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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[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 29, 1996
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
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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
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each Exchange on
None which registered
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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 X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
As of April 30, 1996, 13,532,501 shares of the registrant's common stock
were outstanding and the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $216,500,000.
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:
<TABLE>
<CAPTION>
Document Part
<S> <C>
Those portions of the registrant's 1996 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 1996
Annual Meeting (the "Proxy Statement") which are specifically identified
herein as incorporated by reference into this Form 10-K. III
</TABLE>
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PART I
ITEM 1. BUSINESS.
GENERAL
Standard Microsystems Corporation (the "Company", the "Registrant", or "SMCR")
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. 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
Standard Microsystems Corporation (Asia) Taipei, Taiwan
SMC Australia Pty. Ltd. Sydney, Australia
Standard Microsystems Corporation (Canada) Oakville, Ontario, Canada
SMC Enterprise Networks, Inc. Andover, Massachusetts
Standard Microsystems (Europe) Ltd. London, England
SMC France, Inc. St. Germain-en-Laye, France
Standard Microsystems GmbH Munich, Germany
SMC de Mexico SA de CV Mexico DF, Mexico
SMC North America, Inc. Various states
SMC Singapore Singapore
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 connect personal computers (PCs) to, and
allow communications over, local area networks (LANs). The Component Products
Division designs, produces and markets very-large-scale-integrated (VLSI)
circuits, primarily for control of various personal computer functions, as well
as specialized semiconductor-related products that are produced in SMC's own
semiconductor foundry. As a separate profit center, Toyo Microsystems
Corporation (TMC), sells the Company's component and system products in the
Japanese market.
The Company's fiscal 1996 revenues declined to $341.9 million, from $378.7
million in fiscal 1995, after increasing from $322.6 million in fiscal 1994. As
a percentage of consolidated revenues, system products declined to 54.6% in
fiscal 1996 from 67.7% in fiscal 1995 and 81.6% in fiscal 1994. In contrast, as
a percentage of consolidated revenues, component products' revenues increased to
40.5% from 29.2% and 16.7% and TMC's revenues increased to 4.9% from 3.1% and
1.7%.
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REVENUES BY PRODUCT LINE ($MILLIONS)
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<CAPTION>
FOR THE YEARS ENDED FEBRUARY 29 OR 28, % change % change
1996 96/95 1995 95/94 1994
------- ---- ------ ---- ------
<S> <C> <C> <C> <C> <C>
SYSTEM PRODUCTS
Adapter revenues $ 144.5 -29% $ 204.9 -10% $ 228.1
Hub and switch revenues 42.0 -19 51.5 46 35.3
Total system products revenues $ 186.5 -27% $ 256.4 -3% $ 263.4
% of Company revenues 54.6% 67.7% 81.6%
COMPONENT PRODUCTS
Integrated circuit revenues $ 123.0 15% $ 106.9 102% $ 52.8
Foundry device revenues 15.6 320 3.7 226 1.1
Total component products revenues $ 138.6 25% $ 110.6 105% $ 53.9
% of Company revenues 40.5% 29.2% 16.7%
TOYO MICROSYSTEMS CORPORATION
Revenues $ 16.8 44% $ 11.7 120% $ 5.3
% of Company revenues 4.9% 3.1% 1.7%
STANDARD MICROSYSTEMS CORPORATION
Revenues $ 341.9 -10% $ 378.7 17% $ 322.6
</TABLE>
BUSINESS DIVESTITURE AND ACQUISITION: In January 1996, SMC and SMC Enterprise
Networks, Inc., a wholly-owned subsidiary, sold substantially all the net assets
and technology of the Enterprise Networks Business Unit (ENBU) to Cabletron
Systems, Inc., for $74.0 million in cash. ENBU had developed, manufactured and
sold enterprise-wide switching products for computer networks. The business unit
was included in SMC's system products operations for approximately ten months of
fiscal 1996 and accounted for approximately 4% of consolidated revenues in
fiscal 1996, 6% in fiscal 1995 and 2.5% in fiscal 1994.
In February 1996, SMC acquired the assets and technology of EFAR Microsystems of
Santa Clara, CA. EFAR supplies core logic chipsets for use with x86-architecture
and Pentium microprocessors. The transaction was valued at $5.6 million based on
the issuance of 240,000 SMC common shares, the assumption of certain liabilities
and transaction fees. Nearly all of the purchase price represented purchased
in-process technology and was charged to SMC's operations. Over the next three
years, SMC may issue to EFAR additional common stock with a market value of up
to $20 million, contingent on achieving certain operating results.
BUSINESS AND PRODUCT DESCRIPTION: SYSTEM PRODUCTS DIVISION
The System Products Division sells LAN products that enable personal computers
to be connected to networks and permit communications among LAN users.
Connection to a LAN permits a PC user to send messages to and receive messages
from other LAN
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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 over a wider sphere.
SMC LAN products include network interface cards (adapters), wiring hubs,
associated software and transceivers that operate over a variety of media
including 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,
ARCNETR and PC Card. After the end of fiscal 1996, SMC introduced its first
high-speed asynchronous transfer mode (ATM) adapters. SMC's low-cost, workgroup
Ethernet switches improve network performance by segmenting the network into
smaller portions, each of which receives full network bandwidth.
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.
NETWORK INTERFACE CARDS (ADAPTERS): Installed in a personal computer or
workstation, an adapter is a printed circuit board that provides a 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 connect to
the communications links or buses internal to a PC. These buses, which allow for
transmission of signals within a computer, are known as industry standard
architecture (ISA), extended industry standard architecture (EISA),
micro-channel architecture (MCA) and peripheral component interconnect (PCI).
Inserted in a PC, an adapter provides a connector for a cable that plugs into a
wall outlet, much as a telephone cable connects to a wall outlet. For its
Ethernet, Fast Ethernet and Token Ring adapters, SMC provides software for
communicating over and diagnosing a network, installing an adapter and
collecting data for managing a network.
Based on an advanced single chip controller, the ETHEREZTM family of
auto-configurable 16-bit Ethernet adapters was shipped in August 1994. EtherEZ
supports Plug and Play (PnP), a protocol that allows a PC to analyze itself and
automatically discover an adapter. When installed in a PC not supporting PnP,
the EtherEZ set-up procedure is similar to but faster than that of the ETHERCARD
ELITE ULTRATM adapters. Elite Ultra was SMC's first family of single-chip-based
Ethernet controller adapters. For ISA bus installation, customers are
increasingly purchasing the EtherEZ family as the Elite Ultra family is phased
out as demand for it declines.
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EtherEZ and Elite Ultra adapters feature SIMULTASKINGTM that improves data
transmission speed. Simultasking technology forwards an information packet to
the PC or cable before that packet has been fully received into the adapter's
buffer memory.
Elite Ultras were shipped in July 1993. Based on SMC proprietary chips, a 32-bit
EISA bus master version was shipped in February 1994. Bus mastering transfers
data between the network adapter and workstation without intervention by the
workstation's microprocessor.
Shipped in September 1994, the ETHERPOWERTM family of auto-configurable Ethernet
adapters installs on the 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 (ISA), provides a wider data path and a faster
data transfer rate.
Shipped in February 1995, the ETHERPOWER 10/100TM PCI bus and ETHER 10/100TM
EISA bus auto-configurable Fast Ethernet adapters work with either 10Mbps or
100Mbps hubs. Both adapter families 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.
Using an internally developed chip set, the TOKENCARD ELITETM adapter line
marked SMC's entry into the Token Ring market in October 1992. Shipped in June
1994, a 32-bit EISA version uses the same bus master chip as on the Ethernet bus
master adapter.
In fiscal 1996, Ethernet (including PC Card and Fast Ethernet) adapters
accounted for approximately 92% of SMC's adapter revenues, compared to 88% in
fiscal 1995. Token Ring adapters fell to approximately 6% of adapter revenues in
fiscal 1996 from 10% in fiscal 1995. ARCNET adapters accounted for the remainder
of adapter revenues.
Ethernet adapters that address PCI and EISA high-speed buses, the PC Card bus
for laptop PCs and Fast Ethernet and plug-and-play protocols accounted for
approximately 57% of SMC's adapter revenues in fiscal 1996 compared to 12% in
fiscal 1995. Most of these products were first shipped in high volume after
mid-year fiscal 1995.
WIRING HUBS AND LAN SWITCHES: 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 and Fast Ethernet,
multi-station access units (MAUs) for Token Ring and hubs for ARCNET. SMC hubs
are suited to workgroup or departmental LANs.
In addition to the physical signaling provided by conventional hubs, intelligent
hubs incorporate software for managing a network. SMC produces both conventional
and intelligent hubs and the software to support network management.
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Among conventional Ethernet 10Mbps hubs, the newest and lowest cost SMC family
is the ETHEREZTM line of 5, 8 and 16 10BaseT port models that began shipping in
December 1995. Initially shipped in May 1994, the 6-member 3 to 12-port
TIGERHUBTM unmanaged hub family utilizes a proprietary, integrated circuit that
controls 7 hub ports. SMC's older ELITE 3512TM 12-port Ethernet concentrator is
upgradable to an intelligent concentrator by installing a Network Management
Module (NMM).
In May 1995 SMC entered the conventional Fast Ethernet hub market with shipment
of the TIGERHUB 100TM family. Models include concentrators with 8 and 16
100BaseTX ports, 12 100BaseFX (optical fiber) ports and 15 100BaseTX ports and 1
100BaseFX port.
TIGERSTACK TM, SMC's newest intelligent stackable concentrator, stacks up to 8
hubs or 224 UTP, coax or fiber ports, segmentable up to 32 sectors per stack.
The entire stack, whether one or 32 collision domains, is managed by a single
NMM. Hub configurations range from 12 to 28 UTP ports. Other models support
50-pin telco, multiple coax or multiple fiber ports. SMC believes the TigerStack
is the industry's most segmentable stackable hub line. The first TigerStack
models were shipped in May 1995.
SMC's older ELITE 3812TM line allows stacking 8 concentrators or 96 UTP ports or
112 total ports, all controlled by a single NMM. SMC's Ring Management Module,
when added to the ELITESTACKTM stackable MAUs, provides industry compliant SNMP
network management for Token Ring.
Shipped in December 1995, SMC's EZSWITCHTM 6-port model was the first low priced
switch that SMC introduced for workgroup switching. With dedicated 10Mbps links
to hubs, file servers, print servers or workstations, EZSwitch boosts network
bandwidth in client/server workgroups. Introduced in fiscal 1997 for connecting
workgroups to a network backbone or server farm, the EZSWITCH PLUS provides six
10Mbps and two 100Mbps ports and the TigerSwitchTM XFE provides 16 10Mbps ports
and one 100Mbps port. SMC has changed its focus to workgroup and departmental
LAN switches from backbone switching products under the divested ENBU.
In fiscal 1996, hubs accounted for approximately 70% of SMC's hub and LAN switch
revenues, compared to 59% in fiscal 1995. Approximately 94% of SMC's hub
revenues were Ethernet (including Fast Ethernet) hubs, compared to 90% in fiscal
1995. Stackable Ethernet hubs rose to approximately 50% of SMC's Ethernet hub
revenues from 34% in fiscal 1995.
SUPPORT SOFTWARE: Supporting software that accompanies SMC's Ethernet and Token
Ring adapters is delivered on SUPERDISKTM which contains: (i) driver software
for popular network operating systems, (ii) EZSTARTTM installation and test
utility and (iii) PC
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AGENT/SNMP. SMC believes extensive software support, supplied without charge,
distinguishes its line of adapters.
Drivers enable network hardware to communicate over a LAN by linking the network
protocol and the network operating system (NOS). The NOS suppliers regularly
update their software, requiring SMC to regularly alter its drivers. SMC also
upgrades drivers to improve performance over a network.
Drivers are supplied for servers and workstations operating under network
operating systems such as NovellR NetwareR 2.x, Novell Netware 3.x, Novell
Netware 4.x, Novell Netware Lite, Novell Netware for SAA, MicrosoftR LAN
Manager, Microsoft NT, IBMR LAN Server, SCO or ISC UNIX, Artisoft LANtasticR,
BanyanR VinesR and the OSI consortium's GOSIP. SMC offers DRIVER ASSURANCE,
insuring that drivers which work on new adapters are compatible with prior SMC
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 an 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 to 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 that facilitates network management. PC Agent/SNMP
gathers status data about 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, Fast 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
SMC's intelligent hub platforms. The agents gather status data about the
physical hardware on the segment of a LAN connected to that hub. Network
management systems that utilize data gathered by PC Agent/SNMP also utilize data
gathered by hub-based agents.
SMC offers ELITEVIEWTM, a family of SNMP-based software packages for managing
workgroup, departmental or enterprise LANs. EliteView's capabilities have been
regularly upgraded. EliteView 4.2 operates on a PC under a Windows environment
and supports 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 DDE-based applications such as Microsoft's Excel
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.
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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.
DESIGN CRITERIA: SMC's System Products Division designs and develops critical
integrated circuits that control the operation of its Ethernet and Token Ring
adapters. 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 competitors who buy critical integrated
circuits from merchant semiconductor manufacturers. The single-chip 795 Ethernet
controller is the key device on EtherEZ adapters. The single-chip 790
ULTRACHIPTM Ethernet controller is the key device on Elite Ultra adapters. The
571 EISA bus master chip is used on both Ethernet and Token Ring EISA adapters.
SMC has also designed critical components for its hub products. The 710 chip
supports up to seven 10Base-T Ethernet ports on TigerHub and TigerStack hubs.
BUSINESS AND PRODUCT DESCRIPTION: COMPONENT PRODUCTS DIVISION
The Component Products Division (CPD) designs, develops and manufactures
very-large-scale-integrated (VLSI) circuits. SMC maintains its SUPERCELLTM
library of complex circuit functions, shortening the design cycle for VLSI
circuits. Component products are focused on the personal computer input/output
(PC I/O) and networking markets. In fiscal 1996 approximately 80% of the
Division's revenues were from PC I/O devices, compared to approximately 88% in
fiscal 1995.
SMC's PC I/O controllers are integrated circuits with multiple functions for
controlling and interfacing various peripheral and communications functions in a
PC. Features include digital data separation, vertical or horizontal recording,
control of serial and parallel ports, interfaces with the game port and hard
disk drive and floppy disk control. CHIPROTECTTM 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 and 1996, SMC announced PC I/O devices with enhanced features
including interfaces for infrared (IR) wireless communications, support of PnP
and low
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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. New PC I/O features in
fiscal 1997 include support of the 4.4Mbps IrDA Fast IR standard.
Network circuits are sold to vendors of ARCNET, Ethernet and Fast Ethernet
equipment. Versions of ARCNET devices are optimized for use in industrial
control and transportation markets. CPD's most advanced single-chip Ethernet
controller integrates memory management, PC Card-bus interface logic, 4.6kb RAM
and optional Simultasking. In fiscal 1995, the Division entered the Fast
Ethernet market with the 10Base-T/100Base-T FEASTTM controller device.
The technologies received from the February 1996 EFAR acquisition focus on the
PCI bus. SuperCell designs include controllers for memory, cache memory, PCI
bus, IDE disk drives and DMA and power management technology. These designs are
expected to be incorporated into future SMC integrated circuits. EFAR's
principal product is the ULTRACORETM logic chipset for high-speed PCI-bus PCs.
SMC's fastest growing business in fiscal 1996 was foundry products that employ
semiconductor fabrication techniques in the Company's own wafer production
facility. By far, the most important contributor to SMC's foundry revenues was a
heater device for the ink cartridge used on a customer's line of ink jet
printers. Foundry devices accounted for approximately 4.5% of SMC's revenues and
11% of divisional revenues in fiscal 1996 compared to approximately 1% and 3%,
respectively, in fiscal 1995.
