
products. The Company has benefitted from the cost savings associated with these
third-party subcontractors. The Company performs ceramic package assembly for
its products at its Fremont, California facility. Ceramic packaging is primarily
utilized in applications involving the need to protect the circuit against a
potentially harsh operating environment, such as in military applications. The
Fremont assembly line has been specially equipped to support both the packaging
needs of military as well as selected commercial applications. The proportion of
ceramic packaging being done by independent assembly plants continues to
increase and the Company has begun ceramic packaging offshore.
Testing includes final test and final quality assurance acceptance.
Dedicated computer systems are used in this comprehensive testing sequence. The
test programs utilize the basic functional test criteria from the design
simulation which was generated and approved by the customers' design engineers.
Most product testing
5
<PAGE> 7
operations are currently conducted in close proximity to the particular facility
where assembly activities are performed. The Company intends to continue
increasing its use of independent assembly plants to test its products.
Certain of the raw materials used in the manufacture of circuits are
available from a limited number of suppliers in the United States and elsewhere.
For example, for several types of the integrated circuit packages that are
purchased by the Company, as well as by the majority of other companies in the
semiconductor industry, the Company must rely on one vendor for the majority of
its supply. The Company has in the past experienced, and anticipates that it may
in the future experience, difficulty in obtaining the most advanced plastic or
ceramic packaging for integrated circuits, which can cause shipment delays. The
Company does not have long-term fixed supply contracts with its suppliers.
Shortages could occur in various essential materials due to interruption of
supply or increased demand in the industry. If the Company were unable to
procure certain of such materials from any source, it would be required to
reduce its manufacturing operations. To date, the Company has experienced no
significant difficulty in obtaining the necessary raw materials. The Company's
operations depend upon a continuing adequate supply of electricity, natural gas
and water.
The semiconductor industry historically has been characterized by wide
fluctuations in product supply and demand. From time to time the industry also
has experienced significant downturns, often in connection with, or in
anticipation of maturing product cycles (of both the semiconductor companies and
their customers) and declines in general economic conditions. These downturns
have been characterized by diminished product demand, production overcapacity
and subsequent accelerated erosion of average selling prices, and in some cases,
have lasted for more than a year. For example, the Company believes that its
operating results were adversely affected by an industry-wide downturn in the
demand for semiconductors beginning in 1990, culminating in the Company's 1992
restructuring charge and reorganization of its operations. Currently, the
semiconductor industry in general, including the Company, is experiencing a
period of increased demand. There is no assurance that current levels of demand
for semiconductor products will continue. 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 and the Company's
business could be materially and adversely affected by a significant
industry-wide downturn in the future.
Over the past five years, the Company has restructured its worldwide
manufacturing operations. This process has included, among other things, the
closing of older process technology operations in Germany, the United Kingdom
and Canada, the consolidation of certain manufacturing to facilities in the
United States and Japan, and the transfer of certain packaging, assembly and
final test operations to subcontractors in various locations. The Company
continues to evaluate its worldwide manufacturing operations to effect
additional cost-savings and technological improvements.
To remain competitive, the Company must develop and implement new process
technologies in order to reduce semiconductor die size, increase device
performance and improve manufacturing yields, to adapt products and processes to
technological changes and adopt emerging industry standards. If the Company is
not able to successfully implement new process technologies and to achieve
volume production of new products at acceptable yields using new manufacturing
processes, the Company's operating results will be adversely affected.
Development of advanced manufacturing technologies in the semiconductor
industry frequently requires that critical selections be made as to those
vendors from which essential equipment (including future enhancements) and after
sales services and support will be purchased. Similarly, procurement of certain
types of materials required by the Company's manufacturing technologies are
closely linked with certain equipment selections. When the Company implements
specific technology choices, it may become dependent upon certain sole- or
single- source vendors. Accordingly, the Company's capability to switch to other
technologies and vendors may be substantially restricted and may involve
significant expense and delay in the Company's technology advancements and
manufacturing capabilities. The semiconductor equipment and materials industries
also include a number of vendors that are relatively small and have limited
resources. Several of these vendors provide equipment and or services to the
Company. The Company does not have long-term supply or service agreements with
vendors of certain critical items. Additionally, there can be no assurance
6
<PAGE> 8
that disruptions in these vendors' ability to perform will not occur. Should the
Company experience such disruptions, the Company's operations could be adversely
affected.
In countries in which the Company is conducting business in local currency,
currency exchange fluctuations could adversely affect the Company's revenues and
costs. A substantial portion of the costs of the Company's manufacturing
operations are denominated in Japanese yen. In addition, the Company purchases a
substantial portion of its raw materials and equipment from foreign suppliers
and incurs labor costs in foreign locations. A portion of these transactions are
denominated in currencies other than in U.S. dollars, principally in Japanese
yen. International sales are generally denominated in local currencies. The
Company also has borrowings denominated in yen, which totaled approximately 14
billion yen (approximately $142 million) at December 31, 1994. Such transactions
and borrowings expose the Company to exchange rate fluctuations for the period
of time from inception of the transaction until it is settled. In recent years,
the yen has fluctuated substantially against the U.S. dollar. The Company has
entered and will from time to time enter into hedging transaction in order to
minimize exposure to currency rate fluctuations. There can be no assurance that
such hedging transactions will minimize exposure to currency rate fluctuations
or that fluctuations in the currency exchange rates in the future will not have
an adverse impact on the Company's results of operations. In addition, there can
be no assurance that inflation rates in countries where the Company conducts
operations will not adversely affect the Company's operating results in the
future.
Both manufacturing and sales of the Company's products may be affected
adversely by political and 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 affect adversely the Company's ability to manufacture or sell in
foreign markets.
MARKETING AND CUSTOMERS
The Company has focused its marketing efforts primarily on the electronic
data processing, telecommunications and certain office automation industries
and, within these industries emphasizes digital video, networking, desktop and
personal computing and wireless communication applications.
The Company has increasingly directed its marketing and selling efforts
towards selected customers that are acknowledged industry leaders in these
markets. The Company's strategy is to leverage its systems-level ASIC strength
to shift its emphasis from the small design "glue logic" type of account to the
type of account where the Company can bring greater intellectual property to the
relationship. The Company, however, expects that this strategy will result in
the Company becoming increasingly dependent on a limited number of customers for
a substantial portion of its revenues. For example, during 1994, 58% of the
Company's revenues were generated from sales to its top ten customers.
The Company markets its products and services through its worldwide direct
sales and marketing organization which consists of approximately 750 employees
(including subsidiaries), and through independent sales representatives and
distributors. All of the Company's design centers also include a direct sales
office. See "Properties." For information concerning foreign operations, see
Note 9 of Notes to Consolidated Financial Statements. International sales are
generally denominated in local currencies. International sales are subject to
risks common to export activities, including governmental regulations, trade
barriers, tariff increases and currency fluctuations. To date, the Company has
not experienced any material difficulties because of these risks.
In 1994, 1993 and 1992 Sun Microsystems, Inc. accounted for approximately
14%, 12%, and 15%, respectively, of the Company's revenues. In 1994, Intel
Corporation accounted for approximately 11% of the Company's revenues.
7
<PAGE> 9
BACKLOG
Generally, the Company's customers are not subject to long-term contracts,
but to purchase orders which are accepted by the Company. Quantities of the
Company's products to be delivered and delivery schedules under purchase orders
outstanding from time to time are frequently revised to reflect changes in
customer needs. In addition, the timing of the performance of design services
included in the Company's backlog at any particular time is generally within the
control of the customer, not the Company. For these reasons, the Company's
backlog as of any particular date is not a meaningful indicator of future sales.
COMPETITION
The Company's competitors include many large domestic and foreign companies
which have substantially greater financial, technical and management resources
than the Company, as well as emerging companies attempting to sell products to
specialized markets such as those addressed by the Company. Several major
diversified electronics companies, including Fujitsu, Ltd., Toshiba Corporation,
NEC Corporation and a number of United States semiconductor manufacturers,
including AT&T, Motorola Inc. and Texas Instruments Incorporated, offer ASIC
products and/or offer products which are competitive to the product lines of the
Company. In addition, there is no assurance that certain large customers, some
of whom the Company has licensed to use elements of its process and product
technologies, will not develop internal design and production operations to
produce their own ASICs.
The principal factors on which competition in the ASIC market is based
include design capabilities (including both the software design tool features,
compatibility with industry standard design tools, CoreWare library and the
skills of the design team), quality, delivery time and price. The Company
believes that it presently competes favorably with respect to these factors, and
that its success will depend on its continued ability to provide its customers
with a complete range of design services, products and manufacturing
capabilities. There can be no assurance, however, that other custom logic design
approaches will not be developed which could have an adverse impact on the
Company's business and results of operations.
The Company is increasingly emphasizing its CoreWare product offerings and
methodology. The Company believes that this strategy presents a new business
opportunity for which the Company believes it has a present competitive
advantage. Although there may be other companies that offer similar types of
products, the Company currently offers different capabilities than those
companies. As the market for the CoreWare approach grows, the Company expects
alternative solutions to be offered by its competitors and that competition will
intensify. There can be no assurance that the Company's CoreWare product
approach will receive market acceptance, that a competitor's product will not
achieve greater acceptance or that as competition intensifies, the Company's
future operating results will not be adversely impacted. Important competitive
factors will include the content, quantity and quality of CoreWare library
elements available, the quality of process technology, the ability of a company
to offer its customers systems-level expertise and the ability of a customer to
customize and differentiate its product. There can be no assurance that the
Company will be able to compete favorably in these areas.
RESEARCH AND DEVELOPMENT
The semiconductor industry is characterized by rapid changes in both
product and process technologies. Because of continual improvements in these
technologies, the Company believes that its future success will depend, in part,
upon its ability to continue to improve its product and process technologies and
to develop new technologies in a cost effective manner in order to maintain the
performance advantages of its products and processes relative to competitors, to
adapt products and processes to technological changes and to adopt emerging
industry standards. If the Company is not able to successfully implement these
new process technologies and to achieve volume production of new products at
acceptable yields using new manufacturing processes, the Company's operating
results will be adversely affected.
The Company's research and development emphasizes the development of new
advanced products, improvements in process technologies, enhancements of design
automation software capabilities, and cost reduction of existing products.
During 1994, 1993 and 1992, the Company expended $98,978,000, $78,995,000
8
<PAGE> 10
and $78,825,000, respectively, on its research and development activities. The
Company expects to continue to make significant investments in research and
development activities and believes such investments are critical to its ability
to continue to compete with other ASIC manufacturers. See "Management's
Discussion and Analysis."
PATENTS, TRADEMARKS AND LICENSES
The Company owns various United States and international patents and has
additional patent applications pending relating to certain of its products and
technologies. The Company also maintains trademarks on certain of its products
and services. Although the Company believes that patent and trademark protection
have value, the rapidly changing technology in the semiconductor industry makes
the Company's future success dependent primarily upon the technical competence
and creative skills of its personnel rather than on patent and trademark
protection.
As is typical in the semiconductor industry, the Company has from time to
time received, and may in the future receive, communications from other parties
asserting patent rights, mask work rights, copyrights or trademark rights that
such other parties allege cover certain of the Company's products, processes,
technologies or information. Several such assertions relating to patents are in
various stages of evaluation. The Company is considering whether to seek
licenses with respect to certain of these claims. Litigation has arisen with
respect to one of these assertions. Based on industry practice, the Company
believes that licenses or other rights, if necessary, could be obtained on
commercially reasonable terms. Nevertheless, no assurance can be given that
licenses can be obtained, or if obtained will be on acceptable terms or that
litigation or other administrative proceedings will not occur. The inability to
obtain licenses or other rights or to obtain such licenses or rights on
favorable terms or litigation arising out of such other parties' assertions,
could have a material adverse effect on the Company's future operating results.
See "Legal Proceedings."
The Company has also entered into certain license agreements which
generally provide for the non-exclusive licensing of design and product
manufacturing rights and for cross-licensing of future improvements developed by
either party.
ENVIRONMENTAL REGULATION
Federal, state and local regulations impose various environmental controls
on the use and discharge of certain chemicals and gases used in semiconductor
processing. The Company's facilities have been designed to comply with these
regulations and the Company believes that its activities conform to present
environmental regulations. Increasing public attention has, however, been
focused on the environmental impact of electronics and semiconductor
manufacturing operations. While the Company to date has not experienced any
materially adverse effects on its business from environmental regulations, there
can be no assurance that such regulations will not be amended so as to impose
expensive obligations on the Company. In addition, violations of environmental
regulations or unpermitted discharges of hazardous substances could result in
the necessity for additional capital improvements to comply with such
regulations or to restrict discharges, liability to Company employees and/or
third parties, and business interruptions as a consequence of permit suspensions
or revocations or as a consequence of the granting of injunctions requested by
governmental agencies or private parties.
EMPLOYEES
At January 1, 1995, the Company and its subsidiaries had approximately
3,750 employees, including approximately 750 in field marketing and sales,
approximately 445 in product marketing and support, approximately 625 in
engineering and research and development activities, approximately 1,430 in
manufacturing and approximately 260 in executive and administrative activities.
The Company's future success depends in large part on the continued service
of its key technical and management personnel and on its ability to continue to
attract and retain qualified employees, particularly those highly skilled
design, process and test engineers involved in the manufacture of existing
products and the development of new products and processes. The competition for
such personnel is intense, and the loss of key
9
<PAGE> 11
employees could have a material adverse effect on the Company. The Company has
never had a work stoppage, slow-down or strike and no United States employees
are represented by a labor organization. The Company considers its employee
relations to be good.
ITEM 2. PROPERTIES
The following table sets forth certain information concerning the Company's
principal facilities.
Principal Locations
<TABLE>
<CAPTION>
NO. OF LEASED/ TOTAL
BUILDINGS LOCATION OWNED SQ. FT. USE
- - --------- ---------------- ------ -------- -------------------------------------------
<C> <S> <C> <C> <C>
7 Milpitas, CA Leased 485,760 Corporate Offices, Administration,
Engineering, Manufacturing
1 Fremont, CA Leased 74,000 Manufacturing
1 Fremont, CA Owned 65,000 Manufacturing
2 Santa Clara, CA Leased 83,290 Research and Development
1 Fremont, CA Leased 39,246 Shipping and Receiving
1 Bracknell, Leased 18,000 Executive Offices, Design Center Sales
United Kingdom
1 Tokyo, Japan Leased 24,263 Executive Offices, Design Center Sales
2 Tsukuba, Japan Owned 221,000 Executive Offices, Manufacturing
1 Calgary, Canada Leased 15,000 Executive Offices, Design Center Sales
1 Tsuen Wan, Hong Owned 26,000 Manufacturing, Assembly & Test
Kong
</TABLE>
10
<PAGE> 12
The Company maintains leased regional office space for its field sales
offices at the locations described below, some of which also contain design
centers as indicated. In addition, the Company maintains design centers at
various distributor locations.
Regional Offices
<TABLE>
<CAPTION>
U.S. LOCATIONS: NON-U.S. LOCATIONS:
---------------------------------- ----------------------------------
<S> <C>
*Encino, CA *Burnaby, British Columbia, Canada
Grass Valley, CA *Etobicoke, Ontario, Canada
*Irvine, CA *Kanata, Ontario, Canada
Mountain View, CA *Montreal, Quebec, Canada
San Diego, CA *Paris, France
Boca Raton, FL Berlin, Germany
*Melbourne, FL *Munich, Germany
Atlanta, GA *Stuttgart, Germany
*Schaumburg, IL *Ramat Hasharon, Israel
*Waltham, MA *Milan, Italy
*Bethesda, MD *Osaka, Japan
*Minneapolis, MN *Seoul, Korea
*Raleigh, NC *Livingstone, Scotland
*Edison, NJ Madrid, Spain
Hopewell Junction, NY *Kista, Sweden
Victor, NY *Taipei, Taiwan
Beaverton, OR
Hanover, PA
Austin, TX
*Dallas, TX
Houston, TX
*Bellevue, WA
</TABLE>
- - ---------------
* Indicates location of Design Center as well as Sales Office
Leased facilities described above are subject to operating leases which
expire in 1995 through 2005. See Note 10 of Notes to Consolidated Financial
Statements.
Although the Company has plans to acquire additional equipment, the Company
believes that its existing facilities and equipment are well maintained, in good
operating condition and are adequate to meet its current requirements.
ITEM 3. LEGAL PROCEEDINGS
On July 9, 1990, Texas Instruments Incorporated ("TI") filed a complaint in
the United States District Court in Dallas, Texas and with the International
Trade Commission ("ITC") against the Company and four other defendants, Analog
Devices, Inc., Integrated Device Technology, Inc., VLSI Technology, Inc. and
Cypress Semiconductor Corporation. In these complaints, TI alleged that the
Company's manufacturing processes relating to device encapsulation in certain
types of plastic packages infringe certain of TI's patents.
In the ITC action, TI sought to prohibit the importation into the U.S. of
such plastic encapsulated devices assembled offshore and to enjoin the sale of
any inventory of such devices which were previously imported. On October 15,
1991, the Administrative Law Judge ("ALJ") determined that the TI patent was
valid and that the plastic encapsulation process used by the Company referred to
as "opposite-side" gated encapsulation infringed the TI patent. The ALJ also
determined that the plastic encapsulation process referred to as "same-side"
gated encapsulation did not infringe the TI patent. On December 3, 1991, the ITC
issued a notice of its intent not to review the ALJ's determination on
non-infringement by the "same-side" gated process, thereby confirming the ALJ's
determination. On February 19, 1992, the ITC issued its final order
11
<PAGE> 13
which confirmed the ALJ's determination regarding validity of the TI patent and
infringement by the "opposite-side" gated process. Pursuant thereto, the ITC
issued a limited exclusion order applicable to future imports of integrated
circuits manufactured using the "opposite-side" gated process into the United
States and a cease and desist order applicable to sales of previously imported
integrated circuits manufactured using the "opposite-side" gated process. Since
August 23, 1994, the expiration date of the TI patent, the ITC final order no
longer operates to exclude from importation any integrated circuit devices
regardless of the manner in which they are packaged. Since the beginning of
1992, the Company's plastic encapsulation operations have only used the
non-infringing "same-sided" gating process. The Court of Appeals for the Federal
Circuit has affirmed the ruling of the ITC in all respects in March 1993.
In TI's United States District Court action, TI originally sought to enjoin
the Company from assembling and selling plastic encapsulated integrated circuits
in the U.S. However, both patents in the case have since expired so an
injunction will not be available. In addition, TI seeks damages in an
unspecified amount for alleged prior patent infringement. A trial date has been
set for April 1995.
The Company believes that it has meritorious defenses to the District Court
action and intends to defend itself vigorously. The Company also believes that
the ultimate outcome of this action will not result in a material adverse effect
on the Company's consolidated financial position or results of operations. No
assurance can be given, however, that this matter will be resolved without the
payment of damages and other costs, thereby having an adverse effect on the
Company.
The Company is a party to other litigation matters and claims which are
normal in the course of its operations, and while the results of such litigation
and claims cannot be predicted with certainty, the Company believes that the
final outcome of such matters will not have a materially adverse effect on the
Company's consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company has paid no cash dividends on its Common Stock since its
incorporation and anticipates that for the foreseeable future it will continue
to retain any earnings for use in its business.
The Company's Common Stock is traded on the NYSE under the symbol LSI. The
following table sets forth, for the periods indicated, high and low sale prices
for the Common Stock on the NYSE.
<TABLE>
<CAPTION>
HIGH LOW
--- ---
<S> <C> <C>
FISCAL 1993
First Quarter............................................. $14 1/8 $10 1/4
Second Quarter............................................ 15 1/2 10 1/2
Third Quarter............................................. 19 1/4 14 1/4
Fourth Quarter............................................ 17 1/8 13
FISCAL 1994
First Quarter............................................. 23 15 1/2
Second Quarter............................................ 26 3/8 16 3/4
Third Quarter............................................. 35 3/4 22 7/8
Fourth Quarter............................................ 45 3/8 34 5/8
FISCAL 1995
First Quarter (through February 7, 1995).................. 47 3/4 36 1/2
</TABLE>
On February 7, 1995, the last reported sale price of the Common Stock on
the NYSE was $46 5/8 per share. As of December 31, 1994, there were 1,732
holders of record of the Common Stock of the Company.
12
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1990 1991 1992 1993 1994
-------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
(in thousands, except per share data)
STATEMENT OF OPERATIONS DATA(1):
Revenues................................................................ $655,491 $697,838 $ 617,468 $718,812 $ 901,830
-------- -------- --------- -------- ----------
Costs and expenses:
Cost of revenues...................................................... 443,759 457,692 408,318 438,523 520,150
Research and development.............................................. 60,196 80,802 78,825 78,995 98,978
Selling, general and administrative................................... 117,318 136,811 129,254 117,452 124,936
Restructuring of operations........................................... 44,000 5,626 101,785 -- --
-------- -------- --------- -------- ----------
Total costs and expenses............................................ 665,273 680,931 718,182 634,970 744,064
-------- -------- --------- -------- ----------
Income (loss) from operations........................................... (9,782) 16,907 (100,714) 83,842 157,766
Interest expense........................................................ (21,256) (19,371) (11,567) (9,621) (18,455)
Interest income and other............................................... 12,517 14,722 12,413 6,500 16,858
-------- -------- --------- -------- ----------
Income (loss) before income taxes, minority interest and extraordinary
credit................................................................ (18,521) 12,258 (99,868) 80,721 156,169
Provision for income taxes.............................................. 11,685 6,129 8,521 24,221 43,679
-------- -------- --------- -------- ----------
Income (loss) before minority interest and extraordinary credit......... (30,206) 6,129 (108,389) 56,500 112,490
Minority interest in net income (loss) of subsidiaries.................. 1,065 (2,212) 1,819 2,750 3,747
-------- -------- --------- -------- ----------
Income (loss) before extraordinary credit............................... (31,271) 8,341 (110,208) 53,750 108,743
Extraordinary credit resulting from the retirement of debt.............. 955 -- -- -- --
-------- -------- --------- -------- ----------
Net income (loss)....................................................... $(30,316) $ 8,341 $(110,208) $ 53,750 $ 108,743
======== ======== ========= ======== =========
Primary income (loss) per share:
Net income (loss) before extraordinary credit......................... $ (0.74) $ 0.19 $ (2.48) $ 1.09 $ 1.98
Extraordinary credit.................................................. 0.02 -- -- -- --
-------- -------- --------- -------- ----------
Net income (loss) per share........................................... $ (0.72) $ 0.19 $ (2.48) $ 1.09 $ 1.98
======== ======== ========= ======== =========
Fully diluted net income per share.................................... * * * $ 1.05 $ 1.85
======== =========
Common shares and common share equivalents used in computing per share
amounts:
Primary............................................................... 42,063 43,376 44,478 49,531 54,953
======== ======== ========= ======== =========
Fully diluted......................................................... * * * 54,813 62,714
======== =========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------
1990 1991 1992 1993 1994
-------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
(in thousands)
BALANCE SHEET DATA(2):
Working capital......................................................... $231,248 $225,193 $ 133,640 $230,513 $ 422,916
Total assets............................................................ 771,682 748,456 747,438 859,010 1,270,374
Long-term debt, capital lease obligations and other long-term
liabilities........................................................... 189,785 166,107 218,837 246,314 288,496
Stockholders' equity.................................................... 267,729 293,075 197,728 292,434 544,906
</TABLE>
13
<PAGE> 15
QUARTERLY FINANCIAL DATA(1):
<TABLE>
<CAPTION>
1993 1994
------------------------------------------ -----------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
(in thousands, except per share data) QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................. $168,928 $177,080 $183,761 $189,043 $193,812 $212,106 $240,218 $255,694
-------- -------- -------- -------- -------- -------- -------- --------
Costs and expenses:
Cost of revenues........................ 103,921 108,246 112,001 114,355 115,387 123,337 138,219 143,207
Research and development................ 18,998 19,408 19,134 21,455 23,141 22,467 26,834 26,536
Selling, general and administrative..... 29,205 29,007 29,910 29,330 29,457 31,102 30,645 33,732
-------- -------- -------- -------- -------- -------- -------- --------
Total costs and expenses.............. 152,124 156,661 161,045 165,140 167,985 176,906 195,698 203,475
-------- -------- -------- -------- -------- -------- -------- --------
Income from operations.................... 16,804 20,419 22,716 23,903 25,827 35,200 44,520 52,219
Interest expense.......................... (2,175) (2,384) (2,538) (2,524) (3,788) (5,665) (4,822) (4,180)
Interest income and other................. 1,697 2,512 1,818 473 4,798 4,127 3,263 4,670
-------- -------- -------- -------- -------- -------- -------- --------
Income before income taxes and minority
interest................................ 16,326 20,547 21,996 21,852 26,837 33,662 42,961 52,709
Provision for income taxes................ 4,901 6,164 6,599 6,557 7,514 9,425 12,028 14,712
Minority interest in net income (loss) of
subsidiaries............................ 814 1,313 1,022 (399) (32) 799 1,465 1,515
-------- -------- -------- -------- -------- -------- -------- --------
Net income................................ $ 10,611 $ 13,070 $ 14,375 $ 15,694 $ 19,355 $ 23,438 $ 29,468 $ 36,482
======== ======== ======== ======== ======== ======== ======== ========
Primary net income per share.............. $ 0.22 $ 0.27 $ 0.29 $ 0.31 $ 0.37 $ 0.44 $ 0.52 $ 0.62
======== ======== ======== ======== ======== ======== ======== ========
Fully diluted net income per share........ * * * $ 0.30 $ 0.36 $ 0.41 $ 0.49 $ 0.59
======== ======== ======== ======== ========
Common shares and common share equivalents
used in computing per share amounts
Primary................................. 47,452 48,874 50,249 50,936 51,631 53,112 56,394 58,851
======== ======== ======== ======== ======== ======== ======== ========
Fully diluted........................... * * * 56,042 57,582 64,051 63,938 64,718
======== ======== ======== ======== ========
</TABLE>
- - ---------------
* Fully diluted amount disclosures are not required because they are
substantially the same as primary amounts disclosed for these periods.
