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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 (FEE REQUIRED)
For the Fiscal Year Ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____________ to _______________
COMMISSION FILE NUMBER 0-16538
MAXIM INTEGRATED PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2896096
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
120 San Gabriel Drive
Sunnyvale, California 94086
(Address of Principal Executive Offices, including Zip Code)
Registrant's telephone number, including area code: (408) 737-7600
---------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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 [ ]
The aggregate market value of the voting stock held by nonaffiliates of
the registrant as of August 1, 1997 was approximately $3,100,000,000.
Number of shares outstanding of the registrant's Common Stock, $.001
par value, as of September 15, 1997: 64,276,009.
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DOCUMENTS INCORPORATED BY REFERENCE:
Part II - Annual Report to Stockholders for the fiscal year ended
June 30, 1997
Part III - Proxy Statement for the 1997 Annual Meeting of Stockholders
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 registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
Amendment to this Form 10-K._______
* Excludes the Common Stock held by executive officers, directors and
stockholders whose ownership exceeds 5% of the Common Stock outstanding at
August 1, 1997. Exclusion of such shares should not be construed to indicate
that each of such persons possesses the power, direct or indirect, to control
the Registrant, or that each such person is controlled by or under common
control with the Registrant.
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PART I
This Annual Report on form 10-K and the documents incorporated herein by
reference contain forward-looking statements that have been made pursuant to and
in reliance on the provisions of the Private Securities Litigation Reform Act of
1995.
Forward-looking statements may include (a) projections relevant to
future revenue, income, earnings, capital expenditures, capital structure or
other financial items (b) statements of plans or objectives of the Company's
management for future operations, including plans or objectives relating to the
Company's products or services, (c) statements of future economic performance,
and (d) statements of any assumptions underlying or relating to any of the
foregoing. Words such as "anticipates," "expects," "intends," "plan," "believe,"
"seeks," "estimates," and variations of such words and similar expressions
relating to the future operations are intended to identify forward-looking
statements.
All forward-looking statements are based on the Company's current
expectations, estimates, projections, beliefs and plans or objectives about its
business and its industry. These statements are not guarantees of future
performance and are subject to risk and uncertainty. Actual results may differ
materially from those predicted or implied in any such forward-looking
statement.
Risks and uncertainties that could cause actual results to differ
materially include those set forth throughout this Form 10-K and in the
documents incorporated herein by reference. Particular attention should be paid
to the section entitled "Risk Factors" at pages 12 through 17 below and to the
section entitled Management's Discussion and Analysis of Financial Condition and
Results of Operations in the Company's Annual Report to Stockholders, which is
incorporated herein by reference.
The Company undertakes no obligation to update any forward-looking
statement, whether as a result of new information relating to existing
conditions, future events or otherwise. However, readers should carefully review
future reports and documents that the Company files from time to time with the
Securities and Exchange Commission, such as its quarterly reports on Form 10-Q
(particularly Management's Discussion and Analysis of Financial Condition and
Results of Operations) and any current reports on Form 8-K.
ITEM 1. BUSINESS
Maxim Integrated Products, Inc., ("Maxim" or the "Company") designs,
develops, manufactures, and markets a broad range of linear and mixed-signal
integrated circuits, commonly referred to as analog circuits. The Company also
provides a range of high-frequency design processes and capabilities that can be
used in custom design. The analog market is highly fragmented and characterized
by many
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diverse applications, a great number of product variations, and relatively long
product life cycles. Maxim's objective is to actively develop and market both
proprietary and industry-standard analog integrated circuits that meet the
increasingly stringent quality standards demanded by customers. Maxim operates
two Class 10 wafer fabrication facilities capable of producing 0.8 and 1.2
micron CMOS and bipolar products (see "Manufacturing" below). In addition, the
Company subcontracts the fabrication of a small portion of its silicon wafers
to outside silicon foundries. Based on product announcements by its competitors,
Maxim believes that in the past 14 years it has developed more products for the
analog market, including proprietary and second-source products, than any of
its competitors over the same period.
THE ANALOG INTEGRATED CIRCUIT MARKET
All electronic signals fall into one of two categories, linear or
digital. Linear (or analog) signals represent real world phenomena, such as
temperature, pressure, sound, or speed, and are continuously variable over a
wide range of values. Digital signals represent the "ones" and "zeros" of binary
arithmetic and are either on or off.
Three general classes of semiconductor products arise from this
partitioning of signals into linear or digital. There are those, such as
memories and microprocessors, which operate only in the digital domain. There
are linear devices such as amplifiers, references, analog multiplexers, and
switches, which operate primarily in the analog domain. Finally, there are
mixed-signal devices that combine linear and digital functions on the same
integrated circuit and interface between the analog and digital worlds. Maxim
targets the combined linear and mixed signal market, often collectively referred
to as the analog market.
The Company believes that, compared to the digital integrated circuit
market, the analog market has generally been characterized by a wider range of
standard products used in smaller quantities by a large number of customers;
longer product life cycles; less competition from Japanese and other foreign
manufacturers; lower capital requirements as a result of using more mature
manufacturing technologies; and relatively more stable growth rates that are
less influenced by economic cycles. The Company believes that the widespread
application of low-cost microprocessor-based systems has affected the market for
analog integrated circuits by increasing the need for interfaces with the analog
world.
The analog market is a highly fragmented group of niche markets, serving
numerous and widely differing applications for instrumentation, industrial
control, data processing, communications, military, video, and selected medical
equipment. For each application, different users may have unique requirements
for circuits with specific resolution, accuracy, linearity, speed, power, and
signal amplitude capability, which results in a high degree of market
complexity. Maxim's products can be used in a variety of applications but serve
only certain segments of the total analog market.
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PRODUCTS AND APPLICATIONS
The Company initially entered the analog market with a relatively narrow
portfolio of products as second sources for industry standard parts for which
there was an existing customer base. After establishing a position in the
market, the Company began to introduce technically innovative proprietary
products. Although second-sourcing continues to be a component of the Company's
product development program, current research and development emphasizes
development of proprietary circuits. The Company believes it addresses the
requirements of the market by providing competitively priced products that add
value to electronic equipment with superior quality and reliability.
As of June 30, 1997, Maxim has introduced over 1,200 products. These
products are available with numerous packaging alternatives, including packages
for surface mount technology.
The following table illustrates the major industries served by the
Company and typical applications for which the Company's products can be used:
<TABLE>
<CAPTION>
Industry Typical Application
- -------- -------------------
<S> <C>
Communications.............................Phones
* Cellular
* Cordless
Broadband Networks
Fiber Optics
Direct Broadcast TV
Cable System
Satellite Communications
Video Communications
Wireless Communications
Pagers
Central Office Switches
PBX
Transmission Systems
Industrial Control.........................Control of
* Temperature
* Flow
* Pressure
* Velocity
* Position
Robotics
Instrumentation............................Testers
Analyzers
</TABLE>
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<TABLE>
<S> <C>
Data Recorders
Measuring Instruments
* Temperature
* Pressure
* Speed
* Electrical
* Sound
* Light
Automatic Test Equipment
Data Processing............................Workstations
Personal Computers
Printers
Point of Sale Terminals
Bar-code Readers
Minicomputers
Mainframes
Disk Drives
Tape Drives
</TABLE>
The Company also sells products for military and selected medical
equipment.
While Maxim's proprietary products have received substantial market
acceptance, Maxim has experienced additional competition as Maxim's competitors
have developed second sources for Maxim's successful innovative proprietary
products. Typically in the semiconductor industry, when a proprietary product
becomes second sourced, the credibility of the original design is enhanced, and
there is an opportunity to increase total revenues as the potential customers'
reluctance to design in a sole source product is removed, but gross margins may
be adversely affected due to increased price competition.
PRODUCT QUALITY
Maxim places strong emphasis on product quality from initial design
through final quality assurance. In the product design phase, Maxim applies a
set of circuit design rules that it believes results in enhanced product
reliability. Upon receipt from Maxim's own fabrication facilities, or from
silicon foundries, a majority of processed wafers are tested for conformance
with specific parameters. Products are individually tested using specialized
test equipment and complex programs to ensure that they meet data sheet
performance levels. In addition, long-term operating life and mechanical stress
tests are performed on samples routinely to assure continued consistency.
MANUFACTURING
Once a product has been designed and released to production, Maxim uses
its
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own wafer fabrication facilities and to a small extent silicon foundries to
produce wafers. The majority of processed wafers are subjected to parametric and
functional testing at the Company's facilities. As is customary in the industry,
the Company ships most of its processed wafers to foreign assembly
subcontractors, located in the Philippines, Malaysia, and South Korea, where
wafers are separated into individual integrated circuits and assembled into a
variety of packages.
During fiscal 1997, Maxim completed construction of a 141,000 square
foot manufacturing facility in the Philippines. At the present time, this
facility is operating as Maxim's offshore test facility, testing the majority of
Maxim's packaged units. The rest of the packaged units are tested at Maxim upon
receipt from an assembly subcontractor. At some time in the future the
Philippines facility may also be used for part of Maxim's assembly requirements
in addition to, or in place of, assembly subcontractors.
The broad range of products demanded by the analog integrated circuit
market requires multiple manufacturing process technologies. Nineteen different
process technologies are currently used for wafer fabrication of the Company's
products. Historically, wafer fabrication of analog integrated circuits has not
required the state-of-the-art processing equipment necessary for the fabrication
of advanced digital integrated circuits although newer processes do utilize and
require some of these facilities and equipment.
In addition, hybrid products are manufactured using a complex multi-chip
technology featuring thin-film, thick-film, and laser-trimmed resistors.
For redundant supply for the majority of these technologies in multiple
fabrication lines, the Company relies on its two geographically remote
fabrication facilities and, to a small extent, manufacturing subcontractors. The
Company currently uses 4 subcontract silicon foundries which represent less than
8% of wafer production. Each of the subcontractors currently used by Maxim is
unrelated to Maxim.
In December 1989, the Company acquired a wafer fabrication facility
capable of producing 3 micron CMOS and bipolar products. Maxim leased the
building housing the facility and purchased all manufacturing assets required
for its manufacturing operations. In May 1994, the Company acquired a
mixed-class wafer fabrication facility capable of producing CMOS and bipolar
products (see "Item 2. Properties" below).
As is typical in the semiconductor industry, the Company has experienced
disruptions in the supply of processed wafers due to quality problems or failure
to achieve satisfactory electrical yields. Procurement from foundries is done by
both purchase orders and long-term contracts. If the foundries used by the
Company and its own internal wafer fabs are unable or unwilling to produce
adequate supplies of processed wafers conforming to the Company's quality
standards, the Company's
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business and relationships with its customers may be adversely affected.
SALES AND MARKETING
In the United States and Canada, the Company sells its products through
a direct sales and applications organization comprised of 10 regional sales
offices and through distribution. The distribution portion is through 4 national
and 5 regional and/or specialist distributors with a combined total of
approximately 155 locations. As is customary in the industry, domestic
distributors are entitled to certain price rebates and limited product return
privileges.
International sales are conducted by 10 Maxim sales offices and 33 sales
representative organizations and distributors consisting of 46 office locations.
The Company sells in both United States dollars and local currency. Over half of
the Company's international sales are billed and payable in United States
dollars and are therefore not directly subject to currency exchange
fluctuations. A portion of the sales in UK, French, and German affiliates are
denominated in the local currencies. The majority of the sales to customers and
distributors located in Japan are denominated in the Yen. The Company places
foreign currency forward contracts to protect the United States dollar value of
its firm commitments and net monetary assets. Changes in the relative value of
the dollar, however, may create pricing pressures for Maxim's products. In
addition, various forms of protectionist trade legislation have been proposed in
the United States and certain foreign countries. A change in current tariff
structures or other trade policies could adversely affect the Company's foreign
marketing strategies. In general, payment terms for foreign customers,
distributors and others, are longer than for U.S. customers, and certain major
foreign customers habitually pay for product well beyond the payment dates.
As is customary in the semiconductor industry, the Company's domestic
distributors may market products competitive with Maxim's. The Company's
independent sales representatives and international distributors may not
represent competitive product lines, although they are permitted to sell
non-competing products for other companies.
International sales accounted for approximately 49%, 57% and 57% of net
revenues in fiscal 1995, 1996 and 1997, respectively. See Note 9 of "Financial
Information - Notes to Consolidated Financial Statements" set forth in the
Company's Annual Report to Stockholders for the fiscal year ended June 30, 1997.
The Company also sells product directly to certain customers. In
particular, the Company has a long-term supply arrangement with Tektronix, Inc.
for the supply of products manufactured by Tektronix prior to its sale in May
1994 of its integrated circuits operation ("ICO") to the Company and for new
designs created by Tektronix.
Due to the relatively lengthy manufacturing cycle, the Company builds
some of
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its inventory in advance of receiving orders from its customers. As a
consequence of inaccuracies inherent in forecasting, inventory imbalances
periodically occur that result in surplus amounts of some Company products and
shortages of others. Such shortages can adversely affect customer relations;
surpluses can result in larger than desired inventory levels.
As of June 30, 1997, the Company's backlog was approximately $152
million as compared to approximately $140 million at June 30, 1996. The Company
includes in its backlog customer released orders with firm schedules for
shipment within the next 12 months. As is customary in the semiconductor
industry, these orders may be canceled in most cases without penalty to the
customers. In addition, the Company's backlog includes its orders from domestic
distributors as to which revenues are not recognized until the products are sold
by the distributors. Such products when sold may result in revenue lower than
the stated backlog amounts as a result of discounts that are authorized by the
Company at the time of sale by the distributors. Accordingly, the Company
believes that its backlog at any time should not be used as a measure of future
revenues.
The Company warrants its products to its customers generally for 12
months from shipment, but in certain cases for longer periods. Warranty expense
to date has been minimal.
RESEARCH AND DEVELOPMENT
The Company believes that research and development is critical to its
future success. Objectives for the research and development function include
definition and design of innovative proprietary products that meet customer
needs, development of second-source products, design of parts for high yield and
reliability, and development of manufacturing processes to support an expanding
product line.
Research, development, and engineering expenses were approximately $42.4
million, $47.5 million and $51.3 million in fiscal 1995, 1996 and 1997,
respectively.
COMPETITION
The analog integrated circuit industry is intensely competitive, and
virtually all major semiconductor companies presently compete with, or
conceivably could compete with, some segment of the Company's business. Maxim's
primary competitors are Analog Devices, Inc. and Linear Technology Corporation.
Other competitors with respect to some of the Company's products include
Burr-Brown Corporation, Harris Corporation, Lucent Technologies, Micrel, Inc.,
Motorola, Inc., National Semiconductor Corporation, Philips Electronics N.V.,
Siliconix Incorporated, Sipex Corporation, TelCom Semiconductor, Inc., and Texas
Instruments Incorporated. While Japanese and other foreign manufacturers have
not played a major role in
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markets from which the Company currently derives the bulk of its revenue, they
possess the necessary technical and financial capabilities to participate in
these markets, and there can be no assurance that significant foreign
competition will not develop in the future. Many of Maxim's competitors have
substantially greater financial, manufacturing, and marketing resources than the
Company, and some of Maxim's competitors have greater technical resources. The
Company believes it competes favorably with these corporations primarily on the
basis of technical innovation, product definition, quality, and service. There
can be no assurance that competitive factors will not adversely affect the
Company's future business.
PATENTS, LICENSES, AND OTHER INTELLECTUAL PROPERTY RIGHTS
The Company relies primarily upon know-how, rather than on patents, to
develop and maintain its competitive position. There can be no assurance that
others will not develop or patent similar technology or reverse engineer the
Company's products or that the confidentiality agreements with employees,
consultants, silicon foundries and other suppliers and vendors will be adequate
to protect the Company's interests.
Maxim currently owns 54 U.S. patents and 22 foreign patents with
expiration dates ranging from December 1997 to March 2015. In addition, the
Company has applied for 42 U.S. patents, a large number of which have
corresponding patent applications in multiple foreign jurisdictions. It is the
Company's policy to seek patent protection for significant inventions that may
be patented, though the Company may elect, in appropriate cases, not to seek
patent protection even for significant inventions if other protection, such as
maintaining the invention as a trade secret, is considered more advantageous.
There can be no assurance that any patent will issue on pending
applications or that any patent issued will provide substantive protection for
the technology or product covered by it. In addition, the Company has registered
certain of its mask sets under the Semiconductor Chip Protection Act of 1984.
The Company believes that patent and mask work protection are of less
significance in its business than experience, innovation, and management skill.
Maxim has registered several of its trademarks with the U.S. Patent and
Trademark Office and in foreign jurisdictions.
Maxim is a party to a number of licenses, including patent licenses and
other licenses obtained from Tektronix in connection with its acquisition of
Tektronix's ICO in May 1994.
Due to the many technological developments and the technical complexity
of the semiconductor industry, it is possible that certain of the Company's
designs or processes may involve infringement of patents or other intellectual
property rights held
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by others. From time to time, the Company has received, and in the future may
receive, notice of claims of infringement by its products on intellectual
property rights of third parties. If any such infringements were to exist, the
Company might be obligated to seek a license from the holder of the rights and
might have liability for past infringement. In the past, it has been common
semiconductor industry practice for patent holders to offer licenses on
reasonable terms and rates. Although in some situations, typically where the
patent directly relates to a specific product or family of products, patent
holders have refused to grant licenses, the practice of offering licenses
appears to be generally continuing. However, no assurance can be given that the
Company will be able to obtain licenses as needed in all cases or that the terms
of any license that may be offered will be acceptable to Maxim. In those
circumstances where an acceptable license is not available, the Company would
need either to change the process or product so that it no longer infringes or
else stop manufacturing the product or products involved in the infringement.
ENVIRONMENTAL REGULATION
Federal, state, and local regulations impose a variety of environmental
controls on the storage, handling, discharge and disposal of certain chemicals
and gases used in semiconductor manufacturing. The Company's facilities have
been designed to comply with these regulations, and it believes that its
activities are conducted in material compliance with such regulations. There can
be no assurance, however, that interpretation and enforcement of current or
future environmental regulations will not impose costly requirements upon the
Company. Any failure of the Company to control adequately the storage, use and
disposal of regulated substances could result in future liabilities.
Increasing public attention has been focused on the environmental impact
of electronic 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 changes in such regulations will not
impose costly equipment or other requirements.
EMPLOYEES
As of June 30, 1997, Maxim had 2,444 employees, of which 320 were in
engineering, research and development, 1,346 in manufacturing and operations,
265 in marketing and sales, 67 in finance and administration, and 446 temporary
employees, principally in manufacturing and operations.
The supply of skilled analog designers and other engineers required for
Maxim's business is limited, and competition for such personnel is intense. The
Company's growth also requires the hiring or training of additional middle-level
managers. If the Company is unable to hire, retain, and motivate qualified
technical and management personnel, its operations and financial results will be
adversely
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affected.
None of the Company's employees is subject to a collective bargaining
agreement. The Company believes that its relations with its employees are good.
MAXTEK COMPONENTS CORPORATION
In connection with Maxim's 1994 purchase of the integrated circuits
business of Tektronix, Inc., Maxim and Tektronix jointly formed a new company,
which is equally owned, to operate Tektronix's hybrid circuit business. This
company, named Maxtek Components Corporation, is an independent company devoted
to design and production of multichip modules and hybrids. Maxtek's principal
customer, Tektronix, accounts for over 50% of its revenue. Under Maxtek's supply
agreements, all of its costs related to the Tektronix supply agreement are
reimbursed on a cost plus profit basis. High-frequency designs often require a
multitude of component technologies, and there are no monolithic IC processes
currently available that can combine the performance advantages of all disparate
technologies. High-frequency modules and hybrids are intended to combine the
optimum technologies and deliver maximum performance.
RISK FACTORS
An investment in the securities of Maxim involves certain risks. In
evaluating the Company and its business, prospective investors should give
careful consideration to the factors listed below, in addition to the
information provided elsewhere in this Annual Report on Form 10-K, in the
documents incorporated herein by reference and in other documents filed with the
Securities and Exchange Commission.
The statements contained in this Annual Report on Form 10-K which are
not purely historical are forward looking statements, including statements
regarding the Company's beliefs, expectations, plans, or intentions regarding
the future. All forward looking statements included in this document are made as
of the date hereof, based on information available to the Company as of the date
hereof, and the Company assumes no obligation to update any forward looking
statement. It is important to note that the Company's actual results could
differ materially from those in such forward looking statements. Forward looking
statements in this Annual Report on Form 10-K involve risk and uncertainty,
including risk factors discussed below.
Factors Affecting Future Operating Results
The Company's future operating results are difficult to predict and may
be affected by a number of factors.
The semiconductor market has historically been cyclical and subject to
significant economic downturns at various times. The semiconductor industry
experienced increased demand during the period through fiscal 1995, and
production
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capacity constraints affected the industry's, including Maxim's
ability to meet that demand. Then during fiscal 1996, customer demand in the
industry declined. Although more recently demand has increased again, it is
uncertain what level of demand will prevail in the future for the industry and
for the markets targeted by the Company.
