UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 27, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to ____.
Commission File Number: 1-6453
NATIONAL SEMICONDUCTOR CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-2095071
(State of incorporation) (I.R.S. Employer Identification Number)
2900 Semiconductor Drive, P.O. Box 58090
Santa Clara, California 95052-8090
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 721-5000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No __
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Title of Each Class Outstanding at February 27, 1994
Common stock, par value $0.50 per share 113,135,546
<PAGE>
NATIONAL SEMICONDUCTOR CORPORATION
INDEX
Part I. Financial Information Page No.
Condensed Consolidated Balance Sheets (Unaudited)
as of February 27, 1994 and May 30, 1993 3
Condensed Consolidated Statements of Operations
(Unaudited) for the Three Months and Nine Months
Ended February 27, 1994 and February 28, 1993 4
Condensed Consolidated Statements of
Cash Flows (Unaudited) for the Nine Months
Ended February 27, 1994 and February 28, 1993 5
Notes to Condensed Consolidated
Financial Statements (Unaudited) 6
Management's Discussion and Analysis of
Results of Operations and Financial Condition 10
Part II. Other Information
Legal Proceedings 13
Exhibits and Reports on Form 8-K 13
Signature 14
Exhibit 11.0 -- Additional Fully Diluted Calculation
of Earnings Per Share 15
<PAGE>
PART I. FINANCIAL INFORMATION
NATIONAL SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions)
Feb. 27, May 30,
1994 1993
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 335.2 $ 277.4
Short-term marketable investments 81.9 54.4
Receivables, net 273.8 271.5
Inventories 221.1 189.6
Other current assets 52.7 49.4
------- -------
Total current assets 964.7 842.3
Property, plant and equipment 1,704.6 1,612.3
Less accumulated depreciation 1,093.0 1,034.9
------- -------
Net property, plant and equipment 611.6 577.4
Long-term marketable investments 12.9 13.9
Other assets 37.1 42.9
------- -------
Total assets $1,626.3 $1,476.5
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current
portion of long-term debt $ 11.9 $ 10.6
Accounts payable 152.4 193.2
Accrued expenses 228.2 232.0
Income taxes 80.1 69.9
------- -------
Total current liabilities 472.6 505.7
Long-term debt 25.8 37.3
Deferred income taxes 17.7 16.9
Other noncurrent liabilities 84.7 79.2
------- -------
Total liabilities 600.8 639.1
------- -------
Commitments and contingencies
Shareholders' equity:
Convertible Exchangeable Preferred Stock 0.1 0.1
Convertible Preferred Stock 0.2 0.2
Common stock 56.5 54.9
Additional paid-in capital 907.4 886.6
Retained earnings (deficit) 61.3 (104.4)
------- -------
Total shareholders' equity 1,025.5 837.4
------- -------
Total liabilities and shareholders' equity $1,626.3 $1,476.5
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements
<PAGE>
NATIONAL SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in millions, except per share amounts)
Three Months Ended Nine Months Ended
------------------ --------------------
Feb. 27, Feb. 28, Feb. 27, Feb. 28,
1994 1993 1994 1993
-------- ------- -------- --------
Net sales $ 544.7 $491.5 $1,686.0 $ 1,455.8
Operating costs and expenses:
Cost of sales 316.3 317.7 985.8 950.1
Research and development 62.7 57.0 191.3 167.6
Selling, general and
administrative 97.9 88.1 303.8 245.1
------- ------ -------- -------
Total operating costs
and expenses 476.9 462.8 1,480.9 1,362.8
------- ------ -------- -------
Operating income 67.8 28.7 205.1 93.0
Interest, net 3.1 1.4 6.9 1.8
------- ------ -------- -------
Income before income
taxes and cumulative effect
of accounting change 70.9 30.1 212.0 94.8
Income taxes 7.1 3.2 35.3 10.7
------- ------ -------- -------
Net income before cumulative
effect of accounting change $ 63.8 $ 26.9 $ 176.7 $ 84.1
Cumulative effect of
accounting change for years
prior to 1994 - - 4.9 -
------- ------ -------- -------
Net Income $ 63.8 $ 26.9 $ 181.6 $ 84.1
======= ====== ======== =======
Earnings per share before
cumulative effect of
accounting change:
Primary $ .48 $ .19 $ 1.34 $ .63
Fully diluted $ .45 n/a $ 1.26 n/a
Earnings per share:
Primary $ .48 $ .19 $ 1.38 $ .63
Fully diluted $ .45 n/a $ 1.29 n/a
Weighted average shares:
Primary 120.8 115.6 120.1 115.0
Fully diluted 141.7 n/a 140.8 n/a
Income used in primary
earnings per common share
calculation (reflecting
preferred dividends) $ 58.5 $ 21.6 $ 165.7 $ 72.3
See accompanying Notes to Condensed Consolidated Financial Statements
<PAGE>
NATIONAL SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)
Nine Months Ended
--------------------
Feb. 27, Feb. 28,
1994 1993
-------- -------
OPERATIONS:
Net Income $ 181.6 $ 84.1
Adjustments to reconcile net income
with net cash provided by operations:
Depreciation and amortization 126.1 118.8
Cumulative effect of accounting change (4.9) -
Loss (gain) on sale of investment (2.2) 5.7
Other, net (1.4) 0.3
Changes in certain assets and liabilities, net:
Receivables 2.0 (64.6)
Inventories (27.0) 4.3
Other current assets (2.3) (6.6)
Accounts payable and accrued expenses (40.8) (56.0)
Current and deferred income taxes 11.0 6.9
Other noncurrent liabilities 5.5 (2.2)
-------- -------
Net cash provided by operating activities 247.6 90.7
-------- -------
INVESTING:
Purchases of property, plant and equipment (158.9) (136.0)
Proceeds from the sale of property,
plant and equipment - 5.7
Proceeds from the sale of marketable investments 462.6 5.8
Purchase of marketable investments (489.1) (49.1)
Proceeds from sale of investments 7.7 -
Purchases of investments and other, net (6.4) (2.7)
-------- -------
Net cash used by investing activities (184.1) (176.3)
-------- -------
FINANCING:
Proceeds from issuance of debt 1.9 20.2
Repayment of debt (12.1) (17.2)
Change in collateral deposits and restricted cash - 20.9
Issuance of common stock under
employee benefit plans 20.4 14.3
Issuance of preferred stock, net - 167.0
Payment of preferred dividends (15.9) (11.8)
-------- -------
Net cash provided (used) by financing activities (5.7) 193.4
-------- -------
Net change in cash and cash equivalents 57.8 107.8
Cash and cash equivalents at beginning of period 277.4 138.3
-------- -------
Cash and cash equivalents at end of period $ 335.2 $ 246.1
======== =======
See accompanying Notes to Condensed Consolidated Financial Statements
<PAGE>
NATIONAL SEMICONDUCTOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1. Summary of Significant Accounting Policies
In the opinion of management, the accompanying condensed consolidated
financial statements contain all adjustments, consisting of only normal
recurring adjustments (except as discussed in Note 2 and Note 3),
necessary to present fairly the financial position and results of
operations of National Semiconductor Corporation and its subsidiaries
("National" or the "Company"). Interim results of operations are not
necessarily indicative of the results to be expected for the full year.
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the annual report on Form 10-K for the year ended May 30,
1993.
Effective beginning fiscal 1994, the Company prospectively adopted
Statement of Financial Accounting Standards No. 106, "Employer's
Accounting for Postretirement Benefits other than Pensions" ("FAS 106"),
the adoption of which did not have a material impact on the Company's
financial statements.