BUSINESS AND PRODUCT DESCRIPTION: WARRANTY POLICY
Depending upon the product, the Company generally warranties against defects in
material and workmanship for periods varying from 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.
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The principal methods SMC uses to compete include new products, servicing
customers and reducing manufacturing costs. While past performance can be a
guide, there is no assurance that the Company can 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 analysts who believe that the number
of PCs shipped and 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 accounted for 78%
of System Products Division (SPD) revenues, or 42% of Company revenues, during
fiscal 1996. SMC addresses over 95% 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 1995 made by market
research firms. According to the market research estimates, during 1995,
approximately 29 million adapters were shipped compared to 23 million adapters
in calendar 1994. The Company shipped 2.3 million adapters in fiscal 1996 and
2.6 million adapters in fiscal 1995, the fiscal years most comparable to
calendar 1994 and 1995.
SMC's Ethernet, Fast Ethernet Token Ring and ARCNET conventional and intelligent
wiring hubs and low port-count Ethernet switches accounted for 22% of divisional
revenues, and 12% of Company revenues, during fiscal 1996. With the importance
of increasing messaging speed and network management in workgroup and
departmental networks, SMC believes hub and switch products will become a larger
portion of networking revenues. The baseline for this expectation excludes
revenues from the internetworking LAN switch product line that was divested in
January 1996.
According to a market research estimate, during calendar 1995, approximately 38
million shared media hub ports were shipped for connecting computers and
computer peripheral equipment to LANs. This compares to an estimate of 26
million hub ports for calendar 1994. The Company shipped over 1.2 million hub
ports in fiscal 1996 and over 0.9 million hub ports in fiscal 1995, the fiscal
years most comparable to calendar 1994 and 1995.
Because many competitors sell products that perform similar functions, SPD's
strategy is to provide superior price/performance solutions for the PC LAN
market, along with a high level of customer support, technical service and
embedded software. SMC has combined its comprehensive product line with services
under its BUYER ASSURANCE program that includes 3-year to lifetime product
warranties, 7-day/24-hour phone technical support,
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cross-shipment product replacement and 30-day money-back privileges. Market
share for each competitor 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 US and
international markets. Some companies concentrate on aggressive pricing as the
principal competitive tool. On the other hand, many manufacturers differentiate
themselves by supplementing price strategies with performance, service and
acceleration of new product design cycles.
The Company has generally been able to lower production costs through
manufacturing efficiencies and pass along cost savings through reduced selling
prices, while providing new product features and technology. In most cases,
product improvements are derived from SMC's semiconductor, board design,
production, testing and software capabilities. Most system products competitors
lack the depth of SMC's 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, networking and core logic chipset 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 a market leader. The Division
has continually added devices with enhanced features. Principal customers for PC
I/O devices are most major producers of PCs.
Entry into the competitive chipset market, through the EFAR acquisition,
concentrates on devices for the high speed PCI-bus. Incorporating EFAR's
technology into future SMC devices is expected to be the primary benefit to the
Company.
In the market for single-chip Ethernet control devices, the Division has
emphasized products for laptop computers. SMC's principal customers have been
producers of PC Card-bus adapters. A family of low-cost industrial ARCNET
controllers addresses industrial network solutions, usually characterized by
long design-in cycles and low volume. Customers use these devices in
machine-to-machine networking applications.
While many companies offer semiconductor foundry services worldwide, SMC has
been willing to undertake engineering programs for prospective customers and
deliver non-
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standard devices that require semiconductor fabrication techniques. The
processes that SMC's foundry business undertakes might be considered too
specialized to be economically viable by many wafer fabrication facilities that
deliver high-volume, advanced technology VLSI circuits.
SALES AND DISTRIBUTION
SMC's system products are sold worldwide, primarily to distributors of computer
and networking products and also to system integrators and original equipment
manufacturers (OEMs). Component products are sold worldwide, primarily to OEMs
and also to distributors of semiconductor devices. The Company maintains a
reserve for anticipated product returns and price protection.
No customer accounted for as much as 10% of revenues in fiscal 1996.
SALES AND DISTRIBUTION: SYSTEM PRODUCTS DIVISION
Standard Microsystems sells LAN products primarily through LAN and microcomputer
distributors. 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. In
addition, the Company sells to strategic accounts, who may be PC producers who
ship their PCs with SMC adapters, or system integrators, who include SMC
adapters when bidding for government or commercial contracts.
In accordance with industry practice, distributor inventory is protected with
respect to price on inventories that 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 terms covering the return of inventories. Returns of product
pursuant to termination of these agreements have not been material. Reserves are
estimated based on information provided by distributors on sales to their
customers and on their inventory levels.
SALES AND DISTRIBUTION: COMPONENT PRODUCTS DIVISION
Sales are primarily to OEMs. Producers of PCs are the Division's largest
customer group. In addition, a small percentage of products are sold to
electronic component distributors. 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
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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, Asia and the Pacific Rim and
Canada) has increased. The principal shift occurred in sales to Asia and the
Pacific Rim, caused primarily by a trend of component products' domestic branded
customers to produce a greater proportion of their PCs in offshore factories.
The European market was relatively more stable than North American markets,
which incurred a higher portion of the adjustments made in networking products
distribution inventory during fiscal 1996 and fiscal 1995. The decline in
revenues in the US and Canada primarily reflected a reduction of distributor
inventory to levels that were considered appropriate for the rate of sales of
SMC's networking products by distributors to their reseller customers during
fiscal 1996. The improvement in Japan, reflected in TMC's progress, resulted
principally from selling more PC I/O devices in fiscal 1996 and selling more
networking products in fiscal 1995.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FEBRUARY 29 OR 28, %change %change
1996 96/95 1995 95/94 1994
---- ------ ---- ----- ----
<S> <C> <C> <C> <C> <C>
United States $149.4 -26% $201.5 12% $180.7
Export
Asia and Pacific Rim 87.0 62 53.7 79 30.1
Europe 69.3 -20 86.5 3 84.3
Canada 10.8 -29 15.3 11 13.8
Other 8.6 -13 9.9 18 8.5
- - --------------------------------------------------------------------------------------------------------------------
Export revenues $175.7 6 $165.5 21 $136.5
Japan (TMC) 16.8 44 11.7 120 5.3
- - --------------------------------------------------------------------------------------------------------------------
Revenues outside the U.S. 192.5 9 177.1 25 141.8
- - --------------------------------------------------------------------------------------------------------------------
Total revenues $341.9 -10% $378.7 17% $322.6
- - --------------------------------------------------------------------------------------------------------------------
</TABLE>
Export sales are made in United States dollars. Sales by Toyo Microsystems,
which are not classified as export sales, are denominated in Japanese yen. SMC's
competitive position in international markets may be affected by currency
fluctuations.
BACKLOG
The Company schedules production based upon a forecast of demand for its
products. Sales of networking products are made primarily pursuant to purchase
orders generally requiring delivery within one month. In light of industry
practice and experience, the
13
<PAGE>
Company believes that backlog is not a particularly meaningful indicator of
future sales of networking products.
Sales of component products are made primarily pursuant to purchase orders
generally requiring delivery within six months. Customers do cancel and extend
the delivery time for products on order. Nevertheless, in light of industry
practice and experience, the Company believes that backlog can be a meaningful
indicator of future sales of component products.
At the end of fiscal 1996, SMC's backlog was $86.3 million, compared to $28.2
million at the end of fiscal 1995.
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, bills of materials, quality specifications and packaging, handling
and shipping details.
The subcontract manufacturer is then responsible for component and printed
circuit board procurement, incoming test of components, mounting components on a
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.
SPD's manufacturing support, customer support, and sales operations have been
ISO-9002 certified since September 1995. In January 1996, the adapter products
operation was recommended for ISO-9001 registration. ISO-9000 is an
international quality system standard. Internal procedures and business process
changes implemented as part of an effort to obtain ISO-9000 certification have
contributed to reducing internal costs, increasing efficiency and establishing
baseline quality measurements through documented work processes. ISO procedures
have been integrated into SMC's total quality management program.
SMC utilizes semiconductor foundries and assembly contractors in the US,
Southeast Asia and Western Europe to provide state-of-the-art integrated circuit
manufacturing and assembly capacity. These foundries manufacture most of the
integrated circuits required by the Component Products Division and proprietary
circuits used by the System Products Division. During fiscal 1996, 89% of the
revenues of the Component Products Division resulted from the sale of product
manufactured by subcontractor foundries, compared to 92% in 1995.
14
<PAGE>
In fiscal 1996, SMC purchased $16.0 million of wafer fabrication equipment for a
semiconductor plant in Madrid, Spain, owned by AT&T Corp.'s Microelectronics
Business Unit. This investment was made pursuant to an October 1994 cooperative
wafer fabrication agreement between SMC and AT&T that is intended to provide SMC
with wafers for five years beginning in March 1996. The Madrid facility is
capable of producing device geometries of 0.9 to 0.45 microns (millionths of a
meter).
In fiscal 1996, SMC purchased a minority equity interest in Singapore-based
Chartered Semiconductor Pte Ltd. for $19.9 million. This transaction is intended
to provide SMC with wafers for ten years from an advanced facility that will be
capable of producing device geometries of 0.6 to 0.2 microns. This arrangement,
along with the AT&T agreement, is intended to provide a portion of the Company's
long-term production requirements for state-of-the-art integrated circuits.
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 only from a single source. The inability to obtain
certain components or materials 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 led to an industry-wide shortage
of silicon wafer fabrication capacity in fiscal 1996 and fiscal 1995. As a
result, SMC believes that, in both years, it was unable to produce all the
integrated circuits it was capable of selling. Although the shortage of silicon
wafer fabrication capacity eased during the fourth quarter of fiscal 1996,
difficulty in securing additional capacity could reemerge and impact revenue and
profit growth in the future.
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 producing component and system products.
During the fiscal year which ended February 29, 1996, SMC spent $31.7 million on
research and development, which equaled 9.3% of revenues. This compares with
$28.3
15
<PAGE>
million, or 7.5% of revenue, spent during fiscal 1995 and $24.0 million, or 7.4%
of revenues, during fiscal 1994. Of these amounts, $9.8 million was spent by the
divested Enterprise Networks Business Unit in fiscal 1996 compared to $7.6
million in fiscal 1995.
Engineering groups, developing both system products and component products,
utilize semiconductor design techniques to minimize chip area and utilize
advanced wafer processing and packaging methods. The goal is to improve
features, performance and reliability while minimizing integrated circuit
manufacturing costs.
NEW PRODUCTS: Networking products introduced by the System Products Division
during fiscal 1996 included cost reduced and enhanced Ethernet adapters, a
flexible Ethernet stackable hub family, low cost, unmanaged Ethernet and Fast
Ethernet concentrators and a low cost workgroup Ethernet switch.
Integrated circuits introduced by the Component Products Division during fiscal
1996 included extensions to its PC I/O controller family, a single-chip Ethernet
controller with a PC Card-bus interface, and an enhanced industrial ARCNET
controller.
PRODUCTS INITIALLY SHIPPED IN FISCAL 1996
ETHERNET AND FAST ETHERNET ADAPTERS:
ETHEREZTM: 8416 - Cost reduced models of 16-bit ISA PnP (auto-configurable)
compliant, I/O or memory mapped adapters with 10Base-T connector, thin coax
connector or a combination of 10Base-T and thin coax connectors; added model
with a combination of 10Base-T, thin coax and AUI connectors
ETHERPOWERTM: 8432 - Cost reduced models of 32-bit PCI auto-configurable, bus
master adapters with 10Base-T connector or a combination of 10Base-T and thin
coax connectors; added model with a combination of 10Base-T, thin coax and
AUI connectors ETHERPOWER2TM: 8434 - 32-bit PCI auto-configurable, dual
channel bus master adapters with 10Base-T connector or a combination of
10Base-T and thin coax connectors
DRIVER SOFTWARE: Macintosh drivers for EtherPower, EtherPower2 and
EtherPower 10/100 adapters for installation in PCI-bus Power Macintosh
computers. AIX Version Four drivers for EtherPower, EtherPower2 and EtherPower
10/100 adapters for installation in PCI-bus Power PC based IBM Personal Computer
series computers.
ETHERNET AND FAST ETHERNET HUBS:
TIGERHUB 100TM: Family of four unmanaged 100 Mbps hubs, configured: 5116TX - 16
100Base-TX ports; 5116TFX - 16 100Base-TX ports, 1 100Base-FX port; 5112FX - 12
100Base-FX ports; 5108TX - 8 100Base-TX ports, desktop
TIGERSTACKTM: Family of nine segmentable, manageable stackable hubs,
configured: 3312TC - 12 10Base-T ports, 1 BNC port, 1 AUI port;
3312TCI - 3312TC with NMM; 3314T - 14 10Base-T ports; 3326TC - 26 10Base-T
ports, 1 BNC port, 1 AUI port; 3326TCI - 3326TC with NMM; 3328T - 28 10Base-T
ports; 3328TELCO - 2 50-pin telco
16
<PAGE>
ports, 4 RJ45 ports; 3306BC - 6 BNC ports, 1 AUI port, 1 10Base-T port; 3306FC -
6FL ports, 1 AUI port, 1 BNC port; 3300NMM -SNMP network management module
ETHEREZ HUB TM: Family of three unmanaged hubs, configured: 3605T-EZ - 5
10Base-T ports; 3608TC-EZ - 8 10Base-T ports, 1 BNC port; 3616TC-EZ - 16
10Base-T ports, 1 BNC port, 1 AUI port
LAN SWITCHING PRODUCTS:
EZ SWITCH TM: EZ006 - Six-port, low-cost Ethernet cut-through switch with
5 10Base-T ports and 1 AUI port, half duplex or full duplex
NETWORK MANAGEMENT SOFTWARE:
ELITEVIEWTM V4.2: Windows based NMS supporting SNMP agents for SMC
Ethernet and Token Ring adapters and intelligent hubs
NETWORK AND PC I/O CONTROLLERS:
COM20023: ARCNET controller with CD interface to accept digital signal streams
from data or audio CD drives and frequency-shift-keying encode/decode to
maximize data transfer rate from ARCNET protocol
SMC91C94: 10Mbps Ethernet controller, with PC Card interface logic, 4.6kb RAM
with optional Simultasking FDC37C669: ISA PnP compatible in addition to 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
PATENTS AND LICENSE AGREEMENTS
The Company has received United States patents, and the corresponding Foreign
equivalents, 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.
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
17
<PAGE>
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 there is no assurance that future
regulations will not impose significant costs on the Company.
EMPLOYEES
As of February 29, 1996, of the Company's 864 employees, 168 were engaged in
engineering, including research and development, 287 in marketing and sales, 165
in executive and administrative activities and 244 in manufacturing and
manufacturing support. This compared to February 28, 1995, when, 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.
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.
18
<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
SMC's System Products Division conducts most of the research, development and
marketing for adapter products. The lease expires in 1997.
In addition, the Company maintains offices in leased facilities in: San Jose,
California; Miami, Florida; Atlanta, Georgia; Oakbrook Terrace, Illinois;
Andover, Massachusetts; Dayton, Ohio; Austin and Dallas, Texas; Falls Church,
Virginia; Bellevue, Washington; Melbourne and Sydney, Australia; Oakville,
Ontario, Canada; London, England; St. Germain-en-Laye, France; Munich, Germany;
Tokyo, Japan; Mexico DF, Mexico; Singapore; Johannesburg, South Africa and
Taipei, Taiwan.
As of February 29, 1996, the Company owned machinery and equipment, property and
leasehold improvements with an original cost of $139.9 million and accumulated
depreciation and amortization of $79.7 million.
ITEM 3. LEGAL PROCEEDINGS.