Other key factors affecting the Company's revenues and operating results
that could cause actual results to differ materially from past or predicted
results include the timing of new product announcements or introductions by the
Company and its competitors, competitive pricing pressures, fluctuations in
manufacturing yields and manufacturing efficiency, adequate availability of
wafers and manufacturing capacity, changes in product mix, and economic
conditions in the United States and international markets. As a result of these
and other factors, there can be no assurance that the Company will not
experience material fluctuations in its future operating results on a quarterly
or annual basis.
The Company's ability to realize its quarterly revenue goals and
projections is affected to a significant extent by its ability to match
inventory and current production mix with the product mix required to fulfill
orders on hand and orders received within a quarter for delivery in that quarter
(referred to as "turns business"). This issue, which has been one of the
distinguishing characteristics of the analog integrated circuit industry,
results from the very large number of individual parts offered for sale (in
Maxim's case, in excess of 10,000 separate line items) combined with limitations
on the ability to forecast orders accurately and relatively lengthy
manufacturing cycles. Because of this extreme complexity in the Company's
business, no assurance can be given that the Company will achieve a match of
inventory on hand, manufacturing and shippable orders sufficient to realize
quarterly revenue goals.
Dependence on New Products and Technologies
The Company's future success will depend in part on its continued
ability to introduce new products and to develop new process technologies.
Semiconductor design and process technology are subject to rapid technological
change, requiring a high level of expenditures for research and development.
Design and process development for the analog portion of the market, in which
the Company participates, are particularly challenging. The success of new
product introductions is dependent on several factors, including proper new
product selection, timely product introduction, achievement of acceptable
production yields, and market acceptance. From time to time, Maxim has not fully
achieved its new product introduction and process development goals. For
example, increasing manufacturing capacity and efficiency in its high-frequency
processes has advanced at a slower rate than planned. There can be no assurance
that the Company will successfully develop or implement new process technologies
or that new products will be introduced on a timely basis or receive substantial
market acceptance.
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In addition, the Company's growth is dependent on its continued ability
to penetrate new markets such as the high-frequency communications segment of
the electronics market where the Company has limited experience and competition
is intense. There can be no assurance that the markets being served by the
Company will continue to grow; that the Company's existing and new products will
meet the requirements of such markets; that the Company's products will achieve
customer acceptance in such markets; that competitors will not force prices to
an unacceptably low level or take market share from the Company; or that the
Company can achieve or maintain profit in these markets.
Manufacturing Risks
The fabrication of integrated circuits is a highly complex and precise
process. Minute impurities, contaminants in the manufacturing environment,
difficulties in the fabrication process, defects in the masks used to print
circuits on a wafer, manufacturing equipment failures, wafer breakage, or other
factors can cause a substantial percentage of wafers to be rejected or numerous
die on each wafer to be nonfunctional. The Company has from time to time in the
past experienced lower than expected production yields, which have delayed
product shipments and adversely affected gross margins. There can be no
assurance that the Company will not experience a decrease in manufacturing
yields or that the Company will be able to maintain acceptable manufacturing
yields in the future.
The number of shippable die per wafer for a given product is critical to
the Company's results of operations. To the extent the Company does not achieve
acceptable manufacturing yields or experiences delays in its wafer fab, assembly
or final test operations, its results of operations could be adversely affected.
During periods of decreased demand, fixed wafer fabrication costs could have an
adverse effect on the Company's financial condition, gross margins, or results
of operations.
The Company manufactures over 90% of its products at two internal wafer
fabrication facilities. One of those fabs is currently operating at capacity.
Given the nature of the Company's products, it would be difficult to arrange for
independent manufacturing facilities to supply such products. Any prolonged
inability to utilize one of the Company's manufacturing facilities as a result
of fire, natural disaster or otherwise, would have a material adverse effect on
the Company's results of operations.
Competition
The Company experiences intense competition from a number of companies,
many of which have significantly greater financial, manufacturing and marketing
resources than the Company and some of which have greater technical resources
than the Company. To the extent that the Company's proprietary products become
more successful, competitors will offer second sources for some of those
products, possibly
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causing some erosion of profit margins. Although Japanese and other foreign
manufacturers have not played a major role in the markets from which the Company
currently derives the bulk of its revenue, they possess the necessary technical
and financial capabilities to participate in these markets, and there can be no
assurance that significant foreign competition will not develop in the future.
See "Business-Competition."
Dependence on Independent Foundries and Subcontractors
Although the Company has an internal capability to fabricate most of its
wafers, Maxim remains dependent on outside silicon foundries for a small but
important portion of its wafer fabrication. Each of the foundries currently used
by Maxim is unrelated to Maxim and are relatively small operations. As is
typical in the semiconductor industry, from time to time the Company has
experienced disruptions in the supply of processed wafers from these foundries
due to quality problems, failure to achieve satisfactory electrical yields and
capacity limitations. Procurement from foundries is done by purchase order and
long-term contracts. If these foundries are unable or unwilling to produce
adequate supplies of processed wafers conforming to the Company's quality
standards, the Company's business and relationships with its customers for the
limited quantities of products produced by these foundries would be adversely
affected if the Company were unable to find alternate sources of supply or
successfully produce the required wafers itself.
Maxim relies on subcontractors located in the Philippines, Malaysia and
South Korea to separate wafers into individual integrated circuits and package
them. The Company also performs final testing for the majority of its products
at a facility owned by the Company that is located in the Philippines. In the
past, South Korea and the Philippines have experienced relatively severe
political disorders, labor disruptions, and natural disasters. Although the
Company has been affected by these problems, none has materially affected the
Company's revenues to date. However, similar problems in the future or more
aggravated consequences of current problems could affect deliveries to Maxim of
assembled, tested product, possibly resulting in substantial delayed or lost
sales and/or increased expense. See "Business-Manufacturing."
Availability of Materials, Supplies, and Subcontract Services
The semiconductor industry has been in the midst of a very large
expansion of fabrication capacity and production worldwide. As a result of
increasing demands from semiconductor manufacturers, availability of certain
basic materials and supplies, such as polysilicon, silicon wafers, lead frames
and molding compounds, and of subcontract services, like epitaxial growth and
ion implantation, which are essential to a large portion of Maxim's production,
and assembly of integrated circuits into packages, have, within the past few
years, been in short supply and may be expected to come into short supply again
if overall industry demand increases. Maxim devotes continuous efforts to
maintaining availability of all required materials, supplies and subcontract
15
<PAGE> 16
services. However, Maxim does not have long-term agreements providing for all of
these materials, supplies and services, and shortages could occur as a result of
capacity limitations or production constraints on suppliers that could have
materially adverse effects on Maxim's ability to achieve its planned production.
Dependence on Independent Distributors and Sales Representatives
A significant portion of the Company's sales are realized through
electronics distributors and independent sales representatives that are not
under the direct control of the Company. These independent sales organizations
generally represent product lines offered by several companies and thus could
reduce their sales efforts applied to the Company's products or terminate their
representation of the Company. As noted above, payment terms for foreign
distributors are substantially longer, either according to contract or de facto,
than for U.S. customers, and the inability to collect open accounts could
adversely affect the Company's results of operation. One of Maxim's most direct
competitors, Analog Devices Inc., has attempted in past years and recently to
cause U.S. distributors to stop distributing Maxim products. Additional
terminations by significant distributors or representatives could have a
material adverse impact on the Company. See "Business-Sales and Marketing."
Protection of Proprietary Information
The Company relies primarily upon know-how, rather than on patents, to
develop and maintain its competitive position. There can be no assurance that
others will not develop or patent similar technology or reverse engineer the
Company's products or that the confidentiality agreements upon which the Company
relies will be adequate to protect its interests. Other companies have obtained
patents covering a variety of semiconductor designs and processes, and the
Company might be required to obtain licenses under some of these patents or be
precluded from making and selling the infringing products. There can be no
assurance that Maxim would be able to obtain licenses, if required, upon
commercially reasonable terms. See "Business-Patents and Licenses."
Foreign Trade and Currency Exchange
Many of the materials and manufacturing steps in the Company's products
are supplied by foreign companies or by the Company's operations abroad, such as
its test operations in the Philippines. Approximately 57% of the Company's net
revenues in fiscal 1997 were from foreign customers. Accordingly, both
manufacturing and sales of the Company's products may be adversely affected by
political or economic conditions abroad. In addition, various forms of
protectionist trade legislation have been proposed in the United States and
certain foreign countries. A change in current tariff structures or other trade
policies could adversely affect the Company's foreign manufacturing or marketing
strategies. Currency exchange fluctuations could also increase the cost of
components manufactured abroad and the cost of the Company's
16
<PAGE> 17
products to foreign customers or decrease the costs of products from the
Company's foreign competitors. See "Business-Manufacturing" and "Business-Sales
and Marketing."
Dependence on Key Personnel
The Company's success depends to a significant extent upon the continued
service of its president, John F. Gifford, its other executive officers, and key
management and technical personnel, particularly its experienced analog design
engineers, and on its ability to continue to attract, retain and motivate
qualified personnel.
The Company does not maintain any key person life insurance policy on
any such person. The competition for such employees is very intense. The loss of
the services of Mr. Gifford, or of one or more of the Company's executive
officers, design engineers, other key personnel, or the inability to continue to
attract qualified personnel, could have a material adverse effect on the
Company.
17
<PAGE> 18
ITEM 2. PROPERTIES
Maxim's headquarters are located in a 63,000 square foot building in
Sunnyvale, California, which the Company purchased in October 1987. Between
December 1989 and June 1997, the Company purchased 6 buildings adjacent to its
headquarters building in Sunnyvale with an aggregate of 95,000 square feet of
space. These buildings serve as the executive offices of the Company and also
provide space for engineering, manufacturing, administration, customer service
and other uses. In fiscal 1996, the Company acquired an approximately nine acre
parcel in Sunnyvale, California, to build a wafer fabrication facility on this
site, and construction is expected to start in fiscal 1998. In December 1989, in
connection with acquiring one of its wafer fabrication facilities, Maxim assumed
the operating lease of the 30,000 square foot building housing these assets in
Sunnyvale, California. This lease extends through November 2003 and has a
five-year lease extension option. In May 1994, Maxim purchased the Tektronix
integrated circuit operation. This facility, located in Beaverton, Oregon, on 21
acres, totals 226,000 square feet and contains 71,000 square feet of wafer
fabrication areas as well as engineering, manufacturing, and general office
space. A portion of the space is leased to unrelated parties. The Company
expects these buildings and the contiguous land to be adequate for its purposes
through fiscal 1998.
In 1997, the Company completed construction of an approximate 141,000
square foot facility at Gateway Business Park in Cavite Province, Philippines.
The facility is now operating as the Company's principal final test operation,
and in addition, it provides capacity for future assembly and other
manufacturing operations for the Company.
ITEM 3. LEGAL PROCEEDINGS
The information required by this item is incorporated by reference from
the Company's Form 10-K for the fiscal year ended June 30, 1995, under the
heading "Item 3. Legal Proceedings" and Form 10-Q for the quarterly period
ended March 31, 1996, under the heading "Item 1: Legal Proceedings."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
18
<PAGE> 19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated by reference from
the Company's Annual Report to Stockholders for the fiscal year ended June 30,
1997 under the headings "Financial Information - Financial Highlights by
Quarter" and "Corporate Data, Stockholder Information."
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference from
the Company's Annual Report to Stockholders for the fiscal year ended June 30,
1997 under the heading "Financial Information - Selected Financial Data."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is incorporated by reference from
the Company's Annual Report to Stockholders for the fiscal year ended June 30,
1997 under the heading "Financial Information - Management's Discussion and
Analysis of Financial Condition and Results of Operations."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference from
the Company's Annual Report to Stockholders for the fiscal year ended June 30,
1997 under the headings "Financial Information - Consolidated Balance Sheets, -
Consolidated Statement of Income, - Consolidated Statements of Stockholders'
Equity, - Consolidated Statement of Cash Flows, - Notes to Consolidated
Financial Statements, - Report of Ernst & Young LLP, Independent Auditors and
- - Financial Highlights by Quarter."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
19
<PAGE> 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Other than as follows, the information required by this item is
incorporated by reference from the Company's Proxy Statement for the 1997 Annual
Meeting of Stockholders under the headings "Proposal 1 - Election of Directors"
and "Compliance with Section 16(A) of the Securities Exchange Act of 1934."
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
John F. Gifford 56 President, Chief Executive Officer and
Chairman of the Board
Frederick G. Beck 60 Vice President
Ziya G. Boyacigiller 45 Vice President
Michael J. Byrd 37 Vice President and Chief
Financial Officer
Tunc Doluca 39 Vice President
Richard C. Hood 47 Vice President
Kenneth J. Huening 36 Vice President
William N. Levin 56 Vice President
Nasrollah Navid 48 Vice President
Pirooz Parvarandeh 37 Vice President
Robert F. Scheer 44 Vice President
Richard E. Slater 46 Vice President and Chief
Accounting Officer
Vijay Ullal 39 Vice President
</TABLE>
20
<PAGE> 21
Mr. Gifford, a founder of the Company, has served as Maxim's President,
Chief Executive Officer and Chairman of the Board since its incorporation in
April 1983.
Mr. Beck, a founder of the Company, has served as Vice President since
May 1983, except for a medical leave between December 1991 and January 1994.
Mr. Boyacigiller joined Maxim in June 1983 and was promoted to Vice
President in April 1995. Prior to April 1995, he served in business management
and integrated circuits design positions.
Mr. Byrd joined Maxim in February 1994 as Vice President and Chief
Financial Officer. Prior to joining Maxim he was with Ernst & Young LLP from
August 1982 to February 1994 where he held various positions, including partner.
Mr. Doluca joined Maxim in October 1984 and was promoted to Vice
President in July 1994. Prior to July 1994, he served in a number of integrated
circuit development positions.
Mr. Hood, a founder of the Company, joined the Company in June 1983 and
was promoted to Vice President in February 1997.
Mr. Huening joined Maxim in December 1983 and was promoted to Vice
President in December 1993. Prior to December 1993, he served in a number of
quality assurance positions.
Mr. Levin joined Maxim in August 1990 as Vice President. From 1987 and
until joining Maxim, he was Vice President, Program Management, for Shugart
Corporation.
Dr. Navid joined Maxim in May 1997 as Vice President. Prior to joining
Maxim, he was with Philips Semiconductors where he held various named positions.
Mr. Parvarandeh joined Maxim in August 1988 and was promoted to Vice
President in July 1997. Prior to July 1997, he served in a number of
intergrated circuits development positions.
Mr. Scheer joined Maxim in June 1983 and was promoted to Vice President
in June 1992.
Mr. Slater joined Maxim in March 1984, has served as Controller since
1986 and was promoted to Vice President in August 1990.
Mr. Ullal joined Maxim in December 1989 and was promoted to Vice
President in March 1996.
21
<PAGE> 22
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the Company's Proxy Statement for the 1997 Annual Meeting of Stockholders under
the headings "Executive Compensation" and "Performance Graph."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from
the Company's Proxy Statement for the 1997 Annual Meeting of Stockholders under
the heading "Security Ownership of Certain Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) The following financial statements are included in the Company's
1997 Annual Report to Stockholders and are incorporated herein by
reference pursuant to Item 8.
Consolidated Balance Sheets at June 30, 1997 and 1996.
Consolidated Statements of Income for each of the three years in the
period ended June 30, 1997.
Consolidated Statements of Stockholders' Equity for each of the three
years in the period ended June 30, 1997.
Consolidated Statements of Cash Flows for each of the three years in the
period ended June 30, 1997.
Notes to Consolidated Financial Statements
(a) (2) The following financial statement schedule is filed as part of this Form
10-K.
Schedule II - Valuation and Qualifying Accounts
22
<PAGE> 23
All other schedules are omitted because they are not applicable, or
because the required information is included in the consolidated
financial statements or notes thereto.
(a) (3) Exhibits. See attached Exhibit Index.
(b) Reports on Form 8-K. None
23
<PAGE> 24
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.
Date: September 25, 1997 MAXIM INTEGRATED PRODUCTS, INC.
By /s/ MICHAEL J. BYRD
Michael J. Byrd, Vice President
and Chief Financial Officer (For
the Registrant and as Principal
Financial Officer)
By /s/ RICHARD E. SLATER
Richard E. Slater, Vice President
and Chief Accounting Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, the 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
- --------- ----- ----
<S> <C> <C>
/s/ JOHN F. GIFFORD President, Chief September 25, 1997
- ----------------------- Executive Officer and
John F. Gifford Chairman of the Board
(Principal Executive
Officer)
/s/ JAMES R. BERGMAN Director September 25, 1997
- -----------------------
James R. Bergman
/s/ ROBERT F. GRAHAM Director September 25, 1997
- -----------------------
Robert F. Graham
/s/ B. KIPLING HAGOPIAN Director September 25, 1997
- -----------------------
B. Kipling Hagopian
/s/ A.R. WAZZAN Director September 25, 1997
- -----------------------
A.R. Wazzan
</TABLE>
24
<PAGE> 25
MAXIM INTEGRATED PRODUCTS, INC.
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS
(amounts in thousands)
<TABLE>
<CAPTION>
Additions
Charged
Balance at to Costs Balance at
Beginning and End
of Period Expenses Deductions(1) of Period
--------- -------- ------------- ---------
Allowance for doubtful accounts:
<S> <C> <C> <C> <C>
Year ended June 30, 1995 $ 379 $ 805 $ 39 $1,145
Year ended June 30, 1996 $ 1,145 $ 154 $ 9 $1,290
Year ended June 30, 1997 $ 1,290 $ 54 $ 0 $1,344
</TABLE>
(1)Uncollectible accounts written off.
25
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Numbered Page Description
- ------ ------------- -----------
<S> <C> <C>
3.1 0 Restated Certificate of Incorporation of the
Company as filed with the Delaware Secretary
of State on September 21, 1995
3.3 Amendment to Certificate of Incorporation
of the Company as filed with the Delaware
Secretary of State on November 28, 1995
3.4 Amended and Restated Bylaws of the Company,
as amended
10.1 X Form of the Company's Domestic Distributor
Agreement
10.2 # Form of the Company's International
Distributor Agreement
10.3 # Form of the Company's Domestic Sales
Representative Agreement
10.4 # Form of the Company's International Sales
Representative Agreement
10.5 0 Agreement dated as of July 14, 1987, amended
and restated February 1994 between John F.
Gifford and the Company(1)
10.6 X Agreement dated as of March 7, 1991 between
John F. Gifford and the Company(1)
10.8 * Form of Indemnity Agreement
10.9 Z Asset Purchase Agreement by and between the
Company and Tektronix, Inc., dated as of
March 31, 1994, as amended, with certain
</TABLE>
- ----------
(1)Management contract or compensatory plan or arrangement.
26
<PAGE> 27
<TABLE>
<S> <C> <C>
attachments(2)
10.10 0 Technology Transfer Agreement dated May 27,
1994 by and between the Company and
Tektronix, Inc.(2)
10.11 0 Incentive Stock Option Plan, as amended(1)
10.12 0 1987 Supplemental Stock Option Plan, as
amended(1)
10.13 0 Nonemployee Stock Option Plan, as amended(1)
10.14 0 1987 Employee Stock Participation Plan, as
amended(1)
10.15 P 1988 Nonemployee Director Stock Option Plan,
as amended(1)
10.16 P 1996 Stock Incentive Plan(1)
10.17 Lease Agreement with Mathilda Development
L.P., dated September 30, 1993
11.1 Statement re Computation of Income Per Common
and Common Equivalent Share
13.1 Portions of the Annual Report to Stockholders
for the fiscal year ended June 30, 1997
incorporated by reference into the Form 10-K
21 List of Subsidiaries
23 Consent of Ernst & Young LLP, Independent
Auditors
27 Financial Data Schedules
</TABLE>
- ----------
(2)Schedules and certain attachments omitted pursuant to Item 601(b) of
Registration S-K. The Company hereby undertakes to furnish supplemental copies
of any of the omitted schedules upon request by the Commission. Certain material
omitted pursuant to the request for confidential treatment by the Company.
27
<PAGE> 28
* Incorporated by Reference to the Company's Registration Statement on
Form S-1 No. 33-19561.
X Incorporated by Reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 1991.
# Incorporated by Reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 1992.
Z Incorporated by Reference to the Company's Form 8-K filed with the
Commission on June 11, 1994.
0 Incorporated by Reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 1995.
P Incorporated by Reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 1996.
28
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
OF
THE RESTATED CERTIFICATE OF INCORPORATION
OF
MAXIM INTEGRATED PRODUCTS, INC.
John F. Gifford and Anthony C. Gilbert each hereby certifies that:
1. They are the President and Secretary, respectively, of Maxim
Integrated Products, Inc., a Delaware corporation, the original Restated
Certificate of Incorporation of which was filed with the Secretary of State of
the State of Delaware on September 20, 1995.