Note 2. Results of Operations
Results of operations for the first nine months of fiscal 1994 include
accrued costs of centralizing sales and logistics facilities within the
Company's international business regions of $10.3 million (all recorded
in the first half of 1994) and net intellectual property income of $7.4
million ($5.3 million in the third quarter). Operating results for the
first nine months of fiscal 1993 include net intellectual property
income of $40.0 million ($8.3 million in the third quarter), and accrued
costs of centralizing sales and logistics facilities within the
Company's international business regions of $9.1 million (all accrued in
the second quarter).
Note 3. Change in Accounting
Effective beginning fiscal 1994, the Company changed its method of
accounting to include certain costs in inventory which were previously
charged directly to cost of sales as incurred. These costs consist
primarily of product engineering, quality assurance and reliability, and
production control and logistics. The Company believes that this change
is preferable in the circumstances because it more closely matches
inventory costs with net sales and more closely aligns the Company with
industry practices. The cumulative effect of this change on years prior
to fiscal 1994 of $4.9 million is reflected in the Condensed
Consolidated Statement of Operations for the nine months ended February
27, 1994. The impact of the change on net income before the cumulative
effect of the accounting change in the third quarter and first nine
months of fiscal 1994 and the proforma effect on net income for the
comparable periods of fiscal 1993 under the new method of accounting
were immaterial.
In addition, effective beginning fiscal 1994, the Company
reclassified certain period expenses from cost of sales to research and
development expense or selling, general and administrative expense. The
amounts presented in prior period statements of operations have been
reclassified to conform with the fiscal 1994 presentation. For the
third quarter of fiscal 1993, the effect of the reclassification was to
decrease cost of sales by $21.0 million, or 4.3 percent of sales, and to
increase research and development and selling, general and
administrative expenses by $6.9 million and $14.1 million, or 1.4
percent and 2.9 percent of sales, respectively.
<PAGE>
For the first nine months of fiscal 1993, the effect of the
reclassification was to decrease cost of sales by $63.9 million, or 4.4
percent of sales, and to increase research and development and selling,
general and administrative expenses by $20.9 million and $43.0 million,
or 1.4 percent and 3.0 percent of sales, respectively. For the fourth
quarter of fiscal 1993, the effect of the reclassification was to
decrease cost of sales by $17.4 million, or 3.1 percent of sales, and to
increase research and development and selling, general and
administrative expenses by $6.0 million and $11.4 million, or 1.1
percent and 2.0 percent of sales, respectively. Net income was not
impacted in any period by the reclassifications.
Note 4. Accounting for Income Taxes
Effective beginning fiscal 1994, the Company prospectively adopted
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("FAS 109"). FAS 109 requires that deferred liabilities
or assets at the end of each period be determined using the tax rate
expected to be in effect when the taxes are actually paid or recovered.
The measurement of deferred taxes is reduced, if necessary, by a
valuation allowance. The cumulative effect of adopting FAS 109 is not
material to the consolidated financial statements. Income tax expense
for the first nine months of fiscal 1994 is not materially different
under FAS 109 than it would have been under the Company's previous
method of accounting under Financial Accounting Standards No. 96,
"Accounting for Income Taxes" ("FAS 96"). The adoption of FAS 109 did
result in the reclassification of $1.5 million of noncurrent deferred
tax liabilities to income taxes payable. The tax effects of temporary
differences that give rise to significant portions of the deferred tax
assets and deferred tax liabilities at May 31, 1993 are presented below
(in millions):
Deferred tax assets:
Reserves and Accruals $ 93.3
Inventory capitalization and reserves 17.9
Capitalized assets and other assets 18.4
Capitalized R&D - state 5.7
Loss carryovers and other allowances - foreign 81.6
Net operating loss carryovers - Federal 22.1
Net operating loss carryovers - state 2.6
General business tax credit carryovers - Federal 81.0
Foreign tax credit carryovers 9.0
AMT credit carryovers 5.0
-----
Total gross deferred tax assets 336.6
Less valuation allowance (322.1)
-----
Net deferred tax assets $ 14.5
-----
Deferred tax liabilities:
Capital allowances - foreign $(24.0)
Other liabilities (5.9)
------
Total gross deferred tax liabilities $(29.9)
------
Net deferred tax liabilities $(15.4)
======
<PAGE>
Of the total valuation allowance for deferred tax assets, $7.5
million of subsequently recognized tax benefits attributable to employee
stock option exercises will be allocated to additional paid-in capital
rather than to income tax benefit.
As of May 31, 1993, the Company had available for federal tax
reporting purposes net operating loss carryovers of approximately $65
million and research and investment tax credit carryovers of
approximately $81 million. The loss carryovers and credit carryovers
expire through fiscal years 2007 and 2008, respectively. The Company
also has operating loss carryovers in certain non-U.S. jurisdictions.
The U.S. Internal Revenue Service ("IRS") examinations of National's
U.S. federal income tax returns for fiscal years 1976-1982 resulted in
the issuance of deficiency notices during fiscal 1989 and 1990 seeking
additional taxes amounting to approximately $76 million (exclusive of
interest). National filed petitions with the United States Tax Court
contesting the deficiency notices and the cases were consolidated for
trial. National and the IRS subsequently settled all issues for fiscal
years 1976 through 1982 except for intercompany product transfer prices.
This settlement reduced the additional taxes being sought to
approximately $52 million (exclusive of interest). Trial in the case
was held in February 1993, briefs were filed in June 1993 and rebuttal
briefs were filed in August 1993; however, the Company is not able to
predict when a decision will be rendered. As a result of the length of
time which has elapsed since the fiscal years in question as well as the
effect of compounding, the amount of any total liability ultimately owed
would be a multiple of the amount of the underlying additional tax. The
Company's tax returns for fiscal 1983 through 1989 have been under
examination by the IRS and the Company expects the IRS to raise similar
issues. In January 1994, the Company and the IRS settled all issues for
fiscal years 1983 through 1985, including issues relating to
intercompany product transfer pricing, without the payment of additional
federal tax. This result will be affected, however, by certain net
operating loss carryovers and credits which will not be determined until
a final decision in the litigation pending in the United States Tax
Court is rendered. The Company's tax returns for fiscal years 1986
through 1989 are still under examination by the IRS. The Company
believes the amounts paid or accrued are adequate.
Note 5. Components of Inventories
The components of inventories were (in millions):
Feb. 27, May. 30,
1994 1993
------ ------
Raw materials $ 22.3 $ 24.6
Work in process 127.9 117.7
Finished goods 70.9 47.3
------- ------
Total inventories $ 221.1 $ 189.6
====== ======
See Note 3 for discussion of a change in accounting effective beginning
fiscal 1994.
<PAGE>
Note 6. Supplemental disclosure of cash flow information
(in millions) Nine Months Ended
--------------------
Feb. 27, Feb. 28,
1994 1993
-------- -------
Cash paid during the period for:
Interest expense $ 2.6 $ 2.3
Interest payment on state tax settlement $ 12.2 $ -
Income taxes $ 20.6 $ 1.7
Noncash items:
Issuance of stock for employee benefit plans $ 2.0 $ -
Increase in inventory due to cumulative
effect of accounting change $ 4.9 $ -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS Sales for the three months ended February 27,
1994, were $544.7 million, an increase of 10.8 percent from sales of
$491.5 million for the three months ended February 28, 1993. Net income
for the third quarter of fiscal 1994 was $63.8 million as compared to
net income of $26.9 million for the third quarter of fiscal 1993. Net
income of $181.6 million for the first nine months of fiscal 1994
includes a $4.9 million gain (all in the first quarter)due to the
cumulative effect of a change in accounting to include certain costs in
inventory which were previously expensed as incurred (see Note 3). Net
income for the comparable nine month period in fiscal 1993 was $84.1
million.
