UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
<checked-box>ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the Fiscal Year ended December 31, 1995
COMMISSION FILE NUMBER 0-17187
LOGIC DEVICES INCORPORATED
(Exact name of registrant as
specified in its charter)
CALIFORNIA 94-2893789
(State of Incorporation) (I.R.S. Employer
Identification No.)
628 EAST EVELYN AVENUE
SUNNYVALE, CALIFORNIA 94086
(Address of principal executive offices,
including Zip Code)
(408) 737-3300
(Registrant's telephone number,
including Area Code)
Securities registered pursuant to Section 12(b) of the Act
Title of Class Name of each exchange on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act
COMMON STOCK, WITHOUT PAR VALUE
(Title of Class)
-----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant on March 29, 1996 was approximately $29,983,750. On that date,
there were 5,996,750 shares of Common Stock issued and outstanding.
Documents Incorporated By Reference: Proxy Statement for the 1996 Annual
Meeting of Shareholders.
Page 1 of 65
Exhibit List Appears at Page 42
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF THE BUSINESS
Logic Devices Incorporated (the "Company") develops and markets
high-performance digital integrated circuits. The Company's circuits address
applications which require high computational speeds, high-reliability, high
levels of circuit integration (complexity), and low power consumption. The
Company's products are incorporated into products manufactured by OEMs and
utilized in high-speed electronic computational applications in computers and
work stations, broadcast and medical video image processing, and
telecommunication systems. The Company's product strategy is to develop and
market industry standard circuits which offer superior performance, as well as
Company proprietary circuits to meet specific customer needs.
The Company currently offers products in two areas: (1) DSP (digital
signal processing) circuits consisting of high-performance arithmetic
computational functions (multipliers, arithmetic-logic units "ALUs", special
math functions applicable to digital signal processing computations, and
programmable DSP multiple processors units) ; (2) high-speed SRAMs (static
random access memories) including FIFO (first in/first out) Memories. As of
December 31, 1995, the Company offered 45 catalog products which are sold to a
diverse customer base. With the multiplicity of packaging and performance
options, the 45 basic products result in nearly 800 catalog items.
The Company's plug compatible catalog products are designed to replace
existing industry standard integrated circuits while offering superior
performance, lower power consumption, and reduced cost. Proprietary catalog
products are developed by the Company to address specific functional
application needs or performance levels that are not otherwise commercially
available. The Company seeks to provide related groups of circuits that OEMs
purchase for incorporation into high-performance electronic systems.
The Company relies on third party silicon foundries to process silicon
wafers, each wafer having up to several hundred integrated circuits of a given
Company design, from which finished products are then assembled. The
Company's strategy is to outsource wafer processing to third party foundries
in order to avoid the substantial investment in capital equipment required to
establish a wafer fabrication facility. See "Business -- Background." The
Company works closely with the foundries in order to take advantage of their
processing capabilities and continues to explore and develop additional
foundry relationships in order to minimize its dependence on any single
relationship.
The Company markets its products worldwide through its own direct sales
force, a network of 34 national and international independent sales
representatives, and 20 international and domestic distributors. In 1995,
approximately 45% of the Company's net revenues were derived from OEMs, while
sales through foreign and domestic distributors accounted for approximately
55% of net revenues. Among the Company's OEM customers are Bull HN, Solectron
Corporation, Loral Systems Inc., Abekas Video Systems Inc., IBM Corporation,
General Dynamics Corporation, DSC Communications Corporation, Advanced
Technology Laboratories, Inc. and Acuson Corporation. Approximately 80% of
the Company's net revenues have historically been derived from the United
States and approximately 20% have been derived from foreign sales.
The Company was incorporated under the laws of the State of California in
April 1983. The Company's principal offices are located at 628 East Evelyn
Avenue, Sunnyvale, California 94086, and its telephone number is (408)
737-3300.
<PAGE>
BACKGROUND
The electronics industry continues to produce rapid increases in system
complexity and performance. In recent years, the challenges to the industry
have been innovative product definition, timely product development, customer
application support, and the heavy capital investment required to establish
semiconductor fabrication facilities. Increases in chip fabrication
technology have resulted in the specialization of skills within the
semiconductor industry between system and circuit design expertise, and
semiconductor processing skills. Selected opportunities have emerged for
semiconductor companies which focus on product definition, advanced design
techniques, customer service, and utilize of third parties for wafer
fabrication. The Company has focused its product strategy on the development
of high-performance integrated circuits based on CMOS (Complementary Metal
Oxide Semiconductor) process technology for selected markets and applications.
The semiconductor industry is intensely competitive and is characterized
by rapid technological change, product obsolescence, fluctuations in both
demand and capacity, and price erosion. These factors can obsolete processes
and products currently utilized or produced by the Company. In such cases,
the Company is required to develop products utilizing new processes and to
either integrate such products into its existing foundry relationships or
establish new foundry sources.
PRODUCT DEVELOPMENT AND PRODUCTION STRATEGY
The Company utilizes several strategies that it believes, in combination,
are unique in the industry:
1. Wafer Foundry Strategy - To minimize the amount of capital which the
Company must employ and to allow the Company to specialize on its strengths in
product definition, design, and development, the Company seeks to establish
relationships with wafer foundry suppliers rather than build and operate
capital intensive, technologically demanding wafer fabrication facilities.
2. Plug Compatible One Upmanship Product Strategy - To enhance the
Company's probability of successfully introducing new products, a significant
percentage of the Company's product development is directed toward
implementation of higher performance, lower power consumption and lower cost
versions of established industry standard products. This focus tends to
ensure that at least some minimal level of market and financial success will
be quickly realized which could not otherwise be guaranteed when a company
attempts to pioneer a revolutionary new product or market area. Conversely, a
percentage of the Company's product development is targeted towards unique
products which offer larger potential returns.
3. Proprietary Design Methodology - The Company's design approach
offers the benefits of full custom circuit design including small chip size,
high speed operation, and low operating power consumption, coupled with the
short product development cycle and reduced costs associated with semicustom
design approaches. With this methodology the Company has developed
performance and cost competitive products with a fraction of the R&D budget of
others within the industry.
4. Development of Synergistic Families of Products - The Company
attempts to develop synergistic families of products that can be sold and
utilized together to address the requirements of targeted end-market
applications. This increases the productivity of the Company's sales efforts
and maximizes the leverage of the Company's technical expertise.
5. Niche Markets - The Company focuses on product and market areas that
are not well served by strong established competitors and has sought to become
the dominant supplier in high performance DSP and high precision digital video
processing applications.
6. Product Mix - The Company seeks to balance the mix of products
produced to include products that: a) generate substantial profit margins; or
b) generate unit volumes to a level sufficient to feed a sales network with
high volume sales opportunities, to absorb fixed overhead costs over a large
enough quantity of units to support first class manufacturing resources, and
to position the Company as a valued foundry customer by generating a
reasonable and steady volume of wafer requirements.
<PAGE>
7. Employee Development - The Company prefers to internally develop and
train key personnel in sales and marketing, engineering and manufacturing as
opposed to hiring outside experts. This strategy allows the Company to mold
the critical skill contributors within the Company to fit the unique
environment, strengths, and limitations of the Company's position as it
evolves.
8. Financial Commitments - The Company employs a conservative financial
perspective when committing to any single new product or internal resource.
The Company does not intentionally undertake a direction or activity that
encompasses a bet-the-Company risk.
PRODUCTS
The Company offers industry standard and proprietary catalog circuits, as
well as a limited number of custom circuits to address specific customer
needs. The Company's standard catalog products are designed to replace
existing industry standard products by providing superior performance, lower
power consumption, and reduced cost. Proprietary catalog products are
developed by the Company to address specific requirements not otherwise
commercially available in the marketplace.
The Company's products address applications which require high
computational speeds, high levels of function circuit integration, low power
consumption, and high reliability. The Company's products are utilized in
high-speed industrial computing and DSP applications in computers, work
stations, broadcast and medical video image processing, and telecommunications
systems. The Company's circuits are incorporated by OEMs into products which
are then sold to end users. Examples of the types of products which utilize
the Company's circuits include the following: 1) In the long-distance
telephone market, an OEM incorporates a Company produced circuit into a
telecommunications product produced by the OEM and sold to long distance
carriers. This product removes the echo otherwise experienced in long
distance telephone calls. 2) In the computer and work station market, the
Company supplies very fast SRAM circuits which enhance system performance by
enabling rapid storage and retrieval of the most frequently used data, thereby
reducing the delays associated with retrieving data from main memory. 3) In
the video image processing market, the Company's circuits are utilized in
products that create video special effects for the television broadcast
industry. 4) In the medical market, ultrasound and x-ray medical images are
enhanced using the Company's circuits. 5) In the military market, the Company
supplies arithmetic components used in night vision and tactical missile
guidance control systems.
A tabular presentation of these products is as follows:
<TABLE>
<CAPTION>
MARKETS: PRODUCTS: APPLICATIONS: CUSTOMERS:
<S> <C> <C> <C>
Telecommunications Custom Products Echo Cancellation DSC Communications
Video Functions Trunkline Multiplexing Corporation,
SPROC Programmable Digital Filters Wadia Digital
DSP Tone Decoding Corporation,
Intellicall Inc.
Personal Computer SRAM Cache, Modems Packard Bell,
Workstation SCSI Peripheral Interface Bull NH,
Panasonic,
Tatung, GVC IBM,
AT&T
Video Graphics SRAM Simulators Ball Imaging,
Video Functions Workstations Evans &
Games Sutherland, GE,
Silicon Graphics,
SUN Micro
Broadcast Video Video Functions Special Effects Generator Abekas, ADC,
Transmission Multipliers Film Editing Ampex, BTS,
Time Base Correctors Chyron, Data
Character Generators Translation,
Pinnacle,
Quantel, Snell
& Wilcox, GVC
Instrumentation Math Functions Spectrum Analyzers Acumen,
Waveform Generators KLA,
Emulators Tencor,
Assembly/Inspection Tektronics
Equipment
Medical Imaging Math Functions Ultrasound (Sonigram) Acuson, ATL
Magnetic Resonance Siemans
Military SRAM Radar/Sonar General Dymamics,
Math Functions Missile Guidance Huges, ITT,
Secure Communications Litton, Loral,
Martin Marietta,
McDonnell Douglas,
TI, Northrop
</TABLE>
<PAGE>
DIGITAL SIGNAL PROCESSING APPLICATIONS
Digital Signal Processing ("DSP") involves converting light, sound, and
other natural occurring analog waveforms into a stream of digital values which
may be processed, manipulated, exchanged, or sorted by electronic systems.
DSP provides many advantages, including: i) the ability to process and
manipulate digital data with consistency and precision; ii) the ability to
store and recall information; and iii) the ability to extract information
content and compress the amount of data which must be stored, processed, or
transmitted. Manipulation of the video images and speech requires signal
processing at rates and precision that are not practical with analog
technology or general purpose (non-DSP) processors. DSP is an important
technology for future generations of many emerging product technologies.
During 1995, the Company acquired the assets of the former STAR
Semiconductor Corporation. As a result of this acquisition the Company has
added the STAR SPROC programmable digital signal processor to its product
line. The SPROC processor is particularly suited to various
telecommunications applications.
Arithmetic Computational Functions. The Company offers a broad line of
high speed computational functions ranging from high performance arithmetic
building blocks to more highly integrated and specialized functions. The
Company's building block products are configured in a myriad of ways by DSP
system designers to implement very high computational throughput mathematical
functions that perform common DSP algorithms. The Company's more highly
integrated function specific compute engines implement the most commonly
required video image processing functions into cost effective single chip
solutions. These products integrate multiple instances of the Company's
building block arithmetic functions, as well as significant blocks of the
Company's static memory technology to provide otherwise unachievable
performance and cost benefits.
<PAGE>
HIGH-SPEED STATIC RANDOM ACCESS MEMORIES
SRAMs are used for the high-speed storage and retrieval of data in
electronic systems. SRAMs enable faster storage and retrieve information than
DRAMs (dynamic random access memories). While SRAMs are more convenient to
utilize than DRAMs, they also are more costly (for a given number of bits
stored) due to greater internal circuit complexity. Because a computer may
read from or write to its memory several times to complete a single software
instruction, high-performance systems are sensitive to memory performance as a
critical factor in determining overall system performance.
Data stored in a typical computer is segmented into a hierarchy of memory
types to maximize performance consistent with reasonable cost constraints.
Low-cost but relatively slow DRAMs are used in "main memory" to store large
amounts of data very economically. Faster but more costly SRAMs serve as
"cache memory" to store limited amounts of the data most frequently required
by the computer as it executes its programs. SRAMs are produced in a wide
variety of capacities (densities) and organizations (number of bits available
in a single memory access), which collectively result in a large product
matrix. This resulting product differentiation creates opportunities for
higher pricing and somewhat longer product life cycles than DRAMs. However,
as high performance processors have driven the demand for SRAMs, the market
has become increasingly competitive.
In 1988, the Company introduced its initial SRAM product family. By 1991,
the Company offered 50 plug compatible SRAM catalog products. By the end of
1992, wafer supply disruptions caused the Company to reduce the number of SRAM
offerings. The Company's current SRAM products, with densities ranging from
16K bits to 1024K (K = 1024 or one megabit) bits, generally are targeted
toward high-speed applications which are experiencing high rates of growth in
unit demand due to sharply increasing usage of cache memory in conjunction
with 32-bit microprocessors.
FIFO MEMORY PRODUCTS
In 1994, the Company introduced the first four products of its dual-port
FIFO (First-In/First-Out) memory product family. FIFOs are frequently
utilized at the input and output of DSP systems to handle any mismatches
between which input data is available or output data is expected relative to
the rate of which signals can be digitally processed. FIFOs incorporate many
elements of the Company's memory design expertise and are synergistic to the
Company's DSP customer base.
PRODUCTS IN DEVELOPMENT
The Company has historically experienced a close correlation between its
success in introducing new products and increases in revenues. As a result,
the Company is committed to a high level of product design and development
activity. During 1996, the Company is continuing to focus its product
development efforts on two target areas: (1) DSP circuits that address the
broadcast, studio, and production quality audio and video image processing
requirements, and (2) products related to the Company's SRAM technology. The
Company must also investing heavily in the re-tooling of its existing product
families to develop additional wafer fabrication sources.
With the benefit of on-going customer input resulting from its current
video image processing products, the Company has a number of new DSP product
opportunities which it will undertake to develop in 1996. These products
generally would be utilized in conjunction with the Company's current DSP
products to further facilitate high precision signal processing. At current
resource levels the Company does not expect to be able to complete all of the
new product opportunities which it has identified. The level of product
development expenditures will be dependent on the Company's success in meeting
its financial objectives.
The Company is continuing to develop more specialized memory products, as
well as to implement certain memory functions that work with, and compliment,
certain of the Company's DSP computational functions.
<PAGE>
WAFER FABRICATION TECHNOLOGY
The Company relies on third party silicon foundries to produce processed
wafers from mask patterns designed by the Company. Through its wafer
suppliers, the Company has access to advanced high-speed, high-density CMOS
process technology, without the significant investment in capital equipment
and facilities required to establish a wafer fabrication facility. Products
developed in 1996 will utilize process technology with effective channel
lengths under 0.8 micron. Coupled with the Company's design methodology and
experience in high-speed circuit design, this technology has allowed the
Company to create products that offer high computational speeds, high
reliability, high levels of circuit integration (complexity) and low power
consumption.