2. Section A. of Article Fourth of the Restated Certificate of
Incorporation of this Corporation shall be amended to read in its entirety as
follows:
"A. The Corporation is authorized to issue two classes of
shares designated respectively "Common Stock" and "Preferred Stock,"
and referred to herein as Common Stock and either Preferred Stock or
Preferred Shares, respectively. The total number of shares of all
classes of stock which the Corporation has the authority to issue is
122,000,000 shares. The number of shares of Common Stock which the
Corporation is authorized to issue is 120,000,000, and the number of
shares of Preferred Stock which the Corporation is authorized to
issue is 2,000,000. Each share of Common Stock shall have a par
value of $0.001, and each share of Preferred Stock shall have a par
value of $0.001."
3. This Certificate of Amendment of the Restated Certificate of
Incorporation has been duly adopted by the Board of Directors of this
Corporation in accordance with Section 242 of the General Corporation Law of
the State of Delaware.
4. This Certificate of Amendment of Certificate of Incorporation has
been duly approved, in accordance with Section 242 of the General Corporation
Law of the State of Delaware, by a majority of the outstanding shares of
Common Stock entitled to vote thereon as a class.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned have executed this Certificate of
Amendment of the Restated Certificate of Incorporation this 28th day of
November, 1995.
/s/ John F. Gifford
----------------------------------------
JOHN F. GIFFORD, PRESIDENT
ATTEST:
/s/ Anthony C. Gilbert
- ------------------------------------
Anthony C. Gilbert, Secretary
<PAGE> 1
Exhibit 3.4
AMENDED AND RESTATED
BYLAWS
OF
MAXIM INTEGRATED PRODUCTS, INC.
(a Delaware corporation)
<PAGE> 2
EXHIBIT 3.4
ARTICLE I
Offices
Section 1. Registered Office. The registered office of the Corporation
in the State of Delaware shall be in the City of Dover, County of Kent.
Section 2. Other Offices. The Corporation shall also have and maintain
an office or principal place of business in Sunnyvale, California, or at such
other place as may be fixed by the Board of Directors, and may also have offices
at such other places, both within and without the State of Delaware as the Board
of Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE II
Corporate Seal
Section 3. Corporate Seal. The Corporate seal shall consist of a die
bearing the name of the Corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
Stockholders' Meetings
Section 4. Place of Meetings. Meetings of the stockholders of the
Corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the Corporation required to be
maintained pursuant to Section 2 hereof.
Section 5. Annual Meeting. The annual meeting of the stockholders of
the Corporation, for the purpose of election of Directors and for such other
business as may lawfully come before it shall be held on such date and at such
time as may be designated from time to time by the Board of Directors, or, if
not so designated, then at 10 o'clock A.M. on the second Thursday in November in
each year if not a legal holiday, and, if a legal holiday, at the same hour and
place on the next succeeding day not a holiday.
Section 6. Special Meetings. Special meetings of the stockholders of
the Corporation may be called at any time, for any purpose or purposes, by the
Board of Directors or by the holders of outstanding stock of the Corporation
holding at least ten (10) percent of the voting power of the Corporation.
Section 7. Notice of Meetings. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten
<PAGE> 3
(10) nor more than sixty (60) days before the date of the meeting to each
stockholder entitled to vote at such meeting, such notice to specify the place,
date and hour and purpose or purposes of the meeting. Notice of the time, place
and purpose of any meeting of stockholders may be waived in writing, signed by
the person entitled to notice thereof, either before or after such meeting, and
will be waived by any stockholder by his attendance thereat in person or by
proxy, except when the stockholder attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Any stockholder so
waiving notice of such meeting shall be bound by the proceedings of any such
meeting in all respects as if due notice thereof had been given.
Section 8. Quorum. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. Any shares, the voting of
which at said meeting has been enjoined, or which for any reason cannot be
lawfully voted at such meeting, shall not be counted to determine a quorum at
such meeting. In the absence of a quorum any meeting of stockholders may be
adjourned, from time to time, by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by law, the Certificate of Incorporation or these Bylaws, all
action taken by the holders of a majority of the voting power represented at any
meeting at which a quorum is present shall be valid and binding upon the
Corporation.
Section 9. Adjournment and Notice of Adjourned Meetings. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time by
the vote of a majority of the shares, the holders of which are present either in
person or by proxy. When a meeting is adjourned to another time or place, notice
need not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the Corporation may transact any business that might have been
transacted at the original meeting. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 10. Voting Rights. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the Corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote or execute consents shall have the right to do so either
in person or by an agent or agents authorized by a written proxy executed by
such person or his duly authorized agent, which proxy shall be filed with the
Secretary at or before the meeting at which it is to be used. An agent so
appointed need not be a stockholder. No proxy shall be voted after three (3)
years from its date of creation unless the proxy provides
2.
<PAGE> 4
for a longer period. All elections of Directors shall be by written ballot,
unless otherwise provided in the Certificate of Incorporation.
Section 11. Joint Owners of Stock. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even split for the purpose of this
subsection (c) shall be a majority or even split in interest.
Section 12. List of Stockholders. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 13. Action without Meeting.
(a) Any action required by statute to be taken at any annual or special
meeting of the stockholders, or any action which may be taken at any annual or
special meeting of the stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in writing, setting
forth the action so taken, are signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted and shall be delivered to the Corporation by delivery to
its registered office in the State of Delaware, its principal place of business
or an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
Corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested.
(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to
3.
<PAGE> 5
therein unless, within sixty (60) days of the earliest dated consent delivered
to the Corporation in the manner herein required, written consents signed by a
sufficient number of stockholders to take action are delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to a Corporation's registered office shall be by hand or
by certified or registered mail, return receipt requested.
(c) No such action by written consent may be taken following the
effectiveness of the registration of any class of securities of the Corporation
under the Securities Exchange Act of 1934, as amended.
Section 14. Organization. At every meeting of stockholders, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or, if the President is absent, the most senior Vice
President present, or in the absence of any such officer, a chairman of the
meeting chosen by a majority in interest of the stockholders entitled to vote,
present in person or by proxy, shall act as chairman. The Secretary, or, in his
absence, an Assistant Secretary directed to do so by the President, shall act as
secretary of the meeting.
ARTICLE IV
Directors
Section 15. Number and Term of Office. The number of Directors which
shall constitute the whole of the Board of Directors shall be five (5). The
number of authorized Directors may be modified from time to time by amendment of
this Bylaw in accordance with the provisions of Section 43 hereof. Except as
provided in Section 17, the Directors shall be elected by the stockholders at
their annual meeting in each year and shall hold office until the next annual
meeting and until their successors shall be duly elected and qualified, or until
their death, resignation or removal. Directors need not be stockholders unless
so required by the Certificate of Incorporation. If for any cause, the Directors
shall not have been elected at an annual meeting, they may be elected as soon
thereafter as convenient at a special meeting of the stockholders called for
that purpose in the manner provided in these Bylaws.
Section 16. Powers. The powers of the Corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
Section 17. Vacancies. Unless otherwise provided in the Certificate of
Incorporation, vacancies and newly created directorships resulting from any
increase in the authorized number of Directors may be filled by a majority of
the Directors then in office, although less than a quorum, or by a sole
remaining Director, and each Director so elected shall hold office for the
unexpired portion of the term of the Director whose place shall be vacant and
until his
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successor shall have been duly elected and qualified. A vacancy in the Board of
Directors shall be deemed to exist under this Section 17 in the case of the
death, removal or resignation of any Director, or if the stockholders fail at
any meeting of stockholders at which directors are to be elected (including any
meeting referred to in Section 19 below) to elect the number of Directors then
constituting the whole Board of Directors.
Section 18. Resignation. Any Director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more Directors shall resign from the Board of Directors, effective at a
future date, a majority of the Directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
Section 19. Removal. At a special meeting of stockholders called for
the purpose in the manner hereinabove provided, subject to the limitation set
forth in Section 141(k) of the General Corporation Law of Delaware, the Board of
Directors, or any individual Director, may be removed from office, with or
without cause, and a new Director or Directors elected by a vote of stockholders
holding a majority of the outstanding shares entitled to vote at an election of
Directors.
Section 20. Meetings.
(a) Annual Meetings. The annual meeting of the Board of Directors shall
be held immediately after the annual meeting of stockholders and at the place
where such meeting is held. No notice of an annual meeting of the Board of
Directors shall be necessary and such meeting shall be held for the purpose of
electing officers and transacting such other business as may lawfully come
before it.
(b) Regular Meetings. Except as hereinafter otherwise provided, regular
meetings of the Board of Directors shall be held at the office of the
Corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been designated by resolution of the Board of Directors or
the written consent of all Directors.
(c) Special Meetings. Unless otherwise restricted by the Certificate of
Incorporation, special meetings of the Board of Directors may be held at any
time and place within or without the State of Delaware whenever called by the
Chairman of the Board or the President or any Vice President or the Secretary of
the Corporation or any two (2) Directors.
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(d) Telephone Meetings. Any member of the Board of Directors, or of any
committee thereof, may participate in a meeting by means of conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation in a meeting by such means
shall constitute presence in person at such meeting.
(e) Notice of Meetings. Notice of the date, time and place of all
meetings of the Board of Directors, other than regular meetings held pursuant to
Section 20(a) or (b) above shall be delivered personally, orally or in writing,
or by telephone or telegraph to each Director, at least forty-eight (48) hours
before the meeting, or sent in writing to each Director by first-class mail,
charges prepaid, at least four (4) days before the meeting. Such notice may be
given by the Secretary of the Corporation or by the person or persons who called
a meeting. Such notice need not specify the purpose of the meeting. Notice of
any meeting may be waived in writing at any time before or after the meeting and
will be waived by any Director by attendance thereat, except when the Director
attends the meeting for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened.
(f) Waiver of Notice. The transaction of all business at any meeting of
the Board of Directors, or any committee thereof, however called or noticed, or
wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present and if, either before or after
the meeting, each of the Directors not present shall sign a written waiver of
notice, or a consent to holding such meeting, or an approval of the minutes
thereof. All such waivers, consents or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
Section 21. Quorum and Voting.
(a) Quorum. Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 41(a) hereof, for which a quorum shall be one-third of the exact number
of Directors fixed from time to time in accordance with Section 15 of these
Bylaws, but not less than one (1), a quorum of the Board ofDirectors shall
consist of a majority of the exact number of Directors fixed from time to time
in accordance with Section 15 of these Bylaws, but not less than one (1);
provided, however, at any meeting whether a quorum be present or otherwise, a
majority of the Directors present may adjourn from time to time until the time
fixed for the next regular meeting of the Board of Directors, without notice
other than by announcement at the meeting.
(b) Majority Vote. At each meeting of the Board of Directors at which a
quorum is present all questions and business shall be determined by a vote of a
majority of the Directors present, unless a different vote be required by law,
the Certificate of Incorporation or these Bylaws.
Section 22. Action without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all
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members of the Board of Directors or committee, as the case may be, consent
thereto in writing, and such writing or writings are filed with the minutes of
proceedings of the Board of Directors or committee.
Section 23. Fees and Compensation. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors or any meeting of a committee of directors.
Nothing herein contained shall be construed to preclude any Director from
serving the Corporation in any other capacity as an officer, agent, employee, or
otherwise and receiving compensation therefor.
Section 24. Committees.
(a) Executive Committee. The Board of Directors may by resolution
passed by a majority of the whole Board of Directors, appoint an Executive
Committee to consist of one (1) or more members of the Board of Directors. The
Executive Committee, to the extent permitted by law and specifically granted by
the Board of Directors, shall have and may exercise when the Board of Directors
is not in session all powers of the Board of Directors in the management of the
business and affairs of the Corporation, including, without limitation, the
power and authority to declare a dividend or to authorize the issuance of stock,
except such committee shall not have the power or authority to amend the
Certificate of Incorporation, to adopt an agreement of merger or consolidation,
to recommend to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, to recommend to the
stockholders of the Corporation a dissolution of the Corporation or a revocation
of a dissolution or to amend these Bylaws.
(b) Other Committees. The Board of Directors may, by resolution passed
by a majority of the whole Board of Directors, from time to time appoint such
other committees as may be permitted by law. Such other committees appointed by
the Board of Directors shall consist of one (1) or more members of the Board of
Directors, and shall have such powers and perform such duties as may be
prescribed by the resolution or resolutions creating such committees, but in no
event shall such committee have the powers denied to the Executive Committee in
these Bylaws.
(c) Term. The members of all committees of the Board of Directors shall
serve a term coexistent with that of the Board of Directors which shall have
appointed such committee. The Board of Directors, subject to the provisions of
subsections (a) or (b) of this Section 24, may at any time increase or decrease
the number of members of a committee or terminate the existence of a committee.
The membership of a committee member shall terminate on the date of his death or
voluntary resignation. The Board of Directors may at any time for any reason
remove any individual committee member and the Board of Directors may fill any
committee vacancy created by death, resignation, removal or increase in the
number of members of the committee. The Board of Directors may designate one or
more Directors as alternate members
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of any committee, who may replace any absent or disqualified member at any
meeting of the committee, and, in addition, in the absence or disqualification
of any member of a committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
(d) Meetings. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section24 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter. Special meetings of any such
committee may be held at the principal office of the Corporation required to be
maintained pursuant to Section 2 hereof, or at any place which has been
designated from time to time by resolution of such committee or by written
consent of all members thereof, and may be called by any Director who is a
member of such committee, upon written notice to the members of such committee
of the time and place of such special meeting given in the manner provided for
the giving of written notice to members of the Board of Directors of the time
and place of special meetings of the Board of Directors. Notice of any special
meeting of any committee may be waived in writing at any time before or after
the meeting and will be waived by any Director by attendance thereat, except
when the Director attends such special meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. A majority of the
authorized number of members of any such committee shall constitute a quorum for
the transaction of business, and the act of a majority of those present at any
meeting at which a quorum is present shall be the act of such committee.
Section 25. Organization. At every meeting of the Directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the Directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
ARTICLE V
Officers
Section 26. Officers Designated. The officers of the Corporation shall
be the Chairman of the Board of Directors, the President, one or more Vice
Presidents, the Secretary and the Chief Financial Officer, all of whom shall be
elected at the annual meeting of the Board of Directors. The order of the
seniority of the Vice Presidents shall be in the order of their nomination,
unless otherwise determined by the Board of Directors. The Board of Directors
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may also appoint such other officers and agents with such powers and duties as
it shall deem necessary. The Board of Directors may assign such additional
titles to one or more of the officers as it shall deem appropriate. Any one
person may hold any number of offices of the Corporation at any one time unless
specifically prohibited therefrom by law. The salaries and other compensation of
the officers of the Corporation shall be fixed by or in the manner designated by
the Board of Directors.
Section 27. Tenure and Duties of Officers.
(a) General. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. If the office of any officer becomes vacant
for any reason, the vacancy may be filled by the Board of Directors.
(b) Duties of Chairman of the Board of Directors. The Chairman of the
Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform the duties commonly incident to his office and shall also perform
such other duties and have such other powers as the Board of Directors shall
designate from time to time.
(c) Duties of President. The President shall preside at all meetings of
the stockholders and at all meetings of the Board of Directors, unless the
Chairman of the Board of Directors has been appointed and is present. The
President shall, subject to the control of the Board of Directors and unless
otherwise determined by the Board of Directors, serve as the Chief Executive
Officer of the Corporation and shall have general supervision, direction and
control of the business and officers of the Corporation. The President shall
perform other duties commonly incident to his office and shall also perform such
other duties and have such other powers as the Board of Directors and the
Chairman of the Board, if one has been appointed, shall designate from time to
time.
(d) Duties of Vice Presidents. The Vice Presidents, in the order of
their seniority, may assume and perform the duties of the President in the
absence or disability of the President or whenever the office of President is
vacant. The Vice Presidents shall perform other duties commonly incident to
their office and shall also perform such other duties and have such other powers
as the Board of Directors or the President shall designate from time to time.
(e) Duties of Secretary. The Secretary shall attend all meetings of the
stockholders and of the Board of Directors, and shall record all acts and
proceedings thereof in the minute book of the Corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders,
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the
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absence or disability of the Secretary, and each Assistant Secretary shall
perform other duties commonly incident to his office and shall also perform such
other duties and have such other powers as the Board of Directors or the
President shall designate from time to time.
(f) Duties of Chief Financial Officer. The Chief Financial Officer
shall keep or cause to be kept the books of account of the Corporation in a
thorough and proper manner, and shall render statements of the financial affairs
of the Corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the Corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct any Assistant Chief Financial Officer to
assume and perform the duties of the Chief Financial Officer in the absence or
disability of the Chief Financial Officer, and each Assistant Chief Financial
Officer shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors or the President shall designate from time to time.
Section 28. Resignations. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective.
Section 29. Removal. Any officer may be removed from office at any
time, either with or without cause, by the vote or written consent of a majority
of the Directors in office at the time, or by any committee or superior officers
upon whom such power of removal may have been conferred by the Board of
Directors.
ARTICLE VI
Execution of Corporate Instruments and Voting
of Securities Owned by the Corporation
Section 30. Execution of Corporate Instruments. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the Corporation
any corporate instrument or document, or to sign on behalf of the Corporation
the corporate name without limitation, or to enter into contracts on behalf of
the Corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the Corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the
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Corporation, and other corporate instruments or documents requiring the
corporate seal, and certificates of shares of stock owned by the Corporation,
shall be executed, signed or endorsed by the Chairman of the Board of Directors,
the President or any Vice President, and by the Secretary or Treasurer or any
Assistant Secretary or Assistant Treasurer. All other instruments and documents
requiring the corporate signature, but not requiring the corporate seal, may be
executed as aforesaid or in such other manner as may be directed by the Board of
Directors.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the Corporation or in special accounts of the Corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Section 31. Voting of Securities Owned by the Corporation. All stock
and other securities of other Corporations owned or held by the Corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the President, or any Vice President.
ARTICLE VII
Shares of Stock
Section 32. Form and Execution of Certificates. Certificates for the
shares of stock of the Corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the Corporation shall be entitled to have a certificate signed by or in the name
of the Corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the Corporation. Where such certificate is countersigned by a transfer agent
other than the Corporation or its employee, or by a registrar other than the
Corporation or its employee, any other signature on the certificate may be a
facsimile. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the designations,
preferences, limitations, restrictions on transfer and relative rights of the
shares authorized to be issued.
Section 33. Lost Certificates. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
Corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The Corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same
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in such manner as it shall require or to give the Corporation a surety bond in
such form and amount as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen, or destroyed.
Section 34. Transfers. Transfers of record of shares of stock of the
Corporation shall be made only upon its books by the holders thereof, in person
or by attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
Section 35. Fixing Record Dates.
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
such meeting. If no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix, in advance, a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors, and which date shall not be more than ten (10) days
after the date upon which the resolution fixing the record date is adopted by
the Board of Directors. If no record date has been fixed by the Board of
Directors, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is required by law, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation by delivery to its registered office in the State
of Delaware, its principal place of business or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to
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exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which record date shall not precede the date upon
which the resolution fixing the record date is adopted, and which record date
shall be not more than sixty (60) days prior to such action. If no record date
is fixed, the record date for determining stockholders for any such purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
Section 36. Registered Stockholders. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
Other Securities of the Corporation
Section 37. Execution of Other Securities. All bonds, debentures and
other corporate securities of the Corporation, other than stock certificates,
may be signed by the Chairman of the Board of Directors, the President or any
Vice President, or such other person as may be authorized by the Board of
Directors, and the corporate seal impressed thereon or a facsimile of such seal
imprinted thereon and attested by the signature of the Secretary or an Assistant
Secretary, or the Treasurer or an Assistant Treasurer; provided, however, that
where any such bond, debenture or other corporate security shall be
authenticated by the manual signature of a trustee under an indenture pursuant
to which such bond, debenture or other corporate security shall be issued, the
signatures of the persons signing and attesting the corporate seal on such bond,
debenture or other corporate security may be the imprinted facsimile of the
signatures of such persons. Interest coupons appertaining to any such bond,
debenture or other corporate security, authenticated by a trustee as aforesaid,
shall be signed by the Treasurer or an Assistant Treasurer of the Corporation or
such other person as may be authorized by the Board of Directors, or bear
imprinted thereon the facsimile signature of such person. In case any officer
who shall have signed or attested any bond, debenture or other corporate
security, or whose facsimile signature shall appear thereon or on any such
interest coupon, shall have ceased to be such officer before the bond, debenture
or other corporate security so signed or attested shall have been delivered,
such bond, debenture or other corporate security nevertheless may be adopted by
the Corporation and issued and delivered as though the person who signed the
same or whose facsimile signature shall have been used thereon had not ceased to
be such officer of the Corporation.
