UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 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 0-25236
M I C R E L, I N C O R P O R A T E D
(Exact name of Registrant as specified in its charter)
California 94-2526744
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1849 Fortune Drive, San Jose, CA 95131
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 944-0800
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 [ ]
As of April 30, 1998 there were 19,681,164 shares of common stock, no par
value, outstanding.
This Report on Form 10-Q includes 28 pages with the Index to Exhibits
located on page 14.
<PAGE>
MICREL, INCORPORATED
INDEX TO
REPORT ON FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1998
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets - March 31,
1998 and December 31, 1997 3
Condensed Consolidated Income Statements - For the
Three Months Ended March 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
[LEGEND]
MICREL, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
March 31, December 31,
1998 1997 (1)
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,866 $ 2,581
Short-term investments 21,198 17,565
Accounts receivable, net 17,966 16,938
Inventories 11,184 10,664
Other current assets 6,270 5,176
---------- ----------
Total current assets 60,484 52,924
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET 35,397 32,423
OTHER ASSETS 177 180
---------- ----------
TOTAL $ 96,058 $ 85,527
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,954 $ 2,858
Deferred income on shipments to distributors 2,546 1,940
Other current liabilities 8,496 6,432
---------- ----------
Total current liabilities 13,996 11,230
LONG-TERM OBLIGATIONS 3,589 3,729
SHAREHOLDERS' EQUITY:
Preferred stock, no par value - authorized:
5,000,000 shares; issued and outstanding: none - -
Common stock, no par value - authorized:
50,000,000 shares; issued and outstanding:
1998 - 19,666,880; 1997 - 19,483,319 29,882 27,703
Retained earnings 48,591 42,865
---------- ----------
Total shareholders' equity 78,473 70,568
---------- ----------
TOTAL $ 96,058 $ 85,527
========== ==========
(1) Derived from the December 31, 1997 audited balance sheet included in the
1997 Annual Report on Form 10-K of Micrel, Incorporated.
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
<TABLE>
[LEGEND]
MICREL, INCORPORATED
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
Three Months Ended
March 31,
-----------------------
1998 1997
--------- ---------
<S> <C> <C>
NET REVENUES $ 32,659 $ 22,113
COST OF REVENUES 14,696 10,731
--------- ---------
GROSS MARGIN 17,963 11,382
--------- ---------
OPERATING EXPENSES:
Research and development 4,115 3,181
Selling, general and administrative 5,517 3,512
--------- ---------
Total operating expenses 9,632 6,693
--------- ---------
INCOME FROM OPERATIONS 8,331 4,689
OTHER INCOME, NET 344 222
--------- ---------
INCOME BEFORE INCOME TAXES 8,675 4,911
PROVISION FOR INCOME TAXES 2,949 1,670
--------- ---------
NET INCOME $ 5,726 $ 3,241
========= =========
NET INCOME PER SHARE:
Basic $ 0.29 $ 0.17
========= =========
Diluted $ 0.27 $ 0.16
========= =========
SHARES USED IN COMPUTING PER SHARE AMOUNTS:
Basic 19,583 18,734
========= =========
Diluted 21,109 20,518
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
<TABLE>
[LEGEND]
MICREL, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
-----------------------
1998 1997
--------- ---------
<S> <C> <C>
Net cash provided by operating activities $ 9,873 $ 6,187
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold
improvements (5,226) (5,891)
Purchases of short-term investments (13,433) (7,988)
Proceeds from sales and maturities of
short-term investments 9,800 7,100
--------- ---------
Net cash used in investing activities (8,859) (6,779)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (308) (233)
Proceeds from the issuance of common stock, net 579 251
--------- ---------
Net cash provided by financing activities 271 18
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,285 (574)
CASH AND CASH EQUIVALENTS - Beginning of period 2,581 3,239
--------- ---------
CASH AND CASH EQUIVALENTS - End of period $ 3,866 $ 2,665
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 27 $ 50
========= =========
Cash paid for income taxes $ 210 $ 127
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
MICREL, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information - The accompanying condensed consolidated
financial statements of Micrel, Incorporated and its wholly-owned
subsidiaries ("Micrel" or the "Company") as of March 31, 1998 and for
the quarter ended March 31, 1998 and 1997 are unaudited. In the opinion
of management, the condensed consolidated financial statements include
all adjustments (consisting only of normal recurring accruals) that
management considers necessary for a fair presentation of its financial
position, operating results and cash flows for the interim periods
presented. Operating results and cash flows for interim periods are not
necessarily indicative of results for the entire year.
This financial data should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the
Company's 1997 Annual Report on Form 10-K for the year ended December
31, 1997.
Net Income per Common and Equivalent Share - Basic earnings per share
("EPS") is computed by dividing net income by the number of weighted
average common shares outstanding. Diluted EPS reflects potential
dilution from outstanding stock options, using the treasury stock
method.
Reconciliation of weighted average shares used in computing earnings per
share are as follows (in thousands):
<TABLE>
Three Months Ended
March 31,
-----------------------
1998 1997
--------- ---------
<S> <C> <C>
Weighted average common shares outstanding 19,583 18,734
Dilutive effect of stock options
outstanding, using the treasury
stock method 1,526 1,784
--------- ---------
Shares used in computing diluted
earnings per share 21,109 20,518
========= =========
</TABLE>
In July 1997, the Company declared a two-for-one stock split of its
common stock in the form of a 100% stock dividend payable August 19,
1997, on shares of common stock outstanding as of August 4, 1997. All
share and per share information, in the accompanying condensed
consolidated financial statements, have been adjusted to retroactively
give effect to the stock split for all periods presented.
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
March 31, December 31,
1998 1997
---------- ----------
<S> <C> <C>
Finished goods $ 3,320 $ 2,480
Work in process 6,022 6,351
Raw materials 1,842 1,833
--------- ---------
$ 11,184 $ 10,664
========= =========
</TABLE>
6
<PAGE>
MICREL, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. BORROWING ARRANGEMENTS
Under a revolving line of credit and security agreement expiring
September 30, 1998, the Company can borrow up to 80% of its eligible
accounts receivable to a maximum of $3.0 million. Borrowings under the
line of credit agreement bear interest at prime (8.5% at March 31, 1998)
and are collateralized by substantially all of the assets of the
Company. There were no borrowings under this revolving line of credit at
March 31, 1998.