The Company currently is dependent on four silicon foundry sources.
Wafers are processed to pre-agreed specifications to produce integrated
circuits designed by the Company. There can be no assurance that such
relationships will continue to be on terms satisfactory to the Company.
Except for its relationships with OKI Electric Industry Co., Ltd., and Zentrum
Mikroelektronik Dresden GmbH (ZMD), the Company's foundry sources do not
guarantee minimum supplies. During 1995 the Company's revenues were limited
by its inability to obtain adequate quantities of processed wafers. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
PRODUCTION, ASSEMBLY AND TEST
The Company's production operations consist of quality inspection,
functional and parametric wafer testing, package marking, hot and cold
testing, final inspection, and shipment. In 1993, the Company transferred its
assembly operations to external sources to obtain more favorable costs. As is
customary in the industry, the Company's commercial grade plastic package
devices are wafer tested and then shipped to high-volume assembly
subcontractors in the Far East for assembly. Thereafter, the assembled
devices are returned to the Company for final testing and shipment to
customers. The Company continues to test raw material through finished
product at
various stages in the manufacturing process utilizing automated test equipment
capable of volume production.
MARKETING, SALES AND CUSTOMERS
The Company markets its products worldwide to a broad range of customers
through its own sales efforts, a network of 34 domestic and international
independent sales representatives, and 20 electronics distributors. The
Company concentrates its direct marketing efforts on the high-performance
segments of the telecommunication, military, industrial, and computer markets
in applications where high-speed and low power consumption are critical.
Among the Company's OEM customers are Bull HN, Solectron Corporation, Loral
Systems Inc., Abekas Video Systems Inc., IBM Corporation, General Dynamics
Corporation, DSC Communications Corporation, Advanced Technology
Laboratories, Inc. and Acuson Corporation.
The Company coordinates sales from its Sunnyvale, California facility.
The Company also maintains regional sales offices in Somerville, New Jersey
and Tampa-St. Petersburg, Florida as well as a field applications support
office in Newton, Connecticut to serve the East Coast. The Company also has a
sales office in Warminster, England to support the Company's European sales
activities. The Company's sales managers direct the activities of the
independent sales representative firms and focus on major target accounts.
Sales representatives obtain orders on an agency basis and the Company ships
directly to its customers. Sales representatives receive commissions on sales
within their territories. Distributors purchase the Company's products for
resale generally to a broad base of small to medium-size customers. North
America is serviced by five regional and national distributors. As is
customary in the industry, domestic distributors are entitled to certain price
rebates and limited stock rotation rights, for which the Company has made a
provision in its consolidated financial statements. During 1995 and 1994,
sales through both international and domestic distributors accounted for
approximately 55% and 48% of net sales, respectively, while direct sales to
OEMs accounted for approximately 45% and 52%, respectively, of net sales.
<PAGE>
In 1995, three customers each accounted for 10% or more of net revenues;
All American Semiconductor, Inc. accounted for 13%, Bell Microelectronics,
Inc. accounted for 13%, and Milgray Electronics, Inc. accounted for 10% of net
revenues. In 1994, one customer, DSC Communications Corporation, accounted
for approximately 17% of net revenues and, in 1993, Milgray Electronics, Inc.,
accounted for 13% of net revenues.
International sales are conducted by sales representatives and
distributors located in Japan, Canada, United Kingdom, Germany, France, Italy,
Netherlands, Sweden, Finland, Hong Kong, Israel, Korea, Taiwan, and Singapore.
During 1995, 1994, and 1993, the Company's export sales were approximately
20%, 18%, and 19%, respectively, of net sales. See Note 11 in "Notes to the
Financial Statements" contained in Item 8 below. The Company's international
sales are billed in United States dollars and therefore settlements are not
directly subject to currency exchange fluctuations. However, changes in the
relative value of the dollar may create pricing pressures for the Company's
products. Although the Company's international sales are subject to certain
export restrictions, including the Export Administration Amendments Act of
1985 and the regulations promulgated thereunder, the Company has not
experienced any material difficulties because of these restrictions.
The Company's domestic distributors generally market products competitive
with the Company's products. The Company's independent sales representatives
and foreign distributors also may represent competitors of the Company.
The Company warrants its products against defects in materials and
workmanship for a period of 12 months from the date of shipment. Warranty
expenses to date have been nominal.
BACKLOG
As of December 31, 1995, the Company's backlog was approximately
$8,356,800 and was approximately $2,269,100 as of December 31, 1994. The
Company includes in its backlog all released purchase orders shippable within
the following 18 months, including orders from distributors. The Company's
backlog, although useful for scheduling production, does not represent actual
sales and the backlog at any particular time should not be used as a measure
of future sales or revenues. In accordance with accepted industry practice,
orders in the backlog are subject to cancellation without penalty at the
option of the purchaser at any time prior to shipment and to changes in
delivery schedules and do not reflect price adjustments that may be passed on
to distributors and credits for returned products. The Company produces
certain catalog products that may be shipped from inventory within a short
time after receipt of a purchase order. The Company's business for its
catalog products, like the businesses of many companies in the semiconductor
industry, is characterized by short-term orders and shipment schedules rather
than by volume purchase contracts.
RESEARCH AND DEVELOPMENT
The Company's engineering staff is experienced in the design of both
systems and integrated circuits. In 1995, the Company's development efforts
were focused on the development of new digital processing circuits that
address video image processing applications as well as enhancement or
extension of existing products, especially design of new integrated circuit
layouts required for compatibility with new silicon wafer sources. Product
design efforts are supplemented by computer-design and simulation equipment.
The Company also has an experienced test engineering group which works closely
with the designers to develop production test software. Research and
development expenditures were 9% of sales in 1995 and historically have been
approximately 10% of net sales. See "Selected Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Consolidated Statements of Income" contained in Items 6, 7 and 8,
respectively.
<PAGE>
COMPETITION
The semiconductor industry is intensely competitive and characterized by
rapid technological change and rates of product obsolescence, price erosion,
periodic shortage of materials, variations in manufacturing yields and
efficiencies, and increasing foreign competition. The industry includes many
major domestic and international companies which have substantially greater
financial, technical, manufacturing, and marketing resources than the Company.
In addition, there are many emerging companies which are attempting to obtain
a share of the existing market. The Company faces competition from other
manufacturers of high-performance integrated circuits, many of which have
advanced technological capabilities, are currently increasing their
participation in the high-performance CMOS market and have internal wafer
production capabilities. The ability of the Company to compete in this
rapidly evolving environment depends on elements both within and outside the
control of the Company. These elements include: the Company's ability to
develop new products in a timely manner; the cost effectiveness of its
manufacturing; the successful introduction to and acceptance by customers of
new products; the speed at which customers incorporate the Company's products
into their systems; the continued access to advanced semiconductor foundries;
the number and capabilities of its competitors as well as general economic
conditions.
In the area of high-performance DSP circuits, the Company competes with
Texas Instruments, AT&T, Raytheon, Analog Devices and Harris among others. In
the area of high-performance static random access memories (SRAMs), the
Company competes with, among others, Integrated Device Technology, Cypress
Semiconductor, UMC, Micron Technology, Hitachi, NEC, Fujitsu, Motorola,
Toshiba, and Winbond.
PATENTS AND COPYRIGHTS
Because of the rapidly changing technology in the semiconductor industry,
the Company relies primarily upon its design know-how and continued access to
advanced CMOS process technology, rather than patents and copyrights, to
develop and maintain its competitive position. The Company attempts to
protect its trade secrets and other proprietary information through
confidentiality agreements with employees, consultants, suppliers, and
customers, but there can be no assurance that those measures will be adequate
to protect the Company's interests. The Company is of the opinion that patent
maskwork protection is of less significance in the Company's business than
factors such as the experience and innovative skill of its personnel and the
abilities of its management. There can be no assurance that others will not
develop or patent technology similar to the Company's technology or copy or
otherwise duplicate the Company's products. The Company owns five patents
awarded by the United States Patent Office.
Since others have obtained patents covering various semiconductor designs
and processes, certain of the Company's present or future designs or processes
may be claimed to infringe the patents of third parties. The Company has
previously received and may in the future receive claims that one or more
aspects or uses of the Company's products infringe on patent or other
intellectual property rights of third parties. Presently, there are no such
claims pending against the Company. The Company does not believe that it
infringes any known patents at this time. If any such infringements exist or
arise in the future, the Company may be liable for damages and may, like many
companies in the semiconductor industry, find it necessary or desirable to
obtain licenses relating to one or more of its current or future products.
The Company expects, based on industry practice, that any necessary licenses
or rights under patents could be obtained on conditions that would not have a
material adverse effect on the Company. There can be no assurance, however,
that licenses could in fact be obtained on commercially reasonable terms, or
at all, or that litigation would not occur. The Company's inability to obtain
such licenses or the occurrence of litigation could adversely affect the
Company.
<PAGE>
EMPLOYEES
As of December 31, 1995, the Company had 49 full-time employees: 5 in
administration, 8 in research and development, 4 in quality assurance, 20 in
production/test and 12 in marketing and sales. In addition, from time to
time, the Company uses consultants and part-time employees. The Company's
ability to attract and retain qualified personnel is an important factor in
its continued success. None of the Company's employees are represented by a
collective bargaining agreement,
and the Company has never experienced any work stoppage. The Company believes
that its employee relations are good.
REGULATION
Federal, state, and local regulations impose various environmental
controls on the discharge of chemicals and gases in connection with the wafer
manufacturing process. Since the Company relies on third party manufacturers
and its activities do not involve utilization of hazardous substances
generally associated with semiconductor processing, the Company believes such
regulations do not have a material affect on its business or operations.
ITEM 2. PROPERTIES
The Company's executive offices, as well as its manufacturing and
principal research and design facilities, are located in approximately 17,000
square feet of space in Sunnyvale, California pursuant to a lease expiring on
November 30, 1996. The Company maintains additional sales or field
application support offices located in the metropolitan area of Newton,
Connecticut, Somersville, New Jersey, Tampa-St. Petersburg, Florida and
Warminster, England. The Company currently leases these sales and field
application support offices on a month-to-month basis. The Company believes
that its facilities will be adequate to meet its reasonably foreseeable needs
or that alternative facilities will be available to it on acceptable terms so
as to meet its requirements.
ITEM 3. LEGAL PROCEEDINGS
INSURANCE LITIGATION
The Company tendered the defense of a wrongful termination action brought
by several former employees (which action was settled in 1994 with formal
settlement documents completed in early 1995) to several of its insurance
carriers, only one of which provided a partial defense. Accordingly, to
recover defense fees incurred in defending the wrongful termination action, on
September 21, 1992, the Company filed a Complaint for Breach of Contract, Bad
Faith Insurance Practices, and Declaratory Relief against those insurance
carriers which did not provide defense. [LOGIC DEVICES, INC. V. ST. PAUL FIRE
AND MARINE INS. CO., CENTENNIAL INSURANCE CO., FIREMAN'S FUND INS CO., case
number 724849.] St. Paul Fire and Marine Insurance Co. has agreed to a
mediation and arbitration procedure in connection with this action. The
Company's Complaint is pending against the remaining insurance carriers.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the last quarter of fiscal 1995.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock is traded under the symbol "LOGC" on the Nasdaq
National Market System. The following table sets forth for the period
indicated, the high and low closing prices for the Company's Common Stock as
reported by Nasdaq:
1994 HIGH LOW
First Quarter $ 7 1/2 $ 5 7/8
Second Quarter $ 6 $ 2 3/4
Third Quarter $ 3 1/2 $ 2 3/4
Fourth Quarter $ 3 1/2 $ 2 7/16
1995
First Quarter $ 4 3/4 $ 2 1/16
Second Quarter $13 1/2 $ 3 9/16
Third Quarter $15 $ 9 3/4
Fourth Quarter $10 3/4 $ 7 5/16
HOLDERS
As of March 28, 1996, there were approximately 1,250 holders of the Common
Stock.
DIVIDENDS
The Company has not paid any dividends on its Common Stock and does not
anticipate that it will do so in the foreseeable future. The Company has
entered into bank credit agreements which preclude the payment of dividends
without the prior consent of the parties to such agreements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources - Financing". Regardless of any
such restrictions in its bank credit and lease agreements, the present policy
of the Company is to retain earnings to provide funds for the expansion of its
business.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data of the Company set forth below for
the years ended December 31, 1995, 1994, 1993, 1992 and 1991 has been derived
from the Company's audited consolidated financial statements. This data
should be read in conjunction with the consolidated financial statements,
related notes and other financial information included elsewhere in this
report.
<TABLE>
<CAPTION>
(Dollars in thousands,
except per share
amounts) Year ended December 31,
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
Net revenues $16,611 $13,492 $12,817 $12,255 $18,596
Net income 1,384 708 277 85 454
Net income per common
share 0.26 0.15 0.06 0.02 0.10
Weighted average common
shares outstanding
(thousands) 5,420 4,841 4,862 4,741 4,741
Working capital 17,940 7,217 6,731 6,439 6,126
Equipment and leasehold
improvements (net) 2,410 2,163 2,371 2,049 2,416
Total assets 23,366 14,925 13,741 13,030 14,235
Long-term debt 391 1,228 1,996 2,277 2,590
Shareholders' equity 20,711 8,810 7,902 7,300 6,973
Research and
development expenses 1,451 1,338 1,285 1,234 1,879
Number of employees 49 44 49 61 87
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company derives its revenues primarily from the sale of semiconductor
products falling into two main groups; DSP circuits and SRAM circuits. The
revenue and gross margin contributed by each of the 45 products making up
these groups are subject to: (i) availability of such product from the wafer
foundry producing it, (ii) market demand for the product, (iii) average
selling price for the product and (iv) costs of production. The Company's net
revenues, gross margin, operating income and net income can depend upon the
success of one or a small number of its products in any given accounting
period. The Company believes that in the future its net revenues and
operating results may change from period to period depending upon the success
of new product introductions, the timing of large orders, and other cyclical
factors affecting the semiconductor industry in general. The Company has
derived revenues from technology licensing fees, but does not expect such fees
to be a significant portion of revenues in the future.
The Company believes that relationships with silicon wafer suppliers can
provide it with reliable sources of wafers while sparing the Company the
substantial investment in capital equipment required to establish a wafer
fabrication facility. During 1992 and again in 1995, the Company was unable
to receive adequate supplies of processed wafers conforming to the Company's
quality standards from its then foundry suppliers, and accordingly, the
Company's business and relationships with its customers were adversely
affected. See "Business -- Background." The Company works closely with the
foundries in order to take advantage of their processing capabilities and
continues to explore and develop additional foundry relationships in order to
minimize its dependence on any single relationship. See "Business -- Wafer
Fabrication Technology."
<PAGE>
The Company's in-house production capabilities consist of wafer testing,
package marking, hot and cold testing, assembled product testing, final
inspection, and quality/reliability screening. These production activities
are included as cost components in the Company's cost of sales. The Company
began subcontracting its assembly operations in 1993 as a means for further
cost savings and more efficient operations.
The Company historically has maintained high levels of inventory in
recognition of the economics of having relatively small amounts of product
processed by third-party suppliers and in order to protect against disruptions
in supplies. The Company believes that it presently maintains a level of
inventory appropriate to its business. It is the Company's policy to provide
reserves for any product material that is over one year old with no back-log
or sales activity, and to book reserves for future obsolescence.
