SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the Fiscal Year Ended February 28, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
COMMISSION FILE NO. 0-7422
STANDARD MICROSYSTEMS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-2234952
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
80 Arkay Drive, Hauppauge, New York 11788
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(516) 435-6000
(REGISTRANTIS TELEPHONE NUMBER, INCLUDING AREA CODE )
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each Exchange on
Title of each Class which registered
None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.10 PAR VALUE
(TITLE OF CLASS)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES (Check Mark) NO ___
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANTIS KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. ( )
AS OF APRIL 28, 1995, 13,220,953 SHARES OF THE REGISTRANTIS COMMON STOCK
WERE OUTSTANDING AND THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-
AFFILIATES OF THE REGISTRANT WAS APPROXIMATELY $245,380,000.
DOCUMENTS INCORPORATED REFERENCE
THE DOCUMENTS INCORPORATED BY REFERENCE INTO THIS FORM 10-K AND THE PARTS
HEREOF INTO WHICH SUCH DOCUMENTS ARE INCORPORATED ARE LISTED BELOW:
DOCUMENT PART
THOSE PORTIONS OF THE REGISTRANT'S 1995 ANNUAL REPORT TO
SHAREHOLDERS (THE "ANNUAL REPORT") WHICH ARE SPECIFICALLY
IDENTIFIED HEREIN AS INCORPORATED BY REFERENCE INTO THIS
FORM 10-K. II
THOSE PORTIONS OF THE REGISTRANT'S PROXY STATEMENT FOR THE
REGISTRANT'S 1995 ANNUAL MEETING (THE "PROXY STATEMENT")
WHICH ARE SPECIFICALLY IDENTIFIED HEREIN AS INCORPORATED BY
REFERENCE INTO THIS FORM 10-K. III
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PART I
ITEM 1. BUSINESS.
GENERAL
Standard Microsystems Corporation (the "Company", the "Registrant", or "SMC
(R) ") is a Delaware corporation, organized in 1971. As used herein, the term
"Company" includes the Company's subsidiaries except where the context
otherwise requires. The address of the principal executive office of the
Company is 80 Arkay Drive, Hauppauge, New York 11788, and its telephone number
at that address is 516-435-6000. Through SMC Massachusetts Inc., a wholly-
owned subsidiary, SMC develops internetworking products. Toyo Microsystems
Corporation, a majority owned subsidiary located in Tokyo, Japan, markets and
sells SMC products in Japan. Through wholly owned subsidiaries listed below,
SMC operates branch offices to market and sell its products in the following
locations:
Subsidiary Location
SMC Australia, Inc. Sydney, Australia
Standard Microsystems Corporation (Canada) Oakville, Ontario, Canada
Standard Microsystems (Europe) Ltd. London, England
SMC France, Inc. St. Germain-en-Laye, France
Standard Microsystems GmbH Munich, Germany
SMC Sales, Inc. Various States
Standard Microsystems Corporation (Asia) Taipei, Taiwan
SMC Singapore Singapore
SMC South Africa Johannesburg, South Africa
BUSINESS AND PRODUCT DESCRIPTION
Standard Microsystems conducts its operations primarily through two
divisions, System Products and Component Products. The System Products Division
designs, produces and markets products that allow personal computers (PCs) to be
connected to local area networks (LANs) and products that connect LANs to each
other. The Component Products Division designs, produces and markets metal-
oxide-semiconductor/very-large-scale-integrated (MOS/VLSI) circuits mainly for
PC input/output (I/O) control and computer and industrial network control
PERCENT OF REVENUES BY PRODUCT LINE
Fiscal year ended February: 1995 1994 1993
System products 69.0% 82.2% 90.5%
Component products 31.0% 17.8% 9.5%
Total 100.0% 100.0% 100.0%
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BUSINESS AND PRODUCT DESCRIPTION: SYSTEM PRODUCTS DIVISION
SMC LAN products enable a personal computer to be connected to a network and
permit LANs to be connected to each other. Connection to a LAN permits a
personal computer user to send messages to and receive messages from other LAN
users and share common resources such as printers, disk drives, files and
programs. LANs offer individuals the advantages of working at their own PCs
and, at the same time, provide an organization the benefits of connectivity and
productivity by allowing multiple users to communicate and share resources.
Internetworking, or connecting LANs to each other, allows users to communicate
and share resources within a facility or over an entire enterprise instead of
being confined to a workgroup or a department.
SMC LAN products include network interface cards (adapters), wiring hubs,
associated software and transceivers that operate over a variety of media
including 10Base-T twisted pair, unshielded twisted pair, shielded twisted pair,
coaxial, and optical fiber cabling. The Company provides LAN products for major
protocols or technologies used for PC-based LANs: Ethernet, Fast Ethernet, Token
Ring and ARCNET(R). LAN technologies combine hardware and software to control
traffic signaling and message passage between PCs and peripheral devices. End
users differentiate LAN technologies chiefly based upon speed and volume of
data transmitted, installation procedures and equipment cost.
SMC's modular platform, internetworking LAN switch product line integrates
the functions of a bridge, a router and intelligent hubs in a single chassis.
It operates over major LAN protocols: Ethernet, Token Ring and FDDI (Fiber
Distributed Data Interface) and provides a high speed interface to campus
networks. It is most often used as a collapsed backbone to connect LANs within
a single facility. A new Ethernet switch is used in workgroups to accelerate
the bandwidth by segmenting the network into smaller portions, each of which
receives full network bandwidth.
On March 1, 1994, the Division formed the Desktop Networks Business Unit
and the Enterprise Networks Business Unit to focus on product development and
marketing. Desktop Networks concentrates on adapter products, and Enterprise
Networks concentrates on wiring hub and LAN switch product lines. Sales,
manufacturing, technical customer support and marketing communications continue
as centralized divisional functions serving both business units.
NETWORK INTERFACE CARDS (ADAPTERS): Installed in a personal computer or
workstation, an adapter is a printed circuit board which provides for connection
to a LAN over telephone--unshielded twisted pair (UTP) or shielded twisted pair
(STP)--wire, coaxial or fiber optic cables. The Company's adapters permit
connection to the communications links or buses internal to a PC. These buses,
which allow for transmission of signals in a computer, are known as industry
standard architecture (ISA), extended industry standard
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architecture (EISA), micro-channel architecture (MCA) and peripheral component
interconnect (PCI). An adapter provides a connector for a cable which plugs
into a wall outlet, much as a telephone cable connects to a wall outlet. SMC
provides software for communicating over and diagnosing a network, installing
an adapter and collecting data for managing a network for its Ethernet and
Token Ring adapters.
TheEtherCard Elite Ultra(TM) line of 16-bit Ethernet adapters, shipped in July
1993, was SMC's first family of single chip-based Ethernet controller adapters.
Based on SMC proprietary chips, a 32-bit EISA bus master version was shipped
in February 1994. Bus mastering allows the adapter to transfer data between
the network and workstation without intervention by the microprocessor in the
workstation.
Shipped in August 1994, and based on a more advanced single chip
controller, the EtherEZ(TM) family of auto-configurable 16-bit Ethernet
adapters supports Plug and Play (PnP) which allows a PC to discover an adapter.
When installed in a PC not supporting PnP, the set up procedure is similar to
but faster than that of Elite Ultra adapters.
Shipped in September 1994, the EtherPower(TM) family of auto-configurable
Ethernet adapters is installed on the high speed, 32-bit PCI local bus.
Serving as a high-speed interface between the processor and the adapter, the
PCI bus eliminates bottlenecks by bypassing the traditional I/O bus (like ISA),
provides a wider data path and a faster data transfer rate.
Shipped in February 1995, the EtherPower 10/100(TM) PCI bus and Ether 10/100(TM)
EISA bus auto-configurable Fast Ethernet adapters work with either 10BASE-T or
100BASE-T hubs. Both adapters feature connectors for UTP and STP cabling. The
STP connection allows Token Ring users to switch to Fast Ethernet by changing
adapters and hubs, leaving the cabling intact.
The TokenCard Elite(TM) line of adapters, shipped in October 1992, marked SMC's
entry into the Token Ring market. Incorporating SMC's internally developed
chip set allows for low cost production. Shipped in June 1994, a 32-bit EISA
version uses the same bus master chip as on the Ethernet bus master adapter.
WIRING HUBS: The cables, beginning at the adapter connector, are usually
linked to a centrally located wiring hub. The hub passes along and boosts
signals from one computer or port on a LAN to one or more other ports. Wiring
hubs are called concentrators for Ethernet, multi-station access units (MAUs)
for Token Ring and hubs for ARCNET. SMC hub products are best suited to
workgroup or departmental sized LANs.
In addition to the physical signaling function, intelligent hubs
incorporate software which aids in managing a network. SMC produces both
conventional and intelligent hubs and the software to support network
management. SMC's Elite 3512 (TM)12-port Ethernet
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concentrator is upgradable to an intelligent concentrator
by installing the Company's Network Management Module(TM). SMC's Elite 3812
stackable concentrator allows stacking 8 concentrators or 96 UTP ports or 112
total ports, all controlled by a single Network Management Module.
The new 6-member TigerHub(TM) family of unmanaged hubs of 3 to 12 ports is
based on a proprietary, highly integrated circuit which controls up to 7 hub
ports. SMC also introduced a Ring Management Module, that when added to the
EliteStack(TM) stackable MAUs, provides industry compliant SNMP network
management for Token Ring.
INTERNETWORKING PLATFORM: SMC's EliteSwitch(TM) model ES/1(TM) internetworking
product is based on an 800 megabit per second (Mbps) backplane. The dual RISC
(reduced instruction set computer) processor architecture of its Packet
Processing Engine(TM) is capable of filtering and forwarding at the maximum
packet rate of each of its ports. The chassis can house five modules, each with
a RISC processor, and redundant power supplies. The modules and power supplies
are hot swappable, enabling parts installation without interrupting the ES/1's
operation.
By varying the mix of modules, the ES/1 platform can be configured as: (i)
a bridge or router to seamlessly interconnect LAN segments in a collapsed
backbone environment; (ii) a bridge or router to connect LANs to enterprise
networks; (iii) a bridge or router to connect clients and servers in a client-
server network; (iv) an intelligent hub for Ethernet, Token-Ring, FDDI or any
combination of the three; and (v) any combination of the above.
The environments which best utilize the ES/1's attributes apply to
interconnecting different types of LANs within a building or between buildings
within close proximity, an environment known as INTRANETWORKING. In those
environments, the customer can use the ES/1's high speed bridging and routing,
the faculty to translate between LAN protocols, the support of popular IP and
IPX (Novell) routing protocols and the ability to connect to high speed phone
lines. The user can make these connections without incurring additional costs
associated with routers, which usually incorporate software to connect computer
resources over a wide area.
Shipped in November 1994, the TigerSwitch(TM) XE is an intelligent Ethernet LAN
switch used to increase more bandwidth to a workgroup. A TigerSwitch may be
connected to chassis or stackable hubs, workstations and servers, segmenting
the network so that each attached entity receives a full 10 Mbps of bandwidth
provided by Ethernet. TigerSwitches can be trunked together or to ES/1s,
providing a large network of switched Ethernet ports.
SUPPORT SOFTWARE: Supporting software that accompanies SMC's(TM)
EliteSeries lines of SuperDisk(TM) Ethernet and Token Ring adapters is
delivered on which contains: (i) drivers for popular network operating systems,
(ii) EZStart(TM) installation and test utility and (iii)
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PC Agent/SNMP. SMC believes extensive software support, which is supplied
without charge, distinguishes its line of adapters.
A driver is software that enables network hardware to communicate over a LAN
by providing the link between the network protocol and the network operating
system. Suppliers of network operating systems regularly update their software,
which requires SMC to regularly alter its drivers. SMC also updates drivers to
improve performance over a network.
Drivers are supplied for servers and workstations operating under network
operating systems such as Novell(R) Netware(R) 2.x, Novell Netware 3.x, Novell
Netware 4.x, Novell Netware Lite, Novell Netware for SAA, Microsoft(R)
LANManager, IBM(R) LANServer, SCO or ISC UNIX, Artisoft LANtastic(R), Banyan(R)
Vines(R) and the OSI consortium's GOSIP. SMC offers Driver Assurance, insuring
that drivers which work on new EliteSeries adapters are compatible with prior
generations. Installers also have the flexibility to choose either a fully
software or hardware (jumper) configurable setup.
With a Windows-like user interface in a DOS environment, EZStart (i)
automatically configures a ADAPTER; (ii) loads the drivers of choice; (iii)
diagnoses the ADAPTER and tests communications along the network and (iv)
installs PC Agent/SNMP. EZStart's macro function records mouse clicks or
keystrokes which can be saved and reused to automatically install a large number
of adapters without installer intervention.
PC Agent/SNMP uses Simple Network Management Protocol (SNMP), an industry-
standard protocol which facilitates network management. PC Agent/SNMP gathers
data about the status of a computer in which an adapter resides. On request,
that data is passed along to an SNMP-based network management program. PC
Agent/SNMP for Ethernet and Token-Ring allows SMC adapters to be polled for
status data by SNMP compliant network management systems such as enterprise-wide
packages offered by Hewlett-Packard, Sun Microsystems or Novell.
SNMP agents are provided as software embedded in flash, read only memory
with both SMC's intelligent concentrators and switching hub platform. The
agents gather status data about the physical hardware on the segment of a LAN
connected to that hub. The network management systems which utilize data
gathered by PC Agent/SNMP also utilize data gathered by the hub based agents.
SMC offers EliteView(TM), a family of SNMP-based software packages for
managing workgroup, departmental or enterprise LANs. EliteView's capabilities
have been regularly upgraded. Shipped in June 1994, EliteView 4.0 operates on
a PC under a Windows environment and supports both Ethernet and Token Ring
networks. Features that improve upon prior releases include the ability to:
(i) utilize dynamic data exchange (DDE) to share information with other
DDE-based applications such as Microsoft's Excel
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spreadsheet; (ii) create an inventory and a logical road map; (iii) graphically
display the devices that are IP, IPX and SNMP auto-discoverable; and (iv) draw
and customize hierarchical views of various network levels. Release 4.1
supports the TigerSwitch. EliteView 4.0-ES gathers status data from ES/1 LAN
switches, as well as from hub-based and PC-based agents.
Several versions of EliteView operate under the UNIX operating system to
monitor and manage the ES/1 internetworking platform. EliteView/OV runs under
Hewlett-Packard OpenView network management system (NMS), allowing a network
manager to monitor and manage the ES/1 along with all other network devices.
Similarly, EliteView/NV runs under IBM NetView/6000 and EliteView/SN runs
under SunConnect SunNet Manager. A user can click on an icon on the screen of
these UNIX-based NMSs to access EliteView .
SMC provides an out-of-band network management utility with SMC's
intelligent MAUs. Out-of-band management allows the utility to monitor the
network even when the network is unable to operate. SMC also offers network
management for ARCNET installations.
THE SMC UNITY FRAMEWORK: The System Products Division has developed a
framework called SMC Unity to highlight the breadth of SMC's product portfolio
for the LAN backbone, wiring closet and desktop. SMC Unity consists of three
basic layers of functionality for a comprehensive, on-premises networking
solution:
The LAN Access layer provides intelligent Ethernet, Fast Ethernet and Token
Ring adapters and unmanaged hubs and represents the intersection at which
individual PC users access the network.
The Bandwidth Acceleration layer utilizes SMC's TigerSwitch, connected to
SMC's or others' stackable hubs, to segment and, thus, increase the capacity of
a network without impacting a useris existing wiring, hubs and adapters.
The Intranetworking layer depends upon the multi-technology ES/1 LAN switch
to: (i) provide a high speed backbone; (ii) translate between Ethernet, Token
Ring and FDDI protocols; (iii) accommodate emerging Fast Ethernet and ATM
technologies and (iv) be reliable through redundancy, hot swappability and
other measures.
DESIGN CRITERIA: SMC's System Products Division designs and develops
critical integrated circuit components that control the operation of its
Ethernet and Token Ring network interface cards. The Company believes that this
vertical integration provides an advantage in terms of control over costs,
performance, quality and time-to-market, when compared to those competitors who
buy critical integrated circuits from merchant semiconductor manufacturers. The
single-chip 790UltraChip(TM) Ethernet controller is the key device on the
EtherCard Elite Ultra family of 16-bit Ethernet adapters and on the 32-bit bus
master version. A more advanced single-chip 795 Ethernet controller is the key
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device on the EtherEZ family of auto-configurable Plug and Play (PnP) 16-bit
Ethernet adapters. The 571 EISA bus master chip is used on both the Ethernet
and Token Ring EISA adapters.
Chip and board designers, software developers and documentation personnel
are able to focus on optimizing the performance of each product aided by the
high level of functional integration obtainable within a single integrated
circuit. SMC has also designed critical components for its hub and
internetworking products. The 710 hub chip supports six 10Base-T Ethernet
ports.
BUSINESS AND PRODUCT DESCRIPTION: COMPONENT PRODUCTS DIVISION
The Component Products Division designs, develops and manufactures very-
large-scale-integrated (VLSI) circuitry. SMC maintains its SuperCell(TM)
library of complex circuit functions which shortens the design cycle of VLSI
circuits. Component products are focused on the personal computer
input/output (PC I/O) and networking markets. During fiscal 1994 and 1995, the
Division's revenues were primarily from PC I/O devices.
SMC's PC I/O controllers consist of integrated circuits with a variety of
levels of functional integration for control and interfacing of various
peripheral and communications functions in a PC. Features include AT
interfaces, digital data separation, vertical or horizontal recording, control
of serial and parallel ports, interfaces with the game port and hard disk drive,
and other functions for floppy disk control. ChiProtect(TM) circuitry prevents
damage to the integrated circuit from inadvertent current overloads on the
parallel port interface.
PC I/O controllers introduced by SMC during fiscal 1993 and 1994 are known
as super I/O devices. In a single package, these circuits combine many of the
connectivity functions listed above that have become required features for PCs.
SMC's super I/O class of devices are pin compatible, offering customers the
flexibility to design one circuit board layout, modifying characteristics by
inserting one or another of SMC's devices. Popular PC I/O devices support
Enhanced Parallel Port (EPP) and Microsoft and Hewlett-Packard sponsored
Extended Capabilities Port (ECP) protocols that provide very high speed
communications through the parallel port between a PC and peripheral equipment.
During fiscal 1995, SMC announced PC I/O devices with enhanced features
including interfaces for infrared (IR) wireless communications, support of PnP
and low electrical power usage for laptop and handheld PCs. SMC also announced
and began to ship a class of PC I/O controllers known as ultra I/O. On a single
chip, these devices add keyboard and mouse control, system clock generator and a
real time clock to the super I/O level of functionality.
Network circuits are sold to vendors of ARCNET, Ethernet and Fast Ethernet
equipment. Versions of ARCNET devices have been developed which are optimized
for use in the
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industrial control and transportation markets. In October 1993, the Division
announced availability of a single-chip Ethernet controller with RAM (SCECR) on
board. The device integrates an Ethernet controller, memory management, ISA
bus interface, encoder and decoder, 10Base-T transceiver and AUI interface and
memory. In April 1994, the division announced the FEAST (TM) chip, the first
100Base-T Fast Ethernet controller device available from a semiconductor
supplier. It also supports 10Base-T on the same chip.
BUSINESS AND PRODUCT DESCRIPTION: WARRANTY POLICY
The Company's products are generally under warranty against defects in
material and workmanship for periods of one year to the lifetime of a product.
Estimated warranty costs are accrued when products are sold.
MARKETS AND COMPETITION
Network products of the SYSTEM PRODUCTS DIVISION are used chiefly in
conjunction with personal computers which are connected to local area networks.
Integrated circuits of the COMPONENT PRODUCTS DIVISION are used primarily in
personal computers.
Competition is characterized by rapid technological change and significant
unit price reductions which may not always correspond to a decrease in
production costs. Product line differentiation may be determined by breadth,
diversity, performance characteristics such as speed, quality and reliability
and prices. Among the competitors, important distinctions are timeliness of
shipments, depth of customer support and technical service. The principal
methods SMC uses to compete include new products, servicing customers and
reducing manufacturing costs. However, although past performance can be a
guide, there is no assurance that the Company can continue to improve or
maintain gross profit margins.
MARKETS AND COMPETITION: SYSTEM PRODUCTS DIVISION
The available worldwide market for the Company's LAN products is determined
by the installed base of PCs, sales of new PCs and the portion of PCs connected
to local area networks. SMC agrees with market forecasters who believe that the
percentage of PCs connected to LANs has increased over recent years. Competitors
include domestic and foreign manufacturers, many of whom possess substantially
greater resources than SMC.
SMC's Ethernet, Fast Ethernet, Token Ring and ARCNET adapters address over
90% of the available market for network interface cards in terms of units sold.
The coverage statistics are based upon estimates of the worldwide adapter market
for calendar 1994 made by market research firms. According to the market
estimates, during 1994, about 23 million adapters were shipped for installation
into personal computers. These market researchers estimate that in calendar
1993, 17 million adapters were shipped.
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The Desktop Networks Business Unit, which includes Ethernet, Fast Ethernet,
Token Ring and ARCNET adapters, accounted for 79% of System Products Division
revenues, or 54% of Company revenues, during fiscal 1995.
SMC's line of conventional and intelligent wiring hubs is aimed principally
at workgroup and departmental environments. As network management gains in
importance in both workgroup and departmental-sized networks, SMC believes that
hub products will become a larger portion of the System Products Division
revenues.
The LAN switch internetworking product line has benefited from the growing
need to supply more bandwidth to networks and to build enterprise-wide networks
by connecting LANs which utilize different protocols. The ES/1 is best applied
to connecting LANs within a facility or in close proximity on a campus. SMC
believes the power and flexibility provided by the platform's high-speed
backplane, architecture and modularity offers a competitive advantage and lower
initial and lifetime costs to customers. Utilizing much of the technology of
the ES/1, the new TigerSwitch XE is aimed at accelerating bandwidth for
workgroup LANs. SMC believes its power and flexibility offers a competitive
advantage and lower initial and lifetime costs to customers.
The Enterprise Networks Business Unit, which includes Ethernet, Token Ring
and ARCNET wiring hubs and LAN switches, accounted for 21% of divisional
revenues, or 15% of Company revenues, during fiscal 1995.
Because many competitors sell products which perform similar functions, the
System Products Division's strategy is to provide superior price/performance
solutions for the PC LAN market, along with the highest level of customer
support, technical service and software. SMC has combined its comprehensive
product line and services into the SMC Unity framework for on-premises
networking solutions. Market share for each participant is based on a
combination of price, performance, service, promotional and advertising activity
and strength of the marketing channels.
Competition is provided by domestic and foreign manufacturers in both the
US and international markets. Some companies concentrate on aggressive pricing
as the principal competitive tool. On the other hand, the leading manufacturers
supplement price strategies with performance and service. In addition, shorter
product life cycles have required acceleration of new product design cycles.
The Company has been able to lower production costs through manufacturing
efficiencies while advancing the technology and features of its products and
passing along cost savings through reduced selling prices. In most cases,
product improvements are derived from SMC's semiconductor and board design,
production, testing and software capabilities. Most of the System Products
Division's competitors lack the depth of SMC's
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semiconductor design capability and commitment. SMC believes its breadth and
timeliness of driver support provides an advantage over most other adapter
suppliers.
MARKETS AND COMPETITION: COMPONENT PRODUCTS DIVISION
The Division's strategy is to concentrate its product development, sales
and marketing resources into the PC I/O and networking markets. These markets
represent a small portion of the total semiconductor market. Competitors
include both domestic and foreign manufacturers, many of whom possess
substantially greater resources than SMC.
Within the PC I/O market, SMC believes the variety of performance features
and the design flexibility provided to customers has led to strong acceptance of
its family of PC I/O devices and allowed SMC to become the market leader. The
division has continually added devices with enhanced features. Principal
customers for PC I/O devices are most major producers of PCs.
The fiscal 1993, 1994 and 1995 introductions of 10 Mbps and 100 Mbps single
chip Ethernet control devices placed the Component Products Division in a
growing and very competitive market for PC LANs.
A family of low cost industrial ARCNET controllers addresses industrial
network solutions, characterized by long design-in cycles. Addressing specific
customers, SMC's foundry business applies semiconductor fabrication skills to
non-semiconductor products, including a device for ink jet printer heads.
SALES AND DISTRIBUTION
SMC's system products are sold primarily to distributors of computer
products as well as system integrators, original equipment manufacturers (OEMs)
and end users. Component products are sold primarily to OEMs and also to
distributors of semiconductor devices. The Company maintains a reserve for
anticipated product returns and price protection.
One customer, Ingram Micro D Inc., accounted for over 10% of revenues in
fiscal 1995.
SALES AND DISTRIBUTION: SYSTEM PRODUCTS DIVISION
Standard Microsystems sells and markets most LAN products primarily through
LAN and microcomputer distributors and OEM/strategic accounts. The distributors
sell products to thousands of resellers who offer products to end users. The
Division provides service and support and promotional programs to encourage
resellers to buy SMC products from distributors.
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In accordance with industry practice, distributor inventory is protected
with respect to price on inventories which the distributor may have on hand at
the time of a change in the published list price, and with respect to the
rotation of slow moving inventory in exchange for other inventory of equal
value. Distributor contracts may be terminated by written notice by either
party. The contracts specify the terms covering the return of inventories.
Returns of product pursuant to termination of these agreements have not been
material.
LAN switches are sold chiefly to end users, value added resellers and
OEM/strategic accounts who buy directly from SMC. Sales of Token Ring products
frequently require direct end-user contact by SMC personnel although sales are
fulfilled through the distributor channel. Because internetworking products
impact a broad portion of a customer's network, they generally fall under the
authority of an organization's information technology manager. As a result,
during this past fiscal year, SMC has expanded its sales organization to also
sell directly to end users.
SALES AND DISTRIBUTION: COMPONENT PRODUCTS DIVISION
Sales are primarily to OEMs and electronic component distributors.
Producers of PCs are the Division's largest customer group. In accordance with
industry practice, distributor inventory is protected with respect to price on
inventories which the distributor may have on hand at the time of a change in
the published list price. Also, in accordance with industry practice, slow
moving inventory may be exchanged for other inventory of equal value.
Distributor contracts may be terminated by written notice by either party. The
contracts specify the terms for the return of inventories. Returns of product
pursuant to termination of these agreements have not been material.
SALES AND DISTRIBUTION: INTERNATIONAL SALES
As a percentage of total revenues, the Company's sales to customers located
outside the United States (mainly in Europe, the Far East and Canada) were 46.8%
in fiscal 1995, 44.0% in fiscal 1994, and 43.9% in fiscal 1993. Export sales
are made in United States dollars, except for sales by Toyo Microsystems, which
are denominated in Japanese yen. SMC's competitive position in foreign markets
may be impacted by currency fluctuations.
BACKLOG
The Company schedules production based upon a forecast of demand for its
products. Sales are made primarily pursuant to purchase orders generally
requiring delivery within one month. In light of industry practice and
experience, the Company believes that backlog is not a particularly meaningful
indicator of future sales.
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MANUFACTURING
Products of the System Products Division are assembled by turnkey
subcontractors at plants located in the United States and Ireland. Design and
assembly of these products primarily utilize surface mount technology. SMC
provides the subcontract manufacturer with detailed documentation necessary to
build a board to required quality specifications. This documentation includes
board schematics and drawings, bill of materials, quality specifications and
packaging, handling and shipping details.
The subcontract manufacturer is then responsible for component procurement,
including printed circuit boards, incoming test of components, mounting all
components on the printed circuit board and the burn-in and final testing of the
boards. SMC requires that assembled boards be manufactured to Interconnecting
and Packaging and Electronic Circuit (IPC) standards.
SMC utilizes semiconductor foundries and assembly contractors in the US,
Southeast Asia and Western Europe to provide state-of-the-art CMOS manufacturing
and assembly capacity. These foundries manufacture most of the proprietary
integrated circuits used in System Products Division products. During fiscal
1995, 92% of the revenues of the Component Products Division resulted from the
sale of product manufactured by subcontractor foundries, compared to 88% in
1994. The Company continuously explores additional subcontract manufacturing
relationships.
In October 1994, SMC and AT&T Microelectronics entered into a cooperative
wafer fabrication agreement for SMC to invest $16 million in wafer fabrication
equipment for a semiconductor plant owned by AT&T Microelectronics, located in
Madrid, Spain. This investment provides SMC with wafers from a facility capable
of producing device geometries of 0.9 to 0.45 microns (millionths of a meter).
SMC will receive wafers over a five year period beginning near the end of fiscal
1996 when SMC is expected to first receive wafers.
In the first quarter of fiscal 1996, SMC purchased a minority equity
interest in Singapore-based Chartered Semiconductor Pte Ltd. for approximately
$14 million. An additional $6.0 million will be invested in early fiscal 1997.
This transaction provides SMC with wafers from an advanced facility being built
that will be capable of producing device geometries of 0.6 to 0.2 microns. SMC
will receive wafers over a ten year period beginning near the end of fiscal 1996
when SMC is expected to first receive wafers.
The Company has developed relationships with several suppliers who
represent the primary source for certain components, raw material and finished
product. Most components and other materials purchased by SMC and its
subcontractors are generally available from multiple suppliers. However,
certain components and other materials are available from a single source. The
inability to obtain certain components or materials
13
<PAGE>
could lead to an interruption in shipments of certain SMC products. SMC and
its subcontract assemblers have generally been able to obtain both sole and
multiple-sourced materials without interrupting production schedules. However,
the inability to obtain certain components, materials or finished products from
a supplier or subcontractor could cause a temporary interruption in the sale of
the Company's products.
High levels of production by PC manufacturers have led to an industry-wide
shortage of silicon wafer fabrication capacity. As a result, SMC believes it
was unable to produce all the integrated circuits it was capable of selling in
fiscal 1995. Currently faced with limited subcontractor fabrication capacity,
difficulty in securing additional capacity could impact revenue and profit
growth in fiscal 1996 and beyond
RESEARCH AND DEVELOPMENT
The technology involved in designing and manufacturing SMC's products is
complex and is constantly being refined. Accordingly, the Company is committed
to a program of research and development oriented toward improving and refining
its existing capabilities and developing new techniques, designs and
technologies for component and system products.
During the fiscal year which ended February 28, 1995, SMC spent $28,286,000
on research and development, which equaled 7.5% of revenues. This compares with
$23,963,000 or 7.4% of revenues spent during fiscal 1994 and $17,033,000 or 6.8%
of revenues during fiscal 1993.
Engineering groups within both the System Products and Component Products
Divisions utilize semiconductor design techniques to minimize chip area and
utilize advanced wafer processing and packaging methods. The goal is to obtain
the best features, performance and reliability while minimizing integrated
circuit manufacturing costs.
NEW PRODUCTS: Key networking products introduced by the SYSTEM PRODUCTS
DIVISION during fiscal 1995 included two lines of single-chip based Ethernet
adapters and low cost unmanaged concentrators. Key internetworking products
introduced included a workgroup Ethernet switch and Token Ring and fiber
input/output modules (IOMs) for the ES/1. Software introduced supported routing
protocols and network management based on the SNMP industry standard protocol.
Key products introduced by the COMPONENT PRODUCTS DIVISION during fiscal
1995 included extensions to its PC I/O controller family and a single-chip Fast
Ethernet controller.
14
<PAGE>
PRODUCTS INITIALLY SHIPPED IN FISCAL 1995
ETHERNET PRODUCTS:
ETHEREZ (TM): 16-bit ISA PnP (auto-configurable) compliant adapters
with 10Base-T connector, thin coax connector or a combination of 10Base-T and
thin coax connectors, I/O or memory mapped
ETHERPOWER(TM): 32-bit PCI auto-configurable adapters with 10Base-T
connector or a combination of 10Base-T and thin coax connectors, bus master
ETHERPOWER10/100(TM): 32-bit PCI auto-configurable adapters with 10Base-T and
STP connectors, bus master, software selection of 10Base-T or 100Base-T
ETHER10/100(TM): 32-bit EISA auto configurable adapters with 10Base-T
connectors, DMA burst mode access, software selection of 10Base-T or 100Base-T
ELITECARD(TM): PCMCIA credit-card-sized adapters with a 10Base-T or a
combination of 10Base-T and thin coax connectors for laptop and portable
computers
ETHERCARD ELITE ULTRA(TM): 16-bit ISA adapters with 10Base-T and AUI connectors
or thin coax and AUI connectors
TIGERHUB(TM): Family of six unmanaged hubs configured: TP6 - 6 10Base-T ports,
1 AUI port; TP6B - 6 10Base-T ports, 1 BNC port; CX3 - 3 BNC ports, 1 AUI port;
TP12 - 12 10Base-T ports, 1 AUI port, 1 BNC port, segmentable; CX6 - 6 BNC
ports, 1 AUI port, 1 10Base-T port, segmentable; FL6 - 6 dual fiber ports, 1
AUI port, 1 BNC port, segmentable
TOKEN RING PRODUCTS:
TOKENCARD ELITE MASTER32(TM): 32-bit EISA adapter with 10Base-T and
thin coax connectors, bus master
ELITESTACK RMM(TM): plug-in module with microprocessor and SNMP agent stored in
flash PROM to allow up to 32 EliteStack stackable MAUs to be monitored by an
SNMP-based NMS
LAN SWITCHING PRODUCTS:
QUAD TOKEN RING INPUT/OUTPUT MODULES (QTIOM): four port modules with connectors
for twisted pair or coax cables; each IOM connects an ES/1 to four independent
Token-Ring LANs and allows seamless connection to attached networks,
including Ethernet and FDDI
INTELLIGENT FDDI INPUT/OUTPUT MODULE (IFIOM): dual attached fiber interface
allowing an ES/1 to switch between multiple FDDI networks
HIGH-SPEED SERIAL INTERFACE INPUT/OUTPUT MODULE (HIOM): connection
across public network to T3/E3 or Sonnet up to 52 Mbps or T1/E1 up to 10 Mbps
TIGERSWITCH(TM) XE: Ethernet store and forward switch with 24 RJ-45 ports, 1
AUI port and 1 RS-232C connection with 10 Mbps to each port for an aggregate of
240 Mbps of bandwidth
15
<PAGE>
NETWORK MANAGEMENT SOFTWARE:
ELITEVIEW(TM) V4.0: Windows based NMS for managing networks with SMC
hubs and adapters, supporting SNMP agents for SMC Ethernet and Token
Ring adapters and hubs; V4.0-ES: also incorporates ES/1 support; also shipped
V4.1 and V4.1-ES
ELITEVIEW(TM) /NV, /OV and /SN SNAP-INS: SNMP applications enabling
management, control and monitoring of ES/1 from within UNIX based NMSs: /NV -
with IBM's NetView; /OV - with Hewlett-Packard's OpenView; /SN -
with SunConnect's SunNet Manager
NETWORK AND PC I/O CONTROLLERS:
SMC91C100: FEAST (Fast Ethernet using Advanced SMC Technology) dual speed 10
and 100Mbps controller, memory management and 32-bit data path
FDC37C665IR,..666IR: infrared communications for wireless data transfers
between notebook PCs, personal digital assistants and desktop PCs, low power;
super I/O features of 2.88 megabyte floppy disk control, serial port and
parallel port control with chip protection and power down, EPP and ECP protocol
support to interface with high speed peripherals
FDC37C667: ISA PnP compatible in addition to Super I/O features
FDC37C92X: adds keyboard controller and real time clock to features of 665IR to
become ultra I/O class controller (X varies from 1 to 5, depending upon the
BIOS [basic input/output system] supported)
FDC37C93X: adds PnP support to 92X features
SMC34C731: 486 core logic companion, buffers to drive ISA bus signals, memory
refresh
SMC34C761: high voltage buffer including multiple line drivers and receivers,
timers and dual game port interface, for use with SMC PC I/O devices
PATENTS AND LICENSE AGREEMENTS
The Company has received numerous United States patents relating to its
technologies and additional patent applications are pending.
