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 September 30, 1999.
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 October 29, 1999 there were 41,238,070 shares of common stock, no par
value, outstanding.
<PAGE>
MICREL, INCORPORATED
INDEX TO
REPORT ON FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1999
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets - September 30, 1999
and December 31, 1998 3
Condensed Consolidated Income Statements - For the Three
and Nine Months Ended September 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows - Nine
Months Ended September 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 17
Signature 18
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MICREL, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
September 30, December 31,
1999 1998 (1)
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,264 $ 13,415
Short-term investments 37,009 15,029
Accounts receivable, net 36,380 24,079
Inventories 22,250 16,069
Deferred income taxes 8,783 11,967
Prepaid expenses and other 1,072 693
---------- ----------
Total current assets 108,758 81,252
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET 62,062 54,920
INTANGIBLE ASSETS, NET 7,318 8,878
OTHER ASSETS 666 320
---------- ----------
TOTAL $ 178,804 $ 145,370
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 9,051 $ 7,942
Income taxes payable 4,942 4,316
Deferred income on shipments to distributors 5,574 4,414
Current portion of long-term debt 5,190 5,579
Other current liabilities 8,701 8,133
---------- ----------
Total current liabilities 33,458 30,384
LONG-TERM DEBT 10,151 14,007
OTHER LONG-TERM OBLIGATIONS 3,652 5,268
SHAREHOLDERS' EQUITY:
Preferred stock, no par value - authorized:
5,000,000 shares; issued and outstanding: none - -
Common stock, no par value - authorized:
100,000,000 shares; issued and outstanding:
1999 - 41,167,594; 1998 - 40,182,392 46,639 35,660
Accumulated other comprehensive income (loss) (3) 10
Retained earnings 84,907 60,041
---------- ----------
Total shareholders' equity 131,543 95,711
---------- ----------
TOTAL $ 178,804 $ 145,370
========== ==========
(1) Derived from the December 31, 1998 audited balance sheet included in the
1998 Annual Report on Form 10-K of Micrel, Incorporated.
See notes to condensed consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
MICREL, INCORPORATED
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET REVENUES $ 50,091 $ 35,426 $134,840 $102,587
COST OF REVENUES 21,963 15,714 59,347 45,790
-------- -------- -------- --------
GROSS PROFIT 28,128 19,712 75,493 56,797
-------- -------- -------- --------
OPERATING EXPENSES:
Research and development 6,913 4,741 18,941 13,564
Selling, general and
administrative 7,367 5,273 19,618 16,018
-------- -------- -------- --------
Total operating expenses 14,280 10,014 38,559 29,582
-------- -------- -------- --------
INCOME FROM OPERATIONS 13,848 9,698 36,934 27,215
OTHER INCOME, NET 134 297 179 1,000
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 13,982 9,995 37,113 28,215
PROVISION FOR INCOME TAXES 4,614 3,398 12,247 9,593
-------- -------- -------- --------
NET INCOME $ 9,368 $ 6,597 $ 24,866 $ 18,622
======== ======== ======== ========
NET INCOME PER SHARE (Note 1):
Basic $ 0.23 $ 0.17 $ 0.61 $ 0.47
======== ======== ======== ========
Diluted $ 0.21 $ 0.16 $ 0.56 $ 0.44
======== ======== ======== ========
SHARES USED IN COMPUTING PER
SHARE AMOUNTS (Note 1):
Basic 41,064 39,764 40,677 39,468
======== ======== ======== ========
Diluted 45,352 42,266 44,545 42,282
======== ======== ======== ========
See notes to condensed consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
MICREL, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
September 30,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 29,658 $ 26,885
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (56,011) (33,549)
Proceeds from sales and maturities of short-term
investments 34,018 31,200
Purchases of equipment and leasehold improvements (19,410) (23,843)
--------- ---------
Net cash used in investing activities (41,403) (26,192)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt borrowings 2,100 4,000
Repayments of long-term debt (6,345) (791)
Proceeds from the issuance of common stock, net 5,839 2,417
--------- ---------
Net cash provided by financing activities 1,594 5,626
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (10,151) 6,319
CASH AND CASH EQUIVALENTS - Beginning of period 13,415 2,581
--------- ---------
CASH AND CASH EQUIVALENTS - End of period $ 3,264 $ 8,900
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 1,159 $ 112
========= =========
Cash paid for income taxes $ 4,793 $ 6,419
========= =========
See notes to condensed consolidated financial statements.
