SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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 of (I.R.S. employer
incorporation or organization) identification no.)
2201 Laurelwood Road
Santa Clara, California 95054
(Address of principal executive offices)
(408) 988-8000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 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 nonaffiliates is
$46,356,000, based upon the closing price for the registrant's Common Stock on
March 11, 1999 ($23.8125).
The number of shares of the registrant's Common Stock, $0.01 par value,
outstanding at March 11, 1999 was 9,959,680.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Siliconix incorporated 1998 Annual Report to Shareholders:
Parts I, II, and IV.
2. Portions of the definitive Proxy Statement dated April 30, 1999 to be filed
with the Securities and Exchange Commission on or about April 30, 1999,
pursuant to Section 14 of the Securities Exchange Act of 1934, in
connection with the 1999 Annual Meeting of Shareholders of Siliconix
incorporated: Part III.
<PAGE>
PART I
Item 1. Business
General
Siliconix designs, markets, and manufactures power and analog semiconductor
products. The Company focuses on technologies and products for the
communications, computer, and automotive markets; additionally, many of the
Company's products are also used in instrumentation and industrial applications.
Founded in 1962, Siliconix uses its advanced technology and applications
expertise to develop value-added products for power management and conversion.
These products serve two types of markets. The first type, represented by the
communications and computer markets, exhibits design cycles as short as a few
months and product life cycles as short as six to twelve months, thus creating
numerous new opportunities for the Company. The other type, represented by the
automotive market, exhibits long design cycles, sometimes as much as four or
five years, and product life cycles as long or longer. Participation in both
types of businesses helps the Company balance growth opportunities with research
and development investments required to maintain technology leadership.
Siliconix was a member of TEMIC Semiconductors, a division of the
Daimler-Benz microelectronics consortium, for several years. On December 16,
1997, Daimler-Benz announced that it had agreed to sell the Semiconductor
Division of TEMIC, which included its 80.4% interest in Siliconix, to Vishay
Intertechnology, Inc. ("Vishay") of Malvern, Pennsylvania. The acquisition was
completed on March 2, 1998, and on that date Vishay became the Company's largest
shareholder. The Company's products are now marketed with the Siliconix brand
name under the Vishay umbrella.
Coincident with the acquisition of the majority interest in Siliconix by
Vishay , Richard J. Kulle stepped down as Siliconix President and CEO and was
replaced by Dr. King Owyang, formerly Executive Vice President, Technology &
Silicon Operations. Dr. Owyang has been employed by Siliconix for eleven years
and served in his previous position for approximately six years. From the
beginning of his employment, Dr. Owyang led the technology advances which are
the foundation of Siliconix's growth and profitability.
Products
All of the analog and power products produced by Siliconix can be divided
into two general classes: discrete devices and integrated circuits (ICs).
Discrete devices are active components that generate, control, regulate,
amplify, or switch electronic signals or energy. They must be interconnected
with other, passive components (e.g., resistors, capacitors, inductors, etc.) to
create an electronic circuit. ICs consist of a number of active and passive
components, interconnected on a single chip, that are intended to perform a
specific function.
The Company's discrete power MOSFETs (an acronym for "metal oxide
semiconductor field effect transistors") and power ICs are designed for similar
applications and can often be used together as chip sets with complementary
performance characteristics optimized for a specific application.
Power MOSFETs are the Company's fastest growing products in terms of sales.
In this product line, Siliconix has focused on low-voltage products that are
prevalent in battery-operated products (e.g., notebook computers and cellular
phones) and in automotive systems. Siliconix has maintained technology
leadership in low-voltage, surface-mount power MOSFETs through advances in both
silicon technologies and product packaging. Advanced silicon process
technologies, such as the Company's "Trench" technology, offer very high cell
densities and low device on-resistance. These process technologies have been
coupled with innovative packaging techniques to create surface-mount product
families, such as LITTLE FOOT(R) power MOSFETs, that provide customers with size
and performance benefits as well as manufacturing compatibility with digital
integrated circuits.
<PAGE>
Siliconix power ICs include power conversion and interface ICs, and motor
control ICs. The Company's power conversion and interface ICs are based on
low-voltage mixed-signal silicon processes that offer customers higher
frequencies without compromising efficiencies compared to competitive products.
They are used in applications where an input voltage from a battery or other
supply source must be converted to a level that is compatible with logic signals
used by microprocessors and other electronic components in the system. The
Company's motor control ICs are used to control motion in data storage
applications (e.g., optical and hard disk drives) and to control the speed of
small motors in office equipment (e.g., printers and copy machines).
The Company's mature product lines include discrete small-signal
transistors and signal processing ICs (i.e., analog switches and multiplexers).
The small-signal transistors range from junction field-effect transistors
(JFETs), Siliconix's original product line, which remain critical for some
applications, to newer transistor processes, such as the Company's DMOS
processes, which offer performance advantages over competitors' similar product
lines. The analog switches and multiplexers are primarily used in
instrumentation and industrial equipment that receives and/or outputs real-world
analog signals. The latest additions to the group are the new low voltage analog
switches and small signal MOSFETs in the very tiny SC-70 package.
Manufacturing
The Company's manufacturing operations are strategically located to support
customer manufacturing locations, to cultivate growth markets, and to access
cost-effective engineering talent. All of the Company's manufacturing sites use
Statistical Process Control methods of total quality control and have ISO 9000
certification.
Siliconix fabricates wafers for its advanced power products at its Santa
Clara, California manufacturing headquarters, where the Company maintains a
Class 1 (clean room classification) six-inch wafer fab. Further capacity for
wafer fabrication of power products was added during 1997 by way of a
manufacturing capacity agreement with a current subsidiary of Vishay in a Class
1 facility in Itzehoe, Germany. Wafers for analog switches, multiplexers, and
low power discrete devices are fabricated in the Company's four-inch wafer fab
in Santa Clara. In 1997, fabrication of the Company's JFETs was transferred to
an unaffiliated foundry in Beijing, China.
Assembly and testing of the Company's products are performed in Company
facilities in Taiwan and Shanghai, China, and by subcontractors in the
Philippines, China, and the United States.
Raw materials used by the Company include single-crystal silicon wafers,
chemicals, gases, metal wire, and ceramic, plastic, and glass-to-metal packages.
Although these materials are generally available from two or more sources, the
industry has experienced difficulties in obtaining supplies of some raw
materials from time to time; such difficulties in the future could adversely
affect the Company's operations.
Government regulations impose various environmental controls on the
discharge of certain chemicals and gases used in the manufacturing process. The
Company believes that its activities substantially conform to present and
anticipated regulations and is constantly upgrading its Santa Clara facility to
ensure continued compliance with such regulations. In 1990, the Company reached
a settlement for cleanup of soil and ground water at a site the Company occupied
prior to 1972, with the current owner of that site, and settled a lawsuit
against its insurance carriers in 1992 and 1993 with respect to this matter. The
Company also established a remedial activity to remove soil and groundwater
contamination at its Santa Clara site in 1990. For details on these matters, see
Item 3, Legal Proceedings. While the Company has experienced only limited
effects on its operations from environmental regulations, there can be no
assurance that changes in such regulations will not impose the need for
additional capital equipment or other requirements.
<PAGE>
Sales
From 1993 to 1998, Siliconix sales were handled by the sales organization
of TEMIC Semiconductors, the semiconductor division of the Daimler-Benz
microelectronics group, which included Siliconix, Telefunken Semiconductors,
Matra MHS, and Dialog Semiconductor. Unifying the sales activities for these
four companies brought value to customers by allowing them to deal with one
entity for a broader range of their semiconductor needs. Since the acquisition
of a majority interest in the Company by Vishay , the Company's products have
been sold by the Vishay worldwide sales organization, which consists of much of
the same worldwide structure of sales representatives and distributors that was
established for TEMIC Semiconductors.
The sales organizations are regionally based, functioning as agents that
earn a commission as a fixed percentage of sales and performing all
sales-related activities. The following table shows net sales and the percentage
of the Company's net sales on a geographic basis for the periods indicated
(dollars in thousands).
<TABLE>
<CAPTION>
Years ended December 31
-----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
United States $ 70,282 25% $ 91,673 29% $ 74,268 28%
Europe 72,168 26% 90,480 28% 71,739 27%
Japan 19,700 7% 33,359 10% 51,065 19%
Taiwan 29,530 10% 19,448 6% 17,008 6%
Singapore 36,425 13% 34,473 11% 25,093 9%
Asia Pacific 45,012 16% 29,901 9% 14,433 5%
All other 9,229 3% 22,217 7% 15,328 6%
---------- ------- ---------- ------- ---------- ------
$ 282,346 100% $ 321,551 100% $ 268,934 100%
</TABLE>
The Company markets its products in different geographic areas as follows.
United States and Canada: Sales are made by the United States and Canada
("North American") field sales force and manufacturer's representative
organizations. Manufacturer's representatives are compensated by commissions
only. Area sales managers coordinate these representatives and the North
American sales force. North American sales headquarters are located in Monroe,
Connecticut. Regional sales offices are located in or near Sanford, Maine;
Chicago, Illinois; Tampa, Florida; Houston, Texas; Santa Clara, California; and
Orange County, California. In addition, the Company has direct sales offices for
automotive customers in Troy, Michigan and Kokomo, Indiana.
Sales not made directly to original equipment manufacturers are made
through distributors, which currently have approximately 350 locations
throughout the United States and Canada. Certain distributors are provided with
contractual protection for their inventory against reductions in published
prices and against product obsolescence.
Europe Sales are made by the European sales force and manufacturer's
representative organizations. As in North America, sales not made directly to
the original equipment manufacturers are made through distributors, with
approximately 125 locations. These distributors are provided with certain
inventory obsolescence and price protections similar to those granted to
domestic distributors.
Japan: Sales in Japan are made both by the Japan sales force and
distributors.
Asia Pacific: Sales are made in Hong Kong, Korea, Taiwan, The People's
Republic of China and in Southeast Asia, by the Asia-Pacific sales force,
headquartered in Singapore. In these locations, as in the United States, sales
<PAGE>
are made directly to original equipment manufacturers through field sales
engineers or through manufacturer's representatives. Direct sales agents and
representatives are compensated by commissions only. Sales not made directly to
original equipment manufacturers are made through distributors, which currently
have approximately 75 locations in the region.
Sales in the rest of the world are made through manufacturer's
representatives, stocking representatives and distributors.
For further information, (see Note 7 of Notes to Consolidated Financial
Statements) which is incorporated herein by reference.
Order Backlog
As of December 31, 1998, the backlog of orders booked was $62.4 million.
The backlog as of December 31, 1997 was $74.1 million. The Company includes in
backlog only open orders which have been released by the customer for shipment
in the calendar year 1999. The Company's customers encounter uncertain and
changing demand for their products. They typically order products from the
Company based on their forecasts. If demand falls below customers' forecasts, or
if customers do not control their inventory effectively, they may cancel or
reschedule their shipments previously ordered from the Company, in many
instances without the payment of any penalty. Therefore, backlog is not
necessarily indicative of sales for any future period.
Competition
The semiconductor industry is highly competitive. Many of the Company's
competitors are larger companies with greater financial resources and limited
dependency on semiconductor products as their sole source of sales and earnings.
The Company has been able to compete effectively by being selective in its
choice of products and markets, and by being a technology leader in those areas.
Through closely established customer relationships, the Company acquires
in-depth applications know-how for the markets it serves and develops products
that specifically address customer needs.
Research and Development
Research and development activities are directed toward expanding
technology leadership. Focus is on developing new products and processes, and
activities are ongoing to improve the cycle time from new product development to
product release. Total expenditures were $17.1 million in 1998, $17.8 million in
1997 and $20.8 million in 1996. Significant effort has been expended on new
power products and ICs where continued rapid market growth is expected, (see
Note 2 of Notes to Consolidated Financial Statements).
Patents and Licenses
Siliconix protects its technology leadership by securing patents on
proprietary products and processes. As of December 31, 1998, Siliconix owned 147
U.S. patents, covering primarily semiconductor device structures, processes, and
circuitry. Expiration dates for these patents range from 1999 to 2017. An
additional 14 patents have been allowed but not yet issued. There were also 60
U.S. patent applications pending. The Company believes that, as it increasingly
utilizes these patents in the design and manufacture of its products, its
royalty obligations will decrease significantly, (see Note 8 of Notes to
Consolidated Financial Statements).
Employees
On December 31, 1998, the Company employed 1,642 people, of whom 703 were
employed in the United States, 923 in Asia, and 16 in Europe.
<PAGE>
There are no collective bargaining agreements between the Company and its
employees, and there have been no work stoppages due to labor difficulties. The
Company considers its relations with its employees to be excellent.
Executive Officers
The following sets forth the name, age, offices presently held, business
experience, and principal occupation of the Company's executive officers:
Name Office Presently Held
---- ---------------------
King Owyang President, Chief Executive Officer
Mike Chang Executive Vice President, Technology &
Silicon Operations
Jens Meyerhoff Senior Vice President Administration and Chief
Financial Officer
Hamza Yilmaz Senior Vice President
John Cox Vice President, Worldwide Environmental, Health &
Safety Affairs
Dr. Owyang, age 53, joined the Company in January 1988 as a divisional Vice
President of Research and Development. He assumed additional responsibility for
Corporate Reliability and Quality Assurance in April 1990. He became Vice
President, Engineering in May 1990; Executive Vice President, Technology and
Silicon Operations in April 1992; and President and Chief Executive Officer in
March 1998. Dr. Owyang holds B.S. and Ph.D. degrees in Physics.
Dr. Chang, age 53, joined the Company in December 1987 as Manager of
Process Technology. He became Director, Fab Operations in April 1992; Senior
Director, Worldwide Fab Operations in April 1995; and Executive Vice President,
Technology & Silicon Operations in October 1998. Dr. Chang holds B.S. and Ph.D.
degrees in Electrical Engineering.
Mr. Meyerhoff, age 34, joined the Company in May 1995 as Senior Manager of
Systems and Reporting. He became Director, Product Unit Controlling in April
1997; Senior Director and Corporate Controller in March 1998; and Chief
Financial Officer and Senior Vice President Administration in October 1998.
Prior to joining the Company, Mr. Meyerhoff served as Manager, Planning and
Controlling at a subsidiary of Daimler-Benz Rail Systems Division in Pittsburgh,
Pennsylvania from January 1992 to April 1995. Mr. Meyerhoff holds an M.B.A. in
Finance and Information Technology.
Dr. Yilmaz, age 44, joined the Company in March 1988 as Manager of Device
Design and Engineering. He become World Wide Product and Test Engineering Senior
Manager in July 1992; Director in June 1993; Senior Director, IC Design and
Engineering and Acting Senior Director, World Wide Product and Test Engineering
in October 1995; Senior Director of Engineering for the Power MOSFET Business
Unit in July 1996; and Vice President and head of the Power MOSFET Business Unit
in August 1997. He assumed the additional post of Senior Vice President in
October 1998. Dr. Yilmaz holds B.S., M.S. and Ph.D. degrees in Electrical
Engineering.
Mr. Cox, age 50, joined the Company in April 1997 as Vice President,
Worldwide Environmental, Health & Safety Affairs. He devotes approximately
one-half of his time to the Company's affairs. Since September 1995, he has also
been Executive Vice President and Principal Consultant of EnviroBusiness, Inc.,
an environmental consulting firm to high-technology industries, specializing in
semiconductor and semiconductor equipment manufacturers. For more than the
previous five years, he served as Corporate Director of Safety, Health &
Environmental Affairs of Shipley Company.
<PAGE>
Item 2. Properties.
The Company owns its principal manufacturing plant and general offices
which are located in four two-story buildings totaling 234,600 square feet on a
13-acre site in Santa Clara, California. TEMIC Semiconductor North America,
Inc., a subsidiary of the Company, leases approximately 11,700 square feet of
office space in Basking Ridge, New Jersey. Siliconix Limited, a subsidiary of
the Company, currently occupies, under an agreement with TEMIC UK Limited
(formerly an affiliated company), approximately 2,000 square feet of space in
premises located in Bracknell, United Kingdom, where the Company's European
Headquarters are located. Vishay Asia Pte. Ltd., also a subsidiary of the
Company, leases approximately 17,300 square feet of administrative space in
premises in Singapore, where the Company's Asia Administrative Headquarters are
located. Siliconix (Taiwan) Limited, an indirect subsidiary of the Company, owns
a 50,000-square-foot portion of a building in the Nan-Tse Export Processing
Zone, a suburb of Kaohsiung, Taiwan, which consists of manufacturing and general
office space. TEMIC Japan KK, another subsidiary of the Company, leases 3,400
square feet of general office space in Tokyo. Shanghai Simconix Co. Ltd., a
joint venture between the Company and the Shanghai Institute of Metallurgy (the
"SIM"), leases 41,000 square feet of manufacturing and general office space in
Shanghai from the SIM.
Item 3. Legal Proceedings.
In 1996, the Company was a party to two environmental proceedings. The
first involved property that the Company vacated in 1972. In July 1989, the
California Regional Water Quality Control Board ("RWQCB") issued Cleanup and
Abatement Order No. 89-115 both to the Company and the current owner of the
property. The Order alleged that the Company contaminated both the soil and the
groundwater on the property by the improper disposal of certain chemical
solvents. The RWQCB considered both parties to be liable for the contamination
and sought to have them decontaminate the site to acceptable levels. The Company
subsequently reached a settlement of this matter with the current owner of the
property. The settlement also provided that the current owner will indemnify the
Company and its employees, officers, and directors against any liability that
may arise out of any governmental agency actions brought for environmental
cleanup of the subject site, including liability arising out of RWQCB Order No.
89-115, to which the Company remains nominally subject.
The second proceeding involves the Company's Santa Clara, California
facility, which the Company has owned and occupied since 1969. In February 1989,
the RWQCB issued Cleanup and Abatement Order No. 89-27 to the Company. The Order
is based on the discovery of contamination of both the soil and the groundwater
on the property by certain chemical solvents. The Order calls for the Company to
specify and implement interim remedial actions and to evaluate final remedial
alternatives. The RWQCB issued a subsequent order requiring the Company to
complete the decontamination. The Company is complying with the RWQCB's orders.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
As of March 11, 1999, there were 736 holders of record of the Company's
Common Stock. Under Delaware law, the Company may pay dividends only from
retained earnings or, if none, from net profits for the current or preceding
fiscal year. In addition, the Company is indirectly bound by a restrictive
covenant contained in the Vishay Intertechnology's Credit Agreement with its
lending banks which precludes the payment of dividends. The Company has paid no
dividends since December 1980 in order to retain the Company's earnings to fund
future growth requirements. No change in such policy is anticipated in the near
future.
A presentation of the highest and lowest "last trade" price for the
Company's Common Stock for each quarterly period during 1998 and 1997 is
incorporated by reference from the Company's 1998 Annual Report to Shareholders,
portions of which are filed as Exhibit 13 hereto. The Company's Common Stock
trades on the Nasdaq Stock Market under the symbol "SILI."
Item 6. Selected Financial Data.
Incorporated by reference from the Company's 1998 Annual Report to
Shareholders, portions of which are filed as Exhibit 13 hereto.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Incorporated by reference from the Company's 1998 Annual Report to
Shareholders, portions of which are filed as Exhibit 13 hereto.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk.
Incorporated by reference from the Company's 1998 Annual Report to
Shareholders, portions of which are filed as Exhibit 13 hereto.
Item 8. Financial Statements and Supplementary Data.