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ARTICLE IX
Dividends
Section 38. Declaration of Dividends. Dividends upon the capital stock
of the Corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to law
at any regular or special meeting. Dividends may be paid in cash, in property,
or in shares of the capital stock, subject to the provisions of the Certificate
of Incorporation.
Section 39. Dividend Reserve. Before payment of any dividend, there may
be set aside out of any funds of the Corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the Corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
Fiscal Year
Section 40. Fiscal Year. Unless otherwise fixed by resolution of the
Board of Directors, the fiscal year of the Corporation shall end on the last day
of June.
ARTICLE XI
Indemnification
Section 41. Indemnification of Officers, Directors, Employees and Other
Agents.
(a) Directors. The Corporation shall indemnify its directors to the
fullest extent permitted by the Delaware General Corporation Law.
(b) Officers, Employees and Other Agents. The Corporation shall have
power to indemnify its officers, employees and other agents as set forth in the
Delaware General Corporation Law.
(c) Good Faith.
(1) For purposes of any determination under this Bylaw, a
Director, or any member of a committee designated by the Board of Directors,
shall be deemed to have acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, to have had no reasonable
cause to believe that his conduct was unlawful, if he relied in good faith upon
the records of
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the Corporation and upon such information, opinions, reports or statements
presented to the Corporation by any of the Corporation's officers or employees,
or committees of the Board of Directors, or by any other person as to matters
the Director reasonably believes are within such other person's professional or
expert competence and who has been selected with reasonable care by or on behalf
of the Corporation.
(2) The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal proceeding, that
he had reasonable cause to believe that his conduct was unlawful.
(3) The provisions of this paragraph (c) shall not be deemed
to be exclusive or to limit in any way the circumstances in which a person may
be deemed to have met the applicable standard of conduct set forth by the
Delaware General Corporation Law.
(d) Expenses. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by any Director in connection with such proceeding upon receipt of an
undertaking by or on behalf of such person to repay said amounts if it should be
determined ultimately that such person is not entitled to be indemnified under
this Bylaw or otherwise.
(e) Enforcement. Without the necessity of entering into an express
contract, all rights to indemnification and advances under this Bylaw shall be
deemed to be contractual rights and be effective to the same extent and as if
provided for in a contract between the Corporation and the Director who serves
in such capacity at any time while this Bylaw and other relevant provisions of
the Delaware General Corporation Law and other applicable law, if any, are in
effect. Any right to indemnification or advances granted by this Bylaw to a
Director shall be enforceable by or on behalf of the person holding such right
in any court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim is
made within ninety (90) days of request therefor. The claimant in such
enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting his claim. The Corporation shall be
entitled to raise by pleading as an affirmative defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
connection with any proceeding in advance of its final disposition when the
required undertaking has been tendered to the Corporation) that the claimant has
not met the standards of conduct which make it permissible under the Delaware
General Corporation Law for the Corporation to indemnify the claimant for the
amount claimed. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the Corporation (including its Board of Directors,
independent legal counsel or its stockholders) that the claimant has not met
such applicable standard of conduct,
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shall be a defense to the action or create a presumption that claimant has not
met the applicable standard of conduct.
(f) Non-Exclusivity of Rights. The rights conferred on any person by
this Bylaw shall not be exclusive of any other right which such person may have
or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The Corporation is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent permitted by the Delaware General Corporation Law.
(g) Survival of Rights. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a Director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(h) Insurance. To the fullest extent permitted by the Delaware General
Corporation Law, the Corporation, upon approval by the Board of Directors, may
purchase insurance on behalf of any person required or permitted to be
indemnified pursuant to this Bylaw.
(i) Amendments. Any repeal or modification of this Bylaw shall only be
prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the Corporation.
(j) Savings Clause. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director to the full extent
permitted by any applicable portion of this Bylaw that shall not have been
invalidated, or by any other applicable law.
(k) Certain Definitions. For the purposes of this Bylaw, the following
definitions shall apply:
(1) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement and appeal of any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.
(3) The term the "Corporation" shall include, in addition to
the resulting corporation, any constituent Corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority
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<PAGE> 18
to indemnify its directors, officers, and employees or agents, so that any
person who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(4) References to a "director," "officer," "employee," or
"agent" of the Corporation shall include, without limitation, situations where
such person is serving at the request of the Corporation as a Director, officer,
employee, trustee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
(5) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the Corporation" shall include any service as a Director,
officer, employee or agent of the Corporation which imposes duties on, or
involves services by, such Director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this Bylaw.
ARTICLE XII
Notices
Section 42. Notices.
(a) Notice to Stockholders. Whenever, under any provisions of these
Bylaws, notice is required to be given to any stockholder, it shall be given in
writing, personally or timely and duly deposited in the United States mail,
postage prepaid, and addressed to his last known post office address as shown by
the stock record of the Corporation or its transfer agent.
(b) Notice to Directors. Any notice required to be given to any
Director may be given by the method stated in subsection (e) of Section 20 of
these Bylaws except that such notice other than one which is delivered
personally shall be sent to such address as such Director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such Director.
(c) Address Unknown. If no address of a stockholder or Director be
known, notice may be sent to the office of the Corporation required to be
maintained pursuant to Section 2 hereof.
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(d) Affidavit of Mailing. An affidavit of mailing, executed by a duly
authorized and competent employee of the Corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
Director or Directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall be conclusive evidence of the
statements therein contained.
(e) Time Notices Deemed Given. All notices given by mail, as above
provided, shall be deemed to have been given as at the time of mailing and all
notices given by telegram shall be deemed to have been given as at the sending
time recorded by the telegraph company transmitting the notices.
(f) Methods of Notice. It shall not be necessary that the same method
of giving notice be employed in respect of all directors, but one permissible
method may be employed in respect of any one or more, and any other permissible
method or methods may be employed in respect of any other or others.
(g) Failure to Receive Notice. The period or limitation of time within
which any stockholder may exercise any option or right, or enjoy any privilege
or benefit, or be required to act, or within which any Director may exercise any
power or right, or enjoy any privilege, pursuant to any notice sent him in the
manner above provided, shall not be affected or extended in any manner by the
failure of such stockholder or such Director to receive such notice.
(h) Notice to Person with Whom Communication Is Unlawful. Whenever
notice is required to be given, under any provision of law or of the Certificate
of Incorporation or Bylaws of the Corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given. In the event that the action taken by the Corporation is
such as to require the filing of a certificate under any provision of the
Delaware General Corporation Law, the certificate shall state, if such is the
fact and if notice is required, that notice was given to all persons entitled to
receive notice except such persons with whom communication is unlawful.
ARTICLE XIII
Amendments
Section 43. Amendments. Except as otherwise set forth in paragraph
41(i) hereof, these Bylaws may be repealed, altered or amended or new Bylaws
adopted by the stockholders. In addition to any vote of the holders of any class
or series of stock of this Corporation required by law or by these Bylaws, the
affirmative vote of a majority of the voting power of all of the
18.
<PAGE> 20
then-outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of Directors, voting together as a single class, shall
be required to adopt, amend or repeal any provisions of the Bylaws of the
Corporation. Except as otherwise set forth in paragraph 41(i) hereof, the Board
of Directors shall also have the authority, if such authority is conferred upon
the Board of Directors by the Certificate of Incorporation, to repeal, alter or
amend these Bylaws or adopt new Bylaws (including, without limitation, the
amendment of any Bylaw setting forth the number of Directors who shall
constitute the whole Board of Directors) subject to the power of the
stockholders to change or repeal such Bylaws and provided that the Board of
Directors shall not make or alter any Bylaws fixing the qualifications,
classifications, term of office or compensation of Directors.
19.
<PAGE> 1
EXHIBIT 10.17
LEASE
THIS LEASE is made and entered into this 30th day of September 1993, by
and between MATHILDA DEVELOPMENT, a California Limited Partnership, hereinafter
called "Lessor", and MAXIM INTEGRATED PRODUCTS, a California corporation,
hereinafter called "Lessee".
W I T N E S S E T H
WHEREAS, Lessor is the owner of the property commonly described as 430
West Maude Avenue, Sunnyvale, Santa Clara County, California ("the Premises")
which has been improved with a building, parking lot, driveway, and sidewalks,
among other things;
WHEREAS, Lessee currently occupies the Premises pursuant to a sublease
dated April 19, 1988 between Saratoga Semiconductor Corporation, as Sublessee
and Zymos, Inc., now known as Appian Technology, ("Zymos") as Sublessor (the
"Sublease,") which Sublease is subject and subordinate to a lease dated
December 12, 1979, as amended, between Intermedics, Inc., now known as Sulzer
Medica, Inc., ("Intermedics") as Lessee and Lessor (the "Master Lease");
WHEREAS, the Master Lease mentioned above expires on October 31, 1998 and
Lessee desires to lease the Premises directly from Lessor on expiration of the
Master Lease provided that the lessee under the Master Lease does not exercise
its option to renew the Master Lease (which option has been waived by said
lessee, subject only to certain conditions stated in paragraph 5(c) of that
certain Recognition and Attornment Agreement; Estoppel Certificate entered
into on December 6, 1989, by and between Lessor, Lessee, Zymos, and Intermedics
(the "Recognition Agreement")); and provided further that the Sublease has not
been terminated for any reason prior to the commencement of the term of this
Lease;
NOW, THEREFORE, it is mutually agreed by and between the parties hereto as
follows:
1. Premises. Subject to the net worth conditions listed below,
Lessor hereby leases to Lessee, and Lessee hereby hires from Lessor, on the
terms and conditions hereinafter set forth, the Premises, more particularly
described in Exhibit "A", attached hereto, and incorporated herein by this
reference. Notwithstanding the above, should lessee under the Master Lease be
entitled to, and elect to, exercise its option to extend the Master Lease, this
Lease shall be null and void and neither party shall have any liability to the
other hereunder.
Between December 31, 1997 and February 1, 1998, Lessee shall deliver to
Lessor its then current financial statement, prepared in accordance with
generally accepted accounting principles and certified as accurate by Lessee's
Chief Financial Officer, (unless the financial statement is prepared by a
certified public
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accountant, in which event certification by Lessee's Chief Financial Officer
shall not be required). If such financial statement does not show Lessee to
have a net worth of at least $35 million, this Lease, at the option of Lessor,
shall be of no further force or effect and neither Lessor nor Lessee shall have
any rights or obligations hereunder.
2. Term. Provided that the Sublease has not been terminated for
any reason prior to the commencement of the term of this Lease, the term of
this Lease shall be for a period of five (5) years commencing on the first day
of November, 1998 and ending at midnight on the 31st day of October, 2003. A
termination of the Master Lease due to the default of Zymos and/or Intermedics
thereunder, followed by the mutual attornment of Lessor (as Master Lessor under
the Master Lease) and Lessee (as Sublessee under the Sublease), all as provided
in the Recognition Agreement, shall not be deemed a termination of the Sublease
under the provisions of the preceding sentence.
3. Rental.
(a) Lessee agrees to pay to Lessor as basic rental for
the Premises, monthly rent in an amount equal to the greater of (1) $26,653.42
increased by the percentage increase in the Consumer Price Index, All Urban
Consumers, San Francisco-Oakland-San Jose, All Items, 1982-84 = 100 published
by the U.S. Department of Labor ("CPI") between October, 1988 and October, 1993
(not to exceed 140%) and further increased by the percentage increase in the
CPI between October, 1993 and October, 1998 (not to exceed 140%), or (II)
Ninety-Five percent (95%) of the fair market value of the Premises, based on
the rents then being obtained for premises of comparable use and condition in
the immediate vicinity of the Premises and on otherwise comparable terms and
conditions as this Lease, except that any additional rental value due to the
presence of any equipment or improvements installed by Lessee, Saratoga
Semiconductor Corporation, Zymos, or Intermedics shall not be taken into
account when determining the fair market rental. Not less than two months prior
to the commencement of the lease term, Lessor and Lessee shall meet and attempt
to agree upon the fair market rental for the Premises. If the parties have not
agreed to the fair market rental within thirty days after meeting, the fair
market rental shall be determined by any customary and mutually acceptable
appraisal mechanism, with each party having the right to select a real estate
broker to act on its behalf. If the fair market rental has not been determined
prior to the commencement of the lease term, Lessee shall pay the base rent
payable under Clause (i) above, until the fair market rental has been
determined and thereafter shall pay the greater of the two amounts retroactive
to November 1, 1998. The following is an example of the calculation required
under Clause (i) above:
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<PAGE> 3
The CPI for October, 1988 was 122.3. If CPI for October, 1993 is 150.1
and the CPI for October, 1998 is 180.0 the basic monthly rental would be
calculated as follows;
$26,653.42 x 150.1 x 180 = $39,228.26
----- ---
122.3 150.1
(In no event could either of the fractions be greater than 1.40.)
(b) All rentals, and additional rentals, due Lessor shall be
timely paid, free from all claims and demands against Lessor of any kind,
nature or description whatsoever, and without deduction or offset, at such
place or places as may be designated from time to time by Lessor. If the Lease
term commenced other than on the first day of a calendar month, the first and
last month's rental shall be prorated accordingly.
In the event any monthly rental payment provided for heroin is not
paid within ten (10) days of the due date thereof (i.e.; on or before the tenth
day of the month), Lessee shall pay to Lessor a sum equal to any late payment
charge, or penalty, assessed by the lending institution holding any notes
secured by a Deed of Trust on the Property; provided, however, that if said
payment is actually delivered to Lessor after the tenth day of the month, but
on or before the date which is seven (7) days prior to the date of the month on
which the regular monthly payment on said note is due, which date Lessor shall
inform Lessee at commencement of the term of this Lease and promptly upon any
subsequent change thereof, Lessee shall have no such obligation, but shall be
required to pay a One Hundred Fifty Dollar ($150.00) late charge.
4. Security Deposit. No security deposit shall be required of
Lessee so long as Lessee is Maxim Integrated Products (or any entity which
controls or which is controlled by or under common control with, Maxim
Integrated Products, or results from the merger with or acquisition of, Maxim
integrated Products, or which acquires substantially all of the assets of Maxim
Integrated Products) and so long as Lessee pays all monetary sums due Lessor
within ten (10) days of the due date thereof. Should Lessee fail to pay more
than one (1) monthly rental payment or other monetary sum provided for herein
with ten (10) days of the due date thereof within any twelve (12) consecutive
month period, Lessor reserves the right to require Lessee to deposit with
Lessor Twenty Thousand Dollars ($20,000.00) as security for the full and
faithful performance of each and every term, provision, covenant and condition
of this Lease. Lessor agrees to provide written notice to Lessee upon the
first such failure. In the event Lessee defaults in respect of any of the
terms, provisions, covenants, or conditions of this Lease, including, but not
limited to the payment of rent, Lessor may use, apply or retain the whole or
any part of such security for the payment of any rent in default or for any
other sum which Lessor may spend or be required to spend by reason of Lessee's
default. Should
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<PAGE> 4
Lessee faithfully and fully comply with all of the terms, provisions, covenants
and conditions of this Lease, the security or any balance thereof shall be
returned to Lessee or, at the option of Lessor, to the last sublessee of
Lessee's interest in this Lease at the expiration of the term hereof. Lessee
shall not be entitled to any interest on said security deposit.
5. Possession. Lessee is currently in possession of the Premises,
pursuant to a sublease mentioned above.
6. Improvements. Lessee, being in possession of the Premises,
accepts the Premises and the improvements in their present condition, subject
to Lessor's obligation to repair any latent defects in the Premises at its sole
cost and expense, as provided in paragraph 12, below.
7. Purpose. Lessee agrees to use and occupy the Premises during
the term hereof for the purpose of light manufacturing and related offices for
engineering, design and related needs, and for no other purpose.
8. Uses Prohibited. Lessee shall not commit or suffer to be
committed any waste or nuisance upon the said Premises nor shall it in any way
violate any law, ordinance, rule or regulation affecting the occupancy or use
of the Premises which is, or may hereafter be, enacted or promulgated by
governmental authorities; nor shall it allow the Premises to be used for any
improper, immoral or unlawful purpose; nor shall it place any materials in the
drainage system which are damaging or loads upon the floor, walls, or ceiling
which exceed the limits established in the original design of the building. No
waste material or refuse shall be dumped upon or permitted to remain upon any
part of the leased Premises outside of the areas designated for such purposes.
No materials, supplies, equipment, finished product or semi-finished project,
nor materials or articles of any nature shall be put upon or permitted to
remain upon any portion of the leased Premises outside of the areas designated
for such purpose or the building proper.
9. Acceptance of Premises and Covenant to Surrender. Lessee,
being in possession of the Premises, accepts the Premises as being in good and
sanitary order, condition and repair, and accepts the building and other
improvements in their present condition, subject to Lessor's obligation to
repair any latent defects in the Premises at its whole cost and expense, as
provided in paragraph 12, below.
On the last day of the term hereof or on the sooner termination of the
Lease, Lessee agrees to surrender said Premises unto Lessor in good condition
and repair, reasonable wear and tear excepted, except as otherwise provided
herein. The Lessee also agrees to surrender to Lessor all alterations,
additions, or improvements which may have been made in, to or on the Premises
by Lessee, except as otherwise provided in this Lease. Lessee, on or before the
end of the term or sooner termination of this Lease, shall remove all
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<PAGE> 5
This or its personal property and trade fixtures from the Premises, and all
property not so removed shall be deemed to be abandoned by Lessee. Any property
so abandoned shall be removed by Lessee from the Premises, at Lessor's option,
within five days of Lessor's request, or, should Lessee fail to remove same,
Lessee shall pay Lessor for the actual costs expended by Lessor in removing the
property. If the Premises be not surrendered at the end of the term or sooner
termination of this Lease, Lessee shall indemnify Lessor against loss or
liability resulting from delay by Lessee in so surrendering the Premises,
including, without limitation, any claims made by any succeeding tenant founded
on such delay.
Notwithstanding the preceding paragraph Lessor acknowledges that it
has no interest in the air conditioning system installed by Lessee's
predecessor which were leased by the predecessor from third parties, pursuant
to a separate lease agreement between said predecessor and such third parties
(the "Air Conditioning Lease"). Such air conditioning equipment is listed in
Exhibit 9, attached hereto and incorporated herein by this reference. It is
understood and intended by the parties that said equipment listed on Exhibit 9
is to be treated as the personal property of Lessee, subject to removal by
Lessee upon termination of the Lease as provided herein. Upon the expiration or
earlier termination of this Lease, Lessee shall be obligated to do either of
the following:
(1) install, at its own sole cost and expense, an air conditioning system in
the Premises, with specifications sufficient to meet the following minimum
standard: Design shall be for lighting, people, and other solar loads only,
providing a continuous air circulation of approximately 1 CFM per sq. ft.,
using a minimum of 5 cubic feet per minute of fresh air per person. Heating to
provide 70 degrees FDB at outside temperatures of 35 degrees FDB. Air
conditioning shall conform to standard of ASHRAE. Inside design shall be 78
degrees FDB at outside conditions of 87 degrees FDO, 67 degrees FWB. In the
event Federal or State regulations limit the maximum temperature for heating or
minimum temperature for cooling, and said standards are lower than those stated
above, said Federal or State regulations shall be substituted as appropriate in
these specifications. Such replacement air conditioning system shall, upon
installation by Lessee in the Premises, become and remain the sole property of
Lessor, and Lessee shall have no further obligation with respect thereto, or
(2) provide for the retention by Lessor, on the Premises of the air
conditioning system previously Installed under the Air Conditioning Lease.
Lessee shall have the sole election to determine whether it will fulfill its
obligation by either (1) or (2) provided for above. In the event Lessee selects
(2) above, Lessee shall pay forthwith any unpaid balance under the Air
Conditioning Lease, and any and all liens and/or encumbrances against the
equipment shall be paid or discharged so that Lessor shall receive good title
thereto.
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10. Quiet Enjoyment by Lessee. Lessor covenants and warrants that
upon Lessee's paying the rent and observing and performing all of the terms,
covenants and conditions on Lessee's part to be observed and performed
hereunder, Lessee shall and may peaceably and quietly enjoy the Premises hereby
demised, subject, nevertheless, to the terms and conditions of this Lease.
11. Alterations and Additions. Excepting only non structural
alterations not exceeding Ten Thousand Dollars ($10,000.00) in cost for any
item of work, Lessee shall not make, or suffer to be made, any alteration or
addition to said Premises, or any part thereof, without the written consent of
Lessor first had and obtained by Lessee, which consent shall not be
unreasonably withheld. Any addition or alteration to the said Premises, except
movable furniture and trade fixtures, shall become, at the option of Lessor, a
part of the realty and belong to the Lessor. Alterations and additions which
are not to be deemed as trade fixtures shall include heating, lighting,
electrical systems, air conditioning, partitioning (except as stated below),
carpeting, or any other installation which has become an integral part of the
leased Promises. Notwithstanding the above, Lessor agrees that additions and
alterations installed by Lessee which do not become an integral part of the
leased Premises, such as, but not limited to, portable metal partitioning shall
be considered movable furniture or trade fixtures and shall remain the property
of the Lessee. Lessee agrees not to proceed to make such alterations or
additions, after having obtained consent from Lessor to do so, until two days
from the receipt of such consent, In order that Lessor may post appropriate
notices to avoid liability to contractors or material suppliers for payment of
Lessee's improvements. Lessee will at all times permit such notices to be
posted and to remain posted until the completion of the work.
