<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 1997
OR
--- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission File Number 0-3698
SILICONIX INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 94-1527868
(State or other jurisdiction (I.R.S. Employer
of incorporation Identification No.)
or organization)
2201 Laurelwood Road, Santa Clara, California 95054
(Address of principal executive offices)
Registrant's telephone number including area code (408) 988-8000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the registrant's
classes of common stock:
Common stock, $0.01 par value -- 9,959,680 outstanding shares as of
May 14, 1997.
Page 1 of 10
<PAGE>
SILICONIX INCORPORATED
TABLE OF CONTENTS TO FORM 10-Q
PART I. FINANCIAL INFORMATION Page No.
Item 1 Financial Statements
Consolidated statements of operations for the
three months ended March 30, 1997 and March 31, 1996 3
Consolidated balance sheets as
of March 30, 1997 and December 31, 1996 4
Consolidated statements of cash flows
for the three months ended March 30, 1997 and
March 31, 1996 5
Notes to consolidated financial statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-8
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 9
Signature 10
Page 2 of 10
<PAGE>
PART I:
Item 1 FINANCIAL STATEMENTS
SILICONIX INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Three Months Ended
March 30, March 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C>
Net sales $70,212 $70,061
Cost of sales 43,116 41,379
---------------------------
Gross profit 27,096 28,682
Research and development 4,129 6,170
Selling, marketing, and administration 13,909 14,424
---------------------------
Operating income 9,058 8,088
Interest expense 589 590
Other income - net (206) (162)
---------------------------
Income before taxes 8,675 7,660
Income taxes 1,735 841
---------------------------
Net income $6,940 $6,819
---------------------------
---------------------------
Net income per share $0.70 $0.68
---------------------------
---------------------------
Shares used to compute earnings per share 9,960 9,960
---------------------------
---------------------------
SELECTED STATEMENTS OF OPERATIONS RATIOS
Gross margin 38.6% 40.9%
Research and development 5.9% 8.8%
Selling, marketing, and administration 19.8% 20.6%
Net income 9.9% 9.7%
Effective tax rate 20.0% 11.0%
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3 of 10
<PAGE>
SILICONIX INCORPORATED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
March 30, December 31,
(IN THOUSANDS) 1997 1996
- -----------------------------------------------------------------------------------
Assets
- -----------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and equivalents $4,799 $12,201
Short term investment with affiliate 7,181 12,136
Accounts receivable, less allowances 40,159 37,044
Accounts receivable from affiliates 14,652 14,802
Inventories 31,305 30,162
Other current assets 10,372 8,044
Deferred income taxes 5,314 5,314
------------------------------
Total current assets 113,782 119,703
------------------------------
Property, plant, and equipment, at cost:
Land 1,174 1,183
Buildings and improvements 43,216 42,672
Machinery and equipment 193,745 187,791
------------------------------
238,135 231,646
Accumulated depreciation (128,681) (124,524)
------------------------------
Net property, plant, and equipment 109,454 107,122
Other assets 13,454 11,844
------------------------------
Total assets $236,690 $238,669
------------------------------
------------------------------
Liabilities and Shareholders' Equity
- -----------------------------------------------------------------------------------
Current liabilities:
Current portion of debt obligations $1,039 $ 1,041
Accounts payable 21,826 26,286
Accounts payable to affiliates 10,883 11,115
Accrued payroll and related compensation 10,019 13,614
Accrued liabilities 28,730 29,418
------------------------------
Total current liabilities 72,497 81,474
Long-term related party debt 34,570 34,570
Long-term debt, less current portion 4,985 4,859
Deferred income taxes 1,148 1,148
------------------------------
Total liabilities 113,200 122,051
------------------------------
Shareholders' equity:
Common stock 100 100
Additional paid-in-capital 59,452 59,440
Retained earnings 64,475 57,535
Accumulated translation adjustments (537) (457)
------------------------------
Total shareholders' equity 123,490 116,618
------------------------------
Total liabilities and shareholders' equity $236,690 $238,669
------------------------------
------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4 of 10
<PAGE>
SILICONIX INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Three Months Ended Three Months Ended
March 30, March 31,
(IN THOUSANDS) 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $6,940 $6,819
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,027 3,758
Deferred income taxes - (200)
Other non-cash expenses 124 133
Changes in operating assets and liabilities:
Accounts receivable (2,725) (2,132)
Accounts receivable from affiliates 150 932
Inventories (1,141) (1,011)
Other current assets (2,619) (4,394)
Accounts payable (4,497) (2,836)
Accounts payable to affiliates (232) 5,483
Accrued liabilities (4,351) (5,365)
-----------------------------------------
Net cash provided (used) by operating activities (3,324) 1,187
-----------------------------------------
Cash flows from investing activities:
Purchase of property, plant, and equipment (6,984) (9,371)
Proceeds from sale of property, plant, and equipment - 4
Investment in joint venture - (2,053)
Purchase of other assets (1,694) (1,726)
Short term investment with affiliate 4,955 9,595
-----------------------------------------
Net cash used by investing activities (3,723) (3,551)
-----------------------------------------
Effect of exchange rate changes on
cash and equivalents (355) (128)
-----------------------------------------
Net (decrease) in cash
and equivalents (7,402) (2,492)
Cash and equivalents:
Beginning of period 12,201 10,513
-----------------------------------------
End of period $4,799 $8,021
-----------------------------------------
-----------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5 of 10
<PAGE>
SILICONIX INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of the management of the Company, the consolidated financial
statements appearing herein contain all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the results for, and as
of the end of, the periods indicated therein. These statements should be read
in conjunction with the Company's December 31, 1996 consolidated financial
statements and notes thereto. The results of operations for the first three
months of 1997 are not necessarily indicative of the results to be expected for
the full year.