The financial statements and reports of independent auditors are
incorporated by reference from the Company's 1998 Annual Report to Shareholders,
portions of which are filed as Exhibit 13 hereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
<PAGE>
Report of Ernst and Young LLP,
To the Board of Directors and Shareholders of Siliconix incorporated
We have audited the accompanying consolidated balance sheet of
Siliconix incorporated as of December 31, 1998, and the related consolidated
statements of operations, shareholders' equity and cash flows for the year then
ended. These consolidated statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1998 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Siliconix incorporated at December 31, 1998, and the result of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
San Jose, California
January 21, 1999
<PAGE>
Board of Directors
Siliconix incorporated:
We have audited the accompanying consolidated balance sheet of Siliconix
incorporated as of December 31, 1997, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the years in the
two-year period ended December 31, 1997. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit 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
mistatement. 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 Siliconix
incorporated as of December 31, 1997, and the results of their operations and
their cash flows for each of the years in the two-year period ended December 31,
1997, in conformity with generally accepted accounting principles.
KPMG LLP
Mountain View, California
January 21, 1998
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The executive officers of the Company are identified in Item 1 of Part I of
this Annual Report on Form 10-K. Identification of the directors of the Company
is incorporated by reference from the "Election of Directors" section of the
Company's definitive Proxy Statement dated April 30, 1999 to be mailed to
shareholders in connection with the 1999 Annual Shareholders Meeting and filed
with the Securities and Exchange Commission on or about April 30, 1999 (the
"Proxy Statement").
Item 11. Executive Compensation.
Incorporated by reference from the "Compensation of Officers and Directors"
and "Report of Compensation Committee" sections of the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated by reference from the "Security Ownership" section of the
Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
Incorporated by reference from the "Certain Transactions" section of the
Proxy Statement.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Documents Filed as Part of Form 10-K
1. Financial Statements
Independent Auditors' Reports on the Financial Statements.
The remainder of the Financial Statements and reports of independent
auditors are incorporated by reference from the Company's 1998 Annual
Report to Shareholders, portions of which are filed as Exhibit 13
hereto.
Consolidated Statements of Operations for the years ended December 31,
1998, 1997, and 1996
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1998, 1997, and 1996
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997, and 1996
Notes to Consolidated Financial Statements
Quarterly Financial Data (unaudited)
2. Financial Statement Schedule
A. Independent Auditors' Reports on Financial Statement Schedule
II. Valuation and Qualifying Accounts
All other schedules have been omitted as the required information
is reported or incorporated by reference elsewhere in this Annual
Report or is not applicable.
<PAGE>
3. Exhibits
3.1 Restated Certificate of Incorporation/1/
3.2 Bylaws/2/
10.2 One-Year Key Professional Incentive Bonus Plan/1/
10.3 Key Professional Performance Unit Plan/2/
10.5 Amended and Restated License Agreement dated April 10, 1990
between the Company and International Rectifier Corporation/1/
10.6 Amendment to Amended and Restated License Agreement dated
December 21, 1990 between the Company and International
Rectifier Corporation/1/
10.10 Pension Contract dated January 26, 1995 between Richard J.
Kulle and TEMIC TELEFUNKEN microelectronic GmbH/3/
10.11 Special Retention Bonus Plan of Siliconix incorporated/4/
10.12 Change-in-Control Severance Plan of Siliconix incorporated/4/
10.13 Special Retention Bonus Plan (1998) of Siliconix incorporated
/5/
10.14 Amendment No. 1 to Change-in-Control Severance Plan of
Siliconix incorporated/5/
10.15 Amendment No. 1 to Siliconix One-Year Key Professional
Incentive Bonus Plan/5/
10.16 Amendment No. 2 to Siliconix One-Year Key Professional
Incentive Bonus Plan/5/
10.17 Amendment No. 1 to Siliconix Key Professional Performance Unit
Plan/5/
10.18 Amendment No. 2 to Siliconix Key Professional Performance Unit
Plan/5/
10.19 Separation Agreement and Mutual Release dated March 11, 1998
among Richard Kulle, Siliconix incorporated and Vishay
Intertechnology, Inc.
10.20 Amendment No. 1 to Separation Agreement and Mutual Release
dated March 19, 1998 among Richard Kulle, Siliconix
incorporated and Vishay Intertechnology, Inc.
10.21 Promissory Note from Siliconix incorporated to Vishay
Intertechnology, Inc. in the principal amount of $34,570,000
dated March 2, 1998
10.22 Promissory Note from Siliconix incorporated to Vishay
Intertechnology, Inc. in the principal amount of $16,000,000
dated May 26, 1998
<PAGE>
(footnotes on following page)
10.23 Revolving Intercompany Promissory Note from Siliconix
incorporated to Vishay Intertechnology, Inc. in the maximum
principal amount of $35,000,000 dated May 26, 1998
13 Portions of Siliconix incorporated 1998 Annual Report to
Shareholders
21 Subsidiaries of the Company
27 Financial Data Schedule
- - ---------------------
/1/Incorporated by reference from Exhibits to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990, filed with the SEC on
April 15, 1991.
/2/Incorporated by reference from Exhibits to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995, filed with the SEC on
April 1, 1996.
/3/Incorporated by reference from Exhibits to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994, filed with the SEC on
April 10, 1995.
/4/Incorporated by reference to Exhibits to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 30, 1997, filed with the SEC on May 14,
1997.
/5/Incorporated by reference to Exhibits to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 28, 1997, filed with the SEC on
November 12, 1997.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K in the last quarter of the
year ended December 31, 1998.
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
To the Board of Directors and Shareholders of Siliconix, Incorporated:
We have audited the consolidated financial statements of Siliconix incorporated
as of December 31, 1998 and for the year ended December 31, 1998, and have
issued our report thereon dated January 21, 1999 (included elsewhere in this
Annual Report on Form 10-K). Our audit also included the financial statement
shcedule listed in Item 14(a)(2) of this Annual Report on Form 10-K. This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audit.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
San Jose, California
January 21, 1999
<PAGE>
REPORT ON FINANCIAL STATEMENT SCHEDULE ON INDEPENDENT AUDITORS
The Board of Directors
Siliconix incorporated:
The audit referred to in our report dated January 21, 1998 included the related
financial statmenet schedule as of December 31, 1997, and for each of the years
in the two-year period ended December 31, 1997, as listed in the Index in Item
14(a)2 herein. The financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statement schedule based on our audit. In our opinion, the financial
statement schedule, 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.
KPMG LLP
Mountain View, California
January 21, 1998
<PAGE>
SILICONIX INCORPORATED
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31
(IN THOUSANDS)
Additions
---------
<TABLE>
<CAPTION>
Balance
At Charged to Balance
Beginning Costs and Charged to At End
of Period Expenses Revenues Deductions of Period
--------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1996:
Allowance for Doubtful Accounts $ 1,841 $ 329 $ - $ 69 $ 2,101
Allowance for Price Adjustments 443 - 3,945 4,288 100
Allowance for Returned Parts and
Distributor Adjustments 3,242 - 18,636 15,474 6,404
----- ------- ------ ------ -----
$ 5,526 $ 329 $22,581 $ 19,831 $ 8,605
1997:
Allowance for Doubtful Accounts $ 2,101 $ 545 $ - $ 458 $ 2,188
Allowance for Price Adjustments 100 - 4,712 4,421 391
Allowance for Returned Parts and
Distributor Adjustments 6,404 - 24,818 21,878 9,344
----- ------- ------ ------- ------
$ 8,605 $ 545 $29,530 $ 26,757 $11,923
1998:
Allowance for Doubtful Accounts $ 2,188 $ 1,266 $ - $ 586 $ 2,868
Allowance for Price Adjustments 391 - 6,687 6,328 750
Allowance for Returned Parts and
Distributor Adjustments 9,344 - 23,319 21,890 10,773
------- ------- ------ ------- ------
$ 11,923 $ 1,266 $30,006 $28,804 $14,391
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 26, 1999
SILICONIX INCORPORATED
By: /s/King Owyang
-----------------------------
King Owyang
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Principal Executive Officer
/s/King Owyang President, Chief Executive
- - ----------------------------- Officer and a Director March 26, 1999
King Owyang
Principal Financial and Accounting Officer
/s/Jens Meyerhoff Senior Vice President Administration and
- - ----------------------------- Chief Financial Officer March 26, 1999
Jens Meyerhoff
/s/Everett Arndt Director March 26, 1999
- - ----------------------------
Everett Arndt
/s/Lori Lipcaman Director March 26, 1999
- - ----------------------------
Lori Lipcaman
/s/Glyndwr Smith Director March 26, 1999
- - ----------------------------
Glyndwr Smith
</TABLE>
<PAGE>
INDEX TO EXHIBITS
Exhibit
-------
3.1 Restated Certificate of Incorporation/1/
3.2 Bylaws/2/
10.2 One-Year Key Professional Incentive Bonus Plan/1/
10.3 Key Professional Performance Unit Plan/2/
10.5 Amended and Restated License Agreement dated April 10, 1990
between the Company and International Rectifier Corporation/1/
10.6 Amendment to Amended and Restated License Agreement dated
December 21, 1990 between the Company and International
Rectifier Corporation/1/
10.10 Pension Contract dated January 26, 1995 between Richard J.
Kulle and TEMIC TELEFUNKEN microelectronic GmbH/3/
10.11 Special Retention Bonus Plan of Siliconix incorporated/4/
10.12 Change-in-Control Severance Plan of Siliconix incorporated/4/
10.13 Special Retention Bonus Plan (1998) of Siliconix
incorporated/5/
10.14 Amendment No. 1 to Change-in-Control Severance Plan of
Siliconix incorporated/5/
10.15 Amendment No. 1 to Siliconix One-Year Key Professional
Incentive Bonus Plan/5/
10.16 Amendment No. 2 to Siliconix One-Year Key Professional
Incentive Bonus Plan/5/
10.17 Amendment No. 1 to Siliconix Key Professional Performance Unit
Plan/5/
10.18 Amendment No. 2 to Siliconix Key Professional Performance Unit
Plan/5/
10.19 Separation Agreement and Mutual Release dated March 11, 1998
among Richard Kulle, Siliconix incorporated and Vishay
Intertechnology, Inc.
10.20 Amendment No. 1 to Separation Agreement and Mutual Release
dated March 19, 1998 among Richard Kulle, Siliconix
incorporated and Vishay Intertechnology, Inc.
10.21 Promissory Note from Siliconix incorporated to Vishay
Intertechnology, Inc. in the principal amount of $34,570,000
dated March 2, 1998
10.22 Promissory Note from Siliconix incorporated to Vishay
Intertechnology, Inc. in the principal amount of $16,000,000
dated May 26, 1998
<PAGE>
(footnotes on following page)
10.23 Revolving Intercompany Promissory Note from Siliconix
incorporated to Vishay Intertechnology, Inc. in the maximum
principal amount of $35,000,000 dated May 26, 1998
13 Portions of Siliconix incorporated 1998 Annual Report to
Shareholders
21 Subsidiaries of the Company
27 Financial Data Schedule
- - ---------------------
/1/Incorporated by reference from Exhibits to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990, filed with the SEC on
April 15, 1991.
/2/Incorporated by reference from Exhibits to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995, filed with the SEC on
April 1, 1996.
/3/Incorporated by reference from Exhibits to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994, filed with the SEC on
April 10, 1995.
/4/Incorporated by reference to Exhibits to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 30, 1997, filed with the SEC on May 14,
1997.
/5/Incorporated by reference to Exhibits to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 28, 1997, filed with the SEC on
November 12, 1997.
SEPARATION AGREEMENT AND MUTUAL RELEASE
This Separation Agreement and Mutual Release ("Agreement") is entered
into as of March 11, 1998 by and among Siliconix Incorporated, a Delaware
corporation (the "Company"), Vishay Intertechnology, Inc., a Delaware
corporation ("Vishay") and Richard J. Kulle ("Executive").
RECITALS
--------
1. Executive is currently employed by the Company as its President and
Chief Executive Officer and also serves as a member of the Board of Directors.
2. Vishay has acquired a majority of the outstanding Common Stock of
the Company.
3. Executive, the Company and Vishay wish to set forth their agreement
whereby Executive will resign from all executive positions and as an employee
and a director of the Company and any subsidiaries and the Company agrees to
accept such resignation. The Company, Vishay and Executive have further mutually
agreed to terminate their employment relationship and to release each other from
any claims arising from or related to the employment relationship.
4. The Company has provided Executive with various severance agreements
(the "Severance Agreement") and certain loans (the "Loan Agreements"). This
Agreement will terminate and supersede the Severance Agreements in all respects
except as otherwise specifically provided herein.
NOW THEREFORE, in consideration of the mutual promises made herein, the
Company, Vishay and Executive (collectively referred to as the "Parties") hereby
agree as follows:
1. Resignation. Executive hereby resigns from all executive positions
with the Company and any subsidiaries of the Company, including as President and
Chief Executive Officer of the Company, and also as an employee and a director
of the Company on the Effective Date. For purposes of this Agreement, references
to the Company shall include the Company and any wholly-owned or partially-owned
subsidiary of the Company.
2. Consideration. In consideration of Executive's past services to the
Company, and in consideration for Executive's promises and covenants herein, the
Company shall pay Executive, subject to Section 3 herein, as follows. Vishay
hereby agrees to take such action as is necessary to cause the Company to make
such payments to Executive or, to make such payments itself to Executive if the
Company fails to make such payments.
(a) Salary. The Company will pay Executive within seventy-two
(72) hours of the Effective Date all salary earned through the Effective Date,
less applicable withholding.
<PAGE>
(b) Separation Payments. Executive shall receive the following
payments: (i) on the Effective Date a payment of $1,500,000; (ii) on the one
year anniversary of the Effective Date a payment of $500,000 (plus interest at
6% on such amount from the Effective Date to the payment date) and (iii) on the
two year anniversary of the Effective Date a payment of $ 779,603 (plus interest
at 6% on such amount from the Effective Date to the payment date). The Parties
hereby agree that of the foregoing payments, the amount of $1,279,603 is being
paid to Executive in consideration of his non-competition and non-solicitation
agreement and is subject to Section 3 of this Agreement.
(c) Business Expenses. The Company shall reimburse Executive
for all business expenses incurred in connection with carrying out the business
of the Company through the Effective Date promptly upon receiving backup
documentation in reasonable detail documenting such expenses.
(d) Benefits. Executive shall receive continued coverage,
through March 11, 2001 (the "Continued Coverage Period"), under each Employee
Welfare Benefit Plan (as defined) of the Company in which he was participating
as of March 1, 1998, at no increased cost to Executive, provided that the
Company's obligations under this Section 2(d) shall be reduced to the extent
Executive receives similar coverage and benefits under the plans of a subsequent
employer. Executive shall promptly provide the Company with notice and
information reasonably requested by the Company concerning such plans. If
Executive or any member of his family is precluded from continuing full
participation in any benefit under any Employee Welfare Benefit Plan as provided
in this Section 2(d), then the Company shall provide Employee with at least
sixty (60) days advance written notice and shall make a payment to Executive
equal to 2 times the cost of "COBRA" coverage, for the number of months obtained
by subtracting from (i) 36 months (ii) the number of months from the Effective
Date to the date coverage under the plan became unavailable. Such amount shall
be paid in a lump sum on the date Executive or any member of his family is no
longer covered under such plan. Executive acknowledges and agrees that Executive
can elect continuation coverage under the Company's life, disability, accidental
death, dismemberment, travel and accident plans and that the payment in Section
2(b)(i) includes all payments owed by the Company for such coverage. For
purposes of this Agreement "Employee Welfare Benefit Plan" shall mean "any
medical, dental, hospitalization, vision, plan or program made available to the
Executive."
The Company shall continue to pay for six (6) months
after the Effective Date the following car payments for Executive's company
provided automobile; (i) monthly car payment, (ii) maintenance, (iii) insurance
under the Company's fleet plan, and (iv) gas and cleaning (or, at the Company's
option, a one-time payment of $1,200 in lieu of actual gas and cleaning).
(e) Loan Agreements. The Company and the Executive are parties
to three loan agreements attached hereto as Exhibits A-1, A-2 and A-3
(collectively the "Loan Agreements").
<PAGE>
(i) The Company and Executive agree that the loan
dated December 31, 1997 (Exhibit A-1) has an amended loan balance of $180,000
and accrued interest of $15,272 as of March 2, 1998 and hereby confirm such loan
and accrued interest is canceled and forgiven in its entirety as of March 2,
1998.
(ii) The Company and Executive agree that the loan
dated July 3, 1997 (Exhibit A-2) has an amended loan balance of $100,000 as of
the Effective Date and accrued interest as of such date of $3,908. Such loan is
due and payable on September 28, 1999. The Company and Executive hereby agree
that such loan shall be repaid in its entirety on the one year anniversary of
the Effective Date and that the Company shall reduce the payment in Section
2(b)(ii) by the amount of $109,408 in full satisfaction of principal and
interest on such loan.
(iii) The Company and Executive agree that the loan
dated December 23, 1997 (Exhibit A-3) has an amended loan balance of $300,000 as
of the Effective Date and accrued interest as of such date of $10,013. Such loan
is due and payable on January 25, 2004. The Company and Executive hereby agree
that such loan shall be repaid in its entirety on the two year anniversary of
the Effective Date and that the Company shall reduce the payment in Section
2(b)(ii) by the amount of $343,019 in full satisfaction of principal and
interest on such loan.
(f) No Mitigation; Limited Offset. Executive shall be under no
obligation to seek other employment and there shall be no offset against amounts
due Executive under this Agreement on account of any remuneration or other
benefit attributable to any subsequent employment that he may obtain except as
specifically provided in Section 2(d).
(g) Nature of Payments. Any amounts due under this Section 2
are in the nature of severance and non-competition payments considered to be
reasonable by the Company and are not in the nature of a penalty.
(h) Indemnification. The Company shall continue to provide
Executive with full indemnification under the Company's certificate of
incorporation and by-laws as in effect on March 1, 1998 and the Indemnification
Agreement between the Company and Executive dated May 29, 1991 (copies of which
are attached as Exhibits B-1, B-2 and B-3) . For six years the Company shall use
commercially reasonable efforts to continue to include Executive as a named
insured under the Company's director and officer insurance policy with coverage
amounts at least equal to those in effect as of March 1, 1998. Vishay agrees to
take all action necessary to assure that the Company provides the foregoing
indemnification and all action commercially reasonable to provide the foregoing
insurance coverage to Executive.
3. Forfeiture of Benefits upon Breach. In the event that Executive
breaches Section 4 or 5 of this Agreement as the sole and exclusive remedy (i)
all obligations of the Company to make any payments or provide any benefits
under Sections 2(b)(ii) and 2(b)(iii) shall immediately terminate and Executive
shall promptly repay, net of all taxes paid or payable, any amounts he may have
received under these Sections 2(b)(ii) and 2(b)(iii).
<PAGE>
4. Non-Competition. For a period of twenty-four (24) months following
the Effective Date, Executive agrees as follows. Executive shall not provide
services, whether for compensation or otherwise, as an officer, director,
employee, consultant or in any other capacity to any person or entity that
competes, directly or indirectly, with the Company's current product line
offered commercially on the Effective Date (the "Company Products"). In this
regard, Executive acknowledges that the business of the Company is national and
international in nature. Executive also acknowledges that this period of time,
scope of business and geographic extent are reasonably necessary to protect the
legitimate business interests of the Company. The foregoing restrictions shall
not apply to and Executive shall have the right to, directly or as an officer,
director, employee, consultant or in any other capacity with any person or
entity, assemble, test, develop and manufacture any products, and to assemble,
test and manufacture for other persons or entities products that compete with
the Company Products, provided Executive or such person or entity does not
market and sell any product which competes with the Company Products directly to
the market (OEM customers) or to distributors and Executive or such person or
entity is not involved in research and development, wafer fabrication, software
design or "fabless" activity (using foundry production) of any product which
competes with the Company Products.