Sales The sales increase in the third quarter of fiscal 1994 as
compared to fiscal 1993 was primarily due to the Company's Standard
Product Group ("SPG"), with the primary increases coming from higher
average sales prices in both the Analog division and Data Management
division coupled with increased volume in the Analog division. Overall,
sales in the Company's Communications and Computing Group ("CCG")
decreased from the comparable quarter in fiscal 1993. The primary
factor affecting this decline was a reduction in local area networking
product sales caused by both decreased volume and selling prices for
the three month comparable period. The Wide Area Network division,
however, had both increased volume and selling prices in fiscal 1994
over the comparable three month period in fiscal 1993.
Sales for the nine months ended February 27, 1994 were $1,686.0 million,
an increase of 15.8 percent from sales of $1,455.8 million in the same
period last year. Sales increased significantly compared to the first
nine months of fiscal 1993 in the Analog division and the Data
Management divisions of SPG, due to both increased unit sales and
increased average selling prices. Sales also increased compared to the
first nine months of fiscal 1993 in CCG. The sales increase was
attributable primarily to increases in sales of the Embedded Systems
and the Wide Area Network divisions, offset partially by a decrease in
local area networking product sales which was due to declining prices as
well as reduced volume.
Gross Margin Gross margin in the third quarter of fiscal 1994 was
$228.4 million, or 41.9 percent of sales, an improvement from 35.4
percent in the same period last year, as reclassified (See Note 3).
Gross margin in the nine months ended fiscal 1994 was $700.2 million, or
41.5 percent of sales, an improvement from $505.7 million, or 34.7
percent of sales, over the same period of last fiscal year, as
reclassified. The improvement, in both the third quarter and nine month
period in fiscal 1994, was primarily attributable to increased prices as
well as a shift in product mix, coming primarily from Analog intensive
and Data Management division products in SPG. In CCG, overall margins
have increased for the comparable three and nine month periods, with the
primary increases coming from the Embedded Systems division which were
partially offset by margin declines in local area networking products.
<PAGE>
Research and Development Third quarter research and development ("R&D")
expenses were $62.7 million, or 11.5 percent of sales, compared to $57.0
million, or 11.6 percent of sales, for the third quarter of 1993. R&D
expenses were $191.3 million and $167.6 million, or 11.3 percent and
11.5 percent of sales, for the nine months ended February 27, 1994 and
February 28, 1993 respectively. The Company continues to focus efforts
on analog intensive, communications, and personal system products.
Expenditures in the third quarter and first nine months of fiscal 1994
compared to fiscal 1993 have increased in these areas of focus.
Selling, general and administrative For the third quarter ended
February 27, 1994, selling, general and administrative ("SG&A") expenses
were $97.9 million compared to $88.1 million for the third quarter of
fiscal 1994. SG&A expenses for the third quarter of 1994 include a net
benefit of $5.3 million from net intellectual property income. SG&A
expenses for the third quarter of fiscal 1993 include a net benefit of
$0.4 million, consisting of $8.3 million of intellectual property
income, partially offset by a charge of $4.7 million from a write down
of an equity investment and $3.2 million in legal expenses incurred in
connection with a tax dispute. Exclusive of these items, SG&A expenses
for the third quarter of fiscal 1994 were $103.2 million, or 18.9
percent of sales compared to $88.5 million, or 18.0 percent of sales for
the third quarter of fiscal year 1993. SG&A expenses, having remained
relatively constant as a percentage of sales, increased in absolute
dollars. This increase is primarily due to increased costs for
marketing and advertising, and increased costs for certain employee
benefit plans, including increased contributions to employee retirement
and savings programs.
For the nine months ended February 27, 1994, SG&A expenses were
$303.8 million compared to $245.1 million for the first nine months of
fiscal 1993. SG&A expenses for the first nine months of fiscal 1994
include a net charge of $0.7 million, consisting of a charge of $10.3
million for consolidation of sales and marketing facilities in the
Company's international business regions, net intellectual property
income of $7.4 million and a gain on a sale of an investment of $2.2
million. SG&A expenses for the first nine months of fiscal 1993 include
a net benefit of $17.0 million, consisting of $40.0 million of
intellectual property income, partially offset by a charge of $9.1
million relating to the consolidation of sales and marketing facilities,
$9.2 million in legal expenses incurred in connection with a tax dispute
and $4.7 million for the write off of an investment. Exclusive of
these items, SG&A expenses for the first nine months of fiscal 1994 were
$303.1 million, or 18.0 percent of sales, compared to $262.1 million, or
18.0 percent of sales, for the comparable period in fiscal 1993. The
increase in SG&A expenses in absolute dollars is primarily due to
increased costs for marketing and advertising, and increased costs for
certain employee benefit plans, including increased contributions to
employee retirement and savings programs.
<PAGE>
Interest Income and Interest Expense Net interest income for the three
and nine months ended February 27, 1994, was $3.1 million and $6.9
million, respectively, compared to $1.4 million and $1.8 million for the
respective periods of fiscal 1993. Interest income has increased due
primarily to higher average cash and investment balances in the third
quarter and nine months of fiscal 1994 as compared to the same periods
of fiscal 1993. Interest expense decreased due to lower average
outstanding debt balances in the first nine months of fiscal 1994 as
compared to the same period of fiscal 1993.
Income Tax Expense Income tax expense for the first nine months of
fiscal 1994 was $35.3 million, or 16.7 percent of income before taxes,
compared to $10.7 million, or 11.3 percent of income before taxes for
the comparable period of fiscal 1993. In the third quarter of fiscal
1994, the Company revised the estimated effective tax rate for fiscal
1994 to 15 percent on an annualized basis as compared to the previous
estimate of 20 percent on an annualized basis. The reduction is
primarily due to a change in operating performance among geographic
regions, which resulted in an increased utilization of net operating
loss carryovers. While the Company has reduced the effective rate for
fiscal 1994, the current effective tax rate is higher than that in the
comparable period in fiscal 1993 primarily due to the expected
exhaustion of certain net operating loss carryovers in fiscal 1994.
FINANCIAL CONDITION
The Company's cash and cash equivalent balance as of February 27, 1994
was $335.2 million. Operating activities for the first nine months of
fiscal 1994 provided $247.6 million in cash, as compared to $90.7
million for the equivalent period of the prior year. The primary change
in cash from operations came from net income of $181.6 million for the
nine months ended February 27, 1994 as compared to $84.1 million for the
comparable period of fiscal 1993. Cash used for investing activities
was $184.1 million, which included $158.9 for the purchase of property,
plant, and equipment. The Company's capital expenditures in the first
nine months of fiscal 1994 were directed towards process improvements
and modernization of existing plants, and continued expansion of its
Arlington, Texas; South Portland, Maine; and Greenock, Scotland
facilities. Financing activities used a net of $5.7 million in cash,
consisting primarily of repayment of debt of $12.1 million, payment of
preferred stock dividends of $15.9 million, offset partially by $20.4
million of proceeds received from the issuance of common stock under
employee benefit plans. Management believes that existing cash and
investment balances, and existing lines of credit, together with cash
provided by operations, will be sufficient to fund anticipated capital
expenditures and other investing and financing activities through the
immediately foreseeable future.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
See information provided in Note 4 concerning the Company's tax
litigation matters in the Condensed Consolidated Financial Statements
which information is incorporated herein by reference.