12. Maintenance of Premises.
Except for latent structural defects, which Lessor shall repair at its
sole expense, Lessee shall, at its sole expense, keep and maintain said
Premises and appurtenances and every part thereof, including but not limited
to, roof, walls, glazing, sidewalks, parking areas, plumbing, electrical
systems, heating and air conditioning installations, and the exterior and
interior of the Premises in good and sanitary order, condition, and repair, and
Lessee shall be responsible for any loss or damages resulting from the
negligence or willful misconduct of the Lessee, its agents, employees or
contractors. Lessee agrees to water, maintain and replace, when necessary, any
shrubbery and landscaping provided by Lessor on the leased Premises; provided,
that Lessee's said obligation shall be appropriately limited and reduced in the
event of any shortage or reduced availability of water. Lessee hereby waives
all rights to make repairs at the expense of Lessor as
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<PAGE> 7
provided in Section 1942 of the Civil Code of the State of California, and
waives all rights provided by Section 1941 of said civil Code.
13. Abandonment. Lessee shall not vacate or abandon the Premises
at any time during the term; and if Lessee shall abandon, vacate or surrender
said Premises, or be dispossessed by process of law, any personal property
belonging to Lessee and left on the Premises shall be deemed to be abandoned,
at the option of the Lessor, except such property as may be mortgaged to
Lessor.
14. Freedom from Liens. Lessee shall not create or permit to the
created or to remain, and covenants to remove and discharge promptly, at its
cost and expense, all liens, claims, stop notices, encumbrances and charges
upon the Premises or Lessee's leasehold interest therein which arise out of the
use or occupancy of the Premises by Lessee or anyone using or occupying the
Premises with the consent or sufferance of Lessee, or by reason of labor or
materials furnished or claimed to have been furnished to Lessee for any
construction, alteration, addition or repair of any part of the Premises.
Lessee shall give Lessor ten (10) days notice prior to commencing any work on
the Premises, so that Lessor shall have reasonable time within which to post
notices of nonresponsibility.
15. Advertisements and Signs. Lessee may place or permit to be
placed, in, upon, or about the Premises any signs, advertisements, or notices
that Lessee shall determine appropriate, subject to compliance with the laws
and regulations of the applicable city or other governmental authority. Any
signs so placed on the Premises shall be placed upon the understanding and
agreement that Lessee will remove same upon termination of its tenancy herein
created, and shall repair any damage or injury to the Premises caused thereby.
Any such sign affecting the structural integrity of the building shall be
erected only upon receiving Lessor's consent, which consent shall not be
unreasonably withheld.
16. Insolvency or Bankruptcy. Either (a) the appointment of a
receiver or trustee to take possession of all or substantially all of the
assets of Lessee, provided that such appointment shall not be vacated or set
aside within thirty (30) days; or (b) a general assignment by Lessee for the
benefit of creditors; or (c) the filing of a voluntary petition in bankruptcy
by the Lessee, or a final adjudication that Lessee is bankrupt, shall
constitute a breach of this Lease by Lessee. Upon the happening of any such
event, this Lease shall at Lessor's option terminate ten (10) days after notice
of termination from Lessor to Lessee and Lessee agrees to then vacate the
Premises on the date of such termination.
17. Entry by Lessor. Upon prior written notice, Lessee shall
permit Lessor and his agents to enter into and upon said Premises, at such
times as Lessor and Lessee mutually agree, for the purpose of inspecting the
same or for the purpose of maintaining the
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building in which said Premises are situated, or for the purpose of making
repairs, alterations or additions to any other portion of said building,
including the erection and maintenance of such scaffolding, canopies, fences
and props as may be required without any rebate of rent and without any
liability to Lessee for any loss of occupation or quiet enjoyment of the
Premises thereby occasioned, provided, that Lessor shall act so as to avoid any
unnecessary interference with Lessee's business operations. Lessee shall permit
Lessor and his agents, at any time within ninety (90) days prior to the
expiration of this Lease, to place upon said Premises any usual or ordinary
"For Sale" or "For Rent" signs and exhibit the Premises to prospective tenants
at reasonable hours. Lessee shall not unreasonably refuse to agree to permit
Lessor or its agents to enter the Premises for the purposes stated herein.
18. Assignment and Subletting.
(a) Excepting only as set forth hereunder, Lessee shall
not assign this Lease, or any interest therein, and shall not sublet the said
Premises or any part thereof, or any right or privilege appurtenant thereto, or
suffer any other person (the agents and servants of Lessee excepted) to occupy
or use the said Premises, or any portion thereof, without the written consent
of Lessor first had and obtained, which consent shall not be unreasonably
withheld. A consent to one assignment, subletting, occupation or use by any
other person, shall not be deemed to be a consent to any subsequent assignment,
subletting, occupation or use by another person. Any such assignment or
subletting without such consent shall be void, and shall, at the option of the
Lessor, terminate this Lease.
This Lease shall not, nor shall any interest therein, be
assignable, as to the interest of the Lessee, by operation of law, or
otherwise, without the written consent of Lessor.
(b) In the event Lessee wishes to sublet the Premises or
any part thereof, or suffer any other person to occupy or use the said
Premises, or any portion thereof, Lessee shall so notify Lessor in writing, and
shall disclose to Lessor the identity of the proposed sublessee and the use
which the proposed sublessee intends to make of the Premises. Lessor shall,
within fifteen (15) days after such notice is given, notify Lessee in writing
whether or not Lessor consents to such sublease; failure of Lessor to so
respond shall be deemed consent. In the event Lessor shall so consent to
sublease, Lessee shall remain liable for the performance by the subleases of
the terms of this Lease, unless released from such liability by Lessor in
writing. In the event Lessor reasonably elects not to consent to such
subletting, then Lessee shall continue as lessee under all of the terms of this
Lease.
19. Surrender of Lease. The voluntary or other surrender of this
Lease by Lessee, or a mutual cancellation thereof, shall not
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<PAGE> 9
work a merger, and shall, at the option of Lessor, operate as an assignment to
him of any or all subleases or subtenancies.
20. Security. Nothing herein provided, and no security or guaranty
which may now or hereafter be furnished Lessor for the payment of the rent
herein reserved, or for the performance by Lessee of the other agreements in
this Lease contained, shall in any way constitute a bar or defense to any
action in unlawful detainer or for the recovery of the Premises which Lessor
may commence for breach of any agreement, term or condition of this Lease.
21. Transfer of Security. Any security given by.Lessee at any time
to secure the faithful performance of all or any of the covenants of this Lease
on the part of Lessee may be transferred and/or delivered by Lessor only upon
the same terms and conditions as set forth in this Lease, to the purchaser of
the reversion in the event that the reversion be sold, and thereupon Lessor
shall be discharged from any further liability in reference thereto.
22. Eminent Domain.
(a) If the whole of the Premises shall be taken or
condemned by any competent authority for any public or quasi-public use or
purpose, then the term of this Lease shall automatically end upon the date when
the possession so taken shall be required for such use or purpose, and current
rent and taxes shall be apportioned as of the date of such termination.
(b) If only part of the Premises shall be so taken and a
part thereof remains which is reasonably susceptible for occupation by Lessee
hereunder for the purposes for which Lessee has entered into this Lease, this
Lease shall, as to the part so taken, terminate as of the date when the
possession so taken shall be required, and the rent and all other sums payable
by Lessee on account of the Premises hereunder, shall be adjusted so that the
Lessee shall be required to pay for the remainder of the term only such
fraction of the basic rental as the area of the part of the improvements
remaining after such taking bears to the original area of the entire
improvements prior to such taking. If, after the taking of a portion of the
Premises, there does not remain a portion reasonably susceptible for Lessee's
occupation hereunder, this Lease shall thereupon automatically terminate in the
manner as if the whole Premises had been taken. Whether all or part of the
Premises be taken, all compensation awarded upon such taking with respect to
the real property and improvements shall go to the Lessor, and the Lessee shall
have no claim thereto, nor shall Lessee have claim against Lessor for any loss,
damage, or for any other reason alleged to result therefrom, provided, however,
that Lessee shall in no event be precluded hereby from perfecting its own claim
against the authority or taker for damages for the taking of its leasehold
interest, personal property, fixtures, or expenses incurred in, or
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as a result of, any eminent domain action.
23. Recordation. Lessee shall have the right to record a short
form memorandum of this Lease, and Lessor shall promptly execute and deliver in
recordable form such documents as may reasonable be necessary in order to
enable Lessee to do so.
24. Subordination. At Lessor's option, this Lease shall be
subordinated to any mortgage or deed of trust which is now or shall hereafter
be placed upon the Premises, and Lessee agrees to execute and deliver any
instrument, releases or other documents, without cost to it, which may be
deemed necessary to further effect the subordination of this Lease to any such
mortgage or deed of trust; provided that the mortgagee or beneficiary under
such deed of trust, prior to the commencement of the lease term or at the time
such subordination is requested, shall deliver to Lessee a written undertaking
on its behalf and on behalf of its successors and assigns to permit Lessee to
occupy the Premises under the terms of this Lease so long as Lessee is not in
default if there shall be a foreclosure or sale under such mortgage a deed of
trust, or conveyance in lieu of foreclosure or similar transfer, which
undertaking shall be binding upon any subsequent assignee or transferee of
such parties. Failure of Lessee to execute any such instruments, releases or
documents shall constitute a default hereunder.
25. Effect of Conveyance. The term "Lessor" as used in this Lease,
means only the owner for the time being of the land and building containing the
Premises, so that, in the event of any sale of said land or building, the
Lessor shall be and hereby is entirely freed and relieved of all covenants and
obligations of the Lessor hereunder thereafter accruing. If any security be
given by the Lessee to secure the faithful performance of all or any of the
covenants of this Lease on the part of Lessee, the Lessor may transfer and
deliver the security, as such, to the purchaser at any such sale, and thereupon
the Lessor shall be discharged from any further liability in reference thereto.
26. Offset Statement. Lessee shall, at any time and from time to
time, upon not Less than ten (10) days prior to request by Lessor, execute,
acknowledge and deliver to Lessor a statement certifying the date of
commencement of this Lease, that the Lease is unmodified and in full force and
effect (or if there have been any modifications, that the Lease is in full
force and effect, as modified, and stating the date of the modifications), and
further stating the dates to which the rental has been paid, and setting forth
such other matters as may reasonably be required by the Lessor. Lessor and
Lessee intend that any such statement delivered pursuant to this paragraph may
be relied upon by any mortgagee or beneficiary of a deed of trust or by any
prospective purchaser of the Premises.
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27. Waiver. The waiver by Lessor or Lessee of any breach of any
term, covenant or condition, herein contained shall not be deemed to be a
waiver of such term, covenant or condition or any subsequent breach of the same
or any other term, covenant or condition thereon contained. The subsequent
acceptance of rent hereunder by Lessor shall not be deemed to be a waiver of
any preceding breach by Lessee of any term, covenant or condition of this
Lease, other than the failure of Lessee to pay the particular rental so
accepted, regardless of Lessor's knowledge of such preceding breach at the time
of acceptance of such rent.
28. Holding Over. Any holding over after the expiration of the said
term, with the consent of Lessor, shall be construed to be a tenancy from month
to month, at a rental to be negotiated by Lessor and Lessee prior to the
expiration of said term, and shall otherwise be on the terms and conditions
herein specified, so far as applicable.
29. Litigation Guaranty. In case suit should be brought for the
possession of the Premises, for the recovery of any sum due hereunder, or
because of the breach of any other covenant herein, the losing party shall pay
to the prevailing party reasonable attorney's fees and other expenses incurred
in the litigation, which shall be deemed to have accrued on the commencement of
such action and shall be enforceable whether or not such action is prosecuted
to judgment.
30. Default. For purposes of determining rights and obligations
under this Lease, the occurrence of any one of the following events shall be
considered a breach of this Lease: (a) in the event that Lessee shall fail to
pay any one or more of said installments of rent when the same shall be due and
such default shall continue for ten (10) days after written notice thereof by
registered mail; (b) in the event an execution or other legal process is levied
upon the property of the Lessee located on the Premises or upon the interest of
the Lessee in the Lease, unless such execution or levy be discharged of record
within thirty (30) days; (c) in the event of a breach as determined pursuant to
Paragraph 16 of this Lease; (d) in the event the Lessee shall violate any of
the other terms, conditions, covenants, stipulations, or agreements on the part
of the Lessee, herein contained, and fails to remedy the same within thirty
(30) days after written notice thereof by registered mail by the Lessor to the
Lessee.
In the event of any breach of this Lease by the Lessee, as defined
above, or an abandonment of the Premises by the Lessee, the Lessor has the
option of (1) removing all persons and property from the Premises and
repossessing the Premises in which case any of the Lessee's property which the
Lessor removes from the Premises may be stored in a public warehouse or
elsewhere at the cost of, and for the account of Lessee, or (2) allowing the
Lessee to remain in full
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possession and control of the Premises. If the Lessor chooses to repossess the
Premises, the Lease will automatically terminate in accordance with provisions
of the California Civil Code, Section 1951.2. In the event of such termination
of the Lease, the Lessor may recover from the Lessee: (1) the worth at the time
of award of the unpaid rent which had been earned at the time of termination
including interest at seven percent (7%) per annum; (2) the worth at the time
of award of the amount by which the unpaid rent which would have been earned
after termination until the time of award exceeds the amount of such rental
loss that the Lessee proves could have been reasonably avoided including
interest at seven percent (7%) per annum; (3) the worth at the time of award of
the amount by which the unpaid rent for the balance of the term after the
time of award exceeds the amount of such rental loss that the Lessee proves
could be reasonably avoided; and (4) any other amount necessary to compensate
the Lessor for all the detriment proximately caused by the Lessee's failure to
perform his obligation under the Lease or which in the ordinary course of
things would be likely to result therefrom. As used herein, the phrase "worth
at the time of award" shall be defined in accordance with the provisions of the
California Civil Code, Section 1951.2(b). If the Lessor chooses not to
repossess the Premises, but allows the Lessee to remain in full possession and
control of the Premises, then in accordance with provisions of the California
Civil Code, Section 1951.4, the Lessor may treat the Lease as being in full
force and effect, and may collect from the Lessee all rents as they become due
through the termination date of the Lease as specified in the Lease. For the
purpose of this paragraph, the following do not constitute a termination of
Lessee's right to possession;
(a) Acts of maintenance or preservation or efforts to
relet the premises.
(b) The appointment of a receiver on the initiative of
the Lessor to protract his interest under this Lease.
31. Taxes. Lessee shall be liable for and shall promptly pay to
Lessor, as additional rental during the term of this Lease, all taxes, levies,
fees, water or sewer rents and charges, special assessments, and other
governmental charge of every character (herein collectively called "taxes"),
against the Premises during the term hereof. Such taxes shall be prorated
between the parties hereto for the first and last year of the lease term.
Lessee may pay any such taxes in installments if payment may be so made without
penalty. Lessee shall pay for all taxes levied against Lessee's fixtures,
equipment and personal property situated on the leased Premises, and all
additions and leasehold improvements made, added or installed by Lessee,
whether such fixtures, equipment, personal property, additions or leasehold
improvements are assessed as real or personal property. Lessor shall notify
Lessee, at least thirty
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(30) days prior to the due date, of the time on which property taxes shall be
due and payable to the taking authorities, and shall provide Lessee with a copy
of the tax bills related to the Premises. Lessee shall pay to Lessor the total
amount of such taxes not less than five (5) days prior to the date such shall
be due and payable. Lessee may contest the amount or validity of any taxes by
appropriate proceeding. However, Lessee shall promptly pay such taxes unless
such proceeding shall operate to prevent or stay the collection of the tax so
contested. Lessor, at Lessee's sole expense, shall join in any such proceeding
if any law shall so require.
32. Destruction of Premises.
(a) If ten percent (10%) or less of the Premises and the
building of which the same are a part is damaged by an uninsured peril, Lessor
shall promptly and diligently proceed to repair and restore the same to
substantially the same condition as existed prior to such damage or
destruction; provided, however, that should such damage be caused by the act,
negligence of fault or omission of any duty with respect to the same by Lessee,
its agents, servants, employees or invitees, Lessee and not Lessor shall be so
obligated to repair and restore. If the Promises are damaged by an uninsured
peril rendering more than ten percent (10%) of the Premises unusable for the
conduct of Lessee's business, Lessor may upon written notice, given to Lessee
within thirty (30) days after the occurrence of such damage, elect to terminate
this Lease; provided, however, Lessee may, within thirty (30) days after
receipt of such notice, elect to make any required repairs and/or restoration,
in which event this Lease shall remain in full force and effect, and Lessee
shall thereafter diligently proceed with such repairs and/or restoration.
During any such repairs or restoration, rent and all other amounts to be paid
by Lessee on account of the Premises shall abate in proportion to the area of
the Premises rendered not reasonably suitable for the conduct of Lessee's
business.
(b) If the Premises are damaged or destroyed by fire or
other insured peril, Lessor shall promptly and diligently proceed to repair and
restore the same to substantially the same condition as existed prior to such
damage or destruction; provided, however, that Lessor shall not be obligated to
repair and restore until either the insurer acknowledges that the loss is
covered by insurance and sufficient proceeds of such insurance are made
available to Lessor to pay the costs (including a reasonable allowance for
contractor's profit and overhead not to exceed ten percent (10%) of the repairs
and/or restoration) or the Lessee agrees to pay such costs to Lessor. If the
existing laws do not permit the restoration, either party can terminate this
Lease immediately by giving notice to the other party.
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If the cost of restoration exceeds the amount of proceeds
received from the insurance required under Paragraph 35, and Lessee has not
agreed to pay the excess cost of repairs and/or restoration to Lessor, Lessor
can elect to terminate this Lease by giving notice to Lessee within fifteen
(15) days after determining that the restoration cost will exceed the insurance
proceeds. In the case of destruction to the Premises, if Lessor elects to
terminate this Lease, Lessee, within thirty (30) days after receiving Lessor's
notice to terminate, can agree to pay to Lessor the difference between the
amount of Insurance proceeds and the cost of restoration in which case Lessor
shall restore the Premises. Lessor shall give Lessee satisfactory evidence that
all sums contributed by Lessee as provided in this paragraph have been expended
by Lessor in paying the cost of restoration.
If Lessor elects to terminate this Lease and Lessee does not
elect to contribute toward the cost of restoration as provided herein, this
Lease shall terminate and all of the proceeds of the Insurance shall be paid to
Lessor; provided, however, that in the event such proceeds shall include any
amounts paid for damage to or destruction of property belonging to Lessee,
Lessor shall within ten (10) days of receipt, pay over such amounts to Lessee in
the following manner: Out of the gross proceeds paid by insurance to Lessor,
Lessor shall retain an amount equivalent to the current replacement cost of the
building and improvements owned by Lessor; after Lessor has been so paid from
the insurance proceeds, if there remains a balance of such insurance proceeds
which represent payment for damage to or destruction of improvements added by
Lessee after the date of Lessee's occupancy of the Premises, then, to the
extent of any remaining balance of the insurance proceeds and to the extent of
Lessee's direct costs of making such added improvements, Lessor shall be
obligated to pay over to Lessee such insurance proceeds. During any such repair
or restoration described in this paragraph, rent and any other amounts to be
paid by Lessee on account of the Premises shall abate in proportion to the area
of the Premises rendered unusable by such damage or destruction; provided,
however, that Lessor shall have no liability by reason of injury to or
Interference with Lessee's business or property arising from the making of any
repairs, alterations, or improvements in or to any portion of the Premises or
in or to fixtures, appurtenances and equipment therein. If the Premises are
destroyed or substantially damaged within one year of the end of this Lease
term or a renewal period, Lessor or Lessee shall each of the option to cancel
the Lease, and all insurance proceeds on the real property shall be paid to
Lessor; provided, that if an option then exists to extend the term hereof, and
Lessee exercises such option, the parties shall proceed with repairs and
restoration as set forth above and the Lease shall not terminate except as
provided above.
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In the event Lessee shall have paid all or a portion of the
costs of any repairs or restorations for which Lessor subsequently receive
insurance proceeds, then to the extent that such insurance proceeds and
Lessee's payments exceed Lessor's cost of repair and/or restoration, Lessor
shall reimburse Lessee to the extent of Lessee's payments.