The Company expects to continue to make substantial commitments to
research and development of new products and to improve existing products.
The Company introduced 2 new products in 1995. In addition to the 45
catalog products currently offered, the Company began the development of
additional products which are expected to be introduced in 1996.
The following table sets forth for the periods indicated the percentage of
net revenues (rounded to the nearest whole percent) represented by certain
items of the Company's Consolidated Statements of Income:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
<S> <C> <C> <C> <C> <C>
1995 1994 1993 95/94 94/93
Net revenues 100% 100% 100% 23% 5%
Cost of revenues 56% 56% 58% 23% 1%
Gross margin 44% 44% 42% 23% 11%
Operating expenses:
Research and development 9% 10% 10% 8% 4%
Selling, general and
administrative 21% 24% 26% 9% (2)%
Total operating 30% 34% 36% 9% 0%
expenses
Income from operations 14% 10% 6% 75% 76%
Interest expense, net 2% 3% 3% (30)% (4)%
Income before income
taxes 12% 7% 3% 109% 141%
Income taxes 4% 2% 1% 142% 111%
Net income 8% 5% 2% 96% 156%
</TABLE>
<PAGE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
Net revenues for the year ended December 31, 1995 were $16,611,100, a 23%
increase over the $13,492,300 in the year ended December 31, 1994. The
increase was due to the increased demand for and availability of the Company's
products during 1995. Sales of the Company's SRAM products increased
substantially over the former period, as the Company was able to support a
portion of the heavy demand for the Company's SRAM product experienced mid-
1995 with a limited amount of wafer material.
Cost of revenues increased from $7,543,600 in the year ended December 31,
1994 to $9,259,200 in the year ended December 31, 1995. Gross profit
increased from $5,948,700 in 1994 to $7,351,900 in 1995 due to the increase in
net revenues. Gross profit margin as a percentage of sales was 44% for both
1994 and 1995.
Research and development expenses were $1,450,600 in the year ended
December 31, 1995 versus $1,337,900 in the year ended December 31, 1994, an
increase of 8%. This growth was due to new product development efforts.
Research and development expenses as a percentage of net revenues decreased
from 10% in the 1994 to 9% in 1995.
Selling, general and administrative expenses increased 9% from $3,280,900
in the year ended December 31, 1994 to $3,572,200 in the year ended December
31, 1995. The increase was due to higher Sales and Marketing expenses
incurred during the period to support the growth in revenues. Sales
commissions paid to the Company's salesmen and independent sales
representative plus expenses associated with increased Marketing promotion
efforts constituted the majority of the expense increase. As a percentage of
net revenues, selling, general and administrative expenses decreased from 24%
in 1994 to 21% in 1995.
In the year ended December 31, 1995, operating income increased 75% to
$2,329,100 from $1,329,900 in the year ended December 31, 1994, due to the
above-mentioned factors. As a percentage of net revenues, operating income
increased from 10% in the 1994 period to 14% in the 1995 period.
Interest expense remained constant between the two periods, at $338,600 in
1994 and $339,700 in 1995. Interest income increased from $800 in the 1994
period to $102,300 in the 1995 as a result of interest earned on cash
investment.
As a result of the foregoing, net income increased from $707,800 in the
year ended December 31, 1994 to $1,383,800 in the year ended December 31,
1995.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE YEAR ENDED DECEMBER 31, 1993
Net revenues for the year ended December 31, 1994 were $13,492,300, a 5%
increase over the $12,817,200 in the year ended December 31, 1993. The
increase was due primarily to the increased demand for and availability of the
Company's products. Sales of the Company's SRAM products increased only
modestly over the former to the latter period, as the Company continued to
change over to new designs to be produced under new foundry relationships.
<PAGE>
Cost of revenues increased from $7,446,100 in the year ended December 31,
1993 to $7,543,600 in the year ended December 31, 1994. Gross profit
increased from $5,371,100 in 1993 to $5,948,700 in 1994 due to the increase in
net revenues. Gross profit margin increased from 42% to 44% due to the
greater contribution to net revenues in the latter period of new DSP designs,
which carry profit margins greater than the Company average.
Research and development expenses were $1,337,900 in the year ended
December 31, 1994 versus $1,285,200 in the year ended December 31, 1993, an
increase of 4%. This growth was due to new product development efforts.
Research and development expenses as a percentage of net revenues were 10% in
the 1994 and 1993 periods.
Selling, general and administrative expenses decreased 2% from $3,329,500
in the year ended December 31, 1993 to $3,280,900 in the year ended December
31, 1994. The decrease was the result of aggressive control of internal
expenses in many categories, each by themselves not material but which in
aggregate resulted in a material reduction. As a percentage of net revenues,
selling, general and administrative expenses decreased from 26% in 1993 to 24%
in 1994.
In the year ended December 31, 1994, operating income increased 76% to
$1,329,900 from $756,400 in the year ended December 31, 1993, due to the
above-mentioned factors. As a percentage of net revenues, operating income
increased from 6% in the 1993 period to 10% in the 1994 period.
Interest expense remained relatively constant between the two years, at
$372,600 in the 1993 period and $338,600 in the 1994 period.
As a result of the foregoing, net income increased from $276,900 in the
year ended December 31, 1993 to $707,800 in the year ended December 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
For the three years ended December 31, 1995 the Company's after-tax cash
earnings (net income plus non-cash charges) significantly exceeded its net
income, due to significant non-cash charges for depreciation, amortization,
and ESOP compensation expense. Such after-tax cash earnings ($2,020,900 in
1995, $1,963,500 in 1994, and $1,634,200 in 1993) have served as the Company's
primary source of financing for working capital needs and for capital
expenditures during these years.
During 1995, the Company's after-tax cash earnings provided funding for
increases of $1,214,400 in inventories, $1,856,400 of accounts receivable and
$199,800 in net other resulting in net cash used by operations of $1,249,700.
Capital equipment expenditures and increases to other assets used $911,700 net
in cash. The Company completed three private placements of securities during
the period which provided $9,665,200 in net cash. Repayment of bank notes
(including a term loan in the principal amount of $800,000 which had been used
previously to repay certain debt to shareholders) used $3,889,700 net in cash.
The Company was also provided with cash flow from the exercise of certain
warrants and employee stock options which provided $542,100 in cash flow for
the period.
During 1994, after-tax cash earnings of $1,963,500 supplemented by an
increase in accounts payable and other operating assets and liabilities of
$593,500 funded increases of $1,509,400 in inventories and $402,500 of
accounts receivable and resulted in net cash provided by operations of
$645,100. Such amount plus a net increase in indebtedness of $166,500 and an
increase of $116,700 from the sales of common stock financed capital
expenditures and increases in other assets of $900,400.
<PAGE>
During 1993, after-tax cash earnings of $1,634,200 supplemented by an
inventory reduction of $279,800, and an increase in accounts payable and other
operating assets and liabilities of $449,400 funded the increase of $673,500
in accounts receivable and resulted in net cash provided by operations of
$1,689,900. Such amount and $83,500 from the sales of common stock financed
capital expenditures and increases in other assets of $1,104,700 and allowed
the Company to reduce net indebtedness by $669,000.
The Company believes that its after-tax cash earnings, combined with cash
on hand and financing available under its existing line of credit will be
sufficient to support its working capital and capital expenditure requirements
for at least the next twelve months.
WORKING CAPITAL
The Company's investment in inventories and accounts receivable has been
significant and will continue to be significant in the future. Over prior
periods, the Company as a nature of its business, has maintained these levels
of inventories and accounts receivable.
The Company relies on third party suppliers for raw materials and as a
result maintains substantial inventory levels to protect against disruption in
supplies. The Company has historically maintained inventory levels from
approximately 225 days to 360 days, since 1990. The low point in inventory
levels came in 1992 and 1993 when the Company had supply disruptions from one
of its major suppliers.
The Company, looks at its inventories in relationship to its sales which
have ranged from 155 days to 185 days within the periods between 1995 and
1990. This inventory to sales ratio is a more stable measure of inventory
levels, versus the traditional inventory turnover measure because, at the
times when the Company is experiencing supply disruptions, and therefore lower
inventory levels, the Company is also experiencing increased costs of goods
due to inefficiencies in its operations stemming from sporadic deliveries
which skews the numerator and denominator in different directions for
inventory turns calculations. The lowest days on hand of inventory to sales
has been experienced when the Company has had supply disruptions as in 1992
and 1993.
The Company provides reserves for any product material that is over one
year old with no back-log or sales activity, and reserves for future
obsolescence. The Company also takes physical inventory write-downs for
obsolescence. For the year ended December 31, 1995, the Company took physical
inventory write-downs of approximately $350,000.
The Company's accounts receivable level has been consistently correlated
to the Company's previous quarter revenue level. Because of the Company's
customer scheduled backlog requirements, up to 80% of the quarterly revenues
are shipped in the last month of the quarter. This has the effect of placing
a large portion of the quarterly shipments reflected in accounts receivable
still not yet due per the Company's net 30 day terms. This, combined with the
fact that the Company's distributor customers (which make up 45% of the
Company revenues) generally pay 60 days and beyond, results in the accounts
receivable balance at the end of the quarterly period being at its highest
point for the period. This has been consistent over prior periods.
<PAGE>
Although current levels of inventory and accounts receivable impact the
Company's liquidity, the Company believes that it is a cost of doing business
given the Company's fabless operation. The Company is in the process of
diversifying its supplier base to reduce the risk of supply disruption.
However, this will require a significant investment in product development to
tooling with new suppliers. The Company believes that as it expands its
customer base it will be able to even out the flow of its shipments within its
quarterly reporting periods.
FINANCING
In August of 1995, the Company issued a total of 855,000 shares of Common
Stock in two separate private placement transactions exempt from registration
under the Securities Act, for an aggregate consideration of approximately
$9,854,300. In September of 1995, the Company issued a total of 57,500 shares
of Common Stock in a separate private placement transaction exempt from
registration under the Securities Act, for an aggregate consideration of
approximately $487,500.
On June 1, 1995, the Company renewed its $3,000,000 revolving line of
credit with Sanwa Bank extending the maturity to May 31, 1996. The line of
credit bears interest at the bank's prime rate plus 1.500%. The Company also
entered into an $800,000 Term Loan with Sanwa Bank to refinance the Company's
existing obligation to shareholders. The Term Loan as well as the then
existing balance under the Company's line of credit facility were repaid on
August 28, 1995 from the proceeds of the placements of shares discussed in the
preceding paragraph. The Term Loan had a maturity date of May 1, 1998, had
monthly principal amortization payments, and bore interest at the bank's prime
rate plus 1.75%. The line of credit is secured by the assets of the Company.
On December 7, 1995, the Company increased the amount available under its
line of credit agreement with Sanwa Bank from $3,000,000 to $8,000,000 and
extended the maturity date to June 30, 1996. In addition, the interest under
the line of credit changed from bearing interest at bank prime plus 1.500% to
the banks prime rate plus 0.750%. The line of credit requires the Company to
maintain a minimum tangible net worth of $17,500,000, a maximum ratio of debt
to tangible net worth of not more than 0.50 to 1.00, a minimum current ratio
of not less than 2.00 to 1.00, a minimum quick ratio of not less than 1.50 to
1.00, and profitability on a year to date basis. As of December 31, 1995 the
Company was in compliance with these covenants even though there was no
outstanding balance under this agreement. See Note 6 of Notes to Consolidated
Financial Statements. The line of credit facility is secured by all of the
assets of the Company. Currently, the entire $8,000,000 is available under
the line of credit facility.
Under the terms of its line of credit facility, the Company is precluded
from paying any cash dividends without the consent of the lender even if the
Company is in compliance with all of the financial covenants but is allowed to
pay stock dividends whether or not there was any other covenant violation.
Regardless of any such restrictions in its bank loan agreements, the Company
does not intend to pay cash dividends in the near future and anticipates
reinvesting its cash flow back into operations.
The obligation due to shareholders was scheduled to mature on March 31,
1995. On February 15, 1995, the shareholder lenders agreed to extend the
maturity date to March 31, 1996. On June 1, 1995 the Company obtained a term
loan from Sanwa Bank for repayment of the outstanding shareholder obligation.
As discussed above, such term loan has been repaid.
<PAGE>
The holders of the Company's 154 shares of previously issued and
outstanding Series A Preferred Stock have converted all of such shares into
25,666 shares of Common Stock pursuant to the terms of the Series A Preferred
Stock.
In 1989, the Company established an ESOP and borrowed $1,000,000 from a
bank and loaned the proceeds to the ESOP on the same terms and conditions as
its loan from the bank. The Company made monthly contributions to the ESOP in
order that the ESOP could make principal and interest payments on its debt
obligations to the Company. The loan was fully retired in July of 1994. The
loan was secured by the shares of the Company's Common Stock purchased by the
ESOP. In 1995, the Company terminated the ESOP. At the termination date,
226,770 shares of Common Stock were vested, and the Company is in the process
of distributing the shares to eligible participants. The Company filed a
registration statement under the Securities Act to register the shares being
distributed. Following the distribution of the shares held by the ESOP, the
distributees will be free to sell such shares without restriction.
On April 14, 1995, the Company acquired certain assets from Star
Semiconductor Corp., including patents, processes and technology regarding a
proprietary stream processor ("SPROC") which is a programmable DSP
architecture that offers a significant performance advantage in data flow
signal processing applications. Such assets were acquired in return for
75,000 shares of the Company's Common Stock. These shares were registered
under the Securities Act in October 1995.
Warrants to purchase an aggregate of 150,000 shares of Common Stock had
been issued in connection with an extension of the Shareholder Loan under a
Loan Extension and Warrant Purchase Agreement entered into in March 1991.
Warrants to purchase 74,955 shares were exercised during the year ended
December 31, 1995 and warrants to purchase 75,045 were exercised in February
of 1996. The exercise price of the warrants was $3.45 per share.
On February 15, 1995, the non-employee directors of the Company were
granted warrants to purchase an aggregate of 220,000 shares of Common Stock.
The grants were ratified by shareholders of the Company at the Company's 1995
annual meeting of shareholders held June 13, 1995. The warrants have an
exercise price of $2.5625 per share, which was the last reported transaction
price of the Common Stock on February 15, 1995, and expire on February 15,
2000. Certain other warrants to purchase an aggregate of 34,350 shares of
Common Stock were issued by the Company in connection with two of the private
placements described above. Under one transaction, the warrant gives the
holders the right to purchase from the Company up to 31,850 shares of Common
Stock at an exercise price equal to $12.625 per share (the last reported
transaction price on August 21, 1995). The warrant was exercisable
immediately upon its issuance and expires on August 21, 1998. The shares
underlying this warrant were registered in October 1995. Under the other
transaction, the warrants gives the holders the right to purchase from the
Company up to 2,500 shares of Common Stock at an exercise price equal to
$11.875 per share (the closing bid price on September 14, 1995). These
warrants were exercisable immediately upon their issuance and expire on
September 19, 1998. All of the warrants granted in these transactions are
transferable by the holders thereof in accordance with applicable securities
laws.