By letter dated January 6, 1994, the Company was notified by the
California Department of Toxic Substances Control ("DTSC") of a Report
of Violation ("ROV") listing 39 violations arising out of inspections of
certain facilities and operations of the Company located in Santa Clara,
California and the DTSC's further review of information obtained during
the inspections. The deficiencies cited may be described as violations
of various provisions of the California Health and Safety Code and the
California Code of Regulations relating to the record keeping for and
the handling, treatment, storage and disposal of hazardous products and
wastes. The Company is working to correct the deficiencies noted in the
ROV. Although the Company has not yet received any notification that
the state is seeking monetary sanctions connected with the ROV, the
Company does expect that if the state does institute proceedings seeking
monetary sanctions, the amount involved may exceed $100,000 (the amount
specified in Instruction 5 C to Item 103 of Regulation S-K of the
Securities and Exchange Commission) but will not have a material adverse
effect on the Company's financial position.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
--------
10.1 License agreement with Wave Systems Corporation.
10.2 Management Contract or compensatory plan or Arrangment:
Airplane Use Agreement with Gilbert F. Amelio dba
Aero Ventures
11.0 Additional Fully Diluted Calculation of Earnings
Per Share
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the fiscal quarter ended
February 27, 1994.
<PAGE>
SIGNATURE
- ---------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
NATIONAL SEMICONDUCTOR CORPORATION
Date: March 18, 1994 /s/DONALD MACLEOD
----------------------------------
Donald Macleod
Senior Vice President, Finance
Signing on behalf of the registrant
and as principal financial officer
<PAGE>
Exhibit 10.1
LICENSE AGREEMENT
THIS AGREEMENT is made as of August 31, 1993, between WAVE SYSTEMS
CORP., a Delaware corporation with offices at 885 Third Avenue, 26th
Floor, New York, New York 10022 ("Wave"), and NATIONAL SEMICONDUCTOR
CORPORATION, a Delaware corporation with offices at 2900 Semiconductor
Drive, P.O. Box 58090, Santa Clara, California 95052-8090 ("NSC").
A. Wave is engaged in a system for the distribution, metering and
retrieval of encrypted computer readable information.
B. NSC is proposing to develop a semiconductor chip or chipset that
controls the decryption and metering functions of such system.
C. In order to aid the development of such chip or chipset, Wave
desires to provide and NSC desires to obtain access to and the right to
use certain related technology owned by and/or licensed to Wave and,
accordingly, NSC desires to receive from Wave, and Wave desires to grant
to NSC, a license to use such technology for the purposes and on the
terms set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
ARTICLE I.
DEFINITIONS
As used herein:
Allocable NSC Revenue shall mean all revenue that is derived by NSC
from the sale, lease or other disposition of NSC Chips or Metering
Boards or other semiconductor chips or board products that implement the
decryption or metering functions of Wave Technology, which NSC Chips,
Metering Boards or other chips or board products are used exclusively
for Non-Revenue Producing Applications, less transportation, shipping
and handling charges, excise and turnover taxes, customs duties, charges
for credit, bad debts actually incurred and amounts paid or credited in
respect of returns.
<PAGE>
Allocable Wave Revenue shall mean all revenue that is derived by
Wave from the sale or rental of information decrypted and metered
through Metering Boards designed and manufactured by or for, and sold
by, NSC less transportation, shipping and handling charges, excise and
turnover taxes, customs duties, charges for credit, bad debts actually
incurred and amounts paid or credited in respect of returns less any
portion of such revenue that is paid or payable by Wave to Consolidators
or information providers.
Bundle shall mean (i) to package information from information
providers and/or Consolidators with a Metering Board and (ii) to
distribute such packages either to other distribution channels or
directly to the end-users of such information. Bundler and Bundling
shall have corollary meanings.
Confidential Information shall mean all information relative to the
subject matter of this Agreement disclosed by one party to the other
party in written and/or graphic or computer data base form and
originally designated in writing by the disclosing party as Confidential
Information or by words of similar import, or if disclosed orally,
summarized and confirmed in writing by the disclosing party within
thirty (30) days after disclosure; provided, however, that Confidential
Information shall not include any information which (a) is published or
otherwise made available to the public other than by a breach of this
Agreement, (b) is lawfully received by one party from a third party who
is not under any legal or contractual obligation to maintain the
confidentiality of such information, (c) was already known by the
receiving party at the time of disclosure by the other party or (d) is
independently developed by one party without the use of information of
the other party (other than information described in any of the
foregoing clauses (i) through (iii)).
Consolidator shall mean an entity licensed by Wave that (i) enters
into agreements with various information providers for the distribution
of information in encrypted form using the Wave Technology and (ii)
markets a storage medium that includes such information.
Intellectual Property Rights shall mean, with respect to either
party, all industrial and intellectual property rights of such party,
whether in existence now or hereafter created or acquired, including,
without limitation, patents, patent applications, patent rights,
trademarks, trademark applications, trade names, service marks, service
mark applications, copyrights, copyright applications, computer programs
and other computer software, inventions, know-how, trade secrets,
proprietary processes and formulae, all source and object code,
algorithms, architecture, structure, display screens, layouts,
<PAGE>
inventions, development tools and all documentation and media
constituting, describing or relating to the foregoing, including without
limitation, manuals, memoranda and records.
Katznelson Patent shall mean United States Patent Number 5,010,571
and all other patents and patent applications listed under Patent I on
Exhibit A attached hereto.
Licensed Market shall have the meaning ascribed to it in the Titan
License.
Metering Boards shall mean circuit boards, modules or other
assemblies that incorporate NSC Chips and are capable of implementing
the decryption and metering functions that are utilized in a Wave UMS
when such circuit boards, modules or other assemblies that incorporate
NSC Chips are installed in a computer or data storage device in the
presence of a modem.
Non-Revenue Producing Application shall mean any application of NSC
Chips or Metering Boards or other semiconductor chips or board products
that implement the decryption and metering functions of the Wave
Technology, which application does not utilize a Wave UMS.
NSC Chips shall mean the semiconductor integrated circuit chips and
chipsets designed and manufactured by or for NSC that control the
decryption and metering functions necessary to utilize a Wave UMS.
NSC Technology shall mean all Intellectual Property Rights of NSC
related to the subject matter of this Agreement, including, without
limitation, the Intellectual Property Rights of NSC embodied in the
material described on Exhibit B attached hereto.
Patent Co-Owner shall have the meaning ascribed to it in the Titan
License.
Shear Patent shall mean United States Patent Number 4,977,594, and
all other patents and patent applications based thereon.
Subsidiary shall mean, with respect to any party hereto, any
corporation more than fifty (50%) percent of whose outstanding shares of
stock entitled to vote for the election of directors is owned, directly
or indirectly, by such party during the term of this Agreement, but only
so long as such ownership exists.
Technology shall mean either the Wave Technology or the NSC
Technology.
<PAGE>
Titan shall mean The Titan Corporation.
Titan License shall mean the License and Cross-License Agreement
dated as of May 1, 1992, between Titan and Wave, as amended on August
31, 1993 and as the same may be further amended from time to time, and
as modified by the Consent to this Agreement obtained by Wave from Titan
on August 31, 1993.
Titan Technology shall mean "the Technology," as such term is
defined in the Titan License.
UMS shall mean a Usage Management System, which system serves as
the central processing point for (i) usage, payment and other data
collection from Metering Boards, (ii) security management and
distribution of decryption keys to Metering Boards and (iii) end-user
payments and payments to providers of information to end-users.
Wave Operating System Software shall mean the software that is
required to facilitate the communication of decryption keys and
transaction and credit information between a Metering Board and a Wave
UMS.
Wave Technology shall mean all Intellectual Property Rights of Wave
related to the subject matter of this Agreement, including, without
limitation, the Intellectual Property Rights of Wave embodied in the
system described on Exhibit C attached hereto.
Wave UMS shall mean any UMS owned, operated or licensed by Wave.
Except as the context may otherwise require, all references herein
to "NSC" shall mean National Semiconductor Corporation and each of its
Subsidiaries and all references herein to "Wave" shall mean Wave Systems
Corp. and each of its Subsidiaries.
ARTICLE II.