The Company has entered into non-exclusive patent licensing and
patent/technology licensing agreements which have entitled the licensees to
utilize the Company's patents or technologies, in exchange for which the Company
has received, in various combinations, lump-sum payments, royalty payments, the
right to utilize other patents or technologies of the licensees or other
consideration, including the right to manufacture, market and sell specific
products designed by the licensees. These agreements have typically provided
for bi-directional licenses under certain patents, utility models and design
patents, existing at the effective date of the particular agreement and patent
applications filed within a specified period of years after the effective date
of the agreement. The licenses usually continue for the life of the particular
patent.
16
<PAGE>
The Company has, from time to time, been informed of claims that it may be
infringing patents owned by others. When the Company deems it appropriate, the
Company may seek licenses under certain of such patents. However, no assurance
can be given that satisfactory license agreements will be obtained if sought by
the Company or that failure to obtain any such licenses would not adversely
affect the Company's future operations.
ENVIRONMENTAL REGULATION
Federal, state and local regulations impose various controls on the
discharge of certain chemicals and gases used in semiconductor processing. The
Company's facilities have been designed to comply with these regulations.
However, increasing public attention has focused on the environmental impact of
electronics manufacturing operations and, accordingly, there is no assurance
that future regulations will not impose significant costs on the Company.
EMPLOYEES
As of February 28, 1995, of the Company's 861 employees, 202 were engaged
in engineering, including research and development, 301 in marketing and sales,
161 in executive and administrative activities and 197 in manufacturing and
manufacturing support. This compared to February 28, 1994, when, of the
Companyis 755 employees, 182 were engaged in engineering, including research and
development, 207 in marketing and sales, 148 in executive and administrative
activities and 218 in manufacturing and manufacturing support.
Many employees are highly skilled and SMC's success depends upon its
ability to retain and attract such employees. The Company has never had a work
stoppage. No employees are represented by a labor organization and the Company
considers its employee relations to be satisfactory.
SMC and Standard Microsystems are registered trademarks of Standard
Microsystems Corporation. Product names and company names are the trademarks of
their respective holders.
17
<PAGE>
ITEM 2. PROPERTIES.
The Company owns five facilities, totaling approximately 249,000 square
feet of plant and office space, located on approximately 28 acres in Hauppauge,
New York, where research, development, manufacturing, product testing,
warehousing, shipping, marketing, selling and administrative functions are
conducted.
The Company occupies a 50,000 square foot facility in Irvine, California,
where the Desktop Networks Business Unit of SMC's System Products Division
conducts research, development and marketing. The lease expires in 1997.
The Company occupies a 61,000 square foot facility in Andover,
Massachusetts, principally used by the Enterprise Networks Business Unit of
SMC's System Products Division which conducts research, development and
marketing. The lease expires in 2001.
In addition, the Company maintains offices in leased facilities in: San
Diego and San Jose, California; Boca Raton and Miami, Florida; Atlanta, Georgia;
Oakbrook Terrace, Illinois; Beachwood and Dayton, Ohio; Austin and Dallas,
Texas; McLean, Virginia; Bellevue, Washington; Sydney, Australia; Oakville,
Ontario, Canada; London, England; St. Germain-en-Laye, France; Munich, Germany;
Tokyo, Japan; Singapore; Johannesburg, South Africa and Taipei, Taiwan.
Machinery and equipment and leasehold improvements with an original cost of
approximately $108,372,000 and accumulated depreciation and amortization of
approximately $73,465,000 are owned by the Company as of February 28, 1995.
18
<PAGE>
ITEM 3. LEGAL PROCEEDINGS. Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the registrant as of April 30, 1995, are as
follows:
<TABLE>
<CAPTION>
SERVED AS AN
NAME POSITION AGE OFFICER SINCE
<C> <S> <C> <C>
Victor F. Trizzino President and 54 1980
Chief Executive Officer
Paul Richman Chairman 52 1971
Gerald E. Gollub Executive Vice President 52 1976
Arthur Sidorsky Executive Vice President 61 1980
Anthony M. D'Agostino Vice President Finance 37 1988
and Treasurer
</TABLE>
All officers serve at the pleasure of the Board of Directors.
19
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
The information captioned "Market price" and the last three paragraphs
appearing in the Annual Report under the heading "Quarterly Financial Data" are
incorporated herein by this reference. Except as specifically set forth herein
and elsewhere in this Form 10-K, no information appearing in the Annual Report
is incorporated by reference into this report nor is the Annual Report deemed
to be filed, as part of this report or otherwise, pursuant to the Securities
Exchange Act of 1934.
ITEM 6. SELECTED FINANCIAL DATA.
The information appearing in the Annual Report under the caption "Selected
Financial Data" is incorporated herein by this reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The information appearing in the Annual Report under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" is incorporated herein by this reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements, notes thereto, Report of Independent Public
Accountants thereon and quarterly financial data appearing in the Annual Report
are incorporated herein by this reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Inapplicable.
20
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information appearing in the Proxy Statement under the caption
"Election of Directors" is incorporated herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information appearing in the Proxy Statement under the caption
"Executive Compensation" is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.
The information appearing in the Proxy Statement under the captions
"Election of Directors" and "Voting Securities of Certain
Beneficial Owners and Management" is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information appearing in the Proxy Statement under the caption "Certain
Relationships and Related Transactions" is incorporated herein by this
reference.
21
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.
(a) 1. Financial Statements
The following consolidated financial statements of the Company
and its subsidiaries have been incorporated by reference from the
Annual Report pursuant to Part II, Item 8:
Consolidated Statements of Income for the three years ended February
28, 1995
Consolidated Balance Sheets, February 28, 1995 and February 28, 1994
Consolidated Statements of Shareholders' Equity for the three years
ended February 28, 1995
Consolidated Statements of Cash Flows for the three years ended
February 28, 1995
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
2. Financial Statement Schedules
Report of Independent Public Accountants on Schedules
Schedule II - Valuation and Qualifying Accounts for the three years
ended February 28, 1995
22
<PAGE>
All other schedules are omitted because of the absence of conditions
requiring them or because the required information is shown on the consolidated
financial statements or the notes thereto.
3. Exhibits, which are listed on the Exhibit Index, are filed as part
of this report and such Exhibit Index is incorporated by reference.
Exhibits 10(a) through 10(m) listed on the accompanying Exhibit
Index identify management contracts or compensatory plans or
arrangements required to be filed as exhibits to this report, and
such listing is incorporated herein by reference.
(b) No report on Form 8-K was filed during the last quarter of the period
covered by this report.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
STANDARD MICROSYSTEMS CORPORATION
(Registrant)
By S/ANTHONY M. D'AGOSTINO
ANTHONY M. D'AGOSTINO
Vice President Finance and Treasurer
(Principal Financial and Accounting Officer)
Date: May 25, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated.
Signature and Title Date
PAUL RICHMAN May 25, 1995
Paul Richman
Chairman and Director
VICTOR F. TRIZZINO May 25, 1995
Victor F. Trizzino
President, Chief Executive Officer
and Director (Principal Executive
Officer)
24
<PAGE>
EVELYN BEREZIN May 25, 1995
Evelyn Berezin
Director
ROBERT M. BRILL May 25, 1995
Robert M. Brill
Director
PETER F. DICKS May 25, 1995
Peter F. Dicks
Director
HERMAN FIALKOV May 25, 1995
Herman Fialkov
Director
RAYMOND FRANKEL May 25, 1995
Raymond Frankel
Director
IVAN T. FRISCH May 25, 1995
Ivan T. Frisch
Director
25
<PAGE>
Schedule II
STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED FEBRUARY 28, 1995
<TABLE>
<CAPTION>
Additions
Balance at Charged to Write-offs, Balance at
Year Ended Beginning Costs and Net of End
February 28, 1995 of Period Expenses Recoveries of Period
<S> <C> <C> <C> <C>
Allowance for
doubtful accounts $1,001,000 $808,000 $(707,000) $1,102,000
Year Ended
February 28, 1994
Allowance for
doubtful accounts $ 792,000 $399,000 $(190,000) $1,001,000
Year Ended
February 28, 1993
Allowance for
doubtful accounts $ 504,000 $360,000 $ (72,000) $ 792,000
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To Standard Microsystems Corporation:
We have audited in accordance with generally accepted auditing standards,
the financial statements included in Standard Microsystems Corporation's annual
report to shareholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated March 29, 1995. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The
schedule listed in the index above is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states, in all
material respects, the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Baltimore, Maryland
March 29, 1995
<PAGE>
EXHIBIT INDEX
Incorporated By Exhibit
Reference To: No. Exhibit
Exhibit 3(a) [9] 3.1 Restated Certificate of
Incorporation
Exhibit 3(b) [8] 3.2 By-Laws as amended
Exhibit 1 [5] 3.3 Rights Agreement dated as of
January 7, 1988 with Mellon
Securities Trust Company
as Rights Agent
Exhibit 3 [6] 3.4 Amendment No. 1 to Rights
Agreement
* 10.1 Employment Agreement, dated
as of March 1, 1995,
with Paul Richman
Exhibit 10(b)[13] 10.2 Employment Agreement dated as
of March 1, 1993,
with Victor Trizzino
Exhibit 10(c)[13] 10.3 Employment Agreement, dated as
of March 1, 1993,
with Gerald E. Gollub
Exhibit 10(d)[13] 10.4 Employment Agreement dated as
of March 1, 1993
with Arthur Sidorsky
Registrant's Proxy 10.5 1984 Stock Option Plan for
Statement dated May Officers and Key Employees
16, 1984, Exhibit A
Exhibit 10(g) [4] 10.6 Amendment to 1984 Stock Option
Plan for Officers and
Key Employees
Registrant's Proxy 10.7 1986 Stock Option Plan for
Statement dated May Officers and Key Employees
22, 1986, Exhibit A
Exhibit 10(i) [4] 10.8 Amendment to 1986 Stock Option
Plan for Officers and
Key Employees
Exhibit 10(m) [1] 10.9 Amendment to 1986 Stock Option
Plan for Officers and
Key Employees dated March
29, 1990
Registrant's Proxy 10.10 1989 Stock Option Plan
Statement dated June
6, 1989, Exhibit A
Registrant's Proxy 10.11 1991 Restricted Stock
Statement dated July Bonus Plan
17, 1991, Exhibit A
Registrant's Proxy 10.12 Director Stock Option
Statement dated May Plan
29, 1990, Exhibit A
Exhibit 10(m) [11] 10.13 Resolutions adopted February
18, 1992 amending Director Stock
Option Plan, 1991 Restricted Stock
Bonus Plan, 1989 Stock Option Plan,
1986 Stock Option Plan and
1984 Stock Option Plan
* 10.14 Retirement Plan for Directors
Registrant's Proxy 10.15 1993 Stock Option Plan
Statement dated May for Officers and Key
25, 1993, Exhibit A Employees
Exhibit 10(x)[13] 10.16 Executive Retirement Plan
Registrant's Proxy 10.17 1994 Stock Option Plan
Statement dated May for Officers and Key
26, 1994, Exhibit A Employees
* 10.18 Resolutions adopted October
31, 1994 amending the Retirement
Plan for Directors and
the Executive Retirement Plan
* 10.19 Resolutions adopted January 3,
1995 amending the 1994, 1993, 1989,
1986, and 1984 Stock Option and
the 1991 Restricted Stock Plan
Exhibit 10.2 [2] 10.20 Patent and Trade Secrets
Agreement, dated as of March 12,
1983 with Paul Richman
Exhibit 10(r) [7] 10.21 Patent and Trade Secrets
Agreement, dated as of March 1,
1988 with Gerald Gollub
* 10.22 Consulting Agreement dated as
of March 1, 1995 with
Herman Fialkov
Exhibit 10(t) [7] 10.23 Form of Severance Pay
Agreement (renewed
annually through December 31,
1995)
Exhibit 2(a) [10] 10.24 Agreement for Purchase and
Sale of Assets between SMC
and Western Digital Corporation,
dated September 16, 1991, as amended
Exhibit 2(b) [10] 10.25 Technology Transfer Agreement
between SMC and WDC dated as
of September 27, 1991
Exhibit 2(c) [10] 10.26 Noncompetition Agreement
between SMC and WDC dated as
of September 27, 1991
* 10.27 Credit Agreement dated January
13, 1995
Exhibit 2 [12] 10.28 Agreement and Plan of Merger
Among SMC, SMC Massachusetts
Inc., Sigma Network Systems Inc.,
Ashraf M. Dahod and Kwabena
D. Akufo dated December 8, 1992
* 13 Portions of Annual Report to
Stockholders for year ended
February 28, 1995 incorporated
by reference
* 23 Consent of Arthur Andersen LLP
* 27 Financial Data Schedule
* 99 Form 11-K for year ended
February 28, 1994 of
registrant's Incentive Savings
and Retirement Plan
_________________________
* Filed herewith.
[1] Registrant's Annual Report on Form 10-K
for fiscal year ended February 28, 1990.
[2] Registrant's Quarterly Report on Form
10-Q for the quarter ended August 31, 1983.
[3] Registrant's Annual Report on Form 10-K
for fiscal year ended February 28, 1985.
[4] Registrant's Annual Report on Form 10-K
for fiscal year ended February 28, 1987.
[5] Registrant's Registration on Form 8-A
dated January 11, 1988.
[6] Registrant's Amendment No. 2 on Form 8
dated April 14, 1988 to Registration on Form 8-A.
[7] Registrant's Annual Report on Form 10-K
for fiscal year ended February 29, 1988.
[8] Registrant's Annual Report on Form 10-K
for fiscal year ended February 28, 1989.
[9] Registrant's Annual Report on Form 10-K
for fiscal year ended February 28, 1991.
[10] Registrant's Current Report on Form 8-K
filed October 31, 1991.
[11] Registrant's Annual Report on Form 10-K
for fiscal year ended February 29, 1992.
[12] Registrant's Current Report on Form 8-K
filed January 13, 1993.
[13] Registrant's Annual Report on Form 10-K
for fiscal year ended February 28, 1995.
EMPLOYMENT AGREEMENT
Agreement made as of the 1st day of March, 1995
(the "Commencement Date") between Standard Microsystems
Corporation, a corporation duly organized and existing under
and by virtue of the laws of the State of Delaware and
having an office at 80 Arkay Drive, Hauppauge, New York
11788, hereinafter referred to as "SMC," and Paul Richman,
residing at 6 Swan Place, Nissequogue, NY 11780, hereinafter
referred to as "Mr. Richman."
W I T N E S S E T H:
WHEREAS, SMC is engaged, among other things, in
the business of developing, manufacturing and selling
networking and board-level products and integrated circuits
for use in the electronics industry; and
WHEREAS, SMC has for many years employed Mr.
Richman and desires to continue to employ or engage him in
an executive or consulting capacity, upon the terms and
conditions hereinafter in this Agreement set forth, and Mr.
Richman is desirous of being so employed or engaged; and
WHEREAS, SMC controls, or may control in the
future, various corporations and/or other enterprises, the
corporations and/or other enterprises from time to time
controlled by SMC being referred to in this Agreement as
"SMC AFFILIATES;" and
WHEREAS, SMC may have, or may have in the future,
a minority interest in various corporations and/or other
enterprises, the corporations and/or other enterprises in
which SMC may have, from time to time, a minority interest
being referred to in this Agreement as "SMC ASSOCIATED
COMPANIES;" and
WHEREAS, Mr. Richman is, as of the Commencement
Date, employed as the Chairman of the Board of SMC;
Now, therefore, in consideration of the premises
and the mutual covenants and conditions contained herein,
the parties hereto agree as follows:
FIRST: Subject to paragraph SIXTH, SMC agrees to
employ Mr. Richman and Mr. Richman agrees to be employed
pursuant to this Agreement for a period commencing on the
Commencement Date and ending February 29, 2000. For so long
as he shall be employed pursuant to the preceding sentence,
Mr. Richman shall serve as Chairman of the Board of SMC, if
he so desires and if elected to such office. SMC and Mr.
Richman agree that any change in Mr. Richman's position
and/or responsibilities will not alter any of the other
terms of this Agreement, except as expressly set forth
herein. Mr. Richman agrees to apply his experience and
skill to such problems as shall be presented to him from
time to time by, or at the direction of, the Board of
Directors of SMC in connection with the business of SMC, the
SMC AFFILIATES and the SMC ASSOCIATED COMPANIES. Although
Mr. Richman may be required to spend a significant portion
of his business time travelling on behalf of SMC, the SMC
AFFILIATES and the SMC ASSOCIATED COMPANIES, Mr. Richman
shall not be required to conduct his principal activities or
have his headquarters at a location outside the Hauppauge,
Long Island, New York area (hereby defined to include all
points within fifty miles of Hauppauge, Long Island, New
York).
SECOND: (a) Subject to Clause (b) of this
paragraph SECOND, Mr. Richman shall render 120 hours of
service per month hereunder, including travel time
(essentially 80% of full time) and, during such time, shall
give his full time, attention, best efforts and skill to
SMC, the SMC AFFILIATES and the SMC ASSOCIATED COMPANIES and
shall accept willingly and carry out the duties assigned to
him in the furtherance of the business of SMC, the SMC
AFFILIATES and the SMC ASSOCIATED COMPANIES. During the
period of this Agreement, he shall not engage in any
activity competing or in conflict with the best interests of
SMC, the SMC AFFILIATES and the SMC ASSOCIATED COMPANIES.
In addition to the compensation set forth in paragraph THIRD
hereof, and in consideration for these services, SMC agrees
to make available to Mr. Richman the benefits and privileges
regularly granted by SMC to other senior executives of SMC,
except for any benefit or privilege under any plan that
requires for eligibility a greater number of hours of
service than are required of Mr. Richman under this
Agreement. For purposes of computing Mr. Richman's benefit
under SMC's Executive Retirement Plan, Mr. Richman's
employment will be deemed to have terminated February 28,
1995. Mr. Richman waives all rights under the Retirement
Plan for Directors of Standard Microsystems Corporation.
Mr. Richman shall be entitled to vacation determined as the
product obtained by multiplying the number of vacation days
per year to which he currently is entitled by the Adjustment
Factor, as hereinafter defined. At all times when he is not
required to serve SMC pursuant to this Agreement, Mr.
Richman shall be free to pursue, for his own enjoyment and
financial benefit, other activities such as, but not limited
to, acting as President of the Consortium for Technology
Licensing, Ltd., teaching, lecturing and writing, so long as
such activities do not compete with SMC or conflict with the
best interests of SMC. Mr. Richman will report all
significant changes and/or new developments pertaining to
such activities to the Board of Directors of SMC at its
regular meetings and, between such meetings, to the Chief
Executive Officer of SMC.
(b) Either party may at any time, and from time
to time, give notice to the other (a "Change Time Notice")
that the hours of service per month specified in Clause (a)
of this paragraph SECOND shall be reduced, as specified in
such notice to 90, 60 or 30 hours of service per month,
effective on the first day of a calendar month specified in
the notice (the "Change Date"), which day shall be not less
than three months following the giving of such notice and
not earlier than March 1, 1996. Effective from the Change
Date, the reduced number of hours specified in the Change
Time Notice shall be substituted for 120 in the penultimate
sentence of paragraph THIRD (A). Once the number of service
hours per month is reduced in the manner described herein
above, the number of service hours per month may be
increased only by written mutual agreement of the parties.
THIRD: A. SMC shall pay to Mr. Richman, and Mr.
Richman agrees to accept as compensation for and in
consideration of the work to be performed hereunder by Mr.
Richman, a weekly salary at an annual rate determined by
multiplying the Base Rate, as hereinafter defined, by the
Adjustment Factor, as hereinafter defined. The Base Rate
shall be $386,500 provided, however, that the Base Rate
shall be modified as of March 1, 1995, and as of each
successive March 1 to the end of the term of this Agreement
in proportion to any increase in the Consumer Price Index,
as hereinafter defined, between the February levels of the
two immediately preceding years. Each such modification
shall be made retroactively when the Consumer Price Index
for the February next preceding the date of such adjustment
becomes available. The words "Consumer Price Index," as
used in this Agreement shall mean the Consumer Price Index
for All Urban Consumers, U.S. City Average, All Items (1982-
84=100), as reported by the Bureau of Labor Statistics of
the U.S. Department of Labor. In the event that this
Consumer Price Index shall be superseded or shall be
published by a different agency, then the superseding index
shall be substituted for this Consumer Price Index in such a
manner as to implement the intent of this Agreement that the
Base Rate shall be modified annually, beginning as of March
1, 1996, so that the purchasing power thereof shall be
maintained at a level at least equivalent to the purchasing
power thereof at March 1, 1995. The Adjustment Factor shall
be a fraction, the numerator of which shall be 120, or such
other number of hours of service as the parties shall agree
that Mr. Richman shall provide pursuant to paragraph SECOND,
and the denominator of which shall be 150. The Board of
Directors of SMC shall have full discretion from time to
time to fix the Base Rate, for any period specified by the
Board, at an amount exceeding the Base Rate determined
pursuant to the preceding provisions of this paragraph THIRD
(a).
B. As additional compensation for his services,
SMC shall pay to Mr. Richman:
1. a further amount equal to five percent
(5%) of all revenues receivable by SMC and/or SMC AFFILIATES
from the licensing of any patent or technology of SMC and/or
SMC AFFILIATES (whether or not such technology is covered by
any patent of SMC and/or SMC AFFILIATES), which revenues
become receivable after February 28, 1995 and while Mr.
Richman is employed under this Agreement or any
modification, extension or renewal thereof or while Mr.
Richman is willing to act as an employee of, or consultant
to, SMC on terms acceptable to SMC; plus, but without
duplication,
2. a further amount equal to five percent
(5%) of all revenues receivable by SMC ASSOCIATED COMPANIES
from the licensing of any patent or technology of any SMC
ASSOCIATED COMPANIES (whether or not such technology is
covered by any patent of SMC, SMC AFFILIATES and/or SMC
ASSOCIATED COMPANIES), which revenues become receivable
after February 28, 1995 and while Mr. Richman is employed
under this Agreement or any modification, extension or
renewal thereof or while Mr. Richman is willing to act as an
employee of, or consultant to, SMC on terms acceptable to
SMC; plus, but without duplication,
3. a further amount equal to one percent
(1%) of sales by SMC and/or SMC AFFILIATES of products
manufactured and/or sold by SMC and/or SMC AFFILIATES
pursuant to any second-sourcing, technology transfer or
other agreement with a licensee of any patent or technology
of SMC and/or SMC AFFILIATES (whether or not such technology
is covered by any patent of SMC and/or SMC AFFILIATES) which
sales are actually made by SMC and/or SMC AFFILIATES after
February 28, 1995 and while Mr. Richman is employed under
this Agreement or any modification, extension or renewal
thereof or while Mr. Richman is willing to act as an
employee of, or consultant to, SMC on terms acceptable to
SMC; plus, but without duplication,
4. a further amount equal to one percent
(1%) of sales by SMC ASSOCIATED COMPANIES of products
manufactured and/or sold by SMC ASSOCIATED COMPANIES
pursuant to any second-sourcing, technology transfer or
other agreement with a licensee of any patent or technology
of SMC, SMC AFFILIATES and/or SMC ASSOCIATED COMPANIES
(whether or not such technology is covered by any patent of
SMC, SMC AFFILIATES and/or SMC ASSOCIATED COMPANIES) which
sales are actually made by SMC ASSOCIATED COMPANIES after
February 28, 1995 and while Mr. Richman is employed under
this Agreement or any modification, extension or renewal
thereof or while Mr. Richman is willing to act as an
employee of, or consultant to, SMC on terms acceptable to
SMC.
Payments required to be made pursuant to subparagraphs (i),
(ii), (iii) and (iv) of this subsection THIRD (b) or
subsection THIRD (c), which payments are based on revenues
or sales of SMC AFFILIATES or SMC ASSOCIATED COMPANIES,
shall be reduced by a percentage equal to the percentage of
the equity not owned by SMC of the SMC AFFILIATE or SMC
ASSOCIATED COMPANY generating such sales or revenues, during
the period covered by the payment.
In computing the compensation payable pursuant to this
subsection THIRD (b) or subsection THIRD (c), there shall be
excluded from the computation all revenues receivable from
Texas Instruments Incorporated and all sales pursuant to any
second-sourcing, technology transfer or other agreements
with Texas Instruments Incorporated.
Payments due pursuant to this subsection THIRD (b) shall be
made to Mr. Richman by SMC quarterly, not later than ninety
(90) days after the end of each fiscal quarter of each
fiscal year of SMC, beginning with the quarter ending May
31, 1995. Such payments shall continue during the lifetime
of Mr. Richman, so long as he is willing to act as an
employee of, or consultant to, SMC on terms acceptable to
SMC.
Notwithstanding the preceding provisions of this paragraph
THIRD (b), the aggregate amount payable pursuant to this
paragraph THIRD (b) for any fiscal year of SMC shall not
exceed $364,000.
C. In the event of the death of Mr. Richman
while Mr. Richman is employed under this Agreement or any
modification, extension or renewal thereof, or while Mr.
Richman is acting as a consultant to SMC, an amount equal to
two and one half percent (2.5%) of all revenues receivable
by SMC and/or SMC AFFILIATES, during the five (5) year
period commencing on the day following the death of Mr.
Richman, from the licensing of any patent or technology of
SMC and/or SMC AFFILIATES (whether or not such technology is
covered by any patent of SMC and/or SMC AFFILIATES) shall be
paid to the estate of Mr. Richman and, in addition, an
amount equal to five-tenths of one percent (0.5%) of sales
by SMC and/or SMC AFFILIATES of products manufactured and/or
sold by SMC and/or SMC AFFILIATES pursuant to any second-
sourcing, technology transfer or other agreement with a
licensee of any patent or technology of SMC and/or SMC
AFFILIATES (whether or not such technology is covered by any
patent of SMC and/or SMC AFFILIATES) shall also be paid to
the estate of Mr. Richman. Payments due pursuant to this
subsection THIRD (c) shall be made to the estate of Mr.
Richman quarterly, not later than ninety (90) days after the
end of each fiscal quarter of each fiscal year of SMC,
beginning with the quarter ending just after the death of
Mr. Richman.
D. In the case of any dispute between SMC and
Mr. Richman as to the amounts of revenues or sales or the
percentage of equity not owned by SMC, the determination of
such consolidated net income, revenues, sales or percentage
by the independent public accountants retained by SMC to
audit its financial statements for such fiscal year shall be
binding and conclusive upon both parties to this Agreement.
FOURTH: The Patent and Trade Secrets Agreement
between SMC and Mr. Richman, dated March 1, 1983, shall
remain in effect but, commencing March 1, 1995, shall be
applicable only to inventions and improvements discovered or
made after February 28, 1995 and relating to semiconductor
devices and/or integrated circuits or networking-related
electronic components and/or systems; provided that if SMC
shall enter into any new line of business after the date of
this Agreement, the Patents and Trade Secrets Agreement
shall apply to inventions and improvements related to that
line of business from the date on which SMC shall enter such
line of business. Nothing in this paragraph FOURTH shall
release or otherwise affect Mr. Richman's obligations under
the Patent and Trade Secrets Agreement in relation to any
invention or improvement made or discovered prior to March
1, 1995.
FIFTH: The obligations of SMC under this
Agreement shall not be affected by the sale, lease or
exchange of all, or any substantial part, of the property
and assets of SMC unless SMC shall require the purchaser, by
an instrument in writing to assume such obligations, in
which event SMC shall be relieved of such obligations to the
extent they have been so assumed. Except to the extent such
obligations are so assumed, SMC's obligations under this
Agreement shall continue in full force and effect through
February 29, 2000.
SIXTH: Should SMC's Board of Directors fail to
elect Mr. Richman Chairman of the Board, or request that he
retire or resign from such position, or should Mr. Richman
desire so to retire or resign, he shall continue to render
services hereunder, as a consultant and independent
contractor, but shall no longer be an employee of SMC. SMC
shall continue to make available to Mr. Richman the same
benefits and privileges to which he is entitled under
paragraph SECOND, except for any benefit or privilege under
any plan as to which eligibility is restricted to employees.
SEVENTH: Any notice or any other communication
given under this Agreement to either party shall be in
writing and shall be delivered or mailed to such party at
the address of such party appearing at the head of this
Agreement; provided that either party may by notice
designate a changed address for such party. Any such notice
shall be deemed given (a) if mailed properly addressed,
postage prepaid, certified mail, return receipt requested,
on the third business day after mailing in New York, New
York or Hauppauge, New York, or (b) if delivered otherwise
than pursuant to (a), at the time of the actual delivery.
EIGHTH: Each previous Employment Agreement
between the parties to this Agreement is hereby superseded
by this Agreement.
IN WITNESS WHEREOF, SMC has caused this Agreement
to be executed on its behalf by its representative,
thereunto duly authorized, and Mr. Richman has executed this
Agreement as of the day and year first above written.
STANDARD MICROSYSTEMS CORPORATION
By:
Herman Fialkov, Director and
Chairman, Compensation Committee
______________________________
Paul Richman
Retirement Plan for Directors
of
Standard Microsystems Corporation
1. Each person who shall serve as a director of
Standard Microsystems Corporation on or after October 1,
1992, shall be entitled to retire pursuant to this Plan. A
director who proposes so to retire shall effect such
retirement by giving notice of his retirement to the
Secretary of the corporation. Such retirement shall be
effective on the date specified in such notice or, if no
date is so specified, on the date of delivery of his notice
to the Secretary.
2. Commencing with the first day of the calendar
quarter immediately following the retirement of a director
pursuant to this Plan, the corporation will pay such
director an amount equal to one-fourth of the annual
director's retainer in effect for such director at the
effective date of such retirement. The annual retainer is
the director's fee for one year regularly payable to a
director by the corporation, inclusive of any amount payable
by reason of service on a committee of the Board, but
exclusive of all meeting fees and reimbursement for expenses
of attendance at meetings of directors. Subject to
paragraph 3, the payment just specified shall be repeated on
the first day of each subsequent calendar quarter for a
period of ten years (forty payments in the aggregate) but
not longer than the period during which the retiring
director shall have received director's fees for service as
a director, at the effective date of his retirement.
3. In the event of the death of a retired
director, the retirement benefit specified in paragraph 2
shall be paid to the surviving spouse of the retired
director, commencing with the first day of the calendar
quarter next following his death. Payment shall be made at
the same rate as prevailed prior to such death, except that
such payments shall continue only through one-half of the
remaining period during which the director would have
received payments, had he survived. In the event of the
death of a director prior to retirement, payments shall be
made as if he had retired on the date of his death. If the
director is not survived by a spouse or, upon the death of
such surviving spouse, payments hereunder shall terminate.
4. No person shall be nominated as a director
for a three-year term if he shall have attained the age of
73, on or before the date of the annual meeting at which the
nomination would be presented. A director who is not
reelected as such at the expiration of his term shall be
deemed to have retired at that time.
5. During the year following the effective date
of a director's retirement, the retired director shall be
invited to attend each Board meeting as a consultant and
shall be reimbursed for the reasonable expenses incurred in
connection with such attendance together with an amount
equal to the meeting fee then being paid to directors.
6. A person who may qualify for benefits under
both this Plan and the Executive Retirement Plan of Standard
Microsystems Corporation shall elect benefits under one of
such plans in lieu of benefits under the other. Such
election shall be effected by filing a notice thereof with
the Secretary of the corporation.
7. The Board, in its sole discretion, may amend
or terminate the Plan at any time and from time to time;
provided, however, that no plan amendment or termination
shall, without the consent of the affected director, reduce
or eliminate any benefit theretofore accrued.
The Retirement Plan for Directors was amended by
adding the following paragraphs 6 and 7 thereto:
6. A person who may qualify for benefits under
both this plan and the Executive Retirement Plan
of Standard Microsystems Corporation shall elect
benefits under one of such plans in lieu of
benefits under the other. Such election shall be
effected by filing a notice thereof with the
Secretary of the corporation.
7. The Board, in its sole discretion, may amend
or terminate the Plan at any time and from time to
time; provided, however, that no plan amendment or
termination shall, without the consent of the
affected director, reduce or eliminate any benefit
theretofore accrued.
The Executive Retirement Plan was amended by
adding the following to Section 6.2:
A person who may qualify for benefits under both
this Plan and the Retirement Plan for Directors of
Standard Microsystems Corporation shall elect
benefits under one such plan in lieu of benefits
under the other. Such election shall be effected
by filing a notice thereof with the Administrator,
prior to receiving any benefit under either plan.
RESOLVED, that the 1994 and 1993 Stock Option
Plans be, and hereby are, amended by deleting from
paragraph 8(b), the words, "at any time subsequent
to the first anniversary of the grant of the
option", and from paragraph 9, the phrase, ",
subsequent to the first anniversary of the grant
of the option,".
RESOLVED, that the 1989 Stock Option Plan be,
and hereby is, amended by (i) deleting from
paragraph 8(b), the words, "at any time subsequent
to the first anniversary of the grant of the
option"; (ii) inserting at the beginning of
paragraph 9 the words, "Notwithstanding the
provisions of paragraph 7 specifying installments
in which an option shall be exercisable"; (iii)
inserting before the words "within the last to
occur of" the phrase, ",as to all shares of Common
Stock remaining subject to the option,"; and (iv)
deleting from paragraph 9, all language after the
words, "original expiration date of the option".
