<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 25, 1999
(November 9, 1998)
MICREL, INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
California 0-25236 94-2526744
(State or Other (Commission File (I.R.S. Employer
Jurisdiction of Number) Identification No.)
Incorporation)
1849 Fortune Drive, San Jose, CA 95131
(Address of Principal Executive Offices) (Zip Code)
(408) 944-0800
(Registrant's Telephone Number, Including Area Code)
<PAGE>
Micrel, Incorporated ("Micrel" or the "Company") hereby amends Item 2
and Item 7 of its Current Report on Form 8-K filed with the Securities and
Exchange Commission on November 23, 1998 to add certain disclosures to Item
2 and to file the financial statements and exhibits of the Company relating
to that certain Merger Agreement dated as of October 21, 1998, as amended.
Item 2. Acquisition or Disposition of Assets.
On November 9, 1998, pursuant to that certain Merger Agreement dated as
of October 21, 1998, between the Registrant, MISYN Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of the Registrant
("Merger Sub"), and Synergy Semiconductor Corporation, a California
corporation ("Synergy"), as amended by that certain side letter dated
November 9, 1998, between the Registrant and Synergy (as so amended the
"Merger Agreement"), the Registrant acquired Synergy through the merger of
Merger Sub with and into Synergy for a cash purchase price of $9.9 million
(the "Purchase Price"). Twenty percent (20%) of the Purchase Price was
deposited in escrow pursuant to the terms of that certain Escrow Agreement
dated November 9, 1998, by and between the Registrant, John F. Stockton, as
representative of the Synergy shareholders, and Bank of the West. The
balance of the Purchase Price was transferred to the paying agent to be paid
to the former Synergy shareholders pursuant to the terms of the Merger
Agreement. The Registrant also paid transaction fees of $1.3 million and
accrued direct merger costs of approximately $300 thousand.
Synergy's assets include, among other things, Synergy's accounts
receivable, inventory, fixed and tangible personal property (including,
without limitation, all machinery, equipment, supplies, tools, tooling,
furniture, fixtures, hardware, dies and spare parts), intangible personal
property, contracts, books and records and an interest as tenant of certain
real property in Santa Clara, California. Synergy's assets also included
certain intellectual property used in its business.
The Purchase Price paid at the closing was paid from the Registrant's
working capital funds. The Purchase Price was determined through arms-
length negotiations between the Registrant and Synergy, which negotiations
took into account Synergy's financial position, operating history, products,
intellectual property and other factors relating to Synergy's business.
There are no material relationships between Synergy and the Registrant or
any of its affiliates, any director or officer of the Registrant or any
associate of any such director or officer.
Approximately $12.9 million of the total Purchase Price and net
liabilities assumed of approximately $1.5 million was allocated to
intangible assets. Of that amount, approximately $3.7 million was allocated
to purchased in-process technology, that has not reached technological
feasibility and has no alternative future use, for which the Registrant
expects to record a one-time charge in the quarter ended December 31, 1998.
The remaining portion of the Purchase Price, $9.2 million, will be allocated
to intangible assets, which are expected be amortized on a straight line
basis over a period of three to five years. The amount of the one time
charge was derived from a valuation based on the Securities and Exchange
Commission guidance issued in a September 9, 1998 letter to the American
Institute of Certified Public Accountants. See Note 1 of Notes to the
Company's Pro Forma Condensed Combining Financial Statements for further
discussion of the Purchase Price allocation.
The purchased in-process technology related to approximately 50
individual development projects that had not reached technological
feasibility and, therefore, the successful completion of such projects was
uncertain. Those development projects correspond to three existing product
lines: supercom, clockworks and logic. At the time of the acquisition, further
development remained on these projects and the estimated costs to complete
were approximately $1.0 million. Management has not determined whether any
product resulting from these projects will become available for sale in
fiscal 1999 and, therefore, no assurances can be given as to when revenues
from these projects will commence. While the Registrant perceives a future
benefit related to completion of these projects, it believes that the
failure to reach successful completion would not have a material adverse
effect on the Company's business, financial condition, results of operations
or cash flows.
Significant assumptions used to determine the value of in-process
technology included: (i) forecast of net cash flows that were expected to
result from the development effort; (ii) an estimate of percentage complete
for each project which ranged from 20% to 90% with an average for all
projects of 80%; (iii) a discount rate of approximately 30%.
2
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
(a) Financial Statements of Businesses Acquired:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Synergy Semiconductor Corporation
Report of Independent Auditors 6
Balance Sheets at December 31, 1997 and 1996 7
Statements of Operations for the Years Ended
December 31, 1997 and 1996 8
Statements of Shareholders' Equity (Deficit) for the Years
Ended December 31, 1997 and 1996 9
Statements of Cash Flows for the Years Ended
December 31, 1997 and 1996 10
Notes to Financial Statements 11
Unaudited Condensed Balance Sheets at September 30, 1998
and December 31, 1997 21
Unaudited Condensed Statements of Operations for the Nine
Months Ended September 30, 1998 and 1997 22
Unaudited Condensed Statements of Cash Flows for the
Nine Months Ended September 30, 1998 and 1997 23
Unaudited Notes to Condensed Financial Statements 24
</TABLE>
(b) Pro Forma Financial Information:
The attached unaudited pro forma condensed combining financial
statements for the year ended December 31, 1997 and as of and for the nine
months ended September 30, 1998 give effect to the purchase of Synergy as of
the beginning of the periods presented, whereby Micrel paid approximately
$9.9 million in cash for all of the Synergy common and preferred shares
outstanding, paid approximately $1.3 million in cash for transaction fees
and has accrued approximately $300 thousand in direct acquisition costs and
assumed certain operating assets and liabilities of Synergy. Accordingly,
the acquired assets and liabilities were recorded at their estimated fair
market value at the date of acquisition. The pro forma condensed combining
statements of operations assume that the acquisition took place at the
beginning of the earliest period presented and combine Micrel's and
Synergy's results of operations for the year ended December 31, 1997 and the
nine months ended September 30, 1998. The unaudited pro forma condensed
combining balance sheet combines Micrel's balance sheet as of September 30,
1998 with the Synergy balance sheet as of September 30, 1998, giving effect
to the acquisition as if it had occurred on September 30, 1998.
The pro forma condensed combining financial information is presented
for illustrative purposes only and is not necessarily indicative of the
operating results or financial position that would have occurred had the
acquisition been consummated at the beginning of the periods presented nor
is it necessarily indicative of future operating results or financial
position.