33. Waiver of Damages and Indemnification of Lessor. Lessor shall
not be liable to Lessee for any injury or damage that may result to any person
or property by or from any cause whatsoever other than the injuries or damages
caused by the negligence or misconduct of Lessor, its agents, servants,
employees; invitees, or contractors. Without limiting the generality of the
foregoing waiver, it is expressed extended to injury or damage caused by water
or vapor leakage of any character from the roof, walls, pipes, or any other
part of the Premises, or caused by gas, oil, electricity, or any other cause in
or about the Premises or the building. Lessee agrees to hold Lessor harmless
for, and to defend Lessor against, any and all claims or liability for any
death of or injury to any person or damage to any property whatsoever,
occurring in, on or about the area or facilities of the building (including
without limiting the generality of the foregoing, elevators, stairways,
passage-ways, hallways, or parking areas) excepting only to the extent that
such death, injury or damage shall be caused by the negligence or misconduct of
the Lessor, its agents, employees or contractors.
34. Waiver of Subrogation. Each of the parties hereto agrees to
waive any and all claims against the other party for any loss, to the extent
such lose is repaid by proceeds of insurance maintained by the party that
sustained the loss.
35. Insurance. Lessee shall procure and maintain in force and
effect, during the term of this Lease, policies of insurance covering the
building, improvements, and the Premises as set forth below:
(a) Such policy(ies) shall insure on a "blanket" basis
the building value and all improvements to the Premises installed by the Lessee
or the Lessor.
(b) Such insurance shall be written on a "full
replacement value basis" including a replacement cost endorsement and shall
also contain a "stipulated amount clause" or its equivalent.
(c) The insurer and terms of coverage shall be subject to
the approval of the Lessor.
(d) As a basis for continuance of the "stipulated amount
clause", Lessee shall adjust such amount annually in accordance with reasonably
acceptable industrial building cost indices for the State of California. Lessor
shall have thirty (30) days from receipt to notify Lessee of any exceptions
taken to the amount so stipulated.
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If so notified, Lessee shall cause the stipulated amount to be amended to
Lessor's reasonable requirements. Lessee acknowledges that Lessor's mortgage
lender may require an amount to be stipulated at least equal to the amount
loaned, and Lessee agrees that, if so required, such amount is reasonable.
Anything in this Lease to the contrary notwithstanding, the stipulated amount
shall not exceed the replacement value of the building and improvements.
(e) The policy(ies) written to cover the Premises shall
name the Lessor and Lessee as named insureds and any bank or other mortgage
lender with an interest in the Premises shall be included as a loss payee, and
a certified copy of the policy(ies) shall be.furnished to the Lessor.
(f) Such policy(ies) shall be written so as to insure
losses arising from all risks including, but not limited to, the perils of
fire, extended coverage (including explosion), vandalism and malicious
mischief, earthquake, collapse, liquid damage, and sprinkler leakage coverage
which sprinkler leakage coverage shall be equivalent to at least twenty-five
percent (25%) of replacement value, as determined above.
(g) The policy(ies) required under this Paragraph 35
shall expressly provide that it (they) shall not be cancelled or altered
without thirty (30) days prior written notice to the Lessor.
(h) Copies of all insurance amendments, notices and
correspondence relating to the same concerning this property shall be forwarded
to the Lessor within fifteen (15) days after receipt by Lessee.
(i) Lessee shall pay all costs and premiums for insurance
coverages required by this Paragraph 35. In the event Lessee fails to maintain
insurance or insurance is cancelled, the Lessor may procure and maintain in
force and effect during the term of this Lease, policies of insurance covering
the building, improvements and the Premises as set forth above, and Lessee
shall pay, as additional rent, all costs and premiums for insurance coverages
required by this Paragraph 35 within fifteen (15) days of Lessor's invoice of
same, which shall include a copy of such invoice to Lessor from its insurance
broker or carrier.
36. Indemnification of Lessor and Lessee's Liability Insurance.
(a) Lessee, as a material part of the consideration to be
rendered to Lessor, waives all claims against Lessor for damages to goods,
wares and merchandise, and all other personal property in, upon or about said
Premises and for injuries to persons in or about said Premises, from any cause
arising at any time except to the extent such injuries or damages are caused by
the negligence or willful misconduct of the Lessor, its agents, servants,
employees, invitees, or contractors, and Lessee will hold Lessor exempt and
harmless from any damage or injury to any person or to
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the goods, wares and merchandise and all other personal property of any person,
arising out of and in connection with the use or occupancy of the Premises by
Lessee, or from the failure of Lessee to keep the Premises in good condition
and repair except to the extent any such injuries or damages are caused by the
negligence or willful misconduct of the Lessor, its agents, servants,
employees, invitees, or contractors. Lessee shall secure and keep in force a
public liability insurance and property damage policy covering the leased
Premises, including parking areas, insuring the Lessee and naming Lessor
(Lessor's mortgage lender, if required) as additional insured(s) with regard to
Lessee's use or occupancy of the leased Premises. A copy of the said policy
shall be delivered to Lessor and the minimum limits of coverage thereto shall
be not less than $3,000,000.00 per occurrence for personal injury and for
damage to property.
(b) All policies required to be maintained by Lessee
pursuant to the terms of this Lease shall be issued by companies of recognized
financial standing authorized to do insurance business in California. Lessee
shall pay all the premiums and costs therefor and shall deliver to Lessor
annually copies of or certificates of the insurer that said policies are in
effect. Should Lessee fail to effect, maintain or renew any insurance provided
for in this Lease, or to pay any cost of premium therefor, or to deliver to
Lessor any of such policies or certificates, then in any of said events,
Lessor, at its option, but without obligation to do so, may, upon five (5) days
written notice to Lessee of its intention so to do, procure such insurance and
any sums expended by it to procure any such insurance shall be additional rent
hereunder and shall be repaid by Lessee within five (5) days following the date
on which written notice of such expenditure shall be given by Lessor to Lessee.
Lessee shall obtain a written undertaking from each insurer that cancellation
or reduction in coverage of said policy(ies) cannot be had without notification
to Lessor and any loss payee at least thirty (30) days prior thereto.
37. Utilities and Services. Lessee shall pay for all gas, heat,
light, power, telephone or other communication service, janitorial, gardener,
and garbage disposal service and all other utilities and services supplied or
required to be supplied to the Promises.
38. Option to Renew. Providing Lessee is not in default hereunder
at the time of the exercise of this option, and subject to the net worth
condition stated below, Lessee shall have the option to renew this Lease for
one additional term of five (5) years on all the same terms and conditions set
forth in this Lease, excepting that the rental due Lessor shall be determined
as hereinafter provided, and there shall be no other options to renew this
Lease. Any such renewal option shall be exercised, if at all,
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by written notice given by Lessee to Lessor not later than two hundred seventy
(270) days prior to the expiration of the Lease term. The basic monthly rental
payable during the extended term shall be the greater of (a) the basic monthly
rental during the first five (5) years of the term of this Lease increased by
the percentage increase in the CPI between October, 1998 and October, 2003;
provided, however, in no event shall the new basic monthly rental exceed one
hundred forty percent (140%) of such rental paid during the initial five (5)
year term of this Lease, nor shall the new basic monthly rental be less than
the rental paid during said period, or (b) ninety-five percent (95%) of the
then fair market rental of the Premises, as determined pursuant to Paragraph 3
above. Not less than two (2) months prior to the expiration of the initial
Lease term, Lessor and Lessee shall meet and attempt to agree upon the fair
market rental for the Premises. If the parties have not agreed to the fair
market rental after thirty days after meeting, the fair market rental shall be
determined by the same appraisal mechanism to determine the base rent payable
pursuant to Paragraph 3 above. If the fair market rental has not been
determined prior to the commencement of the extended term, Lessee shall pay
the base rent payable under Clause (a) above, until the fair market rental has
been determined.
Between December 31, 2002 and February 1, 2003, Lessee shall deliver
to Lessor its then current financial statement, prepared in accordance with
generally accepted accounting principles and certified as accurate by Lessee's
Chief Financial Officer, (unless the financial statement is prepared by a
certified public accountant, in which event certification by Lessee's Chief
Financial officer shall not be required). If such financial statement does not
show Lessee to have a net worth of at least $35 million, Lessee, shall not have
the option to extend this Lease as set forth above.
39. Notices. All notices, consents, waiver or other communications
which this Lease requires to permit either party to give to the other shall be
in writing and shall be served personally or forwarded by registered or
certified mail, return receipt requested, made upon or addressed to the
respective parties as follows:
To Lessor: Mathilda Development
c/o The Cortana Corporation
800 El Camino Real, Suite 175
Menlo Park, CA 94025
To Lessee: At Premises
Attention: Vice President
Fab Operations
with a copy to: Maxim Integrated Products
120 San Gabriel Drive
Sunnyvale, CA 94086
Attention: Mr. Max Chancellor
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and a copy to: Anthony C. Gilbert, Esq.
Cooley Godward
1 Maritime Plaza
San Francisco, CA 94111
or to such other address as may be contained in a notice from either party to
the other given pursuant to this paragraph. Notice by registered or certified
mail shall be deemed to be given forty-eight (48) hours from the time of
postmarking, if mailed within the continental limits of the United States
(excluding Alaska). Rental payments required by this Lease shall be delivered
to Lessor at Lessor's address provided in this paragraph.
40. Marginal Captions. The marginal headings or titles to the
paragraphs of this Lease are not a part of this Lease and shall have no effect
upon the construction or interpretation of any part thereof.
41. Miscellaneous.
(a) All provisions of this Lease shall be deemed and
construed to be "covenants" as though the words importing such covenants were
used in each separate paragraph hereof.
(b) This Lease shall be construed and enforced in
accordance with the laws of the State of California.
(c) This Lease and the covenants and agreements herein
contained shall bind and inure to the benefit of the parties hereto, their
heirs, successors, executors, administrators and assigns.
(d) The words "Lessor" and "Lessee" as used herein shall
include the plural as well as the singular. Words used in the neuter include
the masculine and feminine gender. If there be more than one Lessor or, Lessee
the obligations hereunder imposed upon Lessor or Lessee shall be joint and
several.
(e) Time is of the essence of the Lease. This Lease and
the obligations of the parties hereunder shall not be affected or diminished
because the Lessor is unable to fulfill any of its obligations hereunder (other
than the payment of money) or is delayed in doing so, unless such inability or
delay is caused by reason of strike or other union-related labor troubles,
civil commotion, invasion, rebellion, hostilities, military or usurped power,
sabotage, governmental regulations or controls, inability to obtain any
material, service or financing, acts of God or by any other cause beyond its
control.
42. Warranty. Lessee warrants to Lessor that Lessee conducts
business as a corporation organized in the State of California, and that said
corporation is fully empowered and legally authorized to execute this agreement
in the State of California. Lessee further warrants to Lessor that Lessee will
provide an appropriate certificate of the Corporation Secretary or copy of
Resolution of the corporate directors establishing the authority of the
officers
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to execute this document. Lessee agrees to provide Lessor copies of the
published financial statements and reports of the corporation in the same
manner as if Lessor were a shareholder of the common stock of the corporation.
43. Severability. If any term or provision of this Lease
Agreement, or the application thereof to any person or circumstance, shall, to
any extent, be invalid or unenforceable, the remainder of this Lease Agreement,
or the application of such terms or provisions to persons or circumstances
other than those to which it is invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Lease Agreement shall be valid
and enforceable to the fullest extent permitted by law.
44. Further Instruments. Lessee, at no cost or expense to Lessee,
shall execute such documents and instruments as Lessor may request as are
reasonably necessary and appropriate for governmental approval of the
subdivision of the Premises from the adjacent property owned by Lessor.
45. Entire Agreement. This Instrument contains all of the
agreements and conditions made between the parties hereto and may not be
modified orally or in any other manner than by an agreement in writing signed
by all of the parties hereto or their respective successors in interest.
46. Hazardous Materials Usage and indemnities. Lessee hereby makes
the following covenants regarding hazardous materials:
(a) Lessee shall at all times and in all material
respects comply with all federal, state and local laws, ordinances and
regulations, including, but not limited to, the Federal Water Pollution Control
Act (33 U.S.C. sec.1251, et seq.), Resource Conservation & Recovery Act (42
U.S.C. sec.6901, et seq.), Safe Drinking Water Act (42 U.S.C. sec.3000f, et
seq.), Toxic Substance Control Act (15 U.S.C. sec.2601, et seq.), the Clean Air
Act (42 U.S.C. sec.7401, et seq.), Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. sec.9601, et seq.), California
Health & Safety Code (sec.25100, et seq.; sec.39000, et seq.), California
Safe Drinking Water & Toxic Enforcement Act of 1986 (California Health & Safety
Code sec.25249.5, et seq.), California Water Code (sec.13000, et seq.), and
other comparable state and federal laws ("Hazardous Materials Laws"), relating
to the use, analysis, generation, manufacture, storage, disposal or
transportation of any "hazardous substances," "hazardous waster," "hazardous
materials" or "toxic substances" as such terms are defined under any Hazardous
Materials Laws (collectively, "Hazardous Materials").
(b) Lessee shall, at its own expense, procure, maintain
in effect and comply in all material respects with all conditions of any and
all permits, licenses, and other governmental and regulatory approvals required
for Lessee's use of Hazardous
20
<PAGE> 21
Materials on the Premises, including, without limitation, discharge of
(appropriately treated) materials or wastes into or through any sanitary sewer
serving the Premises. Lessee shall cause any and all of its Hazardous Materials
to be removed from the Premises solely in compliance with all applicable
Hazardous Materials Laws. Lessee shall in all material respects handle, treat,
deal with and manage any and all Hazardous Materials in, on, under or about the
Premises in conformity with all applicable Hazardous Materials Laws and prudent
industry practices regarding management of such Hazardous Materials. Upon
expiration or earlier termination of the term, Lessee shall cause all of its
Hazardous Materials to be removed from the Premises in accordance with and in
compliance with all applicable Hazardous Materials Laws.
(c) Lessee shall indemnify, defend (by counsel reasonably
acceptable to Lessor), protect, and hold Lessor and each of Lessor's partners,
employees, agents, attorneys, successors and assigns, free and harmless from
and against any and all claims, liabilities, penalties, forfeitures, losses or
expenses (including reasonable attorneys' fees) arising from or caused in whole
or in part, directly or indirectly, by (i) an Environmental Activity (defined
below) by Lessee, or (ii) Lessee's failure to comply with any Hazardous
Materials Law. Lessee's obligations under this paragraph shall include all
costs of any repair, cleanup or detoxification or decontamination of the
Premises, or the preparation and implementation of any closure, remedial action
or other plans in connection therewith that are required as a result of any
Environmental Activity by Lessee.
Lessor shall indemnify, defend (by counsel reasonably acceptable to
Lessee), protect, and hold Lessor and each of Lessee's partners, employees,
agents, attorneys, successors and assigns, free and harmless form and against
any and all claims, liabilities, penalties, forfeitures, losses or expenses
(including reasonable attorneys' fees) arising from or caused in whole or in
part, directly or indirectly, the occurrence of any Environmental Activity
where such Environmental Activity was not caused by Lessee. Lessor's
obligations under the preceding sentence shall extend, without limitation, to
any and all claims, liabilities, penalties, forfeitures, losses or expenses
(including reasonable attorneys' fees) arising from or caused in whole or in
part by any contamination or condition disclosed in that certain environmental
audit dated November 15, 1989, Project Number 257-1.1, prepared by Beta
Associates, Inc. Lessor's obligations under this paragraph shall include all
costs of any repair, cleanup or detoxification or decontamination of the
Premises, or the preparation and Implementation of any closure, remedial action
or other plans in connection therewith that are required as a result of any
Environmental Activity other than an Environmental Activity caused
21
<PAGE> 22
by Lessor.
The provisions of this Paragraph 46 shall survive the termination of
the Lease. "Environmental Activity" means any actual, proposed or threatened
storage, holding, existence, release, emission, discharge, generation,
processing, abatement, removal, disposition, handling or transportation of any
Hazardous Materials from, into or on the Premises, or any other activity or
occurrence that causes or would cause any such event to exist.
47. Non-Disturbance Agreements. Lessor will obtain from any
lenders now or hereafter having a secured interest in the Premises which is
prior to this Lease a form of non-disturbance agreement, in form and substance
reasonably satisfactory to Lessee, which provides that in the event of a
default by Lessor under any financing agreement with such lender or lenders,
Lessee's quiet possession of the Premises shall not be disturbed so long as
Lessee is not in default under the Lease. As used herein, "prior to this Lease"
shall mean any mortgage or deed of trust on the Premises which is recorded in
the Santa Clara County Recorder's Office prior to the date that the short form
memorandum of lease described in Paragraph 23 above is recorded.
IN WITNESS WHEREOF, the parties hereto have executed this Lease the
day and year first above written.
"LESSEE"
MAXIM INTEGRATED PRODUCTS
a California Corporation
By /S/ JOHN F. GIFFORD
------------------------------
By
------------------------------
"LESSOR"
MATHILDA DEVELOPMENT, a
California Limited Partnership
THE CORTANA CORPORATION,
Managing General Partner
By /S/ DAVID A. WOLLENBERG
------------------------------
David A. Wollenberg, President
22
<PAGE> 23
2 Trane Chillers # CMA - 025
1 Cooling Tower Model VXI -180-2
1 Cooling Tower Model VXT - 185
1 Pump Pacific Pumping Co. Model L -4095-5 - 15HP
1 NM Pacific Pumping Co. Model VL - 4095-5 - 15HP
1 Pump Pacific Pumping Co. Modal VL - 4095-5 - 5HP
1 Pump Pacific Pumping Co. Model L - 1070-5 - 7.5HP
1 Boiler Raypack Co. Model 1570
1 Exchanger Bell & Fosset Model W4-6843
1 Exhaust Fan Paramount Plastics Co. Model PPF I - 330
1 Trane # 10 Climate Changers 7.51HP
1 Trane Climate Changer 21.cc 15HP
1 Trane Climate Changer 6.cc 21HP
1 Trane Climate Changer 25.cc 20HP
1 Trane Climate Changer 73 CLCL 50HP
1 Air Pneumatic Control System
1 Scrubber Part Plastic Model H105 with
Fan Model 1330
Exhibit 9
<PAGE> 1
EXHIBIT 11.1
MAXIM INTEGRATED PRODUCTS, INC.
EXHIBIT 11.1 - COMPUTATION OF INCOME PER
COMMON AND COMMON EQUIVALENT SHARE
Three Years Ended June 30, 1997
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Weighted average shares outstanding 57,852 60,102 62,715
Add weighted average shares from
assumed exercise of options when
treasury shares are reacquired
at average stock market price 13,148 16,720 15,602
Less weighted average shares assumed
repurchased from tax benefit from
the assumed exercise of
non-qualified stock (4,498) (5,895) (5,440)
--------- --------- ---------
Weighted average shares outstanding
applicable to computation of
income per share 66,502 70,927 72,877
========= ========= =========
Net income applicable to computation of
income per share $ 38,906 $ 123,345 $ 136,974
========= ========= =========
Income per share $ 0.59 $ 1.74 $ 1.88
========= ========= =========
</TABLE>
<PAGE> 1
EXHIBIT 13.1
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
Net Revenues The Company reported net revenues of $433.7 million in fiscal
1997, $421.6 million in fiscal 1996, and $250.8 million in fiscal 1995. The
increases in net revenues related primarily to higher unit shipments resulting
from continued introduction of new proprietary products and increased market
acceptance of the Company's proprietary and second-source products. The
reduction in the revenue growth rate in fiscal 1997 was due to a worldwide
inventory correction resulting from customers' excess ordering in fiscal 1995
and 1996 when there was a perceived industry-wide shortage of integrated
circuits, including the Company's products.
[NET REVENUES GRAPH]
Approximately 57% of the Company's net revenues were derived from customers
outside the U.S., primarily in Europe and the Pacific Rim (57% in fiscal 1996
and 49% in fiscal 1995). While a majority of these sales are denominated in U.S.
dollars, the Company enters into foreign currency forward contracts to mitigate
its risk on firm commitments and net monetary assets denominated in foreign
currencies, and as a result, the impact of changes in foreign exchange rates on
revenues and the Company's results of operations for 1997 was minimal.
Gross Margin The Company's gross margin as a percentage of net revenues was
66.5%, 65.3% and 58.7% in fiscal 1997, 1996, and 1995 respectively. The
improvements in fiscal 1997 and 1996 were principally due to production
efficiencies obtained through economies of scale.
[GROSS MARGIN GRAPH]
Gross margins were adversely affected in fiscal 1995 due to an $11.7 million
charge related to the Company's program to modernize its equipment and
manufacturing facilities and approximately $2.3 million of other charges related
to the Company's conversion to 6" wafers in its Beaverton, Oregon, manufacturing
facility.
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
Research and Development The Company is continuously working to introduce new
products through its research and development efforts. Research and development
expenses were 11.8%, 11.3%, and 16.9% of net revenues in fiscal 1997, 1996, and
1995, respectively. The decline in research and development expense as a percent
of net revenues was due primarily to higher sales levels. In absolute dollars,
research and development expense increased as a result of increased headcount
and spending associated with new product development efforts.