NOTE 2. INVENTORIES
The components of inventory consist of the following:
March 30, December 31,
1997 1996
---- ----
(000s omitted)
Finished goods $ 4,231 $ 6,105
Work-in-process 23,238 18,838
Raw materials 3,836 5,219
--------- ---------
$ 31,305 $ 30,162
--------- ---------
--------- ---------
NOTE 3. CONTINGENCIES
The Company is party to two environmental proceedings. The first involves
property that the Company vacated in 1972. The California Regional Water Quality
Control Board (RWQCB) issued a cleanup and abatement order to both the Company
and the current owner of the property. The Company subsequently reached a
settlement of this matter with the current owner in which the current owner
indemnifies the Company against any liability that may arise out of any
governmental agency actions brought for environmental cleanup of the site,
including liability arising out of the current cleanup and abatement order. The
second proceeding involves the Company's current facility in Santa Clara. The
RWQCB issued a clean up and abatement order based on the discovery of
contamination of both the soil and the groundwater on the property by certain
chemical solvents. The Company is currently engaged in certain remedial action
and has accrued $750,000 for the estimated future costs related to this matter.
In management's opinion, based on discussion with legal counsel and other
considerations, the ultimate resolution of the above-mentioned matters will not
have a material adverse effect on the Company's consolidated financial condition
or results of operations.
The Company is engaged in discussions with various parties regarding patent
licensing and cross patent licensing issues. In the opinion of management, the
outcome of these discussions will not have a material adverse effect on the
Company's consolidated financial condition or overall trends in the results of
operations.
NOTE 4. SFAS NO. 128 "EARNINGS PER SHARE"
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". SFAS
No. 128 requires the presentation of basic earnings per share ("EPS") and,
for companies with complex capital structures, diluted EPS. SFAS No. 128 is
effective for annual and interim periods ending after December 31, 1997. The
Company expects that basic EPS will not differ materially from net income per
share as presented in the accompanying consolidated financial statements.
Page 6 of 10
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Siliconix designs, markets, and manufactures power and analog semiconductor
products. The Company focuses on technologies and products for the computer,
data storage, communications, and automotive markets.
Revenues in the first quarter of 1997 increased slightly to $70.2
million, compared with $70.1 million in the first quarter of 1996. Sales of
power MOSFETs grew by 3%, fueled by products used in the telecommunication
and computing markets, increasing to 62% of total revenues in the first
quarter of 1997, compared with 60% in the first quarter of 1996. Sales in
Europe and North America were up 13% and 6%, respectively, with revenues in
Japan down 31% compared with the first quarter of 1996. The revenue decrease
in Japan is due to increased competition and continued average selling price
degradation in the market, which was fueled by the appreciation of the yen
against the dollar during the quarter. The Company has experienced strong
bookings in Japan for the first quarter of 1997 and expects revenues in Japan
for 1997 to equal or exceed 1996 levels. Revenues in Europe, North America,
and Japan accounted for 31%, 33%, and 14%, respectively, of total revenues in
the first quarter of 1997, compared with 28%, 32%, and 21%, respectively, in
the first quarter of 1996.