</TABLE>
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 September 30, 1999 and for the three and nine
months ended September 30, 1999 and 1998 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 Annual Report
on Form 10-K for the year ended December 31, 1998.
Net Income per Common and Equivalent Share - Basic net income per share is
computed by dividing net income by the number of weighted average common shares
outstanding. Diluted net income per share reflects potential dilution from
outstanding stock options using the treasury stock method. In August 1999, the
Company declared a two-for-one stock split of its common stock in the form of a
100% stock dividend payable September 15, 1999, on all shares of common stock
outstanding as of August 30, 1999. All share and per share information in the
accompanying condensed consolidated financial statements has been adjusted to
retroactively give effect to the stock split for all periods presented.
Reconciliation of weighted average shares used in computing net income per
share is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C>
Weighted average common shares
outstanding 41,064 39,764 40,677 39,468
Dilutive effect of stock options
outstanding, using the treasury
stock method 4,288 2,502 3,868 2,814
-------- -------- -------- --------
Shares used in computing diluted
net income per share 45,352 42,266 44,545 42,282
======== ======== ======== ========
</TABLE>
2. INVENTORIES
<TABLE>
Inventories consist of the following (in thousands):
September 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Finished goods $ 4,406 $ 4,540
Work in process 16,676 9,745
Raw materials 1,168 1,784
------------ ------------
$ 22,250 $ 16,069
============ ============
</TABLE>
6
<PAGE>
MICREL, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. SIGNIFICANT CUSTOMERS
No single customer accounted for 10% or more of net revenues during the three
and nine months ended September 30, 1999 and 1998, respectively.
4. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS
No. 130 requires an enterprise to report, by major components and as a single
total, the change in net assets during the period from non-owner sources.
Comprehensive income includes all changes in equity during a period except
those resulting from investments by and distributions to the Company's
shareholders. Comprehensive income, which was comprised of the Company's net
income for the periods and unrealized losses on investments, was $9.4 million
and $24.9 million for the three and nine months ended September 30, 1999,
respectively, and $6.6 million and $18.6 million for the comparable periods in
1998.
5. SEGMENT REPORTING
In 1998, the Company adopted SFAS 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.
The Company operates in two reportable segments, standard products and custom
and foundry products.
<TABLE>
<CAPTION>
Net Revenues by Segment
(Dollars in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Revenues:
Standard Products $ 40,111 $ 24,394 $105,389 $ 72,243
Custom and Foundry Products 9,980 11,032 29,451 30,344
-------- -------- -------- --------
Total net revenues $ 50,091 $ 35,426 $134,840 $102,587
======== ======== ======== ========
As a Percentage of Total Net Revenues:
Standard Products 80.1% 68.9% 78.2% 70.4%
Custom and Foundry Products 19.9 31.1 21.8 29.6
-------- -------- -------- --------
Total net revenues 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ========
</TABLE>
6. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. Adoption of this statement is not expected to
impact the Company's consolidated financial position, results of operations or
cash flows materially. The Company is required to adopt this statement in the
first quarter of fiscal year 2001, with early adoption permitted.
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 integrated circuits and provides wafer foundry
services. With the Company's acquisition of Synergy Semiconductor in November
1998, the Company broadened its product offerings to include high-speed
mixed-signal and digital integrated circuits which are primarily used in
electronic products in the high bandwidth communications and computer markets.
The Company's financial statements include the results of Synergy Semiconductor
from the acquisition date forward.
The Company derives a substantial portion of its net revenues from standard
products. Standard products sales represented 80% of net revenues for the three
months ended September 30, 1999 as compared to 69% for the similar period in
the prior year. For the nine months ended September 30, 1999 and 1998, the
Company's standard products sales accounted for 78% and 70% of the Company's
net revenues, respectively. The Company believes that a substantial portion of
its net revenues in the future will depend upon standard products sales,
although such sales as a proportion of net revenues may vary as the Company
adjusts product output levels to correspond with varying economic conditions
and demand levels in the markets which it serves. The standard products
business is characterized by short-term orders and shipment schedules, and
customer orders typically can be canceled or rescheduled without significant
penalty to the customer. Since most standard products backlog is cancelable
without significant penalty, the Company typically plans its production and
inventory levels based on internal forecasts of customer demand, which is
highly unpredictable and can fluctuate substantially. In addition, the Company
is limited in its ability to reduce costs quickly in response to any revenue
shortfalls.
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 could materially and
adversely affect the Company's business, financial condition, results of
operations or cash flows.