RESOLVED, that the 1986 and 1984 Stock
Option Plans be, and hereby are, amended by
inserting the following at the end of paragraph 8:
"Notwithstanding the provisions of
paragraph 7 specifying the installments
in which an option shall be exercisable,
upon an optionee's actual retirement at
or after normal retirement date, the
option shall be exercisable (within the
time periods set forth in paragraph 9)
as to all shares of Common Stock
remaining subject to the option."
and by amending paragraph 9 to read in its
entirety as follows:
"Notwithstanding the provisions of
paragraph 7 specifying the installments
in which an option shall be exercisable,
if an optionee shall die or become
permanently disabled within the meaning
of Section 22(e)(3) of the Code, while
he is employed by the Company or within
thirty days after the termination of his
employment (other than termination by
the Company for cause or voluntarily on
the part of the optionee and without the
consent of the Company), such option may
be exercised, as to all shares of Common
Stock remaining subject to the option,
within the later to occur of (a) three
months after the termination of the
optionee's employment or (b) 30 days
after the appointment of a legal
representative or guardian, but in no
case more than one year after
termination of employment and in no case
after the original expiration date of
the option."
RESOLVED, that the 1991 Restricted Stock Plan
be, and hereby is, amended by deleting from
Section 5.03 the words, "and any of such events
shall occur more than one year after the date on
which a Restricted Stock Bonus Award is granted to
him".
March 1, 1995
Mr. Herman Fialkov
199 Middle Neck Road
Great Neck, New York 11021
Dear Mr. Fialkov:
This letter will confirm the terms pursuant to
which you have agreed to serve as a consultant to Standard
Microsystems Corporation, a Delaware corporation, ("SMC")
for a period commencing on the date of this letter and
ending on June 30, 1997.
1. Your duties as consultant shall consist of
serving SMC as an advisor and consultant, as requested by
its Board of Directors or by members of its senior
management, and rendering advice to the Board and to members
of senior management of SMC in response to such inquiries
relating to the business of SMC as they shall from time to
time address to you. You will use your best judgment in
responding to such requests. Responses shall be oral except
to the extent that you shall prefer, from time to time, to
respond in writing. Your consulting duties under this
agreement do not require the preparation of written reports
or analyses.
2. Your fee as a consultant shall be equivalent
to $57,500 per annum, payable monthly.
3. Your services pursuant to this agreement
shall be performed at such times as shall be reasonably
convenient to you in the light of your other business,
professional and personal activities, including business or
personal travel and your own vacation schedule. You shall
not be required to perform services under this agreement,
except within 50 miles of Hauppauge, Long Island, New York,
unless you consent otherwise.
4. In the event of your death prior to June 30,
1997, your compensation pursuant to this agreement shall be
continued six months following the month in which such death
occurs.
5. Should you be requested to perform services
beyond the scope of ordinary consulting duties, you will be
additionally compensated for such service on a basis to be
agreed between you and SMC. Such agreement shall be made
promptly after you advise the person requesting such
services that such services are beyond the scope of ordinary
consulting duties. Pending such an agreement, neither you
nor SMC shall have any obligation in relation to such
services.
6. The fee specified in this agreement as your
compensation as consultant shall not affect your right to
compensation as a director of SMC, for which service you
will be compensated, in addition to your consulting fee, on
the same basis as are all other directors of SMC.
7. SMC contemplates that, during the term of
this agreement you may engage in all such business
activities as you desire to conduct, in addition to serving
as consultant under this agreement. No limitation on such
activities is imposed by this agreement except that, without
SMC's consent, you will not serve any competitor of SMC
engaged in the design or manufacture of semiconductor
devices or networking products.
8. You agree that you will keep in strict
secrecy and confidence any information, knowledge or data,
written or unwritten, relating to SMC's business, that you
may receive, develop or learn in the course of your
engagement by SMC, which (i) has not been disclosed in
issued patents or (ii) is not generally or publicly known or
(iii) has not been unrestrictedly disclosed by SMC. You
further agree not to disclose any such information,
knowledge or data to others, and not to use such
information, knowledge or data for any purpose of your own,
whether during or after your engagement with SMC, except
with the prior written consent of SMC. It is understood
that this Agreement does not restrict you in the exercise of
your technical skill subsequent to your engagement with SMC;
provided that the exercise of such skill does not involve
the disclosure to others of the aforesaid secret or
confidential information, knowledge or data, or the use by
you of such secret or confidential information, knowledge or
data on your own behalf or on behalf of other employers or
business interests. You further agree, during engagement as
a consultant to SMC, or upon termination of such engagement,
not to take with you without SMC's written consent, any
drawing, blueprint, photograph, sample, model,
specification, design, descriptive matter, picture,
reproduction or any other matter representing any product,
machine, process or other development whatsoever, which has
been, or is to be, made or used by SMC.
9. Your obligations under this agreement shall
inure to the benefit of and be enforceable by any
corporation or other entity which is, or any time after the
date hereof shall be, a parent or subsidiary or otherwise
affiliated with SMC and by any corporation or other entity
which shall hereafter acquire SMC or any such affiliate.
If the foregoing conforms with our understanding,
please sign the enclosed copy hereof at the place provided
for your signature and return it to the undersigned.
Very truly yours,
STANDARD MICROSYSTEMS CORPORATION
By:______________________________
Victor F. Trizzino
President
Accepted and Agreed to:
_________________________
Herman Fialkov
CREDIT AGREEMENT, dated as of January 13, 1995,
among Standard Microsystems Corporation, a Delaware
corporation (the "Borrower") and the several banks and other
financial institutions from time to time parties to this
Agreement (collectively, the "Lenders" individually, a
"Lender").
The parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement,
the following terms shall have the following meanings:
"ABR": for any day with respect to any ABR Loan
made by any Lender, a rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to the
greater of (a) the Prime Rate of such Lender in effect
on such day and (b) the Federal Funds Effective Rate
determined by such Lender as in effect on such day plus
1/2 of 1%. For purposes hereof: "Prime Rate" shall
mean the rate of interest per annum publicly announced
from time to time by the relevant Lender as its prime
rate in effect at its principal office (the Prime Rate
not being intended to be the lowest rate of interest
charged by such Lender in connection with extensions of
credit to debtors); and "Federal Funds Effective Rate"
shall mean, for any day, the weighted average of the
rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by
federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of
New York, or, if such rate is not so published for any
day which is a Business Day, the average of the
quotations for such day of such transactions received
by the relevant Lender from three federal funds brokers
of recognized standing selected by it. Any change in
the ABR due to a change in the Prime Rate or the
Federal Funds Effective Rate shall be effective as of
the opening of business on the effective day of such
change in the Prime Rate or the Federal Funds Effective
Rate, as the case may be.
"ABR Loans": Loans the rate of interest
applicable to which is based upon the ABR.
"Affiliate": as to any Person, any other Person
(other than a Subsidiary) which, directly or
indirectly, is in control of, is controlled by, or is
under common control with, such Person. For purposes
of this definition, "control" of a Person means the
power, directly or indirectly, either to (a) vote 10%
or more of the securities having ordinary voting power
for the election of directors of such Person or (b)
direct or cause the direction of the management and
policies of such Person, whether by contract or
otherwise.
"Agreement": this Credit Agreement, as amended,
supplemented or otherwise modified from time to time.
"Applicable Margin": with respect to any
Eurodollar Loan for each Interest Period with respect
thereto, (a) 0.625% with respect to the portion of such
Eurodollar Loan which when added to the aggregate
amount of all Loans outstanding at the time such
Eurodollar Loan is made (before giving effect to the
making of such Eurodollar Loan) would not exceed
$29,999,999, (b) 0.875% with respect to the portion of
such Eurodollar Loan which when added to the aggregate
amount of all Loans outstanding at the time such
Eurodollar Loan is made (before giving effect to the
making of such Eurodollar Loan) would exceed
$29,999,999 but would not exceed $59,999,999 and (c)
1.00% with respect to the portion of such Eurodollar
Loan which when added to the aggregate amount of all
Loans outstanding at the time such Eurodollar Loan is
made (before giving effect to the making of such
Eurodollar Loan) would exceed $59,999,999.
"Assignee": as defined in subsection 8.6(c).
"Available Commitment": as to any Lender at any
time, an amount equal to the excess, if any, of (a) the
amount of such Lender's Commitment over (b) the
aggregate principal amount of all Loans made by such
Lender then outstanding.
"Board of Governors": the Board of Governors of
the Federal Reserve System or any Governmental
Authority which succeeds to the powers and functions
thereof.
"Borrowing Date": any Business Day specified in a
notice pursuant to subsection 2.2 or 2.7 as a date on
which the Borrower requests the Lenders to make Loans
hereunder.
"Business": as defined in subsection 3.17.
"Business Day": a day other than a Saturday,
Sunday or other day on which commercial banks in New
York City are authorized or required by law to close.
"Capital Stock": any and all shares, interests,
participations or other equivalents (however
designated) of capital stock of a corporation, any and
all equivalent ownership interests in a Person (other
than a corporation) and any and all warrants or options
to purchase any of the foregoing.
"Chemical": Chemical Bank, a New York banking
corporation.
"Closing Date": the date on which the conditions
precedent set forth in subsection 4.1 shall be
satisfied.
"Code": the Internal Revenue Code of 1986, as
amended from time to time.
"Commitment": as to any Lender, the obligation of
such Lender to make Loans to the Borrower hereunder in
an aggregate principal amount at any one time
outstanding not to exceed the amount set forth opposite
such Lender's name on Schedule 1.1(a), as such amount
may be reduced from time to time in accordance with the
provisions of this Agreement.
"Commitment Percentage": as to any Lender at any
time, the percentage which such Lender's Commitment
then constitutes of the aggregate Commitments (or, at
any time after the Commitments shall have expired or
terminated, the percentage which the aggregate
principal amount of such Lender's Loans then
outstanding constitutes of the aggregate principal
amount of the Loans then outstanding).
"Commitment Period": the period from and
including the date hereof to but not including the
Termination Date or such earlier date on which the
Commitments shall terminate as provided herein.
"Commonly Controlled Entity": an entity, whether
or not incorporated, which is under common control with
the Borrower within the meaning of Section 4001 of
ERISA or is part of a group which includes the Borrower
and which is treated as a single employer under Section
414 of the Code.
"Consideration": with respect to any Permitted
Acquisition, collectively, (i) all cash paid by the
Borrower or any of its Subsidiaries in connection with
such Permitted Acquisition, including in respect of
transaction costs, fees and other expenses incurred by
the Borrower or any of its Subsidiaries in connection
with such Permitted Acquisition, (ii) all guarantees
and other contingent obligations created, and all
liabilities assumed, by the Borrower or any of its
Subsidiaries in connection with such Permitted
Acquisition, (iii) the value of all Capital Stock
issued by the Borrower or any of its Subsidiaries in
connection with such Permitted Acquisition and (iv) any
deferred portion of the purchase price or any other
costs paid by the Borrower or any of its Subsidiaries
in connection with such Permitted Acquisition.
"Consolidated Current Liabilities": at any date
of determination, all liabilities of the Borrower and
its Subsidiaries which, in accordance with GAAP, would
be classified on a consolidated balance sheet of the
Borrower and its Subsidiaries as current liabilities.
"Consolidated EBITDA": for any period, the
Consolidated Net Income for such period, plus, to the
extent deducted in determining such Consolidated Net
Income, (i) interest expense, (ii) depreciation, (iii)
amortization, (iv) all Federal, state, local and
foreign income taxes and (v) all other non-cash
expenses, minus, to the extent added in determining
such Consolidated Net Income, any non-cash income or
non-cash gains, all as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Funded Debt": at any date of
determination thereof, all Indebtedness of the Borrower
and its Subsidiaries, determined on a consolidated
basis in accordance with GAAP, which by its terms
matures more than one year after such date of
determination (including the current portion of any
such Indebtedness) and any such Indebtedness maturing
within one year after such date of determination which
is renewable or extendable at the option of the obligor
to a date more than one year from such date of
determination and, including, in any event, the Loans.
"Consolidated Net Income": for any period, the
net income of the Borrower and its Subsidiaries for
such period, determined on a consolidated basis in
accordance with GAAP but excluding from the
determination thereof (without duplication) any
extraordinary gains. If Consolidated Net Income is
less than zero for any period, Consolidated Net Income
may be referred to as a Consolidated Net Loss for such
period.
"Consolidated Net Worth": at any date of
determination thereof, all items which would, in
accordance with GAAP, be included under shareholders'
equity on a consolidated balance sheet of the Borrower
and its Subsidiaries at such date of determination.
"Consolidated Quick Assets": at any date of
determination thereof, all cash, cash equivalents and
accounts receivable of the Borrower and its
Subsidiaries at such date of determination, determined
in accordance with GAAP and set forth on the then most
recent consolidated balance sheet of the Borrower and
its Subsidiaries.
"Consolidated Tangible Net Worth": at any date of
determination thereof, Consolidated Net Worth at such date
of determination, minus (a) any
surplus resulting from the write-up
of assets subsequent to August 31,
1994, (b) goodwill, including any
amounts (however designated on the
balance sheet) representing the
cost of acquisitions of
Subsidiaries in excess of
underlying tangible assets, (c)
patents, trademarks, copyrights,
(d) leasehold improvements not
recoverable at the expiration of a
lease and (e) deferred charges
(including, but not limited to,
unamortized debt discount and
expense, organization expenses and
experimental and development
expenses, but excluding prepaid
expenses).
"Consolidated Total Unsubordinated Liabilities":
at any date of determination thereof, all items which
would, in accordance with GAAP be included on a
consolidated balance sheet of the Borrower and its
Subsidiaries as liabilities, excluding Subordinated
Debt and any minority interests in Subsidiaries owned
by Persons other than the Borrower or any of its
Subsidiaries.
"Contractual Obligation": as to any Person, any
provision of any security issued by such Person or of
any agreement, instrument or other undertaking to which
such Person is a party or by which it or any of its
property is bound.
"Default": any of the events specified in
Section 7, whether or not any requirement for the
giving of notice, the lapse of time, or both, or any
other condition, has been satisfied.
"Dollars" and "$": dollars in lawful currency of
the United States of America.
"Domestic Subsidiary": any Subsidiary which is
not a foreign Subsidiary.
"Environmental Laws": any and all foreign,
Federal, state, local or municipal laws, rules, orders,
regulations, statutes, ordinances, codes, decrees,
requirements of any Governmental Authority or other
Requirements of Law (including common law) regulating,
relating to or imposing liability or standards of
conduct concerning protection of human health or the
environment, as now or may at any time hereafter be in
effect.
"ERISA": the Employee Retirement Income Security
Act of 1974, as amended from time to time.
"Eurocurrency Reserve Requirements": for any day
as applied to a Eurodollar Loan, the aggregate (without
duplication) of the rates (expressed as a decimal
fraction) of reserve requirements in effect on such day
(including, without limitation, basic, supplemental,
marginal and emergency reserves under any regulations
of the Board of Governors or other Governmental
Authority having jurisdiction with respect thereto)
dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of the Board
of Governors) maintained by a member bank of the
Federal Reserve System.
"Eurodollar Base Rate": with respect to each day
during each Interest Period pertaining to a Eurodollar
Loan made by any Lender, the rate per annum equal to
the rate at which such Lender is offered Dollar
deposits at or about 10:00 A.M., New York City time,
two Business Days prior to the beginning of such
Interest Period in the interbank eurodollar market
where the eurodollar and foreign currency and exchange
operations in respect of such Lender's Eurodollar Loans
are then being conducted for delivery on the first day
of such Interest Period for the number of days
comprised therein and in an amount comparable to the
amount of such Lender's Eurodollar Loan to be
outstanding during such Interest Period.
"Eurodollar Loans": Loans the rate of interest
applicable to which is based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day
during each Interest Period pertaining to a Eurodollar
Loan, a rate per annum determined for such day in
accordance with the following formula (rounded upward
to the nearest 1/100th of 1%):
Eurodollar Base Rate
1.00 - Eurocurrency Reserve Requirements
"Event of Default": any of the events specified
in Section 7, provided that any requirement for the
giving of notice, the lapse of time, or both, or any
other condition, has been satisfied.
"Financing Lease": any lease of property, real or
personal, the obligations of the lessee in respect of
which are required in accordance with GAAP to be
capitalized on a balance sheet of the lessee.
"Foreign Subsidiary": any Subsidiary that is
organized or incorporated under the laws of any
jurisdiction outside the United States of America.
"GAAP": generally accepted accounting principles
and practices in the United States of America as in
effect from time to time set forth in the opinions and
pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants
acting through the Financial Accounting Standards Board
or through other appropriate boards or committees
thereof or in such other statements by such other
entity as may be in general use by significant segments
of the accounting profession and which are consistently
applied for all periods so as to properly reflect the
financial condition, operations and cash flows of the
Borrower and its Subsidiaries.
"GFC Credit Agreement": the Loan Agreement dated
as of October 15, 1991, between the Borrower and
Greyhound Financial Corporation.
"Governmental Authority": any nation or
government, any state or other political subdivision
thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Guarantee Obligation": as to any Person (the
"guaranteeing person"), any obligation of (a) the
guaranteeing person or (b) another Person (including,
without limitation, any bank under any letter of
credit) to induce the creation of which the
guaranteeing person has issued a reimbursement,
counterindemnity or similar obligation, in either case
guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends or other obligations
(the "primary obligations") of any other third Person
(the "primary obligor") in any manner, whether directly
or indirectly, including, without limitation, any
obligation of the guaranteeing person, whether or not
contingent, (i) to purchase any such primary obligation
or any property constituting direct or indirect
security therefor, (ii) to advance or supply funds (1)
for the purchase or payment of any such primary
obligation or (2) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain
the net worth or solvency of the primary obligor, (iii)
to purchase property, securities or services primarily
for the purpose of assuring the owner of any such
primary obligation of the ability of the primary
obligor to make payment of such primary obligation or
(iv) otherwise to assure or hold harmless the owner of
any such primary obligation against loss in respect
thereof; provided, however, that the term Guarantee
Obligation shall not include endorsements of
instruments for deposit or collection in the ordinary
course of business. The amount of any Guarantee
Obligation of any guaranteeing person shall be deemed
to be the lower of (a) an amount equal to the stated or
determinable amount of the primary obligation in
respect of which such Guarantee Obligation is made and
(b) the maximum amount for which such guaranteeing
person may be liable pursuant to the terms of the
instrument embodying such Guarantee Obligation, unless
such primary obligation and the maximum amount for
which such guaranteeing person may be liable are not
stated or determinable, in which case the amount of
such Guarantee Obligation shall be such guaranteeing
person's maximum reasonably anticipated liability in
respect thereof as determined by the Borrower in good
faith.
"Guarantor": any Person delivering a Guarantee
pursuant to this Agreement.
"Indebtedness": of any Person at any date, (a)
all indebtedness of such Person for borrowed money or
for the deferred purchase price of property or services
(other than current trade liabilities and accrued
expenses incurred in the ordinary course of business
and payable in accordance with customary practices),
(b) any other indebtedness of such Person which is
evidenced by a note, bond, debenture or similar
instrument, (c) all obligations of such Person under
Financing Leases, (d) all obligations of such Person in
respect of acceptances issued or created for the
account of such Person and (e) all liabilities secured
by any Lien on any property owned by such Person if
such Person has not assumed or otherwise become liable
for the payment thereof.
"Insolvency": with respect to any Multiemployer
Plan, the condition that such Plan is insolvent within
the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of
Insolvency.
"Interest Payment Date": as to any Loan, the last
Business Day of each month during which such Loan is
outstanding.
"Interest Period": with respect to any Eurodollar
Loan:
(i) initially, the period commencing on the
borrowing or conversion date, as the case may be,
with respect to such Eurodollar Loan and ending
one, two, three or six months thereafter, as
selected by the Borrower in its notice of
borrowing or notice of conversion, as the case may
be, given with respect thereto; and
(ii) thereafter, each period commencing on
the last day of the next preceding Interest Period
applicable to such Eurodollar Loan and ending one,
two, three or six months thereafter, as selected
by the Borrower by irrevocable notice to the
Lenders no later than 12:00 P.M. Noon, New York
City time, three Business Days prior to the last
day of the then current Interest Period with
respect thereto;
provided that, all of the foregoing provisions relating
to Interest Periods are subject to the following:
(1) if any Interest Period would otherwise
end on a day that is not a Business Day, such
Interest Period shall be extended to the next
succeeding Business Day unless the result of such
extension would be to carry such Interest Period
into another calendar month in which event such
Interest Period shall end on the immediately
preceding Business Day;
(2) any Interest Period that would otherwise
extend beyond the Termination Date shall end on
the Termination Date;
(3) any Interest Period that begins on the
last Business Day of a calendar month (or on a day
for which there is no numerically corresponding
day in the calendar month at the end of such
Interest Period) shall end on the last Business
Day of a calendar month; and
(4) the Borrower shall select Interest
Periods so as not to require a payment or
prepayment of any Eurodollar Loan during an
Interest Period for such Eurodollar Loan.
"Interest Rate Protection Agreements": as to any
Person, all interest rate swaps, caps or collar
agreements or similar arrangements entered into by such
Person providing for protection against fluctuations in
interest rates or currency exchange rates or the
exchange of nominal interest obligations, either
generally or under specific contingencies.
"Inventory Turnover Ratio": at any date of
determination thereof, the ratio of (a) the aggregate
amount of "cost of goods sold" expensed during the then
most recently completed period of four consecutive
fiscal quarters to (b) the aggregate amount of
inventory of the Borrower and its Subsidiaries as set
forth on the consolidated balance sheet of the Borrower
and its Subsidiaries as at the end of such period.
"Investments": as defined in subsection 6.9.
"Lien": any mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien
(statutory or other), charge or other security interest
or any preference, priority or other security agreement
or preferential arrangement of any kind or nature
whatsoever (including, without limitation, any
conditional sale or other title retention agreement and
any Financing Lease having substantially the same
economic effect as any of the foregoing).
"Loans": as defined in subsection 2.1.
"Loan Documents": this Agreement, any Notes and
the Subsidiaries Guarantee.
"Loan Parties": the Borrower and each Domestic
Subsidiary.
"Material Adverse Effect": a material adverse
effect on (a) the business, operations, property,
condition (financial or otherwise) or prospects of the
Borrower and its Subsidiaries taken as a whole or
(b) the validity or enforceability of this or any of
the other Loan Documents or the rights or remedies of
any Lender hereunder or thereunder.
"Materials of Environmental Concern": any
gasoline or petroleum (including crude oil or any
fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes,
defined or regulated as such in or under any
Environmental Law, including, without limitation,
asbestos, polychlorinated biphenyls and urea-
formaldehyde insulation.
"Material Subsidiary": at any time, any
Subsidiary (a) the Total Assets of which exceed 5% of
the Total Assets of the Borrower and its Subsidiaries
at such time and (b) the Total Revenues of which for
the then most recently completed fiscal quarter exceed
5% of the Total Revenues of the Borrower and its
Subsidiaries for such fiscal quarter.
"Multiemployer Plan": a Plan which is a
multiemployer plan as defined in Section 4001(a)(3) of
ERISA.
"NatWest": National Westminster Bank N.A., a
national banking association.
"Non-Excluded Taxes": as defined in subsection
2.14(a).
"Notes": as defined in subsection 2.5(d).
"Participant": as defined in subsection 8.6(b).
"PBGC": the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of
ERISA.
"Permitted Acquisition": as to any Person, the
acquisition of all or substantially all of the Capital
Stock or assets of another Person, provided that (y)
(i) the aggregate Consideration for all such
acquisitions subsequent to the Closing Date shall not
exceed $30,000,000, (ii) such other Person (or the
assets being acquired) must be in (or be used in, in
the case of acquired assets) a comparable business to
the business in which the Borrower is engaged as of the
Closing Date, (iii) such acquisition transaction shall
be "non-hostile" and shall be consummated with the
consent of the Board of Directors of such other Person
and (iv) no Default or Event of Default shall have then
occurred and be continuing or would result therefrom.
"Permitted Investments": (a) securities issued or
directly and fully guaranteed or insured by the United
States Government or any agency or instrumentality
thereof having maturities of not more than one year
from the date of acquisition, (b) Dollar denominated
time deposits and certificates of deposit, having
maturities of not more than one year from the date of
acquisition thereof, of any Lender or of any domestic
commercial bank which has a capital and surplus of at
least $1,000,000,000, (c) commercial paper rated at
least A-1 or the equivalent thereof by Standard &
Poor's Ratings Group or P-1 or the equivalent thereof
by Moody's Investors Service, Inc. and in either case
maturing within one year after the date of acquisition,
(d) securities issued by money-market funds with assets
of $2,500,000,000 or more, (e) tax-exempt debt
securities, having maturities of not more than one year
from the date of acquisition thereof, issued by any
Person organized under the laws of any State of the
United States or of the District of Columbia, which
securities are rated A or better by Standard and Poor's
Ratings Group or a or better by Moody's Investors
Service, Inc, (f) preferred stock, having maturities of
not more than one year from the date of acquisition
thereof, issued by closed end municipal bond funds
which are rated AAA by Standard & Poor's Ratings Group
and Aaa by Moody's Investors Services, Inc., (g)
repurchase obligations with a term of not more than
seven days for underlying securities of the type
described in clause (a), (h) equity securities issued
by any Person organized under the laws of any State of
the United States or of the District of Columbia with
an aggregate purchase price not to exceed $1,000,000 at
any time, which equity securities have been registered
under the Securities Act of 1933 or the Securities
Exchange Act of 1934 and are traded on a stock exchange
or the National Association of Securities Dealers, Inc.
National Market System and (i) equity securities of
Mosaid Limited owned by the Borrower on the date
hereof.
"Person": an individual, partnership,
corporation, limited liability company, business trust,
joint stock company, trust, unincorporated association,
joint venture, Governmental Authority or other entity
of whatever nature.
"Plan": at a particular time, any employee
benefit plan which is covered by ERISA and in respect
of which the Borrower or a Commonly Controlled Entity
is (or, if such plan were terminated at such time,
would under Section 4069 of ERISA be deemed to be) an
"employer" as defined in Section 3(5) of ERISA.
"Properties": as defined in subsection 3.17.
"Regulation U": Regulation U of the Board of
Governors as in effect from time to time.
"Reorganization": with respect to any
Multiemployer Plan, the condition that such plan is in
reorganization within the meaning of Section 4241 of
ERISA.
"Reportable Event": any of the events set forth
in Section 4043(b) of ERISA, other than those events as
to which the thirty day notice period is waived under
subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg.
(Section Mark) 2615.
"Required Lenders": at any time, Lenders the
Commitment Percentages of which aggregate more than
75%.
"Requirement of Law": as to any Person, the
Certificate of Incorporation and By-Laws or other
organizational or governing documents of such Person,
and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or
binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Responsible Officer": the chief executive
officer and the president of the Borrower or, with
respect to financial matters, the chief financial
officer of the Borrower.
"Sanwa Credit Agreement": the Loan and Security
Agreement dated as of October 15, 1991, between the
Borrower and Sanwa Business Credit Corporation.
"Single Employer Plan": any Plan which is covered
by Title IV of ERISA, but which is not a Multiemployer
Plan.
"Subordinated Debt": any unsecured Indebtedness
of the Borrower or any of its Subsidiaries: no part of
the principal of which is required to be paid (whether
by way of mandatory sinking fund, mandatory redemption,
mandatory prepayment or otherwise) prior to January 13,
1998; the payment of the principal of and interest on
which and other obligations of the Borrower in respect
thereof are subordinated to the prior payment in full
of the principal of and interest (including
post-petition interest) on the Loans and all other
obligations and liabilities of the Borrower to and the
Lenders hereunder on terms and conditions approved in
writing by the Required Lenders; and all other terms
and conditions of which are satisfactory in form and
substance to the Required Lenders (as evidenced by
their prior written approval thereof).
"Subsidiary": as to any Person, a corporation,
partnership or other entity of which shares of stock or
other ownership interests having ordinary voting power
(other than stock or such other ownership interests
having such power only by reason of the happening of a
contingency) to elect a majority of the board of
directors or other managers of such corporation,
partnership or other entity are at the time owned, or
the management of which is otherwise controlled,
directly or indirectly through one or more
intermediaries, or both, by such Person. Unless
otherwise qualified, all references to a "Subsidiary"
or to "Subsidiaries" in this Agreement shall refer to a
Subsidiary or Subsidiaries of the Borrower.
"Subsidiaries Guarantee": the Guarantee to be
executed by all the Domestic Subsidiaries,
substantially in the form of Exhibit A, as the same may
be amended, supplemented or otherwise modified from
time to time.
"Supplier Contract": collectively, (a) the
Consignment Agreement, dated as of September 15, 1994
(SMC Contract No. 165-GWH), between the Borrower and
AT&T Corp. and (b) the Integrated Circuit Supply
Agreement (SMC Contract No. 166-GWH), dated September
15, 1994, between the Borrower and AT&T Corp.
"Termination Date": the third anniversary of the
Closing Date.
"Total Assets": as to any Person at any date of
determination, the total assets of such Person and its
Subsidiaries at such date of determination as
determined on a consolidated basis in accordance with
GAAP, excluding assets attributable to any minority
interests in Subsidiaries owned by Persons other than
such Person or any of its Subsidiaries.
"Total Revenues": as to any Person for any
period, the total revenues of such Person and its
Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP excluding
revenues attributable to any minority interests in
Subsidiaries owned by Persons other than such Person or
any of its Subsidiaries.
"Transferee": as defined in subsection 8.6(d).
"Type": as to any Loan, its nature as an ABR Loan
or a Eurodollar Loan.
1.2 Other Definitional Provisions. (a) Unless
otherwise specified therein, all terms defined in this
Agreement shall have the defined meanings when used in any
Loan Document or any certificate or other document made or
delivered pursuant hereto.
(b) As used herein and in any Loan Document, and
any certificate or other document made or delivered pursuant
hereto, accounting terms relating to the Borrower and its
Subsidiaries not defined in subsection 1.1 and accounting
terms partly defined in subsection 1.1, to the extent not
defined, shall have the respective meanings given to them
under GAAP.
(c) The words "hereof", "herein" and "hereunder"
and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and Section,
subsection, Schedule and Exhibit references are to this
Agreement unless otherwise specified.
(d) The meanings given to terms defined herein
shall be equally applicable to both the singular and plural
forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Commitments. (a) Subject to the terms and
conditions hereof, each Lender severally agrees to make
revolving credit loans ("Loans") to the Borrower from time
to time during the Commitment Period in an aggregate
principal amount at any one time outstanding not to exceed
the amount of such Lender's Commitment. During the
Commitment Period, the Borrower may use the Commitments by
borrowing, prepaying the Loans in whole or in part, and
reborrowing, all in accordance with the terms and conditions
hereof.
(b) The Loans may from time to time be (i)
Eurodollar Loans, (ii) ABR Loans or (iii) a combination
thereof, as determined by the Borrower and notified to each
Lender in accordance with subsections 2.2 and 2.7, provided
that no Loan shall be made as a Eurodollar Loan after the
day that is one month prior to the Termination Date.
2.2 Procedure for Borrowing. The Borrower may
borrow under the Commitments during the Commitment Period on
any Business Day, provided that the Borrower shall give each
Lender irrevocable telephonic notice (which notice must be
received by each Lender prior to 12:00 P.M. Noon, New York
City time and must be promptly confirmed in writing), (a)
three Business Days prior to the requested Borrowing Date,
if all or any part of the requested Loans are to be
initially Eurodollar Loans or (b) on such Business Day,
otherwise, specifying (i) the amount to be borrowed, (ii)
the requested Borrowing Date, (iii) whether the borrowing is
to be of Eurodollar Loans, ABR Loans or a combination
thereof and (iv) if the borrowing is to be entirely or
partly of Eurodollar Loans, the amount of each such
Eurodollar Loan and the respective lengths of the initial
Interest Periods therefor. Each borrowing from each Lender
under the Commitments shall be in an amount equal to
$500,000 or a whole multiple thereof. Each Lender will make
the amount of its pro rata share of each borrowing available
to the Borrower by crediting the account of the Borrower
maintained by the Borrower with such Lender.
2.3 Commitment Fee. The Borrower agrees to pay
to each Lender a commitment fee for the period from and
including the first day of the Commitment Period to the
Termination Date, computed at the rate of 1/4 of 1% per
annum on the average daily amount of the unused Commitment
of such Lender during the period for which payment is made,
payable monthly in arrears on the last Business Day of each
month and on the Termination Date or such earlier date as
the Commitments shall terminate as provided herein,
commencing on the first of such dates to occur after the
date hereof.
2.4 Termination or Reduction of Commitments. The
Borrower shall have the right, upon not less than three
Business Days' prior written notice to each Lender, to
terminate the Commitments or, from time to time, to reduce
the amount of the Commitments. Any such reduction shall be
in a minimum amount of at least $2,000,000 or a whole
multiple of $500,000 in excess thereof and shall reduce
permanently the Commitments then in effect.
2.5 Repayment of Loans; Evidence of Debt. (a)
The Borrower hereby unconditionally promises to pay to each
Lender the then unpaid principal amount of each Loan made by
such Lender on the Termination Date (or such earlier date on
which the Loans become due and payable pursuant to Section
7). The Borrower hereby further agrees to pay interest on
the unpaid principal amount of the Loans from time to time
outstanding from the date hereof until payment in full
thereof at the rates per annum, and on the dates, set forth
in subsection 2.8.
(b) Each Lender shall maintain in accordance with
its usual practice an account or accounts evidencing
indebtedness of the Borrower to such Lender resulting from
each Loan made by such Lender from time to time, including
the amounts of principal and interest payable and paid to
such Lender from time to time under this Agreement.
(c) The entries made in the accounts of each
Lender maintained pursuant to subsection 2.5(b) shall, to
the extent permitted by applicable law, be prima facie
evidence of the existence and amounts of the obligations of
the Borrower therein recorded; provided, however, that the
failure of any Lender to maintain or any such account, or
any error therein, shall not in any manner affect the
obligation of the Borrower to repay (with applicable
interest) the Loans made to such Borrower by such Lender in
accordance with the terms of this Agreement.