In June 1993, Penril Datacom Networks, Inc., commenced an action against the
Company, its wholly-owned subsidiary SMC Enterprise Networks, Inc. (successor by
merger to Sigma Network Systems, Inc.), and two former officers of Sigma,
alleging, among other items, breach of September 1991 and March 1990 agreements
between Sigma and Penril and seeking $8.0 million. The Company counterclaimed
against Penril, alleging breach of contract and sought damages in excess of $1.4
million. In November 1995, Penril filed a First Amended complaint seeking $50.0
million in damages and a trebling of those damages. Penril has filed further
motions that the Company has opposed. While it is not possible to assess the
likelihood of Penril establishing liability, nor predict the amount of damages
that might be awarded in the event of a successful claim, the Company has
accrued the estimated cost of legal fees to defend against these claims and
intends to defend against these claims vigorously.
In June 1995, several actions were filed against the Company and certain of its
officers and directors. The actions have been consolidated into one complaint.
The consolidated claims purport to be a class action on behalf of the purchasers
of the Company's common stock between September 19, 1994, and June 2, 1995. The
consolidated complaint asserts claims under federal securities laws and alleges
that the
19
<PAGE>
price of the Company's common stock was artificially inflated during the class
action period by false and misleading statements and the failure to disclose
certain information. While it is not possible to assess the likelihood of any
liability being established, nor predict the amount of damages that might be
awarded in the event of a successful claim, the Company has answered the
consolidated complaint, has accrued the estimated cost of legal fees to defend
against these claims, and intends to defend against these claims vigorously.
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, 1996, are as follows:
<TABLE>
<CAPTION>
SERVED AS AN
NAME POSITION AGE OFFICER SINCE
<S> <C> <C> <C>
Paul Richman Chairman and 53 1971
Chief Executive Officer
Arthur Sidorsky Executive Vice President 62 1980
Component Products Division
Anthony M. D'Agostino Senior Vice President Finance 38 1988
and Treasurer
Lance Murrah Senior Vice President and 40 1994
General Manager System
Products Division
Eric Nowling Vice President and Controller 39 1995
</TABLE>
All officers serve at the pleasure of the Board of Directors
20
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
The information captioned "Market price" and the last paragraph 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.
21
<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.
22
<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 29, 1996
Consolidated Balance Sheets, February 29, 1996 and
February 28, 1995
Consolidated Statements of Shareholders' Equity for the
three years ended February 29, 1996
Consolidated Statements of Cash Flows for the three years
ended February 29, 1996
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
2. Financial Statement Schedules
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 10.1 through 10.22 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) A report on Form 8-K dated January 12, 1996, was filed during the last
quarter of the period covered by this report. The Form 8-K reported the sale of
the assets of the Enterprise Networks Business Unit and contained the following
financial statements pursuant to Item 7:
23
<PAGE>
Unaudited Pro Forma Consolidated Condensed Balance Sheet at
November 30, 1995
Unaudited Pro Forma Consolidated Condensed Statement of Income
for the Nine Months Ended November 30, 1995
Unaudited Pro Forma Consolidated Condensed Statement of Income
for the Fiscal Year Ended February 28, 1995
Notes to Unaudited Pro Forma Consolidated Condensed Financial
Statements
24
<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 2_, 1996
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, 1996
Paul Richman, Chairman,
Chief Executive Officer and Director
(Principal Executive Officer)
ERIC M. NOWLING May 25, 1996
Eric M. Nowling
Vice President and Controller
(Principal Accounting Officer)
25
<PAGE>
EVELYN BEREZIN May 25, 1996
Evelyn Berezin
Director
ROBERT M. BRILL May 25, 1996
Robert M. Brill
Director
PETER F. DICKS May 25, 1996
Peter F. Dicks
Director
HERMAN FIALKOV May 25, 1996
Herman Fialkov
Director
RAYMOND FRANKEL May 25, 1996
Raymond Frankel
Director
IVAN T. FRISCH May 25, 1996
Ivan T. Frisch
Director
26
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Incorporated By Exhibit
Reference To: No. Exhibit
<S> <C> <C>
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 January 7,
1988, with Securities Trust Company as
Rights Agent
Exhibit 3 [6] 3.4 Amendment No. 1 to Rights Agreement
Exhibit 10.1[14] 10.1 Employment Agreement dated
March 1, 1995, with Paul Richman
* 10.2 Amendment thereto dated July 10, 1995
Exhibit 10(d)[13] 10.3 Employment Agreement dated
March 1, 1993, with Arthur Sidorsky
Registrant's Proxy 10.4 1984 Stock Option Plan for Officers
Statement dated May and Key Employees
16, 1984, Exhibit A
Exhibit 10(g) [4] 10.5 Amendment to 1984 Stock
Option Plan for
Officers and Key Employees
Registrant's Proxy 10.6 1986 Stock Option Plan for
Statement dated May Officers and Key Employees
22, 1986, Exhibit A
Exhibit 10(i) [4] 10.7 Amendment to 1986 Stock
Option Plan for Officers and Key Employees
Exhibit 10(m) [1] 10.8 Amendment to 1986 Stock Option
Plan for Officers and Key Employees
dated March 29, 1990
Registrant's Proxy 10.9 1989 Stock Option Plan
Statement dated June
6, 1989, Exhibit A
<PAGE>
Registrant's Proxy 10.10 1991 Restricted Stock Bonus Plan
Statement dated July
17, 1991, Exhibit A
Registrant's Proxy 10.11 Director Stock Option Plan
Statement dated May
29, 1990, Exhibit A
Registrant's Proxy 10.12 1994 Director Stock Option Plan
Statement dated May
31, 1995, Exhibit A
Exhibit 10(m) [11] 10.13 Resolutions adopted February 18, 1992,
amending Director Stock Option Plan,
1991 Restricted Stock Bonus Plan,
1989 StockOption Plan,
1986 Stock Option Plan and
1984 Stock Option Plan
Exhibit 10.14 [14] 10.14 Retirement Plan for Directors
Registrant's Proxy 10.15 1993 Stock Option Plan for Officers
Statement dated May and Key Employees
25, 1993, Exhibit A
Exhibit 10(x)[13] 10.16 Executive Retirement Plan
Registrant's Proxy 10.17 1994 Stock Option Plan for Officers
Statement dated May and Key Employees
26, 1994, Exhibit A
Exhibit 10.18 [14] 10.18 Resolutions adopted October 31, 1994,
amending the Retirement Plan for
Directors and the Executive Retirement
Plan
Exhibit 10.19 [14] 10.19 Resolutions adopted January 3, 1995,
amending the 1994, 1993, 1989, 1986,
and 1984 Stock Option Plans and the
1991 Restricted Stock Plan
Exhibit 10.2 [2] 10.20 Patent and Trade Secrets Agreement
dated March 12, 1983, with Paul
Richman
Exhibit 10.22 [14] 10.21 Consulting Agreement dated
March 1, 1995, with Herman Fialkov
<PAGE>
Exhibit 10(t) [7] 10.22 Form of Severance Pay Agreement
(renewed annually through
December 31, 1996)
Exhibit 2(b) [10] 10.23 Technology Transfer Agreement
between SMC and Western Digital
Corporation dated September 27, 1991
Exhibit 2(c) [10] 10.24 Noncompetition Agreement between
SMC and Western Digital Corporation
dated September 27, 1991
Exhibit 10.27 [14] 10.25 Credit Agreement dated
January 13, 1995
* 10.26 First Amendment dated March 28, 1995
* 10.27 Second Amendment dated
October 13, 1995
* 10.28 Third Amendment dated
March 28, 1996
Exhibit 2 [15] 10.29 Asset Purchase Agreement dated
January 9, 1996, among Cabletron
Systems, Inc., and SMC Enterprise
Networks, Inc
* 10.30 Agreement for Purchase and Sale of
Assets among SMC, EFAR
Microsystems, Inc., and the Key Officers
identified therein dated
February 26, 1996
* 13 Portions of Annual Report to
Stockholders for year ended February
29, 1996, incorporated by reference
* 23 Consent of Arthur Andersen LLP
* 27 Financial Data Schedule
* 99 Form 11-K for year ended December
31, 1995, of registrant's Incentive
Savings and Retirement Plan
</TABLE>
* Filed herewith.
<PAGE>
[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,
1994.
[14] Registrant's Annual Report on Form 10-K for fiscal year ended February 28,
1995.
[15] Registrant's Current Report on Form 8-K dated January 26, 1996.
<PAGE>
EXHIBIT 10.2
AMENDMENT TO EMPLOYMENT AGREEMENT DATED MARCH 1, 1995
BETWEEN STANDARD MICROSYSTEMS CORPORATION AND PAUL RICHMAN
The Agreement made as of the first day of March, 1995 between the
undersigned, Standard Microsystems Corporation and Paul Richman (the
"Agreement"), is hereby amended as follows, effective July 10, 1995:
1. The second sentence in subsection THIRD (a) shall be replaced by the
following:
"The base rate shall be $450,000.00 provided, however, that the Base
Rate shall be modified as of March 1, 1996, 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 proceeding years."
2. The last paragraph in subsection THIRD (b) shall be replaced by the
following:
"Notwithstanding the preceding provisions of this subsection THIRD (b),
the aggregate amount payable pursuant to this subsection THIRD (b) for
the fiscal year of SMC ending February 29, 1996, and for each fiscal
year of SMC thereafter, shall not exceed $450,000.00 or the Base Rate
then currently in effect, whichever amount is higher."
3. The Agreement is amended only to the extent specified above. It is not
intended to extend or renew any other provision of the Agreement that
would not continue if this Amendment had not been effected.
IN WITNESS HEREOF, SMC has caused this Agreement to be executed on its behalf by
its representative, thereunto duly authorized, and Paul Richman has executed
this Agreement as of July 10, 1995.
STANDARD MICROSYSTEMS CORPORATION
___________________________ By: _____________________________
Paul Richman Herman Fialkov, Director and
Chairman, Compensation Committee
<PAGE>
Exhibit 10.26
FIRST AMENDMENT, dated as of March 28, 1995 (this
"Amendment"), to the Credit Agreement, dated as of January 13, 1995 (as amended
pursuant to this Amendment and as the same may be further amended, supplemented
or otherwise modified from time to time, the "Credit Agreement"), among STANDARD
MICROSYSTEMS CORPORATION, a Delaware corporation (the "Borrower") and the
several banks and other financial institutions from time to time parties thereto
(collectively, the "Lenders"; individually a "Lender").
W I T N E S S E T H :
WHEREAS, the Borrower and the Lenders are parties to the
Credit Agreement;
WHEREAS, the Borrower has requested that the Lenders amend the
Credit Agreement in the manner provided for herein; and
WHEREAS, the Lenders are willing to agree to the requested
amendments;
NOW, THEREFORE, in consideration of the premises contained
herein, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms which
are defined in the Credit Agreement and used herein as defined terms are so used
as so defined.
2. Amendments to Subsection 1.1. Subsection 1.1 of the Credit
Agreement is hereby amended by inserting the following definitions in the proper
alphabetical order:
"CSM": Chartered Semiconductor Manufacturing Pte Ltd, a
company incorporated in Singapore.
"Manufacturing Agreement": the Agreement dated as of March __,
1995, between CSM and the Borrower.
"Subscription Agreement": the Agreement dated as of March __,
1995, among Singapore Technologies Ventures Pte Ltd, a company
incorporated in Singapore, CSM and the Borrower.
3. Amendments to Subsection 6.2. Subsection 6.2 of the Credit
Agreement is hereby amended as follows:
(a) by deleting the word "and" appearing at the end of clause
(e) thereof;
(b) by deleting the period at the end of clause (f) thereof
and substituting "; and" in lieu thereof; and
(c) by adding a new clause at the end thereof to read in its
entirety as follows:
<PAGE>
Exhibit 10.26
"(g) Indebtedness under foreign exchange lines of
credit, provided that the aggregate principal amount of such
Indebtedness at any time outstanding does not exceed
$500,000."
4. Amendments to Subsection 6.9. Subsection 6.9 of the Credit
Agreement is hereby amended as follows:
(a) by deleting the word "and" appearing at the end of clause
(c) thereof;
(b) by deleting the period at the end of clause (d) thereof
and substituting "; and" in lieu thereof; and
(c) by adding a new clause at the end thereof to read in its
entirety as follows:
"(e) the acquisition of "B" Shares in CSM by the
Borrower pursuant to the Subscription Agreement for an
aggregate purchase price not to exceed $20,000,000, provided
that, concurrently with or prior to the consummation of such
acquisition, the Borrower and CSM shall have entered into the
Manufacturing Agreement."
5. Representations and Warranties. On and as of the date
hereof, the Borrower hereby confirms, reaffirms and restates the representations
and warranties set forth in Section 3 of the Credit Agreement mutatis mutandis,
except to the extent that such representations and warranties expressly relate
to a specific earlier date in which case the Borrower hereby confirms, reaffirms
and restates such representations and warranties as of such earlier date,
provided that the references to the Credit Agreement in such representations and
warranties shall be deemed to refer to the Credit Agreement as amended pursuant
to this Amendment. The Borrower hereby further represents and warrants that
attached hereto as Exhibits A and B, respectively, are true, complete and
correct copies of the Manufacturing Agreement and the Subscription Agreement.
6. Effectiveness. This Amendment shall become effective as of
the date first written above upon execution of this Amendment by the Borrower
and the Required Lenders and upon execution of the Acknowledgment and Consent
attached hereto by each Guarantor.
7. Continuing Effect; No Other Amendments. Except as expressly
amended hereby, all of the terms and provisions of the Credit Agreement are and
shall remain in full force and effect. The amendments provided for herein are
limited to the specific subsections of the Credit Agreement specified herein and
shall not constitute an amendment of, or an indication of the Lenders'
willingness to amend, any other provisions of the Credit Agreement or the same
subsections for any other date or time period (whether or not such other
provisions or compliance with such subsections for another date or time period
are affected by the circumstances addressed in this Amendment).
8. Expenses. The Borrower agrees to pay and reimburse each
Lender for all its reasonable costs and out-of-pocket expenses incurred in
connection with the preparation
<PAGE>
Exhibit 10.26
and delivery of this Amendment, including, without limitation, the reasonable
fees and disbursements of counsel to such Lender.
9. Counterparts. This Amendment may be executed in any number
of counterparts by the parties hereto, each of which counterparts when so
executed shall be an original, but all the counterparts shall together
constitute one and the same instrument.
10. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered by their respective duly authorized
officers as of the date first above written.
STANDARD MICROSYSTEMS CORPORATION
By:______________________________________
Name:
Title:
CHEMICAL BANK
By:______________________________________
Name:
Title:
NATIONAL WESTMINSTER BANK N.A.
By:______________________________________
Name:
Title:
<PAGE>
ACKNOWLEDGEMENT AND CONSENT
Each of the undersigned corporations as a guarantor under that
certain Guarantee, dated as of January 13, 1995 (the "Guarantee"), made by each
of such corporations in favor of the Lenders confirms and agrees that, after
giving effect to the First Amendment to which this Acknowledgment and Consent is
attached, the Guarantee is, and shall continue to be, in full force and effect
and is hereby ratified and confirmed in all respects and the Guarantee does, and
shall continue to, secure the payment of all of the Obligations (as defined in
the Guarantee) pursuant to the terms of the Guarantee. Capitalized terms not
otherwise defined herein shall have the meanings assigned to them in the Credit
Agreement referred to in the First Amendment to which this Acknowledgment and
Consent is attached.
STANDARD MICROSYSTEMS SMC FRANCE, INC.
CORPORATION (ASIA)
By By
------------------------- -------------------------
Title Title
---------------------- ----------------------
SMC AUSTRALIA, INC. SMC INTERNATIONAL, INC.