Under the same security agreement, the Company has a non-revolving bank
line of credit of $5.0 million for funding purchases of capital
equipment under which the Company may borrow up to 100% of the cost,
excluding installation charges, sales tax, freight and software. Amounts
borrowed under this credit line may be converted to four-year
installment notes. All equipment notes are collateralized by the
equipment purchased and bear interest at prime. There were no borrowings
under this non-revolving line of credit at March 31, 1998.
Under another non-revolving bank line of credit that expired, the
Company had $1.1 million outstanding at March 31, 1998 under term notes
that are collateralized by the equipment purchased.
The agreements contain certain restrictive covenants that include a
restriction on the declaration and payment of dividends without the
lender's consent. The Company was in compliance with all such covenants
at March 31, 1998.
4. SIGNIFICANT CUSTOMERS
One customer, Qualcomm, accounted for $3.9 million (12%) of net revenues
during the three months ended March 31, 1998. The same customer
accounted for $2.4 million (11%) of net revenues during the comparable
period in 1997.
5. EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income."
SFAS No. 130 requires disclosure of comprehensive income in interim
periods and additional disclosures of the components of comprehensive
income on an annual basis. Comprehensive income includes all changes in
equity during a period except those resulting from investments by and
distributions to the Company's shareholders. For the quarters ended
March 31, 1998 and 1997, there were no differences between the Company's
comprehensive income and net income.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which establishes annual and
interim reporting standards for an enterprise's business segments and
related disclosures about its products, services, geographic areas and
major customers. Adoption of this statement will not impact the
Company's consolidated financial position, results of operations or cash
flows. The Company will adopt this statement in its financial statements
for the year ending December 31, 1998.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Micrel designs, develops, manufactures and markets a range of high
performance standard analog integrated circuits. These circuits are used in
a wide variety of electronics products, including those in the
communications, computer and industrial markets. In addition to standard
products, the Company manufactures custom analog and mixed-signal circuits
and provides wafer foundry services. The Company derives a substantial
portion of its net revenues from standard products. Standard products
sales represented 76% of net revenues for each of the quarters ended March
31, 1998 and 1997. The Company believes that a substantial portion of its
net revenues in the future will depend upon standard products sales.
The Company may experience significant fluctuations in its results of
operations. Factors that affect the Company's results of operations include
the volume and timing of orders received, changes in the mix of products
sold, competitive pricing pressures and the Company's ability to meet
increasing demand. As a result of the foregoing or other factors, there can
be no assurance that the Company will not experience material fluctuations
in future operating results on a quarterly or annual basis, which would
materially and adversely affect the Company's business, financial condition
or results of operations.
Results of Operations
The following table sets forth certain operating data as a percentage of
total net revenues for the periods indicated.
<TABLE>
Three Months Ended
March 31,
-----------------------
1998 1997
------ ------
<S> <C> <C>
Net revenues 100.0% 100.0%
Cost of revenues 45.0 48.5
------ ------
Gross margin 55.0 51.5
Operating expenses:
Research and development 12.6 14.4
Selling, general and administrative 16.9 15.9
------ ------
Total operating expenses 29.5 30.3
------ ------
Income from operations 25.5 21.2
Other income, net 1.0 1.0
------ ------
Income before income taxes 26.5 22.2
Provision for income taxes 9.0 7.6
------ ------
Net income 17.5% 14.6%
====== ======
</TABLE>
Net Revenues. Net revenues increased 48% to $32.7 million for the quarter
ended March 31, 1998 from $22.1 million for the same period in 1997 due,
principally, to higher standard products revenues. Standard products
revenues remained constant at 76% of net revenues for the quarters ended
March 31, 1998 and 1997. On a dollar basis, standard products revenues
increased $8.0 million or 48% to $24.7 million for the quarter ended
March 31, 1998 from $16.7 million for the comparable period in 1997. Sales
of standard products by the Company were led by low dropout regulators,
computer peripheral components, latched drivers and MOS drivers. Such
products were sold primarily to manufacturers of portable computing,
computing peripherals, telecommunications and industrial products. Management
believes that the company's flexibility and product and geographic diversity
should enable continued sales and profit growth despite softness in Asia.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
The Company believes that pricing pressures continue to be experienced by
the general technology sector and by companies in the analog segment of the
semiconductor industry. During the first quarter of 1998, standard product
customer demand continued to be short-term focused due to shorter than
historical order lead times. These factors affect the Company's ability to
predict future sales growth, profitability and forward visibility. The
Company's ability to predict demand in future quarters also continues to be
affected by the trend of its customers to place orders close to desired
shipment dates and to reduce their long-term purchasing commitments, which
is the result of less predictable demand for such customers' products and
increased product availability in the semiconductor industry. The Company
has sought to address these reduced order lead times by implementing faster
production cycles.
International sales represented 48% of net revenues for each of the
quarters ended March 31, 1998 and 1997. The $5.0 million increase in
international sales resulted from shipments to manufacturers of personal
computers and communications products and demand for the Company's products
primarily in Asian and European markets.
The Company's international sales are primarily denominated in U.S.
currency. Consequently, changes in exchange rates that strengthen the U.S.
dollar could increase the price in local currencies of the Company's
products in foreign markets and make the Company's products relatively more
expensive than competitors' products that are denominated in local
currencies, leading to a reduction in sales or profitability in those
foreign markets. The Company has not taken any protective measures against
exchange rate fluctuations, such as purchasing hedging instruments with
respect to such fluctuations.
The Company defers recognition of revenue derived from sales to North
American distributors until such distributors resell the Company's products
to their customers. Sales to international distributors are recognized upon
shipment. The Company estimates international distributor returns and
provides an allowance as the revenue is recognized.
Gross Margin. Gross margin is affected by the volume of product sales,
product mix, manufacturing utilization, product yields and average selling
prices. The Company's gross margin increased to 55% for the quarter ended
March 31, 1998 from approximately 52% for the comparable period in the
prior year. The improvement in gross margin reflected an increase in
manufacturing efficiency due to greater capacity utilization. The Company
believes that continued gross margin expansion is likely as revenue and
production output increases throughout the balance of 1998.
Research and Development Expenses. Research and development expenses
include costs associated with the development of new processes and the
definition, design and development of standard products. The Company also
expenses prototype wafers and new production mask sets related to new
products as research and development costs until products based on new
designs are fully characterized by the Company and are demonstrated to
support published data sheets and satisfy reliability tests.