[RESEARCH & DEVELOPMENT GRAPH]
Selling, General and Administrative Selling, general and administrative
expenses were 8.8%, 9.9%, and 19% of net revenues in fiscal 1997, 1996, and
1995, respectively. The decreased percentages were a result of the Company's
cost control measures and savings, especially in commissions, realized through
the establishment of a direct sales force in the United States during the second
half of fiscal 1996 and the absence of certain one-time costs recorded in 1995
that did not reoccur in 1996 and 1997.
[SELLING, GENERAL & ADMINISTRATIVE GRAPH]
Interest Income Interest income increased due to higher levels of invested
cash, cash equivalents, and short-term investments and also at higher average
interest rates earned by the Company. The Company's exposure to market risk for
changes in interest rates relates primarily to the Company's investment
portfolio. The Company does not use derivative financial instruments in its
investment portfolio. Under its investment policy, the Company invests
exclusively in U.S. government securities with a maturity of one year or less.
Investments mature at frequent intervals during the year at which time the funds
are available for use in the business, or for reinvestment, as cash demands
dictate. This policy is intended to eliminate default risk, market risk, and
reinvestment risk. At June 30, 1997, the Company's investment portfolio yielded
a weighted average return of 5.63% and had a weighted average maturity of 217
days.
Provision for Income Taxes The effective tax rate was 34% for fiscal 1997
compared to 35% for both fiscal 1996 and 1995. The decrease was primarily
attributable to the restoration of the Federal research and development tax
credit.
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OUTLOOK:
During Q497, backlog shippable within the next 12 months increased to $152
million from the $124 million reported at the end of Q397 and the $103 million
reported at the end of Q297 and Q197. Approximately 77% of the Q497 backlog
consists of orders that were requested for shipment in Q198.
Turns orders received in Q497 were a record $49.1 million. (Turns orders are
customer orders that are for delivery within the same quarter and may result in
revenue within the quarter if the Company has available inventory that matches
those orders.)
Net bookings increased 13% from Q397 levels to a record $156 million. While the
Company experienced net bookings growth in all geographic segments, net bookings
from direct OEM customers in the United States and Japan were the strongest.
Maxim's growth continued in all product areas, particularly those products
attractive to the very broad instrumentation, process control, networking,
communications and portable equipment markets.
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
FINANCIAL CONDITION:
Overview Total assets grew to $556.4 million at the end of fiscal 1997, up
from $417.8 million at the end of fiscal 1996. The increase is due to favorable
operating results for the year. Accounts receivable increased to $91.6 million
at the end of fiscal 1997, primarily due to an overall increase in sales volume,
and an increase in direct sales to international OEM customers which generally
have longer payment cycles. Inventory increased to $36.8 million at the end of
fiscal 1997. The increase was due to higher manufacturing production levels to
support the Company's higher revenue levels.
[CASH, CASH EQUIVALENTS & SHORT-TERM INVESTMENTS GRAPH]
Liquidity and Capital Resources The Company's primary source of funds for
fiscal 1997, 1996, and 1995 has been the net cash generated from operating
activities of approximately $187.1 million, $119.5 million, and $86.9 million,
respectively. In addition, the Company received approximately $31.2 million,
$19.7 million, and $9.8 million of proceeds from the exercises of stock options
during fiscal 1997, fiscal 1996, and fiscal 1995, respectively.
The principal uses of funds for fiscal 1997 were repurchases of $80.7 million
($27.4 million in fiscal 1996 and $11.9 million in fiscal 1995) of the Company's
common stock, and purchases of property, plant and equipment of $44.2 million
($75.1 million in fiscal 1996 and $35.6 million in fiscal 1995).
As of June 30, 1997, the Company's available funds consisted of approximately
$224 million in cash, cash equivalents, and short-term U.S. Treasury
securities.
The Company anticipates that the available funds and cash generated from
operations will be sufficient to meet cash and working capital requirements,
including its anticipated level of capital equipment expenditures, through the
end of fiscal 1998.
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
FORWARD-LOOKING INFORMATION:
Forward-looking statements in this Annual Report, including this Management's
Discussion and Analysis section, involve risk and uncertainty. There are
numerous factors that could cause the Company's actual results to differ
materially from results predicted or implied. Important factors affecting future
revenue growth include whether demand for the Company's products continues to
increase and reflects real end user demand; whether customer cancellations and
delays of outstanding orders increase; and whether the Company is able to
manufacture in a correct mix to respond to orders on hand and new orders
received in the future. All forward-looking statements included in this document
are made as of the date hereof, based on the information available to the
Company as of the date hereof, and the Company assumes no obligation to update
any forward-looking statement.
Other important factors that could cause actual results to differ materially
from those predicted include overall economic conditions; demand for electronic
products and semiconductors generally; demand for the end-user products for
which the Company's semiconductors are suited; timely availability of raw
material, equipment, supplies and services; unanticipated manufacturing
problems; technological and product development risks; competitors' actions; and
other risk factors described in the Company's filings with the Securities and
Exchange Commission.
<PAGE> 6
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
(Amounts in thousands, except share data) 1996 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 60,283 $ 18,562
Short-term investments 68,970 205,391
--------- ---------
Total cash, cash equivalents and
short-term investments 129,253 223,953
Accounts receivable (net of allowance for doubtful
accounts of $1,290 in 1996 and $1,344 in 1997) 80,664 91,642
Inventories 30,471 36,833
Deferred income taxes 20,675 21,500
Other current assets 3,488 3,079
--------- ---------
Total current assets 264,551 377,007
--------- ---------
Property, plant and equipment, at cost, less
accumulated depreciation 147,068 174,508
Other assets 6,175 4,871
--------- ---------
TOTAL ASSETS $ 417,794 $ 556,386
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 29,738 $ 25,249
Income taxes payable 19,323 10,916
Accrued salaries 12,897 16,408
Accrued expenses 11,880 16,312
Deferred income on shipments to distributors 14,531 16,336
--------- ---------
Total current liabilities 88,369 85,221
--------- ---------
Other liabilities 4,000 4,000
Deferred income taxes -- 1,600
Commitments
--------- ---------
Stockholders' equity:
Preferred stock, $0.001 par value;
Authorized: 2,000,000 shares;
Issued and outstanding: none -- --
Common stock, $0.001 par value;
Authorized: 120,000,000 shares;
Issued and outstanding: 61,445,519 shares in
1996 and 63,729,252 in 1997 62 64
Additional paid-in capital 89,939 92,837
Retained earnings 236,796 373,770
Translation adjustment (1,372) (1,106)
--------- ---------
Total stockholders' equity 325,425 465,565
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 417,794 $ 556,386
========= =========
</TABLE>
See accompanying notes.
<PAGE> 7
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended June 30,
(Amounts in thousands, except per share data) 1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net revenues $250,820 $421,626 $433,710
Cost of goods sold 103,598 146,253 145,307
Gross margin 147,222 275,373 288,403
Operating expenses:
Research and development 42,392 47,532 51,264
Selling, general and administrative 47,596 41,951 38,194
Total operating expenses 89,988 89,483 89,458
Operating income 57,234 185,890 198,945
Interest income 2,646 4,604 8,651
Interest expense 25 37 61
Income before provision
for income taxes 59,855 190,457 207,535
Provision for income taxes 20,949 67,112 70,561
Net income $ 38,906 $123,345 $136,974
Income per common and common equivalent share $ 0.59 $ 1.74 $ 1.88
Common and common equivalent shares 66,502 70,927 72,877
</TABLE>
See accompanying notes.
<PAGE> 8
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common
For the years ended June 30, Stock Additional
------------------------- Paid-In Retained Translation
(Amounts in thousands, except share data) Shares Par Value Capital Earnings Adjustment Total
---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, JUNE 30, 1994 57,346,908 $ 58 $ 55,548 $ 74,545 $ 41 $ 130,192
Exercise of stock options under
the Stock Option and Purchase
Plans 2,303,250 2 9,764 -- -- 9,766
Repurchase of common stock (777,000) -- (11,936) -- -- (11,936)
Tax benefit on exercise of non-qualified
stock options and disqualifying
dispositions under stock plans -- -- 11,520 -- -- 11,520
Translation adjustment -- -- -- -- 262 262
Net income -- -- -- 38,906 -- 38,906
---------- ----------- ----------- ----------- ----------- -----------
BALANCES, JUNE 30, 1995 58,873,158 60 64,896 113,451 303 178,710
Exercise of stock options under
the Stock Option and Purchase
Plans 3,399,361 3 19,677 -- -- 19,680
Repurchase of common stock (827,000) (1) (27,370) -- -- (27,371)
Tax benefit on exercise of non-qualified
stock options and disqualifying
dispositions under stock plans -- -- 32,736 -- -- 32,736
Translation adjustment -- -- -- -- (1,675) (1,675)
Net income -- -- -- 123,345 -- 123,345
---------- ----------- ----------- ----------- ----------- -----------
BALANCES, JUNE 30, 1996 61,445,519 62 89,939 236,796 (1,372) 325,425
Exercise of stock options under
the Stock Option and Purchase
Plans 4,224,233 4 31,204 -- -- 31,208
Repurchase of common stock (1,940,500) (2) (80,703) -- -- (80,705)
Tax benefit on exercise of non-qualified
stock options and disqualifying
dispositions under stock plans -- -- 52,397 -- -- 52,397
Translation adjustment -- -- -- -- 266 266
Net income -- -- -- 136,974 -- 136,974
---------- ----------- ----------- ----------- ----------- -----------
BALANCES, JUNE 30, 1997 63,729,252 $ 64 $ 92,837 $ 373,770 $ (1,106) $ 465,565
---------- ----------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
<PAGE> 9
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended June 30,
Increase (decrease) in cash and cash equivalents
(Amounts in thousands) 1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 38,906 $ 123,345 $ 136,974
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 11,617 12,899 17,013
Reduction of equipment value 18,046 1,344 --
Changes in assets and liabilities:
Accounts receivable (9,764) (52,950) (10,978)
Inventories (775) (11,366) (6,362)
Other current assets 1,216 (2,279) 409
Accounts payable 14,090 4,953 (4,489)
Income taxes payable 8,150 50,254 43,990
Deferred income taxes (8,431) (4,755) 775
Deferred income on shipments to distributors 465 7,020 1,805
All other accrued liabilities 13,426 (8,926) 7,943
--------- --------- ---------
Net cash provided by operating activities 86,946 119,539 187,080
--------- --------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (35,553) (75,061) (44,187)
Other non-current assets (5,224) 211 1,304
Purchase of held-to-maturity securities (67,713) (137,882) (24,313)
Purchases of available-for-sale securities -- -- (239,437)
Proceeds from maturities of held-to-maturity securities 50,781 106,241 95,122
Proceeds from sales/maturities of available-for-sale securities -- -- 32,207
--------- --------- ---------
Net cash used in investing activities (57,709) (106,491) (179,304)
--------- --------- ---------
Cash flows from financing activities:
Issuance of common stock 9,766 19,680 31,208
Principal payments on capital lease obligations (134) (40) --
Repurchase of common stock (11,936) (27,371) (80,705)
--------- --------- ---------
Net cash used in financing activities (2,304) (7,731) (49,497)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 26,933 5,317 (41,721)
Cash and cash equivalents:
Beginning of year 28,033 54,966 60,283
--------- --------- ---------
END OF YEAR $ 54,966 $ 60,283 $ 18,562
--------- --------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
--------- --------- ---------
Interest $ 24 $ 37 $ 61
Income taxes $ 25,680 $ 19,381 $ 19,967
Noncash transactions:
--------- --------- ---------
Purchase of building in exchange for payable $ 5,550 -- --
--------- --------- ---------
</TABLE>
See accompanying notes.
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations:
Maxim Integrated Products, Inc., designs, develops, manufactures, and markets
linear and mixed-signal integrated circuits. Products include data converters,
interface circuits, microprocessor supervisors, operational amplifiers, power
supplies, multiplexers, switches, battery chargers, battery management circuits,
RF circuits, fiber optic transceivers, and voltage references. Maxim Integrated
Products, Inc., is a global company with manufacturing facilities in the United
States, testing facilities in the Philippines, and sales offices throughout the
world. The Company's products are sold to customers in the data processing,
telecommunications, networking, industrial control, instrumentation, and
military markets. The Company derives more than half of its revenues from
international sales.
2. Summary of Significant Accounting Policies:
Basis of presentation:
The consolidated financial statements include the accounts of Maxim Integrated
Products, Inc., and all of its wholly owned subsidiaries. Intercompany balances
and transactions have been eliminated. Accounts denominated in foreign
currencies have been translated using the local currency as the functional
currency.
Cash equivalents and short-term investments:
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents. Short-term investments consist of U.S. Treasury
securities with original maturities beyond three months and those that will
mature within one year.
At June 30, 1997, all debt securities consist of U.S. Treasury securities
maturing within one year. Securities designated as held-to-maturity are carried
at amortized cost which approximates market value. The original cost of debt
securities in this category is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is included in investment
income. Realized gains and losses and declines in value judged to be
other-than-temporary on held-to-maturity securities are included in investment
income. Securities identified as available-for-sale are carried at fair market
value based on market quotes. Unrealized gains and losses, net of tax, on
securities in this category are reportable as a separate component of
stockholders' equity. The cost of securities sold is based on the specific
identification method. Interest earned on securities is included in investment
income.
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Derivative financial instruments held for purposes other than trading:
The Company enters into forward exchange contracts to hedge certain firm sales
commitments denominated in foreign currencies and the net monetary assets and
liabilities of its foreign subsidiaries. The purpose of the Company's foreign
currency hedging activities is to protect the Company from the risk that the
eventual dollar cash flows resulting from the sale of products to international
customers and its subsidiaries will be adversely affected by changes in exchange
rates. Gains and losses related to these contracts are deferred and included in
operating income to match with the overall gains or losses from the underlying
transactions. Any gain or loss realized from early termination of a forward
contract is included in operating income upon termination.
Inventories:
Inventories are stated at the lower of standard cost (which approximates first
in, first out) or market.
Property, plant and equipment:
Property, plant and equipment are stated at cost and depreciation is computed on
the straight line method over estimated useful lives of 1 to 40 years. Leased
machinery and equipment and leasehold improvements are amortized over the lesser
of their useful lives or the remaining term of the related lease.
In 1995, the Financial Accounting Standards Board released the Statement of
Financial Accounting Standard No.121 (SFAS 121), "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS 121
requires recognition of impairment of long-lived assets in the event that the
net book value of such assets exceeds the future undiscounted cash flows
attributable to such assets. The Company adopted SFAS 121 in the fiscal year
ending June 30, 1997. Adoption of SFAS 121 did not have a material impact on the
Company's financial position or results of operations.
Deferred income on shipments to distributors:
A portion of the Company's sales are made to domestic distributors under
agreements which provide for certain price rebates and limited product return
privileges. As a result, the Company defers recognition of such sales until the
merchandise is sold by the distributors.
Foreign currency translation:
Assets and liabilities of subsidiaries operating in foreign jurisdictions are
translated to U.S. dollars at year-end exchange rates. The effects of exchange
rate fluctuations on translating foreign currency financial statements are
accumulated in a separate component of stockholders' equity. Results of
operations in foreign jurisdictions are translated into U.S. dollars at average
rates of exchange prevailing during the year.
Employee stock plans:
The Company accounts for its stock option and employee stock purchase plans in
accordance with provisions of the Accounting Principles Board's Opinion No. 25
(APB 25), "Accounting for Stock Issued to Employees." In 1995, the Financial
Accounting Standards Board released the Statement of Financial Accounting
Standard No. 123 (SFAS 123), "Accounting for Stock Based Compensation." SFAS 123
provides an alternative to APB 25 and is effective for fiscal year 1997. The
Company has elected to continue to account for its employee stock plans in
accordance with the provisions of APB 25. The Company has provided additional
pro forma disclosures as required under SFAS 123 in Note 7.
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income per share:
Income per share is based upon the weighted average number of common and
dilutive common equivalent shares (stock options and stock warrants) outstanding
during each period. The number of common equivalent shares that became issuable
pursuant to the grant of stock options has been calculated using the treasury
stock method. Fully diluted income per share is substantially the same as
reported income per common and common equivalent share.
In February 1997, Financial Accounting Standard No. 128 (FAS 128), "Earnings Per
Share," was issued. The Company will be required to adopt this new pronouncement
in the quarter ended December 31, 1997. Under the new pronouncement, the Company
is required to present on the face of the income statement both the net income
per common share outstanding (basic income per share) and diluted net income per
common and common equivalent share outstanding. Diluted net income per share
includes the effects of dilutive securities issued such as stock options. All
prior periods will be restated to reflect this change. Had the Company applied
this change to the period ending June 30, 1997, the pro forma amounts would be
as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Pro forma earnings per share:
Basic income per common share $0.67 $2.05 $2.18
Diluted income per share $0.59 $1.74 $1.88
Shares used in computing net income per share:
Common shares 57,852 60,102 62,715
Common and equivalent dilutive shares 66,502 70,927 72,877
</TABLE>
Use of estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Such estimates
relate to the useful lives of fixed assets, allowances for doubtful accounts and
customer returns, inventory reserves, potential reserves relating to litigation
matters, accrued liabilities, and other reserves. Actual results may differ from
those estimates, and such differences may be material to the financial
statements.
Concentration of credit risk:
Due to the Company's credit evaluation and collection process, bad debt expenses
have been insignificant. Credit risk with respect to trade receivables is
limited because a large number of geographically diverse customers make up the
Company's customer base, thus spreading the credit risk. While a significant
portion of the Company's revenues are made through domestic and international
distributors, including five distributors which account for approximately 21% of
revenues in fiscal 1997, no single customer has accounted for greater than 10%
of net revenues in the last three fiscal years.
The Company places its investments with government entities and high credit
quality financial institutions and limits the amount of credit exposure to any
one financial institution.
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONCENTRATION OF OTHER RISKS:
The semiconductor industry is characterized by rapid technological change,
competitive pricing pressures, and cyclical market patterns. The Company's
results of operations are affected by a wide variety of factors, including
general economic conditions, both at home and abroad, economic conditions
specific to the semiconductor industry and to the analog portion of that
industry, the timely introduction of new products, implementation of new
manufacturing technologies, the ability to manufacture efficiently, the ability
to safeguard patents and intellectual property in a rapidly evolving market, and
reliance on assembly and wafer fabrication subcontractors and independent
distributors and sales representatives. As a result, the Company may experience
substantial period-to-period fluctuations in future operating results due to the
factors mentioned above or other factors.
Financial presentation:
Certain prior year amounts on the Consolidated Financial Statements have been
reclassified to conform to the 1997 presentation.
3. Financial Instruments:
Investments:
Investments in held-to-maturity and available-for-sale securities at June 30 are
as follows:
<TABLE>
<CAPTION>
(Amounts in thousands) 1996 1997
-------- --------
<S> <C> <C>
U.S. Treasury held-to-maturity securities at cost $ 55,878 $ 5,753
U.S. Treasury available-for-sale securities at market value -- 199,638
Municipal bonds collaterized by U.S. Treasury held-to-
maturity securities, at cost 18,061 --
-------- --------
$ 73,939 $205,391
-------- --------
Amounts included in short-term investments $ 68,970 $205,391
Amounts included in cash and cash equivalents 4,969 --
-------- --------
$ 73,939 $205,391
-------- --------
</TABLE>
Because of the short term to maturity and relative price insensitivity to
changes in market interest rates, amortized cost approximates fair market value,
and no unrealized gains or losses have been recorded at June 30, 1997. Fair
market values are calculated based upon prevailing market quotes at June 30,
1996 and 1997, respectively.
All securities are included in short-term investments at June 30, 1997. Gross
realized gains or losses for the twelve months ended June 30, 1997 were
immaterial.
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Foreign Exchange Contracts:
At June 30, 1997, the Company held forward exchange contracts, all having
maturities of less than one year, to exchange various foreign currencies for
U.S. dollars in the amount of $64.5 million. Gains and losses related to these
contracts are deferred and matched with the overall gains or losses from the
underlying transactions. The table below summarizes, by currency, the notional
amounts of the Company's forward exchange contracts and net unrealized gain or
loss at June 30, 1997 and 1996. The net unrealized gain or loss approximates
both fair value and carrying value of these contracts.
<TABLE>
<CAPTION>
1996 1997
------------------------ -------------------------
Notional Unrealized Notional Unrealized
(Amounts in thousands) Amounts Gain/(Loss) Amounts Gain/(Loss)
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Currency:
Japanese Yen $ 28,335 $ 1,632 $ 46,404 $ 84
British Pound Sterling 9,921 (189) 7,920 (276)
German Mark 8,745 449 7,307 290
French Franc 4,326 102 2,881 134
-------- -------- -------- --------
$ 51,327 $ 1,994 $ 64,512 $ 232
======== ======== ======== ========
</TABLE>
The net unrealized gain is potentially subject to credit risk as it represents
appreciation of the hedge position over spot exchange rates at year end. The
Company controls credit risk through credit approvals and monitoring procedures
similar to those which it uses for investments.