The pro forma condensed combining financial information should be read
in conjunction with the audited historical consolidated financial statements
and the related notes thereto of Micrel previously filed and the historical
financial statements and related notes thereto of Synergy included herein.
The following financial statements are attached hereto and filed
herewith:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Micrel, Incorporated
Pro Forma Condensed Combining Balance Sheet as of September 30, 1998 25
Pro Forma Condensed Combining Statement of Operations for the year
ended December 31, 1997 26
Pro Forma Condensed Combining Statement of Operations for the
Nine Month Period Ended September 30, 1998 27
Notes to Pro Forma Condensed Combining Financial Statements 28
Index to Exhibits 30
</TABLE>
3
<PAGE>
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
-------- ---------------------------------------------------------
<S> <C>
2.1* Merger Agreement dated October 21, 1998, by and between
Micrel, Incorporated, MISYN Acquisition Corp. and Synergy
Semiconductor Corporation.
2.2* Letter agreement dated November 9, 1998, between Micrel,
Incorporated, MISYN Acquisition Corp. and Synergy
Semiconductor Corporation.
2.3* Escrow Agreement dated November 9, 1998, between Micrel,
Incorporated, John F. Stockton, as representative of the
former Synergy shareholders, and Bank of the West.
23.1 Independent Auditors' Consent (KPMG LLP)
- ---------------------
* Previously filed as exhibits to Form 8-K dated November 9, 1998
filed with the Commission on November 23, 1998 regarding the
acquisition of Synergy.
</TABLE>
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MICREL, INCORPORATED
By:/s/ RAYMOND D. ZINN
-------------------------
Raymond D. Zinn
President, Chief Executive Officer
and Chairman of the Board
Dated: January 25, 1999
5
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Synergy Semiconductor Corporation:
We have audited the accompanying balance sheets of Synergy Semiconductor
Corporation (the Company) as of December 31, 1997 and 1996, and the related
statements of operations, shareholders' equity, and cash flows for each of
the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Synergy Semiconductor
Corporation as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
KPMG LLP
Mountain View, California
February 25, 1998, except as to Note 9,
which is as of May 7, 1998
6
<PAGE>
SYNERGY SEMICONDUCTOR CORPORATION
Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
Assets
1997 1996
------------ -----------
<S> <C> <C>
Current assets:
Cash and equivalents $ 2,607,065 2,683,834
Accounts receivable, net of allowance
for doubtful accounts of $1,622,435 in
1997 and $400,000 in 1996 7,002,840 4,952,434
Inventories 5,119,361 5,964,909
Prepaid expenses and other current assets 302,758 118,540
----------- -----------
Total current assets 15,032,024 13,719,717
Machinery and equipment, net 12,125,314 12,546,372
Other assets 245,046 245,046
------------ ------------
$ 27,402,384 26,511,135
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 2,290,933 3,310,947
Line of credit 3,264,191 2,909,898
Current portion of loans payable 1,870,970 1,537,256
Current portion of promissory notes 1,707,103 900,000
Current portion of capital lease obligations 375,535 366,616
Accrued payroll and related expenses 1,176,675 915,052
Deferred revenue 1,003,704 1,017,163
Other accrued liabilities 755,282 472,749
------------ -----------
Total current liabilities 12,444,393 11,429,681
Long-term liabilities:
Loans payable, less current portion 7,614,473 8,785,443
Promissory notes, less current portion 772,727 1,600,000
Capital lease obligations, less
current portion 2,999 378,241
------------ -----------
Total liabilities 20,834,592 22,193,365
------------ -----------
Commitments
Shareholders' equity:
Convertible preferred stock, no par value;
14,000,000 shares authorized; 11,520,574
shares issued and outstanding (liquidation
preference of $7,381,506 as of December 31,
1997) 7,297,057 7,297,057
Common stock, no par value; 18,000,000 shares
authorized; 2,717,422 and 2,716,094 shares
issued and outstanding in 1997 and 1996,
respectively 31,909,800 31,900,558
Accumulated deficit (32,639,065) (34,879,845)
------------ -----------
Total shareholders' equity 6,567,792 4,317,770
------------ -----------
$ 27,402,384 26,511,135
============ ===========
See accompanying notes to financial statements.
</TABLE>
7
<PAGE>
SYNERGY SEMICONDUCTOR CORPORATION
Statements of Operations
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Net revenues:
Product revenues $ 36,783,355 32,550,387
Contract engineering revenues 45,000 1,125,540
License revenues 600,000 --
------------ -----------
Total net revenues 37,428,355 33,675,927
Cost of sales 19,618,361 18,825,849
------------ -----------
Gross margin 17,809,994 14,850,078
------------ -----------
Operating expenses:
Research, development, and engineering 9,136,617 8,377,373
Marketing, general, and administrative 5,857,766 6,575,692
------------ -----------
Total operating expenses 14,994,383 14,953,065
------------ -----------
Income (loss) from operations 2,815,611 (102,987)
Other income, net 889,066 61,456
Interest expense, net (1,463,897) (597,345)
------------ -----------
Net income (loss) $ 2,240,780 (638,876)
============ ===========
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
SYNERGY SEMICONDUCTOR CORPORATION
Consolidated Statements of Shareholders' Equity (Deficit)
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Convertible Total
preferred stock Common stock Accumulated shareholders'
--------------------- -----------------------
Shares Amount Shares Amount deficit equity
---------- ----------- --------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Balances as of
December 31, 1995 11,520,574 $ 7,297,057 2,554,732 $ 31,894,187 (34,240,969) 4,950,275
Issuance of common stock
to employees, net of
repurchases - - 161,362 6,371 - 6,371
Net loss - - - - (638,876) (638,876)
---------- ----------- --------- ------------ ------------ ----------
Balances as of
December 31, 1996 11,520,574 7,297,057 2,716,094 31,900,558 (34,879,845) 4,317,770
Issuance of common stock
to employees, net of
repurchases - - 1,328 6,742 - 6,742
Issuance of warrants in
connection with loan
financing - - - 2,500 - 2,500
Net income - - - - 2,240,780 2,240,780
---------- ----------- --------- ------------ ------------ ----------
Balances as of
December 31, 1997 11,520,574 $ 7,297,057 2,717,422 $ 31,909,800 (32,639,065)6,567,792
========== =========== ========= ============ ============ ==========
See accompanying notes to financial statements.