(d) The Borrower agrees that, upon the request of
any Lender, the Borrower will execute and deliver to such
Lender a promissory note of the Borrower evidencing the
Loans made by such Lender, substantially in the form of
Exhibit B (a "Note"), dated the Closing Date and payable to
the order of such Lender and in a principal amount equal to
the lesser of (a) the amount of the then Commitment of such
Lender or (b) the aggregate unpaid principal amount of all
Loans made by such Lender. Each Lender is hereby authorized
to record the date, Type and amount of each Loan made by
such Lender and the date and amount of each payment or
prepayment of principal with respect thereto, each
conversion of all or a portion thereof to another Type, each
continuation of all or a portion thereof as the same Type
and, in the case of Eurodollar Loans, the length of each
Interest Period and Eurodollar Rate with respect thereto, on
the schedule annexed to and constituting a part of its Note
or any continuation thereof, and any such recordation shall,
to the extent permitted by applicable law, constitute prima
facie evidence of the accuracy of the information so
recorded, provided that the failure to make any such
recordation or any error therein shall not affect the
obligation of the Borrower to repay (with applicable
interest) the Loans made to the Borrower in accordance with
the terms of this Agreement.
2.6 Optional Prepayments. The Borrower may on
any Business Day prepay the Loans, in whole or in part in
multiples of $500,000, without premium or penalty (subject
to the next succeeding sentence), upon irrevocable notice to
each Lender on the date of such prepayment, specifying the
date and amount of prepayment and whether the prepayment is
of Eurodollar Loans, ABR Loans or a combination thereof,
and, if of a combination thereof, the amount allocable to
each. If any such notice is given, the amount specified in
such notice shall be due and payable on the date specified
therein, together with any amounts payable pursuant to
subsection 2.15.
2.7 Conversion and Continuation Options. (a) The
Borrower may elect from time to time to convert Eurodollar
Loans to ABR Loans by giving each Lender at least two
Business Days' prior irrevocable telephonic notice of such
election (which must be promptly confirmed in writing),
provided that any such conversion of Eurodollar Loans may
only be made on the last day of an Interest Period with
respect thereto. The Borrower may elect from time to time
to convert ABR Loans to Eurodollar Loans by giving each
Lender at least three Business Days' prior irrevocable
notice of such election. Any such notice of conversion to
Eurodollar Loans shall specify the length of the initial
Interest Period or Interest Periods therefor. All or any
part of outstanding Eurodollar Loans and ABR Loans may be
converted as provided herein, provided that (i) no Loan may
be converted into a Eurodollar Loan when any Event of
Default has occurred and is continuing and the Required
Lenders have determined that such a conversion is not
appropriate and (ii) no Loan may be converted into a
Eurodollar Loan after the date that is one month prior to
the Termination Date.
(b) Any Eurodollar Loan may be continued as such
upon the expiration of the then current Interest Period with
respect thereto by the Borrower giving notice to each
Lender, in accordance with the applicable provisions of the
term "Interest Period" set forth in subsection 1.1, of the
length of the next Interest Period to be applicable to such
Eurodollar Loan, provided that no Eurodollar Loan may be
continued as such (i) when any Event of Default has occurred
and is continuing and the Required Lenders have determined
that such a continuation is not appropriate or (ii) after
the date that is one month prior to the Termination Date and
provided, further, that if the Borrower shall fail to give
such notice or if such continuation is not permitted such
Loans shall be automatically converted to ABR Loans on the
last day of such then expiring Interest Period.
2.8 Interest Rates and Payment Dates. (a) Each
Eurodollar Loan shall bear interest for each day during each
Interest Period with respect thereto at a rate per annum
equal to the Eurodollar Rate determined for such day plus
the Applicable Margin.
(b) Each ABR Loan shall bear interest at a rate
per annum equal to the ABR.
(c) If all or a portion of (i) the principal
amount of any Loan, (ii) any interest payable thereon or
(iii) any commitment fee or other amount payable hereunder
shall not be paid when due (whether at the stated maturity,
by acceleration or otherwise), such overdue amount shall
bear interest at a rate per annum which is equal to the ABR
plus 2%, from the date of such non-payment until such amount
is paid in full (as well after as before judgment).
(d) Interest shall be payable in arrears on each
Interest Payment Date and on the Termination Date and,
(i) in the case of a Eurodollar Loan, the last day of each
Interest Period for such Eurodollar Loan, and (ii) in the
case of an ABR Loan, the date of conversion of such ABR Loan
into a Eurodollar Loan pursuant to subsection 2.7, provided
that interest accruing pursuant to paragraph (c) of this
subsection shall be payable from time to time on demand.
(e) The Applicable Margin for each Eurodollar
Loan shall be determined on the first day of each Interest
Period with respect thereto.
2.9 Computation of Interest and Fees. Commitment
fees and interest shall be calculated on the basis of a 360-
day year for the actual days elapsed. Any change in the
interest rate on a Loan resulting from a change in the ABR
or the Eurocurrency Reserve Requirements shall become
effective as of the opening of business on the day on which
such change becomes effective.
2.10 Inability to Determine Interest Rate. If
prior to the first day of any Interest Period:
(a) any Lender shall have determined (which
determination shall be conclusive and binding upon the
Borrower) that, by reason of circumstances affecting
the relevant market, adequate and reasonable means do
not exist for ascertaining such Lender's Eurodollar
Rate for such Interest Period, or
(b) any Lender shall have determined that such
Lender's Eurodollar Rate determined or to be determined
for such Interest Period will not adequately and fairly
reflect the cost to such Lender (as conclusively
certified by such Lender) of making or maintaining its
affected Loans during such Interest Period,
such Lender shall give telecopy or telephonic notice thereof
to the Borrower as soon as practicable thereafter. If such
notice is given (x) any Eurodollar Loans requested to be
made on the first day of such Interest Period shall be made
as ABR Loans, (y) any Loans that were to have been converted
on the first day of such Interest Period to Eurodollar Loans
shall be converted to or continued as ABR Loans and (z) any
outstanding Eurodollar Loans shall be converted, on the
first day of such Interest Period, to ABR Loans. Until such
notice has been withdrawn by such Lender, no further
Eurodollar Loans shall be made or continued as such by such
Lender, nor shall the Borrower have the right to convert
Loans made by such Lender to Eurodollar Loans.
2.11 Pro Rata Treatment and Payments. (a) Each
borrowing by the Borrower from the Lenders hereunder, each
conversion or continuation of Loans by the Borrower, each
payment by the Borrower on account of any commitment fee
hereunder and any reduction of the Commitments of the
Lenders shall be made pro rata according to the respective
Commitment Percentages of the Lenders. Each payment
(including each prepayment) by the Borrower on account of
principal of and interest on the Loans shall be made pro
rata according to the respective outstanding principal
amounts of the Loans then held by the Lenders. All payments
(including prepayments) to be made by the Borrower
hereunder, whether on account of principal, interest, fees
or otherwise, shall be made without set off or counterclaim
and shall be made prior to 2:00 P.M., New York City time, on
the due date thereof to each Lender in immediately available
funds. If any payment hereunder becomes due and payable on
a day other than a Business Day, such payment shall be
extended to the next succeeding Business Day, and, with
respect to payments of principal, interest thereon shall be
payable at the then applicable rate during such extension.
2.12 Illegality. Notwithstanding any other
provision herein, if the adoption of or any change in any
Requirement of Law or in the interpretation or application
thereof shall make it unlawful for any Lender to make or
maintain Eurodollar Loans as contemplated by this Agreement,
(a) the commitment of such Lender hereunder to make
Eurodollar Loans, continue Eurodollar Loans as such and
convert ABR Loans to Eurodollar Loans shall forthwith be
cancelled and (b) such Lender's Loans then outstanding as
Eurodollar Loans, if any, shall be converted automatically
to ABR Loans on the respective last days of the then current
Interest Periods with respect to such Loans or within such
earlier period as required by law. If any such conversion
of a Eurodollar Loan occurs on a day which is not the last
day of the then current Interest Period with respect
thereto, the Borrower shall pay to such Lender such amounts,
if any, as may be required pursuant to subsection 2.15.
2.13 Requirements of Law. (a) If the adoption
of or any change in any Requirement of Law or in the
interpretation or application thereof or compliance by any
Lender with any request or directive (whether or not having
the force of law) from any central bank or other
Governmental Authority made subsequent to the date hereof:
(i) shall subject any Lender to any tax of any
kind whatsoever with respect to this Agreement, any
Note or any Eurodollar Loan made by it, or change the
basis of taxation of payments to such Lender in respect
thereof (except for Non-Excluded Taxes covered by
subsection 2.14 and changes in the rate of tax on the
overall net income of such Lender);
(ii) shall impose, modify or hold applicable any
reserve, special deposit, compulsory loan or similar
requirement against assets held by, deposits or other
liabilities in or for the account of, advances, loans
or other extensions of credit by, or any other
acquisition of funds by, any office of such Lender
which is not otherwise included in the determination of
the Eurodollar Rate; or
(iii) shall impose on such Lender any other
condition;
and the result of any of the foregoing is to increase the
cost to such Lender, by an amount which such Lender deems to
be material, of making, converting into, continuing or
maintaining Eurodollar Loans or to reduce any amount
receivable hereunder in respect thereof, then, in any such
case, the Borrower shall promptly pay such Lender such
additional amount or amounts as will compensate such Lender
for such increased cost or reduced amount receivable.
(b) If any Lender shall have determined that the
adoption of or any change in any Requirement of Law
regarding capital adequacy or in the interpretation or
application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or
directive regarding capital adequacy (whether or not having
the force of law) from any Governmental Authority made
subsequent to the date hereof shall have the effect of
reducing the rate of return on such Lender's or such
corporation's capital as a consequence of its obligations
hereunder to a level below that which such Lender or such
corporation could have achieved but for such adoption,
change or compliance (taking into consideration such
Lender's or such corporation's policies with respect to
capital adequacy) by an amount deemed by such Lender to be
material, then from time to time, the Borrower shall
promptly pay to such Lender such additional amount or
amounts as will compensate such Lender for such reduction.
(c) If any Lender becomes entitled to claim any
additional amounts pursuant to this subsection, it shall
promptly notify the Borrower of the event by reason of which
it has become so entitled. A certificate as to any
additional amounts payable pursuant to this subsection
submitted by such Lender to the Borrower shall be conclusive
in the absence of manifest error. The Borrower shall not be
obligated to compensate any Lender pursuant to
subsection 2.13(b) for amounts accruing prior to the date
which is 180 days before such Lender notifies the Borrower
of its obligation to compensate such Lender for such
amounts. The agreements in this subsection shall survive
the termination of this Agreement and the payment of the
Loans and all other amounts payable hereunder.
2.14 Taxes. (a) All payments made by the
Borrower under this Agreement and any Notes shall be made
free and clear of, and without deduction or withholding for
or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees,
deductions or withholdings, now or hereafter imposed,
levied, collected, withheld or assessed by any Governmental
Authority, excluding net income taxes and franchise taxes
(imposed in lieu of net income taxes) imposed on any Lender
as a result of a present or former connection between such
Lender and the jurisdiction of the Governmental Authority
imposing such tax or any political subdivision or taxing
authority thereof or therein (other than any such connection
arising solely from such Lender having executed, delivered
or performed its obligations or received a payment under, or
enforced, this Agreement or any Note). If any such non-
excluded taxes, levies, imposts, duties, charges, fees
deductions or withholdings ("Non-Excluded Taxes") are
required to be withheld from any amounts payable to any
Lender hereunder or under any Note, the amounts so payable
to such Lender shall be increased to the extent necessary to
yield to such Lender (after payment of all Non-Excluded
Taxes) interest or any such other amounts payable hereunder
at the rates or in the amounts specified in this Agreement,
provided, however, that the Borrower shall not be required
to increase any such amounts payable to any Lender that is
not organized under the laws of the United States of America
or a state thereof if such Lender fails to comply with the
requirements of paragraph (b) of this subsection. Whenever
any Non-Excluded Taxes are payable by the Borrower, as
promptly as possible thereafter the Borrower shall send to
such Lender a certified copy of an original official receipt
received by the Borrower showing payment thereof. If the
Borrower fails to pay any Non-Excluded Taxes when due to the
appropriate taxing authority or fails to remit to any Lender
the required receipts or other required documentary
evidence, the Borrower shall indemnify each Lender for any
incremental taxes, interest or penalties that may become
payable by such Lender as a result of any such failure. The
agreements in this subsection shall survive the termination
of this Agreement and the payment of the Loans and all other
amounts payable hereunder.
(b) Each Lender that is not incorporated under
the laws of the United States of America or a state thereof
shall:
(i) deliver to the Borrower (A) two duly
completed copies of United States Internal Revenue
Service Form 1001 or 4224, or successor applicable
form, as the case may be, and (B) an Internal Revenue
Service Form W-8 or W-9, or successor applicable form,
as the case may be;
(ii) deliver to the Borrower two further copies
of any such form or certification on or before the date
that any such form or certification expires or becomes
obsolete and after the occurrence of any event
requiring a change in the most recent form previously
delivered by it to the Borrower; and
(iii) obtain such extensions of time for filing
and complete such forms or certifications as may
reasonably be requested by the Borrower;
unless in any such case an event (including, without
limitation, any change in treaty, law or regulation) has
occurred prior to the date on which any such delivery would
otherwise be required which renders all such forms
inapplicable or which would prevent such Lender from duly
completing and delivering any such form with respect to it
and such Lender so advises the Borrower. Such Lender shall
certify (i) in the case of a Form 1001 or 4224, that it is
entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income
taxes and (ii) in the case of a Form W-8 or W-9, that it is
entitled to an exemption from United States backup
withholding tax. Each Person that shall become a Lender or
a Participant pursuant to subsection 8.6 shall, upon the
effectiveness of the related transfer, be required to
provide all of the forms and statements required pursuant to
this subsection, provided that in the case of a Participant
such Participant shall furnish all such required forms and
statements to the Lender from which the related
participation shall have been purchased.
2.15 Indemnity. The Borrower agrees to indemnify
each Lender and to hold each Lender harmless from any loss
or expense which such Lender may sustain or incur as a
consequence of (a) default by the Borrower in making a
borrowing of, conversion into or continuation of Eurodollar
Loans after the Borrower has given a notice requesting the
same in accordance with the provisions of this Agreement,
(b) default by the Borrower in making any prepayment after
the Borrower has given a notice thereof in accordance with
the provisions of this Agreement or (c) the making of a
prepayment of Eurodollar Loans on a day which is not the
last day of an Interest Period with respect thereto. This
covenant shall survive the termination of this Agreement and
the payment of the Loans and all other amounts payable
hereunder.
2.16 Change of Lending Office. Each Lender
agrees that if it makes any demand for payment under
subsection 2.13 or 2.14(a), or if any adoption or change of
the type described in subsection 2.12 shall occur with
respect to it, it will use reasonable efforts (consistent
with its internal policy and legal and regulatory
restrictions and so long as such efforts would not be
disadvantageous to it, as determined in its sole discretion)
to designate a different lending office if the making of
such a designation would reduce or obviate the need for the
Borrower to make payments under subsection 2.13 or 2.14(a),
or would eliminate or reduce the effect of any adoption or
change described in subsection 2.12.
SECTION 3. REPRESENTATIONS AND WARRANTIES
To induce the Lenders to enter into this Agreement
and to make the Loans, the Borrower hereby represents and
warrants to each Lender that:
3.1 Financial Condition. The consolidated
balance sheet of the Borrower and its consolidated
Subsidiaries as at February 28, 1994 and the related
consolidated statements of income and of cash flows for the
fiscal year ended on such date, reported on by Arthur
Andersen & Co., copies of which have heretofore been
furnished to each Lender, are complete and correct and
present fairly the consolidated financial condition of the
Borrower and its consolidated Subsidiaries as at such date,
and the consolidated results of their operations and their
consolidated cash flows for the fiscal year then ended. The
consolidating balance sheet of the Borrower and its
consolidated Subsidiaries as at February 28, 1994 and the
related consolidating statements of income and of cash flows
for the fiscal year ended on such date, certified by a
Responsible Officer, copies of which have heretofore been
furnished to each Lender, are complete and correct and
present fairly the consolidated financial condition of the
Borrower and its consolidated Subsidiaries as at such date,
and the consolidated results of their operations and their
consolidated cash flows for the fiscal year then ended. The
unaudited consolidated balance sheet of the Borrower and its
consolidated Subsidiaries as at August 31, 1994 and November
30, 1994 and the related unaudited consolidated statements
of income and of cash flows for the six-month and nine-month
periods, respectively, ended on such dates, certified by a
Responsible Officer, copies of which have heretofore been
furnished to each Lender, are complete and correct and
present fairly the consolidated financial condition of the
Borrower and its consolidated Subsidiaries as at such dates,
and the consolidated results of their operations and their
consolidated cash flows for the six-month and nine-month
periods then ended (subject to normal year-end audit
adjustments). All such financial statements, including the
related schedules and notes thereto, have been prepared in
accordance with GAAP applied consistently throughout the
periods involved (except as approved by such accountants or
Responsible Officer, as the case may be, and as disclosed
therein). Except as set forth on Schedule 3.1(a), neither
the Borrower nor any of its consolidated Subsidiaries had,
at the date of the most recent balance sheet referred to
above, any material Guarantee Obligation, contingent
liability or liability for taxes, or any long-term lease or
unusual forward or long-term commitment, including, without
limitation, any interest rate or foreign currency swap or
exchange transaction, which is not reflected in the
foregoing statements or in the notes thereto. Except as set
forth on Schedule 3.1(a), during the period from February
28, 1994 to and including the date hereof there has been no
sale, transfer or other disposition by the Borrower or any
of its consolidated Subsidiaries of any material part of its
business or property and no purchase or other acquisition of
any business or property (including any capital stock of any
other Person) material in relation to the consolidated
financial condition of the Borrower and its consolidated
Subsidiaries at February 28, 1994.
3.2 No Change. (a) Since February 28, 1994 or,
if later, the date of the most recent audited financial
statements delivered to the Lenders pursuant to subsection
5.1(a), there has been no development or event which has had
or could reasonably be expected to have a Material Adverse
Effect and (b) during the period from February 28, 1994 to
and including the date hereof, no dividends or other
distributions have been declared, paid or made upon the
Capital Stock of the Borrower nor has any of the Capital
Stock of the Borrower been redeemed, retired, purchased or
otherwise acquired for value by the Borrower or any of its
Subsidiaries.
3.3 Corporate Existence; Compliance with Law.
Each of the Borrower and its Subsidiaries (a) is duly
organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, (b) has the
corporate power and authority, and the legal right, to own
and operate its property, to lease the property it operates
as lessee and to conduct the business in which it is
currently engaged, (c) is duly qualified as a foreign
corporation and in good standing under the laws of each
jurisdiction where its ownership, lease or operation of
property or the conduct of its business requires such
qualification and (d) is in compliance with all Requirements
of Law except to the extent that the failure to comply
therewith could not, in the aggregate, reasonably be
expected to have a Material Adverse Effect.
3.4 Corporate Power; Authorization; Enforceable
Obligations. The Borrower has the corporate power and
authority, and the legal right, to make, deliver and perform
the Loan Documents to which it is a party and to borrow
hereunder and has taken all necessary corporate action to
authorize the borrowings on the terms and conditions of this
Agreement and any Notes and to authorize the execution,
delivery and performance of the Loan Documents to which it
is a party. No consent or authorization of, filing with,
notice to or other act by or in respect of, any Governmental
Authority or any other Person is required in connection with
the borrowings hereunder or with the execution, delivery,
performance, validity or enforceability of the Loan
Documents to which the Borrower is a party. This Agreement
has been, and each other Loan Document to which it is a
party will be, duly executed and delivered on behalf of the
Borrower. This Agreement constitutes, and each other Loan
Document to which it is a party when executed and delivered
will constitute, a legal, valid and binding obligation of
the Borrower enforceable against the Borrower in accordance
with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable
principles (whether enforcement is sought by proceedings in
equity or at law).
3.5 No Legal Bar. The execution, delivery and
performance of the Loan Documents to which the Borrower is a
party, the borrowings hereunder and the use of the proceeds
thereof will not violate any Requirement of Law or
Contractual Obligation of the Borrower or of any of its
Subsidiaries and will not result in, or require, the
creation or imposition of any Lien on any of its or their
respective properties or revenues pursuant to any such
Requirement of Law or Contractual Obligation.
3.6 No Material Litigation. Except as set forth
on Schedule 3.6, no litigation, investigation or proceeding
of or before any arbitrator or Governmental Authority is
pending or, to the knowledge of the Borrower, threatened by
or against the Borrower or any of its Subsidiaries or
against any of its or their respective properties or
revenues (a) with respect to any of the Loan Documents or
any of the transactions contemplated hereby or thereby or
(b) which could reasonably be expected to have a Material
Adverse Effect.
3.7 No Default. Neither the Borrower nor any of
its Subsidiaries is in default under or with respect to any
of its Contractual Obligations in any respect which could
reasonably be expected to have a Material Adverse Effect.
No Default or Event of Default has occurred and is
continuing.
3.8 Ownership of Property; Liens. Each of the
Borrower and its Subsidiaries has good record and marketable
title in fee simple to, or a valid leasehold interest in,
all its real property, and good title to, or a valid
leasehold interest in, all its other property, and none of
such property is subject to any Lien except as permitted by
subsection 6.3.
3.9 Intellectual Property. The Borrower and each
of its Subsidiaries owns, or is licensed to use, all
trademarks, tradenames, copyrights, technology, know-how and
processes necessary for the conduct of its business as
currently conducted except for those the failure to own or
license which could not reasonably be expected to have a
Material Adverse Effect (the "Intellectual Property"). No
claim has been asserted and is pending by any Person
challenging or questioning the use of any such Intellectual
Property or the validity or effectiveness of any such
Intellectual Property, nor does the Borrower know of any
valid basis for any such claim, except to the extent such
claims, individually or collectively, could not reasonably
be expected to have a Material Adverse Effect. The use of
such Intellectual Property by the Borrower and its
Subsidiaries does not infringe on the rights of any Person,
except for such claims and infringements that, in the
aggregate, could not reasonably be expected to have a
Material Adverse Effect.
3.10 No Burdensome Restrictions. No Requirement
of Law or Contractual Obligation of the Borrower or any of
its Subsidiaries could reasonably be expected to have a
Material Adverse Effect.
3.11 Taxes. Each of the Borrower and its
Subsidiaries has filed or caused to be filed all tax returns
which, to the knowledge of the Borrower, are required to be
filed and has paid all taxes shown to be due and payable on
said returns or on any assessments made against it or any of
its property and all other taxes, fees or other charges
imposed on it or any of its property by any Governmental
Authority (other than any the amount or validity of which
are currently being contested in good faith by appropriate
proceedings and with respect to which reserves in conformity
with GAAP have been provided on the books of the Borrower or
its Subsidiaries, as the case may be); no tax Lien has been
filed, and, to the knowledge of the Borrower, no claim is
being asserted, with respect to any such tax, fee or other
charge.
3.12 Federal Regulations. No part of the
proceeds of any Loans will be used for "purchasing" or
"carrying" any "margin stock" within the respective meanings
of each of the quoted terms under Regulation G or Regulation
U of the Board of Governors as now and from time to time
hereafter in effect. If requested by any Lender, the
Borrower will furnish to each Lender a statement to the
foregoing effect in conformity with the requirements of FR
Form G-1 or FR Form U-1 referred to in said Regulation G or
Regulation U, as the case may be.
3.13 ERISA. Neither a Reportable Event nor an
"accumulated funding deficiency" (within the meaning of
Section 412 of the Code or Section 302 of ERISA) has
occurred during the five-year period prior to the date on
which this representation is made or deemed made with
respect to any Plan, and each Plan has complied in all
material respects with the applicable provisions of ERISA
and the Code. No termination of a Single Employer Plan has
occurred, and no Lien in favor of the PBGC or a Plan has
arisen, during such five-year period. The present value of
all accrued benefits under each Single Employer Plan (based
on those assumptions used to fund such Plans) did not, as of
the last annual valuation date prior to the date on which
this representation is made or deemed made, exceed the value
of the assets of such Plan allocable to such accrued
benefits. Neither the Borrower nor any Commonly Controlled
Entity has had a complete or partial withdrawal from any
Multiemployer Plan, and neither the Borrower nor any
Commonly Controlled Entity would become subject to any
liability under ERISA if the Borrower or any such Commonly
Controlled Entity were to withdraw completely from all
Multiemployer Plans as of the valuation date most closely
preceding the date on which this representation is made or
deemed made. No such Multiemployer Plan is in
Reorganization or Insolvent.
3.14 Investment Company Act; Other Regulations.
The Borrower is not an "investment company", or a company
"controlled" by an "investment company", within the meaning
of the Investment Company Act of 1940, as amended. The
Borrower is not subject to regulation under any Federal or
State statute or regulation (other than Regulation X of the
Board of Governors) which limits its ability to incur
Indebtedness.
3.15 Subsidiaries. Schedule 3.15 sets forth a
complete list of all Subsidiaries of the Borrower as of the
date hereof.
3.16 Purpose of Loans. The proceeds of the Loans
will be used to (a) finance Permitted Acquisitions (as
hereinafter defined) and (b) finance capital expenditures
and the ongoing working capital requirements of the Borrower
and its Subsidiaries.
3.17 Environmental Matters. Except as set forth
on Schedule 3.17:
(a) The facilities and properties owned, leased
or operated by the Borrower or any of its Subsidiaries
(the "Properties") do not contain, and have not
previously contained, any Materials of Environmental
Concern in amounts or concentrations which (i)
constitute or constituted a violation of, or (ii) could
reasonably be expected to give rise to liability under,
any Environmental Law except in either case insofar as
such violation or liability, or any aggregation
thereof, is not reasonably likely to result in a
Material Adverse Effect.
(b) The Properties and all operations at the
Properties are in compliance, and have in the last 5
years been in compliance, in all material respects with
all applicable Environmental Laws, and there is no
contamination at, under or about the Properties or
violation of any Environmental Law with respect to the
Properties or the business operated by the Borrower or
any of its Subsidiaries (the "Business") which could
materially interfere with the continued operation of
the Properties or materially impair the fair saleable
value thereof.
(c) Neither the Borrower nor any of its
Subsidiaries has received any notice of violation,
alleged violation, non-compliance, liability or
potential liability regarding environmental matters or
compliance with Environmental Laws with regard to any
of the Properties or the Business, nor does the
Borrower have knowledge or reason to believe that any
such notice will be received or is being threatened
except insofar as such notice or threatened notice, or
any aggregation thereof, does not involve a matter or
matters that is or are reasonably likely to result in a
Material Adverse Effect.
(d) Materials of Environmental Concern have not
been transported or disposed of from the Properties in
violation of, or in a manner or to a location which
could reasonably be expected to give rise to liability
under, any Environmental Law, nor have any Materials of
Environmental Concern been generated, treated, stored
or disposed of at, on or under any of the Properties in
violation of, or in a manner that could reasonably be
expected to give rise to liability under, any
applicable Environmental Law except insofar as any such
violation or liability referred to in this paragraph,
or any aggregation thereof, is not reasonably likely to
result in a Material Adverse Effect.
(e) No judicial proceeding or governmental or
administrative action is pending or, to the knowledge
of the Borrower, threatened, under any Environmental
Law to which the Borrower or any Subsidiary is or will
be named as a party with respect to the Properties or
the Business, nor are there any consent decrees or
other decrees, consent orders, administrative orders or
other orders, or other administrative or judicial
requirements outstanding under any Environmental Law
with respect to the Properties or the Business except
insofar as such proceeding, action, decree, order or
other requirement, or any aggregation thereof, is not
reasonably likely to result in a Material Adverse
Effect.
(f) There has been no release or threat of
release of Materials of Environmental Concern at or
from the Properties, or arising from or related to the
operations of the Borrower or any Subsidiary in
connection with the Properties or otherwise in
connection with the Business, in violation of or in
amounts or in a manner that could reasonably give rise
to liability under Environmental Laws except insofar as
any such violation or liability referred to in this
paragraph, or any aggregation thereof, is not
reasonably likely to result in a Material Adverse
Effect.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions to Initial Loans. The agreement
of each Lender to make the initial Loan requested to be made
by it is subject to the satisfaction, immediately prior to
or concurrently with the making of such Loan, of the
following conditions precedent:
(a) Loan Documents. Each Lender shall have
received (i) this Agreement, executed and delivered by
a duly authorized officer of the Borrower, (ii) if
requested by such Lender, a Note executed and delivered
by a duly authorized officer of the Borrower and (iii)
the Subsidiaries Guarantee, executed and delivered by a
duly authorized officer of each Domestic Subsidiary.
(b) Refinancing. Each Lender shall have received
evidence reasonably satisfactory to the Lenders that
the Sanwa Credit Agreement and the GFC Credit Agreement
shall be terminated prior to or concurrently with
making of the initial Loans under this Agreement,
together with executed copies of all payout or
assignment letters, lien releases or assignments,
termination or assignment statements, satisfactions,
agreements, certificates and other documents entered
into in connection with such termination, all of which
payout letters, lien releases or assignments,
termination or assignment statements, satisfactions,
agreements, certificates and other documents shall be
in form and substance reasonably satisfactory to each
Lender.
(c) Borrowing Certificate. Each Lender shall
have received, with a counterpart for each Lender, a
certificate of the Borrower, dated the Closing Date,
substantially in the form of Exhibit C, with
appropriate insertions and attachments, satisfactory in
form and substance to such Lender, executed by the
President or any Vice President and the Secretary or
any Assistant Secretary of the Borrower.
(d) Corporate Proceedings of the Borrower. Each
Lender shall have received a copy of the resolutions,
in form and substance satisfactory to such Lender, of
the Board of Directors of the Borrower authorizing (i)
the execution, delivery and performance of this
Agreement and the other Loan Documents to which it is a
party and (ii) the borrowings contemplated hereunder,
certified by the Secretary or an Assistant Secretary of
the Borrower as of the Closing Date, which certificate
shall be in form and substance satisfactory to each
Lender and shall state that the resolutions thereby
certified have not been amended, modified, revoked or
rescinded.
(e) Borrower Incumbency Certificate. Each Lender
shall have received a Certificate of the Borrower,
dated the Closing Date, as to the incumbency and
signature of the officers of the Borrower executing any
Loan Document, satisfactory in form and substance to
such Lender, executed by the President or any Vice
President and the Secretary or any Assistant Secretary
of the Borrower.
(f) Corporate Proceedings of Subsidiaries. Each
Lender shall have received a copy of the resolutions,
in form and substance satisfactory to such Lender, of
the Board of Directors of each Domestic Subsidiary of
the Borrower which is a party to a Loan Document
authorizing the execution, delivery and performance of
the Loan Documents to which it is a party, certified by
the Secretary or an Assistant Secretary of each such
Domestic Subsidiary as of the Closing Date, which
certificate shall be in form and substance satisfactory
to such Lender and shall state that the resolutions
thereby certified have not been amended, modified,
revoked or rescinded.
(g) Subsidiary Incumbency Certificates. Each
Lender shall have received a certificate of each
Domestic Subsidiary of the Borrower, dated the Closing
Date, as to the incumbency and signature of the
officers of such Subsidiaries executing any Loan
Document, satisfactory in form and substance to such
Lender, executed by the President or any Vice President
and the Secretary or any Assistant Secretary of each
such Domestic Subsidiary.
(h) Corporate Documents. Each Lender shall
have received true and complete copies of the
certificate of incorporation and by-laws of the
Borrower and each of its Subsidiaries certified as of
the Closing Date as complete and correct copies thereof
by the Secretary or an Assistant Secretary of the
Borrower and each of its Subsidiaries.
(i) Fees. Each Lender shall have received the
fees to be received on the Closing Date pursuant to the
Fee Letter dated as of January 13, 1995, from the
Borrower to Chemical and NatWest.
(j) Legal Opinions. Each Lender shall have
received the executed legal opinion of Loeb and Loeb,
counsel to the Borrower, substantially in the form of
Exhibit D. Such legal opinion shall cover such other
matters incident to the transactions contemplated by
this Agreement as any Lender may reasonably require.
(k) Lien Searches. Each Lender shall have
received the results of a recent search by a Person
satisfactory to such Lender, of the Uniform Commercial
Code, judgement and tax lien filings which may have
been filed with respect to personal property of the
Borrower, and the results of such search shall be
satisfactory to such Lender.
(l) Supplier Contract. Each Lender shall have
received a certified copy of the Supplier Contract
which shall be satisfactory in form and substance to
such Lender.
4.2 Conditions to Each Loan. The agreement of
each Lender to make any Loan requested to be made by it on
any date (including, without limitation, its initial Loan)
is subject to the satisfaction of the following conditions
precedent:
(a) Representations and Warranties. Each of the
representations and warranties made by the Borrower and
its Subsidiaries in or pursuant to the Loan Documents
shall be true and correct in all material respects on
and as of such date as if made on and as of such date.
(b) No Default. No Default or Event of Default
shall have occurred and be continuing on such date or
after giving effect to the Loans requested to be made
on such date.
(c) Additional Matters. All corporate and other
proceedings, and all documents, instruments and other
legal matters in connection with the transactions
contemplated by this Agreement and the other Loan
Documents shall be satisfactory in form and substance
to such Lender, and such Lender shall have received
such other documents and legal opinions in respect of
any aspect or consequence of the transactions
contemplated hereby or thereby as it shall reasonably
request.
Each borrowing by the Borrower hereunder shall constitute a
representation and warranty by the Borrower as of the date
thereof that the conditions contained in this subsection
have been satisfied.
SECTION 5. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the
Commitments remain in effect or any amount is owing to any
Lender hereunder or under any other Loan Document, the
Borrower shall and (except in the case of delivery of
financial information, reports and notices and subsection
5.10) shall cause each of its Subsidiaries to:
5.1 Financial Statements. Furnish to each
Lender:
(a) as soon as available, but in any event within
90 days after the end of each fiscal year of the
Borrower, a copy of (i) the consolidated balance sheet
of the Borrower and its consolidated Subsidiaries as at
the end of such year and the related consolidated
statements of income and retained earnings and of cash
flows for such year, setting forth in each case in
comparative form the figures for the previous year,
reported on without qualification by Arthur Andersen &
Co. or other independent certified public accountants
of nationally recognized standing satisfactory to the
Required Lenders and (ii) the consolidating balance
sheet of the Borrower and its consolidated Subsidiaries
as at the end of such year and the related
consolidating statements of income and retained
earnings and of cash flows for such year, setting forth
in each case in comparative form the figures for the
previous year, certified by a Responsible Officer as
being fairly stated in all material respects; and
(b) as soon as available, but in any event not
later than 45 days after the end of each of the first
three quarterly periods of each fiscal year of the
Borrower, the unaudited consolidated balance sheet of
the Borrower and its consolidated Subsidiaries as at
the end of such quarter and the related unaudited
consolidated statements of income and retained earnings
and of cash flows of the Borrower and its consolidated
Subsidiaries for such quarter and the portion of the
fiscal year through the end of such quarter, setting
forth in each case in comparative form the figures for
the previous year, certified by a Responsible Officer
as being fairly stated in all material respects
(subject to normal year-end audit adjustments);
all such financial statements shall be complete and correct
in all material respects and shall be prepared in reasonable
detail and in accordance with GAAP applied consistently
throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer,
as the case may be, and disclosed therein).