While the Company will continue to evaluate debt and equity financing
opportunities, it believes its financing arrangements and cash flow generated
from operations provide a sufficient base of liquidity for funding operations
and capital needs to support the Company's operations.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL
STATEMENT SCHEDULES
CONSOLIDATED FINANCIAL STATEMENTS: PAGE
Independent Auditors' Report .......................................20
Consolidated Balance Sheets, December 31, 1995 and 1994 ............21
Consolidated Statements of Income, years ended
December 31, 1995, 1994 and 1993 .................................22
Consolidated Statements of Shareholders' Equity,
years ended December 31, 1995, 1994 and 1993 .....................23
Consolidated Statements of Cash Flows, years ended
December 31, 1995, 1994 and 1993 .................................24
Notes to Consolidated Financial Statements .........................25
Quarterly Financial Data (unaudited) years ended
December 31, 1995 and 1994 .......................................35
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES:
Schedule II - Valuation and Qualifying Accounts ...................40
Exhibit 11 - Computation of Earnings per Common Share ..............44
<PAGE>
MC
Meredith Cardozo
Certified Public Accountants
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Logic Devices Incorporated
We have audited the consolidated financial statements of Logic Devices
Incorporated and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial schedules as listed in the accompanying index.
These consolidated financial statements and financial statement schedules are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedules 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Logic
Devices Incorporated and subsidiaries as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
/s/ Meredith Cardozo
San Jose, California
March 20, 1996
<PAGE>
LOGIC DEVICES INCORPORATED
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
(Note 6)
1995 1994
Current assets:
Cash and cash equivalents $ 4,378,500 $ 222,300
Accounts receivable, net of allowance for
doubtful accounts of $119,500
and $49,500, respectively (Note 12) 5,844,000 4,057,600
Inventories (Note 3) 8,296,000 7,081,600
Prepaid expenses and other assets (Note 9) 980,300 405,800
Deferred income taxes (Note 7) 704,700 336,100
Total current assets 20,203,500 12,103,400
Property and equipment, net (Notes 4 and 6) 2,409,800 2,162,700
Other assets (Note 2) 752,700 658,500
$ 23,366,000 $ 14,924,600
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank borrowings (Note 6) $ -- $ 2,846,400
Accounts payable 991,000 1,270,300
Accrued expenses 278,800 292,400
Current portion of obligations to
shareholders (Note 5) -- 200,000
Current portion of obligations under
capital leases (Note 6) 175,200 125,400
Income taxes payable (Note 7) 819,000 151,400
Total current liabilities 2,264,000 4,885,900
Obligations to shareholders, less
current portion (Note 5) -- 663,900
Obligations under capital leases, less
current portion (Note 6) 166,200 155,100
Deferred income taxes (Note 7) 225,000 409,400
Shareholders' equity (Notes 5 and 10):
Preferred Stock, no par value; 1,000,000 shares
authorized; 5,000 designated
as Series A; 154 shares
issued and outstanding in 1994 -- 154,000
Common Stock, no par value; 10,000,000 shares
authorized; 5,916,705
and 4,762,584 shares issued
and outstanding, respectively 16,741,900 6,071,200
Retained earnings 3,968,900 2,585,100
Total shareholders' equity 20,710,800 8,810,300
Commitments and contingencies (Notes 6, 8 and 9)
$ 23,366,000 $ 14,924,600
See accompanying Notes to Consolidated Financial Statements
<PAGE>
LOGIC DEVICES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
Net revenues (Notes 9 and 11) $ 16,611,100 $ 13,492,300 $ 12,817,200
Cost of revenues 9,259,200 7,543,600 7,446,100
Gross margin 7,351,900 5,948,700 5,371,100
Operating expenses:
Research and development 1,450,600 1,337,900 1,285,200
Selling, general and administrative 3,572,200 3,280,900 3,329,500
Total operating expenses 5,022,800 4,618,800 4,614,700
Income from operations 2,329,100 1,329,900 756,400
Other (income) expense:
Interest expense 339,700 338,600 372,600
Interest income (102,300) (800) (2,800)
Other (7,900) (11,500) (30,300)
229,500 326,300 339,500
Income before income taxes 2,099,600 1,003,600 416,900
Income taxes (Note 7) 715,800 295,800 140,000
Net income $ 1,383,800 $ 707,800 $ 276,900
Earnings per share:
Net income per common share $ 0.26 $ 0.15 $ 0.06
Weighted average common shares
outstanding 5,419,672 4,841,373 4,861,505
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
LOGIC DEVICES INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Guarantee
of
leveraged
PREFERRED STOCK COMMON STOCK Retained ESOP
SHARES AMOUNT SHARES AMOUNT EARNINGS BORROWING TOTAL
Balances as of
December 31, 1992
154 $ 154,000 4,715,584 $ 5,871,000 $ 1,600,400 $ (325,600) $ 7,299,800
Proceeds from exercise of
common stock options
-- -- 22,000 83,500 -- -- 83,500
ESOP compensation expense
-- -- -- -- -- 241,800 241,800
Net income
-- -- -- -- 276,900 -- 276,900
Balances as of
December 31, 1993
154 154,000 4,737,584 5,954,500 1,877,300 (83,800) 7,902,000
Proceeds from exercise of
common stock options
-- -- 25,000 116,700 -- -- 116,700
ESOP compensation expense
-- -- -- -- -- 83,800 83,800
Net income
-- -- -- -- 707,800 -- 707,800
Balances as of
December 31, 1994
154 154,000 4,762,584 6,071,200 2,585,100 -- 8,810,300
Proceeds from exercise of
common stock options
-- -- 66,000 283,500 -- -- 283,500
Private stock offerings, net
of issuance costs of
$416,300
-- -- 912,500 9,665,200 -- -- 9,665,200
Conversion of Series A
preferred stock into
common stock
(154) (154,000) 25,666 154,000 -- -- --
Purchase of assets for stock
(Note 2)
-- -- 75,000 309,400 -- -- 309,400
Conversion of stock warrants
(Note 5)
-- -- 74,955 258,600 -- -- 258,600
Net income
-- -- -- -- 1,383,800 -- 1,383,800
Balances as of
December 31, 1995
-- $ -- 5,916,705 $16,741,900 $ 3,968,900 $ -- $20,710,800
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
LOGIC DEVICES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(NOTE 13)
1995 1994 1993
Cash flows from operating activities:
Net income $ 1,383,800 $ 707,800 $ 276,900
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 1,120,100 1,246,100 1,194,900
Allowance for doubtful accounts 70,000 (12,500) (59,000)
ESOP expense -- 83,800 241,800
Deferred income taxes (553,000) (61,700) (20,400)
Changes in assets and liabilities:
Accounts receivable (1,856,400) (402,500) (673,500)
Inventories (1,214,400) (1,509,400) 279,800
Prepaid expenses and other assets (574,500) 166,900 60,900
Accounts payable (279,200) 226,600 536,100
Accrued expenses (13,700) 48,600 (147,600)
Income taxes payable 667,600 151,400 --
Net cash (used in) provided by
operating activities (1,249,700) 645,100 1,689,900
Cash flows from investing activities:
Capital expenditures (884,800) (711,900) (1,085,500)
Other assets (26,900) (188,500) (19,200)
Net cash used in investing
activities (911,700) (900,400) (1,104,700)
Cash flows from financing activities:
Proceeds from bank borrowings 3,011,400 3,412,400 520,500
Repayments of bank borrowings (5,857,800) (2,466,300) (345,000)
Proceeds from long-term debt obligations 800,000 -- --
Repayments of long-term debt obligations (979,400) (579,600) (644,500)
Repayments of obligations to shareholders (863,900) (200,000) (200,000)
Sale of common stock 10,207,300 116,700 83,500
Net cash provided by (used in)
financing activities 6,317,600 283,200 (585,500)
Net increase (decrease) in cash
and cash equivalents 4,156,200 27,900 (300)
Cash and cash equivalents at
beginning of year 222,300 194,400 194,700
Cash and cash equivalents at end of year $ 4,378,500 $ 222,300 $ 194,400
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
LOGIC DEVICES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies.
THE COMPANY
Logic Devices Incorporated (the Company) develops and markets high-
performance digital complementary metal oxide silicon (CMOS) integrated
circuits for applications which require high-operating speeds and low-
operating power.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiary. All significant
intercompany accounts and transactions have been eliminated.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with original maturities of three months or
less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method)
or market.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are stated at cost. Depreciation on
equipment and leasehold improvements is calculated on the straight-line
method over the estimated useful lives of the assets, generally three to
seven years. Assets held under capital leases are amortized on a
straight-line basis over the shorter of the lease term or the estimated
useful life of the asset. Certain tooling costs are capitalized by the
Company and amortized on a straight-line basis over the shorter of the
related product life cycle or five years.
COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED
Costs in excess of the fair value of net assets acquired is amortized on
a straight line basis, generally over 7 years.
CAPITALIZED SOFTWARE COSTS
Internal test computer software development costs incurred subsequent to
the determination of its technical feasibility are capitalized and
amortized on a straight-line basis over the shorter of the related
expected product life cycle or five years. As of December 31, 1995 and
1994, such costs aggregated $1,812,500 and $1,722,800, respectively, and
are included in other assets in the consolidated financial statements net
of accumulated amortization of $1,519,200 and $1,277,100, respectively.
(continued)
<PAGE>
1. Summary of Significant Accounting Policies - continued
REVENUE RECOGNITION
Revenue is generally recognized upon shipment of product. Sales to
distributors are made pursuant to agreements which provide the
distributors certain rights of return and price protection on unsold
merchandise. Revenues from such sales are recognized upon shipment, with
a provision for estimated returns and allowances recorded at that time.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109. Under SFAS No. 109,
deferred tax liabilities or assets at the end of each period are
determined using the tax rate expected to be in effect when taxes are
actually paid or recovered. Deferred income taxes as of December 31,
1995 and 1994, primarily result from certain expenses that are not
currently deductible for tax purposes.
NET INCOME PER COMMON SHARE
Net income per common share is computed using the weighted average number
of common and dilutive common equivalent shares outstanding for each
year. Common equivalent shares consist of convertible preferred stock
(in 1994 and 1993) and the dilutive effect, if any, of stock options and
warrants.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," which requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The new standard is effective
for fiscal years beginning after December 15, 1995. The Company will
adopt SFAS No. 121 in the first quarter of 1996. Upon adoption, the
Company does not expect SFAS No. 121 to have an effect upon the Company's
financial condition or results of operations.
(continued)
<PAGE>
1. Summary of Significant Accounting Policies - continued
STOCK-BASED INCENTIVE PROGRAM
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation," which encourages entities to recognize
compensation costs for stock-based employee compensation plans using the
fair value based method of accounting defined in SFAS No. 123, but allows
for the continued use of the intrinsic value based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees." Entities electing to
continue with the accounting prescribed by APB Opinion No. 25 are
required to disclose pro forma net income and earnings per share as if
the fair value based method of accounting had been applied. The new
standard is effective for fiscal years beginning after December 15, 1995.
The Company will adopt SFAS No. 123 in the first quarter of 1996, but
will continue to use the intrinsic value based method of accounting
prescribed by APB Opinion No. 25 supplemented by SFAS No. 123's required
footnote disclosures. Adoption of SFAS No. 123 will not have a
significant effect upon the Company's financial condition or results of
operations.
RECLASSIFICATION
Certain amounts in the 1994 and 1993 financial statements have been
reclassified to conform with the 1995 presentation.
2. Acquisition.
On April 14, 1995, the Company acquired and accounted for as a purchase,
certain intellectual and intangible assets of STAR Semiconductor
Corporation. Total consideration for the acquisition was 75,000 shares
of the Company's common stock valued at $309,400 for which the entire
amount was assigned to costs in excess of fair value of the net assets
acquired and other intangible assets. Pro forma results of operations
assuming that this acquisition had taken place at the beginning of the
respective periods have not been presented because the effects of the
acquisition were not significant.
3. Inventories.
A summary of inventories follows:
1995 1994
Raw materials $ 938,000 $ 835,500
Work-in-process 3,912,600 4,418,300
Finished goods 3,445,400 1,827,800
$ 8,296,000 $ 7,081,600
(continued)
<PAGE>
4. Property and Equipment.
A summary of property and equipment follows:
1995 1994
Equipment $ 5,729,000 $ 4,956,900
Tooling costs 4,182,700 3,829,700
Leasehold improvements 162,800 162,800
10,074,500 8,949,400
Less accumulated depreciation and amortization 7,664,700 6,786,700
$ 2,409,800 $ 2,162,700
Equipment under capital lease obligations aggregated $1,043,400 and
$803,200 in 1995 and 1994, with related accumulated amortization of
$741,100 and $596,800, respectively.
5. Related Party Transactions.
OBLIGATION TO SHAREHOLDERS
In 1987, the Company consolidated various existing notes payable and
related accrued interest into a single note payable. The note payable
was held by shareholders who are two groups of family trusts (the Trusts)
established for members of the families of two of the Company's board of
directors. As of December 31, 1995, the Company had repaid the entire
outstanding balance of the shareholder note, from the proceeds of the
private stock offerings.
WARRANTS
Between the years 1991 and 1993, the Company granted warrants to purchase
150,000 shares of the Company's common stock to the Trusts for extension
of the shareholder obligation. These warrants are exercisable at $3.45
per share and expire in March, 1996 (Note 10). In 1995, warrants for
74,955 shares of common stock were converted for aggregate proceeds of
$258,600. In addition, the remaining warrants were converted to common
stock in February 1996.
In 1995, the Company granted 200,000 warrants to two non-employee
directors related to the Trusts referred to above and 20,000 warrants to
one non-employee director to purchase the Company's common stock. These
warrants are exercisable at $2.5625 per share and expire February 15,
2000 (Note 10).
(continued)
<PAGE>
6. Debt Financing.
BANK BORROWINGS
The Company has a $8,000,000 revolving line of credit with a bank which
expires on June 30, 1996, bears interest at the bank's prime rate plus
0.75% (9.250% at December 31, 1995), and is secured by the assets of the
Company. The line of credit requires the Company to maintain a minimum
tangible net worth, a maximum ratio of debt to tangible net worth, a
minimum current ratio, a minimum quick ratio, and profitability over a
specified interval of time. As of December 31, 1995, the Company had
$8,000,000 available under the revolving line of credit.
In 1995, the Company used $3,697,000 from the proceeds of the private
stock offerings to retire the then outstanding obligations under the
revolving line of credit and term debt.