</TABLE>
9
<PAGE>
SYNERGY SEMICONDUCTOR CORPORATION
Statements of Cash Flows
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,240,780 (638,876)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 2,058,444 1,006,484
Gain on disposal of capital equipment (883,519) 11,739
Changes in operating assets and liabilities:
Accounts receivable, net (2,050,406) (1,509,958)
Inventories 845,548 (3,671)
Prepaid expenses and other current assets (184,218) 92,566
Other assets -- (9,326)
Accounts payable (1,020,014) 1,178,471
Accrued payroll and related expenses 261,623 97,453
Other accrued liabilities 282,533 (401,772)
Deferred revenue (13,459) 484,553
----------- -----------
Net cash provided by operating
activities 1,537,312 307,663
----------- -----------
Cash flows from investing activities:
Capital expenditures (1,901,128) (11,388,568)
Proceeds from sale of capital assets 1,147,261 --
----------- -----------
Net cash used in investing activities (753,867) (11,388,568)
----------- -----------
Cash flows from financing activities:
Issuance of common stock and warrants, net
of stock repurchases 9,242 6,371
Proceeds from accounts receivable line
of credit 354,293 742,136
Proceeds from issuance of promissory notes 2,500,000 1,985,000
Payments on promissory notes (2,520,170) (825,000)
Proceeds from issuance of loans payable 700,000 10,322,699
Payments on loans payable (1,537,256) --
Payments on capital lease obligations (366,323) (406,194)
----------- -----------
Net cash (used in) provided by
financing activities (860,214) 11,825,012
----------- -----------
Net (decrease) increase in cash
and cash equivalents (76,769) 744,107
Cash and cash equivalents at beginning of year 2,683,834 1,939,727
----------- -----------
Cash and cash equivalents at end of year $ 2,607,065 2,683,834
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year - interest $ 1,424,286 582,579
=========== ===========
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
SYNERGY SEMICONDUCTOR CORPORATION
Notes to Financial Statements
December 31, 1997 and 1996
(1) Organization and Summary of Significant Accounting Policies
Organization and Nature of Business
Synergy Semiconductor Corporation (the Company or Synergy) operates in one
industry and is engaged in the design, manufacture, and marketing of high
performance semiconductor products. The Company markets and distributes its
products through independent sales representatives and distributors in North
America and Europe, and through stocking representatives and distributors in
Asia.
Cash and Cash Equivalents
The Company considers all highly liquid investment instruments with original
maturities of less than 90 days to be cash equivalents. The Company held no
securities as of December 31, 1997, that met the criteria of Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities.
Revenue Recognition
Revenues from the shipment of semiconductor products are generally
recognized upon shipment. Revenues on sales to domestic distributors are
deferred until the merchandise is sold by the distributors. Revenue on
sales to international distributors, whose return privileges are generally
limited, are recognized upon shipment. The Company provides specific
reserves for estimated returns and allowances when necessary.
Revenues relating to technology license agreements and contract engineering
services are recognized as the efforts are expended or as deliverables are
provided, which approximates the percentage-of-completion method.
Inventories
Inventories are stated at the lower of actual cost (which approximates first
in, first out) or market. Market is based upon net realizable value, which
is selling price less disposal costs.
Research and Development
The Company charges all research and development costs associated with the
development of new products to expense when incurred. Engineering and
design costs related to revenue on nonrecurring engineering services billed
to customers are classified as research, development and engineering
expenses and are expensed as incurred. Costs associated with start-up
activities in the Company's new water fabrication facility totaled
approximately $800,000 and $1,904,000 in the fiscal years ended December 31,
1996 and 1997, respectively. The start-up costs have been expensed as
incurred, and have been included in research, development, and engineering
expenses.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash equivalents and
trade receivables. The Company has short-term cash investment policies that
limit the amount of credit exposure to any one financial institution and
restrict placement of these investments to financial institutions evaluated
as highly creditworthy.
11
<PAGE>
A majority of the Company's trade receivables are derived from sales to
distributors, sales and stocking representatives (both domestic and
international), and manufacturers of computer systems. Management believes
that any risk of loss is mitigated by the Company's credit evaluation
process and collection terms. The Company generally does not require
collateral.
Depreciation and Amortization
Depreciation on machinery and equipment is calculated using the straight-
line method over the estimated useful lives of the assets (generally five
years). Assets recorded under capital leases are amortized using the
straight-line method over the shorter of the lease term or estimated useful
life of the asset.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates in effect
for the year in which those temporary differences are expected to be
recovered or settled.
Impairment of Long-Lived Assets
The Company assesses the recoverability of the carrying amount of its long-
lived assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may be impaired. If the estimated future
undiscounted operating cash flows over the remaining useful life of the
long-lived asset are less than the carrying amount of the asset, a charge to
income would be recognized for the excess carrying amount of the asset over
its fair value.
Stock Option Plan
The Company accounts for its stock option plan in accordance with the
provisions of the Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations. As
such, compensation expense is recorded on the date of grant only if the
current market price of the underlying stock exceeds the exercise price.
The Company adopted SFAS No. 123, Accounting for Stock-Based Compensation,
which permits entities to recognize as expense over the vesting period the
fair value of all stock-based awards on the date of grant. Alternatively,
SFAS No. 123 also allows entities to continue to apply the provisions of APB
Opinion No. 25 and provide pro forma disclosures for employee stock option
grants made in 1995 and future years as if the fair value-based method
defined in SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro
forma disclosure provisions of SFAS No. 123.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Basis of Presentation
As of December 31, 1997, the Company has an accumulated deficit. During
1998, the Company's most significant distributor declared bankruptcy. All
inventory and accounts receivable related to such customer have been
reserved against in the accompanying financial statements. The Company has
taken steps to replace this distributor and no debt default conditions (that
have not otherwise been waived) exist with respect to this matter as of
December 31, 1997 and March 31, 1998 (see Note 9). The Company believes
12
<PAGE>
that cash generated from projected operating results, available credit
facilities, and cash reserves will be sufficient to meet its working capital
and debt repayment requirements and maintain its anticipated level of
operations. Accordingly, these financial statements have been prepared on a
going-concern basis.