5.2 Certificates; Other Information. Furnish to
each Lender:
(a) concurrently with the delivery of the
financial statements referred to in subsection 5.1(a),
a certificate of the independent certified public
accountants reporting on such financial statements
stating that in making the examination necessary
therefor no knowledge was obtained of any Default or
Event of Default, except as specified in such
certificate;
(b) concurrently with the delivery of the
financial statements referred to in subsections 5.1(a)
and (b), a certificate of a Responsible Officer (i)
stating that, to the best of such Officer's knowledge,
the Borrower and its Subsidiaries during such period
have observed or performed all of their respective
covenants and other agreements, and satisfied every
condition, contained in this Agreement and the other
Loan Documents to be observed, performed or satisfied
by them, and that such Responsible Officer has obtained
no knowledge of any Default or Event of Default except
as specified in such certificate and (ii) setting forth
the calculations required to determine compliance with
subsections 6.1 and 6.8;
(c) within 90 days after the beginning of each
fiscal year of the Borrower, a copy of the projections
by the Borrower of the balance sheet, income statement
and cash flow budget of the Borrower and its
Subsidiaries for such fiscal year and the subsequent
three fiscal years, such projections to be accompanied
by a certificate of the Chief Financial Officer of the
Borrower to the effect that such projections have been
prepared in good faith on the basis of sound financial
planning practice and reasonable assumptions;
(d) within five days after the same are sent,
copies of all financial statements and reports which
the Borrower sends to its stockholders, and within five
days after the same are filed, copies of all financial
statements and reports which the Borrower may make to,
or file with, the Securities and Exchange Commission or
any successor or analogous Governmental Authority;
(e) promptly, a copy of each management letter,
if any, prepared by the accountants which audited the
financial statements delivered pursuant to subsection
5.1(a); and
(f) promptly, such additional financial and other
information as any Lender may from time to time
reasonably request.
5.3 Payment of Obligations. Pay, discharge or
otherwise satisfy at or before maturity or before they
become delinquent, as the case may be, all its material
obligations of whatever nature, except where the amount or
validity thereof is currently being contested in good faith
by appropriate proceedings and reserves in conformity with
GAAP with respect thereto have been provided on the books of
the Borrower or its Subsidiaries, as the case may be.
5.4 Conduct of Business and Maintenance of
Existence. Continue to engage in business of the same
general type as now conducted by it and preserve, renew and
keep in full force and effect its corporate existence and
take all reasonable action to maintain all rights,
privileges and franchises necessary or desirable in the
normal conduct of its business except as otherwise permitted
pursuant to subsection 6.5; comply with all Contractual
Obligations and Requirements of Law except to the extent
that failure to comply therewith could not, in the
aggregate, be reasonably expected to have a Material Adverse
Effect.
5.5 Maintenance of Property; Insurance. Keep all
property useful and necessary in its business in good
working order and condition; maintain with financially sound
and reputable insurance companies insurance on all its
property in at least such amounts and against at least such
risks (but including in any event public liability, product
liability and business interruption) as are usually insured
against in the same general area by companies engaged in the
same or a similar business; and furnish to each Lender, upon
written request, full information as to the insurance
carried.
5.6 Inspection of Property; Books and Records;
Discussions. Keep proper books of records and account in
which full, true and correct entries in conformity with GAAP
and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities;
and permit representatives of any Lender to visit and
inspect any of its properties and examine and make abstracts
from any of its books and records at any reasonable time and
as often as may reasonably be desired and to discuss the
business, operations, properties and financial and other
condition of the Borrower and its Subsidiaries with officers
and employees of the Borrower and its Subsidiaries and with
its independent certified public accountants.
5.7 Notices. Promptly give notice to each Lender
of:
(a) the occurrence of any Default or Event of
Default;
(b) any (i) default or event of default under any
Contractual Obligation of the Borrower or any of its
Subsidiaries or (ii) litigation, investigation or
proceeding which may exist at any time between the
Borrower or any of its Subsidiaries and any
Governmental Authority, which in either case, if not
cured or if adversely determined, as the case may be,
could reasonably be expected to have a Material Adverse
Effect;
(c) any litigation or proceeding affecting the
Borrower or any of its Subsidiaries in which the amount
involved is $1,000,000 or more and not covered by
insurance or in which injunctive or similar relief is
sought;
(d) the following events, as soon as possible and
in any event within 30 days after the Borrower knows or
has reason to know thereof: (i) the occurrence or
expected occurrence of any Reportable Event with
respect to any Plan, a failure to make any required
contribution to a Plan, the creation of any Lien in
favor of the PBGC or a Plan or any withdrawal from, or
the termination, Reorganization or Insolvency of, any
Multiemployer Plan or (ii) the institution of
proceedings or the taking of any other action by the
PBGC or the Borrower or any Commonly Controlled Entity
or any Multiemployer Plan with respect to the
withdrawal from, or the terminating, Reorganization or
Insolvency of, any Plan; and
(e) any development or event which could
reasonably be expected to have a Material Adverse
Effect.
Each notice pursuant to this subsection shall be accompanied
by a statement of a Responsible Officer setting forth
details of the occurrence referred to therein and stating
what action the Borrower proposes to take with respect
thereto.
5.8 Environmental Laws. (a) Comply with, and
ensure compliance by all tenants and subtenants, if any,
with, all applicable Environmental Laws and obtain and
comply in all material respects with and maintain, and
ensure that all tenants and subtenants obtain and comply in
all material respects with and maintain, any and all
licenses, approvals, notifications, registrations or permits
required by applicable Environmental Laws.
(b) Conduct and complete all investigations,
studies, sampling and testing, and all remedial, removal and
other actions required under Environmental Laws and promptly
comply in all material respects with all lawful orders and
directives of all Governmental Authorities regarding
Environmental Laws except to the extent that the same are
being contested in good faith by appropriate proceedings and
the pendency of such proceedings could not be reasonably
expected to have a Material Adverse Effect.
5.9 Additional Guarantors. Promptly inform each
of the Lenders of the creation or acquisition of each new
Domestic Subsidiary after the Closing Date and cause each
such new Domestic Subsidiary of the Borrower to execute
promptly after creation or acquisition thereof a Supplement
in the form attached to the Subsidiaries Guarantee as
Exhibit A pursuant to which such new Domestic Subsidiary
shall become a party to the Subsidiaries Guarantee as a
guarantor thereunder.
5.10 Assets. (a) Own at least 90% of the Total
Assets of the Borrower and its Subsidiaries (other than the
assets owned by Toyo Microsystems Corporation on the date
hereof) at all times and (b) cause at least 90% of the Total
Assets of the Borrower to be located in the United States of
America at all times.
SECTION 6. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the
Commitments remain in effect or any amount is owing to any
Lender hereunder or under any other Loan Document, the
Borrower shall not, and (except with respect to subsections
6.1) shall not permit any of its Subsidiaries to, directly
or indirectly:
6.1 Financial Condition Covenants.
eL Maintenance of Net Worth. Permit
Consolidated Net Worth at any time (i) on or prior to
February 27, 1995, to be less than $150,000,000, (ii)
at any time during the period from and including
February 28, 1995 to and including February 27, 1996,
to be less than $157,500,000, (iii) at any time during
the period from and including February 28, 1996 to and
including February 27, 1997, to be less than the
greater of (A) $165,000,000 or (B) an amount equal to
the actual Consolidated Net Worth at February 28, 1995
plus $7,500,000 or (iv) at any time thereafter, to be
less than the greater of (A) $172,500,000 or (B) an
amount equal to the actual Consolidated Net Worth at
February 28, 1996 plus $7,500,000.
(b) Consolidated Net Income. Permit (i)
Consolidated Net Income to be less than $7,500,000 for
any fiscal year ending after the Closing Date or (ii) a
Consolidated Net Loss to occur in three or more
consecutive fiscal quarters during any period of four
consecutive fiscal quarters ending after the Closing
Date.
(c) Maintenance of Quick Asset Ratio. Permit the
ratio of Consolidated Quick Assets to Consolidated
Current Liabilities to be less than 1.25 to 1.00 at any
time.
(d) Ratio of Total Unsubordinated Liabilities to
Consolidated Tangible Net Worth. Permit the ratio of
Consolidated Total Unsubordinated Liabilities to
Consolidated Tangible Net Worth at any time to be
greater than 1.25 to 1.00.
(e) Ratio of Consolidated Funded Debt to
Consolidated EBITDA. Permit the ratio of Consolidated
Funded Debt at any time to Consolidated EBITDA for the
most recently completed period of four consecutive
fiscal quarters then ended to be greater than 1.75 to
1.00.
(f) Maintenance of Inventory Turnover. Permit
the Inventory Turnover Ratio to be less than 3.50 to
1.00 at any time.
6.2 Limitation on Indebtedness. Create, incur,
assume or suffer to exist any Indebtedness, except:
(a) Indebtedness of the Borrower under this
Agreement;
(b) Indebtedness of the Borrower to any
Subsidiary and of any Subsidiary to the Borrower or any
other Subsidiary, provided that the maximum amount of
any such Indebtedness of the Foreign Subsidiaries to
the Borrower shall not exceed $1,000,000 in the
aggregate at any time outstanding;
(c) Indebtedness of the Borrower and any of its
Subsidiaries incurred to finance the acquisition of
fixed or capital assets to the extent permitted under
subsection 6.8 (whether pursuant to a loan, a Financing
Lease or otherwise) in an aggregate principal amount
not exceeding in the aggregate $3,000,000 at any time
outstanding;
(d) Subordinated Debt of the Borrower or any of
its Subsidiaries;
(e) Indebtedness outstanding on the date hereof
and listed on Schedule 6.2(e); and
(f) Indebtedness of a corporation which becomes a
Subsidiary after the date hereof, provided that (i)
such indebtedness existed at the time such corporation
became a Subsidiary and was not created in anticipation
thereof and (ii) immediately after giving effect to the
acquisition of such corporation by the Borrower no
Default or Event of Default shall have occurred and be
continuing or would result therefrom.
6.3 Limitation on Liens. Create, incur, assume
or suffer to exist any Lien upon any of its property, assets
or revenues, whether now owned or hereafter acquired, except
for:
(a) Liens for taxes not yet due or which are
being contested in good faith by appropriate
proceedings, provided that adequate reserves with
respect thereto are maintained on the books of the
Borrower or its Subsidiaries, as the case may be, in
conformity with GAAP;
(b) carriers', warehousemen's, mechanics',
materialmen's, repairmen's or other like Liens arising
in the ordinary course of business which are not
overdue for a period of more than 60 days or which are
being contested in good faith by appropriate
proceedings;
(c) pledges or deposits in connection with
workers' compensation, unemployment insurance and other
social security legislation and deposits securing
liability to insurance carriers under insurance or
self-insurance arrangements;
(d) deposits to secure the performance of bids,
trade contracts (other than for borrowed money),
leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like
nature incurred in the ordinary course of business;
(e) easements, rights-of-way, restrictions and
other similar encumbrances incurred in the ordinary
course of business which, in the aggregate, are not
substantial in amount and which do not in any case
materially detract from the value of the property
subject thereto or materially interfere with the
ordinary conduct of the business of the Borrower or
such Subsidiary;
(f) Liens in existence on the date hereof listed
on Schedule 6.3(f), provided that no such Lien is
spread to cover any additional property after the
Closing Date and that the amount of Indebtedness
secured thereby is not increased;
(g) Liens securing Indebtedness of the Borrower
and its Subsidiaries permitted by subsection 6.2(c)
incurred to finance the acquisition of fixed or capital
assets, provided that (i) such Liens shall be created
substantially simultaneously with the acquisition of
such fixed or capital assets, (ii) such Liens do not at
any time encumber any property other than the property
financed by such Indebtedness, (iii) the amount of
Indebtedness secured thereby is not increased and (iv)
the principal amount of Indebtedness secured by any
such Lien shall at no time exceed 100% of the original
purchase price of such property at the time it was
acquired; and
(h) Liens on the property or assets of a
corporation which becomes a Subsidiary after the date
hereof securing Indebtedness permitted by subsection
6.2(f), provided that (i) such Liens existed at the
time such corporation became a Subsidiary and were not
created in anticipation thereof, (ii) any such Lien is
limited to the property and assets subject to such Lien
at the time such corporation becomes a Subsidiary and
is not spread to cover any property or assets of such
corporation after the time such corporation becomes a
Subsidiary (including, without limitation, pursuant to
after-acquired property or similar clause) and (iii)
the amount of Indebtedness secured thereby is not
increased.
6.4 Limitation on Guarantee Obligations. Create,
incur, assume or suffer to exist any Guarantee Obligation
except:
(a) Guarantee Obligations in existence on the
date hereof and listed on Schedule 6.4(a);
(b) Guarantee Obligations of the Borrower and its
Subsidiaries created after the date hereof in an
aggregate amount not to exceed $250,000 in the
aggregate at any one time outstanding;
(c) Guarantee Obligations of the Borrower in
respect of operating leases entered into by any
Subsidiary in the ordinary course of business; and
(d) the Guarantees.
6.5 Limitation on Fundamental Changes. Enter
into any merger, consolidation or amalgamation, or
liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, lease, assign,
transfer or otherwise dispose of, all or substantially all
of its property, business or assets, or make any material
change in its present method of conducting business, except:
(a) any Subsidiary of the Borrower may be merged
or consolidated with or into the Borrower (provided
that the Borrower shall be the continuing or surviving
corporation) or with or into any one or more wholly
owned Domestic Subsidiaries of the Borrower (provided
that the wholly owned Domestic Subsidiary or Domestic
Subsidiaries shall be the continuing or surviving
corporation);
(b) any wholly owned Subsidiary may sell, lease,
transfer or otherwise dispose of any or all of its
assets (upon voluntary liquidation or otherwise) to the
Borrower or any wholly owned Domestic Subsidiary of the
Borrower; and
(c) as permitted under subsection 6.9.
6.6 Limitation on Sale of Assets. Convey, sell,
lease, assign, transfer or otherwise dispose of any of its
property, business or assets (including, without limitation,
receivables and leasehold interests), whether now owned or
hereafter acquired, or, in the case of any Subsidiary, issue
or sell any shares of such Subsidiary's Capital Stock to any
Person other than the Borrower or any wholly owned
Subsidiary, except:
(a) the sale or other disposition of obsolete or
worn out property in the ordinary course of business;
(b) the sale of inventory in the ordinary course
of business;
(c) the sale or discount without recourse of
accounts receivable in the ordinary course of business
in connection with the compromise or collection
thereof;
(d) the sale of equipment to AT&T Corp. pursuant
to the terms of the Supplier Contract as in effect on
the date hereof;
(e) the sale of equipment with an aggregate net
book value not exceeding $500,000 in any fiscal year;
and
(f) as permitted by subsection 6.5(b).
6.7 Limitation on Dividends. Declare or pay any
dividend (other than dividends payable solely in common
stock of the Borrower) on, or make any payment on account
of, or set apart assets for a sinking or other analogous
fund for, the purchase, redemption, defeasance, retirement
or other acquisition of, any shares of any class of Capital
Stock of the Borrower or any Domestic Subsidiary which is
not wholly owned by the Borrower or any warrants or options
to purchase any such Capital Stock, whether now or hereafter
outstanding, or make any other distribution in respect
thereof, either directly or indirectly, whether in cash or
property or in obligations of the Borrower or any
Subsidiary, except for (i) repurchases of its common stock
in an amount not to exceed $5,000,000 in the aggregate after
the Closing Date, (ii) dividends in respect of the Capital
Stock of any Domestic Subsidiary which is not wholly owned
by the Borrower which is paid on a ratable basis to all
holders of such Capital Stock and (iii) dividends and/or
purchases of common stock of the Borrower in respect of
employee benefit plans of the Borrower as in effect on the
date hereof not exceeding $500,000 in the aggregate in any
year.
6.8 Limitation on Capital Expenditures. Make or
commit to make (by way of the acquisition of securities of a
Person or otherwise) any expenditure in respect of the
purchase or other acquisition of fixed or capital assets
(excluding any such asset acquired in connection with normal
replacement and maintenance programs properly charged to
current operations and any such expenditure resulting from a
Permitted Acquisition) except for expenditures in the
ordinary course of business not exceeding, in the aggregate
for the Borrower and its Subsidiaries during any of the
fiscal years of the Borrower set forth below, the amount set
forth opposite such fiscal year below:
Fiscal Year Amount
1995 $8,000,000
1996 $35,000,000
1997 $30,000,000
1998 $30,000,000
; provided that Capital Expenditures with respect to the
1995 Fiscal Year shall be calculated with respect to the
period beginning on the Closing Date and ending on February
28, 1995.
6.9 Limitation on Investments, Loans and
Advances. Make any advance, loan, extension of credit or
capital contribution to, or purchase any stock, bonds,
notes, debentures or other securities of or any assets
constituting a business unit of, or make any other
investment in, any Person ("Investments"), except :
(a) extensions of trade credit in the ordinary
course of business;
(b) Permitted Investments;
(c) Investments by the Borrower in its
Subsidiaries as of the Closing Date listed in Schedule
3.15 hereto and additional equity Investments
(including, without limitation, by virtue of a
transaction permitted under subsection 6.5) in
Subsidiaries, provided that the aggregate amount of
such Investments in Foreign Subsidiaries shall not
exceed $1,000,000 in the aggregate subsequent to the
Closing Date; and
(d) Permitted Acquisitions by the Borrower.
6.10 Limitation on Optional Payments and
Modifications of Debt Instruments. (a) Make any optional
payment or prepayment on or redemption or purchase of any
Subordinated Debt, (b) amend, modify or change, or consent
or agree to any amendment, modification or change to any of
the terms of any such Subordinated Debt (other than any such
amendment, modification or change which would extend the
maturity or reduce the amount of any payment of principal
thereof or which would reduce the rate or extend the date
for payment of interest thereon), or (c) amend the
subordination provisions of the Subordinated Debt.
6.11 Limitation on Transactions with Affiliates.
Enter into any transaction, including, without limitation,
any purchase, sale, lease or exchange of property or the
rendering of any service, with any Affiliate unless such
transaction is (a) otherwise permitted under this Agreement,
(b) in the ordinary course of the Borrower's or such
Subsidiary's business and (c) upon fair and reasonable terms
no less favorable to the Borrower or such Subsidiary, as the
case may be, than it would obtain in a comparable arm's
length transaction with a Person which is not an Affiliate,
except for contracts with directors and executive officers
of the Borrower and its Subsidiaries entered into in the
ordinary course of business with respect to services
rendered to the Borrower and its Subsidiaries.
6.12 Limitation on Sales and Leasebacks. Enter
into any arrangement with any Person providing for the
leasing by the Borrower or any Subsidiary of real or
personal property which has been or is to be sold or
transferred by the Borrower or such Subsidiary to such
Person or to any other Person to whom funds have been or are
to be advanced by such Person on the security of such
property or rental obligations of the Borrower or such
Subsidiary.
6.13 Limitation on Changes in Fiscal Year;
Accounting Changes. (a) Permit the fiscal year of the
Borrower to end on a day other than the last day of February
or (b) change any accounting treatments or reporting
practices used in connection with the preparation of the
consolidated financial statements of the Borrower and its
Subsidiaries as of the date hereof except as required or
permitted by GAAP.
6.14 Limitation on Negative Pledge Clauses.
Enter into with any Person any agreement, other than (a)
this Agreement or (b) any industrial revenue bonds, purchase
money mortgages or Financing Leases permitted by this
Agreement (in which cases, any prohibition or limitation
shall only be effective against the assets financed
thereby), which prohibits or limits the ability of the
Borrower or any of its Subsidiaries to create, incur, assume
or suffer to exist any Lien upon any of its property, assets
or revenues, whether now owned or hereafter acquired.
6.15 Limitation on Lines of Business. Enter into
any business, either directly or through any Subsidiary,
except for those businesses in which the Borrower and its
Subsidiaries are engaged on the date of this Agreement and
those businesses acquired pursuant to Permitted
Acquisitions.
6.16 Limitation on Interest Rate Protection
Agreements. Enter into any Interest Rate Protection
Agreements other than Interest Rate Protection Agreements
with respect to the Loans, provided that (i) the aggregate
notional amount of all such Interest Rate Protection
Agreements shall not exceed the Commitments and (ii) such
Interest Rate Protection Agreements shall be unsecured.
SECTION 7. EVENTS OF DEFAULT
If any of the following events shall occur and be
continuing:
(a) The Borrower shall fail to pay any principal
of any Loan when due in accordance with the terms
thereof or hereof; or the Borrower shall fail to pay
any interest on any Loan, or any other amount payable
hereunder, within five days after any such interest or
other amount becomes due in accordance with the terms
thereof or hereof; or
(b) Any representation or warranty made or deemed
made by the Borrower or any other Loan Party herein or
in any other Loan Document or which is contained in any
certificate, document or financial or other statement
furnished by it at any time under or in connection with
this Agreement or any such other Loan Document shall
prove to have been incorrect in any material respect on
or as of the date made or deemed made; or
(c) The Borrower or any other Loan Party shall
default in the observance or performance of any
agreement contained in Section 6; or
(d) The Borrower or any other Loan Party shall
default in the observance or performance of any other
agreement contained in this Agreement or any other Loan
Document (other than as provided in paragraphs (a)
through (c) of this Section), and in the case of any
such default under Section 5 (other than subsection
5.1, 5.2(a), 5.2(b), 5.4, 5.5, 5.6 or 5.7), such
default shall continue unremedied for a period of 20
days; or
(e) The Borrower or any of its Subsidiaries shall
(i) default in any payment of principal of or interest
of any Indebtedness (other than the Loans) or in the
payment of any Guarantee Obligation, beyond the period
of grace (not to exceed 30 days), if any, provided in
the instrument or agreement under which such
Indebtedness or Guarantee Obligation was created, if
the aggregate amount of the Indebtedness and/or
Guarantee Obligations in respect of which such default
or defaults shall have occurred is at least $100,000;
or (ii) default in the observance or performance of any
other agreement or condition relating to any such
Indebtedness or Guarantee Obligation or contained in
any instrument or agreement evidencing, securing or
relating thereto, or any other event shall occur or
condition exist, the effect of which default or other
event or condition is to cause, or to permit the holder
or holders of such Indebtedness or beneficiary or
beneficiaries of such Guarantee Obligation (or a
trustee or agent on behalf of such holder or holders or
beneficiary or beneficiaries) to cause, with the giving
of notice if required, such Indebtedness to become due
prior to its stated maturity or such Guarantee
Obligation to become payable; or
(f) (i) The Borrower or any of its Material
Subsidiaries shall commence any case, proceeding or
other action (A) under any existing or future law of
any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect
to it or its debts, or (B) seeking appointment of a
receiver, trustee, custodian, conservator or other
similar official for it or for all or any substantial
part of its assets, or the Borrower or any of its
Material Subsidiaries shall make a general assignment
for the benefit of its creditors; or (ii) there shall
be commenced against the Borrower or any of its
Material Subsidiaries any case, proceeding or other
action of a nature referred to in clause (i) above
which (A) results in the entry of an order for relief
or any such adjudication or appointment or (B) remains
undismissed, undischarged or unbonded for a period of
30 days; or (iii) there shall be commenced against the
Borrower or any of its Material Subsidiaries any case,
proceeding or other action seeking issuance of a
warrant of attachment, execution, distraint or similar
process against all or any substantial part of its
assets which results in the entry of an order for any
such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within
30 days from the entry thereof; or (iv) the Borrower or
any of its Material Subsidiaries shall take any action
in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set
forth in clause (i), (ii), or (iii) above; or (v) the
Borrower or any of its Material Subsidiaries shall
generally not, or shall be unable to, or shall admit in
writing its inability to, pay its debts as they become
due; or
(g) (i) Any Person shall engage in any
"prohibited transaction" (as defined in Section 406 of
ERISA or Section 4975 of the Code) involving any Plan,
(ii) any "accumulated funding deficiency" (as defined
in Section 302 of ERISA), whether or not waived, shall
exist with respect to any Plan or any Lien in favor of
the PBGC or a Plan shall arise on the assets of the
Borrower or any Commonly Controlled Entity, (iii) a
Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed,
or a trustee shall be appointed, to administer or to
terminate, any Single Employer Plan, which Reportable
Event or commencement of proceedings or appointment of
a trustee is, in the reasonable opinion of the Required
Lenders, likely to result in the termination of such
Plan for purposes of Title IV of ERISA, (iv) any Single
Employer Plan shall terminate for purposes of Title IV
of ERISA, (v) the Borrower or any Commonly Controlled
Entity shall, or in the reasonable opinion of the
Required Lenders is likely to, incur any liability in
connection with a withdrawal from, or the Insolvency or
Reorganization of, a Multiemployer Plan or (vi) any
other event or condition shall occur or exist with
respect to a Plan; and in each case in clauses (i)
through (vi) above, such event or condition, together
with all other such events or conditions, if any, could
reasonably be expected to have a Material Adverse
Effect; or
(h) One or more judgments or decrees shall be
entered against the Borrower or any of its Subsidiaries
involving in the aggregate a liability (not paid or
fully covered by insurance) of $250,000 or more, and
all such judgments or decrees shall not have been
vacated, discharged, stayed or bonded pending appeal
within 30 days from the entry thereof; or
(i) Any Guarantee shall cease, for any reason, to
be in full force and effect with respect to any
Material Subsidiary or any Guarantor shall so assert;
or
(j) (i) Any Person or "group" (within the meaning
of Section 13(d) or 14(d) of the Securities Exchange
Act of 1934, as amended) (A) shall have acquired
beneficial ownership of 20% or more of any outstanding
class of Capital Stock having ordinary voting power in
the election of directors of the Borrower or (B) shall
obtain the power (whether or not exercised) to elect a
majority of the Borrower's directors or (ii) the Board
of Directors of the Borrower shall not consist of a
majority of Continuing Directors; "Continuing
Directors" shall mean the directors of the Borrower on
the Closing Date and each other director, if such other
director's nomination for election to the Board of
Directors of the Borrower is recommended by a majority
of the then Continuing Directors;
then, and in any such event, (A) if such event is an Event
of Default specified in clause (i) or (ii) of paragraph (f)
of this Section with respect to the Borrower, automatically
the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other
amounts owing under this Agreement shall immediately become
due and payable, and (B) if such event is any other Event of
Default, either or both of the following actions may be
taken: (i) the Required Lenders may, by notice to the
Borrower declare the Commitments to be terminated forthwith,
whereupon the Commitments shall immediately terminate; and
(ii) the Required Lenders may, by notice to the Borrower,
declare the Loans hereunder (with accrued interest thereon)
and all other amounts owing under this Agreement to be due
and payable forthwith, whereupon the same shall immediately
become due and payable. Except as expressly provided above
in this Section, presentment, demand, protest and all other
notices of any kind are hereby expressly waived.
SECTION 8. MISCELLANEOUS
8.1 Amendments and Waivers. Neither this
Agreement nor any other Loan Document, nor any terms hereof
or thereof may be amended, supplemented or modified except
in accordance with the provisions of this subsection. The
Required Lenders may from time to time (a) enter into with
the Borrower written amendments, supplements or
modifications hereto and to the other Loan Documents for the
purpose of adding any provisions to this Agreement or the
other Loan Documents or changing in any manner the rights of
the Lenders or of the Borrower hereunder or thereunder or
(b) waive, on such terms and conditions as the Required
Lenders may specify in such instrument, any of the
requirements of this Agreement or the other Loan Documents
or any Default or Event of Default and its consequences;
provided, however, that no such waiver and no such
amendment, supplement or modification shall (i) reduce the
amount or extend the scheduled date of maturity of any Loan
or of any installment thereof, or reduce the stated rate of
any interest or fee payable hereunder or extend the
scheduled date of any payment thereof or increase the amount
or extend the expiration date of any Lender's Commitments,
in each case without the consent of each Lender affected
thereby, or (ii) amend, modify or waive any provision of
this subsection or reduce the percentage specified in the
definition of Required Lenders, or consent to the assignment
or transfer by the Borrower of any of its rights and
obligations under this Agreement and the other Loan
Documents or the release of any Guarantor under the
Subsidiaries Guarantee, in each case without the written
consent of all the Lenders. Any such waiver and any such
amendment, supplement or modification shall apply equally to
each of the Lenders and shall be binding upon the Borrower,
the Lenders and all future holders of the Loans. In the
case of any waiver, the Borrower and the Lenders shall be
restored to their former positions and rights hereunder and
under the other Loan Documents, and any Default or Event of
Default waived shall be deemed to be cured and not
continuing; no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right
consequent thereon.
8.2 Notices. All notices, requests and demands
to or upon the respective parties hereto to be effective
shall be in writing (including by facsimile transmission),
and, unless otherwise expressly provided herein, shall be
deemed to have been duly given or made when delivered, or
five days after being deposited in the mail, postage
prepaid, or, in the case of telecopy notice, when received,
addressed as follows, or to such other address as may be
hereafter notified by the respective parties hereto:
The Borrower: Standard Microsystems Corporation
80 Arkay Drive
Hauppauge, New York 11788
Attention: Anthony D'Agostino
Telecopy: (516) 273-5550
The Lenders: Chemical Bank
Middle Market Group
7600 Jericho Turnpike
Woodbury, New York 11797
Attention: Account Officer
Standard Microsystems
Corporation
Telecopy: (516) 364-3307
National Westminster Bank N.A.
100 Jericho Quadrangle
Jericho, New York 11753
Attention: Christine Dekajlo
Standard Microsystems
Corporation
Telecopy: (516) 349-2098
provided that any notice, request or demand to or upon the
Lenders pursuant to subsection 2.2, 2.4, 2.7 or 2.11 shall
not be effective until received.
8.3 No Waiver; Cumulative Remedies. No failure
to exercise and no delay in exercising, on the part of any
Lender, any right, remedy, power or privilege hereunder or
under the other Loan Documents shall operate as a waiver
thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any
other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers
and privileges provided by law.
8.4 Survival of Representations and Warranties.
All representations and warranties made hereunder, in the
other Loan Documents and in any document, certificate or
statement delivered pursuant hereto or in connection
herewith shall survive the execution and delivery of this
Agreement and the making of the Loans hereunder.
8.5 Payment of Expenses and Taxes. The Borrower
agrees (a) to pay or reimburse Chemical and NatWest for all
their out-of-pocket costs and expenses incurred in
connection with the development, preparation and execution
of, and any amendment, supplement or modification to, this
Agreement and the other Loan Documents and any other
documents prepared in connection herewith or therewith, and
the consummation and administration of the transactions
contemplated hereby and thereby, including, without
limitation, the reasonable fees and disbursements of counsel
to Chemical and NatWest, (b) to pay or reimburse each Lender
for all its costs and expenses incurred in connection with
the enforcement or preservation of any rights under this
Agreement, the other Loan Documents and any such other
documents, including, without limitation, the fees and
disbursements of counsel to each Lender, (c) to pay,
indemnify, and hold each Lender harmless from, any and all
recording and filing fees and any and all liabilities with
respect to, or resulting from any delay in paying, stamp,
excise and other taxes, if any, which may be payable or
determined to be payable in connection with the execution
and delivery of, or consummation or administration of any of
the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent
under or in respect of, this Agreement, the other Loan
Documents and any such other documents, and (d) to pay,
indemnify, and hold each Lender harmless from and against
any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever with respect
to the execution, delivery, enforcement, performance and
administration of this Agreement, the other Loan Documents
and any such other documents, including, without limitation,
any of the foregoing relating to the violation of,
noncompliance with or liability under, any Environmental Law
applicable to the operations of the Borrower, any of its
Subsidiaries or any of the Properties (all the foregoing in
this clause (d), collectively, the "indemnified
liabilities"), provided, that the Borrower shall have no
obligation hereunder to any Lender with respect to
indemnified liabilities arising from (i) the gross
negligence or willful misconduct of any such Lender or (ii)
legal proceedings commenced against any such Lender by any
security holder or creditor thereof arising out of and based
upon rights afforded any such security holder or creditor
solely in its capacity as such. The agreements in this
subsection shall survive repayment of the Loans and all
other amounts payable hereunder.
8.6 Successors and Assigns; Participations and
Assignments. (a) This Agreement shall be binding upon and
inure to the benefit of the Borrower, the Lenders and their
respective successors and assigns, except that the Borrower
may not assign or transfer any of its rights or obligations
under this Agreement without the prior written consent of
each Lender.
(b) Any Lender may, in the ordinary course of its
commercial banking business and in accordance with
applicable law, at any time sell to one or more banks or
other entities ("Participants") participating interests in
any Loan owing to such Lender, any Commitment of such Lender
or any other interest of such Lender hereunder and under the
other Loan Documents. In the event of any such sale by a
Lender of a participating interest to a Participant, such
Lender's obligations under this Agreement to the other
parties to this Agreement shall remain unchanged, such
Lender shall remain solely responsible for the performance
thereof, such Lender shall remain the holder of any such
Loan for all purposes under this Agreement and the other
Loan Documents, and the Borrower shall continue to deal
solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement and the
other Loan Documents. The Borrower agrees that if amounts
outstanding under this Agreement are due or unpaid, or shall
have been declared or shall have become due and payable upon
the occurrence of an Event of Default, each Participant
shall, to the maximum extent permitted by applicable law, be
deemed to have the right of setoff in respect of its
participating interest in amounts owing under this Agreement
to the same extent as if the amount of its participating
interest were owing directly to it as a Lender under this
Agreement, provided that, in purchasing such participating
interest, such Participant shall be deemed to have agreed to
share with the Lenders the proceeds thereof as provided in
subsection 8.7(a) as fully as if it were a Lender hereunder.
The Borrower also agrees that each Participant shall be
entitled to the benefits of subsections 2.12, 2.13 and 2.14
with respect to its participation in the Commitments and the
Loans outstanding from time to time as if it was a Lender;
provided that, in the case of subsection 2.14 such
Participant shall have complied with the requirements of
said subsection and, provided, further, that no Participant
shall be entitled to receive any greater amount pursuant to
any such subsection than the transferor Lender would have
been entitled to receive in respect of the amount of the
participation transferred by such transferor Lender to such
Participant had no such transfer occurred.