Results of Operations
The following table sets forth certain operating data as a percentage of total
net revenues for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 43.8 44.4 44.0 44.6
-------- -------- -------- --------
Gross margin 56.2 55.6 56.0 55.4
Operating expenses:
Research and development 13.8 13.4 14.0 13.2
Selling, general and administrative 14.7 14.9 14.6 15.6
-------- -------- -------- --------
Total operating expenses 28.5 28.3 28.6 28.8
-------- -------- -------- --------
Income from operations 27.7 27.3 27.4 26.6
Other income, net 0.2 0.9 0.1 1.0
-------- -------- -------- --------
Income before income taxes 27.9 28.2 27.5 27.6
Provision for income taxes 9.2 9.6 9.1 9.4
-------- -------- -------- --------
Net income 18.7% 18.6% 18.4% 18.2%
======== ======== ======== ========
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Net Revenues. Net revenues increased 41% to $50.1 million for the three months
- ------------
ended September 30, 1999 from $35.4 million for the same period in 1998. Net
revenues increased 31% to $134.8 million for the nine months ended September
30, 1999 from $102.6 million for the same period in 1998. The growth in net
revenues on a quarterly and year-to-date basis is due primarily to higher
standard products revenues which represented 80% and 78% of net revenues for
the three and nine months ended September 30, 1999, respectively, compared to
69% and 70% of each of the comparable periods in 1998. Standard products
revenues increased 64% to $40.1 million for the three months ended September
30, 1999 from $24.4 million for the same period in 1998. Standard products
revenues increased 46% to $105.4 million for the nine months ended September
30, 1999 from $72.2 million for the comparable period in the prior year. Sales
of standard products by the Company during the three and nine months ended
September 30, 1999 were led by low dropout regulators, high bandwidth
communications products and computer peripheral devices. Such products were
sold to manufacturers of telecommunications, portable computing, computing
peripherals and industrial products. Custom and foundry products revenues
decreased to 20% and 22% of net revenues for the three and nine months ended
September 30, 1999 from 31% and 30% for the comparable periods in 1998,
respectively. These declines as a percent of total revenues reflect a reduced
emphasis on custom and foundry products as compared to the same periods in
1998, in which the Company increased its emphasis on custom and foundry
products as an interim response to the Asian financial crisis. On a dollar
basis, custom and foundry products revenues decreased 10% to $10.0 million for
the three months ended September 30, 1999 from $11.0 million for the comparable
period in 1998. Custom and foundry products revenues decreased 3% to $29.5
million for the nine months ended September 30, 1999 from $30.3 million for the
comparable period in 1998. Management believes that the range of the Company's
products, from standard products to custom and foundry products, as well as the
geographic diversity of its customers should enable the Company to increase
revenue levels in the near future.
The Company believes that pricing pressures that were prevalent during 1998 and
the first half of 1999 have lessened as customers become more concerned about
product availability. Increasing end customer demand throughout 1999 has
resulted in capacity constraints and increasing order lead times for
semiconductor suppliers in general. During the third quarter of 1999, standard
product customer order lead times slightly increased as compared to the same
period in 1998, but continues to be short-term focused. These factors limit
forward visibility and affect the Company's ability to predict future sales
levels and profitability.
International sales represented 49% and 46% of net revenues for the three and
nine months ended September 30, 1999 as compared to 42% and 44% for the
comparable periods in the prior year, respectively. On a dollar basis,
international sales increased 66% to $24.8 million for the three months ended
September 30, 1999 from $14.9 million for the comparable period in 1998.
International sales increased 38% to $62.6 million for the nine months ended
September 30, 1999, from $45.4 million for the comparable period in 1998. The
increase in international sales resulted from shipments to manufacturers of
personal computers and communications products and demand for the Company's
products primarily in Asia and, to a lesser extent, in Europe.
The Company's international sales are 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 domestic,
Canadian, and certain other international distributors until such distributors
resell the Company's products to their customers. Generally, sales to
international distributors are recognized upon shipment and the Company
estimates returns and provides an allowance as this revenue is recognized.
Gross Profit. Gross profit is affected by the volume of product sales, product
- ------------
mix, manufacturing utilization, product yields and average selling prices. The
Company's gross margin remained at 56% for the three months ended
September 30, 1999 compared to the similar period in 1998 and increased to 56%
for the nine months ended September 30, 1999 from 55% for the similar 1998
period. The improvement in gross margin reflected an increase in manufacturing
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
efficiency due to greater capacity utilization and reductions in contract
assembly and test unit costs, which were partially offset by declining average
selling prices.