The Company and Vishay agree that the foregoing
non-competition provision does not apply to IRDC products or products of any
companies or entities not including the Company that Vishay acquired at the time
of its acquisition of the majority ownership of the Company.
5. Non-Solicitation. For a period of twelve (12) months following the
Effective Date, Executive shall not, and shall not intentionally or knowingly
allow others under his direction to, solicit, directly or indirectly, any then
current Company employee to terminate his or her employment with the Company for
the purpose of working as an officer, director, employee, consultant or in any
other capacity for either Executive or any of his employers. For purposes of the
above, an employer of Executive's will be deemed to include (i) any parent or
subsidiary of such an employer or (ii) any person or company for which Executive
provides consulting services or for which he acts in the capacity of director.
The foregoing shall not prohibit Executive or any employee with which Executive
may be affiliated from hiring an employee or former employee of the Company;
provided that such hiring results from such employee's initiative in contacting
Executive or any employer Executive is affiliated with. In addition, if
Executive or such employer desires to hire such employee after such contact,
Executive agrees to contact the Company and to work with the Company to find a
reasonable transition to enable the Company to replace such employee or modify
the organization, provided such transition shall not exceed three (3) months.
6. Confidentiality. Executive acknowledges that the Employment,
Invention, Authorship, Proprietary and Confidential Information Agreement dated
June 1, 1987 (the "Confidentiality Agreement") that he signed in connection with
his employment and that is appended to this Agreement as Exhibit C, shall remain
in full force and effect.
7. Payment of Salary. Executive acknowledges and represents that, upon
full performance of its obligations under this Agreement, the Company will have
paid or made all
<PAGE>
salary, bonuses, severance amounts and any and all other compensation or
benefits due to Executive as of the Effective Date as in connection with the
termination of his employment with the Company.
8. Release of Claims. The Parties acknowledge and agree that this
Agreement represents settlement in full of all obligations and claims arising
out of or relating to Executive's employment by the Company and the termination
of such employment as provided in this Agreement. Executive, the Company and
Vishay, on behalf of themselves, and their respective heirs, executors,
officers, directors, employees, investors, shareholders, administrators,
predecessor and successor corporations, and assigns, hereby fully and forever
release each other and their respective heirs, executors, officers, directors,
employees, investors, shareholders, administrators, predecessor and successor
corporations, and assigns, of and from any claim, duty, obligation or cause of
action relating to any matters of any kind, whether presently known or unknown,
suspected or unsuspected, that any of them may possess arising from any
omissions, acts or facts that have occurred up until and including the Effective
Date including, without limitation,
(a) any and all claims relating to or arising from Executive's
employment by (or services for) the Company, his employment relationship with
the Company and the termination of that relationship;
(b) any and all claims for wrongful discharge of employment;
breach of contract, both express and implied; breach of a covenant of good faith
and fair dealing, both express and implied; negligent or intentional infliction
of emotional distress; negligent or intentional misrepresentation; negligent or
intentional interference with contract or prospective economic advantage; and
defamation;
(c) any and all claims for violation of any federal, state or
municipal statute, including, but not limited to, the Employment Retirement
Income Security Act of 1974, Title VII of the Civil Rights Act of 1964, the
Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the
Americans with Disabilities Act of 1990, and the California Fair Employment and
Housing Act;
(d) any and all claims arising out of any other laws and
regulations relating to employment or employment discrimination;
(e) any claims arising out of or related to the Severance
Agreements;
(f) any and all claims for attorneys' fees and costs;
(g) all claims arising out of or relating to Executive's
conduct as an employee, officer, director, agent or representative of the
Company;
(h) all claims arising out of or relating to duties owed by
Executive to the Company or to any of its directors, officers, employees,
agents, affiliates, stockholders, lenders, investors, predecessor or successor
corporations, assigns, attorneys, accountants or
<PAGE>
other representatives; and
(i) any claims Executive may have against Temic Telefunken
microelectronic Gmbh ("Temic") for payments under any severance or other
agreement or plan that Executive participates in arising from a termination of
Executive by Temic after the acquisition of Temic by Vishay, provided that this
release shall not apply to amounts owed by Temic to Executive under such plans
prior to or in connection with successful completion of such acquisition.
The Company, Vishay and Executive agree that the release set forth in this
Section shall be and remain in effect in all respects as a complete general
release as to the matters released. This release does not extend to any
obligations arising under, incurred under, or preserved by this Agreement.
9. Acknowledgment of Waiver of Claims under ADEA. Executive
acknowledges that he is waiving and releasing any rights he may have under the
Age Discrimination in Employment Act of 1967 ("ADEA") and that this waiver and
release is knowing and voluntary. Executive and the Company agree that this
waiver and release does not apply to any rights or claims that may arise under
ADEA after the Effective Date. Executive acknowledges that the consideration
given for this waiver and release is in addition to anything of value to which
Executive was already entitled. Executive further acknowledges that he has been
advised by this writing that (a) he should consult with an attorney prior to
executing this Agreement; (b) he has at least twenty-one (21) days within which
to consider this Agreement; (c) he has at least seven (7) days following the
execution of this Agreement by the Parties to revoke the Agreement; and (d) this
Agreement shall not be effective until the revocation period has expired.
10. Civil Code Section 1542. The Parties represent that they are not
aware of any claim by any of them other than the claims that are released by
this Agreement. Executive, the Company and Vishay acknowledge that they have
been advised by legal counsel and are familiar with the provisions of California
Civil Code Section 1542, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
Executive, the Company and Vishay, being aware of said Code section,
agree to expressly waive any rights they may have thereunder, as well as under
any other statute or common law principles of similar effect.
11. Payment on Death. In the event of death of Executive, all unpaid
amounts shall be accelerated and paid to Executive's surviving spouse or to
Executive's estate if Executive has no surviving spouse.
<PAGE>
12. Fees and Expenses. Each of the Parties hereto shall bear their own
fees and expenses, including attorneys fees, incurred in connection with the
negotiation of this Agreement or otherwise arising out of, or by reason of, this
Agreement.
13. Taxes. All payments to be made by the Company to Executive under
this Agreement will be subject to reduction to the extent necessary in order to
comply with applicable Federal, state and local tax withholding requirements.
The Company hereby warrants to Executive that no payments under this Agreement
will be deemed an "excess parachute payment" under Internal Revenue Code Section
280G.
14. Confidentiality. The Parties hereto each agree to use their best
efforts to maintain in confidence the existence of this Agreement, the contents
and terms of this Agreement, and the consideration for this Agreement, except
where disclosure of the terms of this Agreement is otherwise required by law and
except for disclosure in confidence to financial, tax, and legal advisors and
disclosure by Executive in confidence to prospective employers.
15. Disparagement. Each Party agrees to refrain from any disparagement,
criticism, defamation, and slander of the other Party.
16. No Representations. Each Party represents that it or he has had the
opportunity to consult with an attorney, and has carefully read and understands
the scope and effect of the provisions of this Agreement. No Party has relied
upon any representations or statements made by any other Party hereto which are
not specifically set forth in this Agreement.
17. Entire Agreement. This Agreement, the Confidentiality Agreement and
those portions of the Loan Agreements preserved by this Agreement represent the
entire agreement and understanding between the Company, Vishay and Executive
concerning Executive's separation from the Company, and supersede and replace
any and all prior agreements and understandings concerning Executive's
relationship with the Company and his compensation by the Company, including
without limitation, the Severance Agreements, except as otherwise provided in
this Agreement.
18. Assignability; Binding Nature. This Agreement shall be binding upon
and inure to the benefit of the Parties and their respective successors and
assigns. No rights or obligations of the Company or Vishay under this Agreement
may be assigned or transferred by the Company or Vishay except that such rights
or obligations shall be assigned or transferred pursuant to a merger or
consolidation in which the Company or Vishay is not the continuing entity, or
the sale or liquidation of all or substantially all of the assets of the Company
or Vishay, and the Company or Vishay shall provide that such assignee or
transferee expressly assumes all the liabilities, obligations and duties of the
Company or Vishay, as contained in this Agreement. In connection with any
transfer or assignment of its rights, duties, or obligations under this
Agreement, the Company or Vishay shall take whatever action it legally can to
cause such assignee or transferee to expressly assume the labilities,
obligations and duties of the Company or Vishay hereunder. The Company and
Vishay shall, in any event,
<PAGE>
remain as unconditional guarantor of prompt payment and prompt satisfaction of
all such liabilities, obligations and duties. No rights, obligations or duties
of the Executive under this Agreement may be assigned or transferred, other than
his rights to compensation and benefits, which may be transferred only by will
or operation of law, except as provided in Section 23 below.
19. Representations. The Company and Vishay represent and warrant that
each is fully authorized and empowered by any required corporate action to enter
into this Agreement and that the performance of its obligations under this
Agreement will not violate any law, regulation or order of any agreement between
it and any other person. The Executive represents and warrants that he is not
subject to any agreement or obligation that conflicts with or would be breached
by the provisions of this Agreement.
20. Amendment or Waiver. No provision in this Agreement may be amended
unless such amendment is set forth in a writing signed by the Parties. No waiver
by either Party of any breach of any condition or provision contained in this
Agreement shall be deemed a waiver of a similar or dissimilar condition or
provision at the same or any prior or subsequent time. To be effective, any
waiver must be set forth in writing and signed by the waiving Party.
21. Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remainder of this Agreement shall be unaffected thereby
and shall remain in full force and effect to the fullest extent permitted by law
so as to achieve the purposes of this Agreement.
22. Survivorship. Except as otherwise expressly set forth in this
Agreement, the respective rights and obligations of the Parties hereunder shall
survive the termination of Executive's employment. This Agreement itself (as
distinguished from the Executive's employment) may not be terminated by any
Party.
23. Beneficiaries/References. The Executive shall be entitled, to the
extent permitted under any applicable law, to select and change a beneficiary or
beneficiaries to receive any compensation or benefit hereunder following the
Executives's death, by giving written notice to the Company. In the event of the
Executive's death or a judicial determination of his incompetence, references in
this Agreement to the Executive shall be deemed, where appropriate, to refer to
his beneficiary, estate or other legal representative.
24. Resolution of Disputes. Any claim arising out of or relating to
this Agreement or out of Executive's employment by, or services for the Company,
shall be resolved by confidential arbitration, to be held in Santa Clara County,
California, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association. The arbitrator(s) shall explain the reasons and basis
of his (their) award in detail and in writing, and judgment upon the award may
be entered in any court having jurisdiction thereof. Each Party shall bear their
own respective costs and expenses relating to resolving any such claim. Pending
the final and conclusive resolution of any such claim, the Company and Vishay
shall continue prompt payment of all amounts due the Executive under this
Agreement and prompt provision of all
<PAGE>
benefits to which the Executive or his successors and assigns are entitled.
25. Notices. Any notice, consent, demand, request, or other
communication given to a Party in connection with this Agreement shall be in
writing and shall be deemed to have been given (a) when delivered personally to
the Party specified or (b), provided that reasonable steps are taken to assure
that the communication is actually received by the Party specified, five
business days after being sent by certified or registered mail, postage prepaid,
return receipt requested, duly addressed to the Party concerned at the address
indicated below or to such changed address as such Party may subsequently give
notice of:
If to the Company and/or Vishay:
Vishay Intertechnology, Inc.
63 Lincoln Highway
Malvern, PA 19355-2120
Attention: Avi Eden
With a copy sent by the same means to:
Siliconix, Inc.
2201 Laurelwood Road
Santa Clara, CA 95054
Attn: General Counsel
If to the Executive:
Richard J. Kulle
12341 Stonebrook Court
Los Altos Hills, CA 94022-5133
With a copy sent by the same means to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Barry E. Taylor, Esq.
26. Headings. The headings of the Sections contained in this Agreement
are for convenience only and shall not be deemed to control or affect the
meaning or construction of any provision of this Agreement.
27. Governing Law. This Agreement shall be governed by the laws of the
State of California, without reference to its choice of law principles.
28. Counterparts. This Agreement may be executed in counterparts, and
each
<PAGE>
counterpart shall have the same force and effect as an original and shall
constitute an effective, binding agreement on the part of each of the
undersigned.
29. Voluntary Execution of Agreement. This Agreement is executed
voluntarily and without any duress or undue influence on the part or behalf of
the Parties hereto, with the full intent of releasing all claims. The Parties
acknowledge that:
(a) They have read this Agreement;
(b) They have been represented in the preparation,
negotiation, and execution of this Agreement by legal counsel of their own
choice or that they have voluntarily declined to seek such counsel;
(c) They understand the terms and consequences of this
Agreement and of the releases it contains;
(d) They are fully aware of the legal and binding effect of
this Agreement.
30. Effective Date. The Effective Date of this Agreement shall be seven
(7) days after execution by all parties as required under ADEA.
IN WITNESS WHEREOF, the Parties have executed this Agreement
on the respective dates set forth below.
SILICONIX INCORPORATED
Dated: March 11, 1998 By: /s/David Achterkirchen
----------------------------
Dated: March 11, 1998 VISHAY INTERTECHNOLOGY, INC.
By: /s/Avi Eden
----------------------------
Dated: March 11, 1998 /s/Richard J. Kulle
--------------------------------
Richard J. Kulle
AMENDMENT NO. 1 TO SEPARATION AGREEMENT AND MUTUAL RELEASE
This Amendment No. 1 to Separation Agreement and Mutual Release is
entered into as of March 19, 1998 by and among Siliconix incorporated, a
Delaware corporation (the "Company"), Vishay Intertechnology, Inc., a Delaware
corporation ("Vishay"), and Richard J. Kulle ("Executive").
RECITALS
--------
A. The Company, Vishay and Executive are parties to a Separation
Agreement and Mutual Release dated March 11, 1998 (the
"Agreement").
B. The parties to the Agreement desire to amend the same, as
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises made herein,
the parties hereto hereby agree as follows:
1. Waiver of Benefits. Executive hereby agrees to waive all of his
rights under Section 2(d) of the Agreement; provided, however, that the Company
shall continue to make the lease and automobile insurance payments covering
Executive's company-provided automobile for as long as Executive maintains
possession of said automobile. Executive understands that by executing this
Amendment No. 1, he is waiving all of his rights to receive benefits under any
Employee Welfare Benefit Plan, as that term is defined in the Agreement, except
as specifically provided in this Section 1. The parties acknowledge and agree,
however, that Executive's rights (i) under the Siliconix Retirement Plan and
(ii) to continue medical insurance under COBRA at his expense subsequent to
March 11, 1998 shall not be affected by this Amendment No. 1.
2. Lump Sum Payment. In consideration of the waiver given by Executive
in Section 1 hereof, the Company hereby agrees to pay, within seven days after
this Amendment shall have been fully executed by the parties hereto, a net,
i.e., grossed up, lump sum payment of $95,000. This is comprised of the
following:
Medical and life insurance $93,151.28
Automobile gas and cleaning 1,200.00
Automobile maintenance 648.72
----------
Total: $95,000.00
==========
For the derivation of the amount allocated to medical and life insurance, see
Exhibit A attached hereto and made a part hereof.
3. Effect of Amendment on Agreement. Except as amended hereby, the
Agreement
<PAGE>
shall remain in full force and effect, in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No.
1 on the respective dates set forth below.
SILICONIX INCORPORATED
Dated: March 19, 1998 By:/s/David Achterkirchen
-----------------------------------
David Achterkirchen, Secretary
VISHAY INTERTECHNOLOGY, INC.
Dated: March 19, 1998 By:/s/William Spires
-----------------------------------
William Spires, Vice President
Dated: March 19, 1998 /s/Richard J. Kulle
--------------------------------------
Richard J. Kulle
-2-
PROMISSORY NOTE
US $34,570,000.00 March 2nd, 1998
New York, New York
FOR VALUE RECEIVED, SILICONIX, INC. ("Siliconix") a Delaware corporation,
by this promissory note unconditionally promises to pay to the order of VISHAY
INTERTECHNOLOGY, INC. ("Vishay") a Delaware corporation or its registered
assigns the principal amount of THIRTY FOUR MILLION FIVE HUNDRED and SEVENTY
THOUSAND DOLLARS ($34,570,000.00) or such lesser amount as may be owed from time
to time by Siliconix to Vishay and to pay interest on the unpaid balance hereof
at Vishay's Borrowing Rate (as defined below) on the 1st day of each of January,
April, July and October of each year commencing July 1, 1998 and on the Maturity
Date (each such date being an Interest Payment Date) all as hereafter further
provided.
1. Payments.
(a) Principal of, and any accrued and unpaid interest on, this
Note shall be due and payable in full on December 31, 2001 (the "Maturity
Date");
(b) interest on this Note shall accrue from the date hereof,
to, but excluding, the next Interest Payment Date, and shall be payable in
arrears on each Interest Payment Date;
(c) if any Interest Payment Date or the Maturity Date would
fall on a day that is not a Business Day (as defined below), the payment due on
such Interest Payment Date or Maturity Date will be made on the next succeeding
Business Day with the same force and effect as if made on the Interest Payment
Date or the Maturity Date, as the case may be. "Business Day" means any day
which is not a Saturday or Sunday and is not a day on which banking institutions
are generally authorized or obligated to close in the City of New York;
(d) the Borrower may prepay all or any portion of this Note.
All payments on this Note shall be applied first to accrued interest on this
Note and then to the balance of principal on this Note;
(e) payments of principal and interest on this Note shall
be made by check sent to Vishay's address set forth above or to such other
address as Vishay may designate for such purpose from time to time by written
notice to Siliconix, in such coin or currency of the United States of America as
at the time of payment shall be legal tender for the payment of public and
private debts;
<PAGE>
(f) the obligations to make the payments provided for in this
Note are absolute and unconditional and not subject to any defense, set-off,
counterclaim, rescission, recoupment or adjustment whatsoever. Siliconix hereby
expressly waives demand and presentment for payment, notice of non-payment,
notice of dishonor, protest, notice of protest and diligence in taking any
action to collect any amount called for hereunder, and shall be directly and
primarily liable for the payment of all sums owing and to be owing hereon,
regardless of and without any notice, diligence, act or omission with respect to
the collection of any amount called for hereunder; and
(g) for the purposes of this Note, Vishay's Borrowing Rate
shall mean the interest rate payable by Vishay to the Lenders (as hereinafter
defined) on its borrowings, as such rate may vary from time to time.
2. Ranking of Note. Subject to Section 7 herein Siliconix, for itself,
its successors and assigns, covenants and agrees that the payment of the
principal of and interest on this Note is pari passu with the payment of all
existing and future debt of Siliconix.
3. Covenants. Siliconix covenants and agrees with Vishay that, so long
as any amount remains unpaid on this Note, unless the consent of Vishay is
obtained, Siliconix shall not create, incur, or suffer to exist any other debt
except in cases (i) where the holders of such other debt have duly executed any
and all subordination agreements or intercreditor agreements reasonably
acceptable to Vishay, (ii) capital lease obligations incurred in the ordinary
course of business, and (iii) trade debt incurred in the ordinary course of
business.