CAPITAL LEASE OBLIGATIONS
The Company leases certain equipment under capital leases. A summary of
the future minimum lease payments under capitalized leases together with
the present value of such minimum lease payments follows:
YEARS ENDED DECEMBER 31,
1996 $ 198,700
1997 163,800
1998 7,300
Future minimum lease payments 369,800
Less amount representing interest (9.5% to 15.8%) 28,400
Present value of future minimum lease payments 341,400
Less current portion 175,200
$ 166,200
7. Income Taxes.
Income tax expense for the years ended December 31, 1995, 1994 and 1993
comprise:
CURRENT DEFERRED TOTAL
1995:
Federal $ 1,075,100 $ (468,800) $ 606,300
State 193,700 (84,200) 109,500
$ 1,268,800 $ (553,000) $ 715,800
(continued)
<PAGE>
7. Income Taxes - continued
CURRENT DEFERRED TOTAL
1994:
Federal $ 302,900 $ (52,300) $ 250,600
State 54,600 (9,400) 45,200
$ 357,500 $ (61,700) $ 295,800
1993:
Federal $ 136,000 $ (17,400) $ 118,600
State 24,400 (3,000) 21,400
$ 160,400 $ (20,400) $ 140,000
Deferred income taxes result from timing differences in the recognition
of certain expenses and income items for tax and financial reporting
purposes as follows:
1995 1994 1993
Distributor sales $ 5,700 $ (14,700) $ 39,000
Capitalized inventory costs 223,100 19,700 134,300
Reserve not currently deductible 71,900 (120,500) 281,900
Depreciation 191,200 83,200 (282,600)
Capitalized software costs 61,100 94,000 (152,200)
$ 553,000 $ 61,700 $ 20,400
The following summarizes the difference between the income tax expense
and the amount computed by applying the Federal income tax rate of 34% in
1995, 1994 and 1993 to income before income taxes:
1995 1994 1993
Federal income tax at
statutory rate $ 717,300 $ 341,200 $ 139,100
Utilization of tax credits (121,400) (107,000) (17,400)
State income taxes, net of
federal tax benefit 129,500 61,600 25,100
Other, net (9,600) -- (6,800)
$ 715,800 $ 295,800 $ 140,000
(continued)
<PAGE>
7. Income Taxes - continued
Deferred tax assets (liabilities) comprises the following:
1995 1994
Distributor sales $ 40,300 $ 34,600
Capitalized inventory costs 412,700 189,600
Reserve not currently deductible 307,900 236,000
Depreciation (223,100) (414,300)
Capitalized software costs (58,100) (119,200)
Net deferred tax asset (liability) $ 479,700 $ (73,300)
8. Commitments.
The Company leases its facilities and certain equipment under operating
leases. The facility lease requires the Company to pay certain
maintenance and operating expenses such as taxes, insurance, and
utilities. Rent expense related to these operating leases was $939,100,
$918,600, and $1,059,400, during 1995, 1994 and 1993, respectively.
Future minimum lease payments required under non-cancelable operating
leases with terms in excess of one year are as follows: 1996 $478,500;
1997 $4,100.
9. Product Development and Foundry Agreements.
In 1992, the Company entered into an agreement with OKI Electric
Industries (OKI) of Japan to undertake the development of high-speed 1-
megabit SRAM, to license that product to OKI for manufacture and sale,
and to allow the Company to purchase wafers from OKI. License revenue,
included in net revenues, under this agreement aggregated $350,000 in
1993. There were no such license revenues recognized in 1995 and 1994.
In order to secure a long-term volume source of wafer production, in
December 1995, the Company entered into a foundry capacity agreement (the
Agreement) with Zentrum Mikroelektronik Dresden (ZMD), a German limited
liability company. Under the terms of the Agreement, the Company entered
into a non-cancelable purchase commitment for one years production
capacity of certain of its products with ZMD, at predetermined prices.
The Agreement required a $792,000 pre-payment for the years purchases,
which is included in prepaid expenses and other assets, and is renewable
annually upon satisfaction of various provisions.
(continued)
<PAGE>
10. Capital Stock.
PREFERRED STOCK
In June 1995, each share of the Series A Preferred Stock held by the
Trusts (Note 5), was converted into 166.67 shares of common stock. As of
December 31, 1995 and 1994, there was 0 and 154 shares of Series A
Preferred Stock outstanding, respectively.
COMMON STOCK
During 1995, the Company issued a total of 912,500 shares of the
Company's common stock in private placement transactions exempt from
registration under the Securities Act, which generated net proceeds of
approximately $9,665,200. These proceeds were used to repay the
shareholder debt (Note 5) and retire the bank debt outstanding at that
time (Note 6).
Also during 1995, the Company purchased certain assets of Star
Semiconductor Corporation for 75,000 shares of the Company*s common stock
(Note 2).
STOCK PURCHASE WARRANTS
As of December 31, 1995, the following common stock warrants were issued
and outstanding:
Issued with Shares Subject Exercise Expiration
RESPECT TO: TO WARRANT PRICE DATE
Extension of
obligation to
shareholders 75,045 $ 3.4500 March 1, 1996
Private Placement 31,850 $ 12.6250 August 21, 1998
Private Placement 2,500 $ 11.8750 September 19, 1998
Non-employee
Board of
Directors
compensation 220,000 $ 2.5625 February 15, 2000
STOCK OPTION PLAN
The Company has an incentive, nonqualified stock option plan (the Plan),
which provides for the granting of stock options to employees (including
officers and directors) at prices not less than the fair market value of
the Company's stock at the grant date. Options vest ratably over four
years and expire in ten years. The Company has reserved 225,000 shares
of its common stock for issuance under the Plan.
(continued)
<PAGE>
10. Capital Stock - continued
A summary of transactions under the stock option plan follows:
Options available OPTIONS OUTSTANDING
FOR GRANT SHARES EXERCISE PRICE
Balance at December 31, 1992 102,500 122,500 $1.625 - $4.25
Canceled 22,500 (22,500) $4.25
Exercised -- (22,000) $3.25 - $4.25
Balance at December 31, 1993 125,000 78,000 $1.625 - $4.25
Granted (25,000) 25,000 $2.75
Exercised -- (25,000) $1.625
Balance at December 31, 1994 100,000 78,000 $1.625 - $4.25
Granted (85,000) 85,000 $8.00
Exercised -- (66,000) $1.625 - $4.25
Balance at December 31, 1995 15,000 97,000 $1.625 - $8.00
At December 31, 1995, options to purchase 12,000 shares of the Company*s
common stock were exercisable.
LEVERAGED ESOP
In 1989, the Company established an Employee Stock Ownership Plan (ESOP)
covering substantially all employees. To fund the plan, the Company
borrowed $1,000,000 from a bank and loaned the proceeds to the ESOP.
These borrowings were retired in 1994 and the ESOP was terminated in
1995. In June 1995, the Company filed a registration statement under the
Securities Act to register the shares being distributed. Following the
distribution of the shares held by the ESOP, the distributees will be
free to sell such shares without restriction. As of December 31, 1995,
226,770 shares of Common Stock were vested in the ESOP pending
distribution.
11. Major Customers and Export Sales.
The Company had the following export sales:
1995 1994 1993
Far East $ 1,500,600 $ 939,300 $ 1,649,600
Western Europe 1,831,400 1,517,000 726,200
Other 108,800 22,200 --
$ 3,440,800 $ 2,478,500 $ 2,375,800
In 1995, two customers each accounted for approximately 13% of net
revenues, and one customer accounted for approximately 10% of net
revenues. In 1994 and 1993, one customer accounted for approximated 17%
and 13%, respectively, of net revenues.
(continued)
<PAGE>
12. Concentration of Credit Risk.
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of cash and cash
equivalents and trade receivables. The Company places its cash and cash
equivalents with high quality financial institutions and, by policy,
limits the amounts of credit exposure to any one financial institution.
A significant portion of the Company's accounts receivable are derived
from one major class of customer (distributors) with the remainder spread
across many other customers in various electronic industries. The
Company believes any risk of accounting loss is significantly reduced due
to provision being made at the date of the sale for returns and
allowances, diversity of its products, end-customers, geographic sales
areas and insurance on foreign distributor sales. The Company performs
credit evaluations of its customers' financial condition whenever
necessary. The Company generally does not require cash collateral or
other security to support customer receivables.
In 1993, the Company recognized a write-off of approximately $310,000 of
accounts receivable as the result of a bankruptcy of one of its foreign
distributors prior to obtaining credit insurance for such losses.
13. Statements of Cash Flows.
The Company paid $339,700, $338,600 and $372,600 for interest and
$454,600, $98,700 and $96,300 in income taxes in 1995, 1994 and 1993,
respectively.
Noncash investing activities for 1995 and 1993 consisted of the
acquisition of $240,200 and $119,100, respectively, of equipment under
capital leases.
In addition, as discussed in Note 2, noncash investing activities in 1995
included the issuance of 75,000 shares of the Company*s common stock for
certain assets of STAR Semiconductor Corporation.
<PAGE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited results of operations (dollars in
thousands except per share data) for the years ended December 31, 1995 and
1994.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1995 QUARTER QUARTER QUARTER QUARTER TOTAL
<S> <C> <C> <C> <C> <C>
Net revenues $ 3,550 $ 4,408 $ 4,517 $ 4,136 $ 16,611
Gross margin 1,666 1,827 1,833 2,026 7,352
Income from
operations 499 696 689 445 2,329
Income before income
taxes 400 602 648 450 2,100
Net income 272 407 441 264 1,384
Earnings per share 0.06 0.08 0.08 0.05 0.26
Weighted average
shares 4,913 5,294 5,667 5,420 5,420
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1994 QUARTER QUARTER QUARTER QUARTER TOTAL
<S> <C> <C> <C> <C> <C>
Net revenues $ 3,297 $ 3,156 $ 3,462 $ 3,577 $ 13,492
Gross margin 1,476 1,445 1,547 1,481 5,949
Income from
operations 353 208 389 380 1,330
Income before income
taxes 285 136 307 279 1,004
Net income 188 96 215 209 708
Earnings per share 0.04 0.02 0.04 0.05 0.15
Weighted average
shares 4,870 4,788 4,779 4,841 4,841
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The following is a list of the directors and executive officers of the
Company as of December 31, 1994, all of whom are elected annually:
Positions Held
NAME AGE WITH THE COMPANY
William J. Volz 48 President
Director
Todd J. Ashford 39 Chief Financial Officer
Secretary
Antony Bell 57 Vice President/Technology
William Jackson 48 Vice President/Manufacturing
Howard L. Farkas 71 Chairman of the Board
Burton W. Kanter 65 Director
Albert Morrison, Jr. 57 Director
Mr. Volz is a founder of the Company. He has served as a director
since its inception and has been the President of the Company since
December 1987. Mr. Volz served as the Company's Vice President of
Engineering from 1983 to 1987. He was previously employed by Texas
Instruments, Inc., Mostek Corporation, and E-Systems, Inc.
Mr. Ashford joined the Company in 1984 as Director of Finance and
Administration. Since 1985, Mr. Ashford has served as the Company's Chief
Financial Officer. Mr. Ashford was previously employed by W.R. Grace &
Company, Inc.
Mr. Bell joined the Company in 1988 as Vice President of Technology.
From August 1987 to 1988, Mr. Bell served as a consultant to the Company.
Mr. Bell was previously employed by ECAD, Inc., and VLSI Design Associates.
Mr. Jackson joined the Company in 1990. Before joining the Company,
Mr. Jackson held various engineering and management positions at Advanced
Micro Devices ("AMD") and Monolithic Memories Inc. ("MMI"). Prior to AMD
and MMI, he was employed by Raytheon Corporation, Litronix Corporation, and
Western Electric. Mr. Jackson was appointed Vice President of
Manufacturing in 1992.
<PAGE>
Mr. Farkas is Chairman of the Board of the Company and has been a
director since 1983. Mr. Farkas has been part owner of and a broker with
Farkas Group, Inc., a commercial real estate company, since 1981. He has
been a business advisor to Mr. S. A. Hellerstein, trustee of the Farkas
Trusts, and
Mr. Hellerstein's predecessor since 1964. He serves as a director of
Synthetech, Inc., Power Cell, Inc. and Acquisition Industries, Inc. Mr.
Farkas is vice president of G.A.S. Corp., a privately held corporation
which serves as the corporate general partner of Gas Acquisition Services
Limited Partnership. On June 27, 1990, such limited partnership sought
protection under Chapter 11 of the federal bankruptcy laws. On September
22, 1992, Mr. Farkas filed for personal protection under Chapter 7 of the
federal bankruptcy laws.
Mr. Kanter has served as a director of the Company since 1983. He is
"of counsel" to the law firm of Neal Gerber & Eisenberg in Chicago. He
serves as a director of numerous companies, including the following public
companies: Walnut Financial Services, Inc., HealthCare COMPARE Corp.,
Scientific Measurement Systems, Inc., Channel America, Inc. and PowerCell-
Inc. He also is a member of the Board of Directors or the Board of
Trustees of: the Midwest Film Center of the Chicago Art Institute, the
Chicago International Film Festival and the Museum of Contemporary Art of
Chicago. He is also on the advisory board of the Wharton School of the
University of Pennsylvania Real Estate Center and the University of Chicago
Annual Tax Conference.
Mr. Morrison has served as a director since 1983 and has been President
of Morrison, Brown, Argiz & Company, P.C., a certified public accounting
firm in Miami, Florida, since 1969. Mr. Morrison is Vice Chairman of the
Dade County Industrial Development Authority, Treasurer of the Board of
Trustees of Florida International University and a member of the Board of
Directors of Chicago Holdings, Inc., Heico Corporation and a Trustee of the
Greater Miami Chamber of Commerce.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board has an Audit Committee and a Compensation Committee.
Currently, the members of the Audit Committee are Howard L. Farkas, Burton
W. Kanter and Albert Morrison, Jr., and the members of the Compensation
Committee are Howard L. Farkas, William J. Volz and Burton W. Kanter.
The functions of the Audit Committee include reviewing the independence
of the Company's independent auditors, recommending to the Board the
engagement and discharge of independent auditors, reviewing with the
independent auditors the plan and results of auditing engagements,
reviewing the scope and adequacy of internal accounting controls and
directing and supervising special investigations. The Audit Committee held
one meeting during 1995.
The functions of the Compensation Committee include reviewing and
making recommendations to the Board with respect to the compensation of
officers and other employees of the Company and establishing employee
benefit programs. The Compensation Committee held one meeting during 1995.
The Board held five meetings during 1995. All members of the Board
attended each meeting during the year.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company pursuant to Rule 16a-3(e) during its most recent
fiscal year and Form 5 and amendments thereto furnished to the Company with
respect to its most recent fiscal year, the Company is not aware of any
director, officer or beneficial owner of more than 10% of the shares of the
Company's Common Stock who failed to file on a timely basis, as disclosed
in the above Forms, reports required by Section 16(a) of the Exchange Act
during the most recent fiscal year or prior fiscal year except that an SEP
of Mr. Burton W. Kanter sold 2,500 shares of the Company's common stock on
May 25, 1995 which sale was not reported on Form 4 until August of 1995.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be included in the Proxy
Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item will be included in the Proxy
Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item will be included in the Proxy
Statement and is incorporated herein by reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) The Company's Consolidated Financial Statements and Notes to
Consolidated Financial Statements appear at pages 21 to 34 of this
report; see Index to Consolidated Financial Statements at page 19 of
this report.
(2) Consolidated Financial Statement Schedules appear at page 40 of
this report; see Index to Consolidated Financial Statement Schedules at
page 19 of this report.
(3) The Index to Exhibits appears at page 42 of this report.
(b) Reports on Form 8-K: During the last quarter of fiscal 1995, the
Company filed no Current Report on Form 8-K.
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Balance Charged to Charged Balance at
at Beginning costs and to Other end
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
1995
Allowances for:
Doubtful Accounts $ 49,500 $ 120,000 -- $ 50,000 $ 119,500
Inventory Reserve $ 478,500 $ 749,800 -- $ 653,300 $ 575,000
Sales Returns $ 100,500 $ 507,600 -- $ 507,600 $ 100,500
1994
Allowances for:
Doubtful Accounts $ 62,000 $ 90,000 -- $ 102,500 $ 49,500
Inventory Reserve $ 756,600 $ 872,500 -- $1,150,000 $ 478,500
Sales Returns $ 143,500 $ 274,200 -- $ 317,200 $ 100,500
1993
Allowances for:
Doubtful Accounts $ 121,000 $ 429,400 -- $ 488,400 $ 62,000
Inventory Reserve $ 758,400 $ 481,600 -- $ 484,000 $ 756,000
Sales Returns $ 138,500 $ 298,300 -- $ 293,300 $ 143,500
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
LOGIC DEVICES INCORPORATED
Date: March 29, 1996 By: /S/ WILLIAM J. VOLZ
William J. Volz, President and
Principal Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/S/ WILLIAM J. VOLZ President March 29, 1996
William J. Volz (Principal Executive
Officer)
/S/ TODD J. ASHFORD Chief Financial Officer March 29, 1996
Todd J. Ashford (Principal Financial
and Accounting Officer)
/S/ HOWARD L. FARKAS Chairman of the Board March 29, 1996
Howard L. Farkas of Directors
/S/ BURTON W. KANTER Director March 29, 1996
Burton W. Kanter
/S/ ALBERT MORRISON, JR. Director March 29, 1996
Albert Morrison, Jr.