(1) The Company's fiscal year ends on the Sunday closest to December 31. For
presentation purposes, the consolidated financial statements refer to
December 31 as year end. Fiscal 1993 was a 53-week year, whereas, 1994,
1992, 1991 and 1990 were 52-week years. The fourth quarter of 1993 was a
14-week quarter, whereas the first, second and third quarters were 13-week
quarters. The additional week in the fourth quarter of 1993 did not have a
significant impact on the Company's results of operations.
(2) Certain reclassifications have been made to the 1992 and 1993 consolidated
financial statements to conform to the 1994 presentation. Such
reclassifications had no effect on results of operations or stockholders'
equity. Excludes the effect of the Company's January 26, 1995 acquisition of
all minority-owned common shares (a 45% interest) of its Japanese
manufacturing subsidiary as well as the defeasance of the resultant debt.
These activities had the effect of reducing minority interest in
subsidiaries by $92.8 million and reducing cash by $125.9 million and
increasing property and equipment by $33.1 million.
14
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Revenues for the Company increased 25% to $902 million in 1994 compared to
$719 million in 1993. Income from operations increased 88% to $158 million in
1994 compared to $84 million in 1993. Net income was $109 million in 1994
compared to $54 million in 1993. Fully diluted earnings per share increased to
$1.85 per share in 1994 from $1.05 per share in 1993.
The improvement in 1994 operating income resulted primarily from increased
product demand, greater factory utilization, improved plant efficiencies and a
shift in product mix combined with management's continuing cost containment
efforts. In addition, the Company's Japanese manufacturing affiliate started
volume production at its new wafer fabrication facility during 1994. The Company
continued to lower operating costs and to focus its efforts on key strategic
products resulting in higher profitability on increased revenues for each
quarter throughout 1994.
While management believes that the discussion and analysis in this report
is adequate for a fair presentation of the information, it is recommended that
this discussion and analysis be read in conjunction with the balance of the
Company's Annual Report on Form 10-K for the year ended January 1, 1995. The
Company operates on a 52/53 week fiscal year which ends on the Sunday closest to
December 31. Fiscal years 1994 and 1992 were 52-week years, whereas 1993 was a
53-week year. The additional week in fiscal 1993 did not have a significant
effect on the Company's results of operations.
RESULTS OF OPERATIONS
REVENUES The Company operates in one industry segment and designs,
develops, manufactures and markets application-specific integrated circuit
(ASIC) technology and related products. Design and services revenues include
engineering design services, licensing of the Company's advanced design tools
software, and technology transfer and support services. Component sales
generally are preceded by customer purchases of the Company's various design
services. The Company's customers have used these services in the design of
increasingly advanced integrated circuits characterized by increased
functionality and performance. The proportion of revenues from ASIC design and
related services compared to component product sales varies among customers
depending upon their specific requirements. The following table presents
components of revenue as a percentage of total revenues:
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Component products................................ 89% 87% 83%
Design and services............................... 11 13 17
----- ----- -----
100% 100% 100%
===== ===== =====
</TABLE>
Total revenues grew to $902 million in 1994 from $719 million in 1993.
Total revenue growth and the increase in component product revenue as a
percentage of total revenues in 1994 was primarily attributable to increased
customer demand for the Company's products, including the Company's
system-on-a-chip CoreWare products, the introduction of new products and
increased manufacturing capacity as the Company's Japanese affiliate's new wafer
manufacturing facility started volume production in 1994.
Total revenue growth and the increase in component product revenue as a
percentage of total revenues in 1993 was primarily attributable to expanded
component product offerings and increasingly complex ASIC designs. Other factors
contributing to the increase in 1993 revenues were increased demand for the
Company's ASIC and Reduced Instruction Set Computing (RISC) products and a
slight increase in average selling prices (ASPs), partially offset by lower
demand in the military market and the discontinuance of certain commodity
products.
15
<PAGE> 17
OPERATING COSTS AND EXPENSES Key elements of the consolidated statements
of operations, expressed as a percentage of revenues, were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- -----
<S> <C> <C> <C>
Gross margin....................................... 42.3% 39.0% 33.9%
Research and development expense................... 11.0 11.0 12.8
Selling, general and administrative expense........ 13.9 16.3 20.9
Income (loss) from operations...................... 17.5 11.7 (16.3)
</TABLE>
GROSS MARGIN Gross margin continued to improve in 1994 and in 1993
primarily as a result of greater factory utilization and improved plant
efficiencies. In addition, volume production at the Company's new wafer
fabrication facility in Japan during 1994, a shift in the Company's product mix,
increased demand for the Company's sub-micron products and terms negotiated with
third-party subcontractors also had a favorable impact on the gross margin
during 1994.
The Company's operating environment combined with the resources required to
operate in the semiconductor industry requires managing a variety of factors
such as factory capacity and utilization, manufacturing yields, product mix,
availability of certain raw materials, terms negotiated with third-party
subcontractors and foreign exchange fluctuations. Changes in the relative
strength of the yen may have a greater impact on the Company's gross margin than
other foreign exchange fluctuations due to the Company's large wafer fabrication
operations in Japan. Volume production capacity at the second Japanese wafer
fabrication facility is expected to continue to increase throughout 1995,
thereby significantly increasing factory capacity by the end of 1995. In the
event that demand for the Company's products does not absorb this additional
capacity at a sufficient rate, the Company's gross margin could be negatively
impacted in 1995.
RESEARCH AND DEVELOPMENT Although research and development (R&D)
expenditures increased by $20 million, R&D expenses as a percentage of revenues
(11%) in 1994 remained approximately the same as in 1993. The level of R&D
spending is attributed to the Company's continued commitment to technological
leadership in the ASIC, CoreWare and application-specific standard product
(ASSP) markets. The Company anticipates continuing its investment in R&D at a
rate between 10-12% of revenues in future years. During 1994, this investment
was primarily for development of advanced manufacturing processes, development
of new advanced products, and enhancements of the Company's design automation
software capability. R&D expenses in 1993 decreased as a percentage of revenues
primarily due to higher revenues in 1993.
SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative
(SG&A) expenses as a percentage of revenues decreased to 14% in 1994 compared to
16% in 1993 and 21% in 1992. The decline in SG&A expenses as a percentage of
revenues in 1994 and 1993 was primarily a result of increased revenues and
management's continuing cost containment efforts since the 1992 restructuring.
RESTRUCTURING In 1992, the Company's cost structure, combined with
worldwide economic conditions and declines in the military, aerospace, European
and personal computer markets, made it difficult to achieve profitability. The
high cost of manufacturing in Europe and the continuing losses on chipset
products were the primary contributors to the need to restructure. Rather than
attempt to address the problems with a short-term view, the Company determined
that a comprehensive, fundamental restructuring of its approach to product
emphasis and getting its products to market would better serve the Company's
long-term goal of continuing profitability. The Company's restructuring plan,
implemented in the third quarter of 1992, contemplated revising its global
manufacturing strategy, streamlining operations, discontinuing certain commodity
products and focusing its product strategy on high-end technology solutions.
Specifically, it involved the shutdown of the Braunschweig, Germany test and
assembly facility, the planned phase-out of the Milpitas, California wafer
manufacturing facility, the consolidation of certain U.S. manufacturing
operations, downsizing the chipset operation of its former subsidiary, Headland
Technology Inc., and severance costs for approximately 500 employees worldwide.
The $101.8 million restructuring charge included: the write-down and write-off
of manufacturing facilities, equipment and improvements; the estimated operating
costs attributable to the phase-out, closure and consolidation of these
manufacturing facilities; the write-down of commodity chipset
16
<PAGE> 18
product inventories; the severance of manufacturing and other personnel; the
consolidation of certain U.S. and foreign sales offices, design centers and
administrative organizations; and certain legal and other costs.
The following table sets forth the Company's 1992 restructuring expense,
remaining reserves at December 31, 1993 and 1994 (which are accounted for as
components of fixed assets, inventories and current liabilities) and charges
taken from the date the restructuring commenced through December 31, 1993 and
during 1994:
<TABLE>
<CAPTION>
1992
RESTRUCTURING BALANCE BALANCE
(in thousands) EXPENSE UTILIZED* 12/31/93 UTILIZED* ADJUSTED 12/31/94
------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Write-down of manufacturing facility(a)............. $ 14,700 $(14,700 ) $ -- $(14,000) $14,000 $ --
Other fixed asset related charges(b)................ 35,500 (20,500 ) 15,000 (600) (3,300 ) 11,100
Other provisions for phase-down and consolidation of
manufacturing facilities(b)....................... 13,500 (7,000 ) 6,500 (2,200) (800 ) 3,500
Write-down of inventories(a)........................ 10,900 (8,600 ) 2,300 (200) (2,100 ) --
Payments to employees for severance(c).............. 8,000 (5,400 ) 2,600 -- (1,100 ) 1,500
Relocation, lease terminations and other(b)......... 19,200 (2,700 ) 16,500 (600) (6,700 ) 9,200
------------- --------- -------- -------- -------- --------
Total....................................... $ 101,800 $(58,900 ) $42,900 $(17,600) $ -- $25,300
============ ======== ======== ======== ======== ========
</TABLE>
- - ---------------
* Net of cumulative currency translation adjustments.
(a) Amounts utilized represent non-cash charge-offs.
(b) Amounts utilized represent both cash and non-cash items. Aggregate cash
charges totaled $3.1 million.
(c) Amounts utilized represent cash payments.
By the end of 1993, the Company had completed the following actions in
accordance with its original plan:
(1) Phased-out the German test and assembly operations: Restructuring
reserves were utilized for employee terminations ($3.9 million), fixed
asset dispositions ($7.6 million), inventory write-offs ($2.5 million)
and other charges ($3.2 million). In addition, the German facility was
written-down ($14.7 million) to its net realizable value of $14
million. Operating losses incurred during the phase-out period and
ongoing maintenance costs ($5.3 million) associated with the facility
were also applied against the reserves.
(2) Discontinued the chipset business: Restructuring reserves were utilized
for inventory write-downs ($3.3 million) and other costs including
those associated with abandoned facility leases ($1.9 million).
(3) Phased-down its Milpitas wafer manufacturing facility: Restructuring
reserves were used for fixed asset write-offs ($5.2 million), inventory
write-offs ($2.8 million) and other costs ($1.7 million).
(4) Phased-out certain U.S. assembly and test operations: Restructuring
reserves were used for fixed asset write-offs ($2.1 million).
(5) Consolidated certain U.S. sales offices and design centers:
Restructuring reserves were used for employee terminations ($1.5
million), lease terminations ($1.4 million) and fixed asset write-offs
($1.8 million).
The above actions included termination of approximately 350 employees.
During 1994, the Company determined that the originally estimated costs of
the phase-out of the Milpitas manufacturing facility exceeded the expected
remaining costs of the phase-out. The Company also determined that the time
required to sell the Braunschweig, Germany building may be significantly in
excess of the original estimate. The Braunschweig facility is a special purpose
facility containing a "clean-room" environment and is located in an economically
depressed area of Germany. Management believes that the total reserves
established are adequate to cover uncertainties in connection with these
matters. Significant restructuring activity for 1994 included: (1) additional
write-down of the German manufacturing facility held for sale which the Company
has not been able to dispose of; and (2) continued phase-down of the Milpitas
wafer manufacturing facility including additional asset write-downs and movement
of equipment to subcon-
17
<PAGE> 19
tractors. The Company is currently operating the Milpitas facility and is
continuing to evaluate the feasibility of future operations at such facility or
phasing out the facility by the end of 1995. Remaining reserves at December 31,
1994 include approximately $14.8 million for the continued phase-down of the
California manufacturing facilities, $2.5 million for continued maintenance of
the vacant Braunschweig facility and $8 million for other corporate matters.
INTEREST EXPENSE Interest expense increased $9 million in 1994 as compared
to 1993 primarily due to the discontinuance of interest capitalization in
connection with the construction of the Japanese wafer fabrication facility and
the Company's issuance of $144 million of 5 1/2% Convertible Subordinated Notes.
These increases were offset in part by the redemption of the 6 1/4% Convertible
Subordinated Debentures during 1994 (see Note 6 of Notes to Consolidated
Financial Statements) and the increase in interest rates during 1994. Interest
expense decreased $2 million in 1993 due primarily to increased capitalization
of interest expense and a reduction in the average interest rate of debt
outstanding in 1993 compared to 1992. Interest expense of $5.8 million and $3.1
million was capitalized in 1993 and 1992, respectively, in connection with
financing for the capacity expansion of the Company's new wafer fabrication
facility in Japan. Additional savings were experienced in 1993 and 1992 by
repaying certain European borrowings and repaying debt with higher interest
rates.
INTEREST INCOME AND OTHER Interest income and other increased $10 million
in 1994 from 1993 due principally to increased interest income as a result of
higher average cash and investment balances compared to 1993 and increased
average interest rates during 1994. Other income increased due to higher foreign
currency gains, offset partially by increased goodwill amortization attributable
to the repurchases of minority interest holdings throughout 1994. Interest and
other income decreased $6 million in 1993 from 1992 due principally to declining
interest rates and lower foreign exchange gains in 1993 and a benefit from the
resolution of certain claims in 1992.
PROVISION FOR INCOME TAXES In 1994 and 1993, the Company's effective tax
rates were 28% and 30% respectively. The Company has provided a valuation
allowance for deferred tax assets, except to the extent of taxable income in the
carryback period, based on management's assessment that realization of such
deferred tax assets is not assured. The Company's effective rate was lower than
U.S. statutory rates primarily due to reductions in the valuation allowance
provided under FAS 109 and other credits. The Company's effective tax rate in
1992 was 9%.
MINORITY INTEREST The changes in minority interest between 1994, 1993, and
1992 were primarily attributable to the composition of earnings and losses among
certain of the Company's international affiliates for each of the respective
years and the repurchase of some of the LSI Logic K.K. minority-owned common
stock in 1994 and 1993.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS The Company believes that
its future operating results will continue to be subject to quarterly variations
based upon a wide variety of factors, including the cyclical nature of both the
semiconductor industry and the markets addressed by the Company's products,
price erosion, competitive factors, fluctuations in manufacturing yields, the
timing of new product introductions, changes in product mix, the availability
and extent of utilization of manufacturing capacity, product obsolescence and
the ability to develop and implement new technologies. The Company's operating
results could also be impacted by sudden fluctuations in customer requirements,
currency exchange rate fluctuations and other economic conditions affecting
customer demand and the cost of operations in one or more of the global markets
in which the Company does business. As a participant in the semiconductor
industry, the Company operates in a technologically advanced, rapidly changing
and highly competitive environment. The Company predominantly sells custom
products to customers operating in a similar environment. Accordingly, changes
in the conditions of any of the Company's customers may have a greater impact on
the Company than if the Company offered standard products that could be sold to
many purchasers. While the Company cannot predict what effect these various
factors may have on its financial results, the aggregate effect of these and
other factors could result in significant volatility in the Company's future
performance and stock price. To the extent the Company's performance may not
meet expectations published by external sources, public reaction
18
<PAGE> 20
could result in a sudden and significantly adverse impact on the market price of
the Company's securities, particularly on a short-term basis.
The Company currently has international subsidiaries which operate and sell
the Company's products in various global markets. The Company purchases a
substantial portion of its raw materials and equipment from foreign suppliers,
and incurs labor costs, particularly at its Japanese manufacturing facility, in
foreign currencies. As a result, the Company is exposed to international factors
such as changes in foreign currency exchange rates or weak economic conditions
of the respective countries in which the Company operates. The Company utilizes
various instruments, primarily forward exchange and currency swap contracts, to
manage its exposure associated with currency fluctuation on intercompany
transactions and certain foreign currency denominated commitments. At December
31, 1994, the Company had various forward exchange contracts outstanding valued
at approximately $23 million (see Note 3 of Notes to Consolidated Financial
Statements).
The Company's corporate headquarters and manufacturing facilities are
located near major earthquake faults. As a result, in the event of a major
earthquake the Company could suffer damages which could materially and adversely
affect the operating results and financial condition of the Company.
FINANCIAL CONDITION AND LIQUIDITY
CURRENT ASSETS Cash, cash equivalents and short-term investments rose to
$429 million at December 31, 1994 from $202 million at December 31, 1993. The
increase of $227 million is primarily attributable to cash flows of $255 million
generated from operations, the issuance of $144 million of Convertible
Subordinated Notes and the issuance of $17 million of common stock under stock
option and stock purchase plans, partially offset by net capital expenditures of
approximately $167 million and $25 million in repayments of debt obligations.
In January 1995, the Company acquired all minority-owned common shares (a
45% interest) of its Japanese manufacturing subsidiary, Nihon Semiconductor,
Inc. (NSI), from Kawasaki Steel Corporation (KSC) for a total of $175 million to
be paid to KSC over eight years. The Company has defeased this obligation
through payment of $125.9 million to an unrelated party and has been legally
released from the obligation by KSC. The acquisition was accounted for as a
purchase.
Receivables grew 22% to $152 million at December 31, 1994 from $124 million
at December 31, 1993. The increase is primarily attributable to higher revenues
in 1994 as compared to 1993, partially offset by a decrease in average days
sales outstanding to 54 days in 1994 from 62 days in 1993.
The Company maintained higher inventory levels of $108 million at December
31, 1994 compared to $69 million a year ago in response to increased customer
demand and just-in-time requirements. A significant portion of this inventory
was produced at the Company's new sub-micron wafer fabrication facility in Japan
which began volume production in the first quarter of 1994.
Other current assets increased 40% or $12 million at December 31, 1994 from
$30 million at December 31, 1993. The increase is primarily due to increased
deferred tax benefits (see Note 8 of Notes to Consolidated Financial
Statements).
PROPERTY AND EQUIPMENT The Company believes that maintaining technological
leadership in the highly competitive worldwide semiconductor industry requires
ongoing substantial investment in advanced manufacturing capacity. Net capital
expenditures were $167 million in 1994 and $88 million in 1993. These capital
investments were primarily for the capacity expansion of the new wafer
fabrication facility in Japan and the upgrade of the U.S. research and
development facilities with state-of-the-art equipment. In 1993, costs of $27
million were capitalized as preproduction engineering in connection with the
development of production capabilities, qualification of production processes
and carrying costs of the new facility. These costs are being amortized over
four years, the expected useful life of the manufacturing process utilized in
the plant. Normal production (which is generally characterized by meeting
certain reliability, defect density and service cycle time criteria defined by
management) started in the first quarter of 1994. The expenditures were
primarily funded by bank borrowings and cash flows from operations. All prior
preproduction engineering costs were fully amortized as of December 31, 1993 and
there was no capitalization of preproduction engineering costs
19
<PAGE> 21
during 1994. Management expects to invest approximately $150 million in capital
equipment in 1995, primarily to increase capacity at its Japanese wafer
manufacturing facilities.
OTHER ASSETS Other assets decreased 9% to $44 million at December 31, 1994
from $48 million at December 31, 1993. The decrease is primarily attributable to
an additional write-down of a vacated manufacturing facility held-for-sale to
its estimated net realizable value (see Note 5 of Notes to Consolidated
Financial Statements), offset in part by an increase in goodwill as the Company
continued to repurchase common stock from minority stock holders of LSI Logic
K.K. during 1994. Goodwill of approximately $5.7 million and $3.8 million, net
of accumulated amortization of $2.9 million and $1.9 million, was included in
other assets at December 31, 1994 and 1993, respectively.
CURRENT LIABILITIES Current liabilities increased 58% to $308 million at
December 31, 1994 from $195 million a year ago primarily as a result of
increased accounts payable and income taxes payable, partially offset by a
reduction in restructuring liabilities (see Note 5 of Notes to Consolidated
Financial Statements).
LONG-TERM DEBT The net increase in long-term debt from December 31, 1993
to December 31, 1994 is attributed to the Company's issuance of $144 million of
5 1/2% Convertible Subordinated Notes offset in part by the Company's redemption
of all of its $98 million of 6 1/4% Convertible Subordinated Debentures during
1994 (see Note 6 of Notes to Consolidated Financial Statements).
MINORITY INTEREST During 1994 and 1993, the Company repurchased a portion
of the LSI Logic K. K. common stock from minority stockholders for approximately
$14 million and $1 million, respectively. The acquisitions were accounted for as
purchases, and the excess of the purchase price over the fair value was
allocated to goodwill which is being amortized over seven years. As of December
31, 1994, the Company owned 78% of LSI Logic K. K.
In January 1995, the Company acquired all minority-owned common stock (a
45% interest) of its Japanese manufacturing subsidiary, Nihon Semiconductor,
Inc., from Kawasaki Steel Corporation. The acquisition was accounted for as a
purchase, and the excess of the total acquisition cost over the recorded value
of assets acquired was allocated to property, plant and equipment based on its
fair value (see Note 11 of Notes to Consolidated Financial Statements).
LIQUIDITY During 1994, the Company entered into a credit agreement with a
group of banks which provided for an unsecured $60 million revolving credit
facility. The agreement includes certain financial and non-financial covenants,
with which the Company was in compliance at December 31, 1994. The Company has
never borrowed under the credit facility. Each of the Company's significant
foreign affiliates have lines of credit available for local currency borrowings.
Foreign bank lines of credit as of December 31, 1994 were not significant.
The Company believes that its level of financial resources is an important
competitive factor in its industry. Accordingly, the Company may, from time to
time, seek additional equity or debt financings. The Company believes that
existing liquid resources and funds generated from operations combined with
funds from such financings and its ability to borrow funds will be adequate to
meet its operating and capital requirements and obligations for the next 12
months. There can be no assurance that such additional financing will be
available when needed or, if available, will be on favorable terms. Any future
equity financings will decrease existing stockholders' percentage equity
ownership and may, depending on the price at which the equity is sold, result in
dilution.