4. Events of Default.
The occurrence of any of the following events shall constitute a
default (a "Default"):
(a) a default in the payment of the principal on this Note, when
and as the same shall become due and payable;
(b) a default in the payment of any interest on this Note, when
and as the same shall become due and payable, which default shall continue for
two (2) business days after the date fixed for the making of such interest
payment;
(c) a material default in the performance, or a material breach,
of any of the covenants of Siliconix contained in this Note;
(d) a material default in the performance, or a material breach,
of any financial covenant contained in any loan agreement executed by Siliconix,
which default or breach shall have continued beyond any grace or cure period
provided therein;
(e) any representation, warranty or certification made by
Siliconix in or pursuant to this Note, or any subordination or intercreditor
agreement shall prove to have been false or misleading as of the date made in
any material respect; or
-2-
<PAGE>
(f) the entry of a decree or order by a court having
jurisdiction adjudging Siliconix a bankrupt or insolvent, or approving a
petition seeking reorganization, arrangement, adjustment or composition of or in
respect of Siliconix under federal bankruptcy law, as now or hereafter
constituted, or any other applicable federal or state bankruptcy, insolvency or
other similar law, and the continuance of any such decree or order unstayed and
in effect for a period of sixty (60) days; or the commencement by Siliconix of a
voluntary case under federal bankruptcy law, as now or hereafter constituted, or
any other applicable federal or state bankruptcy, insolvency, or other similar
law, or the consent by Siliconix to the institution of bankruptcy or insolvency
proceedings against it, or the filing by Siliconix of a petition or answer or
consent seeking reorganization or relief under federal bankruptcy law or any
other applicable federal or state law, or the consent by Siliconix to the filing
of such petition or to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator or similar official of Siliconix, or of any substantial
part of the property of Siliconix, or the making by Siliconix of an assignment
for the benefit of creditors, or the admission by Siliconix, in writing, of its
inability to pay its debts generally as they become due, or the taking of
corporate action by Siliconix in furtherance of any such action.
5. Remedies Upon Default.
(a) Subject to Section 7 herein upon the occurrence of a
Default referred to in Section 4(f), the principal amount then outstanding of,
and the accrued interest on, this Note shall automatically become immediately
due and payable without presentment, demand, protest or other formalities of any
kind, all of which are hereby expressly waived by Siliconix. Upon the occurrence
of a Default referred to in Section 4 (other than Section 4(f)), Vishay by
notice in writing given to Siliconix, may declare the entire principal amount
then outstanding of, and the accrued interest on, this Note to be due and
payable immediately, and upon any such declaration the same shall become and be
due and payable immediately, without presentation, demand, protest or other
formalities of any kind, all of which are expressly waived by Siliconix; and
(b) Vishay may institute such actions or proceedings in law or
equity as it shall deem expedient for the protection of its rights and may
prosecute and enforce its claims against all assets of Siliconix, and in
connection with any such action or proceeding shall be entitled to receive from
Siliconix, payment of the principal amount of this Note plus accrued interest to
the date of payment plus reasonable expenses of collection, including, without
limitation, attorneys' and experts' fees and expenses.
6. Assignment.
This Note may be assigned, subject to the terms of the Credit
Agreement (as hereinafter defined), to a wholly-owned subsidiary of Vishay
provided that such subsidiary acknowledges in writing and with notice to Agent
(as hereinafter defined) that it is bound by the terms of this Note.
-3-
<PAGE>
7. Subordination.
(a) So long as that certain Long Term Revolving Credit Agreement
dated as of March 2, 1998 (as amended or otherwise modified from time to time,
the "Credit Agreement") by and among Vishay, certain financial institutions from
time to time signatory thereto (the "Lenders"), and Comerica Bank as
Administrative Agent for the Lenders (the "Agent"), remains in effect, and
thereafter until the expiration of all Letters of Credit (as such term is
defined in the Credit Agreement) and the payment in full of all Indebtedness (as
such term is defined in the Credit Agreement) and the performance by Vishay of
all other obligations under the Credit Agreement (i) this Note shall be fully
subordinated in all respects to the Indebtedness (as defined in the Credit
Agreement) of Siliconix, if any, (herein, the "Senior Indebtedness") and (ii) in
the event that Siliconix becomes a Guarantor or a Permitted Borrower (as such
terms are defined in the Credit Agreement), upon the occurrence and during the
continuance of an Event of Default (as such term is defined in the Credit
Agreement), no payments may be made of the principal of or interest on this
Note.
(b) Siliconix agrees, and Vishay by accepting this Note agrees,
that: (A) the obligations evidenced by this Note are subordinated in right of
payment, to the prior payment in full of all the Senior Indebtedness; the
subordination is for the benefit of the holders of the Senior Indebtedness, and
each holder of Senior Indebtedness whether now outstanding or hereafter created,
incurred, assumed or guaranteed shall be deemed to have acquired Senior
Indebtedness in reliance upon the covenants and provisions contained in this
Note; (B) if Siliconix is prohibited by the terms of this Note from making any
payment of principal, interest or any other sum under or in respect of this Note
when due, and therefore Siliconix shall fail to pay when due any such sum, such
failure shall not constitute a default or event of default under and in respect
of this Note (provided that interest shall continue to accrue as provided herein
and be added to principal (but shall not itself bear interest) as herein set
forth); and (C) no revision to any provision of this Note applicable or relevant
to the subordination of this Note to the Senior Indebtedness shall be made or
become effective until approved in writing by the holders of the Senior
Indebtedness.
(c) Upon any distribution (whether cash, securities or other
property, by setoff or otherwise) to creditors of Siliconix in a liquidation or
dissolution of Siliconix or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to Siliconix or its property: (A)
holders of Senior Indebtedness shall be entitled to payment in full of all
obligations with respect to the Senior Indebtedness (including interest after
the commencement of any such proceeding at the rates specified for the
applicable Senior Indebtedness) to the date of payment of the Senior
Indebtedness before Vishay shall be entitled to receive any payment of any
obligations with respect to this Note; and (B) until all obligations with
respect to the Senior Indebtedness are paid in full, any distribution to which
Vishay would be entitled under the terms and conditions of this Note shall be
made to holders of Senior Indebtedness as their interests may appear; provided
however that for the purposes of determining the amount of Siliconix's
obligations to Vishay hereunder, any payments by Siliconix to the holders of
Senior Indebtedness on account of its obligations in respect of this Note shall
be deemed to have been made (without duplication) to Vishay. Payments of Senior
Indebtedness under this Section 7 shall be considered payments of principal and
interest, as the case may be, on this Note.
-4-
<PAGE>
(d) No right of any holder of Senior Indebtedness to enforce
the subordination of the indebtedness evidenced by this Note shall be impaired
by any act or failure to act by Siliconix or by its failure to comply with the
terms and conditions of this Note.
8. Miscellaneous.
(a) Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or by Federal Express, Express Mail or similar
overnight delivery or courier service or delivered (in person [or by telecopy,
telex or similar telecommunications equipment]) against receipt to the party to
whom it is to be given, (i) if to Siliconix, at its address at 2201 Laurelwood
Road, Santa Clara, California 95054, Attention: David Achterkirchen, (ii) if to
Vishay, at its address at 63 Lincoln Highway, Malvern, Pennsylvania 19355-2120,
or (iii) in either case, to such other address as the party shall have furnished
in writing in accordance with the provisions of this Section 8(a). Notice to the
estate of any party shall be sufficient if addressed to the party as provided in
this Section 8(a). Any notice or other communication given by certified mail
shall be deemed given at the time of certification thereof, except for a notice
changing a party's address which shall be deemed given at the time of receipt
thereof. Any notice given by other means permitted by this Section 8(a) shall be
deemed given at the time of receipt thereof;
(b) No course of dealing and no delay or omission on the part of
Vishay in exercising any right or remedy shall operate as a waiver thereof or
otherwise prejudice Vishay's rights, powers or remedies. No right, power or
remedy conferred by this Note upon Vishay shall be exclusive of any other right,
power or remedy referred to herein or now or hereafter available at law, in
equity, by statute or otherwise, and all such remedies may be exercised singly
or concurrently;
(c) Subject to Section 7 herein, this Note may be amended, or
any of its provisions waived only by written consent or consents executed by the
parties hereto;
(d) This Note shall be governed by and construed in accordance
with the laws of the State of Michigan, without giving effect to principles
governing conflict of laws; and
(e) Siliconix irrevocably consents to the jurisdiction of the
courts of the State of New York and of any federal court located in such State
in connection with any action or proceeding arising out of or relating to this
Note, any document or instrument delivered pursuant to, in connection with or
simultaneously with this Note, or a breach of this Note or any such document or
instrument. In any such action or proceeding, Siliconix waives personal service
of any summons, complaint or other process and agrees that service thereof may
be made in accordance with Section 8(a). Within thirty (30) days after such
service, or such other time as may be mutually agreed upon in writing by the
attorneys for the parties to such action or proceeding, Siliconix shall appear
or answer such summons, complaint, or other process.
-5-
<PAGE>
IN WITNESS WHEREOF, Siliconix has caused this Note to be executed and
dated the day and year first above written.
SILICONIX, INC.
By: ______________________
Name:
Title:
By: ______________________
Name:
Title:
Allonge for Intercompany Note
Issued by Siliconix Incorporated to Vishay Intertechnology, Inc.
Pay to the order of Comerica Bank, as Administrative Agent, without recourse,
pursuant to the terms and conditions of that certain Company Stock Pledge and
Security Agreement by and among Vishay Intertechnology, Inc. (the "Company"),
certain other Subsidiaries of the Company, and Comerica Bank, as Administrative
Agent for and on behalf of the Lenders party to that certain Vishay
Intertechnology, Inc. Long Term Revolving Credit Agreement dated as of March 2,
1998 (as amended or otherwise modified from time to time) as such Company Stock
Pledge and Security Agreement may be amended or otherwise modified from time to
time.
VISHAY INTERTECHNOLOGY, INC.
By: ________________________
Name: ________________________
Title: _______________________
-6-
PROMISSORY NOTE
US $16,000,000.00 May 26, 1998
New York, New York
FOR VALUE RECEIVED, SILICONIX, INC. ("Siliconix") a Delaware
corporation, by this promissory note unconditionally promises to pay to the
order of VISHAY INTERTECHNOLOGY, INC. ("Vishay") a Delaware corporation or its
registered assigns the principal amount of SIXTEEN MILLION DOLLARS
($16,000,000.00) or such lesser amount as may be owed from time to time by
Siliconix to Vishay and to pay interest on the unpaid balance hereof at Vishay's
Borrowing Rate (as defined below) on the 1st day of each of January, April, July
and October of each year commencing October 1, 1998 and on the Maturity Date
(each such date being an Interest Payment Date) all as hereafter further
provided.
1. Payments.
(a) Principal of, and any accrued and unpaid interest on, this Note
shall be due and payable in full on December 31, 2001 (the "Maturity Date");
(b) interest on this Note shall accrue from the date hereof, to, but
excluding, the next Interest Payment Date, and shall be payable in arrears on
each Interest Payment Date;
(c) if any Interest Payment Date or the Maturity Date would fall on
a day that is not a Business Day (as defined below), the payment due on such
Interest Payment Date or Maturity Date will be made on the next succeeding
Business Day with the same force and effect as if made on the Interest Payment
Date or the Maturity Date, as the case may be. "Business Day" means any day
which is not a Saturday or Sunday and is not a day on which banking institutions
are generally authorized or obligated to close in the City of New York;
(d) the Borrower may prepay all or any portion of this Note. All
payments on this Note shall be applied first to accrued interest on this Note
and then to the balance of principal on this Note;
(e) payments of principal and interest on this Note shall be made by
check sent to Vishay's address set forth above or to such other address as
Vishay may designate for such purpose from time to time by written notice to
Siliconix, in such coin or currency of the United States of America as at the
time of payment shall be legal tender for the payment of public and private
debts;
<PAGE>
(f) the obligations to make the payments provided for in this Note
are absolute and unconditional and not subject to any defense, set-off,
counterclaim, rescission, recoupment or adjustment whatsoever. Siliconix hereby
expressly waives demand and presentment for payment, notice of non-payment,
notice of dishonor, protest, notice of protest and diligence in taking any
action to collect any amount called for hereunder, and shall be directly and
primarily liable for the payment of all sums owing and to be owing hereon,
regardless of and without any notice, diligence, act or omission with respect to
the collection of any amount called for hereunder; and
(g) for the purposes of this Note, Vishay's Borrowing Rate shall
mean the interest rate payable by Vishay to the Lenders (as hereinafter defined)
on its borrowings, as such rate may vary from time to time.
2. Ranking of Note. Subject to Section 7 herein, Siliconix, for itself,
its successors and assigns, covenants and agrees that the payment of the
principal of and interest on this Note is pari passu with the payment of all
existing and future debt of Siliconix.
3. Covenants. Siliconix covenants and agrees with Vishay that, so long
as any amount remains unpaid on this Note, unless the consent of Vishay is
obtained, Siliconix shall not create, incur, or suffer to exist any other debt
except in cases (i) where the holders of such other debt have duly executed any
and all subordination agreements or intercreditor agreements reasonably
acceptable to Vishay, (ii) capital lease obligations incurred in the ordinary
course of business, and (iii) trade debt incurred in the ordinary course of
business.
4. Events of Default.
The occurrence of any of the following events shall constitute a
default (a "Default"):
(a) a default in the payment of the principal on this Note, when and
as the same shall become due and payable;
(b) a default in the payment of any interest on this Note, when and
as the same shall become due and payable, which default shall continue for two
(2) business days after the date fixed for the making of such interest payment;
(c) a material default in the performance, or a material breach, of
any of the covenants of Siliconix contained in this Note;
(d) a material default in the performance, or a material breach, of
any financial covenant contained in any loan agreement executed by Siliconix,
which default or breach shall have continued beyond any grace or cure period
provided therein;
(e) any representation, warranty or certification made by Siliconix
in or pursuant to this Note, or any subordination or intercreditor agreement
that shall prove to have been false or misleading as of the date made in any
material respect; or
-2-
<PAGE>
(f) the entry of a decree or order by a court having jurisdiction
adjudging Siliconix a bankrupt or insolvent, or approving a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
Siliconix under federal bankruptcy law, as now or hereafter constituted, or any
other applicable federal or state bankruptcy, insolvency or other similar law,
and the continuance of any such decree or order unstayed and in effect for a
period of sixty (60) days; or the commencement by Siliconix of a voluntary case
under federal bankruptcy law, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency, or other similar law, or the
consent by Siliconix to the institution of bankruptcy or insolvency proceedings
against it, or the filing by Siliconix of a petition or answer or consent
seeking reorganization or relief under federal bankruptcy law or any other
applicable federal or state law, or the consent by Siliconix to the filing of
such petition or to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator or similar official of Siliconix, or of any substantial
part of the property of Siliconix, or the making by Siliconix of an assignment
for the benefit of creditors, or the admission by Siliconix, in writing, of its
inability to pay its debts generally as they become due, or the taking of
corporate action by Siliconix in furtherance of any such action.
5. Remedies Upon Default.
(a) Subject to Section 7 herein, upon the occurrence of a Default
referred to in Section 4(f), the principal amount then outstanding of, and the
accrued interest on, this Note shall automatically become immediately due and
payable without presentment, demand, protest or other formalities of any kind,
all of which are hereby expressly waived by Siliconix. Upon the occurrence of a
Default referred to in Section 4 (other than Section 4(f)), Vishay by notice in
writing given to Siliconix, may declare the entire principal amount then
outstanding of, and the accrued interest on, this Note to be due and payable
immediately, and upon any such declaration the same shall become and be due and
payable immediately, without presentation, demand, protest or other formalities
of any kind, all of which are expressly waived by Siliconix; and
(b) Vishay may institute such actions or proceedings in law or
equity as it shall deem expedient for the protection of its rights and may
prosecute and enforce its claims against all assets of Siliconix, and in
connection with any such action or proceeding shall be entitled to receive from
Siliconix, payment of the principal amount of this Note plus accrued interest to
the date of payment plus reasonable expenses of collection, including, without
limitation, attorneys' and experts' fees and expenses.
6. Assignment.
This Note may be assigned, subject to the terms of the Credit
Agreement (as hereinafter defined), to a wholly-owned subsidiary of Vishay
provided that such subsidiary acknowledges in writing and with notice to Agent
(as hereinafter defined) that it is bound by the terms of this Note.
-3-
<PAGE>
7. Subordination.
(a) So long as that certain Long Term Revolving Credit Agreement
dated as of March 2, 1998 (as amended or otherwise modified from time to time,
the "Credit Agreement") by and among Vishay, certain financial institutions from
time to time signatory thereto (the "Lenders"), and Comerica Bank as
Administrative Agent for the Lenders (the "Agent"), remains in effect, and
thereafter until the expiration of all Letters of Credit (as such term is
defined in the Credit Agreement) and the payment in full of all Indebtedness (as
such term is defined in the Credit Agreement) and the performance by Vishay of
all other obligations under the Credit Agreement (i) this Note shall be fully
subordinated in all respects to the Indebtedness (as defined in the Credit
Agreement) of Siliconix, if any, (herein, the "Senior Indebtedness") and (ii) in
the event that Siliconix becomes a Guarantor or a Permitted Borrower (as such
terms are defined in the Credit Agreement), upon the occurrence and during the
continuance of an Event of Default (as such term is defined in the Credit
Agreement), no payments may be made of the principal of or interest on this
Note.
(b) Siliconix agrees, and Vishay by accepting this Note agrees,
that: (A) the obligations evidenced by this Note are subordinated in right of
payment, to the prior payment in full of all the Senior Indebtedness; the
subordination is for the benefit of the holders of the Senior Indebtedness, and
each holder of Senior Indebtedness whether now outstanding or hereafter created,
incurred, assumed or guaranteed shall be deemed to have acquired Senior
Indebtedness in reliance upon the covenants and provisions contained in this
Note; (B) if Siliconix is prohibited by the terms of this Note from making any
payment of principal, interest or any other sum under or in respect of this Note
when due, and therefore Siliconix shall fail to pay when due any such sum, such
failure shall not constitute a default or event of default under and in respect
of this Note (provided that interest shall continue to accrue as provided herein
and be added to principal (but shall not itself bear interest) as herein set
forth); and (C) no revision to any provision of this Note applicable or relevant
to the subordination of this Note to the Senior Indebtedness shall be made or
become effective until approved in writing by the holders of the Senior
Indebtedness.
(c) Upon any distribution (whether cash, securities or other
property, by setoff or otherwise) to creditors of Siliconix in a liquidation or
dissolution of Siliconix or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to Siliconix or its property: (A)
holders of Senior Indebtedness shall be entitled to payment in full of all
obligations with respect to the Senior Indebtedness (including interest after
the commencement of any such proceeding at the rates specified for the
applicable Senior Indebtedness) to the date of payment of the Senior
Indebtedness before Vishay shall be entitled to receive any payment of any
obligations with respect to this Note; and (B) until all obligations with
respect to the Senior Indebtedness are paid in full, any distribution to which
Vishay would be entitled under the terms and conditions of this Note shall be
made to holders of Senior Indebtedness as their interests may appear; provided
however that for the purposes of determining the amount of Siliconix's
obligations to Vishay hereunder, any payments by Siliconix to the holders of
Senior Indebtedness on account of its obligations in respect of this Note shall
be deemed to have been made (without duplication) to Vishay. Payments of Senior
Indebtedness under this Section 7 shall be considered payments of principal and
interest, as the case may be, on this Note.
-4-
<PAGE>
(d) No right of any holder of Senior Indebtedness to enforce the
subordination of the indebtedness evidenced by this Note shall be impaired by
any act or failure to act by Siliconix or by its failure to comply with the
terms and conditions of this Note.