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
3.1 Articles of Incorporation, as amended [3.1] (1).
3.2 Bylaws, as amended. [3.2] (1).
4.1 Form of Warrant to purchase 2,500 share of common stock. [4.1] (14)
4.2 Form of Warrant to purchase 31,850 shares of common stock. [4.2] (14)
10.1 Master Agreement dated August 11, 1988 between Registrant, Howard L.
Farkas, Burton W. Kanter, William Volz, Albert Morrison, Jr., as trustee
of the T.C. Family Trust, Burton W. Kanter, as trustee of the Logical
Trust, L.A. Hellerstein, as trustee, the Farkas Trusts, and Solomon A.
Weisgal as trustee of the Bea Ritch Trusts, with exhibits. [10.1] (1).
10.2 Logic Devices Incorporated Stock Purchase Plan. [10.2] (1).
10.3 Incentive Stock Agreement dated September 1, 1986 between Registrant and
certain employees and former employees of Registrant, including William
Volz, James McAllister, Todd Ashford and Jesse Huffman. [10.3] (1).
10.4 Standard Industrial Lease - Net dated August 31, 1983. Exercise of
Option dated October 30, 1985 and Lease Modification and Extension
Agreement dated August 13, 1988, all between Registrant and Golden Gate
Commercial Company, covering a portion of Registrant's principal
facility in Sunnyvale, California. [10.4] (1).
10.5 Standard Industrial Lease - Net dated October, 1985 and Lease
Modification and Extension Agreement dated August 15, 1988, each between
Registrant and Golden Gate Commercial Company covering a portion of
Registrant's principal facility in Sunnyvale, California. [10.5] (1).
10.6 Agreement of Lease dated May 4, 1989 between Registrant and the Koger
Company covering Registrant's facility in St. Petersburg, Florida.
[10.7] (5)
10.7 Sales Incentive Plan. [10.11] (1).
10.8 Agreement dated December 1, 1988 between Registrant and AT&T
Microelectronics. [10.24] (4).
10.9 Logic Devices Incorporated incentive and non-qualified stock option
plan. [10.26] (6).
10.10 Stock option agreement between Todd J. Ashford and the Registrant,
dated May 15, 1990. [10.27] (7)
10.11 Stock option agreement between Tony Bell and the Registrant, dated
April 16, 1990. [10.28] (7)
10.12 SRAM Development Memorandum of Understanding between the Registrant and
OKI Electric Industry Co., Ltd. dated March 3, 1992. [10.32] (9) (15)
10.13 Form of Warrant to purchase an aggregate of 220,000 shares of Common
Stock. [10.23] (12)
10.14 Form of Registration Agreement regarding the Warrants referenced in
Exhibit 10.14. [10.24] (12)
10.15 Foundry Capacity Agreement between Zentrum Mikroelektronik Dresden
(ZMD) and Logic Devices Incorporated, dated December 14, 1995. (15)
11.1 Computation of Earnings per Common Share
23.1 Consent letter of Meredith Cardozo
26.1 Financial Data Schedule
___________________
[ ] Exhibits so marked have been previously filed with the Securities and
Exchange Commission as exhibits to the filings shown below under the
exhibit numbers indicated following the respective document description
and are incorporated herein by reference.
(l) Registration Statement on Form S-18 ("Registration Statement"), as filed
with the Securities and Exchange Commission ("SEC") on August 23, 1988.
(2) Amendment No. 1 to Registration Statement as filed with the SEC on
September 27, 1988.
(3) Amendment No. 2 to Registration Statement, as filed with the SEC on
October 7, 1988.
(4) Annual Report on Form 10-K for the fiscal year ended December 31, 1988,
as filed with the SEC on April 14, 1989.
(5) Annual report on Form 10-K for the fiscal year ended December 31, 1989,
as filed with the SEC on April 14, 1990.
(6) Proxy Statement relating to the Annual Meeting of Shareholders held on
June 12, 1990, as filed with the SEC on May 24, 1990.
(7) Annual Report on Form 10-K for the fiscal year ended December 31, 1990,
as filed with the SEC on April 14, 1991.
(8) Annual Report on Form 10-K for the fiscal year ended December 31, 1991,
as filed with the SEC on April 14, 1992.
(9) Annual Report on Form 10-K for the fiscal year ended December 31, 1992,
as filed with the SEC on April 15, 1993.
(10) Annual Report on Form 10-K for the fiscal year ended December 31, 1993,
as filed with the SEC on March 31, 1994.
<PAGE>
(11) Annual Report on Form 10-K for the fiscal year ended December 31, 1994,
as filed with the SEC on March 31, 1995.
(12) Amendment No. 1 on Form 10-K/A to the Annual Report on Form 10-K for the
year ended December 31, 1994, as filed with the SEC on April 29, 1995.
(13) Registration Statement on Form S-3 as filed with the SEC on August 31,
1995 [Registration No. 33-62299]
(14) Quarterly Report on 10-Q for the quarter ended September 30, 1995, as
filed with the SEC on November 14, 1995.
(15) Confidential treatment requested with respect to certain portions of
such agreements.
<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
1995 1994 1993
Weighted average shares outstanding
common stock 5,233,575 4,758,146 4,720,792
Common stock equivalent convertible
preferred stock -- 25,666 25,666
Dilutive effect of common stock options 13,743 28,035 44,662
Dilutive effect of common stock warrants 172,354 29,526 70,385
Weighted average common and
common share equivalents 5,419,672 4,841,373 4,861,505
Net income $1,383,800 $ 707,800 $ 276,900
Net income per common share equivalent $ 0.26 $ 0.15 $ 0.06
<PAGE>
EXHIBIT 10.15
[ ] - denotes information for which
confidential treatment has been
requested by the Registrant
FOUNDRY CAPACITY AGREEMENT BETWEEN
ZENTRUM MIKROELEKTRONIK AND LOGIC DEVICES INC
This Foundry Capacity Agreement ("Agreement") is entered into as of December
14, 1995 (the "Effective Date") by and between ZENTRUM MIKROELEKTRONIK DRESDEN
GmbH, a German limited liability entity ("ZMD") and LOGIC DEVICES
INCORPORATED, a California corporation ("LDI").
1. DEFINITIONS
1.1 "Foundry Products" or "Products" shall mean integrated circuits
developed and/or licensed by LDI which are set forth in ATTACHMENT A
hereto and which LDI desires ZMD to manufacture for sale by LDI.
Such Attachment will be amended from time to time to conform to
LDI's ongoing design and development efforts.
1.2 "Committed Capacity" shall mean the annual firm volume commitment of
LDI.
1.3 "Confidential Information" and "Proprietary Information" shall mean
for purposes of this Agreement:
(a) Any information disclosed by one party to the other pursuant to
or in connection with this Agreement which is in written,
graphic, machine readable or other tangible form and is marked
confidential, proprietary, or in some other manner to indicate
its confidential nature; and
(b) Any information orally disclosed by one party to the other
pursuant to or in connection with this Agreement provided that
such information is designated as confidential at the time of
disclosure and reduced to a writing delivered to the receiving
party within thirty (30) days of the oral disclosure and
detailing the confidential information involved.
1.4 "Pre-Payment Fee" for a year shall mean [ ] of the
purchase price for the Committed Capacity for such year.
2. TERM AND COMMITMENT.
2.1 This Agreement shall become effective as of Effective Date and shall
remain in effect until the close of business on December 31, 1996,
unless an "annual renewal" of this Agreement has been agreed to on
or before June 15, 1996. This Agreement may be renewed for
successive one (1) year periods by the parties using the "annual
renewal" procedure set forth below. For purposes of this Agreement,
an "annual renewal" of this Agreement is agreed to only if all of
the following are satisfied at any time on or before June 15 of the
then current contract year: (i) the Committed Capacity and a price
for the Products for the next calendar year have been agreed to in
writing, (ii) ZMD has received from LDI a firm, non-cancelable,
Purchase Order for the entire Committed Capacity for the next
calendar year, and (iii) the Pre-Payment Fee for the next calendar
year (determined in accordance with Section 2.2 hereof) has been
received by ZMD. If all such requirements are satisfied then this
Agreement shall be renewed for one (1) year, until the close of
business of December 31 of the next calendar year. If no agreement
on price or Committed Capacity for the next calendar year has been
reached in writing on or before June 15 of the then current year or
ZMD has not received the Purchase Order or the Pre-Payment Fee for
the next year on or before such date, then this Agreement shall
terminate as of the close of business of December 31 of the then
current calendar year. This Agreement may also be terminated
earlier as provided in Section 12 hereof.
<PAGE>
2.2 Payment by LDI of the Pre-Payment Fee for the initial year or a
renewal year provides LDI the right to purchase the Committed
Capacity for the year to which the Pre-Payment Fee relates. Such
payment serves to reserve ZMD's capacity in the amount of the
Committed Capacity for such year. The Pre-Payment Fee is in the
nature of a "security deposit", chargeable against the final amounts
payable under this Agreement or any renewal thereof. The Pre-
Payment Fee shall not bear interest. The Pre-Payment Fee for the
first year shall be [
] and shall be due and payable by LDI simultaneously with
the execution by the parties of this Agreement. If the Agreement is
renewed for a year in accordance with Section 2.1 hereof, then the
Pre-Payment Fee shall remain unused also for such renewal year, and
LDI needs to pay on or before the applicable June 15 only the
incremental Pre-Payment Fee, if any, for its commitment for the
renewal year. In case of a renewal, the Pre-Payment Fee will not be
used by ZMD at the end of the original period but only at the end of
such renewal period unless the Agreement is again renewed, in which
case the same rules apply. By way of example, if the Committed
Capacity for 1997 is [ ] wafers at a unit price of [ ], then LDI
must pay as additional Pre-Payment Fee, on or before June 15, [
]. However, if the Committed Capacity for 1997
were [ ] wafers at a unit price of [ ], then no additional Pre-
Payment Fee would be payable and ZMD would offset against payments
due from LDI at the end of the first year the amount of [
].
2.3 The parties agree that LDI shall have a right of first refusal for
ZMD's capacity for 1997 set forth on ATTACHMENT B hereto, which must
be exercised, if at all, together with the "annual renewal" for 1997
on or before June 15, 1996. Except as set forth in the immediately
preceding sentence, ZMD shall have no obligation to reserve any
capacity for LDI for any period outside the current contract term
and agreed to "annual renewal(s)". ZMD may enter into transactions
with third parties regarding its entire capacity outside such time
period, which may leave insufficient or no capacity for a future
"annual renewal".
2.4 In the event for whatever reason, except as expressly permitted
herein, LDI purchases less than its Committed Capacity for the year,
LDI shall pay to ZMD, upon written demand and invoice from ZMD, the
full purchase price for the shortfall. The parties agree that this
amount constitutes a reasonably estimate of the damages ZMD would
incur for such failure by LDI in light of ZMD's reservation of its
capacity, and this amount shall constitute liquidated damages (not a
penalty) for LDI's failure to honor its commitment hereunder for
such year. This remedy shall be ZMD's exclusive remedy for LDI's
failure to purchase the Committed Capacity for a year. However,
this exclusive remedy shall not affect any other remedy ZMD may have
hereunder or under applicable law for any other reason.
<PAGE>
2.5 In the event LDI is expressly permitted herein to purchase less than
the Committed Capacity for a year, ZMD shall use the excess Pre-
Payment Fee for such year as payment for Products as soon as
reasonably feasible thereafter. If any such excess Pre-Payment Fee
remains at the end of a contract year and is not carried over to the
next year in accordance with Section 2.2 hereof, ZMD shall refund
such amount to LDI at the end of such contract year.
3. PRODUCTION OF FOUNDRY PRODUCTS.
3.1 The Committed Capacity for the first year of this Agreement shall be
[ ] Products (wafers). The Committed
Capacity for a year shall constitute a firm, non-cancelable
commitment by LDI for such year. Any additional capacity shall be
subject to negotiation by the parties.
3.2 LDI shall provide to ZMD complete product specifications and tapes
for the Products to enable ZMD to manufacture the Products. ZMD
will use CMOS 0.8 micron technology to manufacture the Products, and
will process the Product in accordance with ZMD standard processing
specifications as well as in accordance with any additional
processing requirements for such Products as may be agreed-upon in
good faith and in writing by ZMD and LDI. ZMD will offer to LDI new
process technologies (0.6u, 6" and any others) as they become
available.
3.3 During the first seven (7) calendar days of each calendar month
during the term of this Agreement including any renewal hereof, LDI
shall provide by facsimile to ZMD written rolling forecasts of LDI's
anticipated wafer delivery requirements for the next six full
calendar months (the "Forecast").
(a) Each Forecast shall show the quantity of wafer deliveries for
each month and shall include the specific Products and
technology for the wafers listed. The Forecasts for 1996 and
1997 shall comply with the volume ramp-up schedule attached
hereto as ATTACHMENT B plus or minus ten percent (10%) per
month, unless ZMD agrees otherwise in writing. LDI shall make
good faith efforts to ensure that all Forecasts are reasonable
estimates of its anticipated needs. Subject to the obligations
contained in this Section 3.3(a), and except as provided in
Sections 3.1 and 3.3(b) hereof, all Forecasts (and any response
to them) will be for planning purposes only, and will not
create any obligation to purchase and/or sell Products.
(b) Each Forecast shall constitute a commitment by LDI to purchase
a minimum of the following percentages of the amounts indicated
in the Forecast:
<PAGE>
First Second Third Fourth Fifth Sixth
Month in the month of month of month of month of month of month of
Forecast forecast forecast forecast forecast forecast forecast
Minimum
percentage
commitment for
amounts
forecast 100% 100% 100% 75% 50% 0%
for that month
With respect to the forecasted amounts after the third month of
the Forecast, LDI shall be free to change the mix of the
specific Products and technology for the wafers listed.
(c) ZMD shall provide a written response to each Forecast within
five (5) working days of ZMD's receipt of such Forecast.
Subject to the other terms of this Agreement, ZMD's response to
each such Forecast shall accept the Forecast for the quantities
in the first three months to the extent they are within the
amounts allowed for LDI pursuant to this Section 3.3 and
Section 3.1. ZMD's response may accept and/or reject whole or
in part any additional Forecast quantities for those months.
3.4 ZMD will be responsible for procuring the masks for the Products.
The cost for production of the masks shall be borne by LDI for
normal production mode and by ZMD to the extent it causes the number
of masks produced to exceed the normal production mode.
3.5 In the event of any material delays in delivery or any excessive
warranty defects (as provided in Section 6.4 hereof), LDI may adjust
the Forecast to take into consideration the effect of such delays
and quality problems on LDI's need for the affected Product, in a
way mutually agreed to by the parties. Except as otherwise provided
in Section 6.4, there shall be no effect on LDI's Committed Capacity
for the year, unless ZMD agrees otherwise.