The Company's research and development expenses increased by $934,000, to
$4.1 million for the quarter ended March 31, 1998 from $3.2 million for the
comparable period in 1997. As a percentage of net revenues, research and
development expenses declined to 13% of net revenues for the quarter ended
March 31, 1998 as compared to 14% for the comparable period in 1997. The
dollar increase in research and development expenses during the quarter
ended March 31, 1998 was primarily due to increased costs associated with
the Company's conversion to six-inch wafer fabrication, and increased
engineering staffing to support the development of new standard products
and new wafer fabrication processes. The Company believes that the
development and introduction of new standard products is critical to its
future success and expects that research and development expenses will
increase on a dollar basis in the future.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased on a dollar basis to $5.5 million or 17%
of net revenues for the first quarter in 1998 from $3.5 million or 16% of
net revenues for the comparable period in 1997. The dollar increase during
the quarter was principally attributable to higher legal accruals, profit
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
sharing accruals to promote personnel retention, sales commissions, and
other sales and administrative expenses associated with the growth of the
Company's revenues.
Other Income, Net. Other income, net reflects interest income from
investments in short-term investment grade securities offset by interest
expense incurred on line of credit borrowings and term notes. Other income,
net increased by approximately $122,000 to $344,000 in for the quarter ended
March 31, 1998 from $222,000 during the comparable period 1997. Such
increase reflected a $134,000 increase in interest income due to an
increase in average cash and investment balances and a $21,000 decrease in
interest expense due to a reduction in the average amount of notes payable.
The Company expects to continue to utilize term financing as appropriate to
finance its capital equipment needs.
Provision for Income Taxes. For each of the quarters ended March 31, 1998
and 1997, the provision for income taxes was 34% of income before taxes.
The income tax provision for such interim periods reflects the Company's
estimated annual income tax rate. The 1998 and 1997 income tax provisions
differ from taxes computed at the federal statutory rate due to the effect
of state taxes offset by the benefit from the foreign sales corporation,
federal and state research and development credits, and state manufacturing
credits.
Liquidity and Capital Resources
Since inception, the Company's principal sources of funding have been its
cash from operations, bank borrowings and sales of common stock. Principal
sources of liquidity at March 31, 1998 consisted of cash and short-term
investments of $25.1 million and borrowing facilities consisting of (i)
$3.0 million under a revolving line of credit, of which all was unused and
available, and (ii) $5.0 million under a non-revolving line of credit,
under which there were no borrowings outstanding at March 31, 1998. The two
lines of credit are covered by the same loan and security agreement. This
agreement expires on September 30, 1998, subject to automatic renewal on a
month to month basis thereafter unless terminated by either party upon 30
days notice. Borrowings are collateralized by substantially all of the
Company's assets. The agreement contains certain restrictive covenants that
include a restriction on the declaration and payment of dividends without
the lender's consent. The Company was in compliance with all such covenants
at March 31, 1998.
The non-revolving bank line of credit that is covered by the loan agreement
described above, can be used to fund purchases of capital equipment whereby
the Company may borrow up to 100% of the cost, excluding installation
charges, sales tax, freight and software charges. Amounts borrowed under
this credit line may be converted to four-year installment notes. All
equipment notes are collateralized by the equipment purchased, bear
interest at prime and are subject to the same restrictive covenants as the
revolving line of credit.
Under two other notes payable, the Company had $0.1 million and $1.0
million outstanding at March 31, 1998. The notes are collateralized by the
equipment purchased.
The Company's working capital increased by $4.8 million to $46.5 million as
of March 31, 1998 from $41.7 million as of December 31, 1997. The increase
was primarily attributable to a $4.9 million increase in cash, cash
equivalents and short-term investments combined with increases in other
current assets of $1.1 million, accounts receivable of $1.0 million and
inventories of $520,000 for the quarter ended March 31, 1998 which were
partially offset by a $2.1 million increase in other current liabilities.
The Company's short-term investments were principally invested in
investment grade, interest-bearing securities.
The Company's cash flows from operating activities increased to
approximately $9.9 million for the quarter ended March 31, 1998 from $6.2
million for the comparable prior year period. The cash flows from operating
activities generated by the Company in the quarter ended March 31, 1998 were
primarily attributable to net income (plus non-cash charges for
depreciation and amortization) of approximately $8.0 million combined with
increases in income taxes payable of $3.7 million which were partially
offset by increases in accounts receivable of $1.0 million and inventories
of $520,000. The Company generated cash flows from operating activities in
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
the quarter ended March 31, 1997 that were primarily due to net income
(plus non-cash charges for depreciation and amortization) of approximately
$4.5 million combined with increases of $1.5 million in accounts payable
and $1.4 million in income taxes payable, and a $1.8 million reduction in
inventories which were partially offset by a $3.2 million increase in
accounts receivable resulting from higher sales.
Investing activities during the quarter ended March 31, 1998 used cash of
approximately $8.9 million as compared to $6.8 million of cash used for
investing activities during the comparable period in 1997. Cash used for
investing activities during the quarter ended March 31, 1998 resulted
primarily from net purchases of short-term investments of $3.6 million
combined with $5.2 million in net purchases of property, plant and
equipment. Cash used for investing activities during the quarter ended
March 31, 1997 were due to net purchases of property, plant and equipment
of $5.9 million combined with short-term investments of $0.9 million.
The Company's financing activities during the quarter ended March 31, 1998
provided cash of approximately $271,000 as compared to $18,000 during the
comparable period in 1997. Cash provided by financing activities during the
quarter ended March 31, 1998 was the result of $579,000 in proceeds from
the issuance of common stock through the exercise of stock options, which
were partially offset by $308,000 in repayments of long-term debt during
the same period. Cash provided by financing activities during the quarter
ended March 31, 1997 was the result of $251,000 in proceeds from the
issuance of common stock through the exercise of stock options, which were
partially offset by $233,000 in repayments of long-term debt during the
same period.
The Company currently intends to spend up to approximately $35 million
during the next twelve months primarily for the purchase of additional
wafer and test manufacturing equipment and leasehold improvements. The
Company expects that its cash requirements through 1998 will be met by its
existing cash balances and short-term investments, cash from operations and
its existing credit facilities.
Factors That May Affect Operating Results
The statements contained in this Report on Form 10-Q that are not purely
historical are forward looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934, including statements regarding the Company's expectations,
hopes, intentions or strategies regarding the future. Forward-looking
statements include: statements regarding future products or product
development; statements regarding future research and development spending
and the Company's product development strategy; statements regarding the
levels of international sales; and statements regarding future
expenditures. All forward-looking statements included in this document are
based on information available to the Company on the date hereof, and the
Company assumes no obligation to update any such forward-looking
statements. It is important to note that the Company's actual results could
differ materially from those in such forward-looking statements. Some of
the factors that could cause actual results to differ materially are set
forth below.