By By
------------------------ ------------------------
Title Title
---------------------- ----------------------
SMC MASSACHUSETTS INC. SMC SALES, INC.
By By
------------------------ ------------------------
Title Title
---------------------- ----------------------
<PAGE>
Exhibit 10.27
SECOND AMENDMENT, dated as of October 13, 1995 (this
"Amendment"), to the Credit Agreement, dated as of January 13, 1995 (as amended
pursuant to the First Amendment thereto, dated as of March 28, 1995 and this
Amendment and as the same may be further amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among STANDARD MICROSYSTEMS
CORPORATION, a Delaware corporation (the "Borrower") and the several banks and
other financial institutions from time to time parties thereto (collectively,
the "Lenders"; individually a "Lender").
W I T N E S S E T H :
WHEREAS, the Borrower and the Lenders are parties to the
Credit Agreement;
WHEREAS, the Borrower and the Lenders wish to amend the Credit
Agreement in the manner provided for herein; and
WHEREAS, the Lenders are willing to agree to waive compliance
with certain provisions of the Credit Agreement in the manner provided for
herein;
NOW, THEREFORE, in consideration of the premises contained
herein, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms which
are defined in the Credit Agreement and used herein as defined terms are so used
as so defined.
2. Amendment to Subsection 1.1. Subsection 1.1 of the Credit
Agreement is hereby amended by deleting in their entireties the definitions of
"Consideration" and "Permitted Acquisitions" appearing therein and by inserting
a new definition in the proper alphabetical order to read as follows:
"Second Amendment": the Second Amendment to this Agreement,
dated as of October 13, 1995.
3. Amendment to Subsection 3.16. Subsection 3.16 of the Credit
Agreement is hereby amended by deleting the words "(a) finance Permitted
Acquisitions (as hereinafter defined) and (b)" appearing therein.
4. Amendment to Subsection 6.8. Subsection 6.8 of the Credit
Agreement is hereby amended by deleting the words "and any such expenditure
resulting from a Permitted Acquisition" appearing therein.
5. Amendment to Subsection 6.9(d). Subsection 6.9 of the
Credit Agreement is hereby amended by deleting paragraph (d) thereof in its
entirety and substituting in lieu thereof a new paragraph to read in its
entirety as follows:
<PAGE>
Exhibit 10.27
"(d) the $1,000,000 loan made by the Borrower to EFAR
Microsystems, Inc., prior to the date hereof."
6. Amendment to Subsection 6.15. Subsection 6.15 of the Credit
Agreement is hereby amended by deleting the words "and those businesses acquired
pursuant to Permitted Acquisitions" appearing therein.
7. Amendments to Schedule 1.1(a). Schedule 1.1(a) of the
Credit Agreement is hereby amended by deleting such Schedule in its entirety and
substituting in lieu thereof a new Schedule to read in its entirety as set forth
in Annex A hereto.
8. Waiver of Subsection 6.1(f). The Lenders hereby waive
compliance by the Borrower with the requirements of subsection 6.1(f) to the
extent and solely to the extent that the Inventory Turnover Ratio was 3.48 to
1.00 at any time prior to May 31, 1995 rather that 3.50 to 1.00 or higher as
required by such subsection.
9. Representations and Warranties. On and as of the date
hereof, the Borrower hereby confirms, reaffirms and restates the representations
and warranties set forth in Section 3 of the Credit Agreement mutatis mutandis,
except to the extent that such representations and warranties expressly relate
to a specific earlier date in which case the Borrower hereby confirms, reaffirms
and restates such representations and warranties as of such earlier date,
provided that the references to the Credit Agreement in such representations and
warranties shall be deemed to refer to the Credit Agreement as amended pursuant
to this Amendment.
10. Conditions to Effectiveness. This Amendment shall become
effective as of the date first written above upon (i) execution of this
Amendment by the Borrower and the Required Lenders and upon execution of the
Acknowledgment and Consent attached hereto by each Guarantor and (ii) receipt by
each Lender of a Note executed and delivered by a duly authorized officer of the
Borrower conforming to the applicable requirements of the Credit Agreement.
11. Continuing Effect; No Other Amendments. Except as
expressly amended hereby, all of the terms and provisions of the Credit
Agreement are and shall remain in full force and effect. The amendments provided
for herein are limited to the specific subsections of the Credit Agreement
specified herein and shall not constitute an amendment of, or an indication of
the Lenders' willingness to amend, any other provisions of the Credit Agreement
or the same subsections for any other date or time period (whether or not such
other provisions or compliance with such subsections for another date or time
period are affected by the circumstances addressed in this Amendment).
12. Expenses. The Borrower agrees to pay and reimburse each
Lender for all its reasonable costs and out-of-pocket expenses incurred in
connection with the preparation and delivery of this Amendment, including,
without limitation, the reasonable fees and disbursements of counsel to such
Lender.
<PAGE>
Exhibit 10.27
13. Counterparts. This Amendment may be executed in any number
of counterparts by the parties hereto, each of which counterparts when so
executed shall be an original, but all the counterparts shall together
constitute one and the same instrument.
14. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered by their respective duly authorized
officers as of the date first above written.
STANDARD MICROSYSTEMS CORPORATION
By:______________________________________
Name:
Title:
CHEMICAL BANK
By:______________________________________
Name:
Title:
NATIONAL WESTMINSTER BANK N.A.
By:______________________________________
Name:
Title:
<PAGE>
ACKNOWLEDGEMENT AND CONSENT
Each of the undersigned corporations as a guarantor under that
certain Guarantee, dated as of January 13, 1995 (the "Guarantee"), made by each
of such corporations in favor of the Lenders confirms and agrees that, after
giving effect to the Second Amendment to which this Acknowledgment and Consent
is attached, the Guarantee is, and shall continue to be, in full force and
effect and is hereby ratified and confirmed in all respects and the Guarantee
does, and shall continue to, secure the payment of all of the Obligations (as
defined in the Guarantee) pursuant to the terms of the Guarantee. Capitalized
terms not otherwise defined herein shall have the meanings assigned to them in
the Credit Agreement referred to in the Second Amendment to which this
Acknowledgment and Consent is attached.
STANDARD MICROSYSTEMS SMC FRANCE, INC.
CORPORATION (ASIA)
By By
------------------------- -------------------------
Title Title
---------------------- ----------------------
SMC AUSTRALIA, INC. SMC INTERNATIONAL, INC.
By By
------------------------ ------------------------
Title Title
---------------------- ----------------------
SMC MASSACHUSETTS INC. SMC SALES, INC.
By By
------------------------ ------------------------
Title Title
---------------------- ----------------------
<PAGE>
Annex A
Schedule 1.1(a)
Commitments
Lender Amount
Chemical Bank $12,500,000
National Westminster Bank N.A. 12,500,000
Total $25,000,000
<PAGE>
Exhibit 10.28
THIRD AMENDMENT, dated as of March 28, 1996 (this
"Amendment"), to the Credit Agreement, dated as of January 13, 1995 (as amended
pursuant to the First Amendment thereto, dated as of March 28, 1995, the Second
Amendment thereto, dated as of October 13, 1995, and this Amendment, and as the
same may be further amended, supplemented or otherwise modified from time to
time, the "Credit Agreement"), among STANDARD MICROSYSTEMS CORPORATION, a
Delaware corporation (the "Borrower") and the several banks and other financial
institutions from time to time parties thereto (collectively, the "Lenders";
individually a "Lender").
W I T N E S S E T H :
WHEREAS, the Borrower and the Lenders are parties to the
Credit Agreement;
WHEREAS, the Borrower has requested that the Lenders amend the
Credit Agreement in the manner provided for herein; and
WHEREAS, the Lenders are willing to agree to the requested
amendments;
NOW, THEREFORE, in consideration of the premises contained
herein, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms which
are defined in the Credit Agreement and used herein as defined terms are so used
as so defined.
2. Amendment to Subsection 1.1. (a) Subsection 1.1 is hereby
amended by inserting the word "CSM" before the defined term "Subscription
Agreement" and placing the defined term "CSM Subscription Agreement" in the
proper alphabetical order.
(b) Subsection 1.1 of the Credit Agreement is hereby further amended by
inserting the following definitions in the proper alphabetical order to read as
follows:
"DSNT": Digital Secured Networks Technology Inc., a Delaware
corporation."
"DSNT Subscription Agreement": the Agreement dated as of March
28, 1996, among DSNT and the Borrower
"Third Amendment": the Third Amendment to this Agreement,
dated as of April 28, 1996.
3. Amendment to Subsection 6.9. Subsection 6.9 of the Credit
Agreement is hereby amended as follows:
(a) by deleting the word "and" appearing at the end of clause
(d) thereof;
<PAGE>
Exhibit 10.28
(b) by deleting the period at the end of clause (e) thereof
and substituting "; and" in lieu thereof; and
(c) by adding a new clause at the end thereof to read in its
entirety as follows:
"(f) the acquisition of Series A Convertible
Preferred Stock in DSNT by the Borrower pursuant to the DSNT
Subscription Agreement for an aggregate purchase price not to
exceed $250,000."
4. Amendment to Schedule 3.15. Schedule 3.15 of the Credit
Agreement is hereby amended by deleting such Schedule in its entirety and
substituting in lieu thereof a new Schedule to read in its entirety as set forth
in Annex A hereto.
5. Representations and Warranties. On and as of the date
hereof, the Borrower hereby confirms, reaffirms and restates the representations
and warranties set forth in Section 3 of the Credit Agreement mutatis mutandis,
except to the extent that such representations and warranties expressly relate
to a specific earlier date in which case the Borrower hereby confirms, reaffirms
and restates such representations and warranties as of such earlier date,
provided that the references to the Credit Agreement in such representations and
warranties shall be deemed to refer to the Credit Agreement as amended pursuant
to this Amendment.
6. Conditions to Effectiveness. This Amendment shall become
effective as of the date first written above upon execution of this Amendment by
the Borrower and the Required Lenders and upon execution of the Acknowledgment
and Consent attached hereto by each Guarantor.
7. Continuing Effect; No Other Amendments. Except as expressly
amended hereby, all of the terms and provisions of the Credit Agreement are and
shall remain in full force and effect. The amendments provided for herein are
limited to the specific subsections of the Credit Agreement specified herein and
shall not constitute an amendment of, or an indication of the Lenders'
willingness to amend, any other provisions of the Credit Agreement or the same
subsections for any other date or time period (whether or not such other
provisions or compliance with such subsections for another date or time period
are affected by the circumstances addressed in this Amendment).
8. Expenses. The Borrower agrees to pay and reimburse each
Lender for all its reasonable costs and out-of-pocket expenses incurred in
connection with the preparation and delivery of this Amendment, including,
without limitation, the reasonable fees and disbursements of counsel to such
Lender.
9. Counterparts. This Amendment may be executed in any number
of counterparts by the parties hereto, each of which counterparts when so
executed shall be an original, but all the counterparts shall together
constitute one and the same instrument.
<PAGE>
Exhibit 10.28
10. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered by their respective duly authorized
officers as of the date first above written.
STANDARD MICROSYSTEMS CORPORATION
By:______________________________________
Name:
Title:
CHEMICAL BANK
By:______________________________________
Name:
Title:
NATIONAL WESTMINSTER BANK N.A.
By:______________________________________
Name:
Title:
<PAGE>
ACKNOWLEDGEMENT AND CONSENT
Each of the undersigned corporations as a guarantor under that
certain Guarantee, dated as of January 13, 1995 (the "Guarantee"), made by each
of such corporations in favor of the Lenders confirms and agrees that, after
giving effect to the Third Amendment to which this Acknowledgment and Consent is
attached, the Guarantee is, and shall continue to be, in full force and effect
and is hereby ratified and confirmed in all respects and the Guarantee does, and
shall continue to, secure the payment of all of the Obligations (as defined in
the Guarantee) pursuant to the terms of the Guarantee. Capitalized terms not
otherwise defined herein shall have the meanings assigned to them in the Credit
Agreement referred to in the Third Amendment to which this Acknowledgment and
Consent is attached.
STANDARD MICROSYSTEMS SMC FRANCE, INC.
CORPORATION (ASIA)
By By
------------------------- -------------------------
Title Title
---------------------- ----------------------
SMC AUSTRALIA, INC. SMC INTERNATIONAL, INC.
By By
------------------------ ------------------------
Title Title
---------------------- ----------------------
SMC MASSACHUSETTS INC. SMC NORTH AMERICA, INC. (formerly
known as SMC SALES, INC.)
By By
------------------------ ------------------------
Title Title
---------------------- ----------------------
<PAGE>
Annex A
Schedule 3.15
STANDARD MICROSYSTEMS CORPORATION
SCHEDULE OF SUBSIDIARIES
All subsidiaries are wholly-owned, except Toyo Microsystems Corporation.
Delaware corporations
Standard Microsystems Corporation (Asia)
SMC Australia, Inc.
SMC France, Inc.
SMC International, Inc.
SMC Massachusetts, Inc.
SMC North America, Inc. (formerly known as SMC Sales, Inc.)
Foreign corporations
Standard Microsystems Corporation (Canada)
(incorporated in Ontario, Canada)
Standard Microsystems (Europe) Limited
(incorporated in United Kingdom)
Standard Microsystems GmbH
(incorporated in Germany)
Toyo Microsystems Corporation
(incorporated in Japan)
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF ASSETS, dated
as of February 6, 1996, is made among STANDARD MICROSYSTEMS
CORPORATION, a Delaware corporation ("Buyer"), EFAR
MICROSYSTEMS, INC., a California corporation, Peter C.R. Ju
("Ju"), Ying Feng Chang ("Chang") and Chin Hwaun Wu ("Wu"
and together with Ju and Chang, the "Key Officers").
WHEREAS, Buyer, Company (as hereinafter defined),
and the Key Officers hereby agree as follows:
WHEREAS, the parties have had discussions
regarding the development, manufacturing, and marketing of
Core Logic Products (as hereinafter defined), prefatory to
the agreements hereinafter set forth; and
WHEREAS, Buyer wishes to buy from the Company, and
the Company wishes to sell to Buyer, the Assets (as
hereinafter defined), on the terms and conditions
hereinafter set forth;
NOW THEREFORE, the parties set forth their
agreement as follows:
ARTICLE I
DEFINITIONS
When used in this Agreement, the following terms
shall have the respective meanings set forth below:
"Accounts Receivable" shall mean all of the
Company's accounts, notes, accounts receivable, contract
rights, drafts, and other instruments, receivables and
rights to the payment of money or other forms of considera-
tion, for goods sold or leased or services performed.
"Adjustment Amount" is defined in Section 2.10.3.
"Affiliate" shall mean with respect to any Person
(i) a Person directly or indirectly controlling, controlled
by or under common control with, such Person; (ii) a Person
owning or controlling 10% or more of the outstanding voting
securities of such Person; or (iii) an officer, director or
partner of such Person. When the Affiliate is an officer,
director or partner of such Person, any other Person for
which the Affiliate acts in that capacity shall also be
considered an Affiliate. For these purposes, control means
the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities,
by contract or otherwise.
"Agreement" shall mean this Agreement for Purchase
and Sale of Assets, including all exhibits and schedules
hereto, as the same may hereafter be amended, modified or
supplemented from time to time.