Manufacturing yields, which affect gross margin, may from time to time decline
because the fabrication of integrated circuits is a highly complex and precise
process. Factors such as minute impurities and difficulties in the fabrication
process can cause a substantial percentage of wafers to be rejected or numerous
die on each wafer to be nonfunctional. There can be no assurance that the
Company in general will be able to maintain acceptable manufacturing yields in
the future.
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.
As a percentage of net revenues, research and development expenses represented
14% of net revenues for the three months ended September 30, 1999 and 1998,
respectively. On a dollar basis, research and development expenses increased
$2.2 million or 46% to $6.9 million for the three months ended September 30,
1999 from $4.7 million for the comparable period in 1998. For the nine months
ended September 30, 1999, research and development increased to 14% of net
revenues as compared to 13% for the comparable period in 1998. The increase
during the three and nine months ended September 30, 1999 was primarily due to
increased engineering staffing costs associated with the acquisition of Synergy
and the development of new standard products. 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. As a percentage of net revenues,
- --------------------------------------------
general and administrative expenses represented 15% of net revenues for the
three months ended September 30, 1999 and 1998, respectively. On a dollar
basis, selling, general and administrative expenses increased $2.1 million or
40% to $7.4 million for the three months ended September 30, 1999 from $5.3
million for the comparable period in 1998. For the nine months ended September
30, 1999, selling, general and administrative expenses decreased to 15% of net
revenues from 16% for the comparable period in 1998. On a dollar basis,
selling, general and administrative expenses increased $3.6 million or 22% to
$19.6 million for the nine months ended September 30, 1999 from $16.0 million
for the comparable period in 1998. The dollar increase during the three and
nine months ended September 30, 1999 was principally attributable to higher
commissions, advertising and other administrative expenses associated with the
growth of the Company's revenues. The Company expects that selling, general and
administrative expenses will increase on a dollar basis in the future.
Other Income, Net. Other income, net reflects interest income from investments
- -----------------
in short-term investment grade securities offset by interest expense incurred
on term notes. Other income, net decreased $163,000 to $134,000 for the three
months ended September 30, 1999 from $297,000 for the comparable period in
1998. For the nine months ended September 30, 1999, other income, net decreased
$821,000 to $179,000 from $1.0 million for the comparable period in 1998. Such
decreases in the three and nine months ended September 30, 1999 were due to an
increase in average long-term debt associated with the Synergy Semiconductor
acquisition. The Company expects to continue to utilize term financing as
appropriate to finance its capital equipment needs.
Provision for Income Taxes. For the three and nine months ended September 30,
- --------------------------
1999, the provision for income taxes was 33% of income before taxes. For the
three and nine months ended September 30, 1998, 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 estimated
tax rate reduction from the prior comparable period represents estimated
increased utilization of federal and state research and development credits and
state manufacturing credits.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
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 September 30, 1999 consisted of cash and short-term investments
of $40.3 million and bank borrowing arrangements. Borrowing agreements
consisted of (i) $5.0 million under a revolving line of credit, of which all
was unused and available at September 30, 1999, and (ii) $20.0 million under a
non-revolving line of credit, of which $9.9 million was unused and available at
September 30, 1999. The two lines of credit are covered by the same loan and
security agreement. During September 1999, the expiration date of this
agreement was extended from September 30, 1999 to December 31, 1999 and is
subject to automatic renewal on a month to month basis thereafter unless
terminated by either party upon 30 days notice. 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 September 30, 1999.
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 of such equipment. Amounts borrowed
under this credit line are converted to four-year installment notes. All
equipment notes are collateralized by the equipment purchased and bear interest
rates of, at the Company's election, the prime rate (8.25% at September 30,
1999) a fixed rate based on the four-year U.S. Treasury Bill rate (5.75% at
September 30, 1999) plus 3.0% or an annual adjustable rate based on the one-
year U.S. Treasury Bill rate (5.17% at September 30, 1999) plus 3.0%.
As of September 30, 1999, the Company had $15.3 million outstanding under term
notes that are collateralized by the equipment purchased.