The Company has generated a substantial portion of its net revenues from
export sales. The Company believes that a substantial portion of its future
net revenues will depend on export sales to customers in international
markets including Asia. International markets are subject to a variety of
risks, including changes in policy by foreign governments, social
conditions such as civil unrest, and economic conditions including high
levels of inflation, fluctuation in the value of foreign currencies and
currency exchange rates and trade restrictions or prohibitions. In
addition, the Company sells to domestic customers that do business
worldwide and cannot predict how the businesses of these customers may be
affected by economic conditions in Asia or elsewhere. Such factors could
adversely affect the Company's future revenues, financial condition or
results of operations.
The Company may experience significant fluctuations in its results of
operations. Factors that affect the Company's results of operations include
the volume and timing of orders received, changes in the mix of products
sold, market acceptance of the Company's and its customers' products,
competitive pricing pressures, the Company's ability to meet increasing
demand, the Company's ability to introduce new products on a timely basis,
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
the timing of new product announcements and introductions by the Company or
its competitors, the timing and extent of research and development
expenses, fluctuations in manufacturing yields, cyclical semiconductor
industry conditions, the Company's access to advanced process technologies
and the timing and extent of process development costs. As a result of the
foregoing or other factors, there can be no assurance that the Company will
not experience material fluctuations in future operating results on a
quarterly or annual basis, which would materially and adversely affect the
Company's business, financial condition and results of operations.
The Company has transitioned its business to rely more heavily on the sale
of standard products. The Company believes that a substantial portion of
its net revenues in the future will continue to depend upon standard
products sales. As compared with the custom and foundry products business,
the standard products business is characterized by shorter product
lifecycles, greater pricing pressure, larger competitors and more rapid
technological change. Generally, the standard products market is a rapidly
changing market in which the Company faces the risk that, as the market
changes, its product offerings will become obsolete. The Company competes
in the standard products market with established companies, most of which
have substantially greater financial, engineering, manufacturing and
marketing resources than the Company. No assurance can be given that the
Company will be able to compete successfully in the standard products
market or that it will be able to successfully introduce new standard
products in the future. The failure of the Company to compete successfully
in the standard products business would materially and adversely affect the
Company's financial condition and results of operations.
The Company is also currently transitioning to the processing of six inch
wafers, which will involve process lithography that will handle items as
small as one micron. The Company has begun purchasing equipment and
preparing production facilities to provide for such manufacturing
capabilities. There can be no assurance that the transition to six inch
wafer processing will be achieved on schedule without encountering any
delays in the process implementation. Nor can there be any assurance that
the Company will achieve acceptable manufacturing yields or that the
operating income margins on such products will be comparable to those
realized in connection with the Company's four inch wafer fabrication
processes. Failure to achieve acceptable yields or margins could adversely
affect the Company's financial condition and results of operations.
The analog semiconductor industry is highly competitive and subject to
rapid technological change. Significant competitive factors in the analog
market include product features, performance, price, timing of product
introductions, emergence of new computer standards, quality and customer
support. Because the standard products market for analog integrated
circuits is diverse and highly fragmented, the Company encounters different
competitors in its various market areas. Most of these competitors have
substantially greater technical, financial and marketing resources and
greater name recognition than the Company. Due to the increasing demands
for analog circuits, the Company expects intensified competition from
existing analog circuit suppliers and the entry of new competition,
including companies from Japan. Increased competition could adversely
affect the Company's financial condition or results of operations. There
can be no assurance that the Company will be able to compete successfully
in either the standard products or custom and foundry products business in
the future or that competitive pressures will not adversely affect the
Company's financial condition and results of operations.
The fabrication of integrated circuits is a highly complex and precise
process. Minute impurities, contaminants in the manufacturing environment,
difficulties in the fabrication process, defects in the masks used to print
circuits on a wafer, manufacturing equipment failures, wafer breakage or
other factors can cause a substantial percentage of wafers to be rejected
or numerous die on each wafer to be nonfunctional. Moreover, there can be
no assurance that the Company will be able to maintain acceptable
manufacturing yields in the future.
The semiconductor industry is characterized by frequent litigation
regarding patent and other intellectual property rights. There can be no
assurance that these existing claims or any other assertions (or claims for
indemnity resulting from infringement claims) will not materially adversely
affect the Company's business, financial condition and results of
operations.
The Company's future success depends in part upon its intellectual
property, including patents, trade secrets, know-how and continuing
technology innovation. There can be no assurance that the steps taken by
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
the Company to protect its intellectual property will be adequate to
prevent misappropriation or that others will not develop competitive
technologies or products. There can be no assurance that any patent owned
by the Company will not be invalidated, circumvented or challenged, that
the rights granted thereunder will provide competitive advantages to the
Company or that any of the Company's pending or future patent applications
will be issued with the scope of the claims sought by the Company, if at
all. Furthermore, there can be no assurance that others will not develop
technologies that are similar or superior to the Company's technology,
duplicate the Company's technology or design around the patents owned by
the Company.
The Company has and will continue to make certain investments in its
software systems and applications to ensure the Company is year 2000
compliant. The financial impact to the Company has not been and is not
anticipated to be material to its financial position or results of
operations in any given year.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Certain claims and lawsuits have arisen against the Company in its normal
course of business. The Company believes that these claims and lawsuits
will not have a material adverse effect on the Company's financial
position, cash flow or results of operation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description
------- -------------------------------------------------------
10.1 Indemnification Agreement between the Registrant and
Mr. Robert Whelton, an officer of the Company.
27 Financial Data Schedule.
(b) Reports on Form 8-K. The Company did not file any Reports on
Form 8-K during the quarter ended March 31, 1998.
14
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MICREL, INCORPORATED
----------------------
(Registrant)
Date: May 12, 1998 By /s/ ROBERT J. BARKER
---------------------
Robert J. Barker
Vice President, Finance and
Chief Financial Officer
(Authorized Officer and
Principal Financial Officer)
15
<PAGE>
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is entered into, effective as of December 29, 1997 by and
between MICREL, INCORPORATED, a California corporation (the "Company"), and
Robert Whelton ("Indemnitee").