"Assets" shall mean all of the Business, goodwill,
assets, properties and rights of every nature, kind and
description, whether tangible or intangible, real, personal
or mixed, wherever located and whether or not carried or
reflected on the books and records of the Company, which are
owned by the Company or in which the Company has any
interest (including the right to use). The Assets shall
include, but not be limited to, the following:
(a) the Real Property;
(b) the Inventories;
(c) the Tangible Personal Property;
(d) the Intangible Personal Property;
(e) the Licenses or Permits;
(f) the Contracts or Other Agreements;
(g) the Accounts Receivable;
(h) the Books and Records;
(i) all rights of the Company under express
or implied warranties from suppliers or contractors with
respect to the Assets;
(j) all of the Company's claims, causes of
action, choses in action, rights of recovery and rights of
set-off of any kind;
(k) all goodwill of the Business as a going
concern;
(l) all of the Company's cash on hand or on
deposit; and
(m) all other properties, tangible and
intangible, not otherwise referred to above which are owned
by the Company or in which it has any interest, including
the right to use (to the extent of such interest or right).
"Assumed Obligation Schedule" is defined in
Section 2.3(a).
"Authority" shall mean any governmental,
regulatory or administrative body, agency or authority, any
court or judicial authority, any arbitrator, or any public,
private or industry regulatory authority, whether
international, national, Federal, state, or local.
"Average Market Price/Contingent Payment" shall
mean the arithmetic mean of the closing prices for the Buyer
Common on each of the trading days within the fiscal quarter
ending on the applicable Contingent Payment Measurement
Date, as reported in The Wall Street Journal.
"Average Market Price/Initial Payment" shall mean
the arithmetic mean of the closing prices for the Buyer
Common on each of the 10 trading days immediately preceding
and each of the 10 trading days immediately following the
execution and delivery of this Agreement, as reported in The
Wall Street Journal.
"Balance Sheet" shall mean the balance sheet con-
tained in the Financial Statements.
"Balance Sheet Date" shall mean September 30,
1995.
"Bill of Sale" is defined in Section 2.8(b).
"Books and Records" shall mean all books and
records, ledgers, employee records, customer lists, files,
correspondence, and other written records of every kind
owned by the Company or in which the Company has any inter-
est, but excluding the Company's minute books and stock
ledgers.
"Business" shall mean the business of the Company
as conducted now by the Company anywhere in the world and as
would now be proposed to be conducted, but for the execution
of this Agreement.
"Buyer Common" shall mean the Common Stock, $.10
par value per share, of Buyer.
"Buyer Disclosure Schedule" shall mean the
Schedule delivered by Buyer to the Company herewith. The
Buyer Disclosure Schedule shall be a part of this Agreement.
"CA-GCL" shall mean the California General
Corporation Law.
"CERCLA" shall mean the Comprehensive
Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. Section 9601, et. seq., as the same may be
amended from time to time.
"Closing" is defined in Section 2.6.
"Closing Date" shall mean the date upon which the
Closing occurs.
"Code" shall mean the Internal Revenue Code of
1986, as the same may hereafter be amended from time to
time. Any reference to a specific section of the Code shall
refer to the cited provision as the same may be subsequently
amended from time to time, as well as to any successor
provision(s).
"Company" shall mean EFAR Microsystems, Inc., a
California corporation, including the EFAR Microsystems,
Inc. Taiwan branch.
"Company Capital Stock" shall mean the Company
Common and the Company Preferred.
"Company Common" shall mean the Common Stock,
without par value, of the Company.
"Company Disclosure Schedule" shall mean the
schedule delivered by Company to Buyer herewith. The
Company Disclosure Schedule shall be a part of this
Agreement.
"Company Documents" shall mean this Agreement and
all other agreements, instruments and certificates to be
executed by the Company in connection with this Agreement.
"Company Preferred" shall mean the Series A
Preferred Stock and the Series B Preferred Stock.
"Consent Solicitation" is defined in Section
3.1.4.
"Contingent Payment" is defined in Section 2.10.1.
"Contingent Payment Date" shall mean the date that
is 30 days following the relevant Contingent Payment
Measurement Date.
"Contingent Payment Dollar Value" shall mean one-
third of the Gross Profit derived from sales of Core Logic
Products during the six month period ending on the
applicable Contingent Payment Measurement Date.
"Contingent Payment Measurement Date" shall mean
the last day of each of February and August commencing
August 31, 1996 and ending on February 28, 1999.
"Continuing Warranties" is defined in Section
2.3(b).
"Continuing Warranties Obligations" is defined in
Section 2.3(b).
"Contract Accruals" is defined in Section 2.3(a).
"Contracts or Other Agreements" shall mean all
contracts, agreements, warranties, guaranties, indentures,
bonds, options, leases, subleases, easements, mortgages,
plans, collective bargaining agreements, licenses, purchase
orders, sales orders, commitments or other binding
arrangements of any nature whatsoever, express or implied,
written or unwritten, and all amendments thereto, entered
into by or binding upon the Company or to which any of the
Assets may be subject.
"Core Logic Business Unit" is defined in Section
5.18.
"Core Logic Products" shall mean any semiconductor
device (or set of semiconductor devices), along with any
supporting software, firmware, microcode, and documentation,
released for production by the Core Logic Business Unit.
"Core Logic Technology Package" is defined in
Section 5.15.
"Employment Agreements" are defined in Section
6.7.
"Employee Records" shall mean all of the Company's
Books and Records relating to employees who shall become
employees of Buyer or SMC Asia, as of the Closing.
"Environmental Law or Orders" shall mean
collectively, all Laws and Orders relating to industrial
hygiene, occupational safety conditions or environmental
conditions on, under or about property, including, without
limitation, RCRA, CERCLA and all other Laws and Orders
relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants, chemicals or
industrial, hazardous or toxic materials or wastes into the
environment (including ambient air, surface water, ground
water, land surface or sub-surface strata) or otherwise
relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals or industrial hazardous
or toxic materials or wastes.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as the same may hereafter be amended
from time to time. Any reference to a specific section of
ERISA shall refer to the cited provision as the same may be
subsequently amended from time to time, as well as to any
successor provision(s).
"ERISA Affiliate" shall mean all trades and
businesses (whether or not incorporated) which, together
with the Company, are either members of a controlled group
of corporations, within the meaning of Section 414(b) of the
Code, or are under common control, within the meaning of
Section 414(c) of the Code.
"ERISA Plans" shall mean, collectively, all
Pension Plans and all Welfare Plans required to be disclosed
in Section 3.13 of the Company Disclosure Schedule.
"Escrow Agreement" shall mean the Documentation
and Deposit Agreement dated September 13, 1995 between the
Company, Buyer and Brambles NSD, Inc. attached hereto as
Exhibit 1.
"Exchange Act" is defined in Section 5.11.4.
"Excluded Liabilities" is defined in Section 2.4.
"Financial Statements" shall mean the unaudited
balance sheet and statements of income of the Company as of
and for the nine-month period ended September 30, 1995,
including all notes thereto.
"GAAP" shall mean generally accepted accounting
principles.
"Gross Profit" shall mean the difference between
revenues and cost of goods sold, as determined in accordance
with GAAP, applied consistently with Buyer's then-current
practices.
"Initial Payment" is defined in 2.5(a).
"Intangible Personal Property" shall mean all
intangible properties owned by the Company or in which the
Company has any interest (including the right to use),
including, without limitation, (i) the Company's name and
all Marks; (ii) all statutory, common law and registered
copyrights and mask work rights, and all applications for
the registration thereof; (iii) all Patents; (iv) all
Software; (v) all other inventions, discoveries,
improvements, processes, formulas (secret or otherwise),
algorithms, Trade Secrets, information, know-how and ideas
(including those in the possession of third parties, but
that are the property of the Company); and (vi) all
Technical Documentation.
"Inventories" shall mean all inventories,
including, without limitation, inventories of raw materials,
work in progress, storehouse stocks, materials, supplies,
finished goods and consigned goods, owned by the Company or
in which the Company has any interest (including the right
to use), whether located on the premises of the Business, in
transit to or from such premises, in storage facilities or
otherwise.
"IRS" shall mean the United States Internal
Revenue Service.
"Key Employees" shall mean the employees listed in
Section 6.7 of the Company Disclosure Schedule.
"Labor Agreements" shall mean, collectively,
(i) all employment agreements, collective bargaining
agreements or other labor agreements to which the Company is
a party or by which it or any of its properties is bound;
(ii) all pension, profit sharing, deferred compensation,
bonus, stock option, stock purchase, savings, retainer,
consulting, retirement, welfare or incentive plans,
agreements, or arrangements (including ERISA Plans) to which
the Company is a party or by which it or any of its
properties is bound; and (iii) all plans, agreements, or
arrangements under which "fringe benefits" (including, but
not limited to, hospitalization plans or programs, medical
insurance, vacation plans or programs, sick plans or pro-
grams and related benefits) are afforded to any employees of
the Company.
"Law" shall mean any law, statute, regulation,
rule, ordinance, or other binding action or pronouncement of
an Authority.
"Licenses or Permits" shall mean all licenses and
permits issued to the Company or in which the Company has
any interest (including the right to use).
"Lien or Other Encumbrance" shall mean any lien,
pledge, mortgage, security interest, charge, conditional
sales contract, option, restriction on transfer, use, power
to exercise rights or to grant rights to others, or other
restriction, reversionary interest, right of first refusal,
voting trust arrangement, preemptive right, claim under
bailment or storage contract, easement or any other adverse
claim or right whatsoever, now existing or that hereafter
may come into existence upon the passage of time or the
occurrence of any transaction contemplated hereby.
"Losses" shall mean all damages, awards,
judgments, payments, diminutions in value and other losses,
however suffered or characterized, all interest thereon, all
costs and expenses of investigating any claim, lawsuit or
arbitration and any appeal therefrom, all actual attorneys'
fees incurred in connection therewith, whether or not such
claim, lawsuit or arbitration is ultimately defeated and all
amounts paid incident to any compromise or settlement of any
such claim, lawsuit or arbitration.
"Marks" shall mean all registered and unregistered
trademarks, service marks, trade names, and slogans, all
applications therefor, and all associated goodwill.
"Material Contracts" shall mean, collectively, the
Contracts or Other Agreements that are, or are required to
be, identified anywhere in the Company Disclosure Schedule
by the terms and provisions of this Agreement.
"MoSys" is defined in Section 5.10.
"MoSys Agreement" is defined in Section 5.10.
"Option Holder" is defined in Section 3.2.1.
"Order" shall mean any decree, order, judgment,
writ, award, injunction, rule or consent of or by an
Authority.
"Patents" shall mean all registered patents,
including, without limitation, all reissues, divisions,
continuations, continuations in part, utility models and
design patents, all patent applications, and all associated
inventions, industrial models, processes, designs, technical
information, shop rights, know-how, Trade Secrets,
processes, operating, maintenance and other manuals,
drawings and specifications, process flow diagrams and
related data.
"Pension Plan" shall mean any employee pension
benefit plan within the meaning of Section 3(2) of ERISA.
"Person" shall mean any entity, corporation, com-
pany, association, joint venture, joint stock company,
partnership, trust, organization, individual (including
personal representatives, executors and heirs of a deceased
individual), nation, state, government (including agencies,
departments, bureaus, boards, divisions and instrumen-
talities thereof), trustee, receiver or liquidator and all
subsidiaries thereof.
"Prospectus" is defined in Section 5.12.1(b).
"RCRA" shall mean the Resource Conservation and
Recovery Act of 1976, 42 U.S.C. Section 6901, et. seq. as
the same may be amended from time to time.
"Real Property" shall mean, collectively, all real
properties in which the Company has any interest or estate
(including the right to use), together with all buildings,
fixtures, trade fixtures, plant and other improvements
located thereon or attached thereto; all of the Company's
rights arising out of use thereof (including air, water, oil
and mineral rights); and all subleases, franchises,
licenses, permits, easements and rights-of-way which are
appurtenant thereto.
"Registration" is defined in Section 5.11.1.
"Registration Statement" is defined in Section
5.11.1(a).
"SEC" is defined in Section 5.11.1(a).
"Securities Act" is defined in Section 5.11.1(a).
"Series A Preferred Stock" shall mean the 7%
cumulative convertible Preferred A Stock, without par value,
of the Company.
"Series B Preferred Stock" shall mean the
convertible Preferred B Stock, without par value, of the
Company.
"Shareholder Approval" is defined in Section
3.1.3.
"Shareholders" shall mean the Persons identified
in Section 3.2 of the Company Disclosure Schedule as an
owner of Company Capital Stock as of the date hereof or any
Option Holder who, on or after the date hereof and prior to
the Closing, shall exercise his, her or its option.
"SMC Asia" shall mean Standard Microsystems
Corporation (Asia), a Delaware corporation.
"Software" shall mean all partial or whole
"software" and "firmware" and documentation thereof
(including, without limitation, all electronic data
processing systems and program specifications, source codes,
object codes, routines, microcodes, input data and report
layouts and formats, record file layouts, outlines,
documentation, diagrams, specifications and narrative
descriptions and flow charts).
"Tangible Personal Property" shall mean all
machinery, equipment, trucks, automobiles, furniture,
supplies, spare parts, computers, hardware, tools, stores
and other tangible personal property owned by the Company or
in which the Company has any interest (including the right
to use), other than the Inventories and the Books and
Records.
"Tax Returns" shall mean, collectively all
Federal, state, foreign, and local tax reports, returns,
information returns and other related documents required by
any relevant taxing Authority to be filed with such
Authority.
"Taxes" shall mean, collectively all taxes,
including without limitation, income, gross receipts, net
proceeds, alternative, add-on, minimum, ad valorem, value
added, turnover, sales, use, property, personal property
(tangible and intangible), stamp, leasing, excise, duty,
franchise, transfer, license, withholding, payroll, employ-
ment, fuel, excess profits, environmental, occupational,
interest equalization, windfall profits and severance taxes,
and all other like governmental charges.
"Technical Documentation" shall mean all technical
information and documentation, including, without
limitation, all partial or whole designs, drawings,
schematics, board layouts, bills of material, chip tooling,
pattern generation tapes, test tapes, logic diagrams,
circuit diagrams, partial or whole mask, board, chip or cell
designs, outlines, or other specifications, descriptions
used in the Business, or documentation, writings, drawings,
papers, records, books, tapes, disks, or other tangible
media embodying any of the Intangible Personal Property.
"Territory" is defined in Section 5.14.1.
"Trade Secrets" shall have its customary meaning
and includes without limitation any information, including a
formula, pattern, compilation, program, device, method,
technique, or process, that: derives independent economic
value, actual or potential, from not being generally known
to the public or to other persons who can obtain economic
value from its disclosure or use; and is the subject of
efforts that are reasonable under the circumstances to
maintain its secrecy. Without limiting the foregoing
definition in any way, Trade Secrets include inventions,
technical and business information, such as information set
out in or relating to computer programs, engineering or
technical data, drawings, designs, manufacturing techniques,
research and development plans and practices, cost data,
pricing practices and policies, marketing practices and
policies, licensing practices and policies, and the identity
and location of past, present, or prospective suppliers,
licensors, licensees, or customers.
"Transfer Agent" shall mean the Transfer Agent for
the Buyer Common.
"Welfare Plan" shall mean any employee welfare
benefit plan within the meaning of Section 3(1) of ERISA.
ARTICLE II
PURCHASE AND SALE OF ASSETS; THE CLOSING
2.1 Assets to be Transferred. Upon the terms and
subject to the conditions of this Agreement, at the Closing,
the Company shall sell and deliver to the Buyer, and the
Buyer shall purchase and accept from the Company, all of the
Assets with (i) such changes thereto not constituting a
material adverse change thereto (individually or in
aggregate) as may occur in the ordinary course of business
and (ii) such deletions or additions thereto that may occur
with the written consent of the Buyer, in each case in (i)
or (ii) above, consistent with the terms and conditions of
this Agreement, from the date hereof to the Closing.
2.2 Instruments of Sale. The sale and delivery
of the Assets to the Buyer, as herein provided, shall be
effected by bills of sale, endorsements, assignments,
licenses, drafts, checks and other instruments of transfer
and conveyance, agreements and documents in the form
specified herein or reasonably acceptable to the Buyer.