(2) Balance Sheet Components
Inventories
Inventories consisted of the following as of December 31:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Raw materials $ 563,033 593,731
Work in process 3,559,912 3,560,432
Finished goods 996,416 1,810,746
------------ ------------
$ 5,119,361 5,964,909
============ ============
</TABLE>
Machinery and Equipment
Machinery and equipment consisted of the following as of December 31:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Computers and equipment $ 20,853,380 25,415,762
Furniture and fixtures 900,467 246,959
------------ ------------
21,753,847 25,662,721
Less accumulated depreciation 9,628,533 13,116,349
------------ ------------
$ 12,125,314 12,546,372
============ ============
</TABLE>
13
<PAGE>
(3) Borrowing Arrangements
Line of Credit and Promissory Note
The Company has a $8,000,000 credit arrangement, which is comprised of a
line of credit and a $2,500,000 promissory note (the "$8,000,000 Credit
Facility"). The credit arrangement is available pursuant to a Loan and
Security Agreement, as amended on December 16, 1996, and bears interest at
the prime rate plus 2% per annum (10.50% as of December 31, 1997). The
credit arrangement is subject to certain covenants and restrictions and is
collateralized by substantially all of the assets of the Company. The line
of credit expired on December 31, 1997. During 1997, the Company paid
approximately $1,100,000 in addition to the monthly payments required by the
term loan agreement. As of December 31, 1997, the Company had $3,264,191
outstanding on the line of credit and $467,741 outstanding on the promissory
note, all of which is due in the next year.
On December 29, 1997, the Company established a $7,000,000 revolving credit
line and a $4,000,000 equipment line with another financial institution (the
"$11,000,000 Credit Facility") expiring May 1, 1999, bearing interest equal
to the prime rate for borrowings greater than $100,000 or LIBOR plus 230
basis points for borrowings greater than $1,000,000. The credit arrangement
is subject to certain covenants and restrictions and is collateralized by
substantially all of the assets of the Company.
Capital Financing Loans
In November and December 1996, the Company obtained capital financing loans
collateralized by certain of the Company's equipment. In December 1997, the
Company obtained an additional $700,000 of capital financing. Balances due
under these loans as of December 31, 1997, totaled $9,485,443, with
$1,870,970 representing the current portion. Payments of principal and
interest of approximately $223,000 are due each month through December 31,
2001, and approximately $14,000 per month thereafter through December 31,
2002. The loan agreements do not contain any restrictive covenants, and
bear interest ranging from 8.40% to 9.60%.
On June 23, 1997, the Company obtained a $2,500,000 loan from an investment
banking firm. The loan is secured by certain equipment of the Company and
bears an annual interest rate of 7.75%. Repayment of the loan will occur in
monthly installments from August 1997 through July 1999. The loan is
subject to certain covenants and restrictions on indebtedness, business
combinations, and other related items. In connection with the loan, the
Company issued a warrant for $2,500 to purchase 250,000 shares of the
Company's common stock at a per share exercise price of $2.00. These
warrants expire on July 1, 2002.
Debt Repayment Schedule
A schedule of aggregate annual principal payments on long-term debt
(excluding capital lease obligations) as of December 31, 1997, is as
follows:
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
1998 $ 6,842,264
1999 2,676,346
2000 1,903,618
2001 1,903,618
2002 1,903,618
------------
$ 15,229,464
============
</TABLE>
14
<PAGE>
Capital Lease Obligations
The following is a schedule by fiscal year of future minimum lease payments
under capital lease obligations for certain machinery and equipment,
together with the present value of the net minimum lease payments:
Year ending
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
1998 $ 398,269
1999 2,747
------------
Total minimum lease payments 401,016
Less amounts representing interest 22,482
------------
Present value of net minimum
lease payments 378,534
Less current portion 375,535
------------
Long-term portion of capital lease
Obligations $ 2,999
============
</TABLE>
Machinery and equipment under capital leases was approximately $1,577,000 as
of December 31, 1997, with accumulated amortization of approximately
$1,259,000.
(4) Preferred and Common Stock
In December 1994, the Company's Board of Directors approved a 50-for-1
reverse stock split. Accordingly, all references in the accompanying
financial statements to number of shares outstanding and authorized, stock
options and warrants, and related prices for all periods presented reflect
the reverse stock split.
Redeemable Convertible Preferred Stock
In May 1994, the Company and the holders of the certain bridge loans
negotiated the conversion of the loans (total principal and interest
balances outstanding as of May 1994 of $3,629,722), and the issuance of
$1,500,000 in new financing, through 5% convertible promissory notes.
During 1995, these notes converted into Series AA convertible preferred
stock at a conversion rate equal to $0.01826 of outstanding principal (and
interest) per share of Series AA convertible preferred stock (which is
currently convertible into one share of common stock), and also resulted in
the conversion of all outstanding Series A, B, C, and D convertible
preferred stock into common stock.
In February and March 1995, the Company issued 5,771,230 shares of Series BB
convertible preferred stock for $2,135,355. As a result of the issuance of
Series BB convertible preferred stock, the Series AA convertible preferred
stock is no longer redeemable.
The rights, preferences, and privileges of the holders of Series AA and BB
convertible preferred stock are as follows:
o The holders of Series AA and BB preferred stock are entitled to
noncumulative dividends of $0.0913 and $0.037, respectively, per share per
annum, or if greater, an amount equal to that paid on any other outstanding
shares by the Company, payable quarterly, when and if declared by the Board
of Directors.
o The holders of Series BB preferred stock are entitled to a
distribution in preference to the holders of Series AA preferred stock and
holders of common stock of $0.37 per share plus any declared but
15
<PAGE>
unpaid dividends on such shares. The holders of Series AA preferred stock
are entitled to a distribution in preference to holders of common stock of
$0.913 per share plus any declared but unpaid dividends on such shares.
o The preferred stock is convertible at the option of the holder, at
any time, into one share of common stock, subject to certain adjustments.
Conversion is automatic upon the earlier of the closing of the Company's
sale of common stock in a public offering for which the aggregate proceeds
equal or exceed $7,500,000 and the per share offering price is not less than
$2.00, or upon written consent of a majority of the holders of preferred
stock. The Company has reserved sufficient shares of common stock for the
purpose of effecting the conversion of the Series AA and BB preferred stock.
o The holders of preferred stock have voting rights equal to the number
of common stock shares that would be held upon conversion.
Stock Option Plan
In July 1987, the Company adopted a Stock Option Plan (the 1987 Plan) that,
as amended, expires in 1998, under which employees, directors, and
consultants may be granted incentive or nonqualified stock options for the
purchase of the Company's common stock. The Company has approximately
3,835,575 shares reserved for the 1987 Plan.