WHEREAS, it is essential to the Company to retain and attract as
directors and officers the most capable persons available;
WHEREAS, Indemnitee is a director and/or officer of the Company;
WHEREAS, both the company and Indemnitee recognize the increased risk of
litigation and other claims currently being asserted against directors and
officers of corporations; and
WHEREAS, in recognition of Indemnitee's need for substantial protection
against personal liability in order to enhance Indemnitee's continued and
effective service to the Company, and in order to induce Indemnitee to
provide services to the Company as a director and/or officer, the Company
wishes to provide in this Agreement for the indemnification of and the
advancing of expenses to Indemnitee to the fullest extent (whether partial
or complete) permitted by California law and as set forth in this
Agreement, and, to the extent insurance is maintained, for the coverage of
Indemnitee under the Company's directors' and officers' liability insurance
policies.
NOW, THEREFORE, in consideration of the above premises and of
Indemnitee's continuing to serve the Company directly or, at its request,
with another enterprise, and intending to be legally bound hereby, the
parties agree as follows:
1. Certain Definitions:
(a) Board: the Board of Directors of the Company.
(b) Change in Control: shall be deemed to have occurred if (I)
any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Act"), other than a
trustee or other fiduciary holding securities under an employee benefit
plan of the company or a corporation owned directly or indirectly by the
shareholders of the Company in substantially the same proportions as their
ownership of stock of the Company, is or becomes the "Beneficial Owner" (as
defined in Rule 13d-3 under the Act), directly or indirectly, of securities
of the company representing 30% or more of the total voting power
represented by the Company's then outstanding Voting Securities, or (ii)
during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board and any new director whose
election by the Board or nomination for election by the Company's
shareholders was approved by a vote of at least two-thirds (2/3) of the
directors then still
1
<PAGE>
in office who either were directors at the beginning of the period of whose
election or nomination for election was previously so approved, cease for
any reason to constitute a majority of the Board, or, or (iii) the
shareholders of the Company approve a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation
that would result in the Voting Securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into Voting Securities of the surviving
entity) at least 80% of the total voting power represented by the Voting
Securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation, or (iv) the shareholders of the Company
approve a plan of complete liquidation of the Company or an agreement for
the sale or disposition by the Company (in one transaction or a series of
transactions) of all or substantially all of the Company's assets.
(c) Expenses: any expense, liability, or loss, including
attorneys' fees, judgments, fines, ERISA excise taxes and penalties,
amounts paid or to be paid in settlement, any interest, assessments, or
other charges imposed thereon, and any federal, state, local, or foreign
taxes imposed as a result of the actual or deemed receipt of any payments
under this Agreement, paid or incurred in connection with investigating,
defending, being a witness in, or participating in (including on appeal),
or preparing for any of the foregoing in, any Proceeding relating to any
Indemnifiable Event.
(d) Indemnifiable Event: any event or occurrence that takes
place either prior to or after the execution of this Agreement, related to
the fact that Indemnitee is or was a director or an officer of the company,
or while a director or officer is or was serving at the request of the
Company as a director, officer, employee, trustee, agent, or fiduciary of
another foreign or domestic corporation, partnership, joint venture,
employee benefit plan, trust, or other enterprise, or was a director,
officer, employee, or agent of a foreign or domestic corporation that was a
predecessor corporation of the Company or of another enterprise at the
request of such predecessor corporation, or related to anything done or not
done by Indemnitee in any such capacity, whether or not the basis of the
Proceeding is alleged action in an official capacity as a director,
officer, employee, or agent or in any other capacity while serving as a
director, officer, employee, or agent of the Company, as described above.
(e) Independent Counsel: the person or body appointed in
connection with Section 3.
(f) Potential Change in Control: shall be deemed to have
occurred if (I) the Company enters into an agreement or arrangement, the
consummation of which would result in the occurrence of a Change in
Control; (ii) any person (including the Company) publicly announces an
intention to take or to consider taking actions that, if consummated, would
constitute a Change in Control; (iii) any person (other than a trustee or
other fiduciary holding securities under an employee benefit plan of the
Company acting in such capacity or a corporation owned, substantially the
same proportions as their ownership of stock of the Company), who is or
becomes the
2
<PAGE>
Beneficial Owner, directly or indirectly, of securities of the Company
representing 10% or more of the combined voting power of the Company's then
outstanding Voting Securities, increase his beneficial ownership of such
securities by 5% or more over the percentage so owned by such person on the
date hereof, or (iv) the board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
(g) Proceeding: (I) any threatened, pending, or completed
action, suit, or proceeding, or whether civil, criminal, administrative,
investigative, or other; (ii) any inquiry, hearing, or investigation,
whether conducted by the Company or any other party, that Indemnitee in
good faith believes might lead to the institution of any such action, suit,
or proceeding.
(h) Reviewing Party: the person or body appointed in accordance
with Section 3.
(I) Voting Securities: any securities of the Company that vote
generally in the election of officers.
2. Agreement to Indemnify.
(a) General Agreement. In the event Indemnitee was, is, or
becomes a party to or witness or other participant in, or is threatened to
be made a party to or witness or other participant in, a Proceeding by
reason of (or arising in part out of) an Indemnifiable Event, the company
shall indemnify Indemnitee from and against any and all Expenses to the
fullest extent permitted by law, as the same exits or may hereafter be
amended or interpreted (but in the case of any such amendment or
interpretation, only to the extent that such amendment or interpretation
permits the company to provide broader indemnification rights than were
permitted prior thereto). The parties hereto intend that this Agreement
shall provide for indemnification in excess of that expressly permitted by
statute, including, without limitation, any indemnification provided by the
Company's Articles of Incorporation, its bylaws, vote of its shareholders
or disinterested directors, or applicable law.
(b) Initiation of Proceeding. Notwithstanding anything in this
Agreement to the contrary, Indemnitee shall not be entitled to
indemnification pursuant to this Agreement in connection with any
Proceeding initiated by Indemnitee against the Company or any director or
officer of the Company unless (i) the Company has joined in or the Board
has consented to the initiation of such Proceeding; (ii) the Proceeding is
one to enforce indemnification rights under Section 5; or (iii) the
Proceeding is instituted after a Change in Control and Independent Counsel
has approved its initiation.
(c) Expense Advances. If so requested by Indemnitee, the
Company shall advance (within ten business days of such request) any and
all Expenses to Indemnitee (an "Expense Advance"); proved that, if and to
the extent that the
3
<PAGE>
Reviewing Party determines that Indemnitee would not be permitted to be so
indemnified under applicable law, the Company shall be entitled to be
reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for
all such amounts theretofore paid. If Indemnitee has commenced legal
proceedings in a court of competent jurisdiction to secure a determination
that Indemnitee should be indemnified under applicable law, as provided in
Section 4, any determination made by the Reviewing Party that Indemnitee
would not be permitted to be indemnified under applicable law shall not be
binding and Indemnitee shall not be required to reimburse the Company for
any Expense Advance unit a final judicial determination is made with
respect thereto (as to which all rights of appeal therefrom have been
exhausted or have lapsed). Indemnitee's obligation to reimburse the
Company for Expense Advances shall be unsecured and no interest shall be
charged thereon.