8. Miscellaneous.
(a) Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or by Federal Express, Express Mail or similar
overnight delivery or courier service or delivered (in person [or by telecopy,
telex or similar telecommunications equipment]) against receipt to the party to
whom it is to be given, (i) if to Siliconix, at its address at 2201 Laurelwood
Road, Santa Clara, California 95054, Attention: David Achterkirchen, (ii) if to
Vishay, at its address at 63 Lincoln Highway, Malvern, Pennsylvania 19355-2120,
or (iii) in either case, to such other address as the party shall have furnished
in writing in accordance with the provisions of this Section 8(a). Notice to the
estate of any party shall be sufficient if addressed to the party as provided in
this Section 8(a). Any notice or other communication given by certified mail
shall be deemed given at the time of certification thereof, except for a notice
changing a party's address which shall be deemed given at the time of receipt
thereof. Any notice given by other means permitted by this Section 8(a) shall be
deemed given at the time of receipt thereof;
(b) No course of dealing and no delay or omission on the part of
Vishay in exercising any right or remedy shall operate as a waiver thereof or
otherwise prejudice Vishay's rights, powers or remedies. No right, power or
remedy conferred by this Note upon Vishay shall be exclusive of any other right,
power or remedy referred to herein or now or hereafter available at law, in
equity, by statute or otherwise, and all such remedies may be exercised singly
or concurrently;
(c) Subject to Section 7 herein, this Note may be amended, or any of
its provisions waived only by written consent or consents executed by the
parties hereto;
(d) This Note shall be governed by and construed in accordance with
the laws of the State of Michigan, without giving effect to principles governing
conflict of laws; and
(e) Siliconix irrevocably consents to the jurisdiction of the courts
of the State of New York and of any federal court located in such State in
connection with any action or proceeding arising out of or relating to this
Note, any document or instrument delivered pursuant to, in connection with or
simultaneously with this Note, or a breach of this Note or any such document or
instrument. In any such action or proceeding, Siliconix waives personal service
of any summons, complaint or other process and agrees that service thereof may
be made in accordance with Section 8(a). Within thirty (30) days after such
service, or such other time as may be mutually agreed upon in writing by the
attorneys for the parties to such action or proceeding, Siliconix shall appear
or answer such summons, complaint, or other process.
-5-
<PAGE>
IN WITNESS WHEREOF, Siliconix has caused this Note to be executed and
dated the day and year first above written.
SILICONIX, INC.
By: __________________________
Name:
Title:
By: __________________________
Name:
Title:
Allonge for Intercompany Note
Issued by Siliconix Incorporated to Vishay Intertechnology, Inc.
Pay to the order of Comerica Bank, as Administrative Agent, without recourse,
pursuant to the terms and conditions of that certain Company Stock Pledge and
Security Agreement by and among Vishay Intertechnology, Inc. (the "Company"),
certain other Subsidiaries of the Company, and Comerica Bank, as Administrative
Agent for and on behalf of the Lenders party to that certain Vishay
Intertechnology, Inc. Long Term Revolving Credit Agreement dated as of March 2,
1998 (as amended or otherwise modified from time to time) as such Company Stock
Pledge and Security Agreement may be amended or otherwise modified from time to
time.
VISHAY INTERTECHNOLOGY, INC.
By: ___________________________
Name: ___________________________
Title:___________________________
REVOLVING INTERCOMPANY PROMISSORY NOTE
US $35,000,000.00 May 26, 1998
New York, New York
FOR VALUE RECEIVED, SILICONIX, INC. ("Siliconix") a Delaware
corporation, by this promissory note unconditionally promises to pay to the
order of VISHAY INTERTECHNOLOGY, INC. ("Vishay") a Delaware corporation or its
registered assigns the principal amount of THIRTY FIVE MILLION DOLLARS
($35,000,000.00, the "Revolving Commitment") or such lesser amount as may then
constitute the unpaid aggregate principal amount of the Revolving Loans (as
hereinafter defined) made by Vishay to Siliconix pursuant to the terms hereof
and to pay interest on the unpaid balance hereof at Vishay's Borrowing Rate (as
defined below) on the 1st day of each of January, April, July and October of
each year commencing July 1, 1998 and on the Maturity Date (each such date being
an Interest Payment Date) all as hereafter further provided.
<PAGE>
1. Making of Loans
(a) Subject to the terms hereof and at any time from the date hereof
to the Maturity Date, Vishay agrees at any time and from time to time, to make
one or more revolving loans (the "Revolving Loans") to Siliconix in an aggregate
principal amount not to exceed the Revolving Commitment, during such period
Siliconix may borrow, prepay and reborrow Revolving Loans.
(b) Siliconix shall give Vishay one business day's notice to its
Director, Corporate Treasury of its intention to borrow a Revolving Loan,
stating the amount of such borrowing and the date on which such borrowing is
required. Vishay shall make such Revolving Loan available to Siliconix at the
account and on the date specified by Siliconix.
(c) The Revolving Commitment shall be deemed to include the
$10,000,000 previously loaned to Siliconix by Vishay pursuant to two prior loans
of $5,000,000 each and upon execution and delivery of this Note the promissory
notes dated 13th day of April, 1998 and the loan made to Siliconix on May 26,
1998 shall each be deemed paid in full and such promissory note and any similar
paper reflecting such loans shall have no further force or effect.
<PAGE>
2. Payments.
(a) Principal of, and any accrued and unpaid interest on, this Note
shall be due and payable in full on the date to occur of May 31, 2000 or such
later date as may be agreed in writing by the parties hereto (the "Maturity
Date") and notified to the Agent (as hereinafter defined);
(b) interest on this Note shall accrue from the date hereof, to, but
excluding, the next Interest Payment Date, and shall be payable in arrears on
each Interest Payment Date. Interest not paid when due shall accrue and be added
to principal on each subsequent interest payment date.
(c) if any Interest Payment Date or the Maturity Date would fall on
a day that is not a Business Day (as defined below), the payment due on such
Interest Payment Date or Maturity Date will be made on the next succeeding
Business Day with the same force and effect as if made on the Interest Payment
Date or the Maturity Date, as the case may be. "Business Day" means any day
which is not a Saturday or Sunday and is not a day on which banking institutions
are generally authorized or obligated to close in the City of New York;
(d) the Borrower may prepay all or any portion of this Note. All
payments on this Note shall be applied first to accrued interest on this Note
and then to the balance of principal on this Note;
(e) payments of principal and interest on this Note shall be made in
U.S. dollars by electronic Funds transfer to Vishay's bank account #1076-000-734
at Comerica Bank, Detroit, Michigan or such other account as Vishay may
designate.
(f) the obligations to make the payments provided for in this Note
are absolute and unconditional and not subject to any defense, set-off,
counterclaim, rescission, recoupment or adjustment whatsoever. Siliconix hereby
expressly waives demand and presentment for payment, notice of non-payment,
notice of dishonor, protest, notice of protest and diligence in taking any
action to collect any amount called for hereunder, and shall be directly and
primarily liable for the payment of all sums owing and to be owing hereon,
regardless of and without any notice, diligence, act or omission with respect to
the collection of any amount called for hereunder; and
(g) for the purposes of this Note, Vishay's Borrowing Rate shall
mean the interest rate payable by Vishay to the Lenders (as hereinafter defined)
on its borrowings, as such rate may vary from time to time.
3. Ranking of Note. Subject to Section 8 herein Siliconix, for itself,
its successors and assigns, covenants and agrees that the payment of the
principal of and interest on this Note is pari passu with the payment of all
existing and future debt of Siliconix.
4. Covenants. Siliconix covenants and agrees with Vishay that, so long
as any amount remains unpaid on this Note, unless the consent of Vishay is
obtained, Siliconix shall not create, incur, or suffer to exist any other debt
except in cases (i) where the holders of such other debt have duly executed any
and all subordination agreements or intercreditor
-2-
<PAGE>
agreements reasonably acceptable to Vishay, and (ii) trade debt incurred in the
ordinary course of business.
5. Events of Default.
The occurrence of any of the following events shall constitute a
default (a "Default"):
(a) a default in the payment of the principal on this Note, when and
as the same shall become due and payable;
(b) a default in the payment of any interest on this Note, when and
as the same shall become due and payable, which default shall continue for two
(2) business days after the date fixed for the making of such interest payment;
(c) a material default in the performance, or a material breach, of
any of the covenants of Siliconix contained in this Note;
(d) a material default in the performance, or a material breach, of
any financial covenant contained in any loan agreement executed by Siliconix,
which default or breach shall have continued beyond any grace or cure period
provided therein;
(e) any representation, warranty or certification made by Siliconix
in or pursuant to this Note, or any subordination or intercreditor agreement
shall prove to have been false or misleading as of the date made in any material
respect; or
(f) the entry of a decree or order by a court having jurisdiction
adjudging Siliconix a bankrupt or insolvent, or approving a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
Siliconix under federal bankruptcy law, as now or hereafter constituted, or any
other applicable federal or state bankruptcy, insolvency or other similar law,
and the continuance of any such decree or order unstayed and in effect for a
period of sixty (60) days; or the commencement by Siliconix of a voluntary case
under federal bankruptcy law, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency, or other similar law, or the
consent by Siliconix to the institution of bankruptcy or insolvency proceedings
against it, or the filing by Siliconix of a petition or answer or consent
seeking reorganization or relief under federal bankruptcy law or any other
applicable federal or state law, or the consent by Siliconix to the filing of
such petition or to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator or similar official of Siliconix, or of any substantial
part of the property of Siliconix, or the making by Siliconix of an assignment
for the benefit of creditors, or the admission by Siliconix, in writing, of its
inability to pay its debts generally as they become due, or the taking of
corporate action by Siliconix in furtherance of any such action.
-3-
<PAGE>
6. Remedies Upon Default.
(a) Subject to Section 8 herein upon the occurrence of a Default
referred to in Section 5(f), the principal amount then outstanding of, and the
accrued interest on, this Note shall automatically become immediately due and
payable without presentment, demand, protest or other formalities of any kind,
all of which are hereby expressly waived by Siliconix. Upon the occurrence of a
Default referred to in Section 5 (other than Section 5(f)), Vishay by notice in
writing given to Siliconix, may declare the entire principal amount then
outstanding of, and the accrued interest on, this Note to be due and payable
immediately, and upon any such declaration the same shall become and be due and
payable immediately, without presentation, demand, protest or other formalities
of any kind, all of which are expressly waived by Siliconix; and
(b) Vishay may institute such actions or proceedings in law or
equity as it shall deem expedient for the protection of its rights and may
prosecute and enforce its claims against all assets of Siliconix, and in
connection with any such action or proceeding shall be entitled to receive from
Siliconix, payment of the principal amount of this Note plus accrued interest to
the date of payment plus reasonable expenses of collection, including, without
limitation, attorneys' and experts' fees and expenses.
7. Assignment.
This Note may be assigned, subject to the terms of the Credit Agreement
(as hereinafter defined), to a wholly-owned subsidiary of Vishay provided that
such subsidiary acknowledges in writing and with notice to Agent (as hereinafter
defined) that it is bound by the terms of this Note.
8. Subordination.
(a) So long as that certain Long Term Revolving Credit Agreement
dated as of March 2, 1998 (as amended or otherwise modified from time to time,
the "Credit Agreement") by and among Vishay, certain financial institutions from
time to time signatory thereto (the "Lenders"), and Comerica Bank as
Administrative Agent for the Lenders (the "Agent"), remains in effect, and
thereafter until the expiration of all Letters of Credit (as such term is
defined in the Credit Agreement) and the payment in full of all Indebtedness (as
such term is defined in the Credit Agreement) and the performance by Vishay of
all other obligations under the Credit Agreement (i) this Note shall be fully
subordinated in all respects to the Indebtedness (as defined in the Credit
Agreement) of Siliconix, if any, (herein, the "Senior Indebtedness") and (ii) in
the event that Siliconix becomes a Guarantor or a Permitted Borrower (as such
terms are defined in the Credit Agreement), upon the occurrence and during the
continuance of an Event of Default (as such term is defined in the Credit
Agreement), no payments may be made of the principal of or interest on this
Note.
(b) Siliconix agrees, and Vishay by accepting this Note agrees,
that: (A) the obligations evidenced by this Note are subordinated in right of
payment, to the prior payment in full of all the Senior Indebtedness; the
subordination is for the benefit of the holders of the Senior Indebtedness, and
each holder of Senior Indebtedness whether now outstanding or hereafter created,
incurred, assumed or guaranteed shall be deemed to have
-4-
<PAGE>
acquired Senior Indebtedness in reliance upon the covenants and provisions
contained in this Note; (B) if Siliconix is prohibited by the terms of this Note
from making any payment of principal, interest or any other sum under or in
respect of this Note when due, and therefore Siliconix shall fail to pay when
due any such sum, such failure shall not constitute a default or event of
default under and in respect of this Note (provided that interest shall continue
to accrue as provided herein and be added to principal (but shall not itself
bear interest) as herein set forth); and (C) no revision to any provision of
this Note applicable or relevant to the subordination of this Note to the Senior
Indebtedness shall be made or become effective until approved in writing by the
holders of the Senior Indebtedness.
(c) Upon any distribution (whether cash, securities or other
property, by setoff or otherwise) to creditors of Siliconix in a liquidation or
dissolution of Siliconix or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to Siliconix or its property: (A)
holders of Senior Indebtedness shall be entitled to payment in full of all
obligations with respect to the Senior Indebtedness (including interest after
the commencement of any such proceeding at the rates specified for the
applicable Senior Indebtedness) to the date of payment of the Senior
Indebtedness before Vishay shall be entitled to receive any payment of any
obligations with respect to this Note; and (B) until all obligations with
respect to the Senior Indebtedness are paid in full, any distribution to which
Vishay would be entitled under the terms and conditions of this Note shall be
made to holders of Senior Indebtedness as their interests may appear; provided
however that for the purposes of determining the amount of Siliconix's
obligations to Vishay hereunder, any payments by Siliconix to the holders of
Senior Indebtedness on account of its obligations in respect of this Note shall
be deemed to have been made (without duplication) to Vishay. Payments of Senior
Indebtedness under this Section 8 shall be considered payments of principal and
interest, as the case may be, on this Note.
(d) No right of any holder of Senior Indebtedness to enforce the
subordination of the indebtedness evidenced by this Note shall be impaired by
any act or failure to act by Siliconix or by its failure to comply with the
terms and conditions of this Note.
9. Miscellaneous.
(a) Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or by Federal Express, Express Mail or similar
overnight delivery or courier service or delivered (in person or by telecopy,
telex or similar telecommunications equipment) against receipt to the party to
whom it is to be given, (i) if to Siliconix, at its address at 2201 Laurelwood
Road, Santa Clara, California 95054, Attention: David Achterkirchen, (ii) if to
Vishay, at its address at 63 Lincoln Highway, Malvern, Pennsylvania 19355-2120,
Attention: Steven Klausner, Director-Corporate Treasury, or (iii) in either
case, to such other address as the party shall have furnished in writing in
accordance with the provisions of this Section 9(a). Notice to the estate of any
party shall be sufficient if addressed to the party as provided in this Section
9(a). Any notice or other communication given by certified mail shall be deemed
given at the time of certification thereof, except for a notice changing a
party's address which shall be deemed given at the time of receipt thereof. Any
notice given by other means permitted by this Section 7(a) shall be deemed given
at the time of receipt thereof;
-5-
<PAGE>
(b) No course of dealing and no delay or omission on the part of
Vishay in exercising any right or remedy shall operate as a waiver thereof or
otherwise prejudice Vishay's rights, powers or remedies. No right, power or
remedy conferred by this Note upon Vishay shall be exclusive of any other right,
power or remedy referred to herein or now or hereafter available at law, in
equity, by statute or otherwise, and all such remedies may be exercised singly
or concurrently;
(c) Subject to Section 8 herein, this Note may be amended, or any of
its provisions waived only by written consent or consents executed by the
parties hereto;
(d) This Note shall be governed by and construed in accordance with
the laws of the State of Michigan, without giving effect to principles governing
conflict of laws; and
(e) Siliconix irrevocably consents to the jurisdiction of the courts
of the State of New York and of any federal court located in such State in
connection with any action or proceeding arising out of or relating to this
Note, any document or instrument delivered pursuant to, in connection with or
simultaneously with this Note, or a breach of this Note or any such document or
instrument. In any such action or proceeding, Siliconix waives personal service
of any summons, complaint or other process and agrees that service thereof may
be made in accordance with Section 9(a). Within thirty (30) days after such
service, or such other time as may be mutually agreed upon in writing by the
attorneys for the parties to such action or proceeding, Siliconix shall appear
or answer such summons, complaint, or other process.
-6-
<PAGE>
IN WITNESS WHEREOF, Siliconix has caused this Note to be executed and
dated the day and year first above written.
SILICONIX, INC.
By: /s/King Owyang
-------------------------
Name: King Owyang
Title: President & CEO
By: /s/David Achterkirchen
-------------------------
Name: David Achterkirchen
Title: Secretary
Allonge for Revolving Intercompany Promissory Note
Issued by Siliconix Incorporated to Vishay Intertechnology, Inc.
Pay to the order of Comerica Bank, as Administrative Agent, without recourse,
pursuant to the terms and conditions of that certain Company Stock Pledge and
Security Agreement by and among Vishay Intertechnology, Inc. (the "Company"),
certain other Subsidiaries of the Company, and Comerica Bank, as Administrative
Agent for and on behalf of the Lenders party to that certain Vishay
Intertechnology, Inc. Long Term Revolving Credit Agreement dated as of March 2,
1998 (as amended or otherwise modified from time to time) as such Company Stock
Pledge and Security Agreement may be amended or otherwise modified from time to
time.
VISHAY INTERTECHNOLOGY, INC.
By: ___________________________
Name: ___________________________
Title: __________________________
-7-
<TABLE>
<CAPTION>
EXHIBIT 13 Financial Highlights
(In thousands, except per share and employment data) 1998 1997 1996
<S> <C> <C> <C>
Net Sales $ 282,346 $ 321,551 $ 268,934
Gross Profit $ 98,016 $ 127,115 $ 107,109
Research and development expense $ 17,110 $ 17,813 $ 20,823
Selling, marketing, and administrative expenses $ 55,451 $ 65,322 $ 54,475
Restructuring Expense $ 19,751 $ - $ -
Interest expense $ 2,795 $ 2,383 $ 2,390
Other (income) expense, net $ 1,658 $ 78 $ (335)
Income before income taxes and minority interest $ 908 $ 41,519 $ 29,756
Income taxes $ - $ 8,507 $ 3,779
Minority interest in income of consolidated subsidiary $ 170 $ - $ -
Net income $ 738 $ 33,012 $ 25,977
Net income per share (basic and diluted) $ 0.07 $ 3.31 $ 2.61
Total assets $ 317,259 $ 281,509 $ 238,669
Shareholders' equity $ 150,140 $ 149,550 $ 116,618
Year-end worldwide employment 1,642 1,266 1,228
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Five-Year Summary of Financial Data
Siliconix, incorporated
(In thousands, except per share and employment data) 1998 (1) 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net sales $ 282,346 $ 321,551 $ 268,934 $ 250,291 $ 196,453
Operating income $ 5,361 $ 43,980 $ 31,811 $ 28,839 $ 14,148
Net income $ 738 $ 33,012 $ 25,977 $ 24,221 $ 10,623
Per share data:
Net income (basic and diluted) $ 0.07 $ 3.31 $ 2.61 $ 2.43 $ 1.07
Shares used to compute basic and diluted
net income per share 9,960 9,960 9,960 9,960 9,960
Total assets $ 317,259 $ 281,509 $ 238,669 $ 207,962 $ 155,035
Capital expenditures $ 35,593 $ 40,244 $ 39,511 $ 28,196 $ 25,030
Total long-term debt, including related party $ 51,791 $ 38,457 $ 39,429 $ 40,652 $ 40,834
Year-end worldwide employment 1,642 1,266 1,228 1,269 1,172
</TABLE>
(1) Included in operating income for 1998 is a restructuring charge of $19,751
relating to the acquisition on March 2, 1998 of the 80.4% interest in the
Company by Vishay, (see Note 12 of Notes to Consolidated Financial statements).