The option price per share shall be fixed by the plan administrator, but in
no event shall the option price per share be less than 85% of the fair
market value of a share of common stock on the date of the option grant.
Options become exercisable on the date of grant, with one-quarter of the
options (or shares, if the options had been exercised) vesting after one
year, and the balance vesting ratably over the next three years, or as
determined by the Board of Directors. Unvested options are canceled, and
unvested shares issued are subject to repurchase by the Company following
the termination of employment.
The following is a summary of option activity:
<TABLE>
<CAPTION>
Options outstanding
---------------------------
Weighted-
average
Options Number exercise
Available of price
for grant shares per share
------------ ------------ -------------
<S> <C> <C> <C>
Balances as of December 31, 1995 1,164,543 622,511 $ 1.83
Options granted (639,500) 639,500 2.00
Options exercised -- (178,951) 0.04
Options canceled 112,699 (112,699) 1.67
Unvested shares repurchased 17,589 -- 0.04
------------ ------------ -------------
Balances as of December 31, 1996 655,331 970,361 2.29
Options granted (73,780) 73,780 2.00
Options exercised -- (8,103) 0.86
Options canceled 81,928 (81,928) 2.28
Unvested shares repurchased 6,775 -- 0.04
------------ ------------ -------------
Balances as of December 31, 1997 670,254 954,110 2.28
=========== ============ =============
</TABLE>
16
<PAGE>
As of December 31, 1997 and 1996, 413,865 and 205,717 shares, respectively,
of the outstanding options were vested under the 1987 Plan. As of December
31, 1997 and 1996, 83,561 and 372,466 shares, respectively, of common stock
outstanding as a result of options exercised were subject to repurchase by
the Company.
The weighted-average fair value of stock options granted during 1997 and
1996, was $0.75 per share, using the Black-Scholes option pricing model with
the following weighted-average assumptions: no expected volatility or
dividends; expected life of 7.47 years; and risk-free interest rate of 6.5%
in 1997 and 1996.
The following table summarizes options outstanding as of December 31, 1997:
<TABLE>
<CAPTION>
Weighted-
average
Number of remaining
Range of options contractual
exercise prices outstanding life
--------------- ----------- -----------
<S> <C> <C>
$ 0.04 87,823 6.96 years
2.00 823,197 8.51
5.00 1,343 0.88
7.00 24 1.57
10.00 593 2.01
12.50 41,130 4.67
-----------
0.04 - 12.50 954,110 7.47
===========
</TABLE>
The Company applies APB Opinion No. 25 in accounting for the 1987 Plan, and,
accordingly, no compensation cost has been recognized for its stock options
in the accompanying financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net income would not have been
significantly impacted.
Warrants
The Company issued 2,500 warrants for the purchase of shares of Series C and
D convertible preferred stock in conjunction with amendments to a note
payable. The exercise prices range from $153.75 to $187.50 per share, and
1,174 warrants expired in November 1996; 826 warrants expire in January
1998; and 500 warrants expire in January 1999. The aggregate fair value of
the above warrants is not material.
In January 1991, the Company issued warrants to purchase 22 shares of Series
D preferred stock at $187.50 per share. The Company's obligation to issue
warrants in conjunction with lease financing under the strategic alliance
agreement has been fulfilled. These warrants expire in January 1998. The
fair value of these warrants was not material.
In connection with a bridge loan financing in July and August 1992, the
Company issued a total of 104,702 warrants to purchase the Company's common
stock at $12.50 per share. The warrants were assigned an estimated fair
value of $0.50 per share. These warrants expired on July 29, 1997.
In connection with a bridge loan financing in October 1993, the Company
issued a total of 121,907 warrants to purchase the Company's common stock at
$12.50 per share. The warrants were assigned an estimated fair value of
$0.05 per share. These options expire on October 20, 1998.
In February 1996, in conjunction with a facility lease agreement, the
Company issued warrants to purchase 200,000 shares of its common stock at
$4.50 per share. The warrants expire upon the earlier of 5 years from the
date of the consummation of a public offering of the Company's common stock
or 30 days from
17
<PAGE>
the date of notice by the Company that the fair market value of a share at
the Company's common stock has reached $13.50. The fair value assigned to
these warrants was not material.
The following summarizes all warrants outstanding as of December 31, 1997:
<TABLE>
<CAPTION>
Price Number
per share of shares
---------- ----------
<S> <C> <C>
Preferred stock $ 187.50 1,348
Common stock 2.00 250,000
Common stock 4.50 200,000
Common stock 12.50 121,907
</TABLE>
As of December 31, 1997, the Company has reserved a total of 573,255 shares
of common stock for the exercise of warrants.
(5) German Joint Venture/Technology License
In March 1993, the Company entered into a joint venture with the German
government to establish a semiconductor manufacturing operation in the
Republic of Germany. A contribution agreement called for Microelectronik
et. al. (MTG) to contribute certain assets of its electronic components
division to HalbleiterElektronik GmbH (HEG), the Joint Venture, for 100% of
the shares of the Joint Venture. Through a Shareholder Resolution, HEG
allocated a 49% ownership to the Company for approximately $30,000.
During 1997, the joint venture declared bankruptcy and, accordingly, was
terminated.
The Company purchased and/or provided approximately $404,000 and $538,000 in
goods and services on behalf of the joint venture for the years ended
December 31, 1997 and 1996, respectively. Receivables related to
reimbursements as of December 31, 1996 totaled $119,485.
(6) Income Taxes
The Company recorded no income tax expense in 1997 primarily due to the
amortization of research expenses deferred for tax purposes and the
availability of net operating loss carryforwards.
As of December 31, 1997, the Company had total deferred tax assets of
approximately $18,250,000 and deferred tax liabilities of approximately
$565,000. The net deferred tax assets of approximately $17,685,000 are
offset by a full valuation allowance. The net change in the total valuation
allowance for the year ended December 31, 1997, was a decrease of
approximately $961,000.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 31, 1997,
primarily include research expenses deferred for tax purposes, difference in
book and tax depreciation reserves and accruals not currently deductible,
net operating loss carryforwards, and research credit carryforwards.
18
<PAGE>
As of December 31, 1997, the Company had net operating loss carryforwards of
approximately $27,390,000 and $7,593,000 for federal and California income
tax purposes, respectively. The federal net operating losses expire from
2002 to 2012. The California net operating losses expire from 1998 to 2001.