The Company's total cash, cash equivalents and short-term investments increased
by $11.8 million to $40.3 million as of September 30, 1999 from $28.4 million
as of December 31, 1999. The Company's working capital increased by $24.4
million to $75.3 million as of September 30, 1999 from $50.9 million as
of December 31, 1998. The working capital increase was primarily attributable
to the $11.8 million increase in cash, cash equivalents and short-term
investments combined with increases in accounts receivable of $12.3 million and
inventories of $6.2 million which was partially offset by increases in deferred
income of $1.2 million and accounts payable of $1.1 million. 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 $29.7 million
for the nine months ended September 30, 1999 from $26.9 million for the
comparable period in the prior year primarily as a result of increased net
income, partially offset by increases in accounts receivable and inventory. The
cash flows from operating activities generated by the Company in the nine
months ended September 30, 1999 were primarily attributable to net income of
$40.3 million after adding back non-cash activities, increases in income taxes
payable and tax benefits of employee stock transactions of $5.8 million,
deferred income of $1.2 million and accounts payable of $1.1 million which were
partially offset by increases in accounts receivable of $12.3 million and
inventories of $6.2 million.
The Company's investing activities during the nine months ended September 30,
1999 used cash of approximately $41.4 million as compared to $26.2 million of
cash used for investing activities during the comparable period in the prior
year. Cash used for investing activities during the nine months ended September
30, 1999 resulted primarily from net purchases of $19.4 million of property,
plant and equipment principally associated with the Company's conversion to
six-inch wafer production and additional wafer fab and testing equipment to
increase production capacity, combined with net purchases of $22.0 million of
short-term investments.
The Company's financing activities during the nine months ended September 30,
1999 provided cash of approximately $1.6 million as compared to cash provided
of $5.6 million during the comparable period in the prior year. Cash provided
by financing activities during the nine months ended September 30, 1999 was the
result of $5.8 million in proceeds from the issuance of common stock, through
the exercise of employee stock options and employee stock purchase plan
activity which was partially offset by $4.2 million net repayments of long-term
debt.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
The Company currently intends to make significant capital expenditures during
the next twelve months primarily for the purchase of additional wafer and test
manufacturing equipment and leasehold improvements to increase manufacturing
capacity for anticipated future demand increases. The Company expects that its
cash requirements through the next twelve months 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 revenue levels, 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; statements regarding
future expenditures; statements regarding the impact of Year 2000 on the
Company, statements regarding Year 2000 compliance costs; and statements
regarding current or future acquisitions. 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, results of operations, or cash flows.
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,
fluctuations in manufacturing yields, increases is raw material costs,
increases in third party contract manufacturing costs, the Company's ability to
introduce new products on a timely basis, the timing of new product
announcements and introductions by the Company or its competitors, cyclical
semiconductor industry conditions, the timing and extent of research and
development expenses, 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 could materially and adversely affect the Company's
business, financial condition, results of operations, or cash flows.
The Company has generated a substantial portion of its net revenues from 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 pressures, 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
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
successfully in the standard product business could materially and adversely
affect the Company's financial condition, results of operations, or cash flows.
The 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 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 integrated circuits, the Company
expects intensified competition from existing integrated circuit suppliers and
the entry of new competition. Increased competition could adversely affect the
Company's financial condition, results of operations, or cash flows. 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, results of operations, or cash flows.
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, results of operations, or cash flows.
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 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.
Readiness Disclosure for Year 2000
The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium (Year 2000) approaches. The Year
2000 problem is pervasive and complex, as virtually every computer operation
will be affected by the rollover of the two digit year value to 00. The issue
is whether computer systems will properly recognize date sensitive information
when the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail. The
Company has implemented a Year 2000 project designed to identify and assess the
risks associated with its information systems, products, operations and
infrastructure, suppliers and customers that are not Year 2000 compliant, and
to develop, implement and test remediation and contingency plans to mitigate
these risks. For the Year 2000 non-compliance issues identified to date,
management believes the cost of upgrade or remediation will not exceed
$150,000, which is not expected to be material to the Company's operating
results.
Program Description. The Company's Year 2000 readiness program uses a business
- -------------------
risk assessment and prioritization approach. It is intended to produce Year
2000-ready systems and assets to minimize disruption to business operations.
The program consists of two stages. Stage 1 is Assessment and Preparation.
This stage focuses on raising Year 2000 awareness; carrying out an asset
inventory; assessing the scope of the Year 2000 problem; determining corrective
actions, validating remediation approaches; and preparing plans and budgets.