Gross profit for the first quarter of 1997 decreased to 39% from 41% in the
first quarter of 1996 and remained flat compared to the fourth quarter of 1996.
The decrease in gross profit is primarily due to average selling price
degradation and start-up costs related to the new leased fab facility in
Itzehoe, Germany.
Research and development expenditures decreased 33% in the first quarter
of 1997 to $4.1 million, compared to $6.1 million in the first quarter of
1996. Compared to the fourth quarter of 1996, research and development
expenditures decreased slightly by $0.5 million as the Company remains
committed to the development of future products and continues to invest in
power MOSFET and power IC technology and product development. Planned
research and development expenditures for 1997 are expected to be comparable
to that of 1996.
Selling, marketing, and administration expenses as a percentage of revenues
decreased from 21% in the first quarter of 1996 to 20% in the first quarter of
1997. This decrease as a percentage of revenues is due to continuing economies
of scale and cost controls.
Interest expense for the first quarter of 1997 remained flat at $0.6
million compared to the first quarter of 1996, as short-term market interest
rates have remained relatively flat over the past year.
Other income, comprised mainly of interest income, remained flat at $0.2
million for the first quarter of 1997 compared with the first quarter of 1996.
Page 7 of 10
<PAGE>
Income tax expense increased in the first quarter of 1997 to $1.7
million, up $0.9 million over the first quarter of 1996, as a result of the
utilization of net operating loss carryforwards at the end of 1996 and
reduction of credit carryforwards.
During its quarterly assessment of deferred income taxes, management kept
the valuation allowance on deferred income tax assets unchanged. This decision
to maintain the net deferred income tax assets was based on management's belief
that, it is more likely than not, the Company will realize benefit from a
portion of its deferred income taxes. The primary positive factors assessed by
management in reaching its conclusion about the Company's ability to realize the
deferred income tax assets include positive earnings and continued increases in
gross profits for the past three years.
The expectations for the future are that, even with the extremely volatile
environment in which the Company competes, operating income of the Company will
more than likely be sufficient to realize a portion of the deferred income tax
asset; however, due to certain factors beyond management's control, there can be
no assurance that sufficient taxable income will be generated in each of the
Company's taxing jurisdictions to realize recorded tax benefits. In addition,
there is no assurance that the Company will generate any earnings or any
specific level of continuing earnings in future years.
The primary negative factors assessed by management in reaching its
conclusion about the Company's ability to realize the net deferred income tax
asset are discussed in the section titled "Certain Factors" in the Management's
Discussion and Analysis of Financial Condition and Results of Operations section
of the Company's 1996 annual report on Form 10-K, which is incorporated herein
by reference.
LIQUIDITY AND CAPITAL RESOURCES
Cash and equivalents decreased by $7.4 million and the short term
investment with affiliate decreased by $5.0 million from December 31, 1996 due
to large expenditures in the first quarter of 1997. These included capital
expenditures, royalty payments, commissions, yearly management and employee
bonuses, the 401(k) company match, and profit sharing contributions. Management
expects 1997 cash flows from operations to be sufficient to fund investments in
capital expenditures and research and development.
Accounts receivable increased $3.1 million or 8% from December 31, 1996.
This increase is largely attributable to continuing strong sales in Europe
during the first quarter and due to the longer payment terms typically afforded
European customers.
Capital expenditures were $7.0 million in the first quarter of 1997,
compared to $9.4 million in the first quarter of 1996. These related mostly to
additions for plant capacity expansion. Capital spending in 1997, funded from
cash provided by operating activities, is expected to approximate the 1996
level.
Current liabilities decreased $9.0 million or 11% from December 31, 1996.
This decrease is mainly due to the payment of certain liabilities which are paid
only once a year, including annual management and employee bonuses, the 401(k)
company match, and profit sharing contributions.
SAFE HARBOR STATEMENT
"Safe Harbor" Statement under the Private Securities Litigation Reform
Act of 1995: With the exception of historical information, the matters
discussed in this Form 10Q are forward-looking statements that involve risks
and uncertainties including, but not limited to, economic conditions, product
demand and industry capacity, competitive products and pricing, manufacturing
efficiencies, new product development, availability of raw materials and
critical manufacturing equipment, the regulatory and trade environment, and
other risks indicated in filings with the Securities and Exchange Commission.