(c) Any Lender may, in the ordinary course of its
commercial banking business and in accordance with
applicable law, at any time and from time to time assign to
any Lender or any affiliate thereof or, with the consent of
the Borrower (which shall not be unreasonably withheld), to
an additional bank or financial institution ("an Assignee")
all or any part of its rights and obligations under this
Agreement and the other Loan Documents pursuant to an
Assignment and Acceptance, substantially in the form of
Exhibit E, executed by such Assignee, such assigning Lender
(and, in the case of an Assignee that is not then a Lender
or an affiliate thereof, by the Borrower), provided that,
(i) notwithstanding the foregoing, the consent of the
Borrower shall not be required in the case of any such
assignment to an additional bank or financial institution by
Chemical or NatWest unless the sum of the aggregate
principal amount of the Loans and the aggregate amount of
the unused Commitment being assigned is greater than 49% of
the Commitment of Chemical or NatWest, as the case may be,
at such time (provided that Chemical or NatWest, as the case
may be, shall provide ten days notice to the Borrower prior
to making any assignment pursuant to this clause (i)) and
(ii) in the case of any such assignment to an additional
bank or financial institution, the sum of the aggregate
principal amount of the Loans and the aggregate amount of
the unused Commitment being assigned and, if such assignment
is of less than all of the rights and obligations of the
assigning Lender, the sum of the aggregate principal amount
of the Loans and the aggregate amount of the unused
Commitment remaining with the assigning Lender are each not
less than $10,000,000. Upon such execution, delivery,
acceptance and recording, from and after the effective date
determined pursuant to such Assignment and Acceptance, (x)
the Assignee thereunder shall be a party hereto and, to the
extent provided in such Assignment and Acceptance, have the
rights and obligations of a Lender hereunder with a
Commitment as set forth therein, and (y) the assigning
Lender thereunder shall, to the extent provided in such
Assignment and Acceptance, be released from its obligations
under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an
assigning Lender's rights and obligations under this
Agreement, such assigning Lender shall cease to be a party
hereto). Notwithstanding any provision of this paragraph
(c) and paragraph (e) of this subsection, the consent of the
Borrower shall not be required, and, unless requested by the
Assignee and/or the assigning Lender, new Notes shall not be
required to be executed and delivered by the Borrower, for
any assignment which occurs at any time when any of the
events described in Section 7(a) or 7(f) shall have occurred
and be continuing.
(d) The Borrower authorizes each Lender to
disclose to any Participant or Assignee (each, a
"Transferee") and any prospective Transferee, subject to the
provisions of subsection 8.15, any and all financial
information in such Lender's possession concerning the
Borrower and its Affiliates which has been delivered to such
Lender by or on behalf of the Borrower pursuant to this
Agreement or which has been delivered to such Lender by or
on behalf of the Borrower in connection with such Lender's
credit evaluation of the Borrower and its Affiliates prior
to becoming a party to this Agreement.
(e) For avoidance of doubt, the parties to this
Agreement acknowledge that the provisions of this subsection
concerning assignments of Loans and Notes relate only to
absolute assignments and that such provisions do not
prohibit assignments creating security interests, including,
without limitation, any pledge or assignment by a Lender of
any Loan or Note to any Federal Reserve Bank in accordance
with applicable law.
8.7 Adjustments; Set-off. (a) If any Lender (a
"Benefitted Lender") shall at any time receive any payment
of all or part of its Loans, or interest thereon, or receive
any collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings
of the nature referred to in Section 7(f), or otherwise), in
a greater proportion than any such payment to or collateral
received by any other Lender, if any, in respect of such
other Lender's Loans, or interest thereon, such benefitted
Lender shall purchase for cash from the other Lenders a
participating interest in such portion of each such other
Lender's Loan, or shall provide such other Lenders with the
benefits of any such collateral, or the proceeds thereof, as
shall be necessary to cause such benefitted Lender to share
the excess payment or benefits of such collateral or
proceeds ratably with each of the Lenders; provided,
however, that if all or any portion of such excess payment
or benefits is thereafter recovered from such benefitted
Lender, such purchase shall be rescinded, and the purchase
price and benefits returned, to the extent of such recovery,
but without interest.
(b) In addition to any rights and remedies of the
Lenders provided by law, each Lender shall have the right,
without prior notice to the Borrower, any such notice being
expressly waived by the Borrower to the extent permitted by
applicable law, upon any amount becoming due and payable by
the Borrower hereunder (whether at the stated maturity, by
acceleration or otherwise) to set-off and appropriate and
apply against such amount any and all deposits (general or
special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in
any currency, in each case whether direct or indirect,
absolute or contingent, matured or unmatured, at any time
held or owing by such Lender or any branch or agency thereof
to or for the credit or the account of the Borrower. Each
Lender agrees promptly to notify the Borrower after any such
set-off and application made by such Lender, provided that
the failure to give such notice shall not affect the
validity of such set-off and application.
8.8 Counterparts. This Agreement may be executed
by one or more of the parties to this Agreement on any
number of separate counterparts (including by facsimile
transmission), and all of said counterparts taken together
shall be deemed to constitute one and the same instrument.
8.9 Severability. Any provision of this
Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision
in any other jurisdiction.
8.10 Integration. This Agreement and the other
Loan Documents represent the agreement of the Borrower and
the Lenders with respect to the subject matter hereof, and
there are no promises, undertakings, representations or
warranties by any Lender relative to subject matter hereof
not expressly set forth or referred to herein or in the
other Loan Documents.
8.11 GOVERNING LAW. THIS AGREEMENT AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK.
8.12 Submission To Jurisdiction; Waivers. The
Borrower hereby irrevocably and unconditionally:
(a) submits for itself and its property in any
legal action or proceeding relating to this Agreement
and the other Loan Documents to which it is a party, or
for recognition and enforcement of any judgement in
respect thereof, to the non-exclusive general
jurisdiction of the Courts of the State of New York,
the courts of the United States of America for the
Southern District of New York, and appellate courts
from any thereof;
(b) consents that any such action or proceeding
may be brought in such courts and waives any objection
that it may now or hereafter have to the venue of any
such action or proceeding in any such court or that
such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the
same;
(c) agrees that service of process in any such
action or proceeding may be effected by mailing a copy
thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid,
to the Borrower at its address set forth in subsection
8.2 or at such other address of which each Lender shall
have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the
right to effect service of process in any other manner
permitted by law or shall limit the right to sue in any
other jurisdiction; and
(e) waives, to the maximum extent not prohibited
by law, any right it may have to claim or recover in
any legal action or proceeding referred to in this
subsection any special, exemplary, punitive or
consequential damages.
8.13 Acknowledgements. The Borrower hereby
acknowledges that:
(a) it has been advised by counsel in the
negotiation, execution and delivery of this Agreement
and the other Loan Documents;
(b) no Lender has any fiduciary relationship with
or duty to the Borrower arising out of or in connection
with this Agreement or any of the other Loan Documents,
and the relationship between the Lenders, on one hand,
and the Borrower, on the other hand, in connection
herewith or therewith is solely that of debtor and
creditor; and
(c) no joint venture is created hereby or by the
other Loan Documents or otherwise exists by virtue of
the transactions contemplated hereby among the Lenders
or among the Borrower and the Lenders.
8.14 WAIVERS OF JURY TRIAL. THE BORROWER AND THE
LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL
BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.
8.15 Confidentiality. Each Lender agrees to keep
confidential all non-public information provided to it by
the Borrower pursuant to this Agreement that is designated
by the Borrower in writing as confidential; provided that
nothing herein shall prevent any Lender from disclosing any
such information (i) to any other Lender, (ii) to any
Transferee which receives such information and which agrees
to keep such information confidential on substantially the
same terms as those set forth in this subsection 8.15, (iii)
to its employees, directors, agents, attorneys, accountants
and other professional advisors, (iv) upon the request or
demand of any Governmental Authority having jurisdiction
over such Lender, (v) in response to any order of any court
or other Governmental Authority or as may otherwise be
required pursuant to any Requirement of Law, (vi) which has
been publicly disclosed other than in breach of this
Agreement or (vii) in connection with the exercise of any
remedy hereunder.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed and delivered by their
proper and duly authorized officers as of the day and year
first above written.
STANDARD MICROSYSTEMS CORPORATION
By:
Title:
CHEMICAL BANK
By:
Title:
NATIONAL WESTMINSTER BANK N.A.
By:
Title: [EXECUTION COPY]
STANDARD MICROSYSTEMS CORPORATION,
______________________________________________________
$80,000,000
CREDIT AGREEMENT
Dated as of January 13, 1995
______________________________________________________
CHEMICAL BANK
NATIONAL WESTMINSTER BANK N.A.
as Lenders
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Defined Terms. . . . . . . . . . . . . . . . . . . . . . 1
1.2 Other Definitional Provisions. . . . . . . . . . . . . . 12
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS . . . . . . . . . . . . . 12
2.1 Commitments. . . . . . . . . . . . . . . . . . . . . . . 12
2.2 Procedure for Borrowing. . . . . . . . . . . . . . . . . 13
2.4 Termination or Reduction of Commitments. . . . . . . . . 13
2.5 Repayment of Loans; Evidence of Debt . . . . . . . . . . 13
2.6 Optional Prepayments . . . . . . . . . . . . . . . . . . 14
2.7 Conversion and Continuation Options. . . . . . . . . . . 14
2.8 Interest Rates and Payment Dates . . . . . . . . . . . . 15
2.9 Computation of Interest and Fees . . . . . . . . . . . . 15
2.10 Inability to Determine Interest Rate. . . . . . . . . . 15
2.11 Pro Rata Treatment and Payments . . . . . . . . . . . . 16
2.12 Illegality. . . . . . . . . . . . . . . . . . . . . . . 16
2.13 Requirements of Law . . . . . . . . . . . . . . . . . . 17
2.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.15 Indemnity . . . . . . . . . . . . . . . . . . . . . . . 19
2.16 Change of Lending Office. . . . . . . . . . . . . . . . 19
SECTION 3. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . 19
3.1 Financial Condition. . . . . . . . . . . . . . . . . . . 19
3.2 No Change. . . . . . . . . . . . . . . . . . . . . . . . 20
3.3 Corporate Existence; Compliance with Law . . . . . . . . 20
3.4 Corporate Power; Authorization; Enforceable
Obligations. . . . . . . . . . . . . . . . . . . . . . 21
3.5 No Legal Bar . . . . . . . . . . . . . . . . . . . . . . 21
3.6 No Material Litigation . . . . . . . . . . . . . . . . . 21
3.7 No Default . . . . . . . . . . . . . . . . . . . . . . . 21
3.8 Ownership of Property; Liens . . . . . . . . . . . . . . 21
3.9 Intellectual Property. . . . . . . . . . . . . . . . . . 22
3.10 No Burdensome Restrictions. . . . . . . . . . . . . . . 22
3.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.12 Federal Regulations . . . . . . . . . . . . . . . . . . 22
3.13 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.14 Investment Company Act; Other Regulations . . . . . . . 23
3.15 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . 23
3.16 Purpose of Loans. . . . . . . . . . . . . . . . . . . . 23
3.17 Environmental Matters . . . . . . . . . . . . . . . . . 23
SECTION 4. CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . 24
4.1 Conditions to Initial Loans. . . . . . . . . . . . . . . 24
4.2 Conditions to Each Loan. . . . . . . . . . . . . . . . . 26
SECTION 5. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . 27
5.1 Financial Statements . . . . . . . . . . . . . . . . . . 27
5.2 Certificates; Other Information. . . . . . . . . . . . . 27
5.3 Payment of Obligations . . . . . . . . . . . . . . . . . 28
5.4 Conduct of Business and Maintenance of
Existence. . . . . . . . . . . . . . . . . . . . . . . 28
5.5 Maintenance of Property; Insurance . . . . . . . . . . . 29
5.6 Inspection of Property; Books and Records;
Discussions. . . . . . . . . . . . . . . . . . . . . . 29
5.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . 29
5.8 Environmental Laws . . . . . . . . . . . . . . . . . . . 30
5.9 Additional Guarantors. . . . . . . . . . . . . . . . . . 30
5.10 Assets. . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 6. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . 30
6.1 Financial Condition Covenants. . . . . . . . . . . . . . 31
6.2 Limitation on Indebtedness . . . . . . . . . . . . . . . 31
6.3 Limitation on Liens. . . . . . . . . . . . . . . . . . . 32
6.4 Limitation on Guarantee Obligations. . . . . . . . . . . 33
6.5 Limitation on Fundamental Changes. . . . . . . . . . . . 33
6.6 Limitation on Sale of Assets . . . . . . . . . . . . . . 34
6.7 Limitation on Dividends. . . . . . . . . . . . . . . . . 34
6.8 Limitation on Capital Expenditures . . . . . . . . . . . 34
6.9 Limitation on Investments, Loans and Advances. . . . . . 35
6.10 Limitation on Optional Payments and
Modifications of Debt Instruments. . . . . . . . . . . 35
6.11 Limitation on Transactions with Affiliates. . . . . . . 35
6.12 Limitation on Sales and Leasebacks. . . . . . . . . . . 36
6.13 Limitation on Changes in Fiscal Year;
Accounting Changes . . . . . . . . . . . . . . . . . . 36
6.14 Limitation on Negative Pledge Clauses . . . . . . . . . 36
6.15 Limitation on Lines of Business . . . . . . . . . . . . 36
6.16 Limitation on Interest Rate Protection
Agreements . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 7. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . 36
SECTION 8. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 39
8.1 Amendments and Waivers . . . . . . . . . . . . . . . . . 39
8.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . 40
8.3 No Waiver; Cumulative Remedies . . . . . . . . . . . . . 40
8.4 Survival of Representations and Warranties . . . . . . . 40
8.5 Payment of Expenses and Taxes. . . . . . . . . . . . . . 41
8.6 Successors and Assigns; Participations and
Assignments. . . . . . . . . . . . . . . . . . . . . . 41
8.7 Adjustments; Set-off . . . . . . . . . . . . . . . . . . 43
8.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . 44
8.9 Severability . . . . . . . . . . . . . . . . . . . . . . 44
8.10 Integration . . . . . . . . . . . . . . . . . . . . . . 44
8.11 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . 44
8.12 Submission To Jurisdiction; Waivers . . . . . . . . . . 44
8.13 Acknowledgements. . . . . . . . . . . . . . . . . . . . 45
8.14 WAIVERS OF JURY TRIAL . . . . . . . . . . . . . . . . . 45
8.15 Confidentiality . . . . . . . . . . . . . . . . . . . . 45
SCHEDULES
Schedule 1.1(a) Commitments
Schedule 3.1(a) Off-Balance Sheet Obligations
Schedule 3.6 Litigation
Schedule 3.15 Subsidiaries
Schedule 3.17 Environmental Matters
Schedule 6.2(e) Existing Indebtedness
Schedule 6.3(f) Existing Liens
Schedule 6.4(a) Existing Guarantee Obligations
EXHIBITS
Exhibit A Form of Subsidiaries Guarantee
Exhibit B Form of Note
Exhibit C Form of Closing Certificate
Exhibit D Form of Opinion of Counsel to Borrower
Exhibit E Form of Assignment and Acceptance
GUARANTEE, dated as of January 13, 1995, made by
each of the corporations that are signatories hereto
(collectively, the "Guarantors"; individually, a
"Guarantor"), in favor of the several banks and other
financial institutions (collectively, the "Lenders";
individually, a "Lender") parties to the Credit Agreement,
dated as of January 13, 1995 (as amended, supplemented or
otherwise modified from time to time, the "Credit
Agreement"), among Standard Microsystems Corporation, a
Delaware corporation (the "Borrower"), and the Lenders.
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the
Lenders have severally agreed to make Loans to the Borrower
upon the terms and subject to the conditions set forth
therein;
WHEREAS, the Borrower owns directly or indirectly
all of the issued and outstanding stock of each Guarantor;
WHEREAS, the proceeds of the Loans will be used in
part to enable the Borrower to make valuable transfers to
each of the Guarantors in connection with the operation of
its business;
WHEREAS, the Borrower and the Guarantors are
engaged in related businesses, and each Guarantor will
derive substantial direct and indirect benefit from the
making of the Loans; and
WHEREAS, it is a condition precedent to the
obligation of the Lenders to make their respective Loans to
the Borrower under the Credit Agreement that the Guarantors
shall have executed and delivered this Guarantee to each
Lender.
NOW, THEREFORE, in consideration of the premises
and to induce the Lenders to enter into the Credit Agreement
and to make their respective Loans to the Borrower under the
Credit Agreement, each Guarantor hereby agree with the
Lenders, as follows:
I.. Defined Terms. A. Unless otherwise defined
herein, terms defined in the Credit Agreement and used
herein shall have the meanings given to them in the Credit
Agreement. [For purposes of this Guarantee, the term
"Lender" shall include any Affiliate of any Lender which has
entered into an Interest Rate Protection Agreement with the
Borrower.]
B. As used herein, "Obligations" means the
collective reference to the unpaid principal of and interest
on the Loans and all other obligations and liabilities of
the Borrower to the Lenders (including, without limitation,
interest accruing at the then applicable rate provided in
the Credit Agreement after the maturity of the Loans and
interest accruing at the then applicable rate provided in
the Credit Agreement after the filing of any petition in
bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Borrower,
whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding), whether direct or
indirect, absolute or contingent, due or to become due, now
existing or hereafter incurred, which may arise under, out
of, or in connection with, the Credit Agreement, any Notes,
the other Loan Documents [, any Interest Rate Protection
Agreement entered into by the Borrower with any Lender] or
any other document made, delivered or given in connection
therewith, whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs,
expenses or otherwise (including, without limitation, all
fees and disbursements of counsel to the Lenders that are
required to be paid by the Borrower or any Guarantor
pursuant to the terms of the Credit Agreement or this
Guarantee or any other Loan Document).
C. The words "hereof," "herein" and "hereunder"
and words of similar import when used in this Guarantee
shall refer to this Guarantee as a whole and not to any
particular provision of this Guarantee, and section and
paragraph references are to this Guarantee unless otherwise
specified.
D. The meanings given to terms defined herein
shall be equally applicable to both the singular and plural
forms of such terms.
II.. Guarantee A. Subject to the provisions of
Section 2(b), each of the Guarantors hereby, jointly and
severally, unconditionally and irrevocably, guarantees to
the Lenders and their respective successors, indorsees,
transferees and assigns, the prompt and complete payment and
performance by the Borrower when due (whether at the stated
maturity, by acceleration or otherwise) of the Obligations.
B. Anything herein or in any other Loan Document
to the contrary notwithstanding, the maximum liability of
each Guarantor hereunder and under the other Loan Documents
shall in no event exceed the maximum aggregate amount equal
to the largest amount that would not render its obligations
hereunder and thereunder subject to avoidance as a
fraudulent transfer or conveyance under Section 548 of Title
11 of the United States Code or any applicable provisions of
comparable state law.
C. Each Guarantor further agrees to pay any and
all expenses (including, without limitation, all fees and
disbursements of counsel) which may be paid or incurred by
any Lender in enforcing, or obtaining advice of counsel in
respect of, any rights with respect to, or collecting, any
or all of the Obligations and/or enforcing any rights with
respect to, or collecting against, such Guarantor under this
Guarantee. This Guarantee shall remain in full force and
effect until the Obligations are paid in full and the
Commitments are terminated, notwithstanding that from time
to time prior thereto the Borrower may be free from any
Obligations.
D. Each Guarantor agrees that the Obligations may
at any time and from time to time exceed the amount of the
liability of such Guarantor hereunder without impairing this
Guarantee or affecting the rights and remedies of or any
Lender hereunder.
E. No payment or payments made by the Borrower,
any of the Guarantors, any other guarantor or any other
Person or received or collected by or any Lender from the
Borrower, any of the Guarantors, any other guarantor or any
other Person by virtue of any action or proceeding or any
set-off or appropriation or application at any time or from
time to time in reduction of or in payment of the
Obligations shall be deemed to modify, reduce, release or
otherwise affect the liability of any Guarantor hereunder
which shall, notwithstanding any such payment or payments
other than payments made by such Guarantor in respect of the
Obligations or payments received or collected from such
Guarantor in respect of the Obligations, remain liable for
the Obligations up to the maximum liability of such
Guarantor hereunder until the Obligations are paid in full
and the Commitments are terminated.
F. Each Guarantor agrees that whenever, at any
time, or from time to time, it shall make any payment to any
Lender on account of its liability hereunder, it will notify
the Lender in writing that such payment is made under this
Guarantee for such purpose.
III.. Right of Contribution. Each Guarantor
hereby agrees that to the extent that a Guarantor shall have
paid more than its proportionate share of any payment made
hereunder, such Guarantor shall be entitled to seek and
receive contribution from and against any other Guarantor
hereunder who has not paid its proportionate share of such
payment. Each Guarantor's right of contribution shall be
subject to the terms and conditions of Section 5 hereof.
The provisions of this Section shall in no respect limit the
obligations and liabilities of any Guarantor to the Lenders,
and each Guarantor shall remain liable to the Lenders for
the full amount guaranteed by such Guarantor hereunder.
IV.. Right of Set-off. Upon the occurrence of
any Event of Default, each Guarantor hereby irrevocably
authorizes each Lender at any time and from time to time
without notice to such Guarantor or any other Guarantor, any
such notice being expressly waived by each Guarantor, to
set-off and appropriate and apply any and all deposits
(general or special, time or demand, provisional or final),
in any currency, and any other credits, indebtedness or
claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at
any time held or owing by such Lender to or for the credit
or the account of such Guarantor, or any part thereof in
such amounts as such Lender may elect, against and on
account of the obligations and liabilities of such Guarantor
to such Lender hereunder and claims of every nature and
description of such Lender against such Guarantor, in any
currency, whether arising hereunder, under the Credit
Agreement, any Note, any other Loan Document [, any Interest
Rate Protection Agreement entered into by the Borrower with
any Lender] or otherwise, as such Lender may elect, whether
or not or any Lender has made any demand for payment and
although such obligations, liabilities and claims may be
contingent or unmatured. Each Lender shall notify such
Guarantor promptly of any such set-off and the application
made by such Lender, provided that the failure to give such
notice shall not affect the validity of such set-off and
application. The rights of each Lender under this Section
are in addition to other rights and remedies (including,
without limitation, other rights of set-off) which such
Lender may have.
V.. No Subrogation. Notwithstanding any payment
or payments made by any of the Guarantors hereunder or any
set-off or application of funds of any of the Guarantors by
any Lender, no Guarantor shall be entitled to be subrogated
to any of the rights of any Lender against the Borrower or
any other Guarantor or any collateral security or guarantee
or right of offset held by any Lender for the payment of the
Obligations, nor shall any Guarantor seek or be entitled to
seek any contribution or reimbursement from the Borrower or
any other Guarantor in respect of payments made by such
Guarantor hereunder, until all amounts owing to Lenders by
the Borrower on account of the Obligations are paid in full
and the Commitments are terminated. If any amount shall be
paid to any Guarantor on account of such subrogation rights
at any time when all of the Obligations shall not have been
paid in full, such amount shall be held by such Guarantor in
trust for the Lenders, segregated from other funds of such
Guarantor, and shall, forthwith upon receipt by such
Guarantor, be turned over to the Lenders exact form received
by such Guarantor (duly indorsed by such Guarantor to the
Lenders, if required), to be applied against the
Obligations, whether matured or unmatured, in such order as
the Lenders may determine.
VI.. Amendments, etc. with respect to the
Obligations; Waiver of Rights. Each Guarantor shall remain
obligated hereunder notwithstanding that, without any
reservation of rights against any Guarantor and without
notice to or further assent by any Guarantor, any demand for
payment of any of the Obligations made by the Required
Lenders or any Lender may be rescinded by the Required
Lenders or such Lender and any of the Obligations continued,
and the Obligations, or the liability of any other party
upon or for any part thereof, or any collateral security or
guarantee therefor or right of offset with respect thereto,
may, from time to time, in whole or in part, be renewed,
extended, amended, modified, accelerated, compromised,
waived, surrendered or released by the Required Lenders or
any Lender, and the Credit Agreement, any Notes, any other
Loan Document [, any Interest Rate Protection Agreement
entered into by the Borrower with any Lender] and any other
documents executed and delivered in connection therewith may
be amended, modified, supplemented or terminated, in whole
or in part, as the Required Lenders or such Lender may deem
advisable from time to time, and any collateral security,
guarantee or right of offset at any time held by any Lender
for the payment of the Obligations may be sold, exchanged,
waived, surrendered or released. No Lender shall have any
obligation to protect, secure, perfect or insure any Lien at
any time held by it as security for the Obligations or for
this Guarantee or any property subject thereto. When making
any demand hereunder against any of the Guarantors, the
Required Lenders may, but shall be under no obligation to,
make a similar demand on the Borrower or any other Guarantor
or guarantor, and any failure by the Required Lenders to
make any such demand or to collect any payments from the
Borrower or any such other Guarantor or guarantor or any
release of the Borrower or such other Guarantor or guarantor
shall not relieve any of the Guarantors in respect of which
a demand or collection is not made or any of the Guarantors
not so released of their several obligations or liabilities
hereunder, and shall not impair or affect the rights and
remedies, express or implied, or as a matter of law, of any
Lender against any of the Guarantors. For the purposes
hereof "demand" shall include the commencement and
continuance of any legal proceedings.
VII.. Guarantee Absolute and Unconditional. Each
Guarantor waives any and all notice of the creation,
renewal, extension or accrual of any of the Obligations and
notice of or proof of reliance by any Lender upon this
Guarantee or acceptance of this Guarantee, the Obligations,
and any of them, shall conclusively be deemed to have been
created, contracted or incurred, or renewed, extended,
amended or waived, in reliance upon this Guarantee; and all
dealings between the Borrower and any of the Guarantors, on
the one hand, and the Lenders, on the other hand, likewise
shall be conclusively presumed to have been had or
consummated in reliance upon this Guarantee. Each Guarantor
waives diligence, presentment, protest, demand for payment
and notice of default or nonpayment to or upon the Borrower
or any of the Guarantors with respect to the Obligations.
Each Guarantor understands and agrees that this Guarantee
shall be construed as a continuing, absolute and
unconditional guarantee of payment without regard to (a) the
validity, regularity or enforceability of the Credit
Agreement, any Note, any other Loan Document, [, any
Interest Rate Protection Agreement entered into by the
Borrower with any Lender,] any of the Obligations or any
other collateral security therefor or guarantee or right of
offset with respect thereto at any time or from time to time
held by any Lender, (b) any defense, set-off or counterclaim
(other than a defense of payment or performance) which may
at any time be available to or be asserted by the Borrower
against any Lender or (c) any other circumstance whatsoever
(with or without notice to or knowledge of the Borrower or
such Guarantor) which constitutes, or might be construed to
constitute, an equitable or legal discharge of the Borrower
for the Obligations, or of such Guarantor under this
Guarantee, in bankruptcy or in any other instance. When
pursuing its rights and remedies hereunder against any
Guarantor, the Required Lenders or any Lender may, but shall
be under no obligation to, pursue such rights and remedies
as they or it may have against the Borrower or any other
Person or against any collateral security or guarantee for
the Obligations or any right of offset with respect thereto,
and any failure by the Required Lenders or such Lender to
pursue such other rights or remedies or to collect any
payments from the Borrower or any such other Person or to
realize upon any such collateral security or guarantee or to
exercise any such right of offset, or any release of the
Borrower or any such other Person or any such collateral
security, guarantee or right of offset, shall not relieve
such Guarantor of any liability hereunder, and shall not
impair or affect the rights and remedies, whether express,
implied or available as a matter of law, of the Required
Lenders or such Lender against such Guarantor. This
Guarantee shall remain in full force and effect and be
binding in accordance with and to the extent of its terms
upon each Guarantor and the successors and assigns thereof,
and shall inure to the benefit of the Lenders, and their
respective successors, indorsees, transferees and assigns,
until all the Obligations and the obligations of each
Guarantor under this Guarantee shall have been satisfied by
payment in full and the Commitments shall be terminated,
notwithstanding that from time to time during the term of
the Credit Agreement the Borrower may be free from any
Obligations.
VIII.. Reinstatement. This Guarantee shall
continue to be effective, or be reinstated, as the case may
be, if at any time payment, or any part thereof, of any of
the Obligations is rescinded or must otherwise be restored
or returned by any Lender upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Borrower
or any Guarantor, or upon or as a result of the appointment
of a receiver, intervenor or conservator of, or trustee or
similar officer for, the Borrower or any Guarantor or any
substantial part of its property, or otherwise, all as
though such payments had not been made.
IX.. Payments. Each Guarantor hereby guarantees
that payments hereunder will be paid to each Lender without
set-off or counterclaim in U.S. Dollars at the office of
such Lender [set forth in subsection 8.2 of the Credit
Agreement].
X.. Representations and Warranties Each
Guarantor hereby represents and warrants that:
A. it is a corporation duly organized, validly
existing and in good standing under the laws of the
jurisdiction of its incorporation and has the corporate
power and authority and the legal right to own and
operate its property, to lease the property it operates
and to conduct the business in which it is currently
engaged;
B. it has the corporate power and authority and
the legal right to execute and deliver, and to perform
its obligations under, this Guarantee, and has taken
all necessary corporate action to authorize its
execution, delivery and performance of this Guarantee;
C. this Guarantee constitutes a legal, valid and
binding obligation of such Guarantor enforceable in
accordance with its terms, except as affected by
bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws
relating to or affecting the enforcement of creditors'
rights generally, general equitable principles and an
implied covenant of good faith and fair dealing;
D. the execution, delivery and performance of
this Guarantee will not violate any provision of any
Requirement of Law or Contractual Obligation of such
Guarantor and will not result in or require the
creation or imposition of any Lien on any of the
properties or revenues of such Guarantor pursuant to
any Requirement of Law or Contractual Obligation of the
Guarantor;
E. no consent or authorization of, filing with,
or other act by or in respect of, any arbitrator or
Governmental Authority and no consent of any other
Person (including, without limitation, any stockholder
or creditor of such Guarantor) is required in
connection with the execution, delivery, performance,
validity or enforceability of this Guarantee;
F. no litigation, investigation or proceeding of
or before any arbitrator or Governmental Authority is
pending or, to the knowledge of such Guarantor,
threatened by or against such Guarantor or against any
of its properties or revenues 1. with respect to this
Guarantee or any of the transactions contemplated
hereby or 2. which could have a material adverse effect
on the business, operations, property or financial or
other condition of such Guarantor;
G. to the extent that the representations and
warranties set forth in subsection 3.8 through and
including subsection 3.17 of the Credit Agreement apply
to such Guarantor, each such representation and
warranty is true and correct; and
H. if such Guarantor is not incorporated under
the laws of the United States of America or a state
thereof, (1) such Guarantor is not subject to any
exchange controls which would affect its ability to
make payments under this Guarantee, (2) any payments
made by such Guarantor under this Guarantee will not be
subject to any withholding tax or other similar
obligations of any Governmental Authority outside the
United States of America and (3) the obligations of
such Guarantor under this Guarantee will be pari passu
with all other unsecured obligations of such Guarantor.
Each Guarantor agrees that the foregoing
representations and warranties shall be deemed to have been
made by such Guarantor on the date of each borrowing by the
Borrower under the Credit Agreement on and as of such date
of borrowing as though made hereunder on and as of such
date.
XI.. Covenants. Each Guarantor hereby covenants
and agrees with each Lender that, from and after the date of
this Guarantee until the Obligations are paid in full and
the Commitments are terminated, such Guarantor will comply
with provisions of Sections 5 and 6 of the Credit Agreement
to the extent such provisions apply to such Guarantor. [To
be expanded with respect to foreign subsidiaries.]
XII.. Notices. All notices, requests and demands
to or upon the respective parties hereto to be effective
shall be in writing (including by facsimile transmission),
and, unless otherwise expressly provided herein, shall be
deemed to have been duly given or made when delivered, or
five days after being deposited in the mail, postage
prepaid, or, in the case of telecopy notice, when received,
addressed as follows:
A. if to any Lender, at its address or
transmission number for notices provided in subsection
8.2 of the Credit Agreement; and
B. if to any Guarantor, at its address or
transmission number for notices set forth under its
signature below.
Each Lender and each Guarantor may change its
address and transmission numbers for notices by notice in
the manner provided in this Section.
XIII.. Counterparts. This Guarantee may be
executed by one or more of the Guarantors on any number of
separate counterparts, and all of said counterparts taken
together shall be deemed to constitute one and the same
instrument. A set of the counterparts of this Guarantee
signed by all the Guarantors shall be delivered to each
Lender.
XIV.. Severability. Any provision of this
Guarantee which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision
in any other jurisdiction.
XV.. Integration. This Guarantee represents the
agreement of each Guarantor with respect to the subject
matter hereof and there are no promises or representations
by any Lender relative to the subject matter hereof not
reflected herein.
XVI.. Amendments in Writing; No Waiver;
Cumulative Remedies. A. None of the terms or provisions of
this Guarantee may be waived, amended, supplemented or
otherwise modified except by a written instrument executed
by each Guarantor provided that any provision of this
Guarantee may be waived by the Lenders in a letter or
agreement by facsimile transmission.
B. No Lender shall by any act (except by a
written instrument pursuant to paragraph 16(a) hereof),
delay, indulgence, omission or otherwise be deemed to have
waived any right or remedy hereunder or to have acquiesced
in any Default or Event of Default or in any breach of any
of the terms and conditions hereof. No failure to exercise,
nor any delay in exercising, on the part of any Lender, any
right, power or privilege hereunder shall operate as a
waiver thereof. No single or partial exercise of any right,
power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right,
power or privilege. A waiver by any Lender of any right or
remedy hereunder on any one occasion shall not be construed
as a bar to any right or remedy which such Lender would
otherwise have on any future occasion.
C. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are
not exclusive of any other rights or remedies provided by
law.
XVII.. Section Headings. The Section headings
used in this Guarantee are for convenience of reference only
and are not to affect the construction hereof or be taken
into consideration in the interpretation hereof.
XVIII.. Successors and Assigns. This Guarantee
shall be binding upon the successors and assigns of each
Guarantor and shall inure to the benefit of the Lenders and
their successors and assigns.
XIX.. GOVERNING LAW. THIS GUARANTEE SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK.