LICENSE GRANT TO NSC
A. Wave hereby grants to NSC, subject to the terms of this
Agreement, a worldwide, non-exclusive, royalty-free license, without the
right to sublicense except to Subsidiaries of NSC, to use the Wave
Technology to design, make, have made, test, sell or otherwise dispose
of NSC Chips and Metering Boards. The license granted to NSC hereby
shall not include the right to provide the decryption keys utilized by
the Wave UMS to any party.
<PAGE>
B. Wave hereby grants to NSC, subject to the terms of this
Agreement, a worldwide, non-exclusive, royalty-bearing license, without
the right to sublicense except to Subsidiaries of NSC, to use the Wave
Technology to design, make, have made, test, sell, lease or otherwise
dispose of semiconductor chips and board products used in applications
that do not use or compete in any way with a Wave UMS.
C. Wave hereby grants to NSC, subject to the terms of this
Agreement, a sublicense of its rights under the Titan License for the
purposes of designing, making, having made, testing, selling or
otherwise disposing of NSC Chips and Metering Boards and semiconductor
chips and board products used in applications that do not use or compete
in any way with a Wave UMS.
D. Notwithstanding any other provision of this Agreement, the
sublicense and other rights granted by Wave to NSC hereunder with
respect to the Titan Technology shall be limited to those rights that
Wave has the power to grant to NSC under the terms of the Titan License,
which terms are hereby incorporated herein by reference, and shall be
subject to such other terms and provisions that are required to be
included in or that are otherwise applicable to such grant pursuant to
the terms of the Titan License. Without the prior consent of NSC, Wave
shall not modify its rights under the Titan License in any manner
adverse to NSC.
E. Without the prior consent of Wave, NSC shall not use or sell
NSC Chips or Metering Boards or otherwise provide them to any person,
except (a) for use in applications permitted by Section 2.2 or (b)
pursuant to a license that requires that all information decrypted or
metered through such NSC Chips or Metering Boards containing such NSC
Chips (i) be decrypted only through the use of decryption keys provided
by Wave and (ii) provide usage, payment and related metering information
only to a Wave UMS.
F. NSC shall not design, manufacture or sell semiconductor chips,
chipsets or board products that functionally compete with NSC Chips or a
Wave UMS if such chips, chipsets and board products use or infringe the
Wave Technology or the Titan Technology sublicensed pursuant to Section
2.3.
G. In the event that NSC obtains a license or other rights under
or with respect to the Katznelson Patent, NSC shall not, without the
prior consent of Wave, directly or indirectly sublicense such rights to
a third party for use in the operation of a UMS that competes with a
Wave UMS or otherwise directly or indirectly use or permit the use by
third parties of such license or other rights in the operation of such a
UMS.
<PAGE>
ARTICLE III.
LICENSE GRANT TO WAVE
NSC hereby grants to Wave, subject to the terms of this Agreement,
a worldwide, non-exclusive, royalty-free license, without the right to
sublicense except to Subsidiaries of Wave, to use the NSC Technology to
establish and operate Wave UMSs.
ARTICLE IV.
DEVELOPMENT AND CROSS-LICENSE OF
WAVE OPERATING SYSTEM SOFTWARE
A. Wave and NSC shall use their reasonable best efforts and shall
cooperate with each other to establish the specifications for the Wave
Operating System Software, including the interface specifications
necessary to facilitate communication capability between the NSC Chips
and/or Metering Boards and Wave UMSs.
B. Each party hereby grants to the other party, subject to the
terms of this Agreement, a non-exclusive, royalty-free license to use
the other's Technology that is incorporated into Wave Operating System
Software and to sublicense such Technology as embodied in the source and
object code and functional and design specifications of the Wave
Operating System Software to any third party for use in designing and
implementing products or services complementary to a Wave UMS.
ARTICLE V.
DESIGN AND DEVELOPMENT
A. Wave and NSC shall, within ninety (90) days following the date
hereof, develop and agree upon the functional specifications for NSC
Chips and for the initial Wave UMS. Promptly thereafter, NSC shall
undertake and use its reasonable best efforts to design and develop NSC
Chips meeting such functional specifications and Wave shall undertake
and use its reasonable best efforts to establish and place in operation
the initial Wave UMS meeting such functional specifications.
B. Both parties shall use their reasonable best efforts jointly
and promptly to define the interface specifications necessary for the
operation of the NSC Chips and a Wave UMS within the system described on
Exhibit C attached hereto.
<PAGE>
ARTICLE VI.
ROYALTIES AND OTHER FEES
A. (1) Wave shall pay to NSC royalties equal to twenty percent
(20%) of Allocable Wave Revenue, if any, for each calendar quarter
during the term of this Agreement.
(2) In addition to the payments in Section 6.1(a) above, Wave
shall pay to NSC royalties equal to twenty percent (20%) of Allocable
Wave Revenue attributable to the sale or rental of information decrypted
and metered through Metering Boards Bundled by NSC, if any, for each
calendar quarter during the term of this Agreement.
(3) As an alternative to and in lieu of the royalty arrangement
described in Section 6.1(a), NSC may elect to enter into a participatory
arrangement with Wave with respect to any information decrypted and
metered through Metering Boards designed, manufactured and sold by NSC,
which participatory arrangement shall be at least as favorable to NSC as
any participatory arrangement provided by Wave to any other manufacturer
of Metering Boards. Wave hereby agrees to notify NSC of the terms of
the first participatory arrangement that it enters into with any
manufacturer of Metering Boards (other than NSC) and of the terms of any
participatory arrangement that it thereafter provides to any other
manufacturer of Metering Boards if the terms thereof are generally more
favorable to the manufacturer than the terms of any other participatory
arrangement provided by Wave to any other manufacturer of Metering
Boards. Such notification shall be made within thirty (30) days
following the effective date of any such arrangement. Any election by
NSC under this Section 6.1(d) (a) shall be made no later than thirty
(30) days following receipt by NSC of the notification required by the
preceding sentence, (b) shall be made by notice from NSC to Wave, (c)
shall be effective as of the first day of the calendar quarter
immediately following the calendar quarter in which such notice is
received by Wave and only with respect to the sale or rental of
information after such day and (d) shall include and be subject to all
(and not less than all) of the terms and conditions of the participatory
arrangement provided by Wave to such other manufacturer of Metering
Boards.
B. NSC shall pay to Wave royalties equal to two percent (2%) of
Allocable NSC Revenue, if any, for each calendar quarter during the term
of this Agreement.
C. Each payment of royalties pursuant to this Article VI shall be
made within thirty (30) days following the end of the calendar quarter
with respect to which such royalties are payable, and shall be
accompanied by an accounting of the revenue
<PAGE>
upon which such payment is
based, certified by an executive officer of the appropriate party as
being accurate based upon the books and records of such party and
calculated in accordance with this Agreement. On or before March 31 of
each year, the parties shall agree upon a nationally recognized firm of
public accountants, which firm shall provide a report for each party
setting forth the basis upon which payments of royalties were computed
during the preceding calendar year, the amount of Allocable Wave Revenue
and Allocable NSC Revenue for such year and the aggregate amount of
royalty payments payable during and with respect to such year. If the
amount of royalties shown on such report to be due to either party
exceeds the aggregate amount of payments made to such party during and
with respect to such year pursuant to this Article VI, then the other
party shall promptly pay such party the amount of the excess. If the
aggregate amount of such payments made to either party shall exceed the
amount of royalties shown to be due to such party on such report, the
other party shall credit the amount of such overpayment against
royalties accruing pursuant to this Article VI after the end of such
year. Each party shall keep accurate records of the computation of
royalties payable to the other hereunder and, with reasonable advance
notice, shall make such records available to the nationally recognized
firm of public accountants selected as provided above for inspection
during normal business hours at the place or places where such records
are customarily kept.