4. PRICING, PAYMENT AND DELIVERY.
4.1 The Pre-Payment Fee for a year shall be non-refundable except as
expressly provided herein.
4.2 The parties hereby agree to the price of [ ]
per wafer for Products purchased during the first year of this
Agreement, which price is based on LDI's Committed Capacity of [ ]
Products for the first year (1996). The prices for the second and
later years of this Agreement must be negotiated and agreed upon in
accordance with Section 2.1 hereof. However, with respect to the
pricing of the Products for 1997, ZMD agrees that any unit price
increase will be limited to [ ] of the prices for 1996, provided
that (a) the 0.8 micron CMOS processing technology is used, (b) at
least the volume reflected on Exhibit B is LDI's Committed Capacity
for 1997, and (c) the aggregate changes in the exchange rate as
published from time to time in the Wall Street Journal between the
Deutsch Mark and the US Dollar (i) on the Effective Date of this
Agreement and (ii) on the "annual renewal" date and thereafter
during 1997, at any time exceeds [ ]. When such change exceeds [ ],
ZMD shall have the right to adjust prices. All prices will be
agreed to in US Dollars and set forth on the invoice in US Dollars
unless the parties agree otherwise. All prices are F.O.B. ZMD's
plant in Dresden, Germany.
<PAGE>
4.3 The terms and conditions of this Agreement shall govern the sale by
ZMD to LDI of all Products and related foundry services, and such
terms and conditions shall supersede all pre-printed terms and
conditions contained in any purchase order, order acknowledgment
form, invoice or other business form submitted by either party to
the other.
4.4 Payment terms are net thirty (30) days from date of invoice.
Invoices shall show the number of wafers. All overdue amounts shall
bear interest at the rate of 1-1/2% per month, or the highest rate
permitted by applicable law, whichever is less, until paid in full.
Interest shall accrue on a daily basis. LDI shall make payment into
an account from time to time designated by ZMD and set forth on
ATTACHMENT D hereto.
4.5 If LDI is delinquent in payment of any amount due hereunder ZMD
shall have the right, at its option, in addition to other rights and
remedies it may have, to suspend its performance hereunder until
such time as all such delinquencies are cured, and the time for
ZMD's performance shall be adjusted accordingly. Such suspension in
performance shall not extend the term of this Agreement beyond the
term herein provided nor relieve LDI from its commitments hereunder,
including, without limitation, its full Committed Capacity for the
year. If due to such suspension ZMD is not able to delivery the
full quantities of the Committed Capacity, LDI shall nevertheless be
liable to ZMD for the full purchase price of such Committed Capacity
in addition to other remedies ZMD may have for LDI's failure to
timely pay.
4.6 The prices and fees do not include sales, use, transfer, property,
ad valorem, excise, privilege or value added taxes, import duties,
export duties or other custom duties or tariffs or any other taxes,
duties or charges not based on ZMD's net income, all of which shall
be paid by LDI. LDI agrees to promptly pay, or reimburse ZMD for,
the amount of such tax or charge and all reasonable attorneys' fees
and other costs and expenses incurred by ZMD in connection
therewith, and the amount of any fine or penalty assessed against
ZMD in connection therewith. Where applicable, LDI will provide
ZMD with exemption certificate(s) in form and substance satisfactory
to the relevant taxing or governmental authorities.
4.7 ZMD shall use commercially reasonable efforts to achieve on-time
delivery and to provide linear shipments as ordered by LDI so as to
not concentrate deliveries within any given time frame unless
otherwise agreed to by LDI.
4.8 All processed wafers or other items to be delivered under this
Agreement shall be properly packed, marked and shipped by ZMD in
the manner specified below:
(a) A packing list shall accompany each shipping package unit
containing: Bill of Lading or equivalent, invoice bearing
purchase order number(s), where applicable; the device code(s)
of the circuits on such wafers, respective wafer or item
quantities; wafer lot information and history (PCM electrical
test data or probe yield); and the location to which wafers or
items are shipped. Each shipping package unit shall be
properly marked with the applicable order number(s); and
<PAGE>
(b) Wafers shall be shipped in a rigid wafer boat of the type
customarily used by silicon wafer vendors. Such boat shall be
sealed in an envelope to shield the wafers from environmental
contamination.
4.9 ZMD shall deliver all Products to a freight forwarder designated by
LDI. Delivery of Products shall be F.O.B. ZMD's facility in
Dresden, Germany and upon delivery to the freight forwarder or
carrier at such facility the risk of loss or damage to the Products
shall pas to LDI. LDI shall be responsible for all export and
import formalities applicable to the Products.
4.10 In the event that any payment under this Agreement becomes
restricted for any reason, the party whose payment obligations is
restricted agrees, at its own expense, to immediately take whatever
steps or actions may be necessary to assure such payment.
5. RELIABILITY AND QUALITY.
5.1 Subject to the provisions of Section 5.2 hereof, wafer acceptance
will be subject to process control monitor acceptance criteria
("PCMA Criteria"), which shall be mutually agreed upon in writing
between ZMD and LDI on a process-by-process basis, and attached
hereto as ATTACHMENT C. The PCMA Criteria shall include, among
other things, yield requirements and Product specifications
including required characteristics and applicable ranges.
5.2 LDI acknowledges that in its design of the Products it has violated
ZMD's design rules for the applicable wafer technology and LDI
believes that such violations will not adversely affect the
performance and specifications of the Products in any way. LDI
hereby expressly waives and releases ZMD from any and all failures,
claims, breaches and liabilities arising out of or resulting in any
way from LDI's failure to observe the design rules. If due to such
violation of design rules, a Product fails the PCMA Criteria, such
Product shall be deemed to have passed the PCMA Criteria and ZMD
shall be entitled to full payment therefor and all obligations of
LDI hereunder shall be unaffected. LDI shall further defend,
indemnify and hold harmless ZMD from any and all claims, actions,
liabilities, damages, costs and expenses (including, without
limitation, reasonable attorneys fees and costs) arising out of or
relating to (i) any failure by LDI to observe ZMD's design rules and
(ii) any Product which is defective due to LDI's failure to observe
ZMD's design rules.
5.3 ZMD shall give LDI advance written notice of any proposed change(s)
("Proposed Change Notice") in materials and/or to its existing
manufacturing process, which, to the best of ZMD's knowledge, is/are
likely to affect the form, fit, performance, maintainability,
operation, function, reliability, interface, interconnectability,
compatibility, design rules, models, or size of the chips for
Products. Such Proposed Change Notice shall describe the nature of
the proposed change(s), including reasons for the change(s), the
anticipated schedule for implementation of the change(s), and other
relevant technical and logistic considerations, including, without
limitation, quality and reliability data to the extent available.
LDI shall approve or disapprove any such proposed change promptly,
but in no event may any such change be disapproved later than thirty
(30) business days after receipt of the Proposed Change Notice. If
LDI disapproves such proposed change within such thirty (30)
business day period, ZMD shall continue to manufacture and deliver
to LDI unchanged Products in accordance with this Agreement for a
minimum of six (6) months from the date ZMD issues the Proposed
Change Notice. At any time after the expiration of three (3) months
following the Proposed Change Notice, ZMD, in its discretion and by
then giving a minimum of three (3) months prior written notice to
LDI, may stop manufacture and delivery of the Product involved
without liability.
<PAGE>
5.4 Subject to the other terms of this Agreement, LDI reserves the right
to make any changes it deems appropriate to the design of Products
to be fabricated for it by ZMD, provided, however, that each such
change must be documented by LDI through written change notices.
LDI will be responsible for all applicable reasonable costs, if any,
related to such change.
5.5 During the term of this Agreement including any renewal hereof, ZMD
shall maintain fab and test lot traceability for Products
manufactured hereunder.
5.6 ZMD will promptly after discovery advise LDI of defects and/or
nonconformity in Products already shipped to and/or in lots
currently in manufacture for LDI. During the term of this Agreement
including any renewal hereof, ZMD will provide LDI with written
quarterly quality assurance reports regarding Products manufactured
on behalf of LDI. All Products shipped shall be deemed accepted by
LDI and the provisions of Section 6 shall be LDI's only recourse for
non-conforming Product.
6. WARRANTY.
6.1 ZMD warrants to LDI that the Products delivered will conform to the
PCMA Criteria, subject to the provisions of Section 5.2 hereof, (the
"PCMA Criteria Warranty") for a period of one (1) year following
delivery by ZMD or until the wafer is cut into dies, whichever
occurs first. ZMD warrants to LDI that ZMD has and can transfer to
LDI good title to the Products free and clear of all liens, claims
and encumbrances (other than liens, claims or encumbrances relating
to alleged intellectual property infringement). These warranties
are personal to LDI and non-transferable.
The warranties contained in this Section 6.1 do not cover any
failure to conform to the PCMA Criteria resulting from (i) assembly
not performed by ZMD, (ii) design or application of a Product, (iii)
combination of a Product with another component by a party other
than ZMD, (iv) any failure by LDI to observe any design rules of ZMD
(as referred to in Section 5.2 hereof), or (v) misuse, abuse,
abnormal conditions, failure to follow ZMD's instructions,
alteration or repair by anyone other than ZMD or shipment damage.
The warranties also do not cover any individual die.
<PAGE>
6.2 THE WARRANTIES CONTAINED IN SECTION 6.1 ARE THE ONLY WARRANTIES
GIVEN BY ZMD AND ZMD EXPRESSLY DISCLAIMS ALL OTHER WARRANTIES,
WHETHER EXPRESS, IMPLIED, OR STATUTORY, INCLUDING, WITHOUT
LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND OF FITNESS
FOR A PARTICULAR PURPOSE, AND THE STATUTORY WARRANTY OF NON-
INFRINGEMENT, AND ANY WARRANTY THAT MAY ARISE BY REASON OF USAGE OF
TRADE, CUSTOM OR COURSE OF DEALING, AND LDI HEREBY EXPRESSLY WAIVES
ANY SUCH WARRANTIES.
6.3 LDI's exclusive remedy, and ZMD's exclusive obligation and
liability, with respect to any Product which does not conform to an
express warranty set forth in Section 6.1, shall be to (i) perform
failure analysis and to repair or replace such Product, without
charge, and redeliver it to LDI or, in appropriate cases as
determined by ZMD in its sole discretion (except as provided below),
to refund to LDI the amount paid for such Product, or (ii) to cause
the encumbrance on the title to be removed. However, in the event
LDI shows to ZMD that LDI's customer has canceled its order to LDI
for the products containing the affected Products, LDI shall have
the right to require that ZMD refund to LDI the amount paid for such
Product rather than repair or replace such Product. Upon
discovering such defect, LDI shall promptly return the affected
Products (in wafer form only) to ZMD, adequately packaged, within
the warranty period at LDI's expense with a detailed statement of
the defect. LDI shall obtain a return material authorization (RMA)
number and show it on the packaging. Any repaired or replaced
Product shall be only warranted for the remainder of the original
warranty period. If ZMD's examination of the Products returned by
LDI does not disclose any warranty defect, LDI agrees to pay ZMD's
applicable charges for unpacking, testing and repacking the Products
for reshipment to Buyer. If ZMD's testing does disclose a warranty
defect, ZMD will reimburse the return shipping charges paid by LDI
for such Products.
6.4 In the event the number of warranty defects in the opinion of both
parties are excessive and are due to problems with the process used
by ZMD, LDI, in addition to the remedies in Section 6.3 hereof, may
request that ZMD stop shipment, in which case ZMD shall stop
shipment and production until such problems are resolved. Parties
shall agree to the appropriate production ramp up and LDI's
Committed Capacity for the year and the related Purchase Order of
LDI and the Forecasts shall be adjusted accordingly without any
liability of LDI. The provisions of Section 6.3 and 6.4 constitute
LDI's exclusive remedy, and ZMD's sole liability, in the event of
excessive warranty defects of Products.
7. USE RESTRICTIONS.
LDI agrees that it will not use, or permit the use of, any Product as a
critical or important component in life support devices or systems or in
any devices or systems relating to or involving atomic energy, without the
express prior written consent of ZMD. ZMD shall not be responsible or
liable to LDI or any third party for any such use of any Product. LDI
agrees to defend, indemnify and hold harmless ZMD, its officers,
directors, employees and agents, from and against any and all claims,
liabilities, actions, losses, injuries, damages, costs and expenses,
including expert fees, attorneys' fees and other legal expenses and costs,
which arise in any way out of, involve or relate to any such unauthorized
use of any Product. LDI shall promptly notify ZMD of such a claim or
allegation when it comes to its attention. ZMD shall have the right, at
its option, to participate in such action with its own counsel at its own
expense.
<PAGE>
8. NO CONSEQUENTIAL DAMAGES; NO "COVER" REMEDY.
8.1 Under no circumstances shall ZMD be liable for any special,
indirect, incidental or consequential damages of any kind or nature
whatsoever arising out of or in any way related to this Agreement,
the Products or the use or inability to use any Products, including,
without limitation, lost goodwill, lost profits, work stoppage or
impairment of other goods, and whether arising out of breach of
warranty, breach of contract, tort (including negligence), strict
liability or otherwise, even if advised of the possibility of such
damage or if such damage could have been reasonably foreseen, and
notwithstanding any failure of essential purpose of any exclusive
remedy provided herein. In addition, in no event shall ZMD be
liable for the costs of procurement of substitute goods or services.
8.2 In no event shall ZMD's total liability relating to or in connection
with any Products or this Agreement, whether based on contract,
warranty, tort (including negligence), strict liability or
otherwise, exceed the actual amount paid to ZMD by LDI hereunder
during the most recent full calendar year.
9. REPRESENTATIONS AND WARRANTIES: INDEMNIFICATION
9.1 LDI represents and warrants to ZMD that all technology, processes,
masks, designs and other information transferred or disclosed to ZMD
by LDI pursuant to the terms of this Agreement shall be free from
any claims of infringement or violation of valid and enforceable
trade secret, trademark, copyright, and/or mask work rights of
others; and that LDI shall defend, indemnify and hold ZMD harmless
from and against any claims to the contrary, provided however that
LDI shall receive (i) prompt written notification of any claim for
which it is providing indemnification under this Section 9.1, (ii)
the right to assume, in a prompt fashion, sole control of the
defense or settlement of such claim (provided that LDI cannot commit
ZMD to the payment of any sums in settlement or otherwise), and
(iii) reasonable assistance from ZMD, at LDI's request and expense
and provided further that if LDI assumes sole control of the defense
of such claim, ZMD may, at its expense, participate in such defense.
9.2 ZMD represents and warrants to LDI that all technology, processes,
masks, design rules and parameters and other information used by it
in any process employed in the fabrication of Products pursuant to
the terms of this Agreement shall be free from any claims of
infringement or violation of valid and enforceable trade secret,
trademark, copyright, and/or mask work rights of others; and ZMD
shall defend, indemnify and hold LDI harmless from and against any
claims to the contrary; provided however that ZMD shall receive (i)
prompt written notification of any claim for which it is providing
indemnification under this Section 9.1, (ii) the right to assume, in
a prompt fashion, sole control of the defense or settlement of such
claim (provided that ZMD cannot commit LDI to the payment of any
sums in settlement or otherwise), and (iii) reasonable assistance
from LDI, at ZMD's request and expense and provided further that if
ZMD assumes sole control of the defense of such claim, LDI may, at
its expense, participate in such defense.