20
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of LSI Logic Corporation
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) present fairly, in all material respects, the
financial position of LSI Logic Corporation and its subsidiaries at December 31,
1994 and 1993, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
SAN JOSE, CALIFORNIA
JANUARY 26, 1995
21
<PAGE> 23
CONSOLIDATED BALANCE SHEETS
YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
ASSETS
<TABLE>
<CAPTION>
1994 1993
---------- --------
<S> <C> <C>
Cash and cash equivalents............................................ $ 224,503 $121,319
Short-term investments............................................... 204,008 80,764
Accounts receivable, less allowance for doubtful accounts of $4,044
and $2,470......................................................... 152,244 124,384
Inventories.......................................................... 107,824 69,066
Prepaid expenses and other current assets............................ 42,275 30,165
---------- --------
Total current assets....................................... 730,854 425,698
---------- --------
Property and equipment, net.......................................... 495,549 385,063
Other assets......................................................... 43,971 48,249
---------- --------
Total assets............................................... $1,270,374 $859,010
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable..................................................... $ 165,612 $ 66,822
Accrued salaries, wages and benefits................................. 29,251 24,397
Accrued restructuring costs.......................................... 19,800 29,503
Other accrued liabilities............................................ 30,192 34,657
Income taxes payable................................................. 38,916 17,079
Current portion of long-term debt, capital lease obligations and
short-term borrowings.............................................. 24,167 22,727
---------- --------
Total current liabilities.................................. 307,938 195,185
---------- --------
Long-term debt, capital lease obligations and other long-term
liabilities........................................................ 288,496 246,314
---------- --------
Deferred income taxes................................................ 6,861 6,337
---------- --------
Minority interest in subsidiaries.................................... 122,173 118,740
---------- --------
Commitments and contingencies........................................ -- --
---------- --------
Stockholders' equity:
Preferred shares; 2,000 shares authorized.......................... -- --
Common stock; $.01 par value; 73,500 shares authorized: 57,144 and
49,728 shares outstanding....................................... 571 497
Additional paid-in capital......................................... 401,840 273,933
Retained earnings (deficit)........................................ 67,070 (41,673)
Cumulative translation adjustment.................................. 75,425 59,677
---------- --------
Total stockholders' equity................................. 544,906 292,434
---------- --------
Total liabilities and stockholders' equity................. $1,270,374 $859,010
========= ========
</TABLE>
See accompanying notes to consolidated financial statements
22
<PAGE> 24
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- ---------
<S> <C> <C> <C>
Revenues...................................................... $901,830 $718,812 $ 617,468
-------- -------- ---------
Costs and expenses:
Cost of revenues............................................ 520,150 438,523 408,318
Research and development.................................... 98,978 78,995 78,825
Selling, general and administrative......................... 124,936 117,452 129,254
Restructuring of operations................................. -- -- 101,785
-------- -------- ---------
Total costs and expenses................................. 744,064 634,970 718,182
-------- -------- ---------
Income (loss) from operations................................. 157,766 83,842 (100,714)
Interest expense.............................................. (18,455) (9,621) (11,567)
Interest income and other..................................... 16,858 6,500 12,413
-------- -------- ---------
Income (loss) before income taxes and minority interest....... 156,169 80,721 (99,868)
Provision for income taxes.................................... 43,679 24,221 8,521
-------- -------- ---------
Income (loss) before minority interest........................ 112,490 56,500 (108,389)
Minority interest in net income of subsidiaries............... 3,747 2,750 1,819
-------- -------- ---------
Net income (loss)............................................. $108,743 $ 53,750 $(110,208)
======== ======== =========
Net income (loss) per share:
Primary.................................................. $ 1.98 $ 1.09 $ (2.48)
======== ======== =========
Fully diluted............................................ $ 1.85 $ 1.05
======== ========
Common share and common share equivalents used in computing
per share amounts:
Primary.................................................. 54,953 49,531 44,478
======== ======== =========
Fully diluted............................................ 62,714 54,813
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
23
<PAGE> 25
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED CUMULATIVE
--------------- PAID-IN EARNINGS TRANSLATION
SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENT TOTAL
------ ------ ---------- --------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1991....... 43,727 $437 $ 235,246 $ 14,785 $42,607 $ 293,075
Issuance to employees under stock
option and purchase plans......... 1,683 17 9,933 9,950
Aggregate adjustment from
translation of financial
statements into U.S. dollars...... 4,911 4,911
Net loss............................ (110,208) (110,208)
------ ------ ---------- --------- ----------- ---------
Balances at December 31, 1992....... 45,410 454 245,179 (95,423) 47,518 197,728
Issuance to employees under stock
option and purchase plans......... 4,318 43 28,754 28,797
Aggregate adjustment from
translation of financial
statements into U.S. dollars...... 12,159 12,159
Net income.......................... 53,750 53,750
------ ------ ---------- --------- ----------- ---------
Balances at December 31, 1993....... 49,728 497 273,933 (41,673) 59,677 292,434
Issuance to employees under stock
option and purchase plans......... 2,559 26 17,177 17,203
Tax benefit of employee stock
transactions...................... 13,674 13,674
Issuance upon conversion of 6 1/4%
debentures........................ 4,857 48 97,056 97,104
Aggregate adjustment from
translation of financial
statements into U.S. dollars...... 15,748 15,748
Net income.......................... 108,743 108,743
------ ------ ---------- --------- ----------- ---------
Balances at December 31, 1994....... 57,144 $571 $ 401,840 $ 67,070 $75,425 $ 544,906
====== ====== ======== ========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements
24
<PAGE> 26
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Operating activities:
Net income (loss)........................................ $ 108,743 $ 53,750 $(110,208)
Adjustments:
Depreciation and amortization.......................... 103,648 65,417 71,063
Non-cash restructuring costs........................... -- -- 100,853
Minority interest in net income of subsidiaries........ 3,747 2,750 1,819
Provision for bad debt................................. 1,154 961 1,740
Change in:
Accounts receivable................................. (23,152) (15,082) (13,030)
Inventories......................................... (34,051) (3,596) 13,422
Prepaid expenses and other assets................... (5,494) 741 8,737
Accounts payable.................................... 93,578 (52,136) 33,732
Accrued and other liabilities....................... 18,367 29,952 8,076
Accrued restructuring costs......................... (11,702) (9,167) (7,568)
--------- --------- ---------
Net cash provided by operating activities.............. 254,838 73,590 108,636
--------- --------- ---------
Investing activities:
Purchase of debt and equity securities
available-for-sale.................................. (292,584) -- --
Maturities and sales of debt and equity securities
available-for-sale.................................. 167,152 -- --
Change in short-term investments....................... -- (15,476) 32,004
Purchases of property and equipment, net of
retirements......................................... (166,421) (87,899) (142,714)
Acquisition of stock from minority interest holders.... (14,173) (970) --
--------- --------- ---------
Net cash used in investing activities............... (306,026) (104,345) (110,710)
--------- --------- ---------
Financing activities:
Issuance of Convertible Subordinated Notes............. 143,750 -- --
Proceeds from borrowings............................... 5,061 57,588 52,470
Repayment of debt obligations.......................... (23,883) (26,866) (37,148)
Repurchase of Convertible Subordinated Debentures...... (1,112) (5,000) --
Issuance of common stock, net.......................... 17,203 28,797 9,950
--------- --------- ---------
Net cash provided by financing activities........... 141,019 54,519 25,272
--------- --------- ---------
Effect of exchange rate changes on cash and cash
equivalents............................................ 13,353 10,452 4,402
--------- --------- ---------
Increase in cash and cash equivalents.................... 103,184 34,216 27,600
Cash and cash equivalents at beginning of period......... 121,319 87,103 59,503
--------- --------- ---------
Cash and cash equivalents at end of period............... $ 224,503 $ 121,319 $ 87,103
========= ========= =========
Schedule of noncash transactions:
Conversion of subordinated debentures to common
stock............................................... $ 97,104
=========
Tax benefit from stock transactions.................... $ 13,674
=========
</TABLE>
See accompanying notes to consolidated financial statements
25
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
LSI Logic Corporation (the "Company") has adopted accounting policies which
are generally accepted in the industry in which it operates. Following are the
Company's more significant accounting policies:
Basis of presentation The consolidated financial statements include the
accounts of the Company and all of its subsidiaries. Intercompany transactions
and balances have been eliminated in consolidation. Accounts denominated in
foreign currencies have been translated using the foreign currencies as the
functional currencies. Assets and liabilities of foreign operations are
translated to U.S. dollars at current rates of exchange, and revenues and
expenses are translated using weighted average rates. Gains and losses from
foreign currency translation are included as a separate component of
stockholders' equity. Foreign currency transaction gains and losses are included
as a component of interest income and other.
Minority interest in subsidiaries represents the minority stockholders'
proportionate share of the net assets and results of operations of the Company's
majority-owned subsidiaries. Sales of common stock of the Company's subsidiaries
and repurchases of such shares result in changes in the Company's proportionate
share of the subsidiaries' net assets. The Company reflects such changes as an
element of additional paid-in-capital. In January 1995, the Company acquired all
minority owned common stock (a 45% interest) of its Japanese manufacturing
subsidiary, Nihon Semiconductor, Inc., from Kawasaki Steel Corporation. (see
Note 11 of Notes to Consolidated Financial Statements).
The Company's fiscal year ends on the Sunday closest to December 31. For
presentation purposes, the consolidated financial statements and notes refer to
December 31 as year end. Fiscal years 1994 and 1992 were 52 week years, whereas
1993 was a 53 week year. The additional week in 1993 did not have a significant
effect on the Company's results of operations.
Cash equivalents and short-term investments Effective January 3, 1994, the
Company adopted Statement of Financial Accounting Standards No. 115 (SFAS 115),
"Accounting for Certain Investments in Debt and Equity Securities." This
statement requires investments in debt and equity securities to be classified as
"held-to-maturity," "trading," or "available-for-sale." Investments in debt and
equity securities classified as held-to-maturity are reported at amortized cost
and securities available-for-sale are reported at fair value with unrealized
gains and losses, net of related tax, if any, reported as a separate component
of stockholders' equity. The Company currently does not actively trade
securities. Realized gains and losses are based on the book value of specific
securities sold and were immaterial during 1994 and 1993. The cumulative effect
of adopting SFAS No. 115 was not material.
All highly liquid investments purchased with an original maturity of ninety
days or less are considered to be cash equivalents. Marketable short-term
investments are accounted for as available-for-sale. All other cash equivalents
and short-term investments are accounted for as held-to-maturity. Management
determines the appropriate classification of debt and equity securities at the
time of purchase and reassesses the classification at each reporting date.
Concentration of credit risk of financial instruments Financial
instruments which potentially subject the Company to credit risk consist of cash
equivalents, short-term investments and accounts receivable. Cash equivalents
and short-term investments are maintained with high quality institutions, the
composition and maturities of which are regularly monitored by management. A
majority of the Company's trade receivables are derived from sales to large
multinational computer, telecommunication and electronics manufacturers, with
the remainder distributed across other industries. Amounts due from the
Company's two largest customers in 1994 and largest customer in 1993 accounted
for 18% and 9% of trade receivables at December 31, 1994 and 1993, respectively.
Concentrations of credit risk with respect to trade receivables are considered
to be limited due to the quantity of customers comprising the Company's customer
base, and their dispersion across industries and geographies. The Company
performs ongoing credit evaluations of its
26
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
customers' financial condition and requires collateral as considered necessary.
Write-offs of uncollectible amounts have been immaterial.
Fair value disclosures of financial instruments The estimated fair value
amounts have been determined by the Company, using available market information
and valuation methodologies considered to be appropriate. However, considerable
judgment is required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies could have a material effect on the estimated fair value amounts.
The estimated value of the Company's long-term debt was $360 million and
$220 million at December 31, 1994 and 1993, respectively. The estimated fair
value of all other financial instruments at December 31, 1994 and 1993 was not
materially different from the values presented in the consolidated balance
sheets.
Inventories Inventories are stated at the lower of cost or market. Cost is
determined on a first-in, first-out basis for raw materials and is computed on a
currently adjusted standard basis (which approximates first-in, first-out) for
work-in-process and finished goods.
Property and equipment Property and equipment is recorded at cost and
includes interest on funds borrowed to finance construction. The Company
completed construction and capitalized interest of $5.8 million during 1993.
Depreciation and amortization are calculated based on the straight-line method.
Depreciation of equipment and buildings, in general, is computed using the
assets' estimated useful lives ranging from four to forty years. Amortization of
leasehold improvements is computed using the shorter of the remaining term of
the Company's facilities leases or the estimated useful lives of the
improvements. Depreciation for income tax purposes is computed using accelerated
methods.
Preproduction engineering costs Incremental costs incurred in connection
with developing major production capabilities at new manufacturing plants,
including facility carrying costs and costs to qualify production processes, are
capitalized and amortized over the expected useful lives of the manufacturing
processes utilized in the plants, generally four years. Amortization commences
when the manufacturing plant is capable of volume production, which is generally
characterized by meeting certain reliability, defect density and service cycle
time criteria defined by management.
Other assets Goodwill of approximately $5.7 million and $3.8 million, net
of accumulated amortization of $2.9 million and $1.9 million, is included in
other assets at December 31, 1994 and 1993, respectively, and was generated from
the purchase of common stock from minority stockholders during 1994 and 1993.
The acquisitions were accounted for as purchases, and the excess of the purchase
price over the fair value of assets acquired was allocated to goodwill which is
being amortized over seven years.
Assets held for sale are included in other assets with an estimated
realizable value of $16 million and $30 million at December 31, 1994 and 1993,
respectively. The Braunschweig, Germany test and assembly facility, which was
closed in connection with the 1992 restructuring, was written-down in 1994 (see
Note 5 of Notes to Consolidated Financial Statements).
Income taxes The Company accounts for income taxes under Statement of
Financial Accounting Standard No.109 (SFAS 109), "Accounting for Income Taxes."
The Statement requires that the Company follow the liability method of
accounting for income taxes and requires an adjustment to the provision for
income taxes for the effect on deferred income taxes of any change in corporate
income tax rates.
Since 1993 the Internal Revenue Service (IRS) has been examining the
Company's 1991 and 1992 federal income tax returns. The Company believes that
the ultimate resolution of this examination will not have a material impact on
the consolidated financial statements.
27
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
No provision for income taxes is made for the undistributed earnings of the
Company's foreign subsidiaries since it is the Company's intention to reinvest
such earnings in its foreign operations.
Revenue recognition Revenue from component products is recognized upon
shipment to the final customer. Revenue resulting from the licensing of the
Company's design and manufacturing technology to other companies is recognized
when the significant contractual obligations have been fulfilled. Royalty
revenue is recognized upon the sale of products subject to royalties. The
Company uses the percentage-of-completion method for recognizing revenues on
fixed-fee design arrangements. Recognition of distributor revenues and related
cost of sales are deferred until the merchandise is sold by the distributors.
Two customers accounted for 14% and 11% of consolidated revenues in 1994.
One customer accounted for 12% and 15% of consolidated revenues in 1993 and in
1992, respectively.
Income (loss) per share Primary income (loss) per common and common
equivalent share is computed using the weighted average number of common shares
outstanding during the respective periods, including dilutive stock options.
Fully diluted income per common and common equivalent share is computed by
adjusting net income and primary shares outstanding for the potential effect of
the conversion of the weighted average subordinated debentures and notes
outstanding during the year. Fully diluted earnings per share computations are
based on the most advantageous conversion or exercise rights to the security
holder that become effective within 10 years following the period reported upon.
Fully diluted net income per share disclosures are not displayed because they
are substantially the same as primary net income per share for these periods.
Reclassifications Certain reclassifications have been made to the 1993
consolidated financial statements to conform to the 1994 presentation. Such
reclassifications had no effect on results of operations or the accumulated
deficit.
NOTE 2 -- CASH AND INVESTMENTS
Cash and cash equivalents and short-term investments included the following
debt and equity securities at December 31, 1994:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Commercial paper........................................................ $ 81,500
Time deposits........................................................... 49,751
Over night deposits..................................................... 29,569
Other................................................................... 27,366
--------
Total held-to-maturity........................................ 188,186
Cash.......................................................... 36,317
--------
Total cash and cash equivalents............................... $224,503
========
Corporate debt securities............................................... $149,910
Commercial paper........................................................ 18,984
Bank notes.............................................................. 12,254
U.S. government and agency securities................................... 15,902
Other................................................................... 6,958
--------
Total available-for-sale...................................... $204,008
========
</TABLE>
Cash and cash equivalents and short-term investments held at December 31,
1994 approximate fair market value and mature in one year or less.
NOTE 3 -- FINANCIAL INSTRUMENTS
The Company has foreign subsidiaries which operate and sell the Company's
products in various global markets. As a result, the Company is exposed to
changes in interest rates and foreign currency exchange rates. The Company
utilizes various hedge instruments, primarily forward exchange and currency swap
contracts, to
28
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
manage its exposure associated with firm intercompany transactions. The Company
does not speculate in these financial instruments for profit on exchange rate
price fluctuations.
As of December 31, 1994, outstanding foreign currency contracts, expiring
January 1995 through September 1996, consisted of forward exchange contracts to
hedge various intercompany loans. Outstanding foreign currency hedge instruments
at December 31, 1993 consisted of forward exchange contracts to manage its
exposure associated with purchase of wafers from its Japanese manufacturing
facilities and a foreign currency swap contract to hedge an intercompany loan
between its German and Canadian subsidiaries. Foreign currency amounts are
translated at rates current at the reporting date.
The following table summarizes by major currency the forward exchange and
currency swap contracts outstanding. The "buy" amounts represent U.S. dollar
equivalent of commitments to purchase foreign currencies, and the "sell" amounts
represent the U.S. dollar equivalent of commitments to sell foreign currencies.
<TABLE>
<CAPTION>
December 31, (in thousands) 1994 1993
-------- --------
<S> <C> <C>
Buy/(Sell):
Japanese yen................................................. $(10,351) $ 17,906
Pound sterling............................................... 9,447 --
German mark.................................................. (9,312) (8,953)
Canadian dollar.............................................. 13,836 8,996
U.S. dollar.................................................. (3,200) (18,365)
</TABLE>
These forward exchange and currency swap contracts are considered
identifiable hedges and realized and unrealized gains and losses are deferred
until settlement of the underlying commitments. They are recorded in income as
part of the purchase or sale transaction when it is recognized, or as other
gains or losses when a hedged transaction is no longer expected to occur.
Deferred foreign exchange gains and losses were not material at December 31,
1994 and 1993.
NOTE 4 -- BALANCE SHEET DETAIL
<TABLE>
<CAPTION>
December 31, (in thousands) 1994 1993
--------- ---------
<S> <C> <C>
Inventories:
Raw materials.............................................. $ 14,275 $ 11,667
Work-in-process............................................ 58,303 34,997
Finished goods............................................. 35,246 22,402
--------- ---------
$ 107,824 $ 69,066
========= =========
Property and equipment:
Land....................................................... $ 23,043 $ 20,790
Buildings and improvements................................. 117,105 49,548
Equipment.................................................. 681,857 398,794
Leasehold improvements..................................... 61,265 54,050
Preproduction engineering.................................. 27,417 27,417
Furniture and fixtures..................................... 22,091 17,872
Construction in progress................................... 6,807 181,715
--------- ---------
939,585 750,186
Accumulated depreciation and amortization.................... (444,036) (365,123)
--------- ---------
$ 495,549 $ 385,063
========= =========
</TABLE>
Equipment includes $1.0 million and $1.7 million of equipment under
capitalized leases at December 31, 1994 and 1993, respectively. Accumulated
depreciation for such equipment was $0.2 million and $1.3 million
29
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
at December 31, 1994 and 1993, respectively. Accumulated amortization for
preproduction engineering was $8.1 million at December 31, 1994. Capitalized
interest included within property and equipment totaled $9.6 million at both
December 31, 1994 and 1993. Accumulated amortization of capitalized interest was
$1.8 million at December 31, 1994.
NOTE 5 -- RESTRUCTURING
In 1992, the Company's cost structure, combined with worldwide economic
conditions and declines in the military, aerospace, European and personal
computer markets, made it difficult to achieve profitability. The high cost of
manufacturing in Europe and the continuing losses on chipset products were the
primary contributors to the need to restructure. Rather than attempt to address
the problems with a short-term view, the Company determined that a
comprehensive, fundamental restructuring of its approach to product emphasis and
getting its products to market would better serve the Company's long-term goal
of continuing profitability. The Company's restructuring plan, implemented in
the third quarter of 1992, contemplated revising its global manufacturing
strategy, streamlining operations, discontinuing certain commodity products and
focusing its product strategy on high-end technology solutions. Specifically, it
involved the shutdown of the Braunschweig, Germany test and assembly facility,
the planned phase-out of the Milpitas, California wafer manufacturing facility,
the consolidation of certain U.S. manufacturing operations, downsizing the
chipset operation of its former subsidiary, Headland Technology Inc., and
severance costs for approximately 500 employees worldwide. The $101.8 million
restructuring charge included: the write-down and write-off of manufacturing
facilities, equipment and improvements; the estimated operating costs
attributable to the phase-out, closure and consolidation of these manufacturing
facilities; the write-down of commodity chipset product inventories; the
severance of manufacturing and other personnel; the consolidation of certain
U.S. and foreign sales offices, design centers and administrative organizations;
and certain legal and other costs.
The following table sets forth the Company's 1992 restructuring expense,
remaining reserves at December 31, 1993 and 1994 (which are accounted for as
components of fixed assets, inventories and current liabilities) and charges
taken from the date the restructuring commenced through December 31, 1993 and
during 1994:
<TABLE>
<CAPTION>
1992
RESTRUCTURING BALANCE BALANCE
(in thousands) EXPENSE UTILIZED* 12/31/93 UTILIZED* ADJUSTED 12/31/94
------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Write-down of manufacturing facility(a)............. $ 14,700 $(14,700 ) $ -- $(14,000) $14,000 $ --
Other fixed asset related charges(b)................ 35,500 (20,500 ) 15,000 (600) (3,300 ) 11,100
Other provisions for phase-down and consolidation of
manufacturing facilities(b)....................... 13,500 (7,000 ) 6,500 (2,200) (800 ) 3,500
Write-down of inventories(a)........................ 10,900 (8,600 ) 2,300 (200) (2,100 ) --
Payments to employees for severance(c).............. 8,000 (5,400 ) 2,600 -- (1,100 ) 1,500
Relocation, lease terminations and other(b)......... 19,200 (2,700 ) 16,500 (600) (6,700 ) 9,200
------------- --------- -------- -------- -------- --------
Total....................................... $ 101,800 $(58,900 ) $42,900 $(17,600) $ -- $25,300
============ ======== ======== ======== ======== ========
</TABLE>
- - ---------------
* Net of cumulative currency translation adjustments.
(a) Amounts utilized represent non-cash charge-offs.
(b) Amounts utilized represent both cash and non-cash items. Aggregate cash
charges totaled $3.1 million.
(c) Amounts utilized represent cash payments.
By the end of 1993, the Company had completed the following actions in
accordance with its original plan:
(1) Phased-out the German test and assembly operations: Restructuring
reserves were utilized for employee terminations ($3.9 million), fixed
asset dispositions ($7.6 million), inventory write-offs
30
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
($2.5 million) and other charges ($3.2 million). In addition, the
German facility was written-down ($14.7 million) to its net realizable
value of $14 million. Operating losses incurred during the phase-out
period and ongoing maintenance costs ($5.3 million) associated with the
facility were also applied against the reserves.
(2) Discontinued the chipset business: Restructuring reserves were utilized
for inventory write-downs ($3.3 million) and other costs including
those associated with abandoned facility leases ($1.9 million).
(3) Phased-down its Milpitas wafer manufacturing facility: Restructuring
reserves were used for fixed asset write-offs ($5.2 million), inventory
write-offs ($2.8 million) and other costs ($1.7 million).
(4) Phased-out certain U.S. assembly and test operations: Restructuring
reserves were used for fixed asset write-offs ($2.1 million).
(5) Consolidated certain U.S. sales offices and design centers:
Restructuring reserves were used for employee terminations ($1.5
million), lease terminations ($1.4 million) and fixed asset write-offs
($1.8 million).
The above actions included termination of approximately 350 employees.
During 1994, the Company determined that the originally estimated costs of
the phase-out of the Milpitas manufacturing facility exceeded the expected
remaining costs of the phase-out. The Company also determined that the time
required to sell the Braunschweig, Germany building may be significantly in
excess of the original estimate. The Braunschweig facility is a special purpose
facility containing a "clean-room" environment and is located in an economically
depressed area of Germany. Management believes that the total reserves
established are adequate to cover uncertainties in connection with these
matters. Significant restructuring activity for 1994 included: (1) additional
write-down of the German manufacturing facility held for sale which the Company
has not been able to dispose of; and (2) continued phase-down of the Milpitas
wafer manufacturing facility including additional asset write-downs and movement
of equipment to subcontractors. The Company is currently operating the Milpitas
facility and continues to evaluate either the feasibility of future operations
at such facility or whether the facility should be phased out by the end of
1995. Remaining reserves at December 31, 1994 include approximately $14.8
million for the continued phase-down of the California manufacturing facilities,
$2.5 million for continued maintenance of the vacant Braunschweig facility and
$8 million for other corporate matters.
NOTE 6 -- DEBT
<TABLE>
<CAPTION>
December 31, (in thousands) 1994 1993
-------- --------
<S> <C> <C>
Senior:
Notes payable to banks............................................... $142,299 $144,026
Capital lease obligations............................................ 849 456
Subordinated:
5 1/2% Convertible Subordinated Notes, due 2001...................... 143,750 --
6 1/4% Convertible Subordinated Debentures, due 2002................. -- 98,250
-------- --------
286,898 242,732
Current portion of long-term debt, capital lease obligations and
short-term borrowings................................................ (24,167) (22,727)
-------- --------
Long-term debt and capital lease obligations........................... $262,731 $220,005
======== ========
</TABLE>
During March 1994, the Company issued $143.8 million of 5 1/2% Convertible
Subordinated Notes (Notes) due 2001. The Notes are subordinated to all existing
and future senior debt, are convertible into shares of the Company's common
stock at a conversion price of $24.50 per share, and are redeemable at the
option of the Company, in whole or in part, at any time on or after March 18,
1997. Each holder of these Notes has the right to cause the Company to
repurchase all of such holder's Notes at 100% of their principal
31
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
amount plus accrued interest upon the occurrence of certain events and in
certain circumstances. Interest is payable semiannually.