ARTICLE VII.
INVENTIONS
A. All discoveries, improvements and inventions conceived in the
performance of this Agreement by Wave personnel shall be the sole and
exclusive property of Wave and Wave shall retain any and all rights to
file at its sole discretion any patent applications thereon.
B. All discoveries, improvements and inventions conceived in the
performance of this Agreement by NSC personnel shall be the sole and
exclusive property of NSC and NSC shall retain any and all rights to
file at its sole discretion any patent applications thereon.
C. All discoveries, improvements and inventions conceived in the
performance of this Agreement jointly by Wave and NSC personnel shall be
jointly owned. In the event of a joint invention, the parties shall
mutually determine which party shall have the responsibility for
preparing and filing a patent application on the invention and the
parties agree that each will bear one-half of the actual out-of-pocket
expenses associated with obtaining and maintaining such patent.
<PAGE>
ARTICLE VIII.
ARBITRATION
Any controversy or dispute between the parties under this Agreement
shall be submitted to arbitration before a panel of three (3)
arbitrators sitting in San Francisco, California, and operating under
the auspices of the American Arbitration Association pursuant to its
Commercial Rules. The majority decision of the arbitrators shall be
final, binding and conclusive upon the parties and judgment may be
entered thereon in any Federal or state court having jurisdiction.
Unless the decision of the arbitrators shall otherwise direct, (1) the
parties shall bear equally the costs and expenses of arbitration, (2)
the party against whom the arbitrators decide shall bear the reasonable
expenses (including, without limitation, travel, food and lodging
expenses) incurred by the other party and such party's counsel,
technical advisors and expert witnesses as a consequence of such
arbitration taking place in San Francisco, California, and (3) each
party shall bear the professional fees of its own counsel, technical
advisors and expert witnesses. The parties shall proceed with any
arbitration hereunder expeditiously and shall use their reasonable best
efforts to conclude any such arbitration proceeding in order that a
decision may be rendered within ninety (90) days from the service of the
demand for arbitration by the initiating party.
ARTICLE IX.
CONFIDENTIALITY
Each party shall maintain the Confidential Information (including,
without limitation, Confidential Information contained in the Wave
Technology and the NSC Technology) of the other party received by it in
confidence and shall use such Confidential Information only for the
purposes contemplated by this Agreement. Each party shall take all
reasonable steps that are necessary to protect against the unauthorized
disclosure and use of Confidential Information of the other party
received by it with the same care and diligence generally exercised by
the receiving party with respect to its own information of like
importance. Notwithstanding the foregoing, this provision shall not be
construed to restrict the disclosure of information which is required by
law to be disclosed by such party; provided, however, that the party
required by law to make such disclosure shall give the other party as
much prior notice of its obligation to disclose as is reasonably
practicable. Anything contained in this Agreement to the contrary
notwithstanding, the provisions of this Article IX shall survive the
termination of this Agreement for a period of five years.
<PAGE>
ARTICLE X.
REPRESENTATIONS AND WARRANTIES OF WAVE
Wave represents and warrants to NSC, as of the date of this
Agreement, as follows:
A. Wave does not have any knowledge that the Wave Technology
infringes any patent or other intellectual property rights of any third
party; provided, however, that Wave does not make any representation or
warranty with respect to the Shear Patent.
B. Wave has obtained and currently holds all rights necessary to
grant to NSC the licenses set forth in Articles II and IV.
C. Wave has all requisite power and authority to enter into this
Agreement and to perform its obligations hereunder. The execution,
delivery and performance by Wave of this Agreement and the transactions
contemplated hereby have been authorized by all necessary corporate
action on the part of Wave and this Agreement constitutes the valid and
binding obligation of Wave, enforceable in accordance with its terms.
ARTICLE XI.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF NSC
NSC represents and warrants to Wave, as of the date of this
Agreement, as follows:
A. NSC does not have any knowledge that the NSC Technology
infringes any patent or other intellectual property rights of any third
party; provided, however, that NSC does not make any representation or
warranty with respect to the Shear Patent.
B. NSC has obtained and currently holds all rights necessary to
grant to Wave the license set forth in Articles III and IV.
C. NSC has all requisite power and authority to enter into this
Agreement and to perform its obligations hereunder. The execution,
delivery and performance by NSC of this Agreement and the transactions
contemplated hereby have been authorized by all necessary corporate
action on the part of NSC and this Agreement constitutes the valid and
binding obligation of NSC, enforceable in accordance with its terms.
<PAGE>
D. NSC hereby grants to Wave the right and option to purchase, and
hereby agrees to sell to Wave, NSC Chips for a purchase price equal to
the lowest price, if any, received by NSC from any other third-party
purchaser of such Chips; provided, however, that NSC shall in no event
be obligated to sell more than 5,000 units per quarter to Wave; and
provided further, however, that Wave shall not have the right to resell
such chips in chip-form (i.e., such chips must be sold by Wave only on
boards or otherwise embodied in applications).
E. NSC shall not, during the term of this Agreement, own or
operate or contract with another party to own or operate a UMS that
competes with a Wave UMS.
ARTICLE XII.
TERM AND TERMINATION
A. The term of this Agreement shall begin on the date hereof and
shall continue in effect for a period of five years (the "Initial
Term"), unless terminated earlier as provided below; provided, however,
that such term shall automatically be extended for an additional
two-year period (the "Additional Term"), unless one party notifies the
other party at least sixty (60) days prior to the end of the Initial
Term that it does not wish to extend the term of this Agreement beyond
the Initial Term.
B. If either party shall at any time breach any provision of this
Agreement, and such breach is not cured within thirty (30) days after
notice thereof by the other party (which notice shall specify the nature
of such breach), then the non-breaching party shall have the right to
terminate this Agreement by giving notice of termination to the
breaching party. Any such termination shall be effective on the
fifteenth (15th) day following the giving of such notice.
C. A termination of this Agreement pursuant to the provisions of
this Article XII shall not relieve either party of any obligation or
liability that accrued hereunder prior to such termination, or rescind
or give rise to any right to rescind anything done by either party or
any payment made or other consideration given to the other party
hereunder prior to the time such termination becomes effective, and such
termination shall not affect in any manner any rights of either party
arising under this Agreement prior to such termination.
D. EXCEPT IN THE CASE OF A BREACH OF THE PROVISIONS OF ARTICLE IX
HEREOF, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR
INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND OR NATURE, INCLUDING,
WITHOUT LIMITATION, LOSS OF PROFITS OR
<PAGE>
LOSS OF GOODWILL. The parties
acknowledge that a breach by NSC of any of the provisions or limitations
of Article II or Section 11.5 will cause irreparable and material loss
and damage to Wave as to which Wave will not have an adequate remedy a
law or in damages and that, accordingly, each party agrees that the
issuance of a injunction or other equitable remedy is the appropriate
remedy for any such breach.
ARTICLE XIII.
SALE OR ASSIGNMENT
Neither party may, without the prior consent of the other party,
assign or transfer this Agreement or any or all of its rights or
obligations hereunder to any person other than an Affiliate of such
party; provided, however, that such consent shall not be required for a
transfer by either party to any third party of all or substantially all
of its assets or a merger of such party into, or other acquisition of
such party by, such third party. If this Agreement is assigned in part
or in its entirety by either party, whether or not to an Affiliate of
such party, the transferee shall first provide to the other party an
instrument in writing providing for the assumption by the transferee of
all of the assigning party's obligations, covenants and liabilities
hereunder, and, unless the other party otherwise consents, the assigning
party shall not be relieved of such obligations, covenants and
liabilities as a result of such assignment. The assigning party shall
provide notice to the other party of any such assignment or sale not
later than ten (10) days prior to such assignment or sale setting forth
the identity and address of the assignee or purchaser and other terms of
such assignment.