(d) Mandatory Indemnification. Notwithstanding any other
provision of this Agreement (other than Section 2(f) below), to the extent
that Indemnitee has been successful on the merits in defense or any
Proceeding relating in whole or in part to an Indemnifiable Event or in
defense of any issue or matter therein, Indemnitee shall be indemnified
against all Expenses incurred in connection therewith.
(e) Partial Indemnification. If Indemnitee is entitled under
any provision of this Agreement to indemnification by the Company for some
or a portion of Expense, but not, however, for the total amount thereof,
the Company shall nevertheless indemnify Indemnitee for the portion thereof
to which Indemnitee is entitled.
(f) Prohibited Indemnification. No indemnification pursuant to
this Agreement shall be paid by the Company on account of any Proceeding in
which judgment is rendered against Indemnitee for an accounting of profits
made from the purchase or sale by Indemnitee of securities of the Company
pursuant to the provisions of Section 16(b) of the Act or similar
provisions of any federal, state or local laws.
3. Reviewing Party. Prior to any Change in Control, the Reviewing
Party shall be any appropriate person or body consisting of a member or
members of the Board or any other person or body appointed by the board who
is not a party to the particular Proceeding with respect to which
Indemnitee is seeking indemnification; after a Change in Control, the
Reviewing Party shall be the Independent Counsel referred to below. With
respect to all matters arising after a Change in Control (other than a
Change in Control approved by a majority of the directors on the Board who
were directors immediately prior to such Change in Control) concerning the
rights of Indemnitee to indemnity payments and Expense Advances under this
Agreement or any other agreement or under applicable law or the company's
Articles of Incorporation of bylaws now or hereafter in effect relating to
indemnification for Indemnifiable Events, the Company shall seek legal
advice only from Independent Counsel selected by Indemnitee and approved by
the Company (which approval shall not be unreasonably withheld), and who
has not otherwise performed services for the Company or the Indemnitee
(other than in connection with indemnification matters ) within the last
five years. The Independent
4
<PAGE>
Counsel shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee's rights under this Agreement. Such counsel, among other
things, shall render its written opinion to the Company and Indemnitee as
to whether and to what extent the Indemnitee should be permitted to be
indemnified under applicable law. the Company agrees to pay the reasonable
fees of the Independent Counsel and to indemnify fully such counsel against
any and all expenses (including attorney's fees), claims, liabilities,
loss, and damages arising out of or relating to this Agreement or the
engagement of Independent Counsel pursuant hereto.
4. Indemnification Process and Appeal.
(a) Indemnification Payment. Indemnitee shall be entitled to
indemnification of Expenses, and shall receive payment thereof, from the
Company in accordance with this Agreement as soon as practicable after
Indemnitee has made written demand on the company for indemnification,
unless the Reviewing Party has given a written opinion to the company that
Indemnitee is not entitled to indemnification under applicable law.
(b) Suit to Enforce Rights. Regardless of any action by the
Reviewing Party, if Indemnitee has not received full indemnification within
thirty days after making a demand in accordance with Section 4(a),
Indemnitee shall have the right to enforce its indemnification rights under
this Agreement by commencing litigation in any court in the State of
California having subject matter jurisdiction thereof and in which venue is
proper seeking an initial determination by the court or challenging any
determination by the Reviewing Party or any aspect thereof. The Company
hereby consents to service of process and to appear in any such proceeding.
any determination by the Reviewing Party not challenged by the Indemnitee
shall be binding on the company and Indemnitee. The remedy provided for in
this Section 4 shall be in addition to any other remedies available to
Indemnitee in law or equity.
(c) Defense to Indemnification, Burden of Proof, and Presumptions.
It shall be a defense to any action brought by Indemnitee against the
Company to enforce this Agreement (other than an action brought to enforce
a claim for Expenses incurred in defending a Proceeding in advance of its
final disposition where the required undertaking has been tendered to the
Company) that it is not permissible under applicable law for the company to
indemnify Indemnitee for the amount claimed. In connection with any such
action or any determination by the Reviewing Party or otherwise as to
whether Indemnitee is entitled to be indemnified hereunder, the burden of
proving such a defense or determination shall be on the Company. Neither
the failure of the Reviewing Party or the company (including its board,
independent legal counsel, or its shareholders) to have made a
determination prior to the commencement of such action by Indemnitee that
indemnification of the claimant is proper under the circumstances because
Indemnitee has met the standard of conduct set forth in applicable law, nor
an actual determination by the
5
<PAGE>
Reviewing Party of Company (including it Board, independent counsel, or its
shareholders) that the Indemnitee had not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
Indemnitee has not met the applicable standard of conduct. For purposes of
this Agreement, the termination of any claim, action, suit, or proceeding,
by judgment, order settlement (whether with or without court approval),
conviction, or upon a plea of nolo contendere, or its equivalent, shall not
create a presumption that Indemnitee did not meet any particular standard
of conduct or have any particular belief or that a court has determined
that indemnification is not permitted by applicable law.
5. Indemnification for Expenses Incurred in Enforcing Rights. The
Company shall indemnify Indemnitee against any and all Expenses and, if
requested by Indemnitee, shall (within ten business days of such request),
advance such Expenses to Indemnitee, that are incurred by Indemnitee in
connection with any claim asserted against or action brought by Indemnitee
for
(i) Indemnification of Expenses or Expense Advances by the Company
under this Agreement or any other agreement or under applicable law or the
company's Articles of Incorporation or Bylaws now or hereafter in effect
relating to indemnification for Indemnifiable Events, and/or
(ii) recovery under directors' and officers' liability insurance
policies maintained by the Company, regardless of whether Indemnitee
ultimately is determined to be entitled to such indemnification, Expense
Advances, or insurance recovery, as the case may be.
6. Notification and Defense of Proceeding.
(a) Notice. Promptly after receipt by Indemnitee of notice
of the commencement of any Proceeding, Indemnitee shall, if a claim in
respect thereof is to be made against the Company under this Agreement,
notify the Company of the commencement thereof; but the omission so to
notify the Company will not relieve the Company from any liability that it
may have to Indemnitee, except as provided in Section 6(c).