In July 1994, the Company called for redemption of all of its $98.2
million, 6 1/4% Convertible Subordinated Debentures (Debentures). In July and
August of 1994, substantially all of the Debentures were converted into
approximately 4.9 million shares of common stock at a price of $20 per share.
During 1993, the Company repurchased and retired $5 million of such Debentures
in the open market at a price that was approximately equal to the carrying value
of the debt.
The Company's Japanese manufacturing subsidiary had borrowings outstanding
of approximately 14 billion yen (approximately $142 million at December 31,
1994). The funds were used to construct the new Japanese wafer fabrication
facility and to acquire manufacturing equipment. The borrowings, which are
secured by the facility and production equipment, have fixed and variable
interest rates averaging 5% at December 31, 1994, and are payable in semi-annual
installments through 2007.
Aggregate principal payments required on outstanding debt obligations are
as follows: 1995 -- $24.2 million; 1996 -- $18.8 million; 1997 -- $18.6 million;
1998 -- $18.6 million; 1999 -- $14.1 million; 2000 and thereafter -- $192.7
million.
The Company paid $19.8 million, $4.0 million, and $10.5 million in interest
during 1994, 1993, and 1992, respectively.
During 1994, the Company entered into a credit agreement with a group of
banks which provided for an unsecured $60 million revolving credit facility. The
Company must comply with certain financial covenants relating to profitability;
liquidity, working capital, leverage and tangible net worth. At December 31,
1994, the Company is in compliance with all covenants. There have been no
borrowings under this credit facility, which expires in August 1997.
NOTE 7 -- COMMON STOCK
The following summarizes all shares of common stock reserved for issuance
as of December 31, 1994:
<TABLE>
<CAPTION>
(in thousands) NUMBER OF SHARES
----------------
<S> <C>
Issuable upon:
Conversion of subordinated long-term debt.................................... 5,867
Exercise of stock options, including options available for grant............. 5,107
Purchase under Employee Stock Purchase Plan.................................. 675
-------
11,649
=============
</TABLE>
Stock option plans The Company's 1982 Incentive Stock Option Plan (1982
Option Plan) is administered by the Board of Directors. Terms of the 1982 Option
Plan required that the exercise price of options be no less than the fair value
at the date of grant and required that options be granted only to employees or
consultants of the Company. Generally options granted vest in annual increments
of 25% per year commencing one year from the date of grant, and have a term of
10 years. During 1992, the 1982 Option Plan expired by its terms. Accordingly,
no further options may be granted thereunder. Certain options previously granted
under the 1982 Option Plan remained outstanding at December 31, 1994.
During 1991, the stockholders approved the 1991 Equity Incentive Plan
reserving 2,000,000 shares of common stock for sale or award to officers,
employees or consultants of the Company as stock options, stock appreciation
rights, stock purchase rights or stock bonuses. An aggregate 2,500,000
additional shares were reserved for issuance under this plan during 1993 and
1994. Incentive stock options may be granted with an exercise price with a value
no less than the fair value of the stock on the date the option is granted. The
term of each option is determined by the Board of Directors and is generally 10
years. Options generally vest in annual increments of 25% per year commencing
one year from the date of grant.
32
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Shares available for grant under the 1991 Equity Incentive Plan totaled
1,395,000 at December 31, 1994.
The following table summarizes option activity under the 1982 Option Plan
and the 1991 Equity Incentive Plan:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------
(in thousands, except per share amounts) PRICE PER SHARE AMOUNT
--------------- --------
SHARES
------
<S> <C> <C> <C>
Balance at December 31, 1991............................ 6,918 $ .22 - $13.17 $ 49,333
Options cancelled....................................... (1,004) .22 - 12.88 (7,368)
Options granted......................................... 1,412 5.50 - 9.38 10,592
Options exercised....................................... (664) .22 - 8.33 (4,661)
------ --------
Balance at December 31, 1992............................ 6,662 .22 - 13.17 47,896
Options cancelled....................................... (293) .22 - 17.88 (2,375)
Options granted......................................... 1,275 11.00 - 17.88 16,287
Options exercised....................................... (3,235) 5.50 - 13.17 (23,007)
------ --------
Balance at December 31, 1993............................ 4,409 5.50 - 17.88 38,801
Options cancelled....................................... (435) 5.50 - 30.25 (5,116)
Options granted......................................... 1,040 17.88 - 43.50 29,720
Options exercised....................................... (1,432) 5.50 - 17.88 (10,983)
------ --------
Balance at December 31, 1994............................ 3,582 5.50 - 43.50 $ 52,422
====== ========
Options exercisable at December 31, 1994................ 1,184 $ 9,460
====== ========
</TABLE>
During 1986, the Company's directors and stockholders approved the 1986
Directors' Stock Option Plan (Directors' Plan) and reserved 150,000 shares of
common stock for issuance thereunder. Terms of the Directors' Plan provide for
the automatic grant of options to the Company's independent directors as of the
date of adoption of the Directors' Plan and in annual increments commencing in
1988. The exercise price of options granted is the fair market value at the date
of grant.
Shares available for grant under the Directors' Plan were 33,750 at
December 31, 1994.
33
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes option activity under the Directors' Plan:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------
(in thousands, except per share amounts) PRICE PER SHARE AMOUNT
--------------- --------
SHARES
------
<S> <C> <C> <C>
Balance at December 31, 1991............................ 55 $ 7.88 - $11.25 $ 547
Options cancelled....................................... (15) 7.88 (118)
Options granted......................................... 40 7.13 - 8.63 307
------ --------
Balance at December 31, 1992............................ 80 7.13 - 11.25 736
Options cancelled....................................... (17) 7.13 - 11.25 (178)
Options granted......................................... 30 7.13 - 12.38 371
Options exercised....................................... (13) 7.13 - 11.13 (128)
------ --------
Balance at December 31, 1993............................ 80 7.13 - 12.38 801
Options granted......................................... 20 21.50 430
Options exercised....................................... (5) 11.13 (56)
------ --------
Balance at December 31, 1994............................ 95 7.13 - 21.50 $ 1,175
====== ========
Options exercisable at December 31, 1994................ 34 $ 318
====== ========
</TABLE>
Stock purchase plan Since 1983, the Company has offered an Employee Stock
Purchase Plan (Employee Plan) under which rights are granted to purchase shares
of common stock at 85% of the lesser of the fair value of such shares at the
beginning of a 24-month offering period or the end of each six-month segment
within such offering period. Sales under the Employee Plan in 1994 and 1993 were
1,121,000 and 1,070,000 shares of common stock at an average price of $6.10 and
$5.33 per share, respectively. During 1994, an additional 700,000 shares were
reserved for issuance under the Employee Plan. Shares available for purchase
under the Employee Plan were 675,000 at December 31, 1994.
Stock purchase rights In November 1988, the Company implemented a plan to
protect stockholders' rights in the event of a proposed takeover of the Company.
Under the plan, each share of the Company's outstanding common stock carries one
Preferred Share Purchase Right (Right). Each Right entitles the holder, under
certain circumstances, to purchase one one-thousandth of a share of Preferred
Stock of the Company or its acquiror at a discounted price. The Rights are
redeemable by the Company and expire in 1998.
34
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- INCOME TAXES
The provision (benefit) for taxes consisted of the following:
<TABLE>
<CAPTION>
(in thousands) 1994 1993 1992
-------- ------- --------
<S> <C> <C> <C>
Current:
Federal................................................... $ 39,079 $19,687 $ (3,647)
State..................................................... 4,991 -- (1,249)
Foreign................................................... 14,639 10,925 9,188
-------- ------- --------
Total.................................................. 58,709 30,612 4,292
-------- ------- --------
Deferred:
Federal................................................... (10,085) 89 5,222
State..................................................... -- -- --
Foreign................................................... (4,945) (6,480) (993)
-------- ------- --------
Total.................................................. (15,030) (6,391) 4,229
-------- ------- --------
Total....................................................... $ 43,679 $24,221 $ 8,521
======== ======= ========
</TABLE>
The domestic and foreign components of income (loss) before income taxes
and minority interest were as follows:
<TABLE>
<CAPTION>
(in thousands) 1994 1993 1992
-------- ------- --------
<S> <C> <C> <C>
Domestic.................................................... $135,943 $48,815 $(88,752)
Foreign..................................................... 20,226 31,906 (11,116)
-------- ------- --------
Income (loss) before income taxes and minority interest..... $156,169 $80,721 $(99,868)
======== ======= ========
</TABLE>
Undistributed earnings of the Company's foreign subsidiaries for which no
U.S. income taxes have been provided aggregate to approximately $50 million at
December 31, 1994.
Deferred income taxes reflect the tax effects of differences between the
carrying amounts of assets and liabilities for financial reporting and income
tax purposes. A deferred tax asset must be recognized for the tax benefit of
deductible temporary differences, net operating losses and tax credit
carryforwards. A valuation allowance is recognized if it is "more likely than
not" that some or all of the deferred tax asset will not be realized. Management
believes that the realization of deferred tax assets was not assured at December
31, 1994 and 1993, other than to the extent of taxable income for the carryback
period, due to the existence of unrealized tax benefits on stock options
combined with the volatility of earnings in the semiconductor industry.
Significant components of the Company's deferred tax assets and liabilities as
of December 31, are as follows:
<TABLE>
<CAPTION>
(in thousands) 1994 1993
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards..................................... $ 4,832 $ 8,504
Tax credit carryovers................................................ 1,712 18,161
Nondeductible reserves and other..................................... 37,470 44,600
-------- --------
Total deferred tax assets......................................... 44,014 71,265
Valuation allowance............................................... (19,364) (62,169)
-------- --------
Net deferred tax assets........................................... 24,650 9,096
Deferred tax liabilities -- depreciation............................. (6,861) (6,337)
-------- --------
Total net deferred tax assets..................................... $ 17,789 $ 2,759
======== ========
</TABLE>
35
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Differences between the Company's effective tax rate (benefit) and the
federal statutory rate were as follows:
<TABLE>
<CAPTION>
(in thousands) 1994 1993 1992
-------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Federal statutory rate..................... $ 54,661 35% $28,253 35% $(33,956) (34)%
State taxes, net of federal benefit........ 9,370 6 4,036 5 -- --
Difference between U.S. and foreign tax
rates.................................... 7,219 5 (242) (1) 1,383 1
Nondeductible expenses..................... 5,310 3 -- -- -- --
Foreign losses with no benefit............. 931 -- -- -- 10,953 11
Research and development tax credit........ (1,743) (1) -- -- -- --
Change in valuation allowance.............. (42,805) (27) (8,234) (10) -- --
Effect of temporary differences limited due
to carryback limitations................. -- -- -- -- 23,896 24
Other...................................... 10,736 7 408 1 6,245 7
-------- --- ------- --- -------- ---
Effective tax rate......................... $ 43,679 28% $24,221 30% $ 8,521 9%
======== === ======= === ======== ===
</TABLE>
The Company paid $23.1 million for income taxes in 1994 and received a net
refund of $1.6 million and $2.5 million in 1993 and 1992, respectively.
NOTE 9 -- SEGMENT REPORTING AND FOREIGN OPERATIONS
The Company operates in one industry segment and designs develops,
manufactures and markets application-specific integrated circuit technology and
related products.
Revenues from affiliates, which are eliminated in consolidation, consist of
sales between geographic areas and include products and services similar to
those sold to unaffiliated customers. Such sales are primarily recorded at
amounts which are in excess of cost and consistent with rules and regulations of
governing tax authorities. General corporate expenses include certain
administrative expenses. Corporate assets include all cash, short-term
investments and prepaid income taxes.
The Company's operations outside the United States include manufacturing
facilities, design centers and sales offices in Europe, Japan and Canada.
36
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following is a summary of operations by entities located within the
indicated geographic areas for 1994, 1993 and 1992. United States revenues
include export sales.
<TABLE>
<CAPTION>
(in thousands) 1994 1993 1992
---------- --------- ---------
<S> <C> <C> <C>
Revenues:
United States......................................... $ 781,223 $ 589,455 $ 507,634
Japan................................................. 270,445 163,684 140,065
Europe................................................ 141,773 143,928 142,254
Canada................................................ 35,107 44,006 42,641
Other................................................. 9,028 -- --
Affiliates............................................ (335,746) (222,261) (215,126)
---------- --------- ---------
Consolidated.......................................... $ 901,830 $ 718,812 $ 617,468
========= ========= =========
Operating income (loss):
United States......................................... $ 138,713 $ 48,787 $ (88,532)
Japan................................................. 3,945 13,416 7,383
Europe................................................ 11,119 21,651 (17,248)
Canada................................................ 4,999 1,720 1,103
Other................................................. 685 -- --
General corporate expenses............................ (1,695) (1,732) (3,420)
---------- --------- ---------
Consolidated.......................................... $ 157,766 $ 83,842 $(100,714)
========= ========= =========
Identifiable assets:
United States......................................... $ 284,067 $ 227,041 $ 201,784
Japan................................................. 479,449 367,135 301,228
Europe................................................ 35,704 40,687 46,595
Canada................................................ 9,128 11,786 21,011
Other................................................. 7,567 -- --
General corporate..................................... 454,459 212,361 168,457
---------- --------- ---------
Consolidated.......................................... $1,270,374 $ 859,010 $ 739,075
========= ========= =========
</TABLE>
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
The Company leases the majority of its facilities and certain equipment
under non-cancelable operating leases which expire in 1995 through 2005. The
facilities lease agreements typically provide the base rental rates which are
increased at various times during the terms of the leases and for renewal
options at the fair market rental value.
Future minimum payments under these lease agreements are as follows:
1995 -- $29.3 million; 1996 -- $22.6 million; 1997 -- $14.7 million;
1998 -- $11.7 million; 1999 -- $9.8 million; 2000 and thereafter -- $25.8
million. Total rental expense, including month-to-month rentals was $34.5
million, $29.7 million and $29.7 million in 1994, 1993 and 1992, respectively.
In July 1990, Texas Instruments Incorporated (TI) filed a complaint in the
United States District Court in Dallas, Texas and with the International Trade
Commission (ITC), alleging that the Company's manufacturing process related to
device encapsulation in certain plastic packages infringes upon certain TI
patents. In the ITC action, TI sought to prohibit the importation into the U.S.
of such plastic encapsulation devices which were previously imported. The ITC
determined that the plastic encapsulation process used by the Company known as
"same-sided" gating does not infringe the TI patent, while the process
previously used by the Company known as "opposite-sided" gating does infringe.
Since August 23, 1994, the expiration date of the TI patent, the ITC final order
no longer operates to exclude from importation any integrated circuit devices,
regardless of the manner in which they are packaged. Since the beginning of 1992
the Company's
37
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
plastic encapsulation operations have only used the non-infringing "same-sided"
gating process. The Court of Appeals for the Federal Circuit affirmed the ruling
of the ITC in all respects in March 1993.
In TI's United States District Court action, TI originally sought to enjoin
the Company from assembling and selling plastic encapsulated integrated circuits
in the U.S. However, both patents in the case have since expired so an
injunction will not be available. In addition, TI seeks damages in an
unspecified amount for alleged prior patent infringement. A trial date has been
set for April 1995.
The Company believes that it has meritorious defenses to these actions and
intends to defend itself vigorously. The Company also believes that the ultimate
outcome of these actions will not result in a material adverse effect on the
Company's consolidated financial position or result of operations. In the event
the final outcome in either or both actions is unfavorable to the Company,
management believes that licenses could be negotiated. However, no assurances
can be given that the terms including fees, of any offered license will be
favorable or that these matters will be resolved without the payment of damages
and other costs, thereby having an adverse effect on the Company.
Certain additional claims and litigation against the Company have also
arisen in the normal course of business. The Company believes that it is
unlikely that the outcome of these claims and lawsuits will have a materially
adverse effect on the Company's consolidated financial position or results of
operations.
NOTE 11 -- SUBSEQUENT EVENTS
In January 1995, the Company acquired all minority owned common shares (a
45% interest) of its Japanese manufacturing subsidiary, Nihon Semiconductor,
Inc. (NSI), from Kawasaki Steel Corporation (KSC) for a total of $175 million to
be paid to KSC over eight years. The Company has defeased this obligation
through payment of $125.9 million to an unrelated party and has been legally
released from the obligation by KSC. The acquisition was accounted for as a
purchase. The excess of the total acquisition cost over the recorded value of
assets acquired was allocated to property, plant and equipment ($33.1 million)
based on fair value.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
38
<PAGE> 40
PART III
Certain information required by Part III is omitted from this Report in
that the registrant will file a definitive proxy statement within 120 days after
the end of its fiscal year pursuant to Regulation 14A (the "Proxy Statement")
for its Annual Meeting of Stockholders to be held May 12, 1995, and certain of
the information included therein is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors required by this Item is
incorporated by reference to "ELECTION OF DIRECTORS -- Nominees" in the
Company's Proxy Statement.
The executive officers of the Company, who are elected by and serve at the
discretion of the Board of Directors, are as follows:
<TABLE>
<CAPTION>
EMPLOYED
NAME AGE POSITION SINCE
- - -------------------- --- --------------------------------------------------- --------
<S> <C> <C> <C>
Wilfred J. Corrigan 56 Chairman, Chief Executive Officer 1981
Bruce L. Entin 44 Vice President, Investor Relations, Corporate 1984
Communications and Geographic Markets Support
Brian L. Halla 48 Executive Vice President, LSI Logic Products 1988
Cyril F. Hannon 56 Executive Vice President, Worldwide Operations 1984
Albert A. Pimentel 39 Senior Vice President, Finance and Chief Financial 1992
Officer
David E. Sanders 47 Vice President, General Counsel and Secretary 1986
Lewis C. Wallbridge 51 Vice President, Human Resources 1984
</TABLE>
Except as set forth below, all of the officers have been associated with
the Company in their present position or other capacities for more than the past
five years.
Albert A. Pimentel joined the Company in July 1992 as Senior Vice
President, Finance and Chief Financial Officer. From December 1990 until
February 1991, Mr. Pimentel served as Vice President of Finance, Chief Financial
Officer and Secretary of Momenta Corporation, a start up company in the pen
computing business. As the result of a corporate reorganization, Momenta
Corporation became a wholly-owned subsidiary of Momenta International Ltd. and
Mr. Pimentel assumed the same positions for Momenta International Ltd. until
July 1992. In August 1992, Momenta International Ltd. and its subsidiaries filed
a petition for relief in Federal bankruptcy court. From May 1986 until December
1990, Mr. Pimentel served as Vice President, Finance of Conner Peripherals,
Inc., a manufacturer of disk drives.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
"EXECUTIVE COMPENSATION" in the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
"SECURITY OWNERSHIP -- Principal Stockholders and Security Ownership of
Management" in the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to
"CERTAIN TRANSACTIONS" in the Company's Proxy Statement.
39
<PAGE> 41
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements. The following Consolidated Financial Statements of
LSI Logic Corporation and Report of Independent Accountants are set forth in
Part II.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants..................................................... 21
Consolidated Balance Sheets -- As of December 31, 1994 and 1993....................... 22
Consolidated Statements of Operations -- For the Three Years Ended December 31,
1994................................................................................ 23
Consolidated Statement of Stockholders' Equity -- For the Three Years Ended December
31, 1994............................................................................ 24
Consolidated Statements of Cash Flows -- For the Three Years Ended December 31,
1994................................................................................ 25
Notes to Consolidated Financial Statements............................................ 26
</TABLE>
Effective beginning 1990, the Company changed its fiscal year end from
December 31 to the 52 or 53 week period which ends on the Sunday closest to
December 31. For presentation purposes, the consolidated financial statements,
notes and financial statement schedules will continue to refer to December 31 as
the year end. Fiscal 1994 was a 52 week year that ended on January 1, 1995.
2. Financial Statement Schedules. All schedules are omitted because they
are not applicable or the required information is shown in the consolidated
financial statements or notes thereto.
3. Exhibits:
<TABLE>
<C> <S>
3.1 Restated Certificate of Incorporation of Registrant.(1)
3.2 By-laws of Registrant.(1)
4.2 Indenture dated April 14, 1987 between LSI Logic Corporation and United States
Trust Company of New York, Trustee, covering $125,000,000 principal amount of
6 1/4% Convertible Subordinated Debentures due 2002 (including form of
Debenture).(2)
4.3 Preferred Shares Rights Plan dated November 16, 1988.(3)
4.4 Indenture dated March 23, 1994, between LSI Logic Corporation and The First
National Bank of Boston, Trustee, covering $143,750,000 principal amount of
5 1/2% Convertible Subordinated Notes due 2001 (including form of Note).(12)
10.1 Lease dated March 26, 1981 for 1601 McCarthy Boulevard between the Registrant
and McCarthy Industrial Investors.(4)
10.1A First Amendment to Lease dated May 1, 1991 to Lease dated March 26, 1981 for
1601 McCarthy Boulevard between the Registrant and McCarthy Industrial
Investors.(11)
10.2 Registrant's 1982 Incentive Stock Option Plan, as amended, and forms of Stock
Option Agreement.(9)
10.3 Registrant's Employee Stock Purchase Plan, as amended, and form of Subscription
Agreement.
10.6 Series B Preferred Shares Purchase Agreement for 1,395,864 shares of Series B
Preferred Stock dated as of February 8, 1982.(4)
10.7 Modification Agreement dated as of February 8, 1982 between the Registrant and
holders of its Series A Preferred Stock.(4)
10.8 Lease Agreement dated November 22, 1983 for 48580 Kato Road, Fremont,
California between the Registrant and Bankamerica Realty Investors.(6)
10.19 Registrant's 1985 Nonstatutory Stock Option Plan for Shares of LSI Logic Europe
plc and form of Nonstatutory Stock Option Agreement.(5)
</TABLE>
40
<PAGE> 42
<TABLE>
<C> <S>
10.20 LSI Logic Europe plc 1984 Nonstatutory Stock Option Plan and form of
Nonstatutory Share Option Agreement.(5)
10.21 Registrant's 1985 Nonstatutory Stock Option Plan for Shares of LSI Logic
Corporation of Canada, Inc. and form of Nonstatutory Stock Option Agreement.(5)
10.24 Registrant's 1986 Directors' Stock Option Plan and forms of Stock Option
Agreements.(7)
10.25 LSI Logic Europe plc 1986 Share Option Scheme.(7)
10.26 LSI Logic Europe plc Share Acquisition Scheme.(7)
10.27 LSI Logic Corporation of Canada, Inc. 1985 Stock Option Plan and form of Stock
Option Agreement.(7)
10.29 Form of Indemnification Agreement entered and to be entered into between
Registrant and its officers, directors and certain key employees.(8)
10.35 LSI Logic Corporation 1991 Equity Incentive Plan.
10.36 Lease Agreement dated February 28, 1991 for 765 Sycamore Drive, Milpitas,
California between the Registrant and the Prudential Insurance Company of
America.(10)
10.37 Stock Purchase Agreement dated as of January 20, 1995; Promissory Note dated
January 26, 1995; Note Purchase Agreement dated as of January 26, 1995 in
connection with the Company's purchase of the minority interest in one of its
Japanese subsidiaries.
11.1 Statement Re: Computation of Earnings (Loss) Per Share
21.1 List of Subsidiaries.
23.1 Consent of Independent Accountants (see page 44).
24.1 Power of Attorney (included on page 43).
27.1 Financial Data Schedule.
</TABLE>
- - ---------------
(1) Incorporated by reference to exhibits filed with the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 26, 1988.
(2) Incorporated by reference to exhibits filed with the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 27, 1988.
(3) Incorporated by reference to exhibits filed with the Registrant's Form 8-A
filed on November 21, 1988.
(4) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1 (No. 2-83035) which became effective May
13, 1983.
(5) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1 (No. 33-3612), and Amendment No. 1
thereto, which became effective March 20, 1986.
(6) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1983.
(7) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1986.
(8) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1987.
(9) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1988.
(10) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1991.
(11) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1992.
(12) Incorporated by reference to exhibits filed with the Registrant's Quarterly
Report on Form 10-Q for the quarter ended April 3, 1994.
41
<PAGE> 43
(b) Reports on Form 8-K.
On January 26, 1995, the Company filed a Current Report on Form 8-K
reporting its purchase of the 45% minority interest in its Japanese subsidiary.
TRADEMARK ACKNOWLEDGMENTS
- The LSI Logic logo is a registered trademark of the Company.
Channel-Free, CoreWare and Embedded Array are also registered trademarks
of the Company.
- ATMizer, C-MDE and HYDRA are trademarks of the Company.
- All other brand names or trademarks appearing in the Form 10-K are the
property of their respective owners.
42
<PAGE> 44
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.