2.3 Assumed Liabilities and Obligations. At the
Closing, the Buyer shall assume and shall thereafter pay,
discharge and perform in the ordinary course each of the
following (the "Assumed Obligations"):
(a) only: (i) the obligations of the Company
arising and accruing with respect to performance to be
rendered after the Closing Date under the express terms of
the leases, contracts, customer obligations and other
obligations listed in Exhibit 2.3(a) hereto (the "Assumed
Obligations Schedule"), except those contracts listed
thereon, the assignment of which requires the consent of a
Person that has not been obtained as of the Closing;
provided, however, that except as set forth in Section
2.3(b), the Buyer shall not assume or be obligated to pay,
discharge or perform any obligation relating to products
sold by the Company; (ii) the obligations of the Company to
sell and deliver products under order backlog and associated
costs of selling, manufacturing and delivering same, but
only to the extent of products that are finished and
packaged on the Closing Date; and (iii) the payment
obligations under the express terms of any contract, lease,
customer obligation, or other obligation listed in Exhibit
2.3(a) due after the Closing Date and arising and accruing
with respect to performance rendered to or for the Company
prior to the Closing Date (the "Contract Accruals"); and
(b) all express replace or repair
obligations of the Company arising directly out of the
express terms of the express warranties specifically
disclosed in Section 2.3(b) of the Company Disclosure
Schedule (the "Warranties"), which arise on or after the
Closing Date with respect to sales or shipments of products
before the Closing Date (the "Continuing Warranties", and
together with all costs and expenses incurred in connection
with such Continuing Warranties, the "Continuing Warranties
Obligations").
2.4 No Other Liabilities or Obligations Assumed.
Except as expressly set forth herein, the Buyer shall not
assume, and shall not be liable for any liabilities or
obligations of the Business, the Company, any of the
Company's Affiliates, or any other Person, whether the same
are direct or indirect, fixed, contingent or otherwise,
known or unknown, whether arising under a Contract or Other
Agreement or otherwise, other than the Assumed Obligations
specifically listed on the Assumed Obligations Schedule or
the Continuing Warranties Obligations listed on Section
2.3(b) of the Company Disclosure Schedule (the liabilities
and obligations not assumed by the Buyer pursuant to this
Agreement, the "Excluded Liabilities"). Without limitation
of the foregoing, the Excluded Liabilities shall include,
and the Buyer shall not assume or be liable for any of the
Company's, the Company's Affiliates', or the Business's
liabilities or obligations which relate to any (a) Labor
Agreement; (b) claim, suit, action or proceeding alleging
that any product was defective, improperly designed or
manufactured, or that the sale thereof breached any implied
warranty, except this clause (b) shall not impair Buyer's
obligation to assume pursuant to Section 2.3(b) the express
replace or repair obligations of Company under the express
terms of any of the Continuing Warranties; (c) any liability
of the Company with respect to "dissenting shares," as meant
by Section 1300 of the CA-GCL; (d) any liability for any
dividend on Company Capital Stock, except as set forth on
Exhibit 2.3(a); or (e) Taxes, except as provided in Section
2.7.1. The Company shall promptly pay, discharge and
perform in the ordinary course all Excluded Liabilities.
NYB Initial Payment.
(a) In consideration for the sale and
delivery of the Assets, and subject to the terms and
conditions of this Agreement, at the Closing, the Buyer
shall pay to the Company that number of shares of Buyer
Common calculated in the manner set forth in Section 2.5(b)
(the "Initial Payment").
(b) The total number of shares of Buyer
Common to be issued to the Company at the Closing shall
equal: (i) the quotient obtained by dividing $4,000,000 by
the Average Market Price/Initial Payment, minus (ii) the
shares that are to be subtracted as a result of the
operation of Section 2.11.1.
(c) In addition, at the Closing, Buyer shall
pay the Company, by bank check or wire transfer in
immediately available funds $341,600.
2.6 Closing. The closing (the "Closing") shall
occur on the latest of (i) second business day after
Shareholder Approval shall have been obtained by written
consent of all Shareholders, (ii) the 10th business day
following the day on which the right of dissenting
shareholders to make demand for payment of their shares
shall have expired, or (iii) the second business day after
Buyer's Board of Directors shall have approved the
Agreement, as contemplated in Section 6.10, provided that
Buyer, in its sole discretion, may accelerate the Closing
Date to any day not sooner than the second business day
after the date on which Shareholder Approval shall have been
obtained. The Closing shall occur at the offices of Loeb &
Loeb LLP, 345 Park Avenue, New York, New York 10154, except
as otherwise agreed by Buyer and the Company. At the
Closing, Buyer shall deliver to the Company a certificate
registered in the name of the Company for the total number
of shares of Buyer Common required by Section 2.5(b),
accompanied by a cashier's check payable to the Company for
the total amount of cash required under Section 2.11.1 (or a
wire transfer thereof), representing the Initial Payment.
The certificate shall bear such legends, and Buyer may give
the Transfer Agent such instructions, as shall be reasonably
appropriate to enforce Company's obligations under Section
5.11.2(b).
2.7 Taxes and Other Matters.
2.7.1 Payment of Taxes. The Buyer
agrees to pay and hold the Company harmless from all
transfer taxes, sales taxes and other similar taxes or
charges imposed by any governmental entity in connection
with the transfer of the Assets. Each of the Buyer and the
Company shall prepare and file, and shall fully cooperate
with the other party with respect to such preparation and
filing of, any returns and other filings relating to any
such taxes, fees, charges, or transfers, as may be required.
2.7.2 Allocation of Purchase Price. The
parties agree that the purchase price of the Assets is to be
allocated among the Assets as set forth on Exhibit 2.7.2.
The parties agree to be bound for all purposes by such
allocation and to execute and file IRS Forms 8594 consistent
therewith.
2.8 Company's Deliveries at Closing.
2.8.1 Deliveries to Buyer. At the
Closing, the Company will deliver, or cause to be delivered,
to the Buyer or SMC-Asia the following:
(a) duly executed assignments of the
Contracts or Other Agreements and all consents to such
assignments obtained prior to the Closing Date in form and
substance satisfactory to the Buyer and its counsel;
(b) duly executed bills of sale with respect
to the Assets substantially in the form of Exhibit 2.8(b)
(the "Bill of Sale");
(c) the certificates or certified copies of
documents contemplated by Sections 6.1 and 6.6 hereof;
(d) certificates of incumbency for the
officers of the Company executing this Agreement and the
other Company Documents or making certifications at the time
of the Closing, dated as of the Closing in form and
substance reasonably satisfactory to the Buyer and its
counsel;
(e) the opinion of Skjerven, Morrill,
MacPherson, Franklin & Friel, the Company's counsel, as
provided for in Section 6.4 hereof;
(f) the Employee Records;
(g) the Core Logic Technology Package;
(h) copies of resolutions duly adopted by
the Company's Board of Directors described in Section 3.1.4,
certified as complete, accurate and authentic copies and
being in full force and effect as of the Closing by an
appropriate officer of the Company in form and substance
reasonably satisfactory to the Buyer and its counsel;
(i) copies of resolutions duly adopted by
the Shareholders constituting Shareholder Approval,
certified by an appropriate officer of the Company as
complete, accurate and authentic copies and being in full
force and effect as of the Closing in form and substance
reasonably satisfactory to the Buyer and its counsel;
ID3 certified copies of banking resolutions
on banks' printed forms designating only those persons whom
Buyer shall have specified as authorized to write checks on
or make withdrawals from the Company's bank accounts;
(k) duly executed assignments of the
Company's right, title and interest in and to the Marks,
Patents and other Intangible Personal Property in form and
substance reasonably satisfactory to the Buyer and its
counsel;
(l) a true, complete and accurate list
setting forth the Company's order backlog (as of the Closing
Date);
(m) insurance certificates naming the Buyer
as an additional insured with respect to the Company's
Business product liability coverage for claims arising from
products sold prior to the Closing;
(n) the Employment Agreements, duly executed
by the respective Key Employees;
(o) the MoSys Agreement, duly executed by
the Company and MoSys; and
(p) all other properties, documents,
instruments, writings and certificates reasonably requested
by the Buyer to be delivered by the Company at the Closing,
to the extent not theretofore delivered.
2.8.2 Location for delivery. Except as
otherwise provided in Section 2.8.1, the Assets shall be
delivered to Buyer or SMC Asia, as the case may be, in
place, where currently located.
2.9 Buyer Deliveries at Closing. At the Closing,
the Buyer will deliver, or cause to be delivered, to the
Company the following:
(a) the Initial Payment;
(b) an assumption agreement in connection
with all of the Assumed Obligations to be assumed by the
Buyer pursuant to Section 2.3 hereof, in form and substance
reasonably satisfactory to the Company and its counsel;
(c) the certificates or certified copies of
documents contemplated by Sections 7.1 and 7.5;
(d) certificates of incumbency for the
officers of the Buyer executing this Agreement and the other
Company Documents or making certifications at the time of
the Closing, dated as of the Closing, in form and substance
reasonably satisfactory to the Company and its counsel;
(e) the opinion of Loeb & Loeb LLP, the
Buyer's counsel, as described in and provided by Section 7.3
hereof;
(f) copies of resolutions duly adopted by
the Board of Directors of the Buyer, authorizing and
approving the transactions contemplated hereby and the
execution and delivery of this Agreement and the other
documents to be executed by Buyer pursuant hereto, certified
as complete, accurate and authentic copies and as being in
full force and effect as of the Closing by an appropriate
officer of the Buyer, in form and substance reasonably
satisfactory to the Company and its counsel; and
(g) all other documents, instruments and
writings reasonably requested by the Company to be delivered
by the Buyer at the Closing.
2.10 Contingent Payment.
2.10.1 Contingent Payment Obligation. In
further consideration for the sale and delivery of the
Assets, and subject to the terms and conditions of this
Agreement, at each Contingent Payment Date, the Buyer shall
pay to the Company that number of shares of Buyer Common
calculated in the manner set forth in Section 2.10.2 (each a
"Contingent Payment"); provided, however, that Buyer's
obligation to make Contingent Payments shall be fully
satisfied, and Buyer shall have no further obligation to
make Contingent Payments, after Contingent Payments shall
have been made in respect of total Contingent Payment Dollar
Value equal to the difference between $22,000,000 and the
Adjustment Amount; and provided further that the Buyer may,
at its option, make any Contingent Payment in cash.
2.10.2 Calculation of Contingent Payment.
The total number of shares of Buyer Common to be issued to
the Company on each Contingent Payment Date shall equal:
(i) the quotient obtained by dividing (x) the Contingent
Payment Dollar Value by (y) the Average Market
Price/Contingent Payment minus (ii) the shares that are to
be subtracted as a result of the operation of Section
2.11.1.
2.10.3 Adjustment Amount. Within 60 days
after the Closing Date, Buyer shall deliver to the Company a
statement setting forth the Adjustment Amount as determined
in accordance herewith. The Adjustment Amount shall be the
amount by which the Assumed Obligations exceeds the amount
of Company cash included in the Assets.
2.11 No Fractional Shares; Adjustments.
2.11.1 No Fractional Shares. No
certificates or scrip representing fractional shares of
Buyer Common shall be issued, and such fractional share
interests will not entitle the owner thereof to vote or to
any other rights of a stockholder of Buyer. In lieu of any
fractional share to which the Company would otherwise have
been entitled, the Company shall receive an amount in cash
equal to the product of such fraction and the Average Market
Price/Initial Payment or Average Market Price/Contingent
Payment, as the case may be.
2.11.2 Adjustments. All amounts referred
to in Sections 2.5(b) or 2.10.2 shall be adjusted
appropriately for any stock split, stock dividend, reverse
stock split or like changes in the outstanding Buyer Common
prior to the Closing Date or the applicable Contingent
Payment Date, as the case may be.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company and the Key Officers, jointly and
severally, hereby represent and warrant to Buyer that:
3.1 Organization; Authority; Due Authorization;
Vote Required.
3.1.1 Organization and Good Standing.
The Company is a corporation duly organized, validly
existing and in good standing under the Laws of California;
has all requisite corporate power to own, lease, and operate
the Assets and to carry on the Business; and is duly
qualified or licensed to do business as a foreign
corporation and is in good standing in Taiwan, which is the
only jurisdiction in which the nature of the Company's
Business or the location of its Assets requires such
qualification or licensing.
3.1.2 Authority to Execute and Perform
Agreements. The Company has all requisite corporate power,
authority and approvals required to enter into, execute and
deliver this Agreement and all of the other Company
Documents and to perform fully the Company's obligations
hereunder and thereunder.
3.1.3 Due Authorization; Enforceability.
Subject only to obtaining shareholder approval of this
Agreement and the principal terms of the transactions
contemplated hereby as required by the CA-GCL and the
Company's Articles of Incorporation ("Shareholder
Approval"), the Company has taken all actions necessary to
authorize it to enter into and perform fully its obligations
under this Agreement and all of the other Company Documents
and to consummate the transactions contemplated herein and
therein. This Agreement and the other Company Documents to
which the Company, any Key Officer, or any Key Employee is a
party are, and, as of the Closing Date, together with any
other Company Document or agreement to which any such Person
will be a party, will be, the legal, valid, and binding
agreement of each such Person, enforceable in accordance
with their respective terms, except as such may be subject
to the effect of bankruptcy, insolvency, reorganization,
moratorium or similar laws or equitable principles relating
to or limiting creditors' rights generally (including,
without limitation, laws pertaining to preferential and
fraudulent transfers), and that equitable remedies are
subject to the discretion of the court.
3.1.4 Specific Board Action. Without
limiting any other representation or warranty hereunder, the
Board of Directors of the Company has unanimously adopted
resolutions (a) approving and authorizing the execution and
delivery of this Agreement and the other Company Documents
and the performance by the Company of all its obligations
hereunder and under the other Company Documents; (b)
authorizing and directing the solicitation of written
consents of the Shareholders to obtain Shareholder Approval
("Consent Solicitation"); (c) stating its determination that
this Agreement is in the best interests of the Shareholders,
recommending that the Shareholders vote their Company
Capital Stock in favor of Shareholder Approval, and
directing the inclusion of such determination and
recommendation in the Consent Solicitation; and (d)
terminating options outstanding under the Company's 1992
Stock Option Plan in accordance with Paragraph 9b thereof.
The Board of Directors has not adopted any plan to dissolve
the Company or distribute shares of Buyer Common to the
Shareholders.
3.1.5 Vote Required. The affirmative
vote of a majority of the votes that holders of the Company
Common and Series B Preferred Stock are entitled to cast are
the only votes necessary to constitute Shareholder Approval,
and no other action by the Board of Directors of the Company
or the Shareholders is or will be required in connection
therewith.
3.2 Capitalization and Ownership of Company
Capital Stock. The authorized capital stock of the
Company, constituting the Company Capital Stock, consists of
20,000,000 shares of Company Common, without par value, of
which [889,212] are issued and outstanding as of the date
hereof, 5,000,000 shares of Preferred Stock, without par
value, of which 1,220,000 are designated Series A Preferred
Stock, all of which shares issued and outstanding as of the
date hereof, and 1,280,000 of which are designated Series B
Preferred Stock and 1,238,506 of which are issued and
outstanding as of the date hereof. No other shares of
capital stock of the Company are and authorized or
outstanding. Section 3.2 of the Company Disclosure Schedule
identifies each owner of Company Capital Stock and
accurately sets forth (i) each class of Company Capital
Stock and number of shares of such class held by such
Shareholder, (ii) the nationality and residence address of
such Shareholder, and (iii) all relationships between such
Shareholder and the Company, any officer or employee of the
Company, or any Option Holder or other Shareholder. Section
3.2 of the Company Disclosure Schedule identifies each owner
of any option to purchase shares of Company Capital Stock
("Option Holder"), accurately identifying the stock option
plan pursuant to which each option was granted to such
Option Holder, the date of grant and vested status of such
option, and the class of Company Capital Stock and number of
shares of such class issuable pursuant to such option.