Page 8 of 10
<PAGE>
PART II
Item 6 Exhibits and Reports on Form 8-K
(a) The following Exhibits are filed herewith:
10.11 Special Retention Bonus Plan of Siliconix incorporated
10.12 Change-in-Control Severance Plan of Siliconix
incorporated
(b) No reports on Form 8-K were filed during the quarter ended
March 30, 1997
Page 9 of 10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SILICONIX INCORPORATED
Date: May 14, 1997 By: /s/Juergen F. Biehn
-------------------
Juergen F. Biehn
Senior Vice President and
Chief Financial Officer
Page 10 of 10
<PAGE>
EXHIBIT 10.11
SPECIAL RETENTION BONUS PLAN
OF SILICONIX INCORPORATED
Effective as of February 1, 1997
INTRODUCTION
This Special Retention Bonus Plan was established by Siliconix incorporated
effective as of February 1, 1997. The purpose of the Plan is to provide one or
more retention bonuses to key employees who remain in employment in good
standing during 1997 or until the term of the Plan is closed earlier by
Siliconix in connection with a sale of the Company. A monthly bonus is payable
and, for those who remain employed in good standing at the end of the Plan's
term, an additional lump-sum deferred bonus.
SELECTION AS A PARTICIPANT IN THE SPECIAL RETENTION BONUS
You have been selected by the Siliconix Board of Directors to participate in the
Special Retention Bonus Plan.
Monthly bonuses are potentially payable for each month from February 1997,
through December 1997 or the last calendar month completed on or before the
Plan's term date, whichever is EARLIER. To be eligible for a monthly bonus, you
must be a Siliconix employee for the entire month.
You will be eligible to receive a deferred portion of your bonus provided that
you are a Siliconix employee on December 31, 1997. Alternatively, if an earlier
date for the Plan's term is announced by the Company in connection with a sale
of the Company, you must remain a Siliconix employee until the term date.
WHO IS NOT ELIGIBLE TO RECEIVE A RETENTION BONUS
If you are not employed in good standing on the last day of a calendar month,
you will not receive a bonus for that month. Similarly, if you are not employed
in good standing on the Plan's term date, you will not receive the deferred
portion of your bonus. "In good standing" means that you are either actively at
work or on an approved vacation or leave of absence on the last scheduled
workday on or before the last day of the calendar month or term date, as
applicable; provided, however, that you do not have any pending written
disciplinary actions in your personnel file.
In addition, if your employment is terminated by the Company for "Cause," you
will not receive any bonus payments that have not already been paid at the time
your employment ends. "Cause" means an employee's willful failure to
substantially perform the employee's job duties, other than a failure resulting
from the employee's complete or partial incapacity due to physical or mental
illness or impairment, a willful act by the employee that constitutes gross
misconduct and that is harmful to the Company or a material and willful
violation of a federal or state law or regulation applicable to the business of
the Company.
AMOUNT OF THE RETENTION BONUS
All bonuses payable under this Plan are based on a percentage of your annual
base salary rate in effect as of January 1, 1997. See the attached Bonus
Payment Worksheet, which illustrates the percentage of your annual base salary
rate on which your bonuses are based, as well as a payment schedule.
TIME AND FORM OF PAYMENT
Each monthly bonus you earn will be paid to you in a single cash sum as soon as
reasonably practicable after the close of the month. If you earn the deferred
portion of your bonus, it will be paid to you as soon as reasonably practicable
after the Plan's term ends.
<PAGE>
DEATH
If you die before your employment terminates and before the Plan's term date,
then you will be deemed to have continued employment in good standing until the
end of the month in which your death occurs, so that you will earn a monthly
bonus for that month. In addition, you will be deemed to have earned a deferred
bonus equal to 100% of the total monthly bonuses you earned, including the
monthly bonus deemed earned for the month of your death.
All earned bonuses that had not been paid to you before your death will be paid
to your surviving spouse or, if you leave no surviving spouse, to your estate.
TAXES
Before paying bonuses, Siliconix will withhold all appropriate federal, state,
local and foreign income and employment taxes.
PARACHUTE PAYMENT LIMITATIONS
In the unlikely event that the Company determines that any payment of any type
to or for the benefit of an employee, under this Plan or otherwise, by the
Company or any of its subsidiaries, parent companies, affiliates or successors,
would be deemed an "excess parachute payment" under Internal Revenue Code
section 280G, then the Company (or any of its subsidiaries, parent companies,
affiliates or successors) may reduce such payments to the extent it deems
necessary to avoid having payments characterized as excess parachute payments.
As a general rule, payments that are deemed to be contingent upon a change in
control are considered to be excess parachute payments once the sum of all
contingent payments reaches three times an employee's average annual
compensation.