LSI LOGIC CORPORATION
By: /s/ WILFRED J. CORRIGAN
Wilfred J. Corrigan, Chairman
and Chief Executive Officer
Dated: February 7, 1995
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Wilfred J. Corrigan and David E. Sanders, jointly
and severally, his attorneys-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Report on Form
10-K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities 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/ WILFRED J. CORRIGAN Chairman of the Board and
(Wilfred J. Corrigan) Chief Executive Officer
(Principal Executive
Officer) February 7, 1995
/s/ ALBERT A. PIMENTEL Senior Vice President,
(Albert A. Pimentel) Finance and Chief
Financial Officer
(Principal Financial
Officer and Principal
Accounting Officer) February 7, 1995
CHU /s/ T.Z. Director February 7, 1995
(T.Z. Chu)
/s/ MALCOLM R. CURRIE Director February 7, 1995
(Malcolm R. Currie)
/s/ JAMES H. KEYES Director February 7, 1995
(James H. Keyes)
/s/ R. DOUGLAS NORBY Director February 7, 1995
(R. Douglas Norby)
</TABLE>
43
<PAGE> 45
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 2-86474, No. 2-91907, No. 2-98732, No. 33-6188, No.
33-6203, No. 33-13265, No. 33-17720, No. 33-30385, No. 33-30386, No. 33-36249,
No. 33-41999, No. 33-42000, No. 33-53054, No. 33-66548, No. 33-66546, No.
33-55631, No. 33-55633, No. 33-55697) of LSI Logic Corporation of our report
dated January 26, 1995 appearing on page 21 of this Form 10-K.
PRICE WATERHOUSE LLP
San Jose, California
February 7, 1995
44
<PAGE> 1
EXHIBIT 10.3
LSI LOGIC CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the Employee Stock Purchase Plan
(herein called the "Plan") of LSI Logic Corporation (herein called the
"Company".)
1. PURPOSE
The purpose of the Plan is to provide employees of the Company and its
Designated Subsidiaries with an opportunity to purchase Common Stock of the
Company through accumulated payroll deductions. It is the intention of the
Company to have the Plan qualify as an "Employee Stock Purchase Plan" under
Section 423 of the Internal Revenue Code of 1986. The provisions of the Plan
shall, accordingly, be construed so as to extend and limit participation in a
manner consistent with the requirements of that section of the Code.
2. DEFINITIONS
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" shall mean the Common Stock, $.01 par value, of the
Company.
(d) "COMPANY" shall mean LSI Logic Corporation, a Delaware corporation.
(e) "COMPENSATION" shall mean all regular straight time earnings,
exclusive of payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses, commissions or other
compensation.
(f) "CONTINUOUS STATUS AS AN EMPLOYEE" shall mean the absence of any
interruption or termination of service as an Employee. Continuous
Status as an Employee shall not be considered interrupted in the case
of a leave of absence agreed to in writing by the Company, provided
that such leave is for a period of not more than 90 days or
reemployment upon the expiration of such leave is guaranteed by
contract or statute.
(g) "DESIGNATED SUBSIDIARIES" shall mean the Subsidiaries which have been
designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(h) "EMPLOYEE" shall mean any person, including an officer, who is
customarily employed for at least twenty (20) hours per week and more
than five (5) months in a calendar year by the Company or one of its
Designated Subsidiaries.
(i) "ENROLLMENT DATE" shall mean the first day of each Offering Period.
(j) "EXERCISE DATE" shall mean each March 31 and September 30 of each
Offering Period of the Plan.
(k) "EXERCISE PERIOD" shall mean a period commencing on April 1 and
terminating on the following September 30 or commencing on October 1
and terminating on the following March 31.
(l) "OFFERING PERIOD" shall mean a period of twenty-four (24) months
commencing on April 1 and October 1 of each year during which an
option granted pursuant to the Plan may be exercised.
(m) "PLAN" shall mean this Employee Stock Purchase Plan.
(n) "SUBSIDIARY" shall mean a corporation, domestic or foreign, of which
not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
<PAGE> 2
3. ELIGIBILITY
(a) Any Employee, as defined in paragraph 2, who shall be employed by the
Company on a given Enrollment Date shall be eligible to participate in the Plan,
subject to limitations imposed by Section 423(b) of the Code.
(b) Any provisions of the Plan to the contrary notwithstanding, no Employee
shall be granted an option under the Plan (i) if, immediately after the grant,
such Employee (or any other person whose stock would be attributed to such
Employee pursuant to Section 425(d) of the Code) would own stock and/or hold
outstanding options to purchase stock possessing five percent (5%) or more of
the total combined voting power or value of all classes of stock of the Company
or of any subsidiary of the Company, or (ii) which permits such Employee's
rights to purchase stock under all employee stock purchase plans of the Company
and its Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand
Dollars ($25,000) of fair market value of such stock (determined at the time
such option is granted) for each calendar year in which such option is
outstanding at any time.
4. OFFERING PERIODS
The Plan shall be implemented by consecutive Offering Periods with a new
Offering Period commencing on April 1 and October 1 of each year, commencing
April 1, 1988, or as otherwise determined by the Board of Directors, and
continuing thereafter until terminated in accordance with paragraph 19 hereof.
The Board of Directors of the Company shall have the power to change the
duration of Offering Periods with respect to future offerings without
shareholder approval if such change is announced at least fifteen (15) days
prior to the scheduled beginning of the first Offering Period to be affected.
5. PARTICIPATION
(a) An eligible Employee may become a participant in the Plan by completing
a subscription agreement authorizing payroll deductions on the form provided by
the Company and filing it with the Company's payroll office prior to the
applicable Enrollment Date, unless a later time for filing the subscription
agreement is set by the Board for all eligible Employees with respect to a given
Offering Period. An eligible Employee may participate in an Offering Period only
if, as of the Enrollment Date of such Offering Period, such Employee is not
participating in any prior Offering Period which is continuing at the time of
such proposed enrollment.
(b) Payroll deductions for a participant shall commence on the first
payroll date following the Enrollment Date and shall end on the last payroll
date in the Offering Period to which such authorization is applicable, unless
sooner terminated by the participant as provided in paragraph 10.
6. PAYROLL DEDUCTIONS
(a) At the time a participant files his subscription agreement, he shall
elect to have payroll deductions made on each payday during the Offering Period
in an amount not exceeding ten percent (10%) of the Compensation which he
receives on each payday during the Offering Period, and the aggregate of such
payroll deductions during the Offering Period shall not exceed ten percent (10%)
of his aggregate Compensation during said Offering Period.
(b) All payroll deductions made by a participant shall be credited to his
account under the Plan. A participant may not make any additional payments into
such account.
(c) A participant may discontinue his participation in the Plan as provided
in paragraph 10, may lower the rate of his payroll deductions effective
immediately or may increase (but not above 10%) the rate of his payroll
deductions effective as of the first date of the next Exercise Period within
such Offering Period by completing or filing with the Company a new
authorization for payroll deductions.
(d) Notwithstanding the foregoing, to the extent necessary to comply with
Section 423(b)(8) of the Code and paragraph 3(b) herein, a participant's payroll
deductions may be decreased to 0% at such time during any Exercise Period which
is scheduled to end during the current calendar year that the aggregate of all
-2-
<PAGE> 3
payroll deductions accumulated with respect to such Exercise Period and any
other Exercise Period ending within the same calendar year equal $21,250.
Payroll deductions shall recommence at the rate provided in such participant's
subscription agreement at the beginning of the first Exercise Period which is
scheduled to end in the following calendar year, unless terminated by the
participant as provided in paragraph 10.
7. GRANT OF OPTION
(a) On the Enrollment Date of each Offering Period, each eligible Employee
participating in such Offering Period shall be granted an option to purchase on
each Exercise Date during such Offering Period (at the per share option price)
up to a number of shares of the Company's Common Stock determined by dividing
such Employee's payroll deductions accumulated during such Exercise Period by
eighty-five percent (85%) of the fair market value of a share of the Company's
Common Stock on the Enrollment Date or on the Exercise Date, whichever is lower,
provided that the number of shares subject to the option shall not exceed 200%
of the number of shares determined by dividing 10% of the Employee's
Compensation over the Offering Period (determined as of the Enrollment Date) by
85% of the fair market value of a share of the Company's Common Stock on the
Enrollment Date, subject to the limitations set forth in Section 3(b) and 12
hereof. Fair market value of a share of the Company's Common Stock shall be
determined as provided in Section 7(b) herein.
(b) The option price per share of the shares offered in a given Offering
Period shall be the lower of: (i) 85% of the fair market value of a share of the
Common Stock of the Company on the Enrollment Date; or (ii) 85% of the fair
market value of a share of the Common Stock of the Company on the applicable
Exercise Date. The fair market value of the Company's Common Stock on a given
date shall be determined by the Board in its discretion; provided, however, that
where there is a public market for the Common Stock, the fair market value per
share shall be the closing price of the Common Stock for such date, as reported
by the National Association of Securities Dealers Automated Quotation (NASDAQ)
National Market System (or, if not so reported, as otherwise reported by the
NASDAQ National Market System), or, in the event the Common Stock is listed on a
stock exchange, the fair market value per share shall be the closing price on
such exchange on such date, as reported in the Wall Street Journal. In the event
that a closing price is not available for an Enrollment Date or an Exercise
Date, the fair market value of a share of the Common Stock of the Company on
such date shall be the fair market value of a share of the Common Stock of the
Company on the last business day prior to such date.
8. EXERCISE OF OPTION
Unless a participant withdraws from the Plan as provided in paragraph 10,
his option for the purchase of shares will be exercised automatically on each
Exercise Date of the Offering Period, and the maximum number of full shares
subject to option will be purchased for him at the applicable option price with
the accumulated payroll deductions in his account. During his lifetime, a
participant's option to purchase shares hereunder is exercisable only by him.
Any amount remaining in the participant's account after an Exercise Date shall
be held in the account until the next Exercise Date in such Offering Period,
unless the Offering Period has been over-subscribed or has terminated with such
Exercise Date, in which event such amount shall be refunded to the participant.
9. DELIVERY
As promptly as practicable after each Exercise Date, the Company shall
arrange the delivery to each participant, as appropriate, of a certificate
representing the shares purchased upon exercise of his option.
10. WITHDRAWAL; TERMINATION OF EMPLOYMENT
(a) A participant may withdraw all but not less than all of the payroll
deductions credited to his account under the Plan at any time by giving written
notice to the Company. All of the participant's payroll deductions credited to
his account will be paid to him promptly after receipt of his notice of
withdrawal and his participation in the Plan will be automatically terminated,
and no further payroll deductions for the purchase
-3-
<PAGE> 4
of shares will be made. Payroll deductions will not resume on behalf of a
participant who has withdrawn from the Plan unless written notice is delivered
to the Company within the open enrollment period preceding the commencement of
an Exercise Period directing the Company to resume payroll deductions.
(b) Upon termination of the participant's Continuous Status as an Employee
prior to the Exercise Date of an Offering Period for any reason, including
retirement or death, the payroll deductions credited to the participant's
account will be returned to the participant or, in the case of death, to the
person or persons entitled thereto under paragraph 14, and such participant's
option will be automatically terminated.
(c) In the event an Employee fails to maintain Continuous Status as an
Employee for at least twenty (20) hours per week during an Offering Period in
which the Employee is a participant, he will be deemed to have elected to
withdraw from the Plan and the payroll deductions credited to his account will
be returned to him and his option terminated.
(d) A participant's withdrawal from an Offering Period will not have any
effect upon his eligibility to participate in a succeeding Offering Period or in
any similar plan which may hereafter be adopted by the Company.
11. INTEREST
No interest shall accrue on the payroll deductions of a participant in the
Plan.
12. STOCK
(a) The maximum number of shares of the Company's Common Stock which shall
be made available for sale under the Plan shall be 6,975,000 shares (after
adjustment for the three-for-two stock splits effected by the Company in April
1983 and February 1986), subject to adjustment upon changes in capitalization of
the Company as provided in paragraph 18. If on a given Exercise Date the number
of shares with respect to which options are to be exercised exceeds the number
of shares then available, the Company shall make a pro rata allocation of the
shares remaining available for option grant in as uniform a manner as shall be
practicable and as it shall determine to be equitable. In such event, the
Company shall give written notice of such reduction of the number of shares
subject to the option to each Employee affected thereby and shall similarly
reduce the rate of payroll deductions, if necessary.
(b) The participant will have no interest or voting right in shares covered
by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
13. ADMINISTRATION
The Plan shall be administered by the Board of Directors of the Company or
a committee appointed by the Board. The administration, interpretation or
application of the Plan by the Board or its committee shall be final, conclusive
and binding upon all participants. Members of the Board who are eligible
Employees are permitted to participate in the Plan, provided that:
(a) Members of the Board who are eligible to participate in the Plan
may not vote on any matter affecting the administration of the Plan or the
grant of any option pursuant to the Plan.
(b) If a committee is established to administer the Plan, no member of
the Board who is eligible to participate in the Plan may be a member of the
committee.
14. DESIGNATION OF BENEFICIARY
(a) A participant may file a written designation of a beneficiary who is to
receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to the end of the
Offering Period but prior to delivery to him of such shares and cash. In
addition, a participant may
-4-
<PAGE> 5
file a written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to the exercise of the option.
(b) Such designation of beneficiary may be changed by the participant at
any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
15. TRANSFERABILITY
Neither payroll deductions credited to a participant's account nor any
rights with regard to the exercise of an option or to receive shares under the
Plan may be assigned, transferred, pledged or otherwise disposed of in any way
(other than by will, the laws of descent and distribution or as provided in
paragraph 14 hereof) by the participant. Any such attempt at assignment,
transfer, pledge or other disposition shall be without effect, except that the
Company may treat such act as an election to withdraw funds in accordance with
paragraph 10.
16. USE OF FUNDS
All payroll deductions received or held by the Company under the Plan may
be used by the Company for any corporate purpose, and the Company shall not be
obligated to segregate such payroll deductions.
17. REPORTS
Individual accounts will be maintained for each participant in the Plan.
Statements of account will be given to participating Employees semi-annually
promptly following each Exercise Date, which statements will set forth the
amounts of payroll deductions, the per share purchase price, the number of
shares purchased and the remaining cash balance, if any.
18. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
Subject to any required action by the shareholders of the Company, the
number of shares of Common Stock covered by each option under the Plan which has
not yet been exercised and the number of shares of Common Stock which have been
authorized for issuance under the Plan but have not yet been placed under option
(collectively, the "Reserves"), as well as the price per share of Common Stock
covered by each option under the Plan which has not yet been exercised, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split or the payment of a stock
dividend (but only on the Common Stock) or any other increase or decrease in the
number of shares of Common Stock effected without receipt of consideration by
the Company; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration". Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an option.
In the event of the proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. In the event of a
proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, each option under the
Plan shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless the Board determines, in the exercise of its sole discretion and in lieu
of such assumption or substitution, that the participant shall have the right to
exercise the option as to all of the optioned stock, including shares as to
which the option would not otherwise be exercisable. If the Board makes an
option fully
-5-
<PAGE> 6
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Board shall notify the participant that the option shall be
fully exercisable for a period of thirty (30) days from the date of such notice,
and the option will terminate upon the expiration of such period.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of shares of its outstanding Common Stock, and
in the event of the Company being consolidated with or merged into any other
corporation.
19. AMENDMENT OR TERMINATION
The Board of Directors of the Company may at any time terminate or amend
the Plan. No such termination can affect options previously granted, nor may an
amendment make any change in any option theretofore granted which adversely
affects the rights of any participant, nor may an amendment be made without
prior approval of the shareholders of the Company if such amendment would:
(a) Increase the number of shares that may be issued under the Plan;
(b) Permit payroll deductions at a rate in excess of ten percent (10%) of
the participants' Compensation;
(c) Modify the requirements concerning which employees (or class of
employees) are eligible for participation in the Plan; or
(d) Materially increase the benefits which may accrue to participants under
the Plan.
20. NOTICES
All notices or other communications by a participant to the Company under
or in connection with the Plan shall be deemed to have been duly given when
received in the form specified by the Company at the location, or by the person,
designated by the Company for the receipt thereof.
21. SHAREHOLDER APPROVAL
Continuance of the Plan shall be subject to approval by the shareholders of
the Company within twelve months before or after the date the Plan is adopted.
If such shareholder approval is obtained at a duly held shareholders' meeting,
it may be obtained by the affirmative vote of the holders of a majority of the
outstanding shares of the Company present or represented and entitled to vote
thereon, which approval shall be:
(a) (i) solicited substantially in accordance with Section 14(a) of the
Securities Exchange Act of 1934, as amended (the "Act") and the rules
and regulations promulgated thereunder, or
(ii) solicited after the Company has furnished in writing to the
holders entitled to vote substantially the same information concerning
the Plan as that which would be required by the rules and regulations
in effect under Section 14(a) of the Act at the time such information
is furnished; and
(b) obtained at or prior to the first annual meeting of shareholders held
subsequent to the first registration of Common Stock under Section 12
of the Act.
In the case of approval by written consent, it must be obtained by the
unanimous written consent of all shareholders of the Company.
22. CONDITIONS UPON ISSUANCE OF SHARES
Shares shall not be issued with respect to an option unless the exercise of
such option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, the rules and regulations promulgated
thereunder, and the requirements of any stock
-6-
<PAGE> 7
exchange upon which the shares may then be listed, and shall be further subject
to the approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
-7-
<PAGE> 8
LSI LOGIC CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
ENROLLMENT DATE:
NAME: DEPT NO.:
Check all that apply:
<TABLE>
<S> <C>
Original Enrollment Application..................................................... ---
Change in Rate of Payroll Deductions................................................ ---
Change of Beneficiary(ies) or Registration.......................................... ---
Withdrawal from Plan/Funds to be Returned........................................... ---
Suspension of Payroll Deductions.................................................... ---
Resumption of Participation following Suspension.................................... ---
MUST INCLUDE ORIGINAL ENROLLMENT DATE..........................................
----------------------------------------------
</TABLE>
1. I hereby elect to participate in the LSI Logic Corporation Employee Stock
Purchase Plan (the "Purchase Plan") and subscribe to purchase shares of the
Company's Common Stock, $0.01 par value, in accordance with this Subscription
Agreement and the Purchase Plan.
2. Check one:
- - --- I hereby authorize payroll deductions from each paycheck at the rate
of % (CHOOSE A WHOLE NUMBER FROM 1 TO 10) of my eligible compensation on
each payday during the Offering Period in accordance with provisions of the
Purchase Plan.
(or)
- - --- I hereby suspend all further payroll deductions, but wish to remain enrolled
in the Plan for the remainder of the Offering Period in which I currently
participate.
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of LSI Logic Corporation Common Stock, $0.01 par value, at
the applicable purchase price determined in accordance with the Purchase Plan. I
further understand that, except as otherwise set forth in the Purchase Plan,
shares will be purchased for me automatically on each Exercise Date of the
Offering Period unless I withdraw from the Purchase Plan by giving written
notice of withdrawal to the Company prior to any such purchase.
4. Shares purchased for me under the Purchase Plan should be issued as follows
(Please Print):
Name(s):
Your name or the names of you and your spouse only
Specify
Ownership:
Fill in only if your spouse's name is to be included on
certificate. For example: "As Joint Tenants with Right of
Survivorship", "As Community Property" (if applicable). If you
DO NOT specify a form of joint ownership the certificate will be
issued "As Joint Tenants with Right of Survivorship".
-8-
<PAGE> 9
5. In the event of my death, I hereby designate the following person(s) as my
beneficiary(ies) to receive all payments and shares due me or my estate under
the Purchase Plan (Please Print):
Name:
(First) (Middle) (Last)
Address:
Relationship:
Name:
(First) (Middle) (Last)
Address:
Relationship:
6. I understand that I may review a copy of the Purchase Plan by contacting the
LSI Logic Corporation Payroll Department. I further understand that, upon
written or oral request to the LSI Logic Corporation Payroll Department, I may
obtain, without charge, copies of any or all of the following documents: the
Company's most recent Annual Report to Security Holders; the Company's most
recent Annual Report on Form 10-K; the Company's Proxy Statement for the
Company's most recent Annual Meeting of Stockholders; the Company's most recent
Quarterly Report(s) on Form 10-Q; the description of the Company's Common Stock
contained in the Company's Registration Statement on Form 8-A filed with the
Securities and Exchange Commission on August 29, 1989; and all documents filed
by the Company pursuant to Sections 13, 14 and 15(d) of the Securities Exchange
Act of 1934 during any Offering Period in which I am a participant.
7. I HEREBY AGREE TO NOTIFY THE COMPANY IN WRITING WITHIN 30 DAYS AFTER THE
DATE OF DISPOSITION OF ANY SHARES RECEIVED BY ME PURSUANT TO THE PURCHASE PLAN.
I understand that if I dispose of any shares received by me pursuant to the
Purchase Plan within less than 2 years after the Enrollment Date of the Offering
Period (the first day of a 24-month period during which I may purchase shares)
or within less than 1 year after the Exercise Date (the date upon which shares
are purchased for me), I will be treated for Federal income tax purposes as
having received ordinary income (which will be included in my W-2) at the time
of such disposition in an amount equal to the excess of the fair market value of
the shares at the time such shares were purchased over the price which I paid
for the shares. However, if I dispose of such shares at any time after the
expiration of the 2-year and 1-year holding periods, I understand that I may be
treated for Federal income tax purposes as having received income only at the
time of such disposition, and that such income will be taxed as ordinary income
only to the extent of the amount equal to the lesser of (a) the excess of the
fair market value of the shares at the time of such disposition over the price
which I paid for the shares (i.e., the Exercise Price), or (b) the excess of the
fair market value of the shares on my Enrollment Date over an amount equal to
what the purchase price (i.e. Exercise Price) would have been if it had been
computed as of my Enrollment Date. Any further gain in either instance is taxed
as capital gain.
8. I hereby agree to be bound by the terms of the Purchase Plan. The
effectiveness of this Subscription Agreement is dependent upon my eligibility to
participate in the Purchase Plan.
9. I hereby authorize the Company to enroll me in each succeeding Offering
Period following termination of any Offering Period in which I was enrolled as
of the last Exercise Date of such terminated Offering Period. I further
authorize the Company to retain any excess payroll deduction accumulations
remaining in my account after the last Exercise Date within an Offering Period
and apply them to purchase stock for me under the Purchase Plan during the next
Offering Period in which I am enrolled.
-9-
<PAGE> 10
10. I hereby authorize the Company to terminate my participation in any Offering
Period as of the last day of any Exercise Period and enroll me in a new Offering
Period at the same payroll deduction rate as authorized above if the Exercise
Price as determined in accordance with the terms of the Purchase Plan for such
new Offering Period is lower than the Exercise Price calculated on the
Enrollment Date for the Offering Period in which my participation is to be
terminated.
<TABLE>
<S> <C>
Dated:
Signature of Employee
--------------------------------------------
Print Name
</TABLE>
-10-
<PAGE> 1
EXHIBIT 10.35
LSI LOGIC CORPORATION
1991 EQUITY INCENTIVE PLAN
1. Purpose of the Plan. The purpose of the LSI Logic Corporation 1991
Equity Incentive Plan (the "Plan") is to enable LSI Logic Corporation (the
"Company") to provide an incentive to eligible employees, including officers,
and consultants whose present and potential contributions are important to the
continued success of the Company, to afford them an opportunity to acquire a
proprietary interest in the Company, and to enable the Company to enlist and
retain in its employ the best available talent for the successful conduct of its
business. It is intended that this purpose will be effected through the granting
of (a) stock options, (b) stock purchase rights, (c) stock appreciation rights,
and (d) stock bonus awards.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Award" means any Option, Right or Stock Bonus Award granted.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the Committee or Committees referred to in Section 5
of the Plan. If at any time no Committee shall be in office, then the functions
of the Committee specified in the Plan shall be exercised by the Board.
(e) "Common Stock" means the Common Stock, $0.01 par value (as adjusted
from time to time), of the Company.
(f) "Company" means LSI Logic Corporation, a corporation organized under
the laws of the state of Delaware, or any successor corporation.
(g) "Consultant" means any person, including an advisor, who is engaged by
the Company or any Parent or Subsidiary to render services and is compensated
for such services, provided the term Consultant shall not include directors who
are not compensated for their services or are paid only a director's fee by the
Company.
(h) "Director" means a member of the Board.
(i) "Disability" means a disability, whether temporary or permanent,
partial or total, as defined in Section 22(e)(3) of the Code.