<PAGE>
<TABLE>
<CAPTION>
Selected Quarterly Financial Data
Unaudited
(In thousands, except per share data) 1998
(1)
Fourth Third Second First
<S> <C> <C> <C> <C>
Net sales $ 76,607 $ 70,118 $ 70,371 $65,250
Gross profit $ 26,822 $ 24,992 $ 21,091 $25,111
Net income (loss) $ 6,431 $ 3,879 $ 1,780 $(11,352)
Net income (loss) per share (basic and $ 0.65 $ 0.39 $ 0.18 $ (1.14)
diluted)
1997
Fourth Third Second First
Net sales $ 90,355 $ 80,960 $ 80,024 $ 70,212
Gross profit $ 37,698 $ 32,112 $ 30,209 $ 27,096
Net income (loss) $ 9,665 $ 8,374 $ 8,033 $ 6,940
Net income (loss) per share (basic and $ 0.97 $ 0.84 $ 0.81 $ 0.70
diluted)
</TABLE>
(1) Included in operating income for 1998 is a restructuring charge of $19,751
relating to the acquisition on March 2, 1998 of the 80.4% interest in the
Company by Vishay, (see Note 12 of Notes to Consolidated Financial statements).
<PAGE>
Management's Discussion & Analysis of Financial Condition and Results of
Operations
The statements in this management's discussion and analysis of financial
condition and results of operations that are forward looking reflect
management's current opinions and are subject to certain risks and uncertainties
that could cause actual results to differ materially from those stated or
implied. Siliconix, incorporated assumes no obligations to update this
information.
Overview
Siliconix (the "Company") is engaged in designing, manufacturing, and
marketing power and analog semiconductor products. The Company is a leading
manufacturer of Power MOSFETs, Power ICs, and analog Signal Processing devices
for computers, cell phones, fixed communication networks, automobiles and other
electronic systems. Power MOSFET is the producer of low-voltage, surface-mount
Power MOSFET products primarily used for the communication, computer, and
automotive markets. Power IC focuses on Power Integrated Circuits used in
communication and data storage applications. Signal Processing manufactures a
wide array of commodity products such as Analog Switches, Low Power MOSFETs, and
JFETs for industrial and consumer markets.
The Company manufactures power products in Class 1 six-inch wafer fab in
Santa Clara, California and through subcontracted wafer fabrication in Itzehoe,
Germany. Analog switches and multiplexers are fabricated in the Company's
four-inch wafer fab in Santa Clara. Small signal transistors are manufactured by
a subcontractor in Beijing, China. Assembly and test facilities include Company
owned facilities in Taiwan, a facility in Shanghai, China, as well as
subcontractors in the Philippines, Taiwan and China.
On April 1, 1998, Vishay acquired for $16,000,000, a 40% interest in
Simconix, a back-end manufacturing facility in Shanghai, China. This interest
was sold to the Company, in exchange for $16,000,000 of long-term debt at 6.25%
interest. The Company had a 50% interest in Simconix dating from 1993. The
Company previously reported its interest in the Simconix joint venture under the
equity method of accounting and recognized $970,000, $3,542,000 and $2,188,000
as its share of profits for the first three months of 1998, and for 12 months in
1997 and 1996, respectively. In addition, at December 31, 1997 the Company
recorded the investment in the joint venture for $10,888,000 in other assets.
The acquisition is now recorded using the purchase method of accounting, and the
operating results of Simconix are included in the consolidated financial
statements as of April 1, 1998. As a result of the purchase, the Company
recorded property, plant and equipment of approximately $15,522,000, and net
other assets and liabilities of approximately 7,031,000. In addition, the
Company recorded goodwill of $9,163,000. The goodwill is being amortized on a
straight-line basis over 20 years. The 10% minority interest is fixed at
$3,000,000 with a fixed return on the investment. Year-end worldwide employment
of 1,642 includes 539 employees from Simconix.
The Company had been a member of TEMIC Semiconductor a unit of Daimler-Benz
microelectronics consortium for the past several years. On March 2, 1998 Vishay
acquired the 80.4% interest in the Company's common stock previously owned by
Daimler Benz.
Vishay, a Fortune 1000 Company, is the largest U.S. and European
manufacturer of passive electronic components (resistors, capacitors, and
inductors) and a leading producer of discrete semiconductor components (diodes,
transistors and optoelectronic products). All of these components are vital to
the operation of electronic circuits and can be found in computers, telephones,
TVs, automobiles, household appliances, medical equipment, satellites, military
and aerospace equipment. With headquarters in Malvern, Pennsylvania, Vishay
employs over 20,000 people in over 60 facilities in the U.S., Mexico, Germany,
Austria, the United Kingdom, France, Portugal, the Czech Republic, Israel,
Japan, Taiwan (R.O.C.), China, and the Philippines.
<PAGE>
Results of Operations
Net Sales
Net sales for 1998 were $282.3 million compared to $321.6 million in 1997
and $268.9 million in 1996. The decline over 1997 of 12% was primarily due to
weaker demand combined with abundant worldwide capacities which resulted in a
significant selling price decline. This trend began during the end of the fourth
quarter of 1997, and persisted through most of 1998. Management believes that
the major reasons for the 1998 decline in overall sales were initially high
inventory levels of its products at its customers and distributors, followed by
an overall worldwide decline in demand for semiconductors. This was triggered by
an increasingly weak economy in Asia Pacific especially Korea and Japan. The
reduced demand for portable phones, notebooks and desktop computers in these
regions was a primary reason for the lower than anticipated demand in 1998.
Furthermore, overcapacities (particularly in the DRAM industry) lead additional
competitors into the manufacturing of discrete power devices. This combined with
the movement of end users to sub- $1,000 PCs caused average selling price
reductions in excess of 20%, significantly higher than those of 1997 and 1996.
During the fourth quarter of 1998, the Company began to experience an increase
in bookings that also reflected an increase in net sales over the third quarter
of 1998.
Management expects this trend to continue as the Company moves into 1999.
Net sales in Asia Pacific increased 32% and 96% in 1998 compared to 1997
and 1996, respectively. Net sales in North America, Japan and Europe decreased
in 1998 over 1997 by 30%, 41% and 20%, respectively. Compared to 1996 net sales
in 1998 decreased in North America by 11%, Japan by 61% while sales in Europe
remained flat. The increase in sales in Asia Pacific further resulted from
manufacturing transfers of the Company's OEM's into this region as well as a
strong growth of contract manufacturing in Taiwan. The decline in North America
was a result of significantly reduced demand in the Company's distribution
channels as well as the aforementioned transfer of manufacturing. As it relates
to Japan, the overall lower unit demand combined with a weak Yen and very
aggressive domestic competition led to a strong decline in sales over 1997. In
Europe sales declined primarily due to a reduced demand in portable GSM phones
driven by lower exports into the Asian markets.
Gross Profit
Gross profit as a percentage of net sales was 35% in 1998 compared to 40%
in 1997 and 1996. This decrease is a result of the substantial price pressures
worldwide, especially in Japan, along with under-utilization of existing
manufacturing capacity due to the decline in demand. After experiencing
significant front-end manufacturing capacity shortages during 1997 and a
continuous strong backlog, the Company executed its strategy of increasing
capacity. This strategy included an increase in capacity of the existing Santa
Clara six-inch fab as well as the start up of a subcontracted manufacturing
facility in Itzehoe, Germany. This additional capacity and its related
manufacturing fixed cost became available just as the worldwide slowdown in
semiconductor demand impacted the Company. While the Company continued to load
production in the first quarter of 1998, it decided to adjust factory loading
with the beginning of the second quarter in response to the decline in product
demand. In parallel, the Company implemented its restructuring plan set forth at
the end of the first quarter of 1998. In addition, the Company scheduled and
executed multiple shutdowns in its Santa Clara and offshore facilities. As a
result, the Company was able to keep 1998 fixed manufacturing costs below 1997
levels even though depreciation expense increased by $5.9 million. During the
fourth quarter of 1998 the Company began to ramp its production in response to
the increasing demand for its products. In addition, the Company increased
capital spending toward the end of 1998 to provide further capacity increases in
wafer fabrication, assembly and test. The Company has experienced full
utilization of these capacities during the first quarter of 1999.
<PAGE>
Research and Development
Research and development expenses were 6.1% of net sales in 1998 compared
with 5.5% of net sales in 1997 and 7.7% in 1996. Research and development
spending decreased by $3.7 million between 1998 and 1996. However, faster time
to market due to increased throughput of research and development wafers and
improved product design cycles allowed the Company to release 68 new products in
1998 compared to 55 in 1997 and 52 in 1996. The Company continued to focus on
its key market segments and applications by introducing its new PowerConnectTM
packaging technology, which significantly reduces on-resistance and increases
current-handling capability compared to traditional packaging technologies. Also
introduced in 1998 were the Company's first products in its new LITTLE FOOT
PLUS(TM) family. These are a combination of a power MOSFET and a Schottky diode
that are optimized for specific applications in notebook computers and cellular
telephones. Furthermore, the Company introduced the industry's first power
MOSFET rated at 1.8 volts, also for notebook computer and cellular telephone
applications. Other new products include a new family of 200-volt rated MOSFETs
for the wired telecommunications market, a family of electrostatic
discharge-protected MOSFETs to target the lithium ion battery market, and a
Super SOT-23 packaged product line to include voltage ratings from eight volts
(telecommunications and computers) to 60 volts (automotive).
Selling, Marketing, and Administrating
Selling, marketing, and administrating expenses were reduced to $55.5
million in 1998 from $65.3 million for 1997. This $9.8 million decrease is due
to cost reduction programs implemented in the first quarter of 1998. Even in
light of lower revenues, these expenses declined to 19.6% of net sales in 1998
from 20.3% of net sales in 1997, reflecting the successful implementation of the
Company's restructuring plan.
Restructuring
The Company incurred a pre-tax restructuring charge of $19.8 million
relating to the acquisition on March 2, 1998 of the 80.4% interest in the
Company by Vishay. Of the total, approximately $12.6 million related to employee
termination costs covering seven key executives and 72 technical, production,
and administrative employees. The remaining $7.2 million restructuring charge
relates to provisions for certain assets, contract cancellations, and other
expenses. As of December 31, 1998, 75 employees have been terminated and the
Company settled $9.7 million in costs, of which, $7.8 million were paid and $1.9
million were written off. In addition, $4.7 million has been charged against the
restructuring liability for the write-down of certain assets and other expenses.
At December 31, 1998, restructuring charge of $5.4 million remains accrued,
primarily relating to employee termination costs and contract cancellations.
Future cash payments are expected to approximate $5.4 million and the Company
anticipates that it will substantially complete its restructuring by the end of
1999.
<PAGE>
Interest Expense
Interest expense for 1998 increased by 17% compared to 1997 primarily due
to additional loans from Vishay used to fund the acquisition of the additional
40% interest in the Simconix joint venture and to temporarily fund part of the
restructuring charge. Interest expense remained flat in 1997 compared to 1996.
Other Income/Expense
Other Income/expense increased by $1.6 million between 1998 and 1997. The
primary reason for this increase is the consolidation of Simconix in 1998.
Income Tax Expense
Income tax expense for 1998 decreased $8.5 million over 1997 and $3.8
million over 1996 due to the decrease of earnings before taxes.
Financial Condition, Liquidity, and Capital Resources
As of December 31, 1998 the Company had $37.7 million in cash and cash
equivalents, compared with $18.8 million in cash and cash equivalents and
short-term investments with an affiliate at December 31, 1997. The consolidation
of Simconix accounted for $6.9 million of the increase in cash and cash
equivalents in 1998 compared to the previous year. During 1998, the Company
borrowed $30.3 million from Vishay to fund a portion of the restructuring charge
as well as the acquisition of an additional 40% interest in Simconix. The
Company repaid $14.3 million of the $30.3 million debt in the third and fourth
quarters of 1998. The Company has a revolving credit facility with Vishay of
$35.0 million available, which is due to expire in May 2000. As of December 31,
1998 there were no borrowings against this credit facility.
Net cash provided by operating activities was approximately $56.3 million
in 1998, compared to $40.7 million in 1997. Accounts receivables decreased $22.6
million as a result of lower revenues and improved asset management. In
addition, net affiliate payables decreased $16.2 million compared to 1997 mainly
due to timing of cash payments to unconsolidated affiliates.
Net cash used in investing activities was $25.5 million during 1998
compared to $41.3 million in 1997. Capital expenditures were $35.6 million in
1998 compared to $40.2 million in 1997, primarily related to additions for plant
capacity expansion, new technology, and regulatory compliance. Capital spending
in 1999 is expected to exceed the 1998 level. The short-term investment with an
affiliate was terminated in 1998 and there was no outstanding balance at
December 31, 1998.
Net cash used in financing activities includes the repayment of the
floating rate notes (see Note 6 of Notes to Consolidated Financial Statements).
Inventories increased $7.1 million or 16.7% over 1997 primarily due to the
addition of manufacturing capacity and the increased wafer starts in the fourth
quarter of 1998.
Other current assets decreased $2.7 million or 24% over 1997 primarily as a
result of the write off of certain assets in conjunction with the Company's
restructuring charge.
Other assets decreased $13.9 million primarily due to the purchase of the
additional 40% interest in Simconix, which is no longer recognized as an
investment under the equity method of accounting and is consolidated in the
Company's financial statements ( see Note 3 of Notes to Consolidated Financial
Statements).
Although the Company has available cash and cash equivalents of $37.7
million at the end of 1998, cash and cash equivalents will decrease in the first
quarter of 1999 due to payments to affiliates as well as to fund capital
expenditures,
<PAGE>
royalty payments, commissions, and yearly management and employee bonuses.
Management expects that 1999 cash flows from operations and existing lines of
credit with Vishay will be sufficient to meet its normal operating requirements
and to fund its research and development and capital expenditures. The Company
repaid the entire principal amount of the $16,000,000 promissory note to Vishay
during the first quarter of 1999.
Recent Accounting Pronouncements
As of January 1, 1998, the Company adopted the Statement of Financial
Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No.
130 establishes new rules for the reporting and display of comprehensive income
and its components; however, adoption of this statement had no impact on the
Company's net income or shareholders' equity. SFAS No. 130 requires foreign
currency translation adjustments to be included in other comprehensive income.
Prior to adoption, foreign currency translation adjustments were reported as a
separate component of shareholders' equity.
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" in 1998. SFAS No. 131 replaces previous
related disclosure requirements. SFAS No. 131 requires disclosure by operating
segment of information such as profit and loss, assets and capital expenditures,
major customers and types of products from which revenues are derived. SFAS No.
131 requires interim reporting effective in 1999 (see Note 7 of Notes to
Consolidated Financial Statements).
The Company adopted SFAS No. 132, "Employers' Disclosure about Pensions and
Other Postretirement Benefits". SFAS No. 132 does not change the measurement or
recognition of such plans, but does standardize the disclosure requirements for
pensions and other postretirement benefits to the extent practicable. SFAS No.
132 also requires disclosure of additional information about changes in benefit
obligations and fair value of plan assets, and eliminates certain other
disclosures that were previously required.
In June 1998, the FASB released SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes new standards
accounting and reporting for derivative instruments and hedging activities. SFAS
No. 133 requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The Company is still in the process of
assessing the impact that SFAS No. 133 will have on its financial statements.
Certain Factors
The Company has in the past and may in the future make forward looking
statements. These statements might be expressed by using words like estimates,
assumes, expects, anticipates and are subject to risks and uncertainties that
could cause actual results to differ materially from those predicted. Such risks
and uncertainties include, but are not limited to, the following:
Technological Change and Competition
The markets for the Company's products are characterized by rapidly
changing technology, frequent new product introductions, and declining average
selling prices over product life cycles. The Company's future success is highly
dependent upon the timely completion and introduction of new products at
competitive prices and performance levels, and upon having them selected for
design into products of leading manufacturers. In addition, the Company must
respond to competitors in the Company's markets. If the Company is not able to
make timely introduction of new products or to respond effectively to
competition, its business and operating results could be adversely affected.
Variable Demand
The semiconductor industry has historically been highly cyclical and has
been subject to significant downturns at various times that have been
characterized by diminished product demand. Reduced demand for the Company's
products or capacity could have an adverse effect on the Company's business and
operating results.
<PAGE>
The Company is committed to pay for operating costs, at a subcontract
manufacturing location in Itzehoe, Germany, regardless of the extent of actual
manufacturing output, until December 31, 2007.
Political and Economic Considerations
In recent years, a large and increasing portion of the Company's net sales,
operating profits, manufacturing production, and growth have come from its
international operations. As a result, the Company's business activities and its
results could be significantly affected by the policies of foreign governments
and prevailing political, social, and economic conditions.
Dependence on key suppliers.
The Company uses numerous suppliers to supply raw materials for the
manufacture and support of its products. Although the Company makes reasonable
efforts to ensure that materials are available from multiple suppliers, this is
not always possible; accordingly, certain key materials are obtained from a
single supplier or a limited group of suppliers. These suppliers are, in some
cases, thinly capitalized, independent companies that generate significant
portions of their business from the Company and/or a small group of other
companies in the semiconductor industry. The Company has sought and will
continue to seek to minimize the risk of production and service interruptions
and/or shortages of key materials by: 1) selecting and qualifying alternative
suppliers for key materials; 2) monitoring the financial stability of key
suppliers; and 3) maintaining appropriate inventories of key materials. There
can be no assurance that the Company's results of operations will not be
materially and adversely affected if, in the future, the Company does not
receive sufficient materials to meet its requirement in a timely and
cost-effective manner.
Intellectual Property Matters
The semiconductor industry is characterized by litigation regarding patent
and other intellectual property rights. The Company has on occasion been
notified that it may be infringing patent and other intellectual property rights
of others. In addition, customers purchasing components from the Company have
rights to indemnification under certain circumstances if such components violate
the intellectual property rights of others. Although licenses are generally
offered in such situations, and the Company has successfully resolved these
situations in the past, there can be no assurance that the Company will not be
subject to future litigation alleging intellectual property rights infringement,
or that the Company will be able to obtain licenses on acceptable terms. An
unfavorable outcome regarding one of these matters could have an adverse effect
on the Company's business and operating results.
Year 2000
The Company has a formal, structured Year 2000 Program and Plan and is
making consistent progress in executing against this plan. The Year 2000 Program
is the responsibility of the Company CFO/Administrative VP who reports to the
Company's CEO. The Year 2000 project team includes all Company facilities,
locations, and organizations as necessary to ensure awareness and readiness, and
includes regular review and reporting on the status of Year 2000 readiness.
The Company's Year 2000 Plan includes Information Technology ("IT")
systems, Facilities and Utilities, Manufacturing equipment and IT interfaces,
and Supply chain management. The Company does not produce products with embedded
systems.
The Company has completed the assessment of Year 2000 issues in all
areas, including testing and initial contingency planning. The Company is
engaged in implementation work, while continuing to test each implementation and
is actively identifying contingency plans as necessary. The Company's objective
is to complete Year 2000
<PAGE>
readiness by June 30, 1999, while continuing to monitor and track the
effectiveness of the preparation through all critical date events.