Also, the Company had research credit carryforwards of approximately
$2,885,000 and $1,070,000 for federal and California income tax purposes,
respectively. If not utilized, the federal research credit carryforwards
will expire in 2002 through 2012. There is no expiration provision for
California research carryforwards.
Under the Tax Reform Act of 1986, the amounts of and benefit from net
operating losses and credits that can be carried forward may be limited in
certain circumstances. Events that may affect these carryforwards include,
but are not limited to, a cumulative stock ownership change of greater than
50%, as defined, over a three-year period. The Company's net operating loss
carryforwards and credits may also be limited for federal and California
alternative minimum tax purposes, resulting in current federal and/or state
taxation.
(7) Employee Benefit Plan
The Company has a 401(k) plan that allows eligible employees to contribute
up to 20% of their compensation limited to $9,500 in 1997. Employee
contributions and earnings thereon vest immediately. The Company matches up
to the first $500 contributed by each employee. Matching contributions in
1997 totaled $54,677.
(8) Commitments
The Company leases its facilities under an operating lease that expires in
October 2006. In addition to lease payments, the Company is responsible for
taxes, insurance, and maintenance of leased premises.
Total future rental commitments under all noncancelable operating leases as
of December 31, 1997, are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
-----------
<S> <C>
1998 $ 1,439,759
1999 1,487,777
2000 1,498,984
2001 1,555,020
2002 and Thereafter 7,885,779
-------------
$ 13,867,319
=============
</TABLE>
Rental expense was approximately $1,592,644 and $918,000 for the years ended
December 31, 1997 and 1996, respectively.
(9) Subsequent Events
In January 1998, the Company repaid all outstanding balances due under the
$8,000,000 Credit Facility through borrowings under the $11,000,000 Credit
Facility (see Note 3).
In April 1998, the Company's largest Asian distributor declared bankruptcy.
Sales to this distributor totaled 29% and 39% of total net revenues for the
fiscal years ended December 31, 1997 and 1996, respectively. As a result of
the bankruptcy, current year financial statements have been adjusted to
exclude all revenues
19
<PAGE>
for which payment had not yet been received and inventory reserves have been
adjusted to reflect any potential excess and obsolete inventory due to the
loss of this distributor (see Note 1).
As of the date of the bankruptcy filing, amounts owed to the Company by the
distributor totaled approximately $2,600,000, of which approximately
$970,000 was outstanding as of December 31, 1997, related to fiscal 1997,
and inventory on hand which was impacted by the bankruptcy as of December
31, 1997, for which a reserve was provided of approximately $740,000. The
adjustment to the fiscal 1997 and 1998 results did cause the Company to
breach the financial covenants contained in the $11,000,000 Credit Facility,
which would have impacted the facility's availability as of December 31,
1997 and March 31, 1998, respectively. The Company has obtained waivers as
to the aforementioned covenant noncompliance situations.
20
<PAGE>
SYNERGY SEMICONDUCTOR CORPORATION
Condensed Balance Sheets
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
Assets 1998 1997
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 973 $ 2,607
Accounts receivable, net 4,419 7,003
Inventories 7,306 5,119
Other current assets 187 303
------------- ------------
Total current assets 12,885 15,032
Machinery and leasehold improvements, net 10,962 12,125
Other assets 245 245
------------- ------------
$ 24,092 $ 27,402
============= ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 1,156 $ 2,291
Line of credit 4,184 3,264
Current portion of long-term obligations 3,403 3,953
Deferred revenue on shipments to distributors 1,122 1,004
Other current liabilities 2,084 1,932
------------- ------------
Total current liabilities 11,949 12,444
Long-term obligations 7,118 8,390
------------- ------------
Total liabilities 19,067 20,834
------------- ------------
Shareholders' equity:
Convertible preferred stock, no par value;
14,000,000 shares authorized; 11,520,574
shares issued and outstanding (liquidation
preference of $7,381,506) 7,297 7,297
Common stock, no par value; 18,000,000 shares
authorized; 2,756,817 and 2,717,422 shares
issued and outstanding in September 1998 and
December 1997, respectively 31,911 31,910
Accumulated deficit (34,183) (32,639)
------------- ------------
Total shareholders' equity 5,025 6,568
------------- ------------
$ 24,092 $ 27,402
============= ============
</TABLE>
See accompanying notes to condensed financial statements.
21
<PAGE>
SYNERGY SEMICONDUCTOR CORPORATION
Condensed Statements of Operations
(In thousands, unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Net revenues $ 22,871 $ 26,422
Cost of revenues 12,659 13,350
-------------- --------------
Gross margin 10,212 13,072
-------------- --------------
Operating expenses:
Research and development 6,354 7,026
Selling, general and administrative 4,480 4,174
-------------- --------------
Total operating expenses 10,834 11,200
-------------- --------------
Income (loss) from operations (622) 1,872
Other expense, net (922) (248)
-------------- --------------
Net income (loss) $ (1,544) $ 1,624
============== ==============
</TABLE>
See accompanying notes to condensed financial statements.
22
<PAGE>
SYNERGY SEMICONDUCTOR CORPORATION
Condensed Statements of Cash Flows
(In thousands, unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,544) $ 1,624
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 2,483 1,275
Gain on disposal of capital equipment -- (869)
Changes in operating assets and
liabilities:
Accounts receivable, net 2,584 (1,593)
Inventories (2,187) 478
Other current assets 116 (271)
Accounts payable (1,135) (966)
Other current liabilities 152 459
Deferred revenue on shipments to
Distributors 118 37
-------------- --------------
Net cash provided by operating
Activities 587 174
-------------- --------------
Cash flows from investing activities:
Capital expenditures (1,320) (1,351)
Proceeds from sale of capital assets -- 1,133
-------------- --------------
Net cash used in investing activities (1,320) (218)
-------------- --------------
Cash flows from financing activities:
Proceeds from issuance of common stock 1 3
Borrowings under line of credit 920 441
Proceeds from issuance of long-term
Obligations 1,297 2,500
Payments on long-term obligations (3,119) (3,391)
-------------- --------------
Net cash used in financing
Activities (901) (447)
-------------- --------------
Net decrease in cash and cash equivalents (1,634) (491)
Cash and cash equivalents at beginning
of period 2,607 2,684
-------------- --------------
Cash and cash equivalents at end of period $ 973 $ 2,193
============== ==============
Supplemental disclosure of cash flow
information:
Cash paid during the period - interest $ 928 $ 1,135
============== ==============
</TABLE>
See accompanying notes to condensed financial statements.