(j) "Employee" means any person, including officers and directors, employed
by the Company or any Subsidiary. The payment of directors' fees by the Company
shall not be sufficient to constitute "employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(l) "Fair Market Value" means, as of any date, the value of Common Stock
determined as follows:
(i) if such Common Stock shall then be listed on a national securities
exchange, the closing sales price (or the closing bid, if no sales were
reported) as quoted on the principal national securities exchange on which
the Common Stock is listed or admitted to trading, or
(ii) the closing sales price (or the closing bid, if no sales were
reported) as quoted on the NASDAQ National Market System, or
(iii) if such Common Stock shall not be quoted on such National Market
System nor listed or admitted to trading on a national securities exchange,
then the average of the closing bid and asked prices, as reported by The
Wall Street Journal for the over-the-counter market, or
(iv) if none of the foregoing is applicable, then the Fair Market
Value of a share of Common Stock shall be determined by the Board of
Directors of the Company in its discretion.
<PAGE> 2
(m) "Incentive Stock Option" means an Option intended to be and designated
as an "Incentive Stock Option" within the meaning of Section 422 of the Code.
(n) "Nonstatutory Stock Option" means any Option that is not an Incentive
Stock Option.
(o) "Option" means any option to purchase shares of Common Stock granted
pursuant to Section 7 below.
(p) "Optionee" means any holder of an Option or a Stock Appreciation Right,
as the context requires.
(q) "Outside Director" means a Director who is not an Employee of the
Company.
(r) "Plan" means this 1991 Equity Incentive Plan, as hereinafter amended
from time to time.
(s) "Restricted Stock" means shares of Common Stock acquired pursuant to a
grant of Stock Purchase Rights under Section 9 below.
(t) "Right" means and includes Stock Appreciation Rights and Stock Purchase
Rights granted pursuant to the Plan.
(u) "Stock Appreciation Right" means an Award made pursuant to Section 8
below, which right permits the recipient to receive cash or stock equal in value
to the difference between the Fair Market Value of Common Stock on the date of
grant of the Option and the Fair Market Value of Common Stock on the date of
exercise of the Stock Appreciation Right.
(v) "Stock Bonus Award" means an Award under Section 10 below. A Stock
Bonus Award shall permit the recipient to receive a stock bonus (as determined
by the Committee) upon satisfaction of such conditions as are set out in the
recipient's individual grant. The receipt of a Stock Bonus Award will be based
upon any employment or performance-related criteria as the Committee may deem
appropriate.
(w) "Stock Purchase Right" means the right to purchase Common Stock
pursuant to a restricted stock purchase agreement entered into between the
Company and the purchaser under Section 9 below.
(x) "Subsidiary" means a corporation, domestic or foreign, of which not
less than 50% of the voting shares are held by the Company or by a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or by a Subsidiary.
In addition, the terms "Tax Date" and "Insiders" shall have meanings set
forth in Section 11.
3. Eligible Participants. Any Employee or Consultant of the Company or of a
Subsidiary whom the Committee deems to have the potential to contribute to the
future success of the Company shall be eligible to receive Awards under the
Plan; provided, however, that any Options intended to qualify as Incentive Stock
Options shall be granted only to Employees of the Company or its Subsidiaries.
4. Stock Subject to the Plan. Subject to Sections 12 and 13, the total
number of shares of Common Stock reserved and available for distribution
pursuant to the Plan shall be 4,500,000 shares. Subject to Sections 12 and 13
below, if any shares of Common Stock that have been optioned under an Option
cease to be subject to such Option, or if any shares of Restricted Stock or
other shares that are subject to any Right, Option or Stock Bonus Award granted
hereunder are forfeited or repurchased or any such award otherwise terminates
without a payment being made to the participant in the form of Common Stock,
such shares shall again be available for distribution in connection with future
Awards under the Plan.
5. Administration.
(a) Procedure. The Plan shall be administered by (i) the Board if the Board
may administer the Plan in compliance with Rule 16b-3 promulgated under the
Exchange Act, or any successor rule thereto ("Rule 16b-3"), with respect to a
plan intended to qualify under Rule 16b-3 as a discretionary plan, or (ii) a
Committee designated by the Board to administer the Plan, which Committee shall
be constituted to permit the Plan to comply with Rule 16b-3 with respect to a
plan intended to qualify thereunder as a discretionary plan. If permitted by
Rule 16b-3, the Plan may be administered by different bodies with respect to
Employees who are directors, non-director officers, Employees who are neither
directors nor officers and Consultants.
-2-
<PAGE> 3
Once appointed, the Committee shall continue to serve until otherwise
directed by the Board. From time to time the Board may change the size of the
Committee, appoint additional members thereof, remove members (with or without
cause), appoint new members in substitution therefor, fill vacancies, however
caused and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by Rule 16b-3 with respect to a
plan intended to qualify thereunder as a discretionary plan. As used herein,
except in Sections 13, 15 and 21, reference to the Committee shall mean such
Committee or the Board, whichever is then acting with respect to the Plan.
(b) Authority. Subject to the general purposes, terms, and conditions of
the Plan, and to the direction of the Board, the Committee, if there be one,
shall have full power to implement and carry out the Plan including, but not
limited to, the following:
(i) to select the Employees and Consultants of the Company and/or its
Subsidiaries to whom Options, Rights and/or Stock Bonus Awards may from
time to time be granted hereunder;
(ii) to determine whether and to what extent Options, Rights and/or
Stock Bonus Awards, or any combination thereof, are to be granted
hereunder;
(iii) to determine the number of shares of Common Stock to be covered
by each such Award granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any Award granted hereunder (including, but not
limited to, the share price and any restriction or limitation, or any
vesting acceleration or waiver of forfeiture restrictions regarding any
Option or other Award and/or the shares of Common Stock relating thereto,
based in each case on such factors as the Committee shall determine, in its
sole discretion);
(vi) to determine whether and under what circumstances an Option may
be settled in cash or Restricted Stock under Section 7(j) instead of Common
Stock;
(vii) to determine the form of payment that will be acceptable
consideration for exercise of an Option or Right granted under the Plan;
(viii) to determine whether, to what extent and under what
circumstances Common Stock and other amounts payable with respect to an
Award under this Plan shall be deferred either automatically or at the
election of the participant (including providing for and determining the
amount (if any) of any deemed earnings on any deferred amount during any
deferral period);
(ix) to reduce the exercise price of any Option or Right only if the
total number of such reduced exercise price Options or Rights (including
those described in the proviso to the first sentence of Section 7(a) and
the proviso to the first sentence in Section 9(a)) shall not exceed three
percent of the total number of shares authorized under the Plan and that
any such reduction in exercise price shall be authorized by a committee of
the Board of Directors comprised solely of independent non-employee
directors;
(x) to determine the terms and restrictions applicable to Stock
Purchase Rights and the Restricted Stock purchased by exercising such
Rights.
The Committee shall have the authority to construe and interpret the Plan,
to prescribe, amend and rescind rules and regulations relating to the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan.
6. Duration of the Plan. The Plan shall remain in effect until terminated
by the Board under the terms of the Plan, provided that in no event may
Incentive Stock Options be granted under the Plan later than March 8, 2001, 10
years from the date the Plan was adopted by the Board.
7. Stock Options. The Committee, in its discretion, may grant Options to
eligible participants and shall determine whether such Options shall be
Incentive Stock Options or Nonstatutory Stock Options. Each Option shall be
evidenced by a written Option agreement which shall expressly identify the
Option as an Incentive Stock Option or as a Nonstatutory Stock Option, and be in
such form and contain such provisions as
-3-
<PAGE> 4
the Committee shall from time to time deem appropriate. Without limiting the
foregoing, the Committee may, at any time, or from time to time, authorize the
Company, with the consent of the respective recipients, to issue new Options
including Options in exchange for the surrender and cancellation of any or all
outstanding Options or Rights. Option agreements shall contain the following
terms and conditions:
(a) Option Price; Number of Shares. The Option price, which shall be
approved by the Committee, may not be less than the Fair Market Value of the
Common Stock at the time the Option is granted; provided however that the Option
price may be less than Fair Market Value if the total number of Options
(including those described in Section 5(ix) and those described in the proviso
to the first sentence in Section 9(a)) to which such price is applicable is not
more than three percent of the total number of shares authorized under the Plan
and, further, that any such Option price shall be determined by a committee of
the Board of Directors comprised solely of independent non-employee directors.
Notwithstanding the foregoing, in the case of an Incentive Stock Option, the
price shall be not less than 100% of the Fair Market Value of the Common Stock
on the date the Option is granted, subject to any additional conditions set out
in Section 7(g) below and further provided that the price shall be no less than
50% of the Fair Market Value of the Common Stock on the date the Option is
granted.
The Option agreement shall specify the number of shares of Common Stock to
which it pertains.
(b) Waiting Period and Exercise Dates. At the time an Option is granted,
the Committee will determine the terms and conditions to be satisfied before
shares may be purchased, including the dates on which shares subject to the
Option may first be purchased. The Committee may specify that an Option may not
be exercised until the completion of the waiting period specified at the time of
grant. (Any such period is referred to herein as the "waiting period.") At the
time an Option is granted, the Committee shall fix the period within which such
Option may be exercised, which shall not be less than the waiting period, if
any, nor, in the case of an Incentive Stock Option, more than 10 years from the
date of grant.
(c) Form of Payment. The consideration to be paid for the shares of Common
Stock to be issued upon exercise of an Option, including the method of payment,
shall be determined by the Committee (and, in the case of an Incentive Stock
Option, shall be determined at the time of grant) and may consist entirely of
(i) cash, (ii) check, (iii) promissory note, (iv) other shares of Common Stock
(including, in the discretion of the Committee, Restricted Stock) which (x)
either have been owned by the Optionee for more than six months on the date of
surrender or were not acquired, directly or indirectly, from the Company, and
(y) have a Fair Market Value on the date of surrender equal to the aggregate
exercise price of the shares as to which said Option shall be exercised, (v)
delivery of a properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company the amount of sale
or loan proceeds required to pay the exercise price, (vi) delivery of an
irrevocable subscription agreement for the shares which obligates the option
holder to take and pay for the shares not more than 12 months after the date of
delivery of the subscription agreement, (vii) any combination of the foregoing
methods of payment, or (viii) such other consideration and method of payment for
the issuance of shares to the extent permitted under the Delaware General
Corporation Law.
(d) Effect of Termination of Employment or Death of Employee
Participants. In the event that an Optionee during his or her lifetime ceases to
be an Employee of the Company or of any Subsidiary for any reason, including
retirement, any Option, including any unexercised portion thereof, which was
otherwise exercisable on the date of termination of employment, shall expire
within such time period as is determined by the Committee; provided, however,
that in the case of an Incentive Stock Option the Option shall expire unless
exercised within a period of 90 days from the date on which the Optionee ceased
to be an Employee (or such lesser period as is set out in Option agreement), but
in no event after the expiration of the term of such Option as set forth in the
Option agreement. If in any case the Committee shall determine that an Employee
shall have been discharged for Just Cause (as defined below) such Employee shall
not thereafter have any rights under the Plan or any Option that shall have been
granted to him or her under the Plan. For purposes of this Section, "Just Cause"
means the termination of employment of an Employee shall have taken place as a
result of (i) willful breach or neglect of duty; (ii) failure or refusal to work
or to comply with the Company's rules, policies, and practices; (iii)
dishonesty; (iv) insubordination; (v) being under the influence of drugs
-4-
<PAGE> 5
(except to the extent medically prescribed) or alcohol while on duty or on
Company premises; (vi) conduct endangering, or likely to endanger, the health or
safety of another Employee; or (vii) conviction of a felony.
In the event of the death of an Optionee, that portion of the Option which
had become exercisable as of the date of death shall be exercisable by his or
her personal representatives, heirs, or legatees within six months of the date
of death or such time period as is determined by the Committee (but in the case
of an Incentive Stock Option, in no event after the expiration of the term of
such Option as set forth in the Option agreement.) In the event of the death of
an Optionee within one month after termination of employment, that portion of
the Option which had become exercisable as of the date of termination shall be
exercisable by his or her personal representatives, heirs, or legatees within
six months of the date of death or such time period as is determined by the
Committee (but in the case of an Incentive Stock Option, in no event after the
expiration of the term of such Option as set forth in the Option agreement.) In
the event that an Optionee ceases to be an Employee of the Company or of any
Subsidiary for any reason, including death or retirement, prior to the lapse of
the waiting period, if any, his or her Option shall terminate and be null and
void.
(e) Leave of Absence. The employment relationship shall not be considered
interrupted in the case of: (i) sick leave, military leave or any other leave of
absence approved by the Board; provided that any such leave is for a period of
not more than 90 days, unless reemployment upon the expiration of such leave is
guaranteed by contract, statute or pursuant to formal policy adopted from time
to time by the Company and issued and promulgated to Employees in writing, or
(ii) in the case of transfer between locations of the Company or between the
Company, its Subsidiaries or its successor. In the case of any Employee on an
approved leave of absence, the Committee may make such provisions respecting
suspension of vesting of the Option while on leave from the employ of the
Company or a Subsidiary as it may deem appropriate, if any, except that in no
event shall an Option be exercised after the expiration of the term set forth in
the Option agreement.
(f) Acceleration of Vesting or Waiting Period. The Committee may accelerate
the earliest date on which outstanding Options (or any installments thereof) are
exercisable.
(g) Special Incentive Stock Option Provisions. In addition to the
foregoing, Options granted to Employees under the Plan which are intended to be
Incentive Stock Options under Section 422 of the Code shall be subject to the
following terms and conditions:
(i) Dollar Limitation. To the extent that the aggregate Fair Market
Value of the shares of Common Stock with respect to which Options
designated as Incentive Stock Options become exercisable for the first time
by any individual during any calendar year (under all plans of the Company)
exceeds $100,000, such Options shall be treated as Nonstatutory Stock
Options. For purposes of the preceding sentence, (i) Options shall be taken
into account in the order in which they were granted and (ii) the Fair
Market Value of the shares shall be determined as of the time the Option
with respect to such shares was granted.
(ii) 10% Stockholder. If any person to whom an Incentive Stock Option
is to be granted pursuant to the provisions of the Plan is, on the date of
grant, the owner of Common Stock (as determined under Section 425(d) of the
Code) possessing more than 10% of the total combined voting power of all
classes of stock of the Company or of any Subsidiary, then the following
special provisions shall be applicable to the Option granted to such
individual:
(A) The Option price per share of the Common Stock subject to such
Incentive Stock Option shall not be less than 110% of the Fair Market
Value of the Common Stock on the date of grant; and
(B) The Option shall not have a term in excess of five years from
the date of grant.
Except as modified by the preceding provisions of this Subsection 7(g) and
except as otherwise required by Section 422 of the Code, all of the provisions
of the Plan shall be applicable to the Incentive Stock Options granted
hereunder.
(h) Other Provisions. Each Option granted under the Plan may contain such
other terms, provisions, and conditions not inconsistent with the Plan as may be
determined by the Committee.
-5-
<PAGE> 6
(i) Options to Consultants. Options granted to consultants shall not be
subject to Sections 7(b) and 7(d) of the Plan, but shall have such terms and
conditions pertaining to waiting period (if any), exercise date, and effect of
termination of the consulting relationship as the Committee shall determine in
each case.
(j) Buyout Provisions. The Committee may at any time offer to buy out for a
payment in cash or Common Stock (including Restricted Stock), an Option
previously granted, based on such terms and conditions as the Committee shall
establish and communicate to the Optionee at the time that such offer is made.
(k) Rule 16b-3. Options granted to persons subject to Section 16(b) of the
Exchange Act must comply with Rule 16b-3 and shall contain such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
8. Stock Appreciation Rights.
(a) Grants With Options. At the sole discretion of the Committee, Stock
Appreciation Rights may be granted in connection and concurrently with all or
any part of an Option. The following provisions apply to Stock Appreciation
Rights that are granted in connection with Options:
(i) The Stock Appreciation Right shall entitle the Optionee to
exercise the rights by surrendering to the Company unexercised a portion of
the underlying Option. The Optionee shall receive in exchange from the
Company an amount equal to the excess of (x) the Fair Market Value on the
date of exercise of the Common Stock covered by the surrendered portion of
the underlying Option over (y) the exercise price of the Common Stock
covered by the surrendered portion of the underlying Option.
Notwithstanding the foregoing, the Committee may place limits on the amount
that may be paid to the Optionee upon exercise of an Stock Appreciation
Right; provided, however, that such limit shall not restrict the
exercisability of the underlying Option.
(ii) When a Stock Appreciation Right is exercised, the underlying
Option, to the extent surrendered, shall no longer be exercisable.
(iii) A Stock Appreciation Right shall be exercisable only when and to
the extent that the underlying Option is exercisable and shall expire no
later than the date on which the underlying Option expires.
(iv) A Stock Appreciation Right may only be exercised at a time when
the Fair Market Value of the Common Stock covered by the underlying Option
exceeds the exercise price of the Common Stock covered by the underlying
Option. Notwithstanding the foregoing, neither a Stock Appreciation Right
nor any related Option shall be exercisable within the first six (6) months
of their terms; provided, however, that this limitation shall not apply in
the event that death or Disability of the Optionee occurs prior to the
expiration of the six-month period.
(v) In the event that a Stock Appreciation Right is granted that
relates to an Incentive Stock Option, such Right shall contain such
additional or different terms as may be necessary under applicable
regulations to preserve treatment of the Incentive Stock Option under
Section 422 of the Code.
(b) Grants Without Options. At the sole discretion of the Committee, Stock
Appreciation Rights may be granted without related Options. The following
provisions apply to Stock Appreciation Rights that are granted other than in
connection with Options:
(i) The Stock Appreciation Right shall entitle the Optionee, by
exercising the Stock Appreciation Right, to receive from the Company an
amount equal to the excess of (x) the Fair Market Value of the Common Stock
covered by the exercised portion of the Stock Appreciation Right, as of the
date of such exercise, over (y) the Fair Market Value of the Common Stock
covered by the exercised portion of the Stock Appreciation Right, as of the
date on which the Stock Appreciation Right was granted, provided, however,
that the Committee may place limits on the amount that may be paid to the
Optionee upon exercise of a Stock Appreciation Right by the grantee.
(ii) Stock Appreciation Rights shall be exercisable, in whole or in
part, at such times as the Committee shall specify in the Optionee's Stock
Appreciation Rights agreement. Notwithstanding the
-6-
<PAGE> 7
foregoing, a Stock Appreciation Right shall not be exercisable within the
first six (6) months of its term; provided, however, that this limitation
shall not apply in the event that death or Disability of the Optionee
occurs prior to the expiration of the six-month period.
(c) Form of Payment. The Company's obligation arising upon the exercise of
a Stock Appreciation Right may be paid currently or on a deferred basis with
such interest or earnings equivalent as may be determined by the Committee, and
may be paid in Common Stock or in cash, or in any combination of Common Stock
and cash, as the Committee in its sole discretion may determine. Shares of
Common Stock issued upon the exercise of a Stock Appreciation Right shall be
valued at the Fair Market Value as of the date of exercise.
(d) Compliance With Section 16(b). A person who is subject to Section 16(b)
of the Exchange Act may only exercise a Stock Appreciation Right during such
time or times as are permitted by paragraph (e) of Rule 16b-3 or any successor
provision.
9. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either alone,
in addition to, or in tandem with other Awards granted under the Plan and/or
cash awards made outside of the Plan; provided, however, that the total number
of Rights (including those described in the Section 5(ix) and in the proviso to
the first sentence of Section 7(a)) shall not exceed three percent of the total
number of shares authorized under the Plan and that any such Rights shall be
awarded by a committee of the Board of Directors comprised solely of independent
non-employee directors. After the Committee determines that it will offer Stock
Purchase Rights under the Plan, it shall advise the offeree in writing of the
terms, conditions and restrictions related to the offer, including the number of
shares of Common Stock that such person shall be entitled to purchase, the price
to be paid, which price in the case of Insiders (as defined in Section 11) shall
not be more than the par value of the Company's Common Stock, as adjusted from
time to time, and the minimum price permitted by the Delaware General
Corporation Law and the time within which such person must accept such offer,
which shall in no event exceed 60 days from the date the Stock Purchase Right
was granted. The offer shall be accepted by execution of a Restricted Stock
purchase agreement in the form determined by the Committee. Shares purchased
pursuant to the grant of a Stock Purchase Right shall be referred to herein as
"Restricted Stock."
(b) Repurchase Option. Unless the Committee determines otherwise, the
Restricted Stock purchase agreement shall grant the Company a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
employment with the Company for any reason (including death or Disability). The
purchase price for shares repurchased pursuant to the Restricted Stock purchase
agreement shall be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to the Company. The repurchase
option shall lapse at such rate as the Committee may determine.
(c) Other Provisions. The Restricted Stock purchase agreement shall contain
such other terms, provisions and conditions not inconsistent with the Plan as
may be determined by the Committee in its sole discretion. In addition, the
provisions of Restricted Stock purchase agreements need not be the same with
respect to each purchaser.
10. Stock Bonus Awards.
(a) Administration. Stock Bonus Awards may be granted either alone or in
addition to other Awards granted under the Plan. Such awards shall be granted
for no cash consideration. The Committee shall determine, in its sole
discretion, the terms for each Stock Bonus Award, and shall determine the
performance or employment-related factors to be considered in the granting of
Stock Bonus Awards and the extent to which such Stock Bonus Awards have been
earned. Stock Bonus Awards may vary from participant to participant and between
groups of participants. Each Stock Bonus Award shall be confirmed by, and be
subject to the terms of, a Stock Bonus Award agreement.
(b) Adjustment of Awards. The Committee may adjust the factors applicable
to the Stock Bonus Awards to take into account changes in law and accounting and
tax rules and to make such adjustments as the
-7-
<PAGE> 8
Committee deems necessary or appropriate to reflect the inclusion or exclusion
of the impact of extraordinary or unusual items, events or circumstances in
order to avoid windfalls or hardships.
(c) Termination. Unless otherwise provided in the applicable Stock Bonus
Award agreement, if a participant terminates his or her employment or his or her
consultancy prior to full vesting of a Stock Bonus Award which is subject to
vesting, the Committee may provide for an earlier payment in settlement of such
Award in such amount and under such terms and conditions as the Committee deems
appropriate.
(d) Form of Payment. The earned portion of a Stock Bonus Award may be paid
currently or on a deferred basis with such interest or earnings equivalent as
may be determined by the Committee. Payment shall be made in the form of whole
shares of Common Stock, including Restricted Stock, or a combination thereof,
either in a lump sum payment or in installments, all as the Committee shall
determine. If and to the extent the full amount of a Stock Bonus Award is not
paid in Common Stock, then the shares of Common Stock representing the portion
of the value of the Stock Bonus Award not paid in Common Stock shall again
become available for award under the Plan.
11. Stock Withholding to Satisfy Withholding Tax Obligations. When a
participant incurs tax liability in connection with the exercise or vesting of
any Option, Right or Stock Bonus Award, which tax liability is subject to tax
withholding under applicable tax laws, and the participant is obligated to pay
the Company an amount required to be withheld under applicable tax laws, the
participant may satisfy the withholding tax obligation by electing to have the
Company withhold from the shares to be issued that number of shares having a
Fair Market Value equal to the amount required to be withheld determined on the
date that the amount of tax to be withheld is to be determined (the "Tax Date").
All elections by participant to have shares withheld for this purpose shall
be made in writing in a form acceptable to the Committee and shall be subject to
the following restrictions:
(i) the election must be made on or prior to the applicable Tax Date;
(ii) once made, the election shall be irrevocable as to the particular
shares as to which the election is made;
(iii) all elections shall be subject to the disapproval of the
Committee;
(iv) if the participant is an officer or Director of the Company or
other person whose transactions in Common Stock are subject to Section
16(b) of the Exchange Act (collectively "Insiders"), the election may not
be made within six months of the date of grant of the Option, Right or
Stock Bonus Award; provided, however, that this limitation shall not apply
in the event that death or Disability of the Optionee occurs prior to the
expiration of the six-month period; and
(v) if the participant is an Insider, the election must be made either
six months prior to the Tax Date (as determined in accordance with Section
83 of the Code) or in the 10-day period beginning on the third day
following the release of the Company's quarterly or annual summary
statement of sales or earnings.
12. Recapitalization. In the event that dividends are payable in Common
Stock or in the event there are splits, subdivisions, or combinations of shares
of Common Stock, the number of shares available under the Plan shall be
increased or decreased proportionately, as the case may be, and the number of
shares of Common Stock deliverable in connection with any Option, Right or Stock
Bonus Award theretofore granted shall be increased or decreased proportionately,
as the case may be, without change in the aggregate purchase price (where
applicable).
13. Reorganization. In case the Company is merged or consolidated with
another corporation and the Company is not the surviving corporation, or in case
the property or stock of the Company is acquired by another corporation, or in
case of separation, reorganization, or liquidation of the Company, then the
Board, or the board of directors of any corporation assuming the obligations of
the Company hereunder, shall, as to outstanding Options, Rights or Stock Bonus
Awards either (a) make appropriate provision for the protection of any such
outstanding Options, Rights or Stock Bonus Awards by the assumption or
substitution on an
-8-
<PAGE> 9
equitable basis of appropriate stock of the Company or of the merged,
consolidated, or otherwise reorganized corporation which will be issuable in
respect to the shares of Common Stock, provided that in the case of Incentive
Stock Options, such assumption or substitution comply with Section 424 of the
Code, or (b) upon written notice to the participant, provide that the Option or
Right must be exercised within 30 days of the date of such notice or it will be
terminated. In any such case, the Board or the Committee may, in its discretion,
advance the lapse of vesting periods, waiting periods, and exercise dates.