ARTICLE XIV.
MISCELLANEOUS PROVISIONS
A. This Agreement, together with the exhibits attached hereto,
sets forth the entire agreement of the parties hereto with respect to
the subject matter hereof and supersedes any and all prior agreements,
understandings, promises and representations made by either party to the
other with respect thereto, including, without limitation, the
Confidential Disclosure Agreement dated January 27, 1993, between such
parties, which Agreement shall remain in full force and effect. This
Agreement may not be amended in any manner except by an instrument in
writing signed by both parties hereto.
B. In making and performing this Agreement, the parties act and
shall act at all times as independent contractors and nothing contained
in this Agreement shall be construed or
<PAGE>
implied to create an agency,
partnership or employer and employee relationship between Wave and NSC
or between either of them and any officer or employee of the other
party. At no time shall either party make commitments or incur any
charges or expenses for or in the name of the other party.
C. The invalidity or unenforceability of one or more provisions of
this Agreement shall not affect the validity or enforceability of any of
the other provisions hereof, and this Agreement shall be construed in
all respects as if such invalid or unenforceable provisions were
omitted.
D. This Agreement shall be construed and enforced in accordance
with the laws of the State of New York without regard to principles of
conflicts of laws.
E. The failure of either party to insist, in any one or more
instances, upon the performance of any of the terms, covenants or
conditions of this Agreement, shall not be construed as a waiver or
relinquishment of the future performance of any such term, covenant or
condition, but the obligations of the other party with respect to such
future performance shall continue in full force and effect.
F. The headings of the articles and sections used in this
Agreement and included for convenience only are not used in construing
or interpreting this Agreement.
G. Any notice, disclosure, consent or other communication required
to be made or given to either party hereto pursuant to this Agreement
shall be in writing and shall be deemed to have been given (1) if
personally delivered or sent by telecopier, (2) sent by nationally-
recognized overnight courier or (3) sent by registered or certified
mail, postage prepaid, return receipt requested, and addressed to such
party at its address set forth on the first page of this Agreement or to
such other address as such party shall designate by written notice,
similarly given, to the other party. Any such communication shall be
deemed to have been received (a) when delivered, if personally
delivered, sent by telecopier or sent by nationally-recognized overnight
courier and (b) on the third business day following the date on which it
is posted, if sent by mail.
H. This Agreement may be executed in more than one counterpart,
each of which shall be an original but both of which shall together
constitute but one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed as of the day and year first above written.
WAVE SYSTEMS CORP.
By /s/ Thomas Dilk
Name: Thomas Dilk
Title: Chief Financial Officer
NATIONAL SEMICONDUCTOR CORPORATION
By /s/ George M. Scalise
Name: George M. Scalise
Title: Chief Administrative Officer
<PAGE>
Exhibit A
Patents and Patent Applications
PATENT I
1. United States Patent No. 5,010,571, issued April 23, 1991,
based on Application Serial No. 07/905,775, filed September 10, 1986.
2. Australian Patent Application No. 600763, registered December
12, 1990, based on Application No. 80247/87, filed September 8, 1987.
3. Australian Patent No. 614693, registered January 17, 1992,
based on Application No. 56802/90, filed June 5, 1990.
4. Canadian Patent No. 1,296,104 issued February 18, 1992, based
on Application No. 546,253, filed September 8, 1987.
5. Denmark Patent Application No. 2547/88, filed May 9, 1988 -
Awaiting examination.
6. European Patent Application No. 87 906 513.4, filed April 21,
1988. Countries designated: Austria, Belgium, Switzerland and
Liechtenstein, Germany, France, United Kingdom, Italy, Luxembourg, The
Netherlands, Sweden - Examination in progress.
7. Japanese Patent Application No. 505888/87, filed September 8,
1987 - Examination requested.
8. Norwegian Patent Application No. 88.2023, filed September 8,
1987. Awaiting examination.
PATENT II
1. United States Patent No. 4,634,808, issued July 6, 1987 based
on Application Serial No. 06/589,741, filed March 15, 1984.
2. Australian Patent No. 566316, registered 1988, based on
Application No. 39540/85, filed March 5, 1985.
<F1> The status of each patent and patent application set forth on this
Exhibit A is as of May 1, 1992.
<PAGE>
3. Canadian Patent No. 1,225,458, issued August 11, 1987, based on
Application No. 476,474, filed March 14, 1985.
4. Denmark Patent Application No. 850/85, filed February 25, 1985
- - Examination in progress.
5. European Patent No. 0155762, granted July 25, 1990, based on
Application No. 85300983.5, filed February 14, 1985. Countries elected:
Austria, Belgium, Switzerland, Germany, France, United Kingdom, Italy,
Liechtenstein, Luxembourg, Netherlands, Sweden.
6. Japanese Patent Application No. 330725/88, filed December 27,
1988. Examination in progress.
7. Norwegian Patent No. 166909, granted September 11, 1991, based
on Application No. 85,0986, filed 3/13/85.
<PAGE>
Exhibit B
NSC Intellectual Property Rights
NSC's implementation of any of the following:
(a) Rental of software;
(b) Software architectures for implementing remote metering
devices;
(c) Programmable architectures for secured chips;
(d) Design techniques and architectures for secured
semiconductors;
(e) Market strategies for horizontal markets such as Pcs and
workstations;
(f) Chip designs, maskworks, fabrication and testing methods of
highly secured semiconductor devices;
(g) Application and Built In Self Test Firmware for secured chips;
and
(h) User software which executes on Pcs and Workstations for
interfacing with the user and the secured metering boards to
implement remote encrypted information transactions, including
various APIs, INITS and other Device Level drivers which interface
to commercially available operating systems and applications
programs as well as Wave's UMS.
<PAGE>
Exhibit C
Wave Intellectual Property Rights
Wave Intellectual Property Rights are embodied in a system that
manages and monitors the flow of computer readable information from the
creator or provider of such information to an end-user. The system
includes the ability to market, rent, license or sell defined units of
information, to monitor use of such units, and to carry information and
payment therefor between providers and end users of such information.
It includes the following elements:
(i) A highly secure information metering system to permit remote
release of encrypted information to a computer system, utilizing
the methodology of the Katznelson Patent;
(ii) A secure method for transmitting encrypted keys from a UMS to
the customer computer system for decryption of the information,
using the methodology of the Katznelson Patent;
(iii) A secure method for transmitting encrypted usage information
from the meter to a UMS, or through a UMS to a secure repository
for usage information;
(iv) Methods and protocols for marketing, selling, licensing
and/or renting, and for providing or restricting access to,
information through the meter; and
(v) A UMS which includes communication protocols for the meter to
communicate with its host computer system and the UMS and an
architecture that permits the management of encryption keys and
the usage information concerning the sale or rental transactions
to be maintained securely and separately from the transaction
processing system that carries out the credit card or other type
of transaction, and permits flexible assignment of the various
functions to various organizations.
<PAGE>
Exhibit 10.2
AIRPLANE USE AGREEMENT
This Airplane Use Agreement ("Agreement") is made, entered into and
effective as of the 28th day of September, 1993, by and between National
Semiconductor Corporation, a Delaware corporation, having its principal
place of business at 2900 Semiconductor Drive, Santa Clara, CA 95051
(the "Company") and Gilbert F. Amelio, dba Aero Ventures, 13416 Middle
Fork Lane, Los Altos Hills, CA 94022 ("Amelio").