XX.. Submission To Jurisdiction; Waivers. Each
Guarantor hereby irrevocably and unconditionally:
A. submits for itself and its property in any
legal action or proceeding relating to this Guarantee
and the other Loan Documents to which it is a party, or
for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general
jurisdiction of the courts of the State of New York,
the courts of the United States of America for the
Southern District of New York, and appellate courts
from any thereof;
B. consents that any such action or proceeding
may be brought in such courts and waives any objection
that it may now or hereafter have to the venue of any
such action or proceeding in any such court or that
such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the
same;
C. agrees that service of process in any such
action or proceeding may be effected by mailing a copy
thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid,
to such Guarantor at its address set forth under its
signature below or at such other address of which the
Lenders shall have been notified pursuant Section 12;
D. agrees that nothing herein shall affect the
right to effect service or process in any other manner
permitted by law or shall limit the right to sue in any
other jurisdiction; and
E. waives, to the maximum extent not prohibited
by law, any right it may have to claim or recover in
any legal action or proceeding referred to in this
subsection any special, exemplary, consequential or
punitive damages.
XXI.. WAIVERS OF JURY TRIAL. EACH GUARANTOR
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY
IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTEE
OR ANY OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY AND FOR
ANY COUNTERCLAIM THEREIN.
XXII.. Addition of Guarantors. Subsection
5.10(c) of the Credit Agreement requires that any Subsidiary
(other than a Foreign Subsidiary) of the Borrower created or
acquired after the Closing Date become a Guarantor hereunder
by executing and delivering a Supplement to this Guarantee
in the form attached hereto as Exhibit A. From and after
the date any such Subsidiary executes and delivers a
Supplement to this Guarantee in the form attached hereto as
Exhibit A to each Lender, such Subsidiary shall be deemed to
be a Guarantor for all purposes under this Guarantee.
IN WITNESS WHEREOF, each of the undersigned has
caused this Guarantee to be duly executed and delivered by
its duly authorized officer as of the day and year first
above written.
STANDARD MICROSYSTEMS
CORPORATION (ASIA)
By
Title
Address for Notices:
Fax: <PAGE>
SMC FRANCE, INC.
By
Title
Address for Notices:
Fax:
SMC AUSTRALIA, INC.
By
Title
Address for Notices:
Fax: <PAGE>
SMC INTERNATIONAL, INC.
By
Title
Address for Notices:
Fax:
SMC MASSACHUSETTS INC.
By
Title
Address for Notices:
Fax: <PAGE>
SMC SALES, INC.
By
Title
Address for Notices:
Fax: <PAGE>
EXHIBIT A TO
SUBSIDIARIES GUARANTEE
[FORM OF ADDITIONAL SUBSIDIARIES SUPPLEMENT]
SUPPLEMENT, dated _______________ to the
Subsidiaries Guarantee, dated as of January __, 1995 (as
amended, supplemented or otherwise modified, the
"Subsidiaries Guarantee"), made by certain subsidiaries of
Standard Microsystems Corporation, a Delaware corporation
(the "Borrower"), from time to time parties thereto
(collectively, the "Guarantors").
W I T N E S S E T H :
WHEREAS, the Subsidiaries Guarantee provides that
any Subsidiary of the Borrower, although not a Guarantor
thereunder at the time of the initial execution thereof, may
become a Guarantor under the Subsidiaries Guarantee upon the
delivery to the Lenders of a supplement in substantially the
form of this Supplement; and
WHEREAS, the undersigned was not a Subsidiary on
the Closing Date and, therefore, was not a party to the
Subsidiaries Guarantee but is required by the Credit
Agreement and now desires to become a Guarantor thereunder;
NOW, THEREFORE, the undersigned hereby agrees as
follows:
The undersigned agrees to be bound by all of the
provisions of the Subsidiaries Guarantee applicable to
a Guarantor thereunder and agrees that it shall, on the
date this Supplement is delivered to the Lenders,
become a Guarantor, for all purposes of the
Subsidiaries Guarantee to the same extent as if
originally a party thereto with the representations and
warranties contained therein being deemed to be made by
the undersigned as of the date hereof.
Terms defined in the Subsidiaries Guarantee shall
have their defined meanings when used herein.
IN WITNESS WHEREOF, the undersigned has caused
this Supplement to be executed and delivered by a duly
authorized officer on the date first above written.
[NAME OF SUBSIDIARY GUARANTOR]
By
Title
Address for Notices:
Fax:
<PAGE>
Standard Microsystems Corporation
and Subsidiaries
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS OF FEBRUARY 28 OR 29, AND
FOR THE YEARS THEN ENDED 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Revenues $ 378,671 $ 322,575 $ 250,495 $ 132,744 $ 87,017
Cost of goods sold and operating expenses 338,049 287,139 219,712 130,679 87,186
Income (loss) from operations 40,622 35,436 30,783 2,065 (169)
Other income (expense), net 670 (1,964) (2,865) (134) 2,266
Income before minority interest, provision
for income taxes and extraordinary item 41,292 33,472 27,918 1,931 2,097
Minority interest in net income (loss)
of subsidiary 185 (209) (430) (425) (266)
Income before provision for income taxes
and extraordinary item 41,107 33,681 28,348 2,356 2,363
Provision for income taxes 15,940 13,770 12,510 1,761 1,175
Income before extraordinary item 25,167 19,911 15,838 595 1,188
Extraordinary item (944) - - - -
Net income $ 24,223 $ 19,911 $ 15,838 $ 595 $ 1,188
Weighted average common and
common equivalent shares 13,305 13,090 12,469 11,604 11,560
PER SHARE DATA
Income before extraordinary item $ 1.89 $ 1.52 $ 1.27 $ .05 $ .10
Extraordinary item (0.07) - - - -
Net income $ 1.82 $ 1.52 $ 1.27 $ .05 .10
Shareholders' equity at year end $ 13.16 $ 11.18 $ 9.50 $ 7.70 $ 7.65
Market price at year end 26.50 19.13 18.75 9.13 5.38
BALANCE SHEET DATA
Current assets $ 162,776 $ 140,393 $ 111,326 $ 79,718 $ 75,231
Current liabilities 43,421 41,842 40,962 35,085 8,119
Working capital $ 119,355 $ 98,551 $ 70,364 $ 44,633 $ 67,112
Property, plant and equipment, net $ 34,908 $ 30,600 $ 30,775 $ 33,116 $ 34,543
Total assets 228,578 205,833 183,926 154,299 111,654
Long-term debt - 9,190 12,135 18,240 1,783
Minority interest in subsidiary 11,174 10,989 11,198 11,628 12,053
Shareholders' equity 173,983 143,812 119,631 89,346 88,004
</TABLE>
<PAGE>
Standard Microsystems Corporation
and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table presents the Company's Consolidated Statements of
Income, as percentages of revenues, for the three years ended February 28, 1995:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED FEBRUARY 28, 1995 1994 1993
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Cost of goods sold 56.6 60.2 59.4
Gross profit 43.4 39.8 40.6
Research and development 7.5 7.4 6.8
Selling, general and administrative 23.8 19.7 19.8
Amortization of intangible assets 1.4 1.7 1.8
Total operating expenses 32.7 28.8 28.4
Income from operations 10.7 11.0 12.2
Other income (expense), net 0.2 (0.6) (1.1)
Income before minority interest, income taxes and
extraordinary item 10.9 10.4 11.1
Minority interest in net income (loss) of subsidiary 0.1 (0.1) (0.2)
Income before taxes and extraordinary item 10.8 10.5 11.3
Provision for income taxes 4.2 4.3 5.0
Income before extraordinary item 6.6 6.2 6.3
Extraordinary item (0.2) - -
Net income 6.4% 6.2% 6.3%
</TABLE>
REVENUES
Revenues increased 17% to $378.7 million in fiscal 1995, from $322.6 million
in fiscal 1994, reflecting increased shipments of component products and hubs
and LAN switches. Revenues of network interface cards (adapters) declined in
fiscal 1995. The decline in adapter revenues included a 16% decline in Ethernet
adapter revenue, primarily reflecting a decline in average selling prices. The
growth in revenue from hubs and LAN switches reflected increased shipments of
the ES/1 LAN Switch, initial shipment of the TigerSwitch as well as increased
shipments of wiring hubs. The growth in revenues from component products was
driven by the broad acceptance of PC I/O products by major PC manufacturers. For
fiscal 1996, growth of component products' revenues is expected to approximate
the rate of growth of the PC market.
In fiscal 1994, revenues of all product lines increased from the prior year
results. The table below provides product line data for the three years ended
February 28, 1995:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED FEBRUARY 28, 1995 1994 1993
<S> <C> <C> <C>
System products
Network interface cards $ 206.1 $ 229.1 $ 206.3
Hubs and LAN switches 55.2 36.1 19.6
261.3 265.2 225.9
Component products 117.4 57.4 24.6
Total revenues $ 378.7 $ 322.6 $ 250.5
</TABLE>
System products revenues in the fourth quarter of fiscal 1995 were lower
than anticipated and inventory in the distributor channel was above targeted
levels, primarily because of lower than anticipated shipments from distributors
to their reseller customers. The Company expects that a reduction of inventory
in the distributor channel will lead to a decline in networking products'
revenues in the first quarter of fiscal 1996 from the first quarter of fiscal
1995.
<PAGE>
Standard Microsystems Corporation
and Subsidiaries
For the Company, fiscal 1994 revenues were 29% higher than in fiscal 1993,
reflecting 17% growth for system products consisting of 11% growth for adapters
and 85% growth for hubs and LAN switches, and 113% growth for component
products. As a result of the December 1992 acquisition of Sigma Network Systems,
Inc., LAN switches were included in fiscal 1993 revenues for only the final two
months of the year.
GROSS PROFIT
Fiscal 1995 gross profit margins improved to 43.4% from 39.8% in fiscal 1994
and 40.6% in fiscal 1993. The improvement in fiscal 1995 was attributable to
increased unit volume of PC I/O devices, allowing for lower production costs and
more efficient utilization of manufacturing overhead for the Component Products
Division. In addition, the growth of LAN switching revenues, which carry higher
gross margins than adapter revenues, led to improved gross margins for the
System Products Division. The decline in gross profit margin in fiscal 1994
from fiscal 1993 reflected a 16% decline in average selling prices for Ethernet
adapters, that was largely offset by the shift in product mix, in the second
half, to a new, lower cost generation of Ethernet adapters.
The Company maintains ongoing product cost reduction programs and develops
innovative products that have helped maintain and improve gross profit margins
to offset price competition that characterizes the Company's business.
OPERATING EXPENSES
Research and development expenses increased to $28.2 million or 7.5% of
revenues in fiscal 1995 from $23.9 million or 7.4% in fiscal 1994 and $17.0
million or 6.8% in fiscal 1993. In fiscal 1996, engineering efforts for
networking products will focus on developing high speed Fast Ethernet and ATM
technology products and enhancing LAN switch, hub and adapter products.
Component products development is directed toward reducing device costs and
enhancing the functionality and performance of PC I/O and LAN products.
Selling, general and administrative expenses were $90.0 million or 23.8% of
revenues in fiscal 1995, compared to $63.5 million or 19.7% in fiscal 1994 and
$49.4 million or 19.8% in fiscal 1993. These expenses included spending for
advertising, which increased to $23.2 million in fiscal 1995 from $13.6 million
in fiscal 1994 and $9.7 million in fiscal 1993. A major portion of the increase
in selling, general and administrative expenses in fiscal 1995 reflected a 45%
increase in sales and marketing personnel to approximately 300 at the end of
fiscal 1995. The Company plans to continue to aggressively expand its sales and
marketing force, including customer support, to strengthen all of its channels
of distribution for LAN products and component products.
OTHER INCOME AND EXPENSE
Fiscal 1995 interest expense declined $0.4 million due to lower average
borrowings outstanding and the year-end elimination of long-term debt. Interest
income increased $0.5 million, primarily reflecting interest income on a tax
refund receivable. Other income (expense), net improved $1.7 million reflecting
a $1.2 million capital gain resulting from the sale of an investment and reduced
financing fees.
In fiscal 1994, interest expense declined $0.7 million associated with a
decrease in long-term debt to $13.2 million at the end of fiscal 1994, from
$19.1 million a year earlier. Interest income declined $0.1 million reflecting
the decrease in cash available for investment.
EXTRAORDINARY ITEM
In January 1995, SMC prepaid $10.8 million of debt, canceling a $35.0
million line of credit and replacing it with an $80.0 million line. As a result,
the Company incurred prepayment penalties, the write-off of unamortized
financing cost, and other fees, amounting to approximately $1.5 million or $0.9
million after taxes.
INCOME TAXES
For fiscal 1995, income taxes were provided at an effective rate of 38.8%
compared to 40.9% for fiscal 1994 and 44.1% for fiscal 1993. In fiscal 1995, the
effective rate included the 35.0% federal tax rate and a 3.7% effective state
tax rate. The reduction in the effective tax rate in fiscal 1995 from fiscal
1994 primarily reflected the benefit of an election under section 197 of the
Internal Revenue Code, allowing the deductibility of goodwill associated with
the October 1991 acquisition of the LAN adapter business of Western Digital
<PAGE>
Standard Microsystems Corporation
and Subsidiaries
Corporation and a full year's operation of a foreign sales corporation.
These items were partially offset by a reduction in the difference between the
federal tax rate and foreign tax rates, among other items.
In fiscal 1994, the effective rate included the 35.0% federal tax rate, a
3.7% effective state tax rate and 1.2% representing the difference between the
federal tax rate and foreign tax rates, including the effect of non-deductible
expenses incurred by the Company's Japanese subsidiary. The remainder represents
the net effect of goodwill and income tax credits, among other items.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased to $119.4 million at the end of
fiscal 1995 from $98.6 million at the end of fiscal 1994. The increase in
working capital was primarily from increases in accounts receivable and
inventories to support higher revenues offset by a moderate increase in current
liabilities and a moderate decrease in cash and cash equivalents.
Days of sales outstanding (DSOs) rose to 67 in the fourth quarter of fiscal
1995 from 63 in the year earlier period. This increase reflected a greater
percentage of revenues accruing toward the end of the quarter when compared to
the year earlier period. Reduction of networking products inventory in the
distributor channel is expected to result in a more even distribution of
revenues during a quarter and lower DSOs.
Annualized inventory turnover declined to 5.1 times for the fourth quarter
of fiscal 1995 from 6.5 times for the year earlier period. This decrease
reflected lower than planned revenues and a consequent increase in inventory.
Cash and cash equivalents decreased by $2.6 million in fiscal 1995 to $29.5
million, primarily reflecting net cash provided by operating activities of $20.1
million and $2.0 million from the issuance of common stock, offset by a net pay-
down of long-term debt of $13.2 million and capital expenditures of $13.6
million.
Cash and cash equivalents decreased by $3.7 million in fiscal 1994 to $32.1
million primarily reflecting net cash provided by operating activities of $5.2
million, $1.4 million from the issuance of common stock and the release of $3.0
million cash that had been restricted in accordance with a term loan agreement,
offset by a net pay-down of long-term debt of $5.9 million and capital
expenditures of $8.1 million.
In January 1995, the Company negotiated an $80.0 million revolving credit
line that replaced a $35.0 million revolving credit agreement. At the end of
fiscal 1995, the Company had not drawn upon its credit line.
As of February 28, 1995, pursuant to an agreement with AT&T
Microelectronics, the Company was committed to purchase approximately $16.0
million of wafer fabrication equipment in fiscal 1996 for a semiconductor plant
owned by AT&T in Madrid, Spain.
Following the close of fiscal 1995, the Company purchased a minority equity
interest in Singapore-based Chartered Semiconductor Pte Ltd. for approximately
$14.0 million. An additional $6.0 million will be invested in early fiscal 1997.
This arrangement, along with the AT&T agreement, is intended to provide the
Company with a portion of its long-term requirements for state-of-the-art
integrated circuits, beginning near the end of fiscal 1996.
The Company believes that its present working capital position, combined
with forecasted cash flow and available borrowing capacity will be sufficient to
meet cash requirements for the foreseeable future. It is anticipated that cash
flow from operations, supplemented by borrowings under the revolving credit
line, will be used to fund capital expenditures in fiscal 1996.
GENERAL
A number of variables could affect the future operating results of the
Company, including global economic conditions, market acceptance of newly
introduced products, the availability of certain components and finished
products from a limited number of suppliers and numerous competitive factors.
High levels of production by PC manufacturers have led to an industry-wide
shortage of silicon wafer fabrication capacity. As a result, SMC is currently
faced with limited subcontractor fabrication capacity. The Company's difficulty
in securing additional capacity could impact revenue and profit growth in fiscal
1996 and beyond.
With almost one-half of the Company's revenue derived from outside of the
United States, changes in foreign currency exchange rates could affect demand
for the Company's products. Because of these and other factors that could affect
the Company's operating results, past financial performance is not necessarily
indicative of results to be expected in the future.
<PAGE>
Standard Microsystems Corporation
and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
AS OF FEBRUARY 28, 1995 1994
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 29,478 $ 32,115
Accounts receivable, net of allowance for doubtful
accounts of $1,102 and $1,001, respectively 75,826 65,504
Inventories 45,789 34,104
Deferred tax benefits 5,392 4,738
Other current assets 6,291 3,932
TOTAL CURRENT ASSETS 162,776 140,393
PROPERTY, PLANT AND EQUIPMENT:
Land 3,832 3,832
Buildings and improvements 26,901 25,810
Machinery and equipment 77,639 66,466
108,372 96,108
Less: accumulated depreciation 73,464 65,508
PROPERTY, PLANT AND EQUIPMENT, NET 34,908 30,600
INTANGIBLE ASSETS 26,479 31,968
DEFERRED TAX BENEFITS 1,795 -
OTHER ASSETS 2,620 2,872
$228,578 $ 205,833
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ - $ 4,000
Accounts payable 24,193 19,789
Accrued expenses and other liabilities 15,527 15,447
Income taxes payable 3,701 2,606
TOTAL CURRENT LIABILITIES 43,421 41,842
LONG-TERM DEBT - 9,190
MINORITY INTEREST IN SUBSIDIARY 11,174 10,989
SHAREHOLDERS' EQUITY:
Preferred stock, $.10 par value
Authorized 1,000,000 shares, none outstanding - -
Common stock, $.10 par value
Authorized 30,000,000 shares
Outstanding 13,222,000 and 12,867,000
shares, respectively 1,322 1,287
Additional paid-in capital 77,319 73,116
Retained earnings 88,616 64,393
Unrealized gain on investment, net of tax 718 -
Foreign currency translation adjustment 6,008 5,016
TOTAL SHAREHOLDERS' EQUITY 173,983 143,812
$228,578 $ 205,833
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
Standard Microsystems Corporation
and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FEBRUARY 28, 1995 1994 1993
<S> <C> <C> <C>
Revenues $ 378,671 $ 322,575 $ 250,495
Cost of goods sold 214,269 194,210 148,678
Gross profit 164,402 128,365 101,817
Operating expenses:
Research and development 28,286 23,963 17,033
Selling, general and administrative 90,005 63,477 49,414
Amortization of intangible assets 5,489 5,489 4,587
123,780 92,929 71,034
Income from operations 40,622 35,436 30,783
Other income (expense):
Interest income 1,453 912 1,020
Interest expense (1,255) (1,649) (2,310)
Other income (expense), net 472 (1,227) (1,575)
670 (1,964) (2,865)
Income before minority interest, provision for income
taxes and extraordinary item 41,292 33,472 27,918
Minority interest in net income (loss) of subsidiary 185 (209) (430)
Income before provision for income taxes and
extraordinary item 41,107 33,681 28,348
Provision for income taxes 15,940 13,770 12,510
Income before extraordinary item 25,167 19,911 15,838
Extraordinary item
Loss on extinguishment of debt, net of applicable
income taxes of $600 944 - -
Net income $ 24,223 $ 19,911 $ 15,838
Income per common and common equivalent share:
Income before extraordinary item $ 1.89 $ 1.52 $ 1.27
Extraordinary item (0.07) - -
Net income per common and
common equivalent share $ 1.82 $ 1.52 $ 1.27
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
Standard Microsystems Corporation
and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL UNREALIZED CURRENCY
COMMON STOCK PAID-IN RETAINED GAIN ON TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS INVESTMENT ADJUSTMENT
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT FEBRUARY 29, 1992 11,600,000 $ 1,160 $ 56,371 $ 28,644 $ - $ 3,171
Shares issued under employee
stock purchase plan 47,000 5 579 - - -
Exercise of stock options 573,000 57 3,201 - - -
Tax effect of employee stock plans - - 1,329 - - -
Restricted stock grants to
employees, net 21,000 2 49 - - -
Stock issued for
business acquisition 350,000 35 8,278 - - -
Foreign currency translation
adjustment - - - - - 912
Net income - - - 15,838 - -
BALANCE AT FEBRUARY 28, 1993 12,591,000 1,259 69,807 44,482 - 4,083
Shares issued under employee
stock purchase plan 46,000 5 879 - - -
Exercise of stock options 194,000 19 1,253 - - -
Tax effect of employee stock plans - - 992 - - -
Restricted stock grants to
employees, net 36,000 4 185 - - -
Foreign currency translation
adjustment - - - - - 933
Net income - - - 19,911 - -
BALANCE AT FEBRUARY 28, 1994 12,867,000 1,287 73,116 64,393 - 5,016
Shares issued under employee
stock purchase plan 60,000 6 1,173 - - -
Exercise of stock options 245,000 24 1,967 - - -
Tax effect of employee stock plans - - 707 - - -
Restricted stock grants to
employees, net 50,000 5 356 - - -
Unrealized gain on investment,
net of taxes - - - - 718 -
Foreign currency translation
adjustment - - - - - 992
Net income - - - 24,223 - -
BALANCE AT FEBRUARY 28, 1995 13,222,000 $ 1,322 $ 77,319 $ 88,616 $ 718 $ 6,008
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
Standard Microsystems Corporation
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FEBRUARY 28, 1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 367,342 $ 293,927 $ 249,870
Cash paid to suppliers and employees (331,406) (276,443) (209,004)
Interest received 1,800 1,284 1,052
Interest paid (1,168) (1,699) (2,557)
Income taxes paid (16,467) (11,884) (13,235)
Net cash provided by operating activities 20,101 5,185 26,126
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (13,578) (8,119) (4,772)
Acquisition of business - - (272)
Other 1,266 3,089 230
Net cash used for investing activities (12,312) (5,030) (4,814)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,991 1,403 3,355
Principal payments of long-term debt (14,117) (7,000) (8,000)
Net borrowings under line of credit agreement 927 1,055 895
Net cash used for financing activities (11,199) (4,542) (3,750)
Effect of foreign exchange rate changes on
cash and cash equivalents 773 630 394
Net increase (decrease) in cash and cash equivalents (2,637) (3,757) 17,956
Cash and cash equivalents at beginning of year 32,115 35,872 17,916
Cash and cash equivalents at end of year $ 29,478 $ 32,115 $ 35,872
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 24,223 $ 19,911 $ 15,838
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 14,813 13,799 12,005
Minority interest in net income (loss) of subsidiary 185 (209) (430)
Other adjustments, net 756 1,249 849
CHANGES IN OPERATING ASSETS AND LIABILITIES,
NET OF EFFECT OF ACQUISITION OF BUSINESS:
Accounts receivable (11,027) (28,265) (559)
Inventories (11,608) (5,921) (6,548)
Accounts payable, accrued expenses and other
liabilities 4,714 2,678 4,911
Other changes, net (1,955) 1,943 60
Net cash provided by operating activities $ 20,101 $ 5,185 $ 26,126
CASH USED FOR ACQUISITION OF BUSINESS AS REFLECTED IN THE CONSOLIDATED
STATEMENTS OF CASH FLOWS IS SUMMARIZED AS FOLLOWS:
Fair value of non-cash assets acquired, excluding goodwill $ - $ - $ 3,134
Goodwill - - 7,582
Liabilities assumed and created, net of tax benefit - - (2,131)
Common stock issued - - (8,313)
Cash paid to acquire business $ - $ - $ 272
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
Standard Microsystems Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Standard
Microsystems Corporation (SMC) and its subsidiaries (the Company). All
significant intercompany transactions have been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents consist principally of cash in banks and highly
liquid debt instruments purchased with maturities of three months or less.
Inventories
Inventories are valued at the lower of first-in, first-out cost (material,
direct labor and overhead) or market.
Software Development Expenses
The Company expenses software development costs as incurred.
Property, Plant and Equipment
Property, plant and equipment are carried at cost and are depreciated on a
straight-line basis over the estimated useful lives of the buildings (20 to 25
years) and machinery and equipment (3 to 7 years). Upon sale or retirement of
property, plant and equipment, the related cost and accumulated depreciation are
removed from the accounts and any gain or loss is reflected currently.
Investment in Equity Securities
Included within Other Assets is an equity investment in a single investee at
February 28, 1995 and 1994. During fiscal 1995, the Company adopted Statement of
Financial Accounting Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN
DEBT AND EQUITY SECURITIES (SFAS 115). In accordance with the provisions of SFAS
115, this investment is carried at fair value at February 28, 1995, with a
corresponding unrealized gain, net of taxes, reported as a separate component of
shareholders' equity. The consolidated balance sheet at February 28, 1994, has
not been restated for this accounting change and reflects this investment at
cost.
During the fourth quarter of fiscal 1995, the Company sold approximately
one-half of this equity investment, realizing a pre-tax gain of $1,227,000,
which is included within "Other Income (Expense)" on the accompanying
Consolidated Statements of Income.
Intangible Assets
Intangible assets are amortized on a straight-line basis over their
respective estimated useful lives, ranging from six to twelve years.
Product Warranty
The Company's products are generally under warranty against defects in
material and workmanship for periods ranging from one year to lifetime.
Estimated warranty costs are accrued when the products are sold.
Income Taxes
Deferred income taxes are provided on temporary differences that arise in
the recording of transactions for financial and tax reporting purposes and
result in deferred tax assets and liabilities. Deferred tax assets are reduced
by an appropriate valuation allowance if it is management's judgment that part
of the deferred tax asset will not be realized. Tax credits are accounted for as
reductions of the current provision for income taxes in the year in which the
related expenditures are incurred.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are translated into U.S.
dollars using the exchange rates in effect at the balance sheet date. Results of
their operations are translated using the average exchange rates during the
period. Resulting translation adjustments are recorded as a separate component
of shareholders' equity.
Net Income per Common and Common Equivalent Share
Net income per common and common equivalent share has been computed based on
the weighted average number of shares outstanding during the year, including the
effect of common equivalent shares if dilutive. The difference between primary
and fully diluted earnings per share is immaterial for all periods presented.
Reclassifications
Certain items shown have been reclassified to conform with the fiscal 1995
presentation.
<PAGE>
Standard Microsystems Corporation
and Subsidiaries
2. BUSINESS ACQUISITIONS
In December 1992, the Company issued 350,000 shares of its common stock in
exchange for all of the outstanding common and preferred stock of Sigma Network
Systems, Inc. The acquisition was valued at approximately $8,700,000, including
related costs, and was accounted for as a purchase. The excess of the cost over
the fair value of the net assets acquired is being amortized on a straight-line
basis over a seven year period.
The following unaudited summary presents the Company's pro forma
consolidated results of operations for the year ended February 28, 1993, as if
this acquisition had occurred at the beginning of the fiscal year. These results
do not necessarily represent results which would have occurred had this
acquisition taken place on the basis assumed above.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEAR ENDED FEBRUARY 28, 1993
Revenues $ 253,263
Net income $ 14,004
Net income per share $ 1.12
3. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
AS OF FEBRUARY 28, 1995 1994
Revolving credit agreement, bearing
interest at prime rate plus 2% $ - $ 5,940
10.68% senior term loan - 5,250
Bank note, bearing interest at prime
rate plus 4% - 2,000
- 13,190
Less: current maturities - 4,000
$ - $ 9,190
During the fourth quarter of fiscal 1995, the Company retired all of its
bank debt, consisting of a revolving line of credit, a senior term loan and a
bank note, and recorded an after-tax extraordinary loss of $944,000 on this
early retirement. The extraordinary loss consists of early redemption premiums
paid to the debt holders and the write-off of deferred financing costs
associated with this debt.
Concurrent with this early retirement, the Company arranged a new
$80,000,000 unsecured revolving line of credit, which permits the Company to
borrow funds on a revolving basis through January 1998. The line of credit bears
an annual commitment fee of .25% of the unused portion of the line, and bears
interest at rates varying from .625% to 1.0% above the London Interbank Offering
Rate (LIBOR).
4. INCOME TAXES
The provision for income taxes included in the accompanying consolidated
statements of income consists of the following (in thousands):
FOR THE YEARS ENDED
FEBRUARY 28, 1995 1994 1993
Current
Federal $ 16,242 $ 11,897 $ 11,970
Foreign 345 188 177
State 2,281 1,907 2,209
18,868 13,992 14,356
Deferred (2,928) (222) (1,846)
$ 15,940 $ 13,770 $ 12,510
The provision for taxes on income before extraordinary item differs from the
amount computed by applying the U.S. Federal statutory tax rate as a result of
the following:
FOR THE YEARS ENDED
FEBRUARY 28, 1995 1994 1993
Provision for income
taxes computed at
the statutory rate 35.0% 35.0% 34.0%
State taxes 3.7 3.7 5.1
Differences between
foreign and
U.S. income tax rates,
including effect of
unused foreign NOL
carryforwards - 1.2 3.2
Foreign sales
corporation (1.3) (0.5) -
Income tax credits (0.1) (0.3) (1.3)
Goodwill amortization 0.5 1.9 1.1
Other 1.0 (0.1) 2.0
38.8% 40.9% 44.1%
The tax effects of temporary differences that result in deferred tax
benefits are as follows (in thousands):
AS OF FEBRUARY 28, 1995 1994
Reserves and accruals not
deductible for tax purposes $ 3,391 $ 1,258
Inventory valuation 2,151 1,930
Net operating loss carryforward 857 1,028
Depreciation 1,031 335
Other (243) 187
$ 7,187 $ 4,738
<PAGE>
Standard Microsystems Corporation
and Subsidiaries
Realization of tax benefits from NOL carryforwards of the Company's Japanese
subsidiary is uncertain, and accordingly is fully reserved. At a current foreign
exchange rate, these carry-forwards aggregate approximately $6,500,000 as of
February 28, 1995, and will expire between fiscal 1996 and fiscal 2000.
Income tax provisions for fiscal 1995, 1994 and 1993 have not been reduced
by $707,000, $992,000 and $1,329,000, respectively, of tax benefits related to
the Company's stock option plans. These amounts have been credited to additional
paid-in capital.
The Company has $3,001,000 of New York State tax credit carryforwards of
which $1,230,000 and $950,000 expire in fiscal 1996 and 1997, respectively. The
remaining $821,000 of credit carryforwards expire at various dates in fiscal
1998 through fiscal 2004.
During fiscal 1995, the Company made an election to amortize $3,318,000 of
goodwill related to the October 1991 acquisition of the local area networking
business of Western Digital Corporation. This election will allow the Company to
take a tax deduction for this previously non-deductible goodwill over a fifteen
year period. Additionally, the other intangible assets related to this
acquisition will now also be amortized over a fifteen year period for tax
purposes. Previously, the tax lives of these assets varied from six to twelve
years.
5. OTHER BALANCE SHEET DATA
(IN THOUSANDS)
AS OF FEBRUARY 28, 1995 1994
Inventories:
Raw materials $11,547 $ 5,920
Work-in-process 16,239 14,764
Finished goods 18,003 13,420
$45,789 $34,104
Intangible assets:
Covenant not to compete $15,100 $15,100
Acquired LAN technologies 13,500 13,500
Excess of acquisition cost
over fair value of net assets
acquired (goodwill) 15,279 15,279
43,879 43,879
Less: accumulated amortization 17,400 11,911
$26,479 $31,968
Accrued expenses and
other liabilities:
Salaries and fringe benefits $ 6,502 $ 6,153
Advertising 3,683 3,232
Other 5,342 6,062
$15,527 $15,447
6. MINORITY INTEREST IN SUBSIDIARY
Sumitomo Metal Industries, Ltd. of Osaka, Japan (SMI) owns 20% of the issued
and outstanding common stock and all of the non-cumulative, non-voting 6%
preferred stock of the Company's subsidiary, Toyo Microsystems Corporation
(TMC). The Company and SMI have agreed to declare a preferred dividend if TMC
should realize net income of at least five times the total amount of preferred
dividends which would be payable on all preferred stock then outstanding. The
annual preferred dividend would be equal to 6% of the subscription price of 2.16
billion yen, or approximately $1,336,000 at an exchange rate of 97 yen per
dollar.
In the event that a third party acquires a majority of the outstanding
common stock of the Company, SMI has the option to require the Company to
purchase SMI's interest in TMC.
7. COMMITMENTS AND CONTINGENCIES
Compensation
Certain executives are employed under separate agreements terminating in
fiscal 1996. These agreements provide, among other things, for base salaries
totalling $1,436,000 through fiscal 1996.
The Company has employment contracts with certain key employees of its
subsidiary, SMC Massachusetts Inc., which provide for base salaries totalling
$600,000 per year through fiscal 1996. Incentive payments aggregating up to
$830,000 per year are also payable under these contracts through fiscal 1996,
subject to achieving certain product development and revenue milestones as
defined in the contracts.
The Company has also entered into agreements with certain officers providing
for severance pay if their employment is terminated following a change in
control of the Company.
Operating Leases
The Company leases certain vehicles, facilities and equipment. Minimum
rentals under these leases for each of the next five years are as follows (in
thousands):
1996 $1,306
1997 1,310
1998 806
1999 710
2000 695
Total rent expense was $1,013,000, $755,000 and $490,000 in fiscal 1995,
1994 and 1993, respectively.
<PAGE>
Standard Microsystems Corporation
and Subsidiaries
Wafer Supply Agreements
In September 1994, the Company entered into an agreement with AT&T
Microelectronics whereby the Company will purchase approximately $16,000,000 of
wafer manufacturing equipment for installation at AT&T facilities. In return, a
portion of AT&T's wafer production capacity during the five year period
following the installation of the equipment will be reserved for the Company's
requirements at favorable pricing. The first production wafers are expected to
be delivered by the end of fiscal 1996.
In March 1995, the Company entered into an agreement to invest approximately
$20,000,000 in Chartered Semiconductor Pte Ltd. (Chartered), a semiconductor
manufacturer located in Singapore. Under the terms of the agreement, the Company
acquired an equity interest in Chartered of less than 5% and, in return, will be
allocated capacity in a new wafer fabrication facility to be constructed by
Chartered in Singapore. Approximately $14,000,000 of the Company's investment
was made in March 1995, with the remaining $6,000,000 investment scheduled for
March 1996.
Litigation
In September 1991, the Company and Texas Instruments Incorporated (TI)
agreed to settle, terminate and dismiss litigation between the two companies. In
addition to the settlement agreement, the parties entered into a five year
patent cross-licensing agreement covering the manufacturing of certain
semiconductor and local area network products, which license provides for
payments by the Company over a period ending December 31, 1996.