14. Employment Relationship. Nothing in the Plan or any Award made
hereunder shall interfere with or limit in any way the right of the Company or
of any Subsidiary to terminate any recipient's employment or consulting
relationship at any time, with or without cause, nor confer upon any recipient
any right to continue in the employ or service of the Company or any Subsidiary.
15. General Restriction. Each Award shall be subject to the requirement
that, if, at any time, the Board shall determine, in its discretion, that the
listing, registration, or qualification of the shares subject to such Award upon
any securities exchange or under any state or federal law, or the consent or
approval of any government regulatory body, is necessary or desirable as a
condition of, or in connection with, such Award or the issue or purchase of
shares thereunder, such Award may not be exercised in whole or in part unless
such listing, registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the Board.
16. Rights as a Stockholder. The holder of an Option, Right or Stock Bonus
Award shall have no rights as a stockholder with respect to any shares covered
by the Option, Right or Stock Bonus Award until the date of exercise. Once an
Option, Right or Stock Bonus Award is exercised by the holder thereof, the
participant shall have the rights equivalent to those of a stockholder, and
shall be a stockholder when his or her holding is entered upon the records of
the duly authorized transfer agent of the Company. Except as otherwise expressly
provided in the Plan, no adjustment shall be made for dividends or other rights
for which the record date is prior to the date such stock certificate is issued.
17. Nonassignability of Awards. Awards made hereunder shall be assignable
or transferable by the recipient in accordance with their terms to the extent
permitted by the tax and securities laws, including by will or by the laws of
descent and distribution, and as otherwise consistent with the specific Plan
provisions relating thereto.
18. Withholding Taxes. Whenever, under the Plan, shares are to be issued in
satisfaction of Options, Rights or Stock Bonus Awards granted hereunder, the
Company shall have the right to require the recipient to remit to the Company an
amount sufficient to satisfy federal, state, and local withholding tax
requirements prior to the delivery of any certificate or certificates for such
shares. Whenever, under the Plan, payments are to be made in cash, such payment
shall be net of an amount sufficient to satisfy federal, state, and local
withholding tax requirements.
19. Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board, the submission of the Plan to the stockholders of the Company for
approval, nor any provision of the Plan shall be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options otherwise than under the Plan, and such arrangements
may be either generally applicable or applicable only in specific cases.
20. Amendment, Suspension, or Termination of the Plan. The Board may at any
time amend, alter, suspend, or discontinue the Plan, but no amendment,
alteration, suspension, or discontinuation shall be made which would impair the
rights of any participant in the Plan without his or her consent. In addition,
to the extent necessary and desirable to comply with Rule 16b-3 under the
Exchange Act or under Section 423 of the Code (or any other applicable law or
regulation), the Company shall obtain stockholder approval of any Plan amendment
in such a manner and to such a degree as required.
21. Effective Date of the Plan. The Plan shall become effective upon
adoption by the Board and shall be subject to stockholder approval within 12
months of adoption by the Board. Options, Rights and Awards may be granted and
exercised under the Plan only after there has been compliance with all
applicable federal and state securities laws.
-9-
<PAGE> 1
EXHIBIT 10.37
___________________________________________________
STOCK PURCHASE AGREEMENT
by and between
LSI LOGIC CORPORATION
and
KAWASAKI STEEL CORPORATION
Dated as of January 20, 1995
___________________________________________________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I SALE AND PURCHASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Seller's Agreement for Sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Purchaser's Agreement to Purchase. . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Approval of Seller's Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Purchase Price Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Payment of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . 3
3.1 Representations and Warranties of Seller . . . . . . . . . . . . . . . . . . . . . 3
3.2 Representations and Warranties of Purchaser . . . . . . . . . . . . . . . . . . . 4
ARTICLE IV CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 Obligations of Seller. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.3 Obligations of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.4 Post Closing Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE V WITHHOLDING TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE VI MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.1 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.2 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.3 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.4 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.6 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.7 Singular Includes Plural . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.8 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.9 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.10 Dates and Times . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
EXECUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
<PAGE> 3
Exhibit A: G/S Promissory Note
Exhibit B: Opinion of Counsel to Seller, Yanagida, Nomura & Akai
Exhibit C: Receipt for G/S Promissory Note
Exhibit D: Opinion of General Counsel of Goldman Sachs
Exhibit E: Receipt for Shares
Exhibit F: Opinion of Counsel to Purchaser, Wilson, Sonsini, Goodrich &
Rosati
Exhibit G: Opinion of Counsel to Purchaser, Nagashima & Ohno
<PAGE> 4
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of this 20th day of
January, 1995, by and between LSI LOGIC CORPORATION, a Delaware corporation
("Purchaser"), and KAWASAKI STEEL CORPORATION, a Japanese corporation
("Seller").
RECITALS
A. Seller is the beneficial, legal and record owner of Forty
Thousand Nine Hundred Ten (40,910) shares of Common Stock (the "Shares") of
Nihon Semiconductor, Inc., a Japanese corporation ("NSI").
B. Seller, Purchaser and NSI have entered into that certain
Relationship Modification Agreement dated as of the date hereof (the
"Relationship Modification Agreement") which shall become effective, if ever,
upon the Closing of this Agreement.
C. Subject to the terms and conditions of this Agreement, Seller
desires to sell, and Purchaser desires to purchase, the Shares.
NOW, THEREFORE, in consideration of the premises set forth above and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged by the parties hereto, the parties hereto hereby agree as
follows:
ARTICLE I
SALE AND PURCHASE
1.1 Seller's Agreement for Sale. Subject to the terms and
conditions set forth in this Agreement, and in consideration of Purchaser's
agreement to purchase the Shares, Seller shall sell, assign, transfer and
deliver the Shares to Purchaser in accordance with the provisions of Closing as
set forth in Article IV of this Agreement.
1.2 Purchaser's Agreement to Purchase. Subject to the terms and
conditions set forth in this Agreement, and in consideration of Seller's
agreement to sell the Shares, Purchaser shall purchase, accept and pay for the
Shares in accordance with the provisions of payment as set forth in Article II
of this Agreement and in accordance with the provisions of Closing as set forth
in Article IV of this Agreement.
1.3 Approval of Seller's Board. Notwithstanding any other
provision of this Agreement, Purchaser acknowledges that, as of
1
<PAGE> 5
the date hereof, Seller's Board of Directors has not yet adopted a resolution
approving Seller's performance of this Agreement, which resolution of approval
is necessary for Seller to perform its obligations under this Agreement and
thus to consummate the transactions contemplated in this Agreement. After the
execution of this Agreement, Seller's Board of Directors shall review this
Agreement and decide whether or not to adopt a resolution approving Seller's
performance of this Agreement. If Seller's Board of Directors has not adopted
such a resolution approving this Agreement prior to January 26, 1995, then,
thereafter, both Seller and Purchaser shall be relieved of any and all further
obligations under this Agreement, including their respective obligations to
consummate the Closing and to transfer the Shares as contemplated herein. Each
party shall bear all costs incurred by such party in contemplation of this
Agreement, whether or not Seller's Board of Directors approves this Agreement
prior to January 26, 1995.
ARTICLE II
PURCHASE PRICE
2.1 Purchase Price Terms. Subject to the terms and conditions set
forth in this Agreement, in consideration for the sale of Shares as set forth
in Section 1.1, Purchaser shall pay to Seller the amount of Seventeen Billion
Five Hundred Million Japanese Yen (Y.17,500,000,000) (the "Total Purchase
Price"). Such Total Purchase Price will be paid in United States Dollars,
calculated using the exchange rate of One Hundred Japanese (Y.100) per One
United States Dollar (US$1.00), in nine (9) individual payments, the aggregate
of which will equal the Total Purchase Price. Such payments shall be made in
the amounts and at the times set forth below:
<TABLE>
<CAPTION>
Payment Date Payment Amount
------------ --------------
<S> <C>
January 26, 1995* US$5,470,000
December 20, 1995 US$16,405,000
December 20, 1996 US$21,875,000
December 20, 1997 US$21,875,000
December 20, 1998 US$21,875,000
December 20, 1999 US$21,875,000
December 20, 2000 US$21,875,000
December 20, 2001 US$21,875,000
December 20, 2002 US$21,875,000
--------------
Total US$175,000,000
</TABLE>
*Payment of January 26, 1995 to be received in Tokyo, Japan on January
27, 1995, Tokyo time. All other payments to be made such that they
are received on December 20 at the place where such payments are
received.
2
<PAGE> 6
2.2 Payment of Purchase Price. Subject to the terms and
conditions set forth in this Agreement, Purchaser shall pay the Total Purchase
Price, and thereby fully perform Purchaser's obligations under Section 2.1 of
this Agreement, by delivering a promissory note issued by the Goldman Sachs
Group, L.P., a Delaware limited partnership ("Goldman Sachs"), and payable to
Seller in substantially the form of the attached Exhibit A (the "G/S Promissory
Note"), pursuant to which Goldman Sachs will be required to pay directly to
Seller the aggregate amount of One Hundred Seventy Five Million United States
Dollars (US$175,000,000) over the course of the next eight (8) years.
2.3 Defeasance. Subject to the terms and conditions set forth in
this Agreement, Seller shall accept the G/S Promissory Note on the terms set
forth in Sections 2.1 and 2.2 hereof and shall release and discharge Purchaser
from Purchaser's obligations under Sections 2.1 and 2.2 hereof to pay the Total
Purchase Price (and no other provision hereof), and thereby allow Purchaser to
achieve a defeasance of its obligations to pay the Total Purchase Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Seller. Seller hereby
represents and warrants to Purchaser that:
(a) Organization and Standing. Seller is a corporation duly
organized and existing under the laws of Japan and is in good standing
under such laws. Seller has the requisite corporate power to sell the
Shares. Seller is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to be so qualified
would have a material adverse effect on its ability to sell the
Shares.
(b) Title. Seller has, or at Closing will have, (i) good,
marketable and valid title to the Shares and (ii) subject to Section
1.3 hereof, full rights, power and authority to enter into this
Agreement and to sell, assign, transfer and deliver all of the Shares,
free and clear of any liens, encumbrances, security interests,
equities and claims.
(c) Corporate Power. Subject to Section 1.3 hereof, Seller
has all requisite corporate power to enter into this Agreement and
will have at Closing all requisite legal and corporate power to
enter into this Agreement, and to sell
3
<PAGE> 7
the Shares hereunder and to carry out and perform its obligations
under the terms of this Agreement.
(d) Authorization. Subject to Section 1.3 hereof, all
corporate action on the part of Seller, its officers, directors and
shareholders necessary for the sale of the Shares pursuant hereto and
the performance of Seller's obligations hereunder has been taken or
will be taken prior to Closing; and this Agreement, when executed and
delivered by Seller, shall constitute a valid and binding obligation
of Seller, enforceable in accordance with its terms, except as
enforcement may be limited by applicable bankruptcy laws or other
similar laws affecting creditors' rights generally, and except that
the availability of equitable remedies may be limited by applicable
law.
(e) Compliance with Other Instruments. Subject to
Section 1.3 hereof, the execution, delivery and performance of this
Agreement by Seller will not violate any term of its Articles of
Incorporation, and will not result in the breach of or a default
under, in any material respect, any contract, agreement, instrument,
judgment, decree, order, statute, rule or regulation to which Seller
is subject and a violation of which would have a material adverse
effect on Seller's ability to fully perform this Agreement.
(f) Adequate Investigation. Seller represents and
warrants to Purchaser that Seller has had access to such information
as Seller has considered necessary to make a determination as to the
sale of the Shares and, further, has had sufficient opportunity to
make such inquiry into such information and to make such other inquiry
as Seller deems necessary to verify the accuracy and the sufficiency
of such information.
(g) Governmental Consents. No consent, approval
(including, without limitation, approval for "Special Settlement
Method" under Article 17 of the Foreign Exchange and Foreign Trade
Control Law of Japan), order or authorization of, or registration,
qualification, designation, declaration or filing with, any
governmental entity on the part of Seller is required in connection
with the valid execution, delivery or performance of this Agreement,
or the agreements, instruments or documents evidenced as exhibits
hereto, or the offer, sale and transfer of the Shares or consummation
of any other transaction contemplated by this Agreement.
3.2 Representations and Warranties of Purchaser. Purchaser hereby
represents and warrants to Seller that:
4
<PAGE> 8
(a) Organization and Standing. Purchaser is a
corporation duly organized and existing under the laws of the State of
Delaware and is in good standing under such laws. Purchaser has the
requisite corporate power to own and operate its properties and
assets, and to carry on its business as presently conducted.
Purchaser is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to be so qualified
would have a material adverse effect on its business or properties.
(b) Corporate Power. Purchaser has all requisite
corporate power to enter into this Agreement, to purchase the Shares
hereunder and to carry out and perform its obligations under the terms
of this Agreement.
(c) Authorization. All corporate action on the part of
Purchaser, its officers, directors and stockholders necessary for the
purchase of the Shares pursuant hereto and the performance of
Purchaser's obligations hereunder has been taken or will be taken
prior to Closing. This Agreement, when executed and delivered by
Purchaser, shall constitute a valid and binding obligation of
Purchaser, enforceable in accordance with its terms, except as
enforcement may be limited by applicable bankruptcy laws or other
similar laws affecting creditors' rights generally, and except that
the availability of equitable remedies may be limited by applicable
law.
(d) Compliance with Other Instruments. The execution,
delivery and performance of and compliance with this Agreement, and
the purchase of the Shares pursuant hereto, will not result in the
breach of or in a default under, in any material respect, any
contract, agreement, instrument, judgment, decree, order, statute,
rule or regulation to which Purchaser is subject and a violation of
which would have a material adverse effect on Purchaser's ability to
fully perform this Agreement.
(e) Adequate Investigation. Purchaser represents and
warrants to Seller that Purchaser has had access to such information
as Purchaser has considered necessary to make a determination as to
the purchase of the Shares and, further, has had sufficient
opportunity to make such inquiry into such information and to make
such other inquiry as Purchaser deems necessary to verify the accuracy
and the sufficiency of such information.
5
<PAGE> 9
(f) Investment Representations. This Agreement is made
by Purchaser with Seller upon the understanding as a specific
representation to Seller that:
(i) The Shares purchased hereunder will be
acquired for Purchaser's own account, not as a nominee or
agent, and not with a view to the distribution of any part
thereof, and Purchaser has no present intention of selling,
granting participation in, or otherwise distributing the same.
Purchaser has not been organized for the purpose of investing
in securities of NSI, although such investment is consistent
with Purchaser's corporate purposes.
(ii) Purchaser understands that the purchase
of the Shares represents a speculative investment and
Purchaser is able, without impairing its financial condition,
to hold the Shares for an indefinite period of time and to
suffer a complete loss of Purchaser's investment. Purchaser
is aware of and has investigated NSI's business, management
and financial condition, has had the opportunity to inspect
NSI's facilities and has had access to such other information
about NSI as Purchaser has deemed necessary or desirable to
reach an informed and knowledgeable decision to acquire the
Shares.
(iii) Purchaser understands that the Shares
will not be registered under the U.S. Securities Act of 1933,
as amended (the "Securities Act"), by reason of, among other
things, reliance upon certain exemptions therefrom, and that
the reliance of Seller on such exemptions is predicated upon,
among other things, the bona fide nature of Purchaser's
investment intent as expressed herein.
(iv) Purchaser is experienced in evaluating
and investing in securities of similar companies and has made
investments in securities other than those of NSI. Purchaser
acknowledges that by reason of its business or financial
experience, it has the ability to bear the economic risk of
its investment pursuant to this Agreement.
(g) Governmental Consents. No consent, approval, order
or authorization of, or registration, qualification, designation,
declaration or filing with, any governmental entity on the part of
Purchaser is required in connection with the valid execution, delivery
or performance of this Agreement, or the agreements, instruments or
documents evidenced as exhibits hereto, or the offer, sale and
6
<PAGE> 10
transfer of the Shares or consummation of any other transaction
contemplated by this Agreement; provided, however, that this
representation and warranty specifically excludes approval required
for "Special Settlement Method" under Article 17 of the Foreign
Exchange and Foreign Trade Control Law of Japan.
ARTICLE IV
CLOSING
4.1 Closing. The Closing of the transactions contemplated by this
Agreement shall take place at 10:00 a.m. (California time) on January 26, 1995,
or at such other time and date as may be mutually agreed upon in writing by the
parties hereto (the "Closing"). The Closing shall be held at the offices of
Graham & James, 5 Palo Alto Square, Suite 1000, 3000 El Camino Real, Palo Alto,
California 94306, or at such other place as the parties may agree upon in
writing.
4.2 Obligations of Seller. At the Closing, Seller shall:
(a) deliver a certificate signed by an executive officer
or director of Seller certifying that all representations and
warranties of Seller made in this Agreement are true and complete as
of the date of Closing and that Seller has complied with all of its
covenants as required by the terms and conditions of this Agreement;
(b) deliver a stock certificate or stock certificates
representing the Shares, duly endorsed for transfer to Purchaser,
along with executed assignments thereof and such other instruments or
documents as shall be reasonably required to convey to Purchaser all
right, title and interest of Seller to the Shares;
(c) deliver a certificate signed by a director of Seller
certifying that no consents of any third party are necessary to
consummate the transactions contemplated by this Agreement;
(d) deliver an opinion of special counsel to Seller, dated
as of the Closing, from Yanagida, Nomura & Akai, substantially the same
as the form of opinion attached hereto as Exhibit B; and
(e) deliver a receipt in the form of the attached Exhibit
C, evidencing Seller's receipt of the G/S Promissory Note from Goldman
Sachs.
7
<PAGE> 11
4.3 Obligations of Purchaser. At the Closing, Purchaser shall:
(a) deliver a certificate signed by the Secretary of
Purchaser certifying that all representations and warranties of
Purchaser made in this Agreement are true and complete as of the date
of the Closing and that Purchaser has complied with all of its
covenants as required by the terms and conditions of this Agreement;
(b) deliver a certificate signed by the Secretary of
Purchaser certifying that no consents of any third party are necessary
to consummate the transactions contemplated by this Agreement;
(c) deliver the G/S Promissory Note;
(d) deliver an opinion from Robert J. Katz, Esq., General
Counsel of Goldman Sachs, dated as of the Closing, substantially the
same as the form of opinion attached hereto as Exhibit D;
(e) deliver a receipt in the form of the attached Exhibit E,
evidencing Purchaser's receipt of the certificate(s) representing the
Shares;
(f) deliver an opinion of special counsel to Purchaser,
Wilson, Sonsini, Goodrich and Rosati, dated as of the Closing,
substantially the same as the form of opinion attached hereto as
Exhibit F; and
(g) deliver an opinion of special counsel to Purchaser,
Nagashima & Ohno, dated as of the Closing, substantially the same as
the form of opinion attached hereto as Exhibit G.
4.4 Post Closing Obligations. The parties hereto shall at their
own cost and expense each execute and deliver such instruments and documents as
may be reasonably required to give effect to the covenants specified in this
Agreement.
ARTICLE V
WITHHOLDING TAXES
5.1 Withholding Taxes. Purchaser shall indemnify and hold
harmless Seller from any and all United States income tax withheld or imposed
with respect to payments under the G/S Promissory Note (the "Withholding Tax");
provided, however, that:
8
<PAGE> 12
(a) Seller shall assert any and all claims for
indemnification under this Section 5.1 (each, a "Claim") promptly
after any Withholding Taxes are made or imposed, by delivering to
Purchaser written notice setting forth the amount of such Withholding
Tax, and Purchaser shall upon receipt of such notice promptly pay such
amount; provided, however, that in the event a Japanese credit is
available as determined pursuant to Section 5.1(b) hereof, Seller
shall assert its right to indemnification under this Section 5.1 as
provided in Section 5.1(b) hereof;
(b) Seller and Purchaser acknowledge that under existing
Japanese tax law, Seller is not entitled to assert any right to a
credit attributable to any Withholding Tax in connection with the G/S
Promissory Note. In the event Japanese tax law changes such that
Seller is entitled (at the time the subject Withholding Tax is made or
imposed) to assert a credit applicable to such Withholding Tax, Seller
shall not make any Claim for indemnification hereunder until Seller
calculates the credit available with respect to such Withholding Tax
(which credit shall be calculated using Seller's general tax
practices) and once so calculated, shall reduce the amount by which
Seller requests indemnification from Purchaser hereunder, whether or
not Seller receives an economic benefit from such credit;
(c) At the time Seller makes a Claim under Section 5.1(b)
hereof, Seller shall make available to Purchaser (on a confidential
basis) all information reasonably necessary for Seller to confirm the
Claim;
(d) No indemnification shall be required to the extent
the Withholding Tax is withheld or imposed by reason of Seller's
failure to provide Goldman Sachs with a statement (on form W-8) as
required by Section 871(h)(5) (or successor provision) of the Internal
Revenue Code of 1986, as amended to the date hereof; and
(e) Purchaser shall not be required to indemnify Seller
for Withholding Taxes if Seller and Goldman Sachs amend the terms of
the G/S Promissory Note such that it is no longer in "registered form"
within the meaning of Section 871(h)(2)(A)(i) (or successor provision)
of the Internal Revenue Code of 1986, as amended to the date hereof.
9
<PAGE> 13
ARTICLE VI
MISCELLANEOUS
6.1 Governing Law. This Agreement shall be construed in
accordance with the laws of Japan without regard to principles of the conflicts
of law.
6.2 Survival. The representations and warranties of the parties
under Article III hereof shall survive for two (2) years after all amounts
payable under the G/S Promissory Note have been paid in full.
6.3 Assignment. Notwithstanding any other provisions of this
Agreement, this Agreement shall be binding upon the parties hereto and their
respective successors and assigns, and inure to the benefit of (i) the parties
hereto, (ii) their respective successors by means of merger or consolidation or
a sale of substantially all of their business and assets, and (iii) the
respective assigns of the parties hereto if the assignment to such assignee
took place with the prior written consent of the other party.
6.4 Severability. If any Section of this Agreement is deemed to
be unlawful or invalid, then that Section shall be severed from this Agreement,
but the remaining Sections and this Agreement as a whole shall remain in effect
and be binding on both parties.
6.5 Notices.
(a) All notices, requests, demands and other
communications under this Agreement or in connection herewith
("Notice") shall be given to or made upon the respective parties as
follows:
To Seller: Kawasaki Steel Corporation
Hibiya Kokusai Building
2-3, Uchisaiwaicho 2-chome
Chiyoda-ku, Tokyo 100
Japan
Facsimile: 03-3597-3634
Telephone: 03-3597-4615
Attention: General Manager Planning
and Coordination Department,
LSI Division
10
<PAGE> 14
with a copy to:
Graham & James
5 Palo Alto Square - Suite 1000
3000 El Camino Real
Palo Alto, CA 94306
U.S.A.
Facsimile: 415-856-3619
Telephone: 415-856-6500
Attention: Robert E. Patterson, Esq.
To Purchaser: LSI Logic Corporation
1551 McCarthy Boulevard
Milpitas, CA 95035
U.S.A.
Facsimile: 408-433-6896
Telephone: 408-433-8000
Attention: General Counsel
with a copy to:
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
U.S.A.
Facsimile: 415-493-6811
Telephone: 415-493-9300
Attention: Judith M. O'Brien, Esq.
(b) All notices, requests, demands, claims, or other
communications hereunder shall be made in writing and sent to the
addressee and persons set forth above by international courier or
airmail, return receipt requested, (or by any other means, including
personal delivery, expedited courier, messenger service, telecopy,
telex, ordinary mail, or electronic mail, if sent the same day by
international courier or airmail, return receipt requested), and such
notices, requests, demands, claims, or other communications shall be
deemed to have been duly given when sent upon sender's receipt of the
addressee's receipt of the international courier or airmail dispatch,
or in the absence of such receipt, when actually received by its
intended recipient.
(c) Any party may, by written Notice to the other, alter
its address or respondent, and such Notice shall be considered to have
been given ten (10) days after such Notice is given pursuant to this
Section 6.5.
11
<PAGE> 15
6.6 Headings. The headings to the Sections of this Agreement have
been inserted only to facilitate reference and shall not be considered to be of
any significance whatsoever in the construction or interpretation of this
Agreement.
6.7 Singular Includes Plural. Words used in the singular in this
Agreement shall also mean the plural and vice versa where the context so
requires.