Stage 1 is complete. State 2 is Testing, Repair and Deployment. In Stage 2,
risks identified in Stage 1 are tested for Year 2000 readiness and actions are
taken to rectify Year 2000 readiness problems. Stage 2 testing and remediation
for all critical Year 2000 compliance areas for the Company is complete, with
the exception of one system project that is scheduled for completion in the
fourth quarter of 1999.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Information Systems. A review of the Company's information systems, which
- -------------------
includes computer hardware, business application software, network and
communication equipment, has been completed. All critical systems except one
have been repaired or replaced and are Year 2000 ready. The Company's business
software application and associated hardware platform have been Year 2000 ready
for approximately one year. This system is used to conduct the primary
business transactions for the company such as order entry, billing, accounting
and procurement. The Company's primary manufacturing tracking system software
has been year 2000 ready for approximately six months. All business systems
from Synergy Semiconductor have been converted to the Company's primary
software application with the exception of the inventory tracking software and
hardware at the Micrel-Synergy manufacturing facility. A new inventory
tracking system is currently being implemented at the Micrel-Synergy facility.
The replacement hardware and software are installed and operational. The
deployment of the fully configured system is scheduled for the end of November
1999. The Company has tested its server hardware and completed necessary Year
2000 upgrades to hardware and firmware. Server operating systems have been
tested and upgraded to Year 2000 compliant releases. The Company continues to
monitor and install new Year 2000 operating software releases from major vendors
and will continue to do so into 2000.
Products. The Company has assessed the capabilities of its products sold to
- --------
customers and has not identified any problems related to Year 2000 compliance.
The Company believes its current products are Year 2000 compliant; however,
since all customer situations cannot be anticipated, particularly those
involving third party products, the Company may see an increase in warranty and
other claims as a result of the Year 2000 transition. In addition, litigation
against the Company regarding Year 2000 compliance issues may occur in the
future. For these reasons, the impact of customer claims could have a material
adverse impact on the Company's financial condition, results of operations, or
cash flows.
Operations and Infrastructure. Machinery, equipment and facilities used in the
- -----------------------------
operations of the Company have been inventoried and assessed for Year 2000
compliance. Remediation for all date sensitive equipment required to
manufacture the Company's products has been completed. Critical facility
systems have been tested and found to be Year 2000 ready.
Suppliers. The Company has contacted its critical suppliers to determine
- ---------
whether their operations, products and services are Year 2000 compliant. Where
practicable, the Company has attempted to mitigate its risks with respect to
the failure of suppliers to be Year 2000 compliant by developing contingency
plans. In the event that suppliers are not Year 2000 compliant, the Company
will seek alternative sources of supplies. However, such failures remain a
possibility and could have a material impact on the Company's financial
condition, results of operations, or cash flows.
Customers. The Company is actively responding to all customer requests for
- ---------
compliance, surveys and other general information related to its Year 2000
programs. The Company will also request assurance from its key customers that
they, and their products which incorporate the Company's products, are Year
2000 compliant.
General. The Company does not currently expect its costs associated with the
- -------
Year 2000 problem to be material, and expects to be able to fund these costs
through operating cash flows. The risks associated with the Year 2000 problem
can be difficult to identify and to address, and could result in material
adverse consequences to the Company. Even if the Company, in a timely manner,
completes all of its assessments, identifies and tests remediation plans
believed to be adequate, and develops contingency plans believed to be
adequate, some problems may not be identified or corrected in time to prevent
material adverse consequences to the Company.
As the Year 2000 project continues, the Company may discover additional Year
2000 problems, may not be able to develop, implement, or test remediation or
contingency plans in a timely manner, or may find that the costs of these
activities exceed current expectations and become material. In many cases, the
Company is relying on assurances from suppliers and customers that new and
upgraded information systems and other products will be Year 2000 compliant.
The Company plans to test certain third-party products, but cannot be sure that
its tests will be adequate or that, if problems are identified, they will be
addressed by the supplier in a timely and satisfactory way.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Because the Company uses a variety of information systems and has additional
systems embedded in its operations and infrastructure, the Company cannot be
sure that all of its systems will work together in a Year 2000-compliant
fashion. Furthermore, the Company cannot be sure that it will not suffer
business interruptions, either because of its own Year 2000 problems or those
of its customers or suppliers whose Year 2000 problems may make it difficult or
impossible for them to fulfill their commitments to the Company. If the Company
fails to satisfactorily resolve Year 2000 issues related to its products in a
timely manner, it could be exposed to liability to third parties.
The Company has not developed a "worst case" scenario with respect to Year 2000
issues, but instead has focused its resources on identifying material,
remediable problems and reducing uncertainties generally, through the Year 2000
project described above.