4. Inventories:
The components of inventories at June 30 were:
<TABLE>
<CAPTION>
(Amounts in thousands) 1996 1997
------- -------
<S> <C> <C>
Raw materials $ 3,720 $ 5,058
Work in process 16,908 22,349
Finished goods 9,843 9,426
------- -------
$30,471 $36,833
======= =======
</TABLE>
5. Property, Plant and Equipment:
Property, plant and equipment at June 30 consists of:
<TABLE>
<CAPTION>
(Amounts in thousands) 1996 1997
-------- --------
<S> <C> <C>
Buildings $20,410 $28,899
Building improvements 13,739 19,126
Machinery and equipment 146,459 176,767
-------- --------
180,608 224,792
-------- --------
Less accumulated depreciation
and amortization (50,357) (67,101)
Land 16,817 16,817
-------- --------
$147,068 $174,508
======== ========
</TABLE>
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Commitments and Contingencies:
The Company is subject to legal proceedings and claims that arise in the normal
course of its business. In the opinion of Management, these proceedings will not
have a material adverse effect on the financial position or results of
operations of the Company.
The Company leases certain facilities, including a wafer fabrication facility
for which the lease expires in November 2003. Under that lease, the Company has
a five-year lease extension option and is responsible for maintenance, taxes,
and insurance on the facility.
Future annual minimum lease payments for all leased facilities are as follows:
<TABLE>
<CAPTION>
Fiscal Year ending (Amounts in thousands)
- ------------------ ----------------------
<S> <C>
1998 $ 920
1999 697
2000 687
2001 680
2002 645
2003-2009 1,597
------
$5,226
------
</TABLE>
Rent expense was $1,381,000, $1,343,000, and $943,000 in fiscal 1997, 1996, and
1995 respectively.
7. Stockholders' Equity:
Stock option and purchase plans:
As of June 30, 1997, the Company has reserved a total of 26,249,792 of its
common shares for issuance to employees and certain others under its Incentive
Stock Option Plans, Supplemental Plan, Employee Stock Participation Plan and
Nonemployee Stock Option Plan, and has reserved a total of 145,000 of its common
shares under the 1988 Nonemployee Director Stock Option Plans. Under the
Incentive Stock Option Plans and the Nonemployee Stock Option Plan, options are
granted at a price not less than fair market value as determined by the Board at
the date of grant. Under the Supplemental Plan, options are granted ordinarily
at a price not less than market value, but under the Plan, the Board has
authority to make grants at a price not less than 85% of fair market value.
Under the Participation Plan, employees of the Company may purchase shares of
common stock at a price not less than the lesser of 85% of the fair market value
of the stock either on the date the purchase right is granted or the date the
right is exercised. Options granted under the Incentive Stock Option Plans
generally vest within five years. Options granted under the Incentive Stock
Option and Supplemental Plans expire from five to ten years from the date of the
grant or such shorter term as may be provided in the agreement. During fiscal
1997, the Company received $52,397,000 of tax benefit on the exercise of
non-qualified stock options and on disqualifying dispositions under stock plans
($32,736,000 in 1996 and $11,520,000 in 1995).
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information with respect to activity under the stock option plans is set forth
below:
<TABLE>
<CAPTION>
Outstanding Options
-------------------------
Weighted
Shares Average
Available Number of Price
for Grant Shares Per Share
---------- ---------- ---------
<S> <C> <C> <C>
BALANCE, JUNE 30, 1994 785,440 20,927,196 $ 6.10
---------- ---------- ---------
Shares reserved 4,394,000 -- --
Options granted (5,119,830) 5,119,830 $ 15.51
Options terminated 441,262 (441,262) $ 10.75
Options exercised -- (2,303,250) $ 4.24
---------- ---------- ---------
BALANCE, JUNE 30, 1995 500,872 23,302,514 $ 8.31
Shares reserved 2,950,000 -- --
Options granted (3,636,001) 3,636,001 $ 31.50
Options terminated 614,041 (614,041) $ 22.34
Options exercised -- (3,399,361) $ 5.80
---------- ---------- ---------
BALANCE, JUNE 30, 1996 428,912 22,925,113 $ 11.85
Shares reserved 7,265,000 -- --
Options granted (4,465,943) 4,465,943 $ 37.87
Options terminated 586,483 (586,483) $ 25.39
Options exercised -- (4,224,233) $ 7.42
---------- ---------- ---------
BALANCE, JUNE 30, 1997 3,814,452 22,580,340 $ 17.28
---------- ---------- ---------
</TABLE>
At June 30, 1997, options to purchase 8,108,881 shares of common stock were
exercisable (8,131,602 at June 30, 1996 and 7,451,566 at June 30, 1995).
The following table summarizes information about options outstanding at June 30,
1997:
<TABLE>
<CAPTION>
Outstanding Options Options Exercisable
------------------------------------------ -----------------------
Weighted Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 6/30/97 Life (Years) Price at 6/30/97 Price
- --------------- ------------ ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.38 - $ 6.56 4,652,542 3.7 $ 3.84 4,284,014 $ 3.77
$ 6.59 - $11.13 5,839,705 6.2 $ 9.03 2,339,954 $ 7.78
$11.56 - $21.50 4,809,200 7.2 $13.86 1,088,120 $13.25
$21.63 - $38.00 5,524,866 8.6 $31.02 364,262 $30.68
$38.13 - $56.75 1,754,027 9.4 $46.52 32,531 $42.72
- --------------- ---------- --- ------ --------- ------
$ 0.38 - $56.75 22,580,340 6.7 $17.28 8,108,881 $ 7.56
=============== ========== === ====== ========= ======
</TABLE>
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pro forma information:
Under SFAS No. 123, the Company may elect to continue to account for the grant
of stock options under ABP Opinion No. 25, in which options granted with an
exercise price equal to the fair market value on the date of grant are not
considered compensatory and no recognition of expense is required in the
Company's financial statements. Under SFAS No. 123, the Company is, however,
required to provide pro forma disclosure regarding net income and earnings per
share as if the Company had accounted for its employee stock options (including
shares issued under the Incentive Stock Option Plan, Supplemental Plan, Employee
Stock Participation Plan and Nonemployee Stock Option Plan, collectively called
"options") granted subsequent to June 30, 1995, under the methodology prescribed
by that statement. Since the Company has elected to account for the grant of
options under APB Opinion No. 25, the following information is for disclosure
purposes only and it will not affect the current or future earnings of the
Company.
The valuation of options granted in fiscal 1996 and 1997 reported below has been
estimated at the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions:
<TABLE>
<CAPTION>
Stock Option Plans Employee Stock Participation Plan
Year ended June 30, 1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Expected option holding period (in years) 4.4 4.4 0.5 0.5
Risk-free interest rate 6% 6.4% 5.3% 5.4%
Stock price volatility 0.47 0.47 0.47 0.47
Dividend yield -- -- -- --
</TABLE>
The Black-Scholes option pricing model was developed for use in estimating the
value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions can
materially affect the estimate of value, in the opinion of management, the
existing models do not necessarily provide a reliable single measure of the
value of the options. The following is a summary of weighted average grant date
values generated by application of the Black-Scholes model:
<TABLE>
<CAPTION>
Weighted Average Grant Date Value
Year ended June 30, 1996 1997
------ ------
<S> <C> <C>
Stock Option Plans $15.54 $19.67
Employee Stock Participation Plan $ 9.46 $11.98
</TABLE>
As required under SFAS No. 123, the reported net income and earnings per share
have been presented to reflect the impact had the Company been required to
include the amortization of the Black-Scholes option value as an expense. The
adjusted amounts are as follows:
<TABLE>
<CAPTION>
Year ended June 30, 1996 1997
-------- --------
<S> <C> <C>
Pro forma net income adjusted for SFAS No. 123 (in thousands) $116,249 $121,190
Pro forma net income per common and common equivalent share
adjusted for SFAS No. 123 $ 1.64 $ 1.66
</TABLE>
The effects of the disclosures above relate only to options granted after June
30, 1995. Therefore, the initial impact on net income recalculated under SFAS
No. 123 is not likely to be representative of similar disclosures in future
years as additional option grants will impact future disclosures.
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Income Taxes:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year ended June 30,
(Amounts in thousands) 1995 1996 1997
-------- ------- -------
<S> <C> <C> <C>
Federal
Current $28,006 $58,732 $54,976
Deferred (11,406) (3,730) 4,015
State
Current 5,473 9,113 8,225
Deferred (2,018) (410) 595
Foreign
Current 894 3,407 2,750
------- ------- -------
Total $20,949 $67,112 $70,561
======= ======= =======
</TABLE>
Pretax income from foreign operations was approximately $6.4 million, $8.1
million, and $2.0 million for the years ended June 30, 1997, 1996, and 1995
respectively.
The provision for income taxes differs from the amount computed by applying the
statutory rate as follows:
<TABLE>
<CAPTION>
Year ended June 30 1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
State tax, net of
federal benefit 3.8 3.0 2.8
General business credits (1.9) -- (0.7)
Exempt earnings of Foreign
Sales Corporation (2.2) (2.7) (2.5)
Other 0.3 (0.1) (0.6)
----- ----- -----
Total 35.0% 35.2% 34.0%
===== ===== =====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The components of the
Company's deferred tax assets and liabilities as of June 30, 1997 and 1996 are
as follows:
<TABLE>
<CAPTION>
(Amounts in thousands) 1996 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Inventory valuation and reserves $ 5,820 $ 5,301
Accrued compensation 3,188 5,079
Other reserves and accruals not
currently deductible for tax reporting 12,248 13,627
Fixed assets cost recovery 3,254 --
-------- --------
Total deferred tax assets $ 24,510 $ 24,007
======== ========
Deferred tax liabilities-fixed assets cost recovery -- $ (4,107)
-------- --------
Net deferred tax assets $ 24,510 $ 19,900
======== ========
</TABLE>
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Segment Information:
The Company designs, develops, manufactures and markets a broad range of linear
and mixed-signal integrated circuits for the analog market, and its business
falls into one industry segment. Operations of the Company's overseas
subsidiaries consist primarily of sales, marketing, and distribution.
Approximately 57% of the Company's net revenues (including both U.S. export
sales and direct sales from subsidiaries, noted below) were derived from
customers outside of the U.S., primarily in Europe and the Pacific Rim (57% in
fiscal 1996 and 49% in fiscal 1995). Pacific Rim consists primarily of Japan.
Intercompany transfers between geographic areas are accounted for at prices that
approximate arm's length transactions.
Information regarding geographic areas at and for the years then ended is as
follows:
<TABLE>
<CAPTION>
Geographic Area
June 30, 1995 -------------------------------------------
(Amounts in thousands) : United States Europe Pacific Rim Total
------------- --------- ----------- --------
<S> <C> <C> <C> <C>
Net revenues from unaffiliated customers $209,490 $ 33,620 $ 7,710 $250,820
-------- -------- -------- --------
Operating income $ 56,096 $ (255) $ 1,393 $ 57,234
-------- -------- -------- --------
Identifiable assets $234,581 $ 17,405 $ 4,147 $256,133
-------- -------- -------- --------
Liabilities $ 75,604 $ 1,285 $ 534 $ 77,423
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Geographic Area
June 30, 1995 -------------------------------------------
(Amounts in thousands) : United States Europe Pacific Rim Total
------------- --------- ----------- --------
<S> <C> <C> <C> <C>
Net revenues from unaffiliated customers $344,922 $ 57,523 $ 19,181 $421,626
-------- -------- -------- --------
Operating income $177,975 $ 4,871 $ 3,044 $185,890
-------- -------- -------- --------
Identifiable assets $373,341 $ 28,616 $ 15,837 $417,794
-------- -------- -------- --------
Liabilities $ 89,634 $ 1,835 $ 900 $ 92,369
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Geographic Area
June 30, 1995 -------------------------------------------
(Amounts in thousands) : United States Europe Pacific Rim Total
------------- --------- ----------- --------
<S> <C> <C> <C> <C>
Net revenues from unaffiliated customers $334,772 $ 62,634 $ 36,304 $433,710
-------- -------- -------- --------
Operating income $192,734 $ 4,039 $ 2,172 $198,945
-------- -------- -------- --------
Identifiable assets $499,064 $ 23,344 $ 33,978 $556,386
-------- -------- -------- --------
Liabilities $ 86,463 $ 3,115 $ 1,243 $ 90,821
======== ======== ======== ========
</TABLE>
<PAGE> 20
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Maxim Integrated Products, Inc.
We have audited the accompanying consolidated balance sheets of Maxim Integrated
Products, Inc., as of June 30, 1996 and 1997, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Maxim Integrated
Products, Inc., at June 30, 1996 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1997, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
San Jose, California
August 8, 1997
<PAGE> 21
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Amounts in thousands, except per share data)
Fiscal Year 1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenues $110,184 $153,932 $250,820 $421,626 $433,710
-------- -------- -------- -------- --------
Cost of goods sold $ 46,841 $ 64,250 $103,598 $146,253 $145,307
Gross margin % 57.5% 58.3% 58.7% 65.3% 66.5%
-------- -------- -------- -------- --------
Operating income $ 25,448 $ 35,574 $ 57,234 $185,890 $198,945
% of net revenues 23.1% 23.1% 22.8% 44.1% 45.9%
-------- -------- -------- -------- --------
Net income $ 17,282 $ 24,082 $ 38,906 $123,345 $136,974
Income per share $ 0.29 $ 0.38 $ 0.59 $ 1.74 $ 1.88
-------- -------- -------- -------- --------
Shares used in per share
calculation 60,050 63,628 66,502 70,927 72,877
-------- -------- -------- -------- --------
Cash, cash equivalents
and short-term investments $ 49,079 $ 48,430 $ 92,295 $129,253 $223,953
Working capital $ 64,047 $ 56,045 $ 95,978 $176,182 $291,786
Total assets $126,902 $178,523 $256,133 $417,794 $556,386
-------- -------- -------- -------- --------
Long-term debt, less
current portion $ 174 $ 40 $ -- $ -- $ --
-------- -------- -------- -------- --------
Stockholders' equity $ 97,336 $130,192 $178,710 $325,425 $465,565
</TABLE>
<PAGE> 22
FINANCIAL HIGHLIGHTS BY QUARTER
Unaudited
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
QUARTER ENDED
1997 9/30/96 12/31/96 3/31/97 6/30/97
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues $ 101,000 $ 104,686 $ 111,005 $ 117,019
Cost of goods sold $ 33,027 $ 35,530 $ 37,437 $ 39,313
Gross margin % 67.3% 66.1% 66.3% 66.4%
Operating income $ 46,129 $ 48,646 $ 51,178 $ 52,992
% of net revenues 45.7% 46.5% 46.1% 45.3%
Net income $ 31,392 $ 33,314 $ 35,403 $ 36,865
Income per share $ 0.45 $ 0.46 $ 0.48 $ 0.50
Shares used in per share
calculation 70,384 72,422 74,375 74,326
Market price range - High $ 38.88 $ 48.25 $ 56.63 $ 59.25
- Low $ 20.63 $ 30.25 $ 42.13 $ 45.50
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
1996 9/30/95 12/31/95 3/31/96 6/30/96
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues $ 96,443 $ 106,182 $ 109,001 $ 110,000
Cost of goods sold $ 38,597 $ 36,330 $ 35,356 $ 35,970
Gross margin % 60.0% 65.8% 67.6% 67.3%
Operating income $ 34,777 $ 47,889 $ 51,441 $ 51,783
% of net revenues 36.1% 45.1% 47.2% 47.1%
Net income $ 22,585 $ 31,874 $ 34,182 $ 34,704
Income per share $ 0.32 $ 0.45 $ 0.48 $ 0.49
Shares used in per share
calculation 70,551 70,827 71,212 71,119
Market price range - High $ 40.50 $ 41.88 $ 43.75 $ 37.88
- Low $ 25.25 $ 27.75 $ 28.75 $ 24.00
</TABLE>
<PAGE> 23
BOARD OF DIRECTORS AND CORPORATE OFFICERS
BOARD OF DIRECTORS
John F. Gifford
Chairman of the Board, President
and Chief Executive Officer
James R. Bergman
Director
General Partner of DSV Partners
Robert F. Graham
Director
Retired Chairman of the Board of Novellus Systems, Inc.
B. Kipling Hagopian
Director
Special Limited Partner of Brentwood Venture Capital
Partner, Apple/Oaks Partners LLC
Dr. A. R. Frank Wazzan
Director
Dean of Engineering & Applied Sciences at University of California,
Los Angeles
CORPORATE OFFICERS
John F. Gifford
Chairman of the Board, President
and Chief Executive Officer
Frederick G. Beck
Vice President
Ziya G. Boyacigiller
Vice President
Michael J. Byrd
Vice President and Chief Financial Officer
Tunc Doluca
Vice President
Richard C. Hood
Vice President
Kenneth J. Huening
Vice President
William N. Levin
Vice President
Nasrollah Navid, Ph.D.
Vice President
Pirooz Parvarandeh
Vice President
Robert F. Scheer
Vice President
Richard E. Slater
Vice President and Chief Accounting Officer
Vijay Ullal
Vice President
<PAGE> 24
CORPORATE DATA
STOCKHOLDER
INFORMATION
INDEPENDENT AUDITORS
Ernst & Young LLP
San Jose, California
REGISTRAR/TRANSFER AGENT
Boston Equiserve
Boston, Massachusetts
CORPORATE HEADQUARTERS
120 San Gabriel Drive
Sunnyvale, California 94086
(408) 737-7600
FORM 10-K
A copy of the Company's Form 10-K filed with the Securities & Exchange
Commission, without exhibits, is available without charge upon writing to:
Stockholder Relations
Maxim Integrated Products, Inc.
120 San Gabriel Drive
Sunnyvale, California 94086
STOCK LISTING
At June 30, 1997, there were approximately 929 stockholders of record of the
Company's common stock. Maxim common stock is traded on the NASDAQ National
Market under the symbol MXIM. The Company has never paid cash dividends on its
common stock and has no present plans to do so.
ANNUAL MEETING
The annual meeting of stockholders will be on Thursday, November 13, 1997 at
11:00 a.m. at the Company's headquarters, 120 San Gabriel Drive, Sunnyvale,
California 94086.
<PAGE> 1
EXHIBIT 21
EXHIBIT 21
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction of Incorporation
- ------------------------------------- -----------------------------
<S> <C>
Maxim Integrated Products England
UK Limited
Maxim International Inc. Virgin Islands
Maxim GmbH Germany
Maxim SARL France
Maxim Japan Japan
Maxim Integrated Products Korea, Inc. Korea
Maxim Phil. Operating Corporation Philippines
Maxim Phil. Holding Corporation Philippines
These Subsidiaries are 100% owned by the Registrant
Maxtek Components Corporation Oregon
This Subsidiary is 50% owned by the Registrant
Maxim Phil. Land Corporation Philippines
This Subsidiary is 40% owned by the Registrant
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Maxim Integrated Products, Inc. of our report dated August 8, 1997, included
in the 1997 Annual Report to Stockholders of Maxim Integrated Products, Inc.
Our audits also included the consolidated financial statement schedule of Maxim
Integrated Products, Inc. listed in Item 14(a). This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based in our audits. In our opinion, the consolidated financial
statement schedule referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8 Nos. 33-57849, 33-72186, 33-54026, 33-44485, 33-37470,
33-37469, 33-34728 and 33-34519) pertaining to the 1993 Incentive Stock Option
Plan, the 1983 Supplemental Nonemployee Stock Option Plan, the 1987
Supplemental Stock Option Plan, the 1987 Employee Stock Option Participation
Plan, and the 1988 Nonemployee Director Stock Option Plan of our report dated
August 8, 1997, with respect to the consolidated financial statements
incorporated herein by reference, and our report included in the preceding
paragraph with respect to the consolidated financial statement schedule
included in this Annual Report (Form 10-K) of Maxim Integrated Products, Inc.
/s/ ERNST & YOUNG LLP
---------------------
Ernst & Young LLP
San Jose, California
September 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 223,953
<SECURITIES> 0
<RECEIVABLES> 92,986
<ALLOWANCES> (1,344)
<INVENTORY> 36,833
<CURRENT-ASSETS> 377,007
<PP&E> 241,609
<DEPRECIATION> (67,101)
<TOTAL-ASSETS> 556,386
<CURRENT-LIABILITIES> 85,221
<BONDS> 0
0
0
<COMMON> 64
<OTHER-SE> 466,607
<TOTAL-LIABILITY-AND-EQUITY> 556,386
<SALES> 433,710
<TOTAL-REVENUES> 433,710
<CGS> 145,307
<TOTAL-COSTS> 145,307
<OTHER-EXPENSES> 89,458
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61
<INCOME-PRETAX> 207,535
<INCOME-TAX> 70,561
<INCOME-CONTINUING> 136,974
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 136,974
<EPS-PRIMARY> 1.88
<EPS-DILUTED> 1.88
</TABLE>