6.8 Publicity. All notices to third parties and all other
publicity concerning the transactions contemplated by this Agreement shall be
jointly planned and coordinated by and between the parties. Neither of the
parties shall act unilaterally in this regard without the prior written
approval of the other party; provided, however, that such approval shall not be
unreasonably withheld.
6.9 Entire Agreement. This Agreement and the exhibits hereto
incorporate the entire understanding of the parties with respect to the subject
matter of this Agreement and merge all prior agreements and understandings
between the parties, whether oral or written, with respect to this subject
matter.
6.10 Dates and Times. The dates and times specified herein shall
be local time in Milpitas, California, unless otherwise specified.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in Palo Alto, California, on the date first above written, by their
respective officers.
LSI LOGIC CORPORATION
By: /s/ Albert A. Pimentel
----------------------
Its:
----------------------
KAWASAKI STEEL CORPORATION
By: /s/ Masashi Tomishima
----------------------
Its:
----------------------
12
<PAGE> 16
EACH HOLDER OF THIS NOTE COVENANTS AND AGREES THAT THE OBLIGATIONS OF
THE GOLDMAN SACHS GROUP, L.P. ("GS GROUP") UNDER THIS NOTE SHALL BE WITHOUT
RECOURSE TO ANY PARTNER, OR ANY ASSIGNEE OF ANY PARTNER, OF GS GROUP, ANY
CONTROLLING PERSON THEREOF OR ANY SUCCESSOR TO ANY THEREOF, AND NO SUCH PERSON
SHALL HAVE ANY LIABILITY WITH RESPECT HERETO.
THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE "SECURITIES ACT") OR UNDER THE SECURITIES OR BLUE SKY LAWS OF
ANY STATE. THE HOLDER OF THIS NOTE, BY ITS ACCEPTANCE HEREOF, REPRESENTS THAT
IT IS ACQUIRING THIS NOTE FOR INVESTMENT AND NOT WITH A VIEW TO ANY SALE OR
DISTRIBUTION HEREOF. THIS NOTE MAY BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
ONLY (X) WITHIN THE UNITED STATES (AS DEFINED IN REGULATION S UNDER THE
SECURITIES ACT) OR TO A U.S. PERSON (AS DEFINED IN REGULATION S UNDER THE
SECURITIES ACT) (A) TO INVESTORS WHICH ARE "ACCREDITED INVESTORS" WITHIN THE
MEANING OF REGULATION D UNDER THE SECURITIES ACT, (B) PURSUANT TO AN OPINION OF
COUNSEL SATISFACTORY TO GS GROUP THAT AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT IS AVAILABLE WITH RESPECT TO SUCH TRANSFER,
(C) WITH THE CONSENT OF GS GROUP, WHICH CONSENT WILL NOT BE UNREASONABLY
WITHHELD, AND (D) IN ACCORDANCE WITH ALL APPLICABLE STATE SECURITIES LAWS OR (Y)
OUTSIDE THE UNITED STATES AND TO A NON-U.S. PERSON (A) PURSUANT TO AN OPINION OF
COUNSEL SATISFACTORY TO GS GROUP THAT AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT UNDER REGULATION S OF THE SECURITIES ACT IS
AVAILABLE WITH RESPECT TO SUCH TRANSFER, (B) WITH THE CONSENT OF GS GROUP, WHICH
CONSENT WILL NOT BE UNREASONABLY WITHHELD, AND (C) IN ACCORDANCE WITH ALL
APPLICABLE LAW. FURTHERMORE, THIS NOTE MAY BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY IN WHOLE, AND NOT IN PART.
No. 6465
THE GOLDMAN SACHS GROUP, L.P.
Promissory Note
Date of Note: January 26, 1995
The Goldman Sachs Group, L.P., a Delaware limited partnership, for value
received, hereby promises to pay to Kawasaki Steel Corporation, a Japanese
corporation ("KSC"), or registered assigns the principal amounts set forth on
Schedule A attached hereto on the dates set forth thereon.
Except for payment of the amounts set forth on Schedule A hereto on the dates
set forth thereon, this Note is not prepayable by GS Group, in whole or in part,
without the prior written consent of the holder hereof.
1
<PAGE> 17
All payments hereunder shall be made by wire transfer of immediately available
funds to an account of the holder hereof in Tokyo or New York City designated in
writing by the holder hereof at least three Business Days prior to the scheduled
date of such payment. For purposes of this Note, "Business Day" means any day
other than a Saturday, Sunday, or a day on which banks are not open for business
in New York City or Tokyo or a day on which the New York Stock Exchange is
closed. All payments hereunder will be initiated by a GS Group branch or office
located in the United States.
Any payment hereunder which is stated to be due on a day which is not a Business
Day shall be due and payable on the immediately preceding Business Day.
The person in whose name this Note is registered on the books of GS Group shall
be deemed to be the owner for all purposes whatsoever, and GS Group, shall not
be affected by any notice or writing to the contrary. GS Group covenants and
agrees that this Note will be registered on the books of GS Group in the name of
KSC. The holder hereof agrees by accepting this Note that this Note may not be
sold, transferred, pledged or hypothecated except as set forth above. Subject
to the preceding sentence, transfer of ownership of this Note may be registered
at the principal office of GS Group. By its acquisition of this Note, the
holder hereof hereby acknowledges that this Note does not give it any right to
obtain the principal amount thereof on demand.
If any one or more of the following events (each, an "Event of Default") shall
have occurred and be continuing:
(a) if GS Group defaults in the due and punctual payment of any
scheduled payment on this Note, when and as the same shall become due
and payable, and such default shall have continued for three Business
Days, regardless of whether or not the holder hereof provides any
notice of such nonpayment; or
(b) if GS Group defaults in the performance of or compliance with any
other term contained in this Note and such default shall not have been
remedied within 10 days after written notice thereof, specifying such
default and requiring it to be remedied, shall have been given to GS
Group by the holder hereof; or
(c) if GS Group shall fail to make any payment at maturity, including
any applicable grace period, in respect of any indebtedness for
borrowed money (other than non-recourse indebtedness and this Note) of
GS Group ("Debt") in an amount in excess of $25,000,000 for a period
of 30 days after written notice thereof shall have been given to GS
Group by the holder hereof, or if a default shall have occurred with
respect to any Debt results in the acceleration of such Debt in an
amount in excess of $25,000,000 without such Debt having been
discharged or such acceleration having been cured, waived,
2
<PAGE> 18
rescinded or annulled for a period of 30 days after written notice
thereof shall have been given to GS Group by the holder hereof;
provided, however, that if any such failure, default or acceleration
referred to in this clause (c) shall cease or be cured, waived,
rescinded or annulled, then the Event of Default by reason thereof will
be deemed likewise to have thereupon been cured; or
(d) if an involuntary case or other proceeding shall be commenced
against GS Group seeking liquidation, reorganization or other relief
with respect to it or its debts under any applicable Federal or State
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or similar law now or hereafter in effect or seeking the
appointment of a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of it or any substantial part of its
property, and such involuntary case or other proceeding shall remain
undismissed and unstayed, or an order or decree approving or ordering
any of the foregoing shall be entered and continue unstayed and in
effect, in any such event, for a period of 60 days or
(e) if GS Group shall commence a voluntary case or proceeding under any
applicable Federal or State bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium or other similar law or any other
case or proceeding to be adjudicated a bankrupt or insolvent, or shall
consent to the entry of a decree or order for relief in an involuntary
case or proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or to the commencement
of any bankruptcy of insolvency case or proceeding against it, or if it
shall file a petition or answer or consent seeking reorganization or
relief under any applicable Federal or State law, or consent to the
filing of such petition or to the appointment of or taking possession
by a custodian, receiver, liquidator, assignee, trustee, sequestrator
or similar official of GS Group or any substantial part of its
property, or shall make an assignment for the benefit of creditors, or
admit in writing its inability to pay its debts generally as they
become due, or shall take corporate action in furtherance of any such
action; or
(f) if a final judgment which, with other final judgments against GS
Group, exceeds an aggregate of $10,000,000 shall be rendered against GS
Group by a court of competent jurisdiction in the United States and if,
within 60 days after the entry thereof, such judgment shall not have
been discharged or satisfied or execution thereof stayed pending
appeal, or if, within 60 days after the expiration of any stay, such
judgment shall not have been discharged or satisfied;
then and in any such event the holder hereof may at its option, exercised by
written notice given at any time (unless all Events of Default shall theretofore
have been remedied) to GS Group, declare the sum of the amount of any defaulted
payment, if any,
3
<PAGE> 19
under this Note plus the Discounted Amount (as defined below) of the remaining
scheduled payments under this Note (the "Default Amount") to be due and payable,
whereupon the same shall mature and become payable, without the necessity of any
presentment, demand, protest or further notice, all of which are hereby waived
by GS Group; provided, that upon the happening of any event specified in clause
(d) or (e) above the Default Amount shall automatically become immediately due
and payable, all without declaration or any notice to GS Group.
For purposes of this Note, the "Discounted Amount" of the remaining scheduled
payments under this Note shall mean the aggregate present value, as of the LIBOR
Determination Date (as defined below), of such remaining scheduled payments,
determined by discounting each such remaining payment in accordance with
generally accepted financial practice on an annual basis at LIBOR (as defined
below) from the respective dates on which such scheduled payments would have
been payable under this Note. For purposes of this Note, "LIBOR" means, with
respect to any remaining scheduled payment under this Note, the rate determined
by GS Group on the basis of the rates at approximately 11:00 A.M., London time,
on the LIBOR Determination Date (as defined below), at which deposits in U.S.
dollars having the Specified Maturity (as defined below) are offered to prime
banks in the London interbank market by four major banks in the London interbank
market selected by GS Group, commencing on the second London business day
following the LIBOR Determination Date and in a principal amount equal to an
amount that in GS Group's judgment is representative for a single transaction in
such market at such time (a "Representative Amount"). GS Group will request the
principal London office of each of such banks to provide a quotation of its
rate. If at least two such quotations are provided, LIBOR with respect to the
LIBOR Determination Date will be calculated by reference to the arithmetic mean
of such quotations. If fewer than two quotations are provided, LIBOR with
respect to the LIBOR Determination Date will be calculated by reference to the
arithmetic mean of the rates quoted at approximately 11:00 A.M., New York City
time, on the LIBOR Determination Date, by three major banks in New York City,
selected by GS Group, for loans in U.S. dollars to leading European banks having
the Specified Maturity, commencing on the LIBOR Determination Date and in a
Representative Amount. For purposes of this Note, "LIBOR Determination Date"
shall mean the date on which the Default Amount shall become due and payable
pursuant to the preceding paragraph, or, if such day is not a Calculation
Business Day, the next succeeding day which is a Calculation Business Day,
"Calculation Business Day" shall mean any day that is (x) a Business Day and (y)
a day on which dealings in deposits in dollars are transacted in the London
interbank market, and "Specified Maturity" shall mean, with respect to any
remaining scheduled payment under this Note, the period of time from the date on
which the Default Amount shall become due and payable pursuant to the preceding
paragraph to the date on which such scheduled payment was originally scheduled
to be due and payable under this Note as specified on Schedule A hereto.
4
<PAGE> 20
This Note shall not bear interest except from and following the date on which
the Default Amount shall become due and payable pursuant to the second preceding
paragraph, in which case the Default Amount shall bear interest, payable on
demand, at a rate per annum (on the basis of a 360 day year for the actual
number of days involved) equal to the sum of Citibank, N.A.'s prime rate plus
2%. Such interest shall be compounded quarterly.
GS Group covenants and agrees that, forthwith upon any partner on the Management
Committee of GS Group obtaining any knowledge of any condition or event which
constitutes or which, after notice or lapse of time or both, would constitute an
Event of Default, GS Group will deliver to KSC a certificate executed by two
partners specifying the nature and period of existence thereof and what action
GS Group has taken or is taking or proposes to take with respect thereto.
GS Group may not assign its rights nor delegate its obligations under this Note,
in whole or in part, without the prior written consent of the registered holder
hereof, and any purported assignment or delegation absent such consent is void,
except for an assignment and delegation of all of GS Group's rights and
obligations hereunder in whatever form GS Group determines may be appropriate to
a Successor Entity. For purposes of this paragraph, a "Successor Entity" means
a partnership, corporation, trust, or other organization organized under the
laws of the United States of America, any State thereof or the District of
Columbia in whatever form that succeeds to all or substantially all of GS
Group's assets and business and that assumes all of GS Group's obligations
hereunder by contract, operation of law or otherwise; provided, that, such
Successor Entity shall have a long-term unsubordinated debt rating that is not
lower than the lessor of (i) A+ from Standard & Poor's Ratings Group ("S&P") and
A1 from Moody's Investors Service ("Moody's") and (ii) the rating of GS Group
immediately prior to such assignment, delegation and assumption. Upon any such
assignment, delegation and assumption of obligations, GS Group shall be relieved
of and fully discharged from all its obligations hereunder, whether such
obligations arose before or after such assignment, delegation and assumption.
GS Group represents and warrants to KSC that:
(a) GS Group is a limited partnership formed and validly existing and
in good standing under the law of the State of Delaware and has all requisite
power and authority under such law to own its property and to carry on its
business as now being conducted.
(b) GS Group has full power and authority to issue this Note and to
incur and perform the obligations provided for herein, all of which have been
duly authorized by all proper and necessary action. No consent or approval of
the general or limited
5
<PAGE> 21
partners of GS Group or of any governmental or administrative authority,
instrumentality or agency which has not been obtained is required as a condition
to the validity of this Note.
(c) This Note constitutes the valid and legally binding obligation of
GS Group enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equity principles.
(d) There is no statute, regulation, rule, order or judgment, no
partnership provision of GS Group, and no provision of any mortgage, indenture,
contract or agreement binding on GS Group or affecting its property, which
would conflict with or prevent the execution, delivery or carrying out of the
terms of this Note, and no consents or waivers of other lenders to GS Group are
required for the execution, delivery or carrying out of the terms of this Note.
(e) At January 26, 1995, GS Group's long-term unsubordinated debt
rating from S&P and Moody's is A+ and A1, respectively.
All notices, requests, demands and other communications under this Note or in
connection herewith ("Notices") shall be given to or made upon KSC or GS Group,
as applicable, as follows:
To KSC: Kawasaki Steel Corporation
Hibiya Kokusai Building
2-3, Uchisaiwaicho 2-chome
Chiyoda-ku, Tokyo 100
Japan
Telex: 222-3673 KWST TJ
Facsimile: 03-3597-3634
Telephone: 03-3597-4617
Attention: General Manager Planning and Coordinating
Department, LSI Division
with a copy to:
Graham & James
5 Palo Alto Square - Suite 1000
3000 El Camino Real
Palo Alto, California 94306
Facsimile: (415) 856-3619
Telephone: (415) 856-6500
6
<PAGE> 22
Attention: Robert E. Patterson, Esq.
To GS Group: The Goldman Sachs Group, L.P.
85 Broad Street
New York, New York 10004
Facsimile: (212) 902-3325
Telephone: (212) 902-1000
Attention: Treasury Department
All notices shall be in writing, and shall be sent by airmail, return receipt
requested, or telex or facsimile with confirmation of receipt, and shall be
deemed to be given or made when receipt is so confirmed. KSC or GS Group may,
by written Notice to the other, alter its address or respondent, and such Notice
shall be considered to have been given ten (10) days after such Notice is given
pursuant to this paragraph.
GS Group will make all payments under this Note without regard to any defenses,
claims, counterclaims or rights of set-off which LSI Logic Corporation, a
Delaware corporation ("LSI"), may have, now or in the future, (x) under the
Stock Purchase Agreement dated as of January 20, 1995, or the Relationship
Modification Agreement dated as of January 20, 1995, each between LSI and KSC,
or (y) against KSC.
GS Group agrees, in the case of an Event of Default, to pay all reasonable
out-of-pocket expenses (including reasonable attorney's fees) incurred by the
holder hereof in connection with the enforcement of any provision of, and the
collection of, this Note.
7
<PAGE> 23
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK. GS GROUP AND, BY ITS ACCEPTANCE HEREOF, THE HOLDER HEREOF
JOINTLY AND SEVERALLY AGREE TO THE EXCLUSIVE JURISDICTION OF COURTS LOCATED IN
THE STATE OF NEW YORK, UNITED STATES OF AMERICA, OVER ANY DISPUTES ARISING OR
RELATING TO THIS NOTE.
THE GOLDMAN SACHS GROUP, L.P.
/s/ David Vinar
-----------------------------
Authorized Signer
8
<PAGE> 24
SCHEDULE A
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
January 27, 1995 U.S.$ 5,470,000
December 20, 1995 U.S.$ 16,405,000
December 20, 1996 U.S.$ 21,875,000
December 20, 1997 U.S.$ 21,875,000
December 20, 1998 U.S.$ 21,875,000
December 20, 1999 U.S.$ 21,875,000
December 20, 2000 U.S.$ 21,875,000
December 20, 2001 U.S.$ 21,875,000
December 20, 2002 U.S.$ 21,875,000
----------------
TOTAL U.S.$175,000,000
</TABLE>
9
<PAGE> 25
NOTE PURCHASE AGREEMENT dated as of January 26, 1995, between The
Goldman Sachs Group, L.P. ("GS Group") and LSI Logic Corporation
("LSI").
WHEREAS, LSI and Kawasaki Steel Corporation ("KSC") are parties to a Stock
Purchase Agreement dated as of January 26, 1995 (the "Stock Purchase
Agreement"), pursuant to which KSC shall sell to LSI 40,910 shares of Common
Stock of Nihon Semiconductor, Inc. (the "Shares");
WHEREAS, pursuant to such Stock Purchase Agreement LSI has agreed to purchase
from GS Group and deliver to KSC a $175,000,000 principal amount Promissory
Note of GS Group, which Promissory Note shall constitute LSI's payment to KSC
for the Shares being sold to LSI by KSC; and
WHEREAS, LSI and GS Group desire to enter into an agreement pursuant to which
LSI agrees to purchase, and GS Group agrees to issue and deliver to KSC, such a
Promissory Note.
NOW, THEREFORE, the parties do hereby agree as follows:
1. LSI hereby agrees to purchase from GS Group, and GS Group agrees to
sell to LSI and deliver to KSC, a $175,000,000 principal amount Promissory
Note of GS Group in the form of Exhibit A hereto (the "Note"), at a purchase
price of $125,903,000, and on the further terms and conditions set forth in
this Agreement.
2. LSI will purchase the Note from GS Group on January 26, 1995 (the
"Delivery Date"). LSI hereby requests that the Note be registered in the name
of KSC and delivered to KSC on the Delivery Date.
3. Payment for the Note which LSI has agreed to purchase on the Delivery
Date shall be made to GS Group on the Delivery Date by wire transfer of
immediately available funds to a bank account specified by GS Group. Upon
receipt of such payment by GS Group, GS Group shall issue the Note and deliver
it to KSC.
4. The obligation of GS Group to issue and deliver the Note on the
Delivery Date shall be subject to GS Group's having received (i) payment for the
Note, (ii) a copy of the Purchaser Letter attached hereto as Exhibit B duly
executed by LSI and (iii) a copy of the Purchaser Letter attached hereto as
Exhibit C duly executed by KSC.
5. LSI represents and warrants to GS Group that:
(a) LSI has full power and authority to enter into this Agreement, to
purchase the
<PAGE> 26
Note and to deliver it to KSC and to incur and perform the obligations provided
for herein, all of which have been duly authorized by all proper and necessary
action. No consent or approval of the shareholders of LSI or of any
governmental or administrative authority, instrumentality or agency which has
not been obtained is required as a condition to the validity of this Agreement.
(b) This Agreement constitutes the valid and legally binding
obligation of LSI enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights and to general equity principles.
(c) There is no statute, regulation, rule, order or judgment, no
charter or by-law provision of LSI, and no provision of any mortgage,
indenture, contract or agreement binding on LSI or affecting its property,
which would conflict with or prevent the execution, delivery or carrying out of
the terms of this Agreement, and no consents or waivers of creditors of LSI are
required for the execution, delivery or carrying out of the terms of this
Agreement.
6. GS Group represents and warrants to LSI that:
(a) GS Group has full power and authority to enter into this
Agreement, to issue the Note and to incur and perform the obligations provided
for herein and therein, all of which have been duly authorized by all proper
and necessary action. No consent or approval of the partners of GS Group or
any governmental or administrative authority, instrumentality or agency which
has not been obtained is required as a condition to the validity of this
Agreement or the Note.
(b) This Agreement constitutes, and the Note when issued and delivered
pursuant hereto for value received will constitute, the valid and legally
binding obligations of GS Group enforceable in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
(c) There is no statute, regulation, rule, order or judgment, no
partnership provision of GS Group, and no provision of any mortgage, indenture,
contract or agreement binding on GS Group or affecting its property, which
would conflict with or prevent the execution, delivery or carrying out of the
terms of this Agreement or the Note, and no consents or waivers of other
lenders to GS Group are required for the execution, delivery or carrying out of
the terms of this Agreement or the Note.
7. This Agreement may be executed by either of the parties hereto in any
number of counterparts, each of which shall be deemed to be an original, but
all such counterparts shall together constitute one and the same instrument.
<PAGE> 27
8. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
If this Agreement is acceptable to LSI, it is requested that LSI sign the form
of acceptance below and deliver one of the counterparts hereof to GS Group.
This will become a binding contract between LSI and GS Group when such
counterpart is so delivered by LSI.
Very truly yours,
THE GOLDMAN SACHS GROUP, L.P.
By: /s/ David Vinar
-------------------------
Name: David Vinar
Title: General Partner
Accepted and Agreed:
LSI LOGIC CORPORATION
By: /s/ Vincent A. McCord
------------------------
Name: Vincent A. McCord
Title: Vice President, Corporate Controller
<PAGE> 1
EXHIBIT 11.1
LSI LOGIC CORPORATION
COMPUTATION OF EARNINGS (LOSS) PER SHARE
YEAR ENDED DECEMBER 31, 1994, 1993 AND 1992
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- ---------
<S> <C> <C> <C>
PRIMARY EARNINGS (LOSS) PER SHARE
Net income (loss).......................................... $108,743 $ 53,750 $(110,208)
Average common and common equivalent shares:
Average common shares outstanding........................ 53,168 47,819 44,478
Dilutive options......................................... 1,785 1,712 --
-------- -------- ---------
54,953 49,531 44,478
======== ======== =========
Earnings (loss) per common and common equivalent share..... $ 1.98 $ 1.09 $ (2.48)
======== ======== =========
FULLY DILUTED EARNINGS PER SHARE
Net income................................................. $108,743 $ 53,750
Interest expense on convertible subordinated debt, net of
tax effect............................................... 7,022 3,961
-------- --------
Adjusted net income........................................ $115,765 $ 57,711
======== ========
Average common and common equivalent shares
on a fully diluted basis:
Average common shares outstanding........................ 55,965 47,765
Convertible subordinated debt............................ 4,675 5,116
Dilutive options......................................... 2,074 1,932
-------- --------
62,714 54,813
======== ========
Fully diluted earnings per common and common equivalent
share.................................................... $ 1.85 $ 1.05
======== ========
</TABLE>
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
JURISDICTION OF
NAME OF SUBSIDIARY INCORPORATION
- - ----------------------------------- ------------------------
<S> <C>
LSI Logic Europe plc United Kingdom
LSI Logic Corporation of Canada,
Inc. Canada
LSI Logic K.K. Japan
LSI Logic Hong Kong Limited Hong Kong
LSI Logic Netherlands B.V. Netherlands
LSI Logic BVI Corporation British Virgin Islands
Nihon Semiconductor, Inc. Japan
LSI Logic Corporation of Korea Korea
LSI Logic Foreign Sales Corporation U.S. Virgin Islands
LSI Logic Asia, Inc. Delaware
LSI Logic International Services,
Inc. California
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 224,503
<SECURITIES> 204,008
<RECEIVABLES> 156,288
<ALLOWANCES> 4,044
<INVENTORY> 107,824
<CURRENT-ASSETS> 730,854
<PP&E> 939,585
<DEPRECIATION> 444,036
<TOTAL-ASSETS> 1,270,374
<CURRENT-LIABILITIES> 307,938
<BONDS> 143,750
<COMMON> 571
0
0
<OTHER-SE> 544,335
<TOTAL-LIABILITY-AND-EQUITY> 1,270,374
<SALES> 901,830
<TOTAL-REVENUES> 901,830
<CGS> 520,150
<TOTAL-COSTS> 520,150
<OTHER-EXPENSES> 223,914
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,455
<INCOME-PRETAX> 156,169
<INCOME-TAX> 43,679
<INCOME-CONTINUING> 108,743
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 108,743
<EPS-PRIMARY> 1.98
<EPS-DILUTED> 1.85
</TABLE>