In the ordinary course of business, various lawsuits and claims are filed
against the Company. While the outcome of these matters is currently not
determinable, management believes that the ultimate resolution of these matters
will not have a material adverse effect on the Company's operations or financial
position.
8. BENEFIT AND INCENTIVE PLANS
Incentive Savings and Retirement Plan
The Company maintains a defined contribution Incentive Savings and
Retirement Plan (the Plan) which, pursuant to Section 401(k) of the Internal
Revenue Code, permits employees to defer taxation on their pre-tax earnings
reduction contributions to the Plan.
The Plan permits employees to contribute up to 15% of their earnings,
through payroll deductions, based on earnings reduction agreements. The
Company's contribution, which is equal to one-half of the employee's
contribution up to 6%, is invested in the common stock of the Company and
totalled $866,000, $729,000 and $448,000 in fiscal 1995, 1994 and 1993,
respectively.
The Company has authorized unissued common stock reserved for issuance to
the Plan. As of February 28, 1995, 205,000 unissued shares remain in reserve.
Since its inception, 637,000 shares of the Company's common stock have been
contributed to the Plan.
As of February 28, 1995, 610 of the 749 employees who had satisfied the
Plan's eligibility requirements to participate were making salary deduction
contributions.
Stock Option Plans
Under the Company's stock option plans, options to purchase common stock may
be granted to officers and key employees at prices not less than the market
price of the shares at the date of grant. At February 28, 1995, the expiration
dates of the outstanding options range from March 30, 1995, to January 31, 2000,
and the exercise prices range from $4.13 to $30.00 (average $16.33) per share.
The following is a summary of activity under the plans over the past
three years:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FEBRUARY 28, 1995 1994 1993
<S> <C> <C> <C>
Shares under option, beginning of year 732,000 602,000 1,101,000
Options granted during the year 402,000 304,000 155,000
Options cancelled or terminated (53,000) (26,000) (131,000)
Options exercised:
1995 ($4.13 to $26.00 per share) (214,000)
1994 ($4.13 to $19.38 per share) (148,000)
1993 ($4.13 to $8.75 per share) (523,000)
Shares under option, end of year 867,000 732,000 602,000
Options exercisable, end of year 167,000 128,000 105,000
Shares available for future grants, end of year 665,000 290,000 81,000
</TABLE>
<PAGE>
Standard Microsystems Corporation
and Subsidiaries
Under the Company's Director Stock Option Plan, non-qualified options to
purchase common stock may be granted to directors at prices not less than the
market price of the shares at the date of grant. At February 28, 1995, the
expiration dates of the outstanding options range from June 30, 1997, to July 7,
1999, and the exercise prices range from $11.75 to $16.00 (average $14.22) per
share.
The following is a summary of activity under the Director Stock Option Plan
over the past three years:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FEBRUARY 28, 1995 1994 1993
<S> <C> <C> <C>
Shares under option, beginning of year 59,000 90,000 125,000
Options granted during the year 15,000 15,000 15,000
Options cancelled or terminated - - -
Options exercised:
1995 ($7.13 per share) (31,000)
1994 ($7.13 to $11.75 per share) (46,000)
1993 ($7.13 per share) (50,000)
Shares under option, end of year 43,000 59,000 90,000
Options exercisable, end of year 13,000 34,000 75,000
Shares available for future grants, end of year 30,000 45,000 60,000
</TABLE>
Restricted Stock Bonus Plan
The Company's Restricted Stock Bonus Plan provides for common stock awards
to certain officers and key employees. The fair market value of shares awarded
to an employee in any year is limited to 20% of the employee's base salary. Such
common stock awards are earned in equal installments on the second, third and
fourth anniversaries of the award, provided the employee has remained in the
Company's employ through such anniversary dates; otherwise the unearned shares
are forfeited.
The maximum number of shares issuable under the plan is 400,000 of which
136,000, net of cancellations, have been awarded as of February 28, 1995. The
market value of these shares at the date of award, net of cancellations, is
recorded as compensation expense ratably over four year periods from the
respective award dates. This compensation expense was $361,000, $189,000 and
$51,000 in fiscal 1995, 1994 and 1993, respectively.
Retirement Plans
In March 1994, the Company adopted an unfunded Supplemental Executive
Retirement Plan to provide senior management with retirement, disability and
death benefits. Benefits are based upon average compensation during the three
year period prior to retirement. The projected benefit obligation at the end of
fiscal 1995 was approximately $4,000,000. Assumptions used in developing the
projected benefit obligation at the end of fiscal 1995 are detailed as follows:
Weighted-average discount rate 7.25%
Weighted-average rate of compensation increase 7.00%
Weighted-average expected long-term return
on plan assets 7.25%
The cost of this plan will be accrued over the remaining years of service of
each of the participants, of which $401,000 was accrued in fiscal 1995. The
Company is the beneficiary of life insurance policies that have been purchased
as a method of partially financing benefits under this plan.
During fiscal 1993, the Company adopted an unfunded retirement plan for the
non-employee members of its Board of Directors. The plan provides for annual
benefit payments equal to the annual retainer in effect at the date of
retirement, for a period of years equal to the lesser of the director's years of
service or ten years. The cost of this plan is accrued over the directors'
estimated remaining years of service, of which $264,000, $270,000 and $139,000
was accrued during fiscal 1995, 1994 and 1993, respectively.
Executive Incentives
Under arrangements approved by the Company's Board of Directors, certain
executives receive incentive compensation based upon certain revenues and
earnings of the Company, as defined. $1,506,000 of such compensation was earned
during fiscal 1995, of which $260,000 will be issued in common stock pursuant to
the Company's Restricted Stock Bonus Plan. $1,700,000 and $2,627,000 of
incentive compensation was earned during fiscal 1994 and 1993, respectively.
<PAGE>
Standard Microsystems Corporation
and Subsidiaries
9. STOCK PURCHASE RIGHTS PLAN
Under a stock purchase rights plan, shareholders may be entitled to purchase
common stock in the Company at a discounted price, in the event of certain
efforts to acquire control of the Company. The rights will expire in January
1998, unless previously redeemed by the Company at $.01 per right.
10.CUSTOMER AND GEOGRAPHIC INFORMATION
Geographic Information
International sales accounted for 46.8%, 44.0% and 43.9% of total revenues
during fiscal 1995, 1994 and 1993, respectively. International sales were
primarily to customers in Europe, Canada and the Far East. Approximately 94% and
95% of the Company's identifiable assets were located in the United States at
February 28, 1995 and 1994, respectively. The remainder were located primarily
in the Company's Japanese subsidiary.
Major Customers
During fiscal 1995, one customer accounted for 10.3% of revenues. In fiscal
1994, one customer accounted for 11.9% of revenues. In fiscal 1993, two
customers represented 13.4% and 11.5% of revenues, respectively.
Concentrations of Credit Risk
The Company is primarily engaged in the design, development and marketing of
products utilized in the personal computer networking marketplace. The Company
sells a significant amount of its products through distributors and as a result,
maintains individually significant receivable balances from its major
distributors. The Company performs credit evaluations on a regular basis and
generally requires no collateral. Allowances for credit losses are maintained,
and actual losses have been within management's expectations.
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED MAY 31 AUG. 31 NOV. 30 FEB. 28
<S> <C> <C> <C> <C>
FISCAL 1995
Revenues $80,020 $91,964 $104,771 $101,916
Gross profit 35,355 39,978 45,233 43,837
Operating income 9,344 9,770 11,811 9,697
Income before extraordinary item 5,358 5,583 6,821 7,405
Extraordinary item - - - (944)
Net income 5,358 5,583 6,821 6,461
Per Share Data
Income before extraordinary item $ 0.41 $ 0.42 $ 0.51 $ 0.55
Extraordinary item - - - (0.07)
Net income 0.41 0.42 0.51 0.48
Market price
High 19.50 19.63 25.25 31.63
Low 14.88 13.38 18.38 21.38
FISCAL 1994
Revenues $68,444 $72,031 $ 88,894 $ 93,206
Gross profit 26,410 28,350 35,928 37,678
Operating income 8,016 7,511 9,593 10,316
Net income 4,392 4,162 5,430 5,927
Per Share Data
Net income $ 0.34 $ 0.32 $ 0.41 $ 0.45
Market price
High 21.25 20.75 25.13 26.75
Low 12.50 14.50 17.50 17.25
</TABLE>
The Company's common stock is traded in the over-the-counter market under
the NASDAQ symbol: SMSC. Trading is reported in the NASDAQ National Market List.
There were approximately 1,200 holders of record of the Company's common
stock at March 29, 1995. The Company has never paid a cash dividend. The
present policy of the Company is to retain earnings to provide funds for the
operation and expansion of its business. The Company does not expect to pay
cash dividends in the foreseeable future.
<PAGE>
Standard Microsystems Corporation
and Subsidiaries
REPORT ON MANAGEMENT'S RESPONSIBILITIES
The consolidated financial statements of Standard Microsystems Corporation
and its subsidiaries have been prepared under the direction of management in
conformity with generally accepted accounting principles, consistently applied.
The statements include amounts that reflect management's objective estimates and
judgments.
Standard Microsystems Corporation and its subsidiaries maintain accounting
systems and related internal accounting controls which, in the opinion of
management, provide reasonable assurance, at appropriate cost, that assets are
properly controlled and safeguarded and that transactions are executed in
accordance with management's authorization and are recorded and reported
properly.
The audit committee of the Board of Directors is composed solely of
directors who are not officers or employees of the Company. The committee meets
periodically with representatives of management and the independent public
accountants. The independent public accountants have free access to the
committee, without management present, to discuss the results of their audit
work, adequacy of internal financial controls and the quality of the financial
reporting. The committee also recommends to the directors the appointment of the
independent public accountants.
The independent public accountants provide an objective, independent review
as to management's discharge of its responsibilities as they relate to the
integrity of reported operating results and financial condition.
The consolidated financial statements in this annual report have been
audited by Arthur Andersen LLP, independent public accountants.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Standard Microsystems
Corporation:
We have audited the accompanying consolidated balance sheets of Standard
Microsystems Corporation (a Delaware corporation) and subsidiaries as of
February 28, 1995, and February 28, 1994, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended February 28, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Standard Microsystems
Corporation and subsidiaries as of February 28, 1995, and February 28, 1994, and
the results of their operations and their cash flows for each of the three years
in the period ended February 28, 1995, in conformity with generally accepted
accounting principles.
March 29, 1995 ARTHUR ANDERSEN LLP
Baltimore, Md.
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in or incorporated by reference in this Form 10-K into the
Company's previously filed Registration Statements on Form S-8 (Nos. 2-78324,
33-35590, 33-15965, 33-45011, 33-69224 and 33-83400).
ARTHUR ANDERSEN LLP
Baltimore, Maryland
May 25, 1995
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1995
<PERIOD-END> FEB-28-1995
<CASH> 29,478
<SECURITIES> 0
<RECEIVABLES> 75,826
<ALLOWANCES> 1,102
<INVENTORY> 45,789
<CURRENT-ASSETS> 162,776
<PP&E> 108,372
<DEPRECIATION> 73,464
<TOTAL-ASSETS> 228,578
<CURRENT-LIABILITIES> 43,421
<BONDS> 0
<COMMON> 1,322
0
0
<OTHER-SE> 172,661
<TOTAL-LIABILITY-AND-EQUITY> 228,578
<SALES> 378,671
<TOTAL-REVENUES> 378,671
<CGS> 214,269
<TOTAL-COSTS> 214,269
<OTHER-EXPENSES> 123,780
<LOSS-PROVISION> 707
<INTEREST-EXPENSE> 1,255
<INCOME-PRETAX> 41,292
<INCOME-TAX> 15,940
<INCOME-CONTINUING> 25,167
<DISCONTINUED> 0
<EXTRAORDINARY> 944
<CHANGES> 0
<NET-INCOME> 24,223
<EPS-PRIMARY> 1.82
<EPS-DILUTED> 1.82
</TABLE>
Exhibit 99
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One) :
[X] ANNUAL REPORT PURSUANT TO SECTION 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED] .
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] .
FOR THE TRANSITION PERIOD FROM ........ TO ........
Commission File Number 0-7422
A. Full title of the plan and address of the plan, if different from that
of the issuer name below:
STANDARD MICROSYSTEMS CORPORATION
INCENTIVE SAVINGS AND RETIREMENT PLAN
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
STANDARD MICROSYSTEMS CORPORATION
80 ARKAY DRIVE
HAUPPAUGE, NEW YORK 11788
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Committee has duly caused this annual report to be signed on their behalf by the
undersigned hereunto duly authorized.
STANDARD MICROSYSTEMS CORPORATION
INCENTIVE SAVINGS AND
RETIREMENT PLAN
By:
---------------------------------------
Anthony M. DiAgostino
Member, Plan Committee
May 25, 1995
<PAGE>
STANDARD MICROSYSTEMS CORPORATION
INCENTIVE SAVINGS AND RETIREMENT PLAN
INDEX TO FINANCIAL STATEMENTS
Report of Independent Public Accountants 4
Statements of Financial Condition as of
December 31, 1994 and December 31, 1993 5, 6
Statement of Income and Changes in Plan Equity
For the Plan Year ended December 31,
1994 7
Notes To Financial Statements 8 - 14
Schedule I - Assets Held for Investment as of
December 31, 1994 15
Schedule I - Assets Held For Investment as of
December 31, 1993 16
Schedule II - Reportable Transactions For the
Year Ended December 31, 1994 17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Standard Microsystems Corporation Incentive Savings and Retirement
Plan Committee:
We have audited the accompanying Statements of Financial Condition of the
Standard Microsystems Corporation Incentive Savings and Retirement Plan as of
December 31, 1994 and December 31, 1993, and the related Statement of Income and
Changes in Plan Equity for the plan year ended December 31, 1994. These
financial statements are the responsibility of the plan administrator. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial condition of the Standard Microsystems
Corporation Incentive Savings and Retirement Plan as of December 31, 1994 and
1993, and its income and changes in plan equity for the plan year ended December
31, 1994 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
April 7, 1995
Washington, D.C.
-4-
<PAGE>
STANDARD MICROSYSTEMS CORPORATION
INCENTIVE SAVINGS AND RETIREMENT PLAN
STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
As of December 31, 1994
Puritan Ginnie Mae Magellan
Total Fund Fund Fund
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 1,059 $ 25 11 $ 35
Contributions receivable:
Employee 208,740 48,760 11,540 70,707
Employer matching 117,961 - - -
Investments:
Fidelity Puritan Fund (cost of
$2,379,537) 2,241,881 2,241,881 - -
Fidelity Ginnie Mae Fund
(cost of $565,846) 524,849 - 524,849 -
Fidelity Magellan Fund (cost of
of $3,704,721) 3,529,154 - - 3,529,154
Fidelity Asset Manager Fund
(cost of $2,188,606) 1,988,713 - - -
Fidelity Managed Income Fund
(cost of $1,336,863) 1,336,863 - - -
Standard Microsystems Corp. Common
Stock (359,384 shares, cost of
$7,607,083) 10,781,520 - - -
Loans Receivable 720,734 - - -
Total Assets 21,451,474 2,290,666 536,400 3,599,896
LIABILITIES
Benefits payable 1,539 - - -
Total Liabilities 1,539 - - -
PLAN EQUITY $ 21,449,935 $ 2,290,666 536,400 $ 3,599,896
</TABLE>
The accompanying notes to financial statements are an integral part of
this statement.
STANDARD MICROSYSTEMS CORPORATION
INCENTIVE SAVINGS AND RETIREMENT PLAN
STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
As of December 31, 1994
Asset Manager Managed Income Company Loan
Fund Fund Stock Fund Fund
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 29 $ 30 $ 929 $ -
Contributions receivable:
Employee 39,101 21,191 17,441 -
Employer matching - - 117,961 -
Investments:
Fidelity Puritan Fund (cost of
$2,379,537) - - - -
Fidelity Ginnie Mae Fund
(cost of $565,846) - - - -
Fidelity Magellan Fund (cost of
of $3,704,721) - - - -
Fidelity Asset Manager Fund
(cost of $2,188,606) 1,988,713 - - -
Fidelity Managed Income Fund
(cost of $1,336,863) - 1,336,863 - -
Standard Microsystems Corp. Common
Stock (359,384 shares, cost of
$7,607,083) - - 10,781,520 -
Loans Receivable - - - -
Total Assets 2,027,843 1,358,084 10,917,851 -
LIABILITIES
Benefits payable - - 1,539 -
Total Liabilities - - 1,539 -
PLAN EQUITY $ 2,027,843 $1,358,084 $10,916,312 $720,734
</TABLE>
The accompanying notes to financial statements are an integral part of
this statement.
5
<PAGE>
STANDARD MICROSYSTEMS CORPORATION
INCENTIVE SAVINGS AND RETIREMENT PLAN
STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
As of December 31, 1993
Puritan Ginnie Mae Magellan
Total Fund Fund Fund
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 4,943 $ 25 11 $ 35
Contributions receivable:
Employee 57,160 10,061 2,907 16,795
Employer matching 90,365 - - -
Investments:
Fidelity Puritan Fund (cost of
$1,535,417) 1,572,498 1,572,498 - -
Fidelity Ginnie Mae Fund
(cost of $507,278) 496,614 - 496,614 -
Fidelity Magellan Fund (cost of
of $2,332,582) 2,475,306 - - 2,475,306
Fidelity Asset Manager Fund
(cost of $1,474,742) 1,634,721 - - -
Fidelity Managed Income Fund
(cost of $888,758) 888,758 - - -
Standard Microsystems Corp. Common
Stock (355,672 shares, cost of
$9,311,368) 7,646,948 - - -
Loans Receivable 258,116 - - -
Total Assets 15,125,429 1,582,584 499,532 2,492,136
LIABILITIES
Benefits payable 9,769 1,739 - -
Total Liabilities 9,769 1,739 - 2,023
PLAN EQUITY $ 15,115,660 $ 1,580,845 499,532 $ 2,490,113
</TABLE>
The accompanying notes to financial statements are an integral part of
this statement.
STANDARD MICROSYSTEMS CORPORATION
INCENTIVE SAVINGS AND RETIREMENT PLAN
STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
As of December 31, 1993
Asset Manager Managed Income Company
Fund Fund Stock Fund
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 28 $ 29 $ 4,815 $ -
Contributions receivable:
Employee 8,997 3,786 14,614 -
Employer matching - - 90,365 -
Investments:
Fidelity Puritan Fund (cost of
$1,535,417) - - - -
Fidelity Ginnie Mae Fund
(cost of $507,278) - - - -
Fidelity Magellan Fund (cost of
of $2,332,582) - - - -
Fidelity Asset Manager Fund
(cost of $1,474,742) 1,634,721 - - -
Fidelity Managed Income Fund
(cost of $888,758) - 888,758 - -
Standard Microsystems Corp. Common
Stock (355,672 shares, cost of
$9,311,368) - - 7,646,948 -
Loans Receivable - - - -
Total Assets 1,643,746 892,573 7,756,742 258,116
LIABILITIES
Benefits payable 1,538 369 4,100 -
Total Liabilities 1,538 369 4,100 -
PLAN EQUITY $ 1,642,208 $ 892,204 $7,752,642 $258,116
</TABLE>
The accompanying notes to financial statements are an integral part of
this statement.
6
<PAGE>
STANDARD MICROSYSTEMS CORPORATION
INCENTIVE SAVINGS AND RETIREMENT PLAN
STATEMENTS OF INCOME AND CHANGES IN PLAN EQUITY
<TABLE>
<CAPTION>
For the plan year ended December 31, 1994
Puritan Ginnie Mae Magellan Asset Manager Managed Income Company Loan
Total Fund Fund Fund Fund Fund Stock Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BEGINNING BALANCE, PLAN EQUITY $15,115,660 $1,580,845 $499,532 $2,490,113 $1,642,208 $ 892,204 $ 7,752,642 $258,116
Employee contributions 3,066,308 694,665 158,139 1,084,585 596,755 370,583 161,581 -
Employer matching contributions 876,262 - - - - - 876,262 -
Investment income 489,090 163,673 31,067 115,899 74,536 103,356 559 -
Realized gains (losses) on
securities transactions (110,190) (699) (6,592) (6,576) (9,165) - (87,158) -
Unrealized appreciation
(depreciation) of investments 2,745,815 (136,954) (34,404) (168,991) (190,728) - 3,276,892 -
Interfund transfers (0) 86,926 (96,850) 204,927 36,949 57,739 (752,309) 462,618
7,067,285 807,611 51,360 1,229,844 508,347 531,678 3,475,828 462,618
Benefit payments 733,010 97,790 14,492 120,061 122,712 65,798 312,157 -
733,010 97,790 14,492 120,061 122,712 65,798 312,157 -
INCREASE IN PLAN EQUITY 6,334,275 709,821 36,868 1,109,783 385,635 465,880 3,163,670 462,618
ENDING BALANCE, PLAN EQUITY $ 21,449,935 $ 2,290,666 $536,400 $3,599,896 $2,027,843 $1,358,084 $10,916,312 $720,734
</TABLE>
The accompanying notes to financial statements are an integral part
of this statement.
7
<PAGE>
STANDARD MICROSYSTEMS CORPORATION
INCENTIVE SAVINGS AND RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
1) Description of the Plan
-----------------------
Purpose and Eligibility
- -----------------------
The Standard Microsystems Corporation Incentive Savings and Retirement Plan
(the "Plan"), formerly known as the "Employee Stock Purchase Plan", was
established on June 23, 1982 to encourage and assist eligible employees to
invest in Standard Microsystems Corporation (the "Company"), to adopt a regular
savings program, and to help provide additional security for their retirement.
Effective January 1, 1993, the plan was amended and restated to provide
participants with improved benefits, as well as facilitate certain
administrative functions. The Plan was established under sections 401(a) and
401(k) of the Internal Revenue Code which, among other provisions, allow for the
deferral of income taxes on amounts contributed.
Participation can begin on the first day of any calendar month after the
completion of three months of service as defined in the Plan.
Investment Programs
- -------------------
With the amendments adopted effective January 1, 1993, the Plan allows
participants to allocate their contributions among six investment programs.
These investment vehicles are as follows:
1. FIDELITY PURITAN FUND - This fund seeks to obtain as much income as
possible, consistent with the preservation of capital, by investing in a
broadly diversified portfolio of high yielding securities, including
common stocks, preferred stocks, bonds, and foreign securities.
2. FIDELITY GINNIE MAE FUND- This fund seeks a high level of current income,
by investing primarily in mortgage-related securities issued by the
Government National Mortgage Association.
-8-
<PAGE>
3. FIDELITY MAGELLAN FUND - This fund seeks capital appreciation by investing
primarily in common stock and securities convertible into common stock.
Up to 20% of the fund's assets may also be invested in debt securities of
all types and qualities issued by foreign and domestic issuers if Fidelity
Magellan Fund believes they have potential for capital appreciation.
Equity investments can be made in domestic or foreign corporations.
4. FIDELITY ASSET MANAGER FUND - This fund seeks high total return with
reduced risk by allocating its assets among stock, bonds, and money market
instruments, including foreign securities, normally within the following
parameters: 10-50% in stocks; 20-60% in bonds, 0-70% in money market
instruments.
5. FIDELITY MANAGED INCOME FUND - This portfolio will purchase high-quality,
short and long-term Guaranteed Investment Contracts (GICs), Bank
Investment Contracts (BICs), short-term money market instruments, and
"synthetic" GICs (debt obligations issued by one institution and insured
by another as to payment of interest and return of principal at maturity).
The Portfolio strives to maintain a stable $1.00 share price.
6. STANDARD MICROSYSTEMS CORPORATION COMMON STOCK - Common stock issued by
Standard Microsystems Corporation.
The value of each participant's account equals the participant's
contributions, the Company's matching and regular contributions, net earnings,
forfeitures allocated in accordance with the Plan provisions, and current value
adjustments.
Employee Contributions
- ----------------------
Each eligible participant may make qualified earnings reduction
contributions from 1% - 15% of his/her earnings which are not currently subject
to income taxes. These earnings reduction contributions are subject to certain
statutory and regulatory limitations and may not exceed $7,000, as indexed for
inflation, per calendar year ($9,240 for 1994). Participant contributions,
which are entirely voluntary, are allocated by the employee between the six
investment programs in ten percent increments. There were 699 and 634 active
participants in the Plan and 542 and 522 participants making contributions as of
December 31, 1994 and 1993, respectively.
There were 65 and 76 terminated employees with funds in the plan as of
December 31, 1994 and 1993, respectively.
-9-
<PAGE>
Participants may also make "rollover" contributions of distributions from
other qualified plans which are not matched by the Company. For the Plan period
ending December 31, 1994, "rollover" contributions of $505, 828 were received by
the Plan and are included in Employee contributions in the accompanying
Statement of Income and Changes in Plan Equity.
Employer Contributions
- ----------------------
The Company may, at its discretion, contribute to the Plan "Matching
Contributions" in cash or securities equal to 50% of each participant's
qualified earnings reduction contribution (up to a maximum participant
contribution of 6% of earnings), subject to certain statutory and regulatory
limitations. In addition, the Company may, at its discretion, make an
additional "Profit Sharing Contribution" which, if made, is allocated pro rata
to participants on the basis of their earnings. No Profit Sharing Contribution
was made to the Plan during the last plan year.
Benefits
- --------
Upon the death, retirement (at age 65 or later) or total and permanent
disability of a participant while in the employ of the Company, the
participantis entire account (including the employee's share of the Company's
contributions) becomes 100% vested.
If a participant's employment with the Company is terminated for any other
reason, the participant is entitled to receive in full the portion of his or her
account attributable to participant contributions and is also entitled to
receive a portion of his or her account allocable to Employer contributions
based upon the following schedule:
Years of Service Percentage Vested
---------------- -----------------
Less than 1 year 0%
1 year but less than 2 years 20%
2 years but less than 3 years 40%
3 years but less than 4 years 60%
4 years but less than 5 years 80%
5 years or more 100%
-10-
<PAGE>
The unvested portion of a former participantis account will be allocated to
the remaining participants as discussed in note 7 below. A separated
participant may elect to defer distribution of his or her benefit if the benefit
exceeds $3,500. In such event, the benefit remains invested in the Plan and
contines to participate in Plan earnings.
A separated participant, who elected to receive a distribution and who was
not fully vested at the time of distribution, that is subsequently rehired and
becomes eligible to participate before having incurred five consecutive One Year
Breaks in Service, may repay the distribution which he or she received within
five years of receiving same. A participant who, upon rehire, repays his or her
distribution is recredited with all previous years of service and the full
account balance, determined as of the prior termination date. The Company
remains contingently liable should any such participant rejoin the Company.
Participant Loans and Withdrawals
- ---------------------------------
Subject to certain Plan provisions, participants may apply for Loans against
their vested account balance. Additionally, participants are entitled to apply
for hardship withdrawals and, after attaining age 59 1/2, receive in-service
distributions (excluding company contribution accounts).
2) Summary of Significant
Accounting Policies
----------------------
Basis of Accounting
-------------------
The financial statements of the Plan are presented on the accrual basis
of accounting.
Security Valuation
------------------
Investments are stated at current value based upon the latest publicly
quoted market prices at the end of the applicable period.
The following summarizes the activity in employer securities for the Plan
year ended December 31, 1994:
-11-
December 31,
1994
<PAGE>
Shares in the Plan, beginning
of the period 355,672
Shares issued to the Plan 68,662
Shares redeemed and transferred
to former participants <64,950>
Shares in the Plan, end of the
period 359,384
The per share price at which the Plan purchased the Company's stock ranged
from $13.75 to $27.13 for the Plan year ended December 31, 1994. See Note 8 for
the effect of changes in the Company's stock price subsequent to December 31,
1994.
3) Plan Administration
-------------------
Management
----------
Pursuant to the terms of the Plan:
a) The Board of Directors of the Company has established the Plan Committee
to act as the Company's agent to administer the Plan. The Plan Committee
consists of members of the Companyis management.
b) Midlantic National Bank, (the "Trustee"), is the custodian of the Planis
property and funds. Under the terms of the Plan and trust agreement,
securities credited to the participants' accounts are registered in the
name of the Trustee. Securities issued by the Company are voted by the
Trustee in accordance with participant instructions. If, however, a
participant does not provide the Trustee with instructions in a timely
manner, the Trustee will vote such shares at its own discretion. The Plan
has obtained the required surety bonding under ERISA.
-12-
<PAGE>
Plan Costs
----------
Administrative costs of $46,253 for the Plan year ended December 31, 1994
were paid by the Company. These expenses are for record keeping and
investment management services.
4) Termination of the Plan
-----------------------
Although the Company intends to continue the Plan indefinitely, it
reserves the right to amend or discontinue the Plan at any time, or to
reduce, suspend or discontinue payments to be made by the Company to the
Plan. Upon termination of the Plan or discontinuance of payments, the
account of each participant (including the employee's share of the
Companyis contribution) shall become fully vested, regardless of length of
service.
5) Income Tax Status
-----------------
Effective January 1, 1993 the Plan was amended and restated in its
entirety to comply with the Tax Reform Act of 1986 and subsequent tax
legislation. The Plan Administrator in June 1994 applied for a
determination letter from the Internal Revenue Service (IRS) with regard
to the ongoing tax qualified status of the Plan. On October 19, 1994 the
IRS issued a favorable determination letter in this regard.
Since the Plan has been determined by the IRS to be qualified,
contributions by participants and the Company, and the earnings thereon,
will continue to be exempt from Federal taxes until distributed to the
participants or their beneficiaries.
6) Benefits Payable
----------------
Benefits payable, as of December 31, 1994 and 1993, include approximately
52 and 191 shares, respectively, of the Company's common stock to be
distributed to former participants, with the remainder payable in cash.
-13-
<PAGE>
7) Forfeitures
-----------
During the Plan year ended December 31, 1994, $31,634 in non-vested
account balances were forfeited by former participants who elected to have
their vested account balance distributed to them. This amount was
reallocated to the accounts of those participants who made qualified
earnings reduction contributions during the plan year in the proportion of
each Participant's qualified earnings reduction contributions, up to 6%,
provided the participant was active on the last day of the plan year.
8) Standard Microsystems Corporation Stock Price
---------------------------------------------
The Company's stock price is affected by both the fundamental economic
environment and computer industry conditions. Through April 7, 1995, the
Company's stock has traded in the range of $ 13.38 to $31.63 per share.
Based upon the closing price of $16.75 per share on April 7, 1995, the
shares held by the Plan at December 31, 1994 have decreased approximately
44%. There has been no significant change in the value of the Plan's
other assets. The value of the Plan's investments may continue to
fluctuate considerably and past performance may not be representative of
future results.
9) Supplementary Schedules and Disclosures
---------------------------------------
See Schedule I for the assets held for investment as of December 31, 1994
and 1993. Schedule II lists reportable transactions, as defined by ERISA,
which occurred during the Plan year ended December 31, 1994. During this
period, there were no investments in default or transactions with parties
in interest.
-14-
<PAGE>
<TABLE>
<CAPTION>
Standard Microsystems Corporation Schedule I
Incentive Savings and Retirement Plan
Schedule of Assets Held for Investment
As of December 31, 1994
NUMBER VALUE
INVESTMENT DESCRIPTION COST CURRENT VALUE OF UNITS OR SHARES PER FUND UNIT
<S> <C> <C> <C> <C>
Fidelity Puritan Fund $2,379,537 $ 2,241,881 151,376 $14.81
Fidelity Ginnie Mae Fund $ 565,846 $ 524,849 52,537 $ 9.99
Fidelity Magellan Fund $3,704,721 $ 3,529,154 52,832 $66.80
Fidelity Asset Manager Fund $2,188,606 $ 1,988,713 143,797 $13.83
Fidelity Managed Income Fund $1,336,863 $ 1,336,863 1,336,863 $ 1.00
SMC Common Stock $7,607,083 $10,781,520 359,384 $30.00
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Standard Microsystems Corporation Schedule I
Incentive Savings and Retirement Plan
Schedule of Assets Held for Investment
As of December 31, 1993
NUMBER VALUE
INVESTMENT DESCRIPTION COST CURRENT VALUE OF UNITS OR SHARES PER FUND UNIT
<S> <C> <C> <C> <C>
Fidelity Puritan Fund $1,535,417 $1,572,498 99,841 $15.75
Fidelity Ginnie Mae Fund $ 507,278 $ 496,614 45,728 $10.86
Fidelity Magellan Fund $2,332,582 $2,475,306 34,937 $70.85
Fidelity Asset Manager Fund $1,474,742 $1,634,721 106,151 $15.40
Fidelity Managed Income Fund $ 888,758 $ 888,758 888,758 $ 1.00
SMC Common Stock $9,311,368 $7,646,948 355,672 $21.50
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
STANDARD MICROSYSTEMS CORPORATION SCHEDULE II
INCENTIVE SAVINGS AND RETIREMENT PLAN
SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31,1994
/--------------AMOUNTS IN DOLLARS------------/
INVESTMENT REALIZED NUMBER OF
DESCRIPTION TYPE SHARES COST PROCEEDS GAIN TRANSACTIONS
<S> <C> <C> <C> <C> <C> <C>
FIDELITY:
PURITAN FUND SALE 28,707 280,077 279,378 (699) 41
PURITAN FUND PURCHASE 80,242 1,086,417 56
GINNIE MAE SALE 14,584 158,011 151,419 (6,592) 27
GINNIE MAE PURCHASE 21,393 220,650 45
MAGELLAN FUND SALE 4,117 290,864 284,288 (6,576) 45
MAGELLAN FUND PURCHASE 22,012 1,513,704 57
ASSET MANAGER FUND SALE 15,268 233,759 224,594 (9,165) 42
ASSET MANAGER FUND PURCHASE 52,914 778,479 51
MANAGED INCOME FUND SALE 792,359 792,359 792,359 0 65
MANAGED INCOME FUND PURCHASE 1,240,647 1,240,647 71
SMC COMMON STOCK SALE 64,999 1,389,698 1,302,540 (87,158) 55
SMC COMMON STOCK PURCHASE 66,155 1,207,145 60
</TABLE>
17
<PAGE>
STANDARD MICROSYSTEMS CORPORATION
INCENTIVE SAVINGS AND RETIREMENT PLAN
EXHIBIT INDEX
-------------
Exhibit No. Description
- ---------- ------------
1 Consent of
Independent Public
Accountants
<PAGE>
Exhibit 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 11-K, into the Company's previously
filed Registration Statement on Forms S-8 (No. 2-78324).
April 7, 1995
Washington, D.C.
<PAGE>