BONUS RIGHTS CANNOT BE ASSIGNED
The rights of any person to bonus payments under this Plan may be not be made
subject to option or assignment, either by voluntary or involuntary assignment
or by operation of law, including bankruptcy, garnishment, attachment or other
creditor's process, and any act in violation of this rule shall be void.
OTHER INFORMATION
The Company has established the Plan for the benefit of eligible employees of
the Company. The Company reserves the right to modify, suspend or terminate
this Plan at any time. All bonuses are paid from the general assets of the
Company.
Nothing in the Plan may be deemed to give any individual a right to remain in
the employ of Siliconix or affect the right of Siliconix to terminate an
individual's employment at any time with or without cause.
Any dispute or controversy in connection with this Plan shall be settled
exclusively by arbitration in Santa Clara County, California, in accordance with
the rules of the American Arbitration Association. Judgment may be entered on
the arbitrator's award in any court having jurisdiction. Punitive damages shall
not be awarded.
This document is a complete statement of this Plan and supersedes all prior
plans, representations and proposals, written or oral, relating specifically to
this Plan. Neither the Company nor its subsidiaries, parent companies,
affiliates or successors shall be bound by or liable to any person for any
representation, promise or inducement made by any employee or agent that is not
embodied in this document. This document shall be construed and enforced in
accordance with California law.
<PAGE>
EXHIBIT 10.12
CHANGE-IN-CONTROL SEVERANCE PLAN
OF SILICONIX INCORPORATED
Effective as of February 1, 1997
INTRODUCTION
This Change-in-Control Severance Plan was established by Siliconix incorporated
effective as of February 1, 1997. The purpose of the Plan is to provide
severance payments and other benefits to eligible employees whose employment
terminates for specified reasons within a two-year period after a "Change in
Control" of Siliconix. Payments and benefits are payable ONLY IF a "Change in
Control" occurs.
For purposes of this Plan, a "Change in Control" of Siliconix is any corporate
transaction that results in Daimler-Benz AG owning, directly or indirectly, less
than 50% of the voting common stock of Siliconix incorporated. If no Change in
Control occurs during 1997, then the Plan automatically terminates on December
31, 1997. If a Change in Control takes place during 1997, then the Plan will
apply to specified employment terminations that occur within the two-year period
following the date of the Change in Control.
In this document, "Company" means Siliconix incorporated or its successor or
successors.
ELIGIBILITY
SELECTION AS A PARTICIPANT IN THE CHANGE-IN-CONTROL SEVERANCE PLAN
You have been selected by the Siliconix Board of Directors as an Eligible
Employee under the Change-in-Control Severance Plan. An Eligible Employee will
become a Plan Participant entitled to receive Plan benefits if his or her
employment with the "Affiliated Group" terminates in the circumstances described
below. The "Affiliated Group" means the Company and its direct and indirect
subsidiaries, parent companies and affiliated companies.
EMPLOYMENT TERMINATIONS QUALIFYING FOR PLAN BENEFITS
If an Eligible Employee's employment with the Affiliated Group ends in a
"Qualifying Termination" within a two-year period after the date of a Change in
Control, the Eligible Employee will become a Plan Participant and will be
entitled to the benefits described below. A "Qualifying Termination" means:
- - The Company terminates the Eligible Employee's employment with the
Affiliated Group for any reason other than "Cause" or
- - The Eligible Employee ends his or her employment with the Affiliated Group
in response to a "Constructive Termination," which means a material
reduction in salary or benefits, a material change in responsibilities, or
a requirement to relocate, except for office relocations that would not
increase the Eligible Employee's one-way commute distance by more than 40
miles.
<PAGE>
"Cause" means an employee's willful failure to substantially perform the
employee's job duties, other than a failure resulting from the employee's
complete or partial incapacity due to physical or mental illness or impairment,
a willful act by the employee that constitutes gross misconduct and that is
harmful to the Company or a material and willful violation of a federal or state
law or regulation applicable to the business of the Company.
PLAN BENEFITS
CHANGE-IN-CONTROL BENEFITS
The following benefits are payable in case of a Qualifying Termination:
- - SEVERANCE PAY: As soon as reasonably practicable following a Qualifying
Termination, the Company will pay to the Participant a cash lump sum equal
to the following:
- 1.5 times the Participant's annual base salary in effect on the date
of the employment termination; plus
- 1.5 times the bonuses paid (or to be paid) to the Participant with
respect to the calendar year prior to the year of employment
termination under the Key Professional Performance Unit Plan and the
Key Professional Incentive Bonus Plan.