Except as disclosed on Section 3.2 of the Company Disclosure
Schedule, there are no Contracts or Other Agreements or
other rights to subscribe for any Company Capital Stock, or
Contracts or Other Agreements or other obligations requiring
the Company to issue, or grant any rights to acquire, or
securities or instruments exercisable or exchangeable for or
convertible into, any Company Capital Stock or Contracts or
Other Agreements or other obligations requiring the Company
to merge, consolidate, dissolve, liquidate, restructure or
recapitalize the Company. All outstanding Company Capital
Stock is duly authorized, validly issued, fully paid, and
nonassessable.
3.3 Subsidiaries. The Company does not own,
directly or indirectly, any interest or investment (whether
equity or debt) in any subsidiary.
3.4 No Violation. Except as disclosed in Section
3.4 of the Company Disclosure Schedule, and subject to
obtaining Shareholder Approval, neither the execution or
delivery by the Company of this Agreement or any of the
Company Documents nor the consummation of the transactions
contemplated herein or therein will: (a) violate any
provision of the Articles of Incorporation, bylaws or other
charter document of the Company; (b) violate, conflict with,
or constitute a default under, permit the termination or
acceleration of, or cause the loss of any material right or
option under, any Material Contract; (c) require any
authorization, consent or approval of, exemption or other
action by, or notice to, any party to any Material Contract;
(d) result in the creation or imposition of any Lien or
Other Encumbrance upon any of the Assets; or (e) violate or
require any consent or notice under any Law or Order to
which the Company or any of its Assets is subject.
3.5 Regulatory Approvals and Other Consents.
Section 3.5 of the Company Disclosure Schedule sets forth a
complete and accurate description of each consent, approval,
authorization, notice, filing, exemption or other require-
ment, whether prescribed by the Articles of Incorporation,
by-laws, other charter document of the Company, Law or Order
or required pursuant to the terms of any Material Contract,
that must be obtained from any Person or that must otherwise
be satisfied by the Company in order that (i) the execution
or delivery by the Company of this Agreement or any of the
Company Documents and (ii) the consummation of the
transactions contemplated herein or therein will not cause
any breach of the representations and warranties contained
in Section 3.4.
3.6 Financial Condition.
3.6.1 Financial Statements. Section
3.6.1 of the Company Disclosure Schedule sets forth (i) the
balance sheets of the Company as of December 31, 1992, 1993
and 1994, the related statements of income, stockholders'
equity, and cash flows for the year then ended, reviewed by
Michael C. Jagchid, the Company's independent certified
public accountant, whose reports thereon are included
therewith, and (ii) the unaudited balance sheet at
September 30, 1995 and the related statements of income for
the nine months ended September 30, 1995 and 1994. Said
financial statements (a) were prepared from and in
accordance with the Books and Records of the Company; (b)
were prepared in accordance with GAAP; (c) fairly present
the Company's financial condition and the results of its
operations as of the relevant dates thereof and for the
periods covered thereby; (d) contain and reflect all
necessary adjustments and accruals for a fair presentation
of the Company's financial condition and the results of its
operations for the periods covered by said financial
statements; and (e) contain and reflect adequate provisions
for all reasonably anticipated liabilities for all Taxes
with respect to the periods covered and all prior periods.
3.6.2 No Undisclosed Liabilities. Except
for (i) those liabilities specifically reflected or reserved
against on the Balance Sheet, (ii) those current liabilities
for trade or business obligations incurred since the Balance
Sheet Date in connection with the purchase of goods or
services in the ordinary course of the Business and consis-
tent with past practices, (none of which liabilities is,
individually or in the aggregate, material and none of which
is for breach of contract, breach of warranty, tort
(including product liability) or infringement), (iii) those
liabilities arising under any Material Contract (none of
which liabilities is for breach of contract, breach of
warranty, tort (including product liability) or
infringement) or (iv) those liabilities otherwise
specifically disclosed in Section 3.6.2 of the Company
Disclosure Schedule (none of which liabilities is for breach
of contract, breach of warranty, tort (including product
liability) or infringement), the Company has, as of the date
hereof, no direct or indirect indebtedness, liabilities,
claims, losses, damages, deficiencies, obligations or
responsibilities, known or unknown, liquidated or
unliquidated, accrued, absolute, contingent or otherwise,
and whether or not of a kind required by GAAP to be set
forth on a financial statement, which individually is or in
the aggregate are material to the condition (financial or
otherwise), Assets, liabilities, Business, operations or
prospects (before or after the Closing Date) of the Company
or the Core Logic Business Unit.
3.6.3 Inventories. Section 3.6.3 of the
Company Disclosure Schedule accurately lists the Company's
Inventories as of its date. Buyer acknowledges that it will
write down to zero all Inventories not related to order
backlog as of the Closing, and the Company and the Key
Officers shall have no liability respecting such writedown.
Except as set forth in Section 3.6.3 of the Company
Disclosure Schedule, all such Inventories were, and are,
owned by the Company free and clear of any Liens or Other
Encumbrances, and no items included in such Inventories
were, or are, held by the Company on consignment from
others.
3.6.4 Accounts Receivable. All Accounts
Receivable, whether reflected on the Balance Sheet or
otherwise, represent bona fide sales of inventory or
services of the Company in the ordinary course of the
Business and are fully collectible, net of any reserves
shown on the Balance Sheet or identified in Section 3.6.4 of
the Company Disclosure Schedule, which reserves are adequate
and were calculated consistent with past practices.
3.6.5 Absence of Certain Changes. Except
as indicated in Section 3.6.5 of the Company Disclosure
Schedule, since the Balance Sheet Date, the Company has
conducted the Business only in the ordinary course
consistent with its past practices and has not:
(a) suffered any change, event or
condition which, in any case or in the aggregate, has had or
could reasonably be expected to have a material adverse
effect upon the Company's condition (financial or
otherwise), Assets, liabilities, Business, operations or
prospects (before or after the Closing Date) of the Company
or the Core Logic Business Unit, or the Company's ability to
consummate the transactions contemplated herein;
(b) suffered any destruction, damage to
or loss of any Asset (whether or not covered by insurance)
which could reasonably be expected to have a material
adverse effect upon the condition (financial or otherwise),
Assets, liabilities, Business, operations, or prospects
(before or after the Closing Date) of the Company or the
Core Logic Business Unit, the value or utility of the Assets
or the Company's ability to consummate the transactions
contemplated herein;
(c) incurred any obligation or liabil-
ity or taken property subject to any liability, whether
absolute, accrued, contingent or otherwise and whether due
or to become due, except current liabilities for trade or
business obligations incurred since the Balance Sheet Date
in connection with the purchase of goods or services in the
ordinary course of the Business and consistent with prior
practices, none of which liabilities, in any event, involved
in excess of $5,000, individually, or $25,000, in the
aggregate;
(d) mortgaged, pledged, or subjected
any of the Assets to any Lien or Other Encumbrance;
(e) sold, transferred, leased to others
or otherwise disposed of any of the Assets, except for
Inventory sold in the ordinary course of the Business
consistent with past practices;
(f) amended or terminated any Material
Contract or any License or Permit or received any notice of
termination of any of the same;
(g) declared or made any payment of
dividends or other distribution to any Shareholder or upon
or in respect of any Company Capital Stock, or purchased,
retired or redeemed, or obligated itself to purchase, retire
or redeem, any Company Capital Stock;
(h) encountered any labor union organ-
izing activity, suffered any actual or threatened employee
strike, work stoppage, slow-down or lock-out, or any
material change in its relations with its employees, agents,
customers or suppliers, or suffered any actual or threatened
claim of wrongful discharge, or other unlawful labor
practice or proceeding;
(i) made any change in the rate of
compensation, commission, bonus or other direct or indirect
remuneration payable, or agreed or orally promised to pay,
conditionally or otherwise, any bonus, extra compensation,
pension or severance or vacation pay, to any Shareholder,
director, officer, employee, salesperson, distributor or
agent of the Company;
(j) changed its accounting methods or
practices (including, without limitation, any change in
depreciation or amortization policies or rates) or revalued
any of its Assets;
(k) entered into any transaction,
contract or commitment other than in the ordinary course of
the Business and consistent with its prior practices; or
(l) entered into any agreement or made
any commitment to take any of the types of action described
in subparagraphs (a) through (k) above.
3.7 Tax Matters. Except as indicated in Section
3.7 of the Company Disclosure Schedule:
(a) within the times and in the manner pre-
scribed by Law, the Company has filed all Tax Returns that
the Company is required to file, has paid or provided for
all Taxes shown thereon to be due and owing by it and has
paid or provided for all deficiencies or other assessments
of Taxes, interest or penalties owed by it; no taxing
Authority has asserted any claim for the assessment of any
additional Taxes of any nature with respect to any periods
covered by any such Tax Returns; all Taxes required to be
withheld or collected by the Company have been duly withheld
or collected and, to the extent required, have been paid to
the proper taxing Authority or properly segregated or
deposited as required by Law;
(b) each Tax Return filed by the Company
fully and accurately reflects its liability for Taxes for
such year or period and accurately sets forth all items (to
the extent required to be included or reflected in such
returns) relevant to its future liabilities for Taxes,
including the tax basis of its properties and assets. The
provisions for Taxes payable reflected in the Financial
Statements are fully adequate;
(c) no audit of any Tax Return of the
Company is in progress or, to the knowledge of the Company
or any Key Officer, threatened;
(d) no extensions of time with respect to
any date on which any Tax Return was or is to be filed by
the Company is in force;
(e) the Company has not waived or extended
any applicable statute of limitations relating to the
assessment of any Taxes;
(f) no issue has been raised with the Com-
pany by any taxing Authority that is currently pending in
connection with any Tax Returns. No material issue has been
raised in any examination by any taxing Authority with
respect to the Company which, by application of similar
principles, reasonably could be expected to result in a
proposed deficiency for any other period not so examined.
There are no unresolved issues or unpaid deficiencies relat-
ing to any such examination; and
(g) the Company has delivered to Buyer true
and correct copies of all Federal and state income Tax
Returns of the Company for the last four complete fiscal
years.
3.8 Compliance with Laws; Governmental Matters.
3.8.1 General. The Company has in all
material respects complied with, and is now in all material
respects in compliance with, all Laws and Orders applicable
to the Business, and no material capital expenditures will
be required in order to insure continued compliance
therewith. Section 3.8.1 of the Company Disclosure Schedule
sets forth each License or Permit material to the conduct of
the Business, together with its date of expiration and a
brief description of its material terms. Except for the
Licenses or Permits already held by the Company as disclosed
in Section 3.8.1 of the Company Disclosure Schedule, no
other franchise, license, permit, order or approval of any
Authority is material to or necessary for the conduct of the
Business. Each License or Permit listed in Section 3.8.1 of
the Company Disclosure Schedule is in full force and effect;
the Company is now and has at all times in the past been in
all material respects in full compliance with each thereof;
no material violations are or have in the last five years
been recorded by any Authority in respect of any thereof,
and no proceeding is pending or, to the knowledge of the
Company or any Key Officer, threatened to revoke, amend or
limit any thereof. Except as disclosed in Section 3.8.1 of
the Company Disclosure Schedule, there are no pending or, to
the knowledge of the Company or any Key Officer, threatened
proceedings by or before any Authority which involve new
special assessments, assessment districts, bonds, Taxes,
condemnation actions, Laws or Orders or similar matters
which, if instituted, could reasonably be expected to have a
material adverse effect upon the condition (financial or
otherwise), Assets, liabilities, or prospects (before or
after the Closing Date) of the Company or the Core Logic
Business Unit.
3.8.2 Environmental and Industrial
Hygiene Compliance. Except as disclosed in Section 3.8.2 of
the Company Disclosure Schedule, (i) neither the Company
nor, to the best of its knowledge, any of the Assets has
ever been or is now in any material respect in violation of
any applicable Environmental Law or Order; (ii) neither the
Company nor, to the best of its knowledge, any third party
has prior to the date hereof ever used, generated,
manufactured, stored or disposed of, on, under, or about the
Assets or transported to or from the Assets any flammable
explosives, radioactive materials, hazardous wastes or toxic
substances, except in compliance with Law; (iii) the Company
has obtained and now holds all material permits, licenses
and other authorizations that are required to be held by it
under all applicable Environmental Laws or Orders; (iv) the
Company is in compliance in all material respects with all
terms and conditions of any and all required permits,
licenses and authorizations and all other limitations,
restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables
contained in all applicable Environmental Laws or Orders,
and any notice or demand letter issued, entered, promulgated
or approved thereunder; (v) to the Company's best knowledge,
no facts, past or present events, or conditions interfere
with or prevent continued compliance in all material
respects by the Company with, or give rise to any material
present or potential legal, common law, or statutory
liability of the Company under, any applicable Environmental
Law or Order; (vi) there is no pending civil or criminal
litigation, written notice of violation or administrative
proceeding involving the Company and relating in any way to
any Environmental Law or Order (including any notice, demand
letter or written claim under RCRA, CERCLA and similar state
or local laws), other than rulemaking proceedings, if any;
and (vii) to the Company's best knowledge, there has been no
disposal by the Company, directly or indirectly, of any
hazardous materials or wastes to, on, or in any site
currently listed or formally proposed to be listed on the
National Priorities List under CERCLA or any site listed or
formally proposed to be listed as a major or priority
cleanup site under any comparable state law. For the
purpose of this Section 3.8.2, hazardous materials shall
include but not be limited to (i) substances now defined as
"hazardous substances," "hazardous materials," or "toxic
substances" in CERCLA, the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, et seq. or RCRA,
as the same may be amended from time to time, or in the
regulations adopted and publications promulgated pursuant to
said Laws from time to time and (ii) those substances now or
at any time hereafter defined as "hazardous wastes" in
Section 25117 of the California Health and Safety Code or as
"hazardous substances" in Section 25316 of the California
Health and Safety Code, as the same may be amended from time
to time, or in the regulations adopted and publications
promulgated pursuant to said laws from time to time.
3.9 Litigation. Section 3.9 of the Company
Disclosure Schedule sets forth an accurate and complete
description of every pending or, to the knowledge of the
Company or any Key Officer, threatened adverse claim,
dispute, governmental investigation, suit, action
(including, without limitation, nonjudicial real or personal
property foreclosure action), arbitration, legal,
administrative or other proceeding of any nature, domestic
or foreign, criminal or civil, at law or in equity, by or
against or otherwise affecting the Company, the Business,
the Assets, or any Key Employee. Section 3.9 of the Company
Disclosure Schedule includes a true and complete copy, as
currently in effect, of the settlement agreement between the
Company and Toshiba Electronics Taiwan Corporation referred
to in the 25 August 1995 letter of Dennis McAteer to Michael
E. Hingle. The Company has fully discharged its obligations
thereunder. The Company has delivered to Buyer copies of all
relevant court papers and other documents relating to the
matters referred to in Section 3.9 of the Company Disclosure
Schedule. Except as disclosed in Section 3.9 of the Company
Disclosure Schedule:
(a) the Company is not in default with
respect to any Order by which it is bound or to which any of
the Assets is subject, and there exists no Order enjoining
or requiring the Company to take any action of any kind with
respect to the Business or the Assets;
(b) neither the Company nor, to the
knowledge of the Company or any Key Officer, any officer,
director, or employee of the Company has been permanently or
temporarily enjoined by any Order from engaging in or
continuing any conduct or practice in connection with the
Business or the Assets.