<PAGE>
10. CONFIDENTIAL INFORMATION.
10.1 Each party shall treat as confidential all Confidential Information
provided by the other party, shall not use or disclose such
Confidential Information except to its employees on a need to know
basis and except as contemplated in this Agreement and then only
subject to written confidentiality agreement. Without limiting the
above, each party shall use at least the same procedures and degree
of care which it uses to prevent the disclosure of its confidential
information of like importance and shall in no event use less than
reasonable procedures and a reasonable degree of care.
Notwithstanding the above, no party shall have any obligations with
respect to Confidential Information of the other party which:
(a) Such party shows was generally known and available to the
public at the time it was disclosed, or becomes generally known
and available to the public thereafter through no fault of the
receiver;
(b) Such party shows was known to the receiver without obligation
of confidentiality at the time of disclosure;
(c) Is disclosed with the prior written consent of the disclosing
party;
(d) Such party shows that it becomes known to the receiver without
any obligation of confidentiality;
(e) Such party shows was developed by such party independent of the
Confidential Information and by persons who had no access to
the Confidential Information; or
(f) Is disclosed pursuant to the order or requirement of any court,
agency, or other governmental body having jurisdiction;
provided however, that, prior to any such disclosure pursuant to Section
10.1(f) above, the party seeking disclosure shall notify the other party
and take all reasonable actions in an effort to minimize the nature and
extent of such disclosure.
10.2 Each party agrees that the terms of this Agreement shall be treated
as Confidential Information and not disclosed, provided however that
any and all parties may disclose the terms and conditions of this
Agreement in confidence to its legal counsel, accountants, banks,
and financing sources and their advisors, or pursuant to written
confidentiality agreements having terms at least as restrictive as
those in this Section 10 in connection with an actual or proposed
merger or acquisition, and/or in connection with the enforcement of
its rights under this Agreement. The existence of this Agreement
shall not be confidential and, without limiting the foregoing, LDI
may disclose the existence of this Agreement pursuant to its
obligations as a reporting company under the Securities Exchange Act
of 1934 and ZMD may use LDI as a reference account if it so desires.
10.3 Without limiting the foregoing, in order to facilitate exchanges of
Confidential Information amongst themselves, the parties may
negotiate and execute one or more mutually satisfactory non-
disclosure agreements.
10.4 The obligations of this Article 10 shall survive the expiration or
termination of this Agreement or any renewal thereof for a period of
three (3) years after it expires or terminates. In the event of any
breach of this covenant, the parties shall promptly discuss and
cooperate in good faith with respect to measures to mitigate any
harmful effect of such breach.
11. PURCHASE OF FINISHED PRODUCTS.
LDI may purchase the Product in cut and packaged finished product form
(rather than as wafers) from ZMD upon terms and conditions, including
prices, to be separately negotiated and agreed upon by the parties. When
agreed upon, such terms and conditions shall be contained in a separate
Attachment to this Agreement which must be executed by the parties.
12. TERMINATION.
This Agreement may be terminated during the initial term or any renewal
term hereof only as described below.
12.1 This Agreement may be terminated earlier and at any time:
(a) By either party, immediately upon written notice to the other
party, if such other party fails to perform or otherwise
defaults in any of its material obligations under this
Agreement and fails to cure such default within ninety (90)
days (thirty (30) days for the non-payment of money) after
written notice thereof to such other party, or with respect to
a default that cannot reasonably be cured within such ninety
(90) day period, if such other party fails to commence and
pursue a cure in good faith within such ninety (90) day period
and diligently pursue such cure thereafter until completed; or
<PAGE>
(b) If such other party makes any arrangement with its creditors
generally, or has a receiver appointed for all or a substantial
part of its business or properties, or an insolvency,
bankruptcy or similar proceeding is brought by or against such
other party and involving such other party as debtor, and if
brought against such other party is not dismissed within sixty
(60) days from its institution, or if such other party goes
into liquidation or otherwise ceases to function as a going
concern; or
(c) As provided elsewhere in this Agreement.
12.2 If LDI terminates this Agreement pursuant to Section 12.1 hereof,
LDI will have no further liability for the Committed Capacity to the
extent not delivered to LDI as of the effective date of termination,
but must pay for all Product delivered and all other amounts
incurred, all of which amounts shall accelerate and become
immediately due and payable. ZMD will unless otherwise requested in
writing by LDI, cease all further production of Products required by
LDI's purchase orders under this Agreement. If so requested by LDI,
ZMD will complete and deliver all Products pursuant to LDI's
purchase orders for the remainder of the contract year or such
shorter period as LDI shall indicate, and invoice LDI for the
Products. The provisions of this Agreement shall continue to apply
to such continued production and purchase.
12.3 If ZMD terminates this Agreement pursuant to Section 12.1 hereof,
ZMD shall be entitled to (i) continue to completion the Products
then in process, deliver them to LDI and receive payment therefor,
(ii) receive liquidated damages as provided in Section 2.4 hereof.
All amounts incurred shall accelerate and become immediately due and
payable. ZMD will provide to LDI at its request a reasonable phase
out period, but only if termination was not due to a payment
default. The provisions of this Agreement shall continue to apply
to any continued deliveries and purchases.
12.4 During this Agreement and following termination thereof for whatever
reason (including expiration), the parties will cooperate in
connection with any issue raised by either of them with respect to
intellectual property rights of third parties. Without limiting the
foregoing, upon written notice to the others, either party hereto
may suspend (i) performance of its obligations, or (ii) providing
capacity to the extent that such party has reasonable concerns that
its future performance in connection with such matters will subject
it to claims by others with respect to such matters, provided
however that no such suspension will affect any obligation to pay
for Product delivered and/or manufactured prior to the date of
written notice concerning such matters. In the event that ZMD
exercises any of its rights pursuant to this Section 12.4, the
Committed Capacity for the affected year will be equitably adjusted.
12.5 Termination pursuant to Section 12.1 hereof shall be in addition to
any and all other rights and remedies, if any, that either party may
have against the other, unless a remedy is designated as exclusive,
and all remedies other than the exclusive remedies shall be
cumulative and may be exercised singularly or concurrently.
12.6 In addition to this Section 12.6, the following sections shall
survive the termination of this Agreement for whatever reason
(including expiration): Sections 2.2, 2.4, 3.1, 4.1, 4.6, 5.2, 5.6
(other than the reports), 6, 7, 8, 9, 10, 12.3 and 12.4 (and the
other provisions of this Agreement to the extent contemplated in
<section><section> 12.3 and 12.4), 12.5, 13, 14, 15 and 17.
<PAGE>
13. PROPRIETARY RIGHTS.
All discoveries, improvements and inventions, conceived or first reduced
to practice, as those terms are used before the U.S. Patent Office, in the
performance of this Agreement solely by one party shall be the sole and
exclusive property of such party and such party shall retain any and all
rights to file as its sole discretion any patent or other applications
thereon.
14. DISPUTE RESOLUTION.
The parties shall cooperate and attempt in good faith to resolve any and
all disputes arising out of and/or relating to this Agreement. Without
limiting the foregoing, within thirty (30) days of a written demand to
meet to resolve such a dispute, senior management of each party with the
authority to negotiate and resolve the issues shall meet in San Jose,
California or in some other mutually agreeable location to discuss the
issues, from time to time during the forty-five (45) day period following
such demand (or longer if agreeable to the parties) as reasonably
requested by either party involved, and such senior management will
attempt to resolve the dispute. If more than one set of meetings occurs
or is advisable under this Agreement the location of such sets of meetings
shall alternate between Dresden, Germany and San Jose, California so as to
be not unduly burdensome for one party. If the dispute cannot be so
resolved, the parties shall discuss what further steps to take.
15. NOTICES.
All notices required or permitted hereunder shall be in writing and shall
be deemed given and effective (i) when delivered personally, by fax (with
confirmed answer-back and confirmed by regular airmail), or by
international express, or (ii) five (5) days after the postmark date if
mailed by certified or registered airmail, postage prepaid, addressed to a
party at its address stated below or to such other address as such party
may designate by written notice to the other party in accordance with the
provisions of this Section.
If to ZMD: Zentrum Mikroelektronik Dresden GmbH
GrenzstraBe 28
01109 Dresden, Germany
Attention: Gunter Ziegenbalg
Fax: 011-49-351-8822-334
with a cc to: Pacific Silicon Technologies
1250 Oakmead Parkway
Suite 210
Sunnyvale, California 94086
Attention: Eduard Weichselbaumer
Fax no: (408) 955-9021
with a 2d cc to: General Counsel Associates
1891 Landings Drive
Mountain View, CA 94043
Attention: Anne L. Neeter, Esq.
Fax no.: (415) 428-3901
<PAGE>
If to LDI: LOGIC Devices Incorporated
628 East Evelyn Avenue
Sunnyvale, California 94086
USA
Attention: William Volz, President
Fax no.: (408) 733-6415
with a cc to: [to be provided]
16. FORCE MAJEURE
Neither party shall be liable for any failure to perform or delay in
performing any of its obligations hereunder (other than the payment of
money) when such failure or delay is due to circumstances beyond its
reasonable control, including, without limitation, any natural
catastrophe, fire, war, riot or civil unrest, strike, lockout or other
general labor disturbance, late or nondelivery by suppliers, shortage or
unavailability of materials, components or transportation facilities,
assertion by a third party of an infringement claim, or any act, refusal
to act, regulation, order or intervention of any governmental authority.
Upon the occurrence of such circumstances, the affected party shall
immediately notify the other party with as much detailed information
thereof as possible, and shall keep the other party informed of any
further developments. Immediately after such condition is removed, the
affected party shall perform such obligation with all due speed. If such
circumstances prevent or delay a party's performance of a material
obligation hereunder for more than four (4) consecutive months, then
either party may at any time thereafter, provided that such circumstances
are then continuing, upon written notice to the other party, terminate
this Agreement, without any liability to the other party by virtue of such
termination. However, such termination shall not affect any liability of
any party to the other on any other basis and shall not prejudice the
rights of either party against the other which may have accrued up to the
date of such termination. If due to a force majeure event affecting ZMD,
ZMD is unable to deliver the Committed Capacity for the year, the
Committed Capacity will be equitably adjusted.
17. MISCELLANEOUS.
17.1 This Agreement constitutes the entire agreement between the parties
hereto relating to the subject matter hereof and supersedes all
prior oral and written and all contemporaneous oral negotiations,
commitments and understandings of the parties. This Agreement may
not be changed or amended except by a writing executed by both
parties hereto.
17.2 This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns (to the
extent this Agreement is assignable). No party may assign this
Agreement without the prior written consent of the other party
hereto, except that each party may assign this Agreement without the
consent of the other if this Agreement is assigned as part of the
transfer of the business to which this Agreement pertains. Any
prohibited assignment or attempted assignment without the other
party's prior written consent shall be null and void.
<PAGE>
17.3 No delay or failure by either party to exercise or enforce at any
time any right or provision of this Agreement shall be considered a
waiver thereof or of such party's right thereafter to exercise or
enforce each and every right and provision of this Agreement. A
waiver to be valid shall be in writing, but need not be supported by
consideration. No single waiver shall constitute a continuing or
subsequent waiver.
17.4 This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which shall constitute
but one and the same document.
17.5 If any provision of this Agreement shall be held illegal, invalid or
unenforceable, in whole or in part, such provision shall be modified
to render it legal, valid and enforceable while to the fullest
extent possible preserving the business and financial intent and
impact of the original provision, and the legality, validity and
enforceability of all other provisions of this Agreement shall not
be affected thereby.
17.6 In construing or interpreting this Agreement, the word "or" shall
not be construed as exclusive, and the word "including" shall not be
limiting. This Agreement shall be fairly interpreted in accordance
with its terms without any strict construction in favor of or
against either party and ambiguities shall not be interpreted
against the drafting party.
17.7 Nothing in this Agreement shall prohibit LDI from purchasing
Products and/or foundry services from other suppliers nor prohibit
ZMD from offering wafers and/or foundry services to others.
17.8 This Agreement has been negotiated in accordance with and shall be
deemed to be a contract made under and governed by the laws of the
State of California, without regard to its conflicts and/or choice
of law provisions.
17.9 The English version is the official version of this Agreement. If
this Agreement is translated into any other language and a conflict
exists between the translation and the English version, the English
version shall control.
17.10 Nothing in this Agreement shall be deemed to create a general or
limited partnership or an agency relationship between the parties;
the parties are independent contractors. No party shall be entitled
to act or assume any obligation on behalf of or to bind the other in
any way.
<PAGE>
IN WITNESS WHEREOF, each party to this Agreement represents and warrants that
each of the representatives signing on their respective behalves is authorized
to enter into this Agreement and to bind that party to its terms.
ZMD: LDI:
ZENTRUM MIKROELEKTRONIK DRES- LOGIC DEVICES INC.
DEN GmbH
By: _/s/ William J. Volz__
By: _/s/ Dr. Kurt Garbrecht _ Name: William J. Volz
Name: Dr. Kurt Garbrecht Title: President
Title: Chief Executive Officer
<PAGE>
ATTACHMENT A
PRODUCTS
<PAGE>
ATTACHMENT B
RAMP UP SCHEDULE
<PAGE>
ATTACHMENT C
PCMA CRITERIA
1. Yield requirements for a Product will be mutually agreed upon after
ZMD has manufactured at least one hundred twenty (120) wafers (5 lots)
of a Product. Before such yield requirements are mutually agree upon,
no minimum yield requirements shall apply.
<PAGE>
ATTACHMENT D
DESIGNATED ACCOUNT
Until further notice from ZMD, payment shall be made into a designated account
in the US in the name of Pacific Silicon Technologies, with account number:
______________________________.
<PAGE>
MC Meredith Cardozo
Certified Public Accountants
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use of our report included herein, dated March 20, 1996,
relating to the consolidated balance sheets of Logic Devices Incorporated
(the "Company") as of December 31, 1995 and 1994, and the related
consolidated statements of income, shareholders' equity and cash flows and
related schedules for each of the years in the three-year period ended
December 31, 1995, to the incorporation by reference of such report into
the Registration Statement on Form S-3 filed by the Company with the
Securities and Exchange Commission ("SEC") on January 12, 1994 [File No.
33-74116], into the Registration Statement on Form S-3 filed by the
Company with the SEC on August 31, 1995 [File No. 33-62299], into the
Registration Statement on Form S-8 filed by the Company with the SEC on
September 28, 1993 [File No. 33-69630], and into the Registration
Statement on Form S-8 filed by the Company with the SEC on July 6, 1995
[Registration No. 33-60993].
/s/ Meredith Cardozo
San Jose, California
March 20, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,378,500
<SECURITIES> 0
<RECEIVABLES> 5,844,000
<ALLOWANCES> 119,500
<INVENTORY> 8,296,000
<CURRENT-ASSETS> 20,203,500
<PP&E> 10,074,500
<DEPRECIATION> 7,664,700
<TOTAL-ASSETS> 23,366,000
<CURRENT-LIABILITIES> 2,264,000
<BONDS> 0
<COMMON> 16,741,900
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 23,366,000
<SALES> 16,611,100
<TOTAL-REVENUES> 16,611,100
<CGS> 9,259,200
<TOTAL-COSTS> 5,022,800
<OTHER-EXPENSES> 7,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 339,700
<INCOME-PRETAX> 2,099,600
<INCOME-TAX> 715,800
<INCOME-CONTINUING> 1,383,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,383,800
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