Once the severance pay due under this Plan is paid, the Participant will
receive no further bonuses or other benefits under the Key Professional
Performance Unit Plan and the Key Professional Incentive Bonus Plan.
The severance pay under this Plan is offset by any termination-related cash
payments the Participant may receive under an employment or termination
agreement with any member of the Affiliated Group.
- - CONTINUED HEALTH AND LIFE INSURANCE. Continued health and life insurance
benefits will be provided for a "Continuation Period" beginning on the date
when the employment termination is effective and ending on the earlier of
the 18-month anniversary of that effective date or the date of the
Participant's death. During the Continuation Period, the Participant (and,
where applicable, the Participant's dependents) will be entitled to
continue participation in the group term life insurance plans and in the
health care plan for employees maintained by the Company as if the
Participant were still an employee of the Company, but only if the
Participant does not elect any "COBRA" continuation coverage. Where
applicable, the Participant's compensation for purposes of these plans will
be deemed to be equal to the Participant's compensation (as defined in
these plans) in effect on the date of the employment termination. If the
Company finds it undesirable to cover the Participant under the group life
insurance and health plans for Company employees, the Company will provide
<PAGE>
the Participant (at its own expense) with the same level of coverage under
individual policies.
- - AUTOMOBILE BENEFITS. Continued Company car benefits will be provided for a
"Lease Period" beginning when the employment termination is effective and
ending on the earlier of the six-month anniversary of that effective date
or the date of the Participant's death. During the Lease Period, any car
leased by the Company for the Participant's use will continue to be made
available to the Participant or, if the lease ends during the Lease Period,
cash payments will be made to the Participant equal to the amount of the
lease payments the Company had been making on the car during the lease
term. If the Company's lease of the car ends during the Lease Period, the
Participant may then purchase the car for its residual value if the
Participant promptly pays the Company an amount in cash equal to such
residual value.
DEATH
If a Participant dies after his or her employment ends in a Qualifying
Termination, but before receiving full payment of the severance pay due under
the Plan, then the unpaid portion of the severance pay will be paid to the
Participant's surviving spouse or, if the Participant leaves no surviving
spouse, to the Participant's estate. No Plan benefits other than severance pay
remain payable after a Participant's death.
PAYMENTS FROM THE PLAN
All benefits of the Plan are paid from the general funds of the Company, and
each Participant is an unsecured general creditor of the Company. Nothing
contained in the Plan creates a trust fund of any kind for the benefit of any
Participant or creates any fiduciary relationship between the Company and the
Participant with respect to any assets of any member of the Affiliated Group.
Neither the Company nor any other member of the Affiliated Group is under any
obligation to fund the benefits provided under the Plan prior to payment.
PARACHUTE PAYMENT LIMITATIONS
If the Company determines that any payment of any type to or for the benefit of
the Participant, under this Plan or otherwise, by any member of the Affiliated
Group would be deemed an "excess parachute payment" under Internal Revenue Code
section 280G, then the Company (or any other Affiliated Group member) may reduce
such payments to the extent it deems necessary to avoid having payments
characterized as excess parachute payments. As a general rule, payments that
are deemed to be contingent upon a change in control are considered to be excess
parachute payments once the sum of all contingent payments reaches three times
an employee's average annual compensation.
TAXES
Before paying any amounts under the Plan, the Company will withhold all
appropriate federal, state, local and foreign income and employment taxes.
<PAGE>
PLAN BENEFITS CANNOT BE ASSIGNED
The rights of any person to any benefit under this Plan may not be made subject
to option or assignment, either by voluntary or involuntary assignment or by
operation of law, including bankruptcy, garnishment, attachment or other
creditor's process, and any act in violation of this rule shall be void.
NO EMPLOYMENT RIGHTS
Nothing in the Plan may be deemed to give any individual a right to remain in
the employ of the Company or affect the right of the Company to terminate an
individual's employment at any time, with or without cause.
PLAN OPERATION AND ADMINISTRATION
AMENDMENT AND TERMINATION
Prior to any Change in Control, the Company reserves the right to modify,
suspend or terminate this Plan at any time. If a Change in Control occurs, as
long as any Eligible Employee may become entitled to any benefit under the Plan,
the Plan cannot be terminated and cannot be amended to exclude any Eligible
Employee who otherwise would be eligible for benefits, to reduce any benefit or
to make any condition contained in the Plan more restrictive.