23
<PAGE>
(1) Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions of Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of only normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine-month period ended September 30, 1998 are not
Necessarily indicative of the results that may be expected for the year ending
December 31, 1998. The financial data should be read in conjunction with the
Audited financial statements and notes included herein.
(2) Inventories
<TABLE>
<CAPTION>
Inventories consisted of the following (in thousands):
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Finished goods $ 1,106 $ 996
Work in process 5,801 3,560
Raw materials 399 563
------------- ------------
$ 7,306 $ 5,119
============= ============
</TABLE>
(3) Income Taxes
Management of the Company has evaluated the positive and negative evidence
bearing upon the realizability of its deferred tax assets. Under the
applicable accounting standards, management has considered the Company's
history of losses and concluded that it is more likely than not the Company
will not generate future taxable income prior to the expiration of these net
operating losses. Accordingly, the deferred tax assets have been fully
reserved.
(4) Subsequent Event
In November 1998, the Company was acquired by Micrel, Inc. for cash of
approximately $9.9 million, plus related acquisition costs, and the
assumption of certain operating assets and liabilities of the Company. The
transaction was accounted for as a purchase.
24
<PAGE>
MICREL, INCORPORATED
Pro Forma Condensed Combining Balance Sheet
(In thousands, unaudited)
<TABLE>
<CAPTION>
Assets Micrel as of Synergy as of Pro Forma Pro Forma
September 30, 1998 September 30, 1998 Adjustments Notes Combined
------------------ ------------------ ----------- ------- ----------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash, cash equivalents and
short-term investments $ 28,814 $ 973 $ (11,200) (1)(4) $ 18,587
Accounts receivable, net 24,806 4,419 29,225
Inventories 11,999 7,306 3,296 (2) 22,601
Other current assets 6,715 187 6,902
------------- -------------- ---------- ---------
Total current assets 72,334 12,885 (7,904) 77,315
Equipment and leasehold
improvements, net 47,996 10,962 (6,892) (2) 52,066
Intangible assets, net -- -- 4,971 (3) 4,971
Deferred tax asset -- -- 1,336 (2) 1,336
Other assets 197 245 442
------------- -------------- ---------- ---------
$ 120,527 $ 24,092 $ (8,489) $ 136,130
============= ============== ========== =========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 6,591 $ 1,156 $ 7,747
Line of credit -- 4,184 4,184
Current portion of long-term
Obligations 1,583 3,403 4,986
Deferred income on shipments
to distributors 3,249 1,122 4,371
Other current liabilities 8,278 2,084 273 (4) 10,635
------------- -------------- ---------- ---------
Total current liabilities 19,701 11,949 273 31,923
Long-term obligations 6,327 7,118 13,445
Shareholders' equity:
Preferred stock -- 7,297 (7,297) (5) --
Common stock 33,000 31,911 (31,911) (5) 33,000
Net unrealized gains on
short-term investments 12 -- 12
Retained earnings (deficit) 61,487 (34,183) 30,446 (5)(6) 57,750
------------- -------------- ---------- ---------
Total shareholders' equity 94,499 5,025 (8,762) 90,762
------------- -------------- ---------- ---------
$ 120,527 $ 24,092 $ (8,489) $ 136,130
============= ============== ========== =========
</TABLE>
See accompanying notes to condensed combining financial statements.
25
<PAGE>
MICREL, INCORPORATED
Pro Forma Condensed Combining Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Assets Micrel as of Synergy as of Pro Forma Pro Forma
December 31, 1998 December 31, 1998 Adjustments Notes Combined
----------------- ----------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Net revenues $ 104,158 $ 37,428 $ $ 141,586
Cost of revenues 48,641 19,618 2,226 (7)(8)(9) 70,485
---------------- ---------------- ---------- ---------
Gross margin 55,517 17,810 (2,226) 71,101
---------------- ---------------- ---------- ---------
Operating expenses:
Research and development 13,986 9,136 472 (7) 23,594
Selling, general and
Administrative 17,128 5,858 318 (7) 23,304
---------------- ---------------- ---------- ---------
Total operating expenses 31,114 14,994 790 46,898
---------------- ---------------- ---------- ---------
Income from operations 24,403 2,816 (3,016) 24,203
Other income (expense), net 971 (575) (683) (10) (287)
---------------- ---------------- ----------- ---------
Income before income taxes 25,374 2,241 (3,699) 23,916
Provision (benefit) for income
Taxes 8,627 -- (1,480) (11) 7,147
---------------- --------------- ----------- ---------
Net income $ 16,747 $ 2,241 $ (2,219) $ 16,769
Net Income per share:
Basic $ 0.88 $ 0.88
================ =========
Diluted $ 0.80 $ 0.81
================ =========
Shares used in computing per
share amounts:
Basic 19,069 19,069
================ =========
Diluted 20,822 20,822
================ =========
</TABLE>
See accompanying notes to condensed combining financial statements.
26
<PAGE>
MICREL, INCORPORATED
Pro Forma Condensed Combining Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Assets Micrel as of Synergy as of Pro Forma Pro Forma
September 30, 1998 September 30, 1998 Adjustments Notes Combined
------------------ ------------------ ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Net revenues $ 102,587 $ 22,871 $ $ 125,458
Cost of revenues 45,790 12,659 (802) (7)(8) 57,647
---------------- --------------- ---------- ----------
Gross margin 56,797 10,212 802 67,811
Operating expenses:
Research and development 13,564 6,354 353 (7) 20,271
Selling, general and
Administrative 16,018 4,480 239 (7) 20,737
---------------- ---------------- ---------- ---------
Total operating expenses 29,582 10,834 592 41,008
---------------- ---------------- ---------- ---------
Income (loss) from
operations 27,215 (622) 210 26,803
Other income (expense), net 1,000 (922) (496) (10) (418)
---------------- ---------------- ---------- ---------
Income (loss) before
income taxes 28,215 (1,544) (286) 26,385
Provision (benefit) for income
Taxes 9,593 -- (114) (11) 9,479
---------------- ---------------- ---------- ---------
Net income (loss) $ 18,622 $ (1,544) $ (172) $ 16,906
================ ================ ========== =========
Net Income (loss) per share:
Basic $ 0.94 $ 0.86
================ =========
Diluted $ 0.88 $ 0.80
================ =========
Shares used in computing per
share amounts:
Basic 19,734 19,734
================ ==========
Diluted 21,141 21,141
================ ==========
</TABLE>
See accompanying notes to condensed combining financial statements.