RECITALS
WHEREAS, the Company and Amelio first entered into a Letter
Agreement dated July 15, 1991 ("Letter Agreement") which, inter alia,
reimbursed Amelio for the business use of his personal airplane; and
WHEREAS, Amelio has replaced the airplane covered by the Letter
Agreement and the facts and circumstances surrounding the use of the
airplane have changed; and
WHEREAS, the Parties want to terminate the Letter Agreement and
enter into a new agreement;
NOW, THEREFORE, the Parties hereto agree as follows:
1. RECITALS. The Recitals hereinabove are made a part of the
Agreement.
2. AIRPLANE. Amelio represents and warrants that he is the
sole owner of the airplane described in Exhibit A (the "Airplane").
3. SCOPE OF AGREEMENT. This Agreement relates to the use of the
Airplane by either the Company or Amelio for Company business travel and
not to any other use of the Airplane. Both the Company and Amelio shall
be permitted to use the Airplane for travel on Company business when
such use is appropriate and is specified on a Travel Authorization
approved prior to the commencement of travel in accordance with the
Company's applicable Corporate and Finance Policies ("Authorized
Business Use"). Amelio's use of the Airplane in connection with his
performance of services for the Company shall be limited to Authorized
Business Use.
4. CONSIDERATION. Whenever the Airplane is used by either the
Company or Amelio for an Authorized Business Use,
<PAGE>
the Company will pay
to Amelio the sum of $800 per hour for actual Authorized Business Use
flying time based on the Airplane's log book. The $800.00 rate per hour
has been determined to be the present fair market value which, as such,
shall be subject to annual review. The Company shall pay directly all
other direct costs associated with the Airplane, including but not
limited to, co-pilot costs when co-pilots are used, parking and landing
fees, fees of fixed base operations, fuel and lubricant costs,
maintenance parts and labor expenses, supply expenses and pilot travel
expenses. The Company shall also assume responsibility for employment
of one co-pilot and payment for hangar rental at the San Jose,
California airport and the Company's insurance costs. Since the Company
will be directly responsible for these direct and fixed costs and the
Parties recognize that it will be difficult to allocate Amelio's
responsibility for these costs when associated with his personal use of
the Airplane, the Parties agree that Amelio will pay to the Company the
sum of $820.00 per hour for actual flying time based on the Airplane's
log book that is associated with Amelio's use of the Airplane for uses
other than Authorized Business Uses.
The Company will also reimburse Amelio for the reasonable costs of
instruction, plus $800.00 per hour for actual flying time on the
Airplane, required to maintain currency and proficiency, together with
the reasonable cost of medical examinations required by the FAA and/or
Company regulations. Payment and/or reimbursement to Amelio shall be
made upon submission and approval for payment of written expense reports
documenting such expenses. Payments and reimbursements hereunder shall
constitute the extent of the Company's obligation to pay Amelio for
costs of maintenance, depreciation, insurance, operation and any and all
other expenses related to or occasioned by Authorized Business Use of
the Airplane.
5. OPERATION OF THE AIRPLANE. Amelio will operate the Airplane at
all times in compliance with the Company's operating procedures and
restrictions and any and all Federal, state or local laws and
regulations applicable to the operation of the Airplane or private
aircraft in general. Without limiting the generality of the foregoing:
a. Amelio agrees not to use a Special VFR request for clearance
out of an Airport Control Zone when the official weather is reported as
requiring IFR; and
b. Amelio agrees to report all accidents or incidents (i) to the
nearest FSDO office within the time
<PAGE>
limit stipulated by Federal Air
Regulations, (ii) to the appropriate insurance representatives, and
(iii) to the Company's General Counsel.
6. PASSENGERS. Amelio understands and agrees that as a general
policy, he will not carry as passengers on Authorized Business Use any
persons who are not Company employees. To the extent there are
legitimate business purposes for exceptions, Amelio will carry such
passengers only if they have each executed and filed with the Company's
General Counsel a release, in form and substance approved in writing by
the Company's General Counsel, releasing the Company from any and all
liability arising out of such passenger accompanying Amelio on the
Airplane in connection with an Authorized Business Use.
7. INDEMNITY. Amelio hereby agrees to indemnify and hold harmless
the Company, its directors, officers, employees and other agents
(collectively, "the Indemnitees") against and from any and all
liabilities, claims, demands, losses, costs and expenses of any kind or
nature whatsoever which may be asserted against or suffered or incurred
by the Indemnitees or any of them arising out of or in connection with
Amelio's ownership, operation or use of the Airplane whether for
Authorized Business Use or any other purpose and whether in accordance
with or in breach of this Agreement. The foregoing indemnity is
specifically intended to apply whether or not any such liability, claim,
demand, loss, cost or expense may to any extent have arisen out of or
been based upon the negligence or claimed negligence of Amelio or any of
the Indemnitees. This indemnity shall survive any expiration or
cancellation of this Agreement.
8. TERM. This Agreement shall become effective as of September
28, 1993, subject to approval by the Board of Directors of the Company
and shall continue thereafter for a period of one year, subject to
renewal as agreed to by the Parties. This Agreement may be cancelled
earlier by operation of its terms or cancelled by the Company upon
notice to Amelio for reasonable cause, which reasonable cause shall
include but not be limited to (i) any breach of Amelio's obligations
under this Agreement, or (ii) the payment to Amelio by the Company under
this Agreement of a net sum exceeding $225,000 in any 12-month period.
9. AMENDMENTS. This Agreement, including those referenced rules
and policies, evidences the understanding between the Company and Amelio
with respect to use of the Airplane for Company business. It supersedes
and
<PAGE>
replaces all prior agreements and understandings, written or oral,
including the Letter Agreement, and may be amended only by a written
instrument of comparable formality.
10. CONSENT OF SPOUSE. Charlene Amelio, wife of Gilbert F.
Amelio, consents and agrees to the terms and conditions contained
herein.
11. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of
California.
/s/ GILBERT F. AMELIO
Gilbert F. Amelio dba
Aero Ventures
/s/ CHARLENE AMELIO
Charlene Ameilio
Accepted and agreed to
NATIONAL SEMICONDUCTOR CORPORATION
By /s/ JOHN M. CLARK III _
John M. Clark III
Senior Vice President, General
Counsel and Secretary
<PAGE>
EXHIBIT A
AIRPLANE
Aircraft Type: Cessna Citation II
Registration No: N550AV
Serial No.: 550-0364
Owner: Gilbert F. Amelio
<PAGE>
Exhibit 11.0
Page 1 of 1
NATIONAL SEMICONDUCTOR CORPORATION
ADDITIONAL FULLY DILUTED CALCULATION OF EARNINGS PER SHARE (Unaudited)
(in millions, except per share amounts)
Three Months Ended Nine Months Ended
------------------ ------------------
Feb. 27, Feb. 28, Feb. 27, Feb. 28,
1994 1993 (1) 1994 1993 (1)
------- ------ ------- --------
Net Income $ 63.8 $ 26.9 $ 181.6 $ 84.1
Number of shares:
Weighted average common
shares outstanding 112.1 107.5 111.3 106.9
Net additional shares
issuable from exercise
of options 9.2 8.2 9.1 8.2
Shares issuable from
assumed conversion
of preferred shares 20.4 20.4 20.4 14.4
------- ------ ------- --------
Weighted average common
shares outstanding
assuming exercise or
conversion of all
potentially dilutive
securities 141.7 136.1 140.8 129.5
======= ====== ====== ========
Income per share
assuming exercise or
conversion of all
potentially dilutive
securities $ .45 $ .20 $ 1.29 $ .65
======= ====== ===== ========
(1) This calculation is submitted in accordance with Regulation S-K
Item 601(b)(11) although it is contradictory to paragraph 40 of APB
Opinion No. 15 because it produces an anti-dilutive result for the three
and nine months ended February 28, 1993.
The status of each patent and patent application set
forth on this Exhibit A is as of May 1, 1992.
<PAGE>