LEGAL CONSTRUCTION
The Plan will be construed in accordance with the Employee Retirement Income Act
of 1974, as amended ("ERISA"), and, to the extent not preempted by ERISA, in
accordance with California law.
This document is a complete statement of this Plan and supersedes all prior
plans, representations and proposals, written or oral, relating specifically to
this Plan. Neither the Company or any other member of the Affiliated Group will
be bound by or liable to any person for any representation, promise or
inducement made by any employee or agent that is not embodied in this document.
PLAN ADMINISTRATOR
The Company is the "plan administrator" of the Plan, as that term is used in
ERISA. The Company interprets the Plan, and it may adopt rules and procedures
to implement any Plan provisions. The Company also has the authority to take
such other actions as it deems appropriate in administering the Plan. Subject
to the review procedure described on page 6, the decisions of the Company with
regard to the Plan are CONCLUSIVE and BINDING on all persons.
The Company's responsibilities under the Plan will be carried out on its behalf
by its directors, officers, employees and agents, acting on behalf of the
Company in their
<PAGE>
capacity as directors, officers, employees and agents, not as individual
fiduciaries. The Company may delegate any of its functions under the Plan to
other persons.
MAKING A CLAIM
All applications for Plan benefits, and all inquiries concerning the Plan or
benefits under the Plan, must be submitted to the Company, as plan
administrator, in writing and addressed as follows:
Human Resources Department
Siliconix incorporated
2201 Laurelwood Road
Santa Clara, California 95054
DENIAL OF A CLAIM
If an application for benefits is denied, in whole or in part, the Company will
notify the applicant in writing of the denial and of the right to a review of
the claim. The written notice will explain, in a way that the applicant can
understand, the specific reasons for the denial, specific references to the Plan
provision on which the denial is based, a description of any information or
material necessary to perfect the application, an explanation of why the
material is necessary and an explanation of the Plan's review procedure. The
written notice will be given to the applicant within 90 days after the Company
receives the application, unless special circumstances require an extension of
time of up to an additional 90 days for processing the application. If an
extension of time for processing is required, written notice of the extension
will be furnished to the applicant before the termination of the initial 90-day
period. This notice of extension will indicate the special circumstances
requiring the extension of time and the date by which the Company expects to
make its decision on the application for benefits. If written notice of denial
of the application for benefits is not provided within the time specified in
this section, the application will be deemed denied. The applicant will be
permitted to appeal the denial in accordance with the Review Procedure set forth
below.
REVIEW PANEL
The Company will appoint a "Review Panel." The Review Panel will be the named
fiduciary that has the authority to act with respect to any appeal from a denial
of benefits.
<PAGE>
REQUESTS FOR A REVIEW
Any person whose application for benefits is denied (or is deemed denied) in
whole or in part, or such person's duly authorized representative, may appeal
from the denial by submitting a request for a review of the application to the
Review Panel within 60 days after receiving written notice of the denial from
the Company (or, in the case of a deemed denial, within 60 days after the
application is deemed denied). The Company will give the applicant or the
representative an opportunity to review pertinent documents that are not
privileged in preparing a request for a review. A request for review must be in
writing and must be addressed as follows: "Review Panel Under the Change-in-
Control Severance Plan of Siliconix incorporated, 2201 Laurelwood Road, Santa
Clara, California 95054." A request for review must provide all of the grounds
on which it is based, all facts in support of the request and any other matters
that the applicant deems pertinent. The Review Panel may require the applicant
to submit such additional facts, documents or other material as it may deem
necessary or appropriate in making its review.
DECISION ON REVIEW
The Review Panel will act on each request for review and notify the applicant
within 60 days after receiving the review request, unless special circumstances
require an extension of time, up to an additional 60 days, for processing the
request. If an extension for review is required, written notice of the
extension will be furnished to the applicant within the initial 60-day period.
The Review Panel will give prompt, written notice of its decision to the
applicant and to the Company. In the event that the Review Panel confirms the
denial of the application for benefits in whole or in part, the notice will
explain, in a way that the applicant can understand, the specific reasons for
the denial and specific references to the Plan provisions on which the decision
is based. If written notice of the Review Panel's decision is not given to the
applicant within the time prescribed in this section, the application will be
deemed denied on review.
RULES AND PROCEDURES
The Review Panel will adopt such rules and procedures, consistent with the Plan
and with ERISA, as it may deem necessary or appropriate in carrying out its
responsibilities under the Plan. The Review Panel may require an applicant who
wishes to submit additional information in connection with an appeal from the
denial (or deemed denial) of benefits to do so at the applicant's own expense.