If the Company or the third parties with which it has relationships were to
cease or not successfully complete its or their Year 2000 remediation efforts,
the Company would encounter disruptions to its business that could have a
material adverse effect on its business, financial condition, results of
operations, or cash flows. The Company could be materially and adversely
impacted by widespread economic or financial market disruption or by Year 2000
computer system failures at third parties with which it has relationships.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk disclosures set forth in the 1998 Form 10-K have not
changed significantly through the nine months ended September 30, 1999.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 2, 1999, National Semiconductor Corporation ("National"), a
competitor of the Company, filed a complaint against the Company, entitled
National Semiconductor Corporation v. Micrel Semiconductor, Inc. in the United
States District Court, Northern District of California, in San Jose,
California, alleging that the Company infringes two National Semiconductor
patents. The complaint in the lawsuit seeks unspecified compensatory damages
for infringement, treble damages as well as permanent injunctive relief against
further infringement of the National patents at issue.
On February 26, 1999, the Lemelson Medical, Education & Research Foundation
(the "Lemelson Partnership") filed a complaint which was served on the Company
on June 15, 1999, entitled Lemelson Medical, Education & Research Foundation,
Limited Partnership v. Lucent Technologies Inc., et al. in the United States
District Court in Phoenix, Arizona, against eighty-eight defendants, including
the Company, alleging infringement of Lemelson Foundation patents. The
complaint in the lawsuit seeks unspecified compensatory damages, treble damages
and attorneys' fees, as well as injunctive relief against further infringement
of the Lemelson patents at issue.
On May 9, 1994, Linear Technology Corporation ("Linear" or "LTC"), a competitor
of the Company, filed a complaint against the Company, entitled Linear
Technology Corporation v. Micrel, Incorporated, in the United States District
Court in San Francisco, California, alleging patent and copyright infringement
and unfair competition. All claims, except the patent infringement claim, had
been settled or dismissed. In this lawsuit, Linear claimed that two of the
Company's products infringed one of Linear's patents. The complaint in the
lawsuit sought unspecified compensatory damages, treble damages and attorneys'
fees as well as preliminary and permanent injunctive relief against infringement
of the Linear patent at issue. On August 20, 1999, the United States District
Court in San Francisco adjudicated in favor of the Company in a patent
infringement suit brought by the plaintiff. The plaintiff alleged in the suit
that the Company had infringed upon U.S. Patent No. 4,755,741 which covers
design techniques used to increase the efficiency of switching regulators. The
United States District Court in San Francisco found the patent to be invalid
under the "on sale bar" defense as the plaintiff had placed chips containing the
alleged invention on sale more than a year before filing its patent application.
The United States District Court in San Jose dismissed the plaintiff's complaint
on the merits of the case and awarded the Company its legal costs. An appeal of
the Judgment was filed by Linear on September 17, 1999.
The Company believes that the ultimate outcome of the legal actions discussed
above will not result in a material adverse effect on the Company's financial
condition, results of operation or cash flows. However, litigation is subject
to inherent uncertainties, and no assurance can be given that the Company will
prevail in these lawsuits. Accordingly, the pending lawsuits as well as
potential future litigation with other companies, could result in substantial
costs and diversion of resources and could have a material adverse effect on
the Company's financial condition, results of operations or cash flows.
Certain additional 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 condition,
results of operation or cash flows.
16
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Special Meeting of Shareholders (the "Special Meeting") was held
on August 19, 1999 at 12:00 p.m. local time, at its principal corporate
offices located at 1931 Fortune Drive, San Jose, California. The Special
Meeting was held for the purpose of (a) approving an amendment to the Company's
Restated Articles of Incorporation, as amended, to increase the number of
authorized shares of common stock from 50,000,000 to 100,000,000 shares and (b)
transacting such other business as may properly come before the Special
Meeting. The matter below was voted upon and approved at the Special Meeting :
Proposal No.1 - Approval of an amendment to the Restated Articles of
Incorporation.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTAINED NON VOTES
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
18,405,276 954,474 21,548 1,089,584
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibits.
Exhibit
Number Description
-------- ----------------------------------------------------------
<S> <C>
3.1 Certificate of Amendment of Articles of Incorporation
10.1 Indemnification Agreement between the Registrant and
Mr. Scott Ward, an officer of the Company.
10.2 Indemnification Agreement between the Registrant and
Mr. Richard D. Crowley, Jr., an officer of the Company.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K. The Company did not file any Reports on Form 8-K
during the quarter ended September 30, 1999.