27
<PAGE>
MICREL, INCORPORATED
Notes to Pro Forma Condensed Combining Financial Statements
1. ACQUISITION
On November 9, 1998, pursuant to that certain Merger Agreement dated as
of October 21, 1998, between the Registrant, MISYN Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of the Registrant
("Merger Sub"), and Synergy Semiconductor Corporation, a California
corporation ("Synergy"), as amended by that certain side letter dated
November 9, 1998, between the Registrant and Synergy (as so amended the
"Merger Agreement"), the Registrant acquired Synergy through the merger of
Merger Sub with and into Synergy for a cash purchase price of $9.9 million
(the "Purchase Price"). Twenty percent (20%) of the Purchase Price was
deposited in escrow pursuant to the terms of that certain Escrow Agreement
dated November 9, 1998, by and between the Registrant, John F. Stockton, as
representative of the Synergy shareholders, and Bank of the West. The
balance of the Purchase Price was transferred to the paying agent to be paid
to the former Synergy shareholders pursuant to the terms of the Merger
Agreement. The Registrant also paid transaction fees of $1.3 million and
accrued direct merger costs of approximately $300 thousand.
Approximately $12.9 million of the total Purchase Price and net
liabilities assumed of approximately $1.5 million was allocated to
intangible assets. Of that amount, approximately $3.7 million was allocated
to purchased in-process technology, that has not reached technological
feasibility and has no alternative future use, for which the Registrant
expects to record a one-time charge in the quarter ended December 31, 1998.
The remaining portion of the Purchase Price, $9.2 million, will be allocated
to intangible assets, which are expected be amortized on a straight line
basis over a period of three to five years. The amount of the one time
charge was derived from a valuation based on the Securities and Exchange
Commission guidance issued in a September 9, 1998 letter to the American
Institute of Certified Public Accountants.
The purchase price of the acquisition of Synergy is computed as follows
(in thousands):
<TABLE>
<S> <C>
Cash $ 9,900
Direct transaction costs 1,573
Fair market value of liabilities assumed 20,110
----------
TOTAL $ 31,583
==========
</TABLE>
The purchase price is expected to be allocated as follows (in
thousands):
<TABLE>
<CAPTION>
Amortization
Period (Years)
--------------
<S> <C> <C> <C>
Current assets $ 13,564
Equipment and other 5,074
Intangible assets:
Developed and core technology $ 5,938 5
Assembled workforce 1,019 3
Tradename/Patents 1,079 5
Customer relationships 1,172 5
--------
Subtotal - intangible assets 9,208
In-process technology 3,737 Expensed
----------
TOTAL $ 31,583
==========
</TABLE>
This method of combining the companies is only for the presentation
of pro forma unaudited condensed combining financial statements. Actual
statements of operations of the companies will be combined from the
effective date of the acquisition, with no retroactive restatement.
28
<PAGE>
The unaudited pro forma condensed combining statements of operations do
not include the estimated one-time $3.7 million charge for purchased in-
process technology arising from this acquisition, as it is a material
nonrecurring charge. The estimated one time charge is expected to be
included in the actual consolidated statement of operations of Micrel in the
fourth quarter of 1998.
The following pro forma adjustments have been made to the pro forma
condensed combining financial statements.
(1) Reflects cash paid of approximately $9.9 million to the shareholders
of Synergy.
(2) Reflects the allocation of Purchase Price to fixed assets and
inventory per Accounting Principles Board Opinion No. 16 "Business
Combinations" (APB No. 16) and related deferred tax effect.
(3) Reflects an estimated allocation of Purchase Price to intangible
assets calculated as of September 30, 1998.
(4) Reflects the payment of approximately $1.3 million and the accrual
of approximately $273,000 for estimated costs directly attributable
to the completion of the acquisition.
(5) Reflects the elimination of Synergy's shareholders' equity.
(6) Includes an estimated one-time charge of approximately $3.7 million
for purchased in-process technology identified in the Purchase Price
allocation.
(7) Reflects pro forma amortization of the purchased intangibles over
the estimated useful lives ranging from three to five years of $2.0
million for the year ended December 31, 1997 and $1.5 million for
the nine months ended September 30, 1998.
(8) Reflects a pro forma decrease in depreciation of $2.3 million for
the year ended December 31, 1997 and $1.7 million for the nine
months ended September 30, 1998 associated with the allocation of
Purchase Price to fixed assets per APB No. 16.
(9) Reflects a pro forma increase in cost of revenues of $3.3 million
for the year ended December 31, 1997 associated with the allocation
of the Purchase Price to inventory per APB No. 16.
(10) Reflects interest income that would have been foregone as a
consequence of the reduction of funds available for investments
resulting from the acquisition.
(11) Reflects the tax effect of pro forma adjustments at the statutory
rate.
29
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ----------------------------------------------------------
<S> <C>
2.1* Merger Agreement dated October 21, 1998, by and between
Micrel, Incorporated, MISYN Acquisition Corp. and Synergy
Semiconductor Corporation.
2.2* Letter agreement dated November 9, 1998, between Micrel,
Incorporated, MISYN Acquisition Corp. and Synergy
Semiconductor Corporation.
2.3* Escrow Agreement dated November 9, 1998, between Micrel,
Incorporated, John F. Stockton, as representative of the
former Synergy shareholders, and Bank of the West.
23.1 Independent Auditors' Consent (KPMG LLP)
- ------------------
</TABLE>
* Previously filed as exhibits to Form 8-K dated November 9, 1998 filed
with the Commission on November 23, 1998 regarding the acquisition
of Synergy.
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<PAGE>
EXHIBIT 23.1
The Board of Directors
Synergy Semiconductor Corporation
We consent to incorporation by reference in the registration statement (No.
333-10167) on Form S-8 of Micrel, Incorporated of our report dated February
25, 1998, except as to note 9, which is as of May 7, 1998, with respect to
the balance sheets of Synergy Semiconductor Corporation as of December 31,
1997 and 1996, and the related statements of operations, shareholders'
equity, and cash flows for each of the years then ended, which report
appears in the Form 8-K/A dated January 25, 1999 of Micrel, Incorporated.
KPMG LLP
Mountain View, California
January 25, 1999
31
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