EXHAUSTION OF REMEDIES AND ARBITRATION
If a dispute or controversy concerning Plan benefits remains after a claimant
(1) has submitted a written application for benefits, (2) has been notified by
the Company that the application is denied or is deemed denied, (3) has filed a
written request for a review of the application and (4) has been notified in
writing that the Review Panel has affirmed the denial of the application, or the
application is deemed denied, the
<PAGE>
dispute or controversy shall be settled exclusively by arbitration in Santa
Clara County, California, in accordance with the rules of the American
Arbitration Association. Judgment may be entered on the arbitrator's award
in any court having jurisdiction. Punitive damages shall not be awarded.
PLAN INFORMATION
PLAN GOVERNED BY ERISA
The Change-in-Control Severance Plan is an employee benefit plan subject to
ERISA. The Plan is subject to most of the provisions of Title I of ERISA.
However, it is not subject to Title IV of ERISA, which includes the plan
termination insurance provisions.
This document contains the terms of the Plan and constitutes the summary plan
description of the Plan as required by ERISA.
ADDRESS OF THE COMPANY
The principal executive offices of Siliconix incorporated are located at 2201
Laurelwood Road, Santa Clara, California. Its telephone number is (408) 988-
8000.
IDENTIFICATION NUMBERS
The Company's Employer Identification Number (EIN) is 94-1527868. The Plan
Number assigned to the Plan is 80.
TYPE OF PLAN
The Plan is a welfare benefit plan providing special post-employment severance
benefits to eligible employees. All benefits under the Plan are paid directly
by the Company to participants, their surviving spouses and estates.
FISCAL YEAR
The Plan's fiscal year ends on December 31.
SERVICE OF PROCESS
The Plan's agent for service of legal process is David M. Achterkirchen,
Siliconix incorporated, 2201 Laurelwood Road, Santa Clara, California 95054.
STATEMENT OF ERISA RIGHTS AND PROTECTIONS
Plan participants are entitled to certain rights and protections under ERISA.
ERISA provides that all Plan participants shall be entitled to:
1. Examine, without charge, at the plan administrator's office, all Plan
documents, including insurance contracts and copies of all documents
filed by the Plan with the U.S. Department of Labor, or the Internal
Revenue Service, such as detailed annual reports and plan
descriptions.
<PAGE>
2. Obtain copies of all Plan documents and other Plan information upon
written request to the Plan Administrator. The administrator may make
a reasonable charge for the copies.
3. Receive a summary of the Plan's annual financial report. The plan
administrator is required by law to furnish each participant with a
copy of this summary annual report. However, because of the small
number of participants covered by this Plan, it is expected that the
Plan will not be required to prepare and disclose any annual reports.
4. Obtain a statement telling you whether you have a right to receive a
benefit, and if so, what your benefits will be. If you do not have a
right to a benefit, the statement will tell you. This statement must
be requested in writing and is not required to be given more than once
a year. The Plan must provide the statement free of charge.
In addition to creating rights for Plan participants, ERISA imposes duties
upon the people who are responsible for the operation of the Plan. The
people who operate the Plan, called "fiduciaries" of the Plan, have a duty to
do so prudently and in the interest of you and the other Plan participants
and beneficiaries.
No one, including your employer or any other person, may fire you or otherwise
discriminate against you in any way to prevent you from obtaining a benefit or
exercising your rights under ERISA.
Under ERISA, there are steps you can take to enforce the above rights. For
instance, if you request materials from the Plan and do not receive them
within 30 days, you may file suit in a federal court. In such a case, the
court may require the Plan Administrator to provide the materials and pay you
up to $100 a day until you receive the materials, unless the materials were
not sent because of reasons beyond the control of the administrator. If you
have a claim for benefits that is denied or ignored, in whole or in part, you
may file suit in a state or federal court. If it should happen that Plan
fiduciaries misuse the Plan's money, or if you are discriminated against for
asserting your rights, you may seek assistance from the U.S. Department of
Labor, or you may file suit in a federal court. The court will decide who
should pay court costs and legal fees. If you are successful, the court may
order the person you have sued to pay these costs and fees. If you lose, the
court may order you to pay these costs and fees, for example, if it finds
your claim is frivolous. If you have any questions about the Plan, you
should contract the plan administrator.
If you have any questions about this statement or about your rights under
ERISA, you should contact the nearest Area Office of the U.S.
Labor-Management Services Administration, Department of Labor.
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