(b) Defense. With respect to any Proceeding as to which
Indemnitee notifies the Company of the commencement thereof, the Company
shall be entitled to participate in the Proceeding at its own expense and
except as otherwise provided below, to the extent the Company so wishes, it
may assume the defense thereof with counsel reasonably satisfactory to
Indemnitee. After notice from the Company to Indemnitee of its election to
assume the defense of any Proceeding, the Company shall not be liable to
Indemnitee under this Agreement or otherwise for any Expenses subsequently
incurred by Indemnitee in connection with the defense of such Proceeding
other than reasonable costs of investigation or as otherwise provided
below. Indemnitee shall have the right to employ his or her own legal
counsel in such Proceeding, but all
6
<PAGE>
Expenses related thereto incurred after notice from the Company of its
assumption of the defense shall be at Indemnitee's expense unless: (I) the
employment of legal counsel by Indemnitee has been authorized by the
Company, (ii) Indemnitee has reasonably determined that there may be a
conflict of interest between Indemnitee and the Company in the defense of
the Proceeding, (iii) after a Change in Control, the employment of counsel
by Indemnitee has been approved by the Independent Counsel, or (iv) the
Company shall not in fact have employed counsel to assume the defense of
such Proceeding, in each of which case all Expenses of the Proceeding shall
be borne by the company. The company shall not be entitled to assume the
defense of any Proceeding brought by or on behalf of the Company or as to
which Indemnitee shall have made the determination provided for in (ii)
above.
(c) Settlement of Claims. The Company shall not be liable to
indemnify Indemnitee under this Agreement or otherwise for any amounts paid
in settlement of any Proceeding effected without the Company's written
consent, provided, however, that if a Change in Control has occurred, the
Company shall be liable for indemnification of Indemnitee for amounts paid
in settlement if the Independent counsel has approved the settlement. The
Company shall not settle any Proceeding in any manner that would impose any
penalty or limitation on Indemnitee without Indemnitee's written consent.
Neither the Company nor the Indemnitee will unreasonably withhold their
consent to any proposed settlement. The Company shall not be liable to
indemnify the Indemnitee under this Agreement with regard to any judicial
award if the Company was not given a reasonable and timely opportunity, at
its expense, to participate in the defense of such action; the Company's
liability hereunder shall not be excused if participation in the Proceeding
by the Company was barred by this Agreement.
7. Establishment of Trust. In the event of a Change in Control or
a Potential Change in Control, the Company shall, upon written request by
Indemnitee, create a Trust for the benefit of the Indemnitee and from time
to time upon written request of Indemnitee shall fund the Trust in an
amount sufficient to satisfy any and all Expense reasonably anticipated at
the time of each such request to be incurred in connection with
investigating, preparing for, participating in, and/or defending any
Proceeding relating to an Indemnifiable Event. The amount or amounts to be
deposited in the Trust pursuant to the foregoing funding obligation shall
be determined by the Reviewing Party. The terms of the Trust shall provide
that upon a Change in Control, (I) the Trust shall not be revoked or the
principal thereof invaded, without the written consent of the Indemnitee,
(ii) the Trustee shall advance, within ten business days of a request by
the Indemnitee, any and all Expenses to the Indemnitee (and the Indemnitee
hereby agrees to reimburse the Trust under the same circumstances for which
the Indemnitee would be required to reimburse the Company under Section
2(c) of this Agreement), (iii) the Trust shall continue to be funded by the
Company in accordance with the funding obligation set forth above, (iv) the
Trustee shall promptly pay to the Indemnitee all amounts for which the
Indemnitee shall be entitled to indemnification pursuant to this Agreement
or otherwise, and (v) all unexpended funds in the Trust shall revert to the
Company upon a final determination by the Reviewing Party or a court of
7
<PAGE>
competent jurisdiction, as the case may be, that the Indemnitee has been
fully indemnified under the terms of this Agreement. The Trustee shall be
chosen by the Indemnitee. Nothing in this Section 7 shall relieve the
Company of any of its obligations under this Agreement. All income earned
on the assets held in the Trust shall be reported as income by the Company
for federal, state, local, and foreign tax purposes. The Company shall pay
all costs of establishing and maintaining the Trust and shall indemnify the
Trustee against any and all expenses (including attorneys' fees), claims,
liabilities, loss, and damages arising out of or relating to this Agreement
or the establishment and maintenance of the Trust.
8. Non-Exclusivity. The rights of Indemnitee hereunder shall be
in addition to any other rights Indemnitee may have under the Company's
Articles of Incorporation, Bylaws, applicable law, or otherwise. To the
extent that a change in applicable law (whether by statute or judicial
decision) permits greater indemnification by agreement than would be
afforded currently under the Company's Articles of Incorporation, Bylaws,
applicable law, or this Agreement, it is the intent of the parties that
Indemnitee enjoy by this Agreement the greater benefits so afforded by such
change.
9. Liability Insurance. To the extent the company maintains an
insurance policy or policies providing directors' and officers' liability
insurance, Indemnitee shall be covered by such policy or policies, in
accordance with its or their terms, to the maximum extent of the coverage
available for any Company director or officer.
10. Period of Limitations. No legal action shall be brought and
no cause of action shall be asserted by or on behalf of the company or any
affiliate of the Company against Indemnitee, Indemnitee's spouse, heirs,
executors, or personal or legal representatives after the expiration of two
years from the date of accrual of such cause of action, or such longer
period as may be required by state law under the circumstances. Any claim
or cause of action of the Company or its affiliate shall be extinguished
and deemed released unless asserted by the timely filing of a legal action
within such period; provided, however that if any shorter period of
limitations is otherwise applicable to any such cause of action the shorter
period shall govern.
11. Amendment of this Agreement. No supplement, modification, or
amendment of this Agreement shall be binding unless executed in writing by
both of the parties hereto. No waiver of any of the provisions of this
Agreement shall operate as a waiver of any other provisions hereof (whether
or not similar), nor shall such waiver constitute a continuing waiver.
Except as specifically provided herein, no failure to exercise or any delay
in exercising any right or remedy hereunder shall constitute a waiver
thereof.
12. Subrogation. In the event of payment under this Agreement,
the Company shall be subjugated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all papers required and
shall do everything that
8
<PAGE>
may be necessary to secure such rights, including the execution of such
documents necessary to enable the Company effectively to bring suite to
enforce such rights.
13. No Duplication of Payments. The Company shall not be liable
under this Agreement to make any payment in connection with any claim made
against Indemnitee to the extent Indemnitee has otherwise received payment
(under any insurance policy, Bylaw, or otherwise) of the amounts otherwise
Indemnifiable hereunder.
14. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their
respective successors (including any direct or indirect successor by
purchase, merger, consolidation, or otherwise to all or substantially all
of the business and/or assets of the Company), assigns, spouses, heirs, and
personal and legal representatives. The Company shall require and cause
any successor (whether direct or indirect by purchase, merger,
consolidation, or otherwise) to all, substantially all, or a substantial
part, of the business and/or assets of the Company, by written agreement in
form and substance satisfactory to Indemnitee, expressly to assume and
agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform if no such succession had
taken place. The indemnification provided under this Agreement shall
continue as to Indemnitee for any action taken or not taken while serving
in an indemnified capacity pertaining to an Indemnifiable Event even though
he or she may have ceased to serve in such capacity at the time of any
Proceeding.
15. Severability. If any provision (or portion thereof) of this
Agreement shall be held by a court of competent jurisdiction to be invalid,
void, or otherwise unenforceable, the remaining provision shall remain
enforceable to the fullest extent permitted by law. Furthermore, to the
fullest extent possible, the provisions of this Agreement (including,
without limitation, each portion of this Agreement containing any provision
held to be invalid, void, or otherwise unenforceable, that is not itself
invalid, void, or unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held invalid, void, or
unenforceable.
16. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of California
applicable to contracts made and to be performed in such State without
giving effect to the principles of conflicts of laws.
17. Notices. All notices, demands, and other communications
required or permitted hereunder shall be made in writing and shall be
deemed to have been duly given if delivered by hand, against receipt, or
mailed, postage prepaid, certified or registered mail, return receipt
requested, and addressed to the Company at:
9
<PAGE>
Micrel, Incorporated
1849 Fortune Drive
San Jose, California 95131
Attn: President
and to Indemnitee at:
1450 Valcartier Drive
Sunnyvale, CA 94087
Attn:
Notice of change of address shall be effective only when given in
accordance with this Section. All notices complying with this Section
shall be deemed to have been received on the date of delivery or on the
third business day after mailing.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement as of the day specified above.
MICREL, INCORPORATED
By: /S/ Raymond Zinn
------------------
Title: President & C.E.O.
INDEMNITEE:
/S/ Robert Whelton
------------------
Robert Whelton
10
<PAGE>
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,866
<SECURITIES> 21,198
<RECEIVABLES> 17,966
<ALLOWANCES> 0
<INVENTORY> 11,184
<CURRENT-ASSETS> 60,484
<PP&E> 35,397
<DEPRECIATION> 0
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<BONDS> 0
0
0
<COMMON> 29,882
<OTHER-SE> 48,591
<TOTAL-LIABILITY-AND-EQUITY> 96,058
<SALES> 32,659
<TOTAL-REVENUES> 32,659
<CGS> 14,696
<TOTAL-COSTS> 14,696
<OTHER-EXPENSES> 9,632
<LOSS-PROVISION> 0
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<INCOME-TAX> 2,949
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<CHANGES> 0
<NET-INCOME> 5,726
<EPS-PRIMARY> 0.29 <F1>
<EPS-DILUTED> 0.27
<FN>
<F1> Represents basic earnings per share.
</FN>
</TABLE>
<TABLE> <S> <C>
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<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 JUN-30-1997 MAR-31-1997
<CASH> 2,048 3,270 2,665
<SECURITIES> 16,528 14,269 14,222
<RECEIVABLES> 13,448 12,633 11,982
<ALLOWANCES> 0 0 0
<INVENTORY> 10,763 11,071 12,124
<CURRENT-ASSETS> 48,861 44,126 43,794
<PP&E> 29,820 26,390 22,131
<DEPRECIATION> 0 0 0
<TOTAL-ASSETS> 75,893 70,665 66,044
<CURRENT-LIABILITIES> 10,965 10,711 11,979
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 24,636 23,833 21,566
<OTHER-SE> 37,663 33,196 29,335
<TOTAL-LIABILITY-AND-EQUITY> 75,893 70,665 66,044
<SALES> 73,643 46,440 22,113
<TOTAL-REVENUES> 73,643 46,440 22,113
<CGS> 34,817 22,157 10,731
<TOTAL-COSTS> 34,817 22,157 10,731
<OTHER-EXPENSES> 22,003 13,998 6,693
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> 17,493 10,725 4,911
<INCOME-TAX> 5,948 3,647 1,670
<INCOME-CONTINUING> 11,545 7,078 3,241
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 11,545 7,078 3,241
<EPS-PRIMARY> 0.61<F1> 0.38<F1> 0.17<F1>
<EPS-DILUTED> 0.56 0.34<F2> 0.16<F2>
<FN>
<F1> Represents basic earnings per share.
<F2> Restated to retroactively give effect of a two-for-one stock split
completed during August, 1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1000
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> DEC-31-1996 SEP-30-1996 JUN-30-1996
<CASH> 3,239 5,075 3,077
<SECURITIES> 13,334 10,411 11,943
<RECEIVABLES> 8,748 8,442 8,702
<ALLOWANCES> 1,224 0 0
<INVENTORY> 13,922 14,176 13,673
<CURRENT-ASSETS> 42,281 40,495 39,881
<PP&E> 17,476 15,790 13,980
<DEPRECIATION> 0 0 0
<TOTAL-ASSETS> 60,008 56,504 54,464
<CURRENT-LIABILITIES> 9,303 10,205 10,456
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 21,315 19,971 19,868
<OTHER-SE> 26,116 23,287 20,872
<TOTAL-LIABILITY-AND-EQUITY> 60,008 56,504 54,464
<SALES> 66,244 46,841 29,227
<TOTAL-REVENUES> 66,244 46,841 29,227
<CGS> 32,407 22,965 14,363
<TOTAL-COSTS> 32,407 22,965 14,363
<OTHER-EXPENSES> 20,549 14,675 9,146
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 281 0 0
<INCOME-PRETAX> 14,018 9,731 6,069
<INCOME-TAX> 4,766 3,308 2,064
<INCOME-CONTINUING> 9,252 6,423 4,005
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 9,252 6,423 4,005
<EPS-PRIMARY> 0.51<F1> 0.35<F1> 0.22<F1>
<EPS-DILUTED> 0.46<F2> 0.32<F2> 0.20<F2>
<FN>
<F1> Represents basic earnings per share.
<F2> Restated to retroactively give effect of a two-for-one stock split
completed during August, 1997.
</FN>
</TABLE>