The Company's IT environment is highly integrated, homogeneous, and
centralized. This facilitates Year 2000 readiness. The Company's business IT
systems are Year 2000 compliant, all implementation activities are complete. The
Company's manufacturing and engineering systems are largely Year 2000 compliant
and the Company expects to complete remaining actions by May 1999. Critical
network, desktop and voice system actions are complete. Verification and end to
end testing will continue through the second quarter of 1999 to ensure complete
integration across the Company environment.
Facility and Utility assessment, including testing and contingency
planning, are complete. Facility system upgrades are scheduled to occur against
plan through June 1999. Utility review is complete; communication with Utility
providers is ongoing to ensure these critical suppliers execute against their
plans. However, contingency planning in the advent of a critical Utility
supplier problem is limited, as alternative Utility sources are largely not
available.
The Company's manufacturing areas include all wafer fabrication and
backend manufacturing facilities. Manufacturing equipment assessment, including
testing and contingency planning is also complete, a number of implementation
activities are occurring against plan through June 1999. Contingency planning is
applied specific to the manufacturing area and equipment under review and is a
critical component of manufacturing area readiness. Additional testing and
contingency planning will continue to verify the effectiveness of implementation
actions.
The Company's Supplier program includes direct and indirect material
suppliers as well as subcontractors, foundries, and service and utility
providers. The Company has identified all Critical Suppliers as well as all
Suppliers; all suppliers have been surveyed, all Critical Supplier surveys are
complete, with contingency plans scheduled to be in place by May 1999.
Contingency plans include inventory management and alternative sourcing
arrangements for critical direct materials used in semiconductor manufacturing.
The Company recognizes the impact of the supply chain on our operations and is
working actively with suppliers to understand and minimize or eliminate risk to
the extent possible.
The Company currently estimates total costs of the Year 2000 Readiness
Program to be no more than $1.2 million. As of the first quarter of 1999, the
Company has not spent any material amount and expenses are covered through
normal operating budgets.
The Company believes that Year 2000 readiness will be largely achieved
by June 1999, however, there can be no assurance that there will be no delay or
increased cost associated with the programs described in this section or that
there will be no adverse effects on operations as a result of Year 2000
readiness.
Euro Conversion
On January 1, 1999, 11 of the 15 member countries of the European Union
adopted the euro as their common legal currency and established fixed conversion
rates between their existing sovereign currencies and the euro. The Company is
currently evaluating issues raised by the introduction and initial
implementation of the euro on January 1, 1999, and during the transition period
through January 1, 2002. The Company does not expect costs of system
modifications to be material, nor does it expect the introduction and use of the
euro to materially and adversely affect its financial condition or results of
operations. The Company will continue to evaluate the impact of the euro
introduction.
<PAGE>
Interest and Currency Rate Exposure
In the normal course of business, the financial position of the Company
is routinely subjected to a variety of risks, including market risks associated
with interest rate movements, currency rate movement on non-U.S. dollar
denominated assets and liabilities and collectibility of accounts receivable.
The Company does not anticipate material losses in these areas.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Financial Statements
Statements of Operations
Siliconix incorporated
Years ended December 31
(In thousands, except per share data) 1998 1997 1996
<S> <C> <C> <C>
Net sales $ 282,346 $ 321,551 $ 268,934
Cost of sales 184,330 194,436 161,825
-------------- --------------- ---------------
Gross profit 98,016 127,115 107,109
Operating expenses:
Research and development 17,110 17,813 20,823
Selling, marketing, and administration 55,451 65,322 54,475
Amortization of goodwill 343 - -
Restructuring 19,751 - -
-------------- --------------- ---------------
Operating income 5,361 43,980 31,811
Interest expense 2,795 2,383 2,390
Other (income) expense, net 1,658 78 (335)
-------------- --------------- ---------------
Income before income taxes and minority interest 908 41,519 29,756
Income taxes - 8,507 3,779
Minority interest in income of consolidated subsidiary 170 - -
-------------- --------------- ---------------
Net income $ 738 $ 33,012 $ 25,977
============== =============== ===============
Net income per share (basic and diluted) $ 0.07 $ 3.31 $ 2.61
Shares used to compute basic and diluted earnings per share 9,960 9,960 9,960
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Balance Sheets
Siliconix incorporated
As of December 31
(In thousands, except share data) 1998 1997
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 37,694 $ 10,249
Short-term investment with affiliate - 8,586
Accounts receivable, less allowances of $14,391 in 1998 and $11,923 in 1997 35,559 52,310
Accounts receivable from affiliates 9,917 8,247
Inventories 49,421 42,356
Other current assets 8,867 11,592
Deferred income taxes 15,182 6,481
--------------- ---------------
Total current assets 156,640 139,821
--------------- ---------------
Property, plant, and equipment, at cost:
Land 1,576 1,174
Buildings and improvements 47,962 45,724
Machinery and equipment 266,525 221,014
--------------- ---------------
316,063 267,912
Less accumulated depreciation 165,677 141,514
--------------- ---------------
Net property, plant, and equipment 150,386 126,398
Goodwill 8,820 -
Other assets 1,413 15,290
--------------- ---------------
Total assets $ 317,259 $ 281,509
--------------- ---------------
Liabilities and Shareholders' Equity Current liabilities:
Accounts payable $ 23,947 $ 31,421
Accounts payable to affiliates 29,192 11,334
Accrued payroll and related compensation 11,694 13,970
Accrued restructuring charge 5,352 -
Accrued liabilities 32,803 32,877
--------------- ---------------
Total current liabilities 102,988 89,602
--------------- ---------------
Long-term related party debt 50,570 34,570
Long-term debt, less current portion 1,221 3,887
Deferred income taxes 9,170 3,900
Minority interest 3,170 -
--------------- ---------------
Total liabilities 167,119 131,959
--------------- ---------------
Commitment and contingencies
Shareholders' equity
Common stock, par value $0.01; 10,000,000 shares authorized;
9,959,680 shares issued and outstanding in 1998 and 1997 100 100
Additional paid-in-capital 59,536 59,482
Retained earnings 91,285 90,547
Accumulated other comprehensive loss (781) (579)
--------------- ---------------
Total shareholders' equity 150,140 149,550
--------------- ---------------
Total liabilities and shareholders' equity $ 317,259 $ 281,509
=============== ===============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Statements of Shareholders' Equity
Accumulated
Siliconix incorporated Additional Other Total
Years ended December 31, 1998 Common Stock at Par Paid-in- Retained Comprehensive Shareholders'
(In thousands) Shares Amount Capital Earnings Income(Loss) Equity
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 9,960 $ 100 $ 59,423 $ 31,558 $ (805) $ 90,276
Proceeds from restricted common stock - - 17 - - 17
Net income - - - 25,977 - 25,977
Currency translation adjustments - - - - 348 348
-----------------
Comprehensive income - - - - - 26,325
-----------------
Balances at December 31, 1996 9,960 100 59,440 57,535 (457) 116,618
Proceeds from restricted common stock - - 42 - - 42
Net income - - - 33,012 - 33,012
Currency translation adjustments - - - - (122) (122)
-----------------
Comprehensive income - - - - - 32,890
-----------------
Balances at December 31, 1997 9,960 100 59,482 90,547 (579) 149,550
Proceeds from restricted common stock - - 54 - - 54
Net income - - - 738 - 738
Currency translation adjustment - - - - (202) (202)
-----------------
Comprehensive income - - - - - 536
-----------------
Balances at December 31, 1998 9,960 $ 100 $ 59,536 $ 91,285 $ (781) $ 150,140
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Statements of Cash Flows
Siliconix incorporated
Years ended December 31
(In thousands) 1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 738 $ 33,012 $ 25,977
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 27,379 23,437 17,976
Deferred income taxes (3,431) 1,585 (2,142)
Payment of pension benefits (84) (1,467) (77)
Restructuring 11,099 - -
Undistributed earnings from joint venture (970) (3,542) (2,188)
Other non-cash (income) and expenses 750 706 (135)
Changes in operating assets and liabilities:
Accounts receivable 22,586 (14,972) 3,274
Accounts receivable from affiliates (1,676) 6,555 (3,709)
Inventories (5,732) (12,192) (3,453)
Other current assets (909) (1,497) 291
Accounts payable (7,799) 5,123 2,027
Accounts payable to affiliates 17,865 219 (1,350)
Accrued liabilities (3,565) 3,762 3,582
------------ ------------ -------------
Net cash provided by operating activities 56,251 40,729 40,073
------------ ------------ -------------
Cash flows from investing activities:
Purchase of property, plant, and equipment (35,593) (40,244) (39,511)
Cash acquired from purchase of business 977 - -
Proceeds from sale of property, plant, and equipment 381 347 81
Investment in joint venture - - (2,053)
(Purchase) sale of other assets 111 (4,982) (2,410)
Short-term investment with affiliate 8,586 3,550 5,059
------------ --- ------------ -------------
Net cash used in investing activities (25,538) (41,329) (38,834)
------------ ------------ -------------
Cash flows from financing activities:
Repayment of long-term debt (3,117) - (556)
Repayment of short-term debt - (1,041) -
Proceeds from restricted common stock 54 42 17
------------ ------------ -------------
Net cash used in financing activities (3,063) (999) (539)
------------ ------------ -------------
Effect of exchange rate changes on cash and cash equivalents (205) (353) 988
------------ ------------ -------------
Net increase (decrease) in cash and cash equivalents 27,445 (1,952) 1,688
Cash and cash equivalents:
Beginning of year 10,249 12,201 10,513
------------ ------------ -------------
End of year $ 37,694 $ 10,249 $ 12,201
============ ============ =============
Supplemental disclosure of cash flow information:
Interest paid $ 3,370 $ 2,263 $ 1,988
Income taxes paid $ 3,218 $ 3,893 $ 1,470
Noncash financing activities:
Acquisition of 40% interest in Simconix for long-term debt to related party $ 16,000 $ - $ -
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
Notes to Consolidated Financial Statements
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION The Company was founded in 1962 and subsequently reincorporated on
March 5, 1987 in Delaware. The Company was a member of TEMIC Semiconductors a
division of Daimler Benz microelectronics consortium for several years. Daimler
Benz sold its 80.4% interest in the Company on March 2, 1998 to Vishay
Intertechnology, Inc.("Vishay") of Malvern, Pennsylvania.
CONSOLIDATION The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
REVENUE RECOGNITION The Company records sales to original equipment
manufacturers and distributors at the time of shipment. The Company records
allowances against revenue for estimated product returns and discounts at the
time of shipment.
CASH AND CASH EQUIVALENTS Cash equivalents consist of short-term financial
instruments which are readily convertible to cash and have original maturities
of three months or less.
SHORT-TERM INVESTMENTS Short-term investments at December 31, 1997 consisted of
cash invested with Daimler-Benz Capital Incorporated ("DBCI"), within its cash
concentration system, whereby cash is pooled and invested on a short-term basis.
There were no short-term investments outstanding at December 31, 1998.
INVENTORIES Inventories are stated at the lower of cost or market. Cost is
computed on a currently adjusted standard basis (which approximates actual
cost); market is based upon estimated net realizable value. The valuation of
inventory at the lower of cost or market requires the use of estimates as to the
amounts of current inventory that will be sold. These estimates are dependent on
the Company's assessment of current and expected orders from its customers.
PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment are stated at
cost. Depreciation is computed for financial reporting purposes using the
straight-line method over the estimated useful lives of the respective assets.
The estimated lives used are 10 to 30 years for buildings and improvements and 3
to 10 years for machinery and equipment. The Company evaluates property, plant
and equipment in accordance with SFAS No. 121, "Accounting for the Impairment
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
FINANCIAL INSTRUMENTS AND CREDIT RISK Due to the short maturities and/or the
variable interest rates of the Company's financial instruments, including cash
and cash equivalents, short-term investments, accounts receivable, debt
obligations, accounts payable, and accrued liabilities, the carrying amounts
approximate the fair value of the instruments.
The Company's financial instruments that are subject to concentrations of
credit risk consist primarily of trade receivables. The credit risk related to
the Company's trade receivables is mitigated by the Company's ongoing credit
evaluations of its customers' financial condition, reasonably short collection
terms, and the geographical dispersion of sales transactions. The Company
generally does not require any collateral from its domestic customers although
letters of credit are used frequently throughout Asia. Bad debt expense has not
been significant over the past three years.
A material portion of the Company's revenues in 1998, 1997, and 1996 were
derived from the worldwide communication and computer markets. These markets
have been historically somewhat volatile, as demand for the end-products in
these markets has varied widely from time to time. If demand for these
end-products should decrease significantly, the producers thereof could reduce
their purchase of the Company's products which in turn could have a materially
adverse effect on the Company's consolidated financial position and results of
operations.
<PAGE>
INCOME TAXES Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases as well as operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
On March 2, 1998, as a result of the acquisition by Vishay the Company
separated from Daimler Benz North America, Inc. consolidated group of companies
for U.S. tax filing purposes. Thus, the Daimler-Benz Tax Sharing Agreement was
terminated and replaced by the Vishay Tax Sharing Agreement. Under the Vishay
Tax Sharing Agreement, the Company continues to compute its income taxes on a
separate company basis.
For the short period ended December 31, 1998, the Company is included in
the consolidated federal and certain state tax returns of the Vishay affiliated
group. In accordance with the Vishay Tax Sharing Agreement, federal and state
taxes are determined as if the Company was associated only with its wholly owned
subsidiaries, taking into account all tax credits and all carryback and
carryforward items. For purposes of these consolidated financial statements,
federal, state, and foreign income taxes have been computed as if the Company's
tax provision and related liability had been calculated on a separate return
basis (see Note 5 of Notes to Consolidated Financial Statements).
NET INCOME PER SHARE In 1997, the Company adopted 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.
FOREIGN CURRENCY TRANSLATION The financial statements for certain of the
Company's foreign subsidiaries are measured using the local currency as the
functional currency. Foreign assets and liabilities in the consolidated balance
sheets have been translated at the rate of exchange as of the balance sheet
date. Revenues and expenses are translated at the average exchange rate for the
year. Translation adjustments do not impact the results of operations and are
reported as a separate component of shareholders' equity. Foreign currency
transaction gains and losses are included in the results of operations.
USE OF ESTIMATES Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from these estimates.
ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB released SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
hedging activities. SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The statement is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999. The
Company is still in the process of assessing the impact of SFAS No. 133 on its
financial statements.
COMMITMENTS AND CONTINGENCIES Liabilities for loss contingencies, including
environmental remediation costs, arising from claims, assessments, litigation,
fines and penalties, and other sources are recorded when it is probable that a
liability has been incurred and the amount of the assessment and/or remediation
can be reasonably estimated. The costs for a specific clean-up site are
discounted if the aggregate amount of the obligation and the amount and timing
of the cash payments for that site are fixed or reliably determinable generally
based upon information derived from the remediation plan for that site.
Recoveries from third parties which are probable of realization and can be
reasonably estimated are separately recorded, and are not offset against the
related environmental liability.
RECLASSIFICATIONS Certain reclassifications were made to the 1997 and 1996
balances to conform with the 1998 presentation.
<PAGE>
Note 2 - Related Party Transactions
As of March 2, 1998 the Company is a member of Vishay Intertechnology Inc.
("Vishay"). Vishay purchased TEMIC Semiconductors from Daimler-Benz
Microelectronics Group (the "acquisition"). During 1998, Vishay maintained the
same sales structure as under Daimler-Benz. In addition to the Company, the
other members of TEMIC Semiconductors were Telefunken Semiconductors, Matra MHS,
and Dialog Semiconductor. Subsequent to the acquisition by Vishay, Matra,
Dialog, as well as the integrated circuits division of Telefunken were sold. The
aim of TEMIC Semiconductors is to unify the activities of the member companies
to provide efficiencies by eliminating the duplication of many functions and to
bring greater value to end customers by allowing them to deal with one entity
for their semiconductor purchasing needs. In order to achieve these goals, the
following sales companies were established: TEMIC North America, TEMIC Asia
Pacific, subsequent to the acquisition renamed Vishay Asia Pacific, and TEMIC
Germany. These companies were established to fulfill all sales responsibilities
for TEMIC Semiconductors within their respective regions. TEMIC North America is
a wholly owned subsidiary of Siliconix incorporated; Vishay Asia Pacific is a
division of Vishay Asia Pte. Ltd., a wholly owned subsidiary of Siliconix
incorporated; and TEMIC Germany is a division of Telefunken Semiconductors. The
sales companies function as agents of the manufacturing companies, namely
Siliconix incorporated, and Telefunken Semiconductors, through commission
arrangements at a fixed percentage of sales. Under these agreements, the sales
companies perform all sales related functions under their legal names; however,
the sales companies function only in an agency role and the ownership of all
sales, receivables, inventory, and risk of loss remain with the manufacturing
companies.
Several significant transactions and agreements entered between the
Company and these affiliates are disclosed else-where in these consolidated
financial statements and related notes. In addition, the following are other
transactions between the Company and its affiliates during 1998, 1997, and 1996.
Under the Vishay sales structure, 1998 commissions received pertaining to
the sale of affiliate products in the North America and Asia Pacific regions
were $10,666,000. Under the TEMIC sales structure, 1997 and 1996 commissions
received were $15,017,000, and $16,040,000, respectively, while commissions paid
pertaining to the sale of the Company's products in Europe were $3,266,000,
$5,472,000, and $4,361,000, in 1998, 1997, and 1996, respectively. In 1997, the
Company also paid $2,497,000 in commissions to affiliates of Daimler-Benz for
the sale of the Company's products. These commission amounts are included in
selling, marketing, and administrative expenses in the accompanying Statements
of Operations.
Prior to the acquisition, the Company participated in a cash concentration
system established by Daimler-Benz North America ("DBNA"), an affiliated
company, whereby cash is pooled and invested on a short-term basis with DBCI, an
affiliate of DBNA, to obtain a higher rate of return. At December 31, 1997 cash
balance of $8,586,000 was invested with DBCI. Interest rates on the investment
were based on the one-month LIBOR. Interest income earned in 1998, 1997, and
1996 totaled $28,000, $480,000, and $421,000, respectively. These interest
income amounts are included in other income in the accompanying Statements of
Operations. The cash concentration system was terminated in March 1998
subsequent to the acquisition.
In 1997, the Company received $1,127,000 from a related party for research
and development contracts. Significant terms of these agreements included, but
were not limited to, project coordination by the Company, project inspection by
the related party, and assurance to the related party concerning the
confidentiality of the technical information. In 1998, the Company paid $847,000
for research and development costs to Daimler Benz. These amounts are included
in research and development expenses in the accompanying Statements of
Operations.
During 1998, 1997, and 1996, a related party in Itzehoe, Germany and in the
Asia Pacific region were engaged to provide subcontract manufacturing services
to the Company. Fees for these services were $35,219,000, $9,020,000, and
$4,467,000, respectively. The amount paid in 1998 and 1997 includes subcontract
manufacturing fees for the Itzehoe fabrication facility which began production
during the third quarter of 1997. The Company paid operating costs for the
Itzehoe facility of $1,540,000 and $9,226,000 for 1998 and 1997 respectively.
These subcontract fees and operating costs are included in cost of sales in the
accompanying Statements of Operations. The Company is committed to pay for
operating costs, regardless of the extent of actual manufacturing output, until
December 31, 2007.