</TABLE>
17
<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: November 12, 1999 By: /s/ RICHARD D. CROWLEY, JR.
------------------------------
Richard D. Crowley, Jr.
Vice President, Finance and
Chief Financial Officer
(Authorized Officer and
Principal Financial Officer)
18
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF ARTICLES OF INCORPORATION
OF
MICREL, INCORPORATED,
a California Corporation
________________________________
The undersigned Raymond D. Zinn and Warren H. Muller hereby certify that:
ONE: They are the duly elected and acting President, Chief Executive
Officer and Director, and Vice President, Secretary and Director, respectively,
of Micrel, Incorporated, a California corporation (the "Corporation").
TWO: The Articles of Incorporation of the Corporation shall be amended
as follows:
Section 3.1 of Article III shall be amended to read in its entirety as
follows:
3.1. Authorized Capital Stock. This Corporation is authorized to
issue two classes of stock to be designated, respectively, "Common Stock"
and "Preferred Stock." The total number of shares which the Corporation
is authorized to issue is One hundred five million (105,000,000) shares.
One hundred million (100,000,000) shares shall be Common Stock, no par
value and five million (5,000,000) shares shall be Preferred Stock, no
par value.
FOUR: The foregoing amendment of Articles of Incorporation has been duly
approved by the Board of Directors of the Corporation.
FIVE: The foregoing amendment of Articles of Incorporation was duly
approved by the holders of the requisite number of shares of the Corporation in
accordance with Sections 902 and 903 of the California General Corporation Law;
the total number of outstanding shares entitled to vote with respect to the
foregoing amendment was 20,470,882 shares of Common Stock. The number of
shares voting in favor of the foregoing amendment and restatement equaled or
exceeded the vote required, such required voting being a majority of the
outstanding shares of Common Stock.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Amendment of Articles of Incorporation this 7th day of September, 1999.
/s/ RAYMOND D. ZINN
----------------------------------
Raymond D. Zinn,
President, Chief Executive Officer
and Director
/s/ WARREN H. MULLER
----------------------------------
Warren H. Muller,
Vice President, Secretary
and Director
The undersigned certifies under penalty of perjury that he has read the
foregoing Certificate of Amendment of Articles of Incorporation and knows the
contents thereof, and that the statements therein are true.
Executed at San Jose, California, on September 7th, 1999.
/s/ WARREN H. MULLER
----------------------------------
Warren H. Muller,
Vice President, Secretary
and Director
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is entered into, effective as of August 23, 1999
by and between MICREL, INCORPORATED, a California corporation (the
"Company"), and Scott Ward ("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 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 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 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 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 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 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 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 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:
Micrel, Incorporated
1849 Fortune Drive
San Jose, California 95131
and to Indemnitee at:
Scott Ward
6068 Whitehaven Ct.
San Jose, California 95138
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/ Warren H. Muller
----------------------------------
Title: Vice President, Secretary
INDEMNITEE:
/s/ Scott Ward
---------------------------
Scott Ward
EXHIBIT 10.2
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is entered into, effective as of September 7, 1999
by and between MICREL, INCORPORATED, a California corporation (the
"Company"), and Richard D. Crowley, Jr. ("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 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 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 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 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 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 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 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 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:
Micrel, Incorporated
1849 Fortune Drive
San Jose, California 95131
and to Indemnitee at:
Richard D. Crowley, Jr.
1177 Cranberry Avenue
Sunnyvale, California 94087
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/ Warren H. Muller
----------------------------------
Title: Vice President, Secretary
INDEMNITEE:
/s/ Richard D. Crowley, Jr.
---------------------------
Richard D. Crowley, Jr.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,264
<SECURITIES> 37,009
<RECEIVABLES> 36,380
<ALLOWANCES> 0
<INVENTORY> 22,250
<CURRENT-ASSETS> 108,758
<PP&E> 62,062
<DEPRECIATION> 0
<TOTAL-ASSETS> 178,804
<CURRENT-LIABILITIES> 33,458
<BONDS> 0
0
0
<COMMON> 46,639
<OTHER-SE> 84,904
<TOTAL-LIABILITY-AND-EQUITY> 178,804
<SALES> 134,840
<TOTAL-REVENUES> 134,840
<CGS> 59,347
<TOTAL-COSTS> 59,347
<OTHER-EXPENSES> 38,559
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 37,113
<INCOME-TAX> 12,247
<INCOME-CONTINUING> 24,866
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,866
<EPS-BASIC> 0.61
<EPS-DILUTED> 0.56
</TABLE>