The Company entered into certain arrangements with related parties whereby
the Company or the related party paid certain selling and administrative
expenses. These expenses were then billed back on a periodic basis. During 1998,
<PAGE>
1997, and 1996, the Company was reimbursed at cost, $7,948,000, $11,113,000, and
$14,740,000, respectively, for selling and administrative expenses for related
parties. During the same periods, the Company reimbursed related parties at
cost, $2,293,000, $1,636,000, and $2,256,000, respectively, for selling and
administrative expenses. These selling and administrative amounts are included
in selling, marketing, and administrative expenses in the accompanying
Statements of Operations. During 1998 a majority of these related parties were
terminated as a result of the acquisition. Management fee arrangements have been
entered into by the Company and related parties to cover occupancy and
administrative costs. During 1998, 1997, and 1996, management fees received by
the Company were $565,000, $343,000, and $712,000, respectively, and fees paid
by the Company were $1,389,000, $183,000, and $1,853,000, respectively. The
management fee paid by the Company in 1996 included $1,670,000 related to legal,
patent and licensing, and setup costs related to the plant in Itzehoe, Germany.
These management fees are included in selling, marketing, and administrative
expenses in the accompanying Statements of Operations.
During 1996, the Company incurred costs in connection with the set-up of
the new Discrete Components division pertaining to the product lines of a
related party. Costs for 1996 which were billed back to a related party totaled
$1,768,000. This amount is included in selling, marketing, and administrative
expenses in the accompanying Statements of Operations.
In 1997, the Company entered into an arrangement whereby the Company paid
certain selling, marketing, and administrative expenses for the Discrete
Components division and a related party paid these expenses for the Integrated
Circuits division. The Company and the related party agreed upon fixed fees for
these expenses which were then billed back on a periodic basis. During 1997, the
Company received $4,839,000 for selling, marketing, and administrative expenses
for the Discrete Components division. During the same period, the Company paid
$1,130,000 to a related party for selling, marketing, and administrative
expenses for the Integrated Circuits division. These amounts are included in
selling, marketing, and administrative expenses in the accompanying Statements
of Operations. Subsequent to the acquisition the Company no longer has
segregated divisions for discrete component and integrated circuits components.
Product sales to unconsolidated affiliates were $1,369,000, $10,692,000,
and $15,527,000, during 1998, 1997, and 1996, respectively. These amounts are
included in net sales in the accompanying Statements of Operations. Product
sales in 1998 are significantly lower than in 1997 and 1996 due to certain
affiliates which are no longer affiliates after the acquisition.
Long-term debt includes two related party promissory notes aggregating
$50,570,000 with Vishay (see Note 6 of Notes to Consolidated Financial
Statements). Interest expense relating to this debt for 1998 was $2,425,000.
Until the acquisition in 1998, 1997 and 1996 long term debt includes a note of
$34,570,000 with DBCI. The interest expenses related to this debt were $340,000,
$2,119,000, and $2,005,000, for 1998, 1997 and 1996, respectively. These amounts
are included in interest expense in the accompanying Statements of Operations.
<PAGE>
Note 3 - Simconix
On April 1, 1998, Vishay acquired for $16,000,000, a 40% interest in
Simconix, a back-end manufacturing facility in Shanghai, China. This interest
was sold to the Company, in exchange for $16,000,000 of long-term debt at 6.25%
interest. The Company had a 50% interest in Simconix dating from 1993. The
Company previously reported its interest in the Simconix joint venture under the
equity method of accounting and recognized $970,000, $3,542,000 and $2,188,000
as its share of profits for the first three months of 1998, and for 12 months in
1997 and 1996, respectively. In addition, at December 31, 1997 the Company
recorded the investment in the joint venture for $10,888,000 in other assets.
The acquisition is now recorded using the purchase method of accounting, and the
operating results of Simconix are included in the consolidated financial
statements as of April 1, 1998. As a result of the purchase, the Company
recorded property, plant and equipment of approximately $15,522,000, and net
other assets and liabilities of approximately $7,031,000. In addition, the
Company recorded goodwill of $9,163,000. The goodwill is being amortized on a
straight-line basis over 20 years. The 10% minority interest is fixed at
$3,000,000 with a fixed return on the investment.
<PAGE>
Note 4 - Inventories
Inventories consisted of the following:
December 31
(In thousands) 1998 1997
Finished goods $ 10,627 $ 11,758
Work-in-process 32,348 26,432
Raw materials 6,446 4,166
$ 49,421 $ 42,356
<PAGE>
Note 5 - Income Taxes
Income taxes for the years ended December 31, 1998, 1997, and 1996 consisted of
the following:
<TABLE>
<CAPTION>
Years ended December 31
(In thousands) 1998 1997 1996
<S> <C> <C> <C>
Current:
Federal $ 2,021 $ 5,276 $ 5,847
State and local - 152 54
Foreign 1,410 1,494 719
Less benefit of net operating losses - - (699)
3,431 6,922 5,921
Deferred:
Federal (3,263) 4,272 2,138
State and local - (1,219) (3,394)
Foreign (168) (1,468) (886)
(3,431) 1,585 (2,142)
$ - $ 8,507 $ 3,779
Income tax expense differs from the amounts computed by applying the federal
income tax rate to pretax income as a result of the following:
Years ended December 31
(In thousands) 1998 1997 1996
Computed "expected " tax expense $ 318 $ 14,532 $ 10,415
Change in valuation allowance 1,608 (3,780) (3,743)
Foreign income taxable at different tax rate (1,789) (1,138) (291)
Income tax benefit attributable to foreign sales corporation - (720) (614)
State taxes, net of federal benefit - (693) (2,171)
Business tax credits (217) - -
Other 80 306 183
$ - $ 8,507 $ 3,779
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:
</TABLE>
<TABLE>
<CAPTION>
December 31
(In thousands) 1998 1997
<S> <C> <C>
Deferred tax assets:
Accrued expenses and reserves $ 9,295 $ 5,026
Net operating loss carryforwards 7,057 -
Tax credit carryforwards 8,535 10,500
Total gross deferred tax assets 24,887 15,526
Less valuation allowance (2,275) -
Net deferred tax assets $ 22,612 $ 15,526
Deferred tax liabilities:
Plant and equipment, principally due to differences in depreciation $ (13,884) $ (10,774)
Investment in joint venture (2,716) (2,171)
Total gross deferred tax liabilities (16,600) (12,945)
Net deferred tax asset $ 6,012 $ 2,581
Realization of the Company's deferred tax assets is dependent on generating
sufficient U.S. taxable income prior to expiration of the carryforwards.
Although realization is not assured, management believes it is more likely than
not that all deferred tax assets will be realized.
At December 31, 1998, the Company had the following carryforwards for tax
purposes:
(In thousands) Expires
Net operating loss:
Federal $ 20,000 2018
California $ 1,000 2003
Credits:
California investment credit $ 5,500 2002-2006
California research credit $ 1,500 No Expiration
Alternative minimum tax credits $ 4,000 No Expiration
</TABLE>
Utilization of the federal net operating loss and credit carryforwards
incurred prior to March 2, 1998 may be subject to an annual limitation due to
the ownership change limitations provided by the Internal Revenue Service Code
of 1986 as amended and similar state provisions. The annual limitation may
result in the expiration of net operating loss and tax credit carryforwards
before full utilization. The credit carryforwards were transferred to the
Company from Daimler Benz upon separation. The actual realizable amounts cannot
be fully determined until the completion of the 1998 tax filings by Daimler
Benz.
The Company has not provided for U.S. federal income taxes on $59.4
million of non-U.S. subsidiaries' undistributed earnings as of December 31,
1998, because such earnings are intended to be reinvested outside the United
States indefinitely.
The Company's U.S. income tax returns for the years ended 1996 and 1997 are
presently under examination by the Internal Revenue Service. Management believes
that any potential tax assessment plus related interest and penalty, if any,
have been sufficiently provided for in the financial statements.
<PAGE>
Note 6 - Debt Obligations
The Company's debt obligations were as follows:
December 31
(In thousands) 1998 1997
Related party borrowings $ 50,570 $ 34,570
Guaranteed floating rate subordinated notes - 3,117
Unfunded retirement costs 1,221 770
Total debt 51,791 38,457
Long-term portion 51,791 38,457
Related party borrowings 50,570 34,570
Amounts due to third parties $ 1,221 $ 3,887
At December 31, 1998 the Company has two promissory notes with Vishay,
one for $16,000,000 and the other for $34,570,000. Interest rate on the
promissory notes is at Vishay's borrowing rate (6.25% at December 31, 1998). The
notes are due on December 31, 2001. The Company repaid the entire principal
amount of the $16,000,000 promissory note during the first quarter of 1999.
Under the Vishay promissory notes, the Company is indirectly bound by a
restrictive covenant contained in the Vishay credit agreement with its lending
banks which precludes payments of dividends.
The Company repaid floating rate notes with a principal balance of
$3,117,000 and accrued interest of $143,000 on August 28, 1998. Interest on the
notes were based on the London interbank offered rate, and was due annually on
December 1. The floating rate notes were originally issued on December 10, 1990,
with a maturity date of December 10, 2005.
Borrowings at December 31, 1997 included a promissory note of
$34,570,000 with Daimler Benz Capital Incorporated ("DBCI"). As a result of the
acquisition this note was assigned to Vishay, which paid the entire principal
amount to DBCI.
In May 1998 the Company entered into a two year revolving credit facility
with Vishay providing for borrowings of up to $35,000,000 at Vishay's borrowing
rate (6.25% at December 31, 1998). At December 31, 1998 the Company had no
outstanding borrowings on the credit facility.
<PAGE>
Note 7 - Geographic and Industry Segment Reporting
The Company is engaged primarily in the designing, marketing, and
manufacturing of power and analog semiconductor products. The Company is
organized in three operating segments which due to their inter-dependencies,
similar long-term economic characteristics, shared production processes and
distribution channels have been aggregated to one reportable operating segment.
No one customer accounted for 10% of net sales in 1998. A Japanese distributor
accounted for 10% and 19% of net sales in 1997 and 1996, respectively. At
December 31, 1997, accounts receivable from this distributor was $3,999,000.
The Company maintains subsidiaries in the Netherlands, United Kingdom,
Singapore, and Japan. The Company has manufacturing operations in the United
States, Taiwan, China and through subcontractors in Germany and various
countries throughout Asia.
Information about the Company's operations by geographic area is shown in the
following table:
<TABLE>
<CAPTION>
Years ended December 31
(In thousands). 1998 1997 1996
<S> <C> <C> <C>
Sales to external customers:
United States $ 70,282 $ 91,673 $ 74,268
Europe 72,168 90,480 71,739
Japan 19,700 33,359 51,065
Taiwan 29,530 19,448 17,008
Singapore 36,425 34,473 25,093
Asia Pacific (excluding Taiwan and Singapore) 45,012 29,901 14,433
All other 9,229 22,217 15,328
$ 282,346 $ 321,551 $ 268,934
Long-Lived Assets at December 31
United States $ 117,102 $ 122,820 $ 103,256
All other 65,684 19,518 43,251
$ 182,786 $ 142,338 $ 146,507
</TABLE>
<PAGE>
Note 8 - Leases and Commitments
At December 31, 1998, the future minimum commitments for all non-cancelable
operating leases are as follows:
(In thousands)
1999 $ 2,713
2000 749
2001 442
2002 329
2003 329
Thereafter 108
------------
Total minimum lease payments $ 4,670
------------
The Company leases land, office facilities, and equipment under operating
leases. Operating rent expenses were $6,252,000, $6,488,000, and $4,599,000 in
1998, 1997, and 1996, respectively.
The Company entered into product license agreements which provide, among
other things, that the Company makes royalty payments based on sales of certain
products at royalty rates as specified in the agreements. The product license
agreements either have a fixed term or terminate upon expiration of the patents.
There is no contractual limit to royalty payments. Royalty expenses under these
royalty agreements were $4,463,000, $6,600,000, and $7,692,000, in 1998, 1997,
and 1996, respectively. Included in accrued liabilities are royalties payable of
$2,052,000, and $2,705,000 at December 31, 1998, and 1997, respectively.
<PAGE>
Note 9 - Employee Benefit Plans
The profit sharing element of the Siliconix incorporated Retirement Plan
Trust (the "Plan") provides for annual contributions by the Company of up to 10%
of consolidated income before taxes (as defined). Vesting in the profit sharing
element of the Plan occurs ratably over a five-year period. Upon employee
termination, non-vested contributions are forfeited and reduce the Company's
current and/or future contributions to the Plan. The Company's contributions
were $845,000, $3,330,000, and $2,525,000, in 1998, 1997, and 1996,
respectively. The tax deferred savings element of the Plan allows eligible
employees to contribute up to 15% of their compensation. The Company matches a
portion of each participating employee's contribution. The Company's matching
contributions were $1,064,000, $1,277,000, and $1,266,000, in 1998, 1997, and
1996, respectively.
The Company maintains defined benefit pension plans in the United States
and Taiwan. The Company's U.S. defined benefit pension plan is for employees who
met specified age and service eligibility requirements on January 1, 1983. The
Company's subsidiary in Taiwan has a defined benefit pension plan that covers
substantially all of its employees.
<TABLE>
<CAPTION>
The Reconciliation of the Company's benefit Obligation
1998 1997
<S> <C> <C>
Benefit obligation at beginning of the year $ 3,370 $ 3,458
Service Cost 207 187
Interest cost 237 168
Actuarial gain 91 1,634
Benefit paid (84) (1,467)
Change in exchange rate (250) (610)
Benefit obligation at the end of year $ 3,571 $ 3,370
Plan Assets
1998 1997
Change in plan assets:
Fair value of plan assets at beginning of the year $ 765 $ 1,257
Actual return on plan assets 59 46
Employer contributions 275 372
Benefits paid (415) (411)
Actuarial gain 6 13
Change in exchange rate 10 (512)
Fair value of plan assets at the end of the year $ 700 $ 765
The following table sets forth the funded status and amounts of the defined
benefit pension plans recognized in the Company's balance sheets:
December 31
(In thousands) 1998 1997
Actuarial present value of benefit obligations:
Vested benefits obligation $ (48) $ (50)
Accumulated benefit obligation (1,741) (1,801)
Projected benefit obligation ("PBO") $ (3,571) $ (3,370)
Plan assets at fair value 700 765
Plan assets less PBO (2,558) (2,605)
Unrecognized net loss 1,309 1,495
Unrecognized net transition asset at:
January 1, 1989, recognized over 15 years 342 374
Accrued pension cost $ (908) $ (736)
</TABLE>
<PAGE>
Plan assets consist primarily of guaranteed insurance contracts and
managed trusts. Net pension cost included the following components:
<TABLE>
<CAPTION>
Years ended December 31
(In thousands) 1998 1997 1996
<S> <C> <C> <C>
Service cost benefits earned during the year $ 207 $ 187 $ 209
Interest cost on PBO 237 168 239
Actual return on plan assets (59) (46) (67)
Net amortization and deferral 103 27 99
Net pension expense $ 488 $ 336 $ 480
Assumptions used were:
Discount rates 7% 7% 6.5%-7%
Rates of increase in compensation levels 5% 5% 5%
Expected long-term rate of return on assets 7% 7% 6.5%-7%
</TABLE>
<PAGE>
Note 10 - Employee Stock Plan
From 1973 through the fourth quarter of 1990, the Company's Board of
Directors authorized the sale of restricted common stock to certain key
employees and directors for initial payments below market values. Vested shares
are subject to the Company's lifetime right of first refusal to purchase the
shares. In the event the Company declines to purchase the shares, a fixed amount
of $3.06 (the "delta") determined by the Company's plan of reorganization is
paid to the Company. Fully vested shares outstanding under this plan at a delta
of $3.06 per share at December 31, 1998, 1997, and 1996, were 65,359, 83,038,
and 96,945, respectively. There were no shares issued under this plan during
1998, 1997, and 1996. Vested shares sold by employees during 1998, 1997, and
1996 were 17,679, 13,907, and 5,444, respectively, resulting in payments of
$54,098, $42,555, and $16,659, respectively, to the Company which are included
in additional paid-in-capital. During 1998, 1997, and 1996, no vested shares
were sold to the Company.
<PAGE>
Note 11 - 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 cleanup 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 as its best estimate of future costs related to this
matter at December 31, 1998.
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 other 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. The management estimates given may vary.
<PAGE>
Note 12 - Restructuring Charge
The Company incurred a pre-tax restructuring charge of $19.8 million
relating to the acquisition on March 2, 1998 of the 80.4% interest in the
Company by Vishay. Of the total, approximately $12.6 million related to employee
termination costs covering seven key executives and 72 technical, production,
and administrative employees. The remaining $7.2 million restructuring charge
relates to provisions for certain assets, contract cancellations, and other
expenses. As of December 31, 1998, 75 employees have been terminated and the
Company settled $9.7 million in costs, of which, $7.8 million were paid and $1.9
million were written off. In addition, $4.7 million has been charged against the
restructuring liability for the write-down of certain assets and other expenses.
At December 31, 1998, restructuring charge of $5.4 million remains accrued,
primarily relating to employee termination costs and contract cancellations.
Future cash payments are expected to approximate $5.4 million and the Company
anticipates that it will substantially complete its restructuring by the end of
1999.
<PAGE>
Note 13 - Comprehensive Income
As of January 1, 1998, the Company adopted the Statement of Financial
Accounting Standard No. 130 ("SFAS"), "Reporting Comprehensive Income." SFAS No.
130 establishes new rules for the reporting and display of comprehensive income
and its components; however adoption of this statement had no impact on the
Company's net income or shareholders' equity. SFAS No. 130 requires foreign
currency translation adjustments to be included in other comprehensive income.
Prior to adoption, unrealized gains or losses related to foreign currency
translation adjustments were reported as a separate component of shareholders'
equity.
The following are the components of comprehensive income, (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net income $ 738 $ 33,012 $ 25,977
Foreign currency translation adjustment (202) (122) 348
Comprehensive income 536 32,890 26,325
The component of accumulated other comprehensive income is as follows:
Foreign currency translation adjustment $ (781) $ (579) $ (457)
</TABLE>
<PAGE>
Siliconix incorporated common stock is traded on the NASDAQ Stock
Market under the symbol SILI. Presented below are the highest and lowest "last
trade" stock prices for the indicated quarters.
<TABLE>
<CAPTION>
1998 1997
High Low High Low
<S> <C> <C> <C> <C> <C>
4th Quarter $ 23 3/4 $ 12 4th Quarter $ 57 1/2 $ 37 1/2
3rd Quarter 27 1/2 13 3rd Quarter 46 1/2 27
2nd Quarter 41 7/16 17 2nd Quarter 30 21
1st Quarter 45 41 1st Quarter 31 221/2
</TABLE>
SUBSIDIARIES OF SILICONIX INCORPORATED
Jurisdiction
of Incorporation Percent
Subsidiary or Organization Owned
---------- --------------- -----
1. Siliconix Limited United Kingdom 100%
2. Siliconix (Taiwan) Taiwan 100%
Limited
3. TEMIC Japan K.K. Japan 100%
4. Vishay Asia Pte. Ltd. Singapore 100%
5. TEMIC Semiconductor United States 100%
North America, Inc. (New Jersey)
6. Siliconix Technology C.V. Netherlands 100%
7. Shanghai Simconix People's Republic 90%
Co. Ltd. of China
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000090283
<NAME> SILICONIX INC
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> DEC-31-1998
<CASH> 37,694
<SECURITIES> 0
<RECEIVABLES> 49,950
<ALLOWANCES> 14,391
<INVENTORY> 49,421
<CURRENT-ASSETS> 156,640
<PP&E> 316,063
<DEPRECIATION> 165,677
<TOTAL-ASSETS> 317,259
<CURRENT-LIABILITIES> 102,988
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 150,040
<TOTAL-LIABILITY-AND-EQUITY> 317,259
<SALES> 282,346
<TOTAL-REVENUES> 282,346
<CGS> 184,330
<TOTAL-COSTS> 184,330
<OTHER-EXPENSES> 94,313
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,795
<INCOME-PRETAX> 908
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 738
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