3.10 Property of the Company.
3.10.1 Real Property.
(a) The Company owns no Real Property.
The Company has delivered to Buyer true, correct, and
complete copies of each lease for Real Property to which
Company is a party, and all amendments thereto. Each such
lease, together with all amendments, is listed in
Section 3.10.1 of the Company Disclosure Schedule and, to
the knowledge of the Company and the Key Officers, is valid,
and enforceable by the Company, with respect to the other
party thereto, except as such may be subject to the effect
of bankruptcy, insolvency, reorganization, moratorium or
similar laws or equitable principles relating to or limiting
creditors' rights generally (including, without limitation,
laws pertaining to preferential and fraudulent transfers),
and that equitable remedies are subject to the discretion of
the court. Neither the Company nor any other party to any
such lease is in breach of any provision thereof.
(b) All of the buildings, fixtures and
other improvements constituting a part of the Real Property
are in good operating condition and repair, and the Business
is not, to the knowledge of the Company or any Key Officer,
in any material respect in violation of any applicable
building code, zoning ordinance or other Law, or without
limitation, applicable environmental protection and
occupational health and safety laws.
(c) The Company has not experienced any
material interruption in the delivery of adequate quantities
of any utilities (including, without limitation,
electricity, natural gas, potable water, water for cooling
or similar purposes and fuel oil) or other public services
(including, without limitation, sanitary and industrial
sewer service) required by the Company in the operation of
the Business.
(d) All of the Real Property has
unqualified access to public roads and to all utilities,
including electricity, sanitary and storm sewer, potable
water, oil, natural gas and other utilities used in the
operation of the Business.
3.10.2 Tangible Personal Property.
Section 3.10.2 of the Company Disclosure Schedule sets
forth, as of the date hereof, a description of each item of
Tangible Personal Property owned by the Company having
either a depreciated book value or estimated fair market
value (whichever is lower) per unit in excess of $1,000 or
not owned by the Company but in the possession of the
Company or used by the Company in the Business and having
rental payments therefor in excess of $2,000 per year,
together with a description of the owner of, and any
Contract or Other Agreement relating to the possession or
use of, each such item of Tangible Personal Property.
Except as disclosed in Section 3.10.2 of the Company
Disclosure Schedule, as of the date hereof:
(a) the Company has good and marketable
title to each item of the Tangible Personal Property owned
by the Company, free and clear of all Liens or Other
Encumbrances, except for liens, if any, for personal
property taxes not due and liens of repairpersons or bailees
or other similar liens incurred in the ordinary course of
the Business in respect of obligations that are not overdue;
and
(b) each item of the Tangible Personal
Property is in good operating condition and repair, usable
in the ordinary course of the Business, and the operation
thereof as conducted prior to the date hereof, as presently
conducted and as proposed to be conducted, is not in any
material respect in violation of any applicable building
code, zoning ordinance, or other Law, including without
limitation, with respect to environmental protection.
3.10.3 Intangible Personal Property.
Section 3.10.3 of the Company Disclosure Schedule sets
forth, as of the date hereof, (i) a true and complete
schedule of each Mark, Patent, item of Software, or Trade
Secret constituting a part of the Intangible Personal
Property; (ii) a true and complete schedule of each
statutory, common law, registered copyright, or mask work
right, and each registration and application therefor con-
stituting a part of the Intangible Personal Property;
(iii) a true and complete schedule identifying all Technical
Documentation and the specific location of each item
thereof; and (iv) a true and complete schedule of each
Contract or Other Agreement to which the Company is a party
relating to any item of Intangible Personal Property.
Section 3.10.3 of the Company Disclosure Schedule specifies
which of such Contracts or Other Agreements requires the
Company to pay or entitles it to receive any royalty,
license fee, or other compensation and the amount thereof or
the basis for computing same. Section 3.10.3 of the Company
Disclosure Schedule also identifies each item of Intangible
Personal Property development of which was funded by a third
Person (including any officer, director, employee, or
Shareholder) or was conducted by or as a joint venture, in
partnership, or otherwise in collaboration, with any other
Person (except an employee solely in his or her capacity as
such) and any Contract or Other Agreement pursuant to which
same occurred. The effectuation of the transactions
contemplated hereby will not adversely affect in any manner
such Contract or Other Agreement or any item or part of the
Intangible Personal Property or the nature or usefulness
thereof in the hands of the Buyer. Except as indicated in
3.10.3 of the Company Disclosure Schedule, as of the date
hereof:
(a) the Company is the owner of all
right, title and interest in and to each item of the Intan-
gible Personal Property, free and clear of all Liens or
Other Encumbrances;
(b) all Trademarks, Patents,
copyrights, mask work rights and all other Intangible
Personal Property and all state, Federal, and foreign
registrations listed in Section 3.10.3 of the Company
Disclosure Schedule are valid and in full force and effect,
and all applications therefor listed in Section 3.10.3 of
the Company Disclosure Schedule have been properly filed and
are in proper form, and none of the foregoing are subject to
any Taxes, maintenance fees or actions falling due within
120 days after the date hereof;
(c) there are no existing Orders and no
pending claims, actions, judicial or other adversary
proceedings, disputes or disagreements involving the Company
concerning any item of the Intangible Personal Property or
part thereof, and, to the knowledge of the Company and each
Key Officer, no such action, proceeding, dispute or
disagreement is threatened;
(d) the Company has, and upon
consummation of the transactions contemplated hereby, Buyer
will have, the full, exclusive, and irrevocable right and
authority in perpetuity to use each item of the Intangible
Personal Property as it has been used previously in the
Business; to the knowledge of the Company and each Key
Officer, such use did not ever, does not, and will not
conflict with, infringe upon, or violate any Patent,
copyright, Mark, Trade Secret or other proprietary right of
any other Person; the Company has not infringed and is not
now infringing any proprietary right belonging to any other
Person; no Person has made any assertion contrary to or
inconsistent with the foregoing; and, to the knowledge of
the Company and each Key Officer, no Person has infringed
upon or violated any Intangible Personal Property of the
Company or threatened to do so;
(e) all Trade Secrets of the Company
are presently protectible, and are not part of the public
knowledge or literature, nor to the knowledge of the Company
or any Key Employee have any been used, divulged or
appropriated for the benefit of any Person other than the
Company or to the detriment of the Company; the Company has
taken reasonable security measures to protect the secrecy,
confidentiality, and value of its Trade Secrets; and the
Technical Documentation related to each Trade Secret is
current, accurate, and sufficient in detail and content to
identify and explain it, and to allow its full and proper
use without reliance on the special knowledge or memory of
others; and
(f) upon commencement of employment
with the Company, and prior to disclosure to any Company
employee of any Trade Secret or other Company confidential
information, each employee of the Company (whether now or at
any time previously employed) executed an agreement with
Company in the form set forth in Section 3.10.3(f) of the
Company Disclosure Schedule; each such agreement has vested
fully, exclusively, and irrevocably in the Company all
Intangible Personal Property developed, in whole or in part,
or alone or together with others, by each Company employee
during the term of his or her employment with the Company
and is otherwise enforceable by the Company in accordance
with its terms; and to the knowledge of the Company or any
Key Officer, no employee has breached or threatened to
breach any term thereof.
3.10.4 Use Restrictions. Except as
disclosed in Section 3.5, 3.10.2 or 3.10.3 of the Company
Disclosure Schedule, none of the Tangible Personal Property
or Intangible Personal Property owned or used by the Company
is subject to (a) any material contractual restriction on
the manner in, purpose for, or location at, which same may
be used, or (b) other restriction on any use of same that
would result from the consummation of the transactions
contemplated hereby.
3.10.5 Necessary Properties. Except as
set forth in Section 3.10.5 of the Company Disclosure
Schedule, as of the date hereof, the Assets include all of
the assets, real properties, tangible personal properties
and intangible properties necessary for the conduct of the
Business as conducted to the date hereof, as presently
conducted and as proposed to be conducted.
3.11 Agreements.
(a) Section 3.11(a) of the Company Dis-
closure Schedule sets forth a true and complete list of each
Contract or Other Agreement now in effect, except (i) any
Contract or Other Agreement specifically identified in Sec-
tions 3.10.1, 3.10.2, 3.10.3, 3.12.1, or 3.14 of the Company
Disclosure Schedule or that would be required to be dis-
closed therein but for specific exclusions contained in any
of such Sections; (ii) purchase or sales orders made in the
ordinary course of the Business not involving payments,
costs, or potential liabilities in excess of $2,500; and
(iii) any other Contract or Other Agreement made in the
ordinary course of the Business not involving aggregate
payments, costs, or potential liabilities in excess of
$2,500. Notwithstanding clause (iii) of the previous
sentence, each Contract or Other Agreement to which any
officer, director, employee or Shareholder is a party, or
arising from a relationship described in Section 3.18, or
pursuant to which any Company Trade Secret was at any time
disclosed to a third Person, that otherwise would not be
required to be disclosed pursuant to any other provision of
this Agreement, is disclosed in Section 3.11(a) of the
Company Disclosure Schedule.
(b) Except as disclosed in Section 3.11(b)
of the Company Disclosure Schedule:
(i) each Material Contract is the
valid, legal and binding obligation of the Company and, to
the Company's knowledge, of the other contracting party,
enforceable in all material respects in accordance with its
terms against the other contracting party and is in full
force and effect, except as such may be subject to the
effect of bankruptcy, insolvency, reorganization, moratorium
or similar laws or equitable principles relating to or
limiting creditors' rights generally (including, without
limitation, laws pertaining to preferential and fraudulent
transfers), and that equitable remedies are subject to the
discretion of the court; and all rights of the Company
thereunder are owned free and clear of any Lien or Other
Encumbrance;
(ii) no other contracting party to any
Material Contract is now in material breach thereof or has
breached the same in any material respect prior to the date
hereof; neither the Company nor any Key Officer has any
knowledge of any anticipated material breach thereof by any
such party; and there is not now, nor has there been prior
to the date hereof, any disagreement or dispute arising
under any Material Contract that has not been resolved;
(iii) the Company has fulfilled all
material obligations required pursuant to each Material
Contract to have been performed by it prior to the date
hereof, and neither the Company nor any Key Officer has any
reason to believe that the Company or the Core Logic
Business Unit will not be able to fulfill, when due, all of
its obligations under each Material Contract remaining to be
performed after the date hereof;
(iv) the Company is not under any
material liability or obligation with respect to the return
of Inventory or products sold by the Company that are in the
possession of distributors, wholesalers, retailers, or
customers;
(v) the Company is not a party to, nor
bound by, any Contract or Other Agreement or any provision
of its Articles of Incorporation or by-laws that
(x) restricts the conduct of the Business anywhere in the
world or (y) contains any unusual or burdensome provisions
that could reasonably be expected to have a material adverse
effect upon the condition (financial or otherwise), Assets,
liabilities, Business, operations or prospects (before or
after the Closing Date) of the Company or the Core Logic
Business Unit; and
(vi) the Material Contracts include all
of the contracts and agreements necessary for the conduct of
the Business as conducted prior to the date hereof, as
presently conducted by the Company, and as proposed to be
conducted.
(c) Section 3.11(c) of the Company
Disclosure Schedule sets forth a true and correct list of
each proposed agreement, commitment, arrangement, or other
understanding under current discussion between Company and
any third party that would, or reasonably could be expected
to, be required to be disclosed pursuant to any provision of
this Agreement, if same had been executed as of the date
hereof. A copy of the most recent draft of such agreement
and all other documents evidencing the current state of such
discussion is set forth in Section 3.11(c) of the Company
Disclosure Schedule.
3.12 Labor and Employment Matters.
3.12.1 Labor Agreements. Section 3.12.1
of the Company Disclosure Schedule sets forth a true and
current list of all of the Labor Agreements now in effect.
The Company has previously delivered to Buyer true and
correct information concerning the Company's employees,
including with respect to the (i) name, residence address,
and social security number; (ii) position; (iii)
compensation; (iv) vacation and other fringe benefits; (v)
claims under any Welfare Plan; (vi) location of employment;
(vii) citizenship; and (viii) resident alien status (if
applicable). Except as disclosed in Section 3.12.1 of the
Company Disclosure Schedule, as of the date hereof:
(a) all employees of the Company are
employees at will, and the employment of each employee of
the Company may be terminated immediately by the Company;
(b) to the knowledge of the Company, no
employee of the Company has any plan to terminate his or her
employment at or prior to the Closing, whether or not as a
result of the transactions contemplated herein;
(c) to the knowledge of the Company and each
Key Officer, no employee of the Company, in the ordinary
course of his or her duties, has breached or will breach any
obligation to a former employer in respect of any
proprietary right of such former employer; and
(d) the Company has no material labor
relations problems.
3.12.2 Compliance With Labor Laws and
Agreements. Except as disclosed in Section 3.12.2 of the
Company Disclosure Schedule, the Company has complied in all
material respects with all Labor Agreements and all
applicable Laws and Orders relating to employment or labor.
To the Company's knowledge, no such Law or Order of
California requires Buyer to give any notice, make any
filing, receive any approval, or take any other action to,
with, or from or with respect to any Authority in connection
with the transactions contemplated hereby. Except as
disclosed in Section 3.12.2 of the Company Disclosure
Schedule, there is no legal prohibition with respect to the
permanent residence of any Company employee in the United
States or his or her permanent employment by the Company or
the Buyer. No present or former employee, officer or
director of the Company has, or will have at the Closing
Date, any claim against the Company for any matter
including, without limitation, for wages, salary, vacation
or sick pay, or under any Welfare Plan. Except as disclosed
in Section 3.12.2 of the Company Disclosure Schedule, there
is no:
(a) unfair labor practice complaint
against the Company pending before the National Labor Rela-
tions Board or any state or local agency;
(b) pending labor strike or other
material labor trouble affecting the Company;
(c) material labor grievance pending
against the Company;
(d) pending representation question
respecting the employees of the Company; or
(e) pending arbitration proceeding
arising out of or under any collective bargaining agreement
to which the Company is a party.
In addition, to the knowledge of the Company and
each Key Officer in the ordinary course of business (and
without any special investigation): (i) none of the matters
specified in clauses (a) through (e) above is threatened
against the Company; (ii) no union organizing activities
have taken place with respect to the Company; (iii) no basis
exists for which a claim may be made under any collective
bargaining agreement to which the Company is a party; and
(iv) all employees referred to in Section 6.7 are in good
health. There has been no mass layoff or plant closing as
defined in the Worker Adjustment and Retraining Notification
Act or any similar state or local "plant closing" law with
respect to the employees of the Company.
3.13 Pension and Benefit Plans. All accrued
obligations of the Company applicable to its employees,
whether arising by operation of Law, by contract, by past
custom or otherwise, for payments by the Company to trusts
or other funds or to any governmental agency, with respect
to unemployment compensation benefits, social security
benefits or any other benefits for its employees with
respect to the employment of said employees through the date
hereof have been paid or adequate accruals therefor have
been made on the Books and Records. All reasonably
anticipated obligations of the Company with respect to such
employees, whether arising by operation of Law, by contract,
by past custom, or otherwise, for salaries, vacation and
holiday pay, sick pay, bonuses and other forms of
compensation payable to such employees in respect of the
services rendered by any of them prior to the date hereof
have been or will be paid by the Company prior to the
Closing Date. The Company does not currently maintain,
contribute to or participate in any Pension Plan (whether
single employer, multi-employer or otherwise), has not
maintained, contributed to or participated in any Pension
Plan and has no commitment to adopt a Pension Plan. The
Company does not have, and has never had, any ERISA
Affiliate. The Company has no liability, and to its best
knowledge, is not aware of any potential liability,
including, but not limited to, joint and several liability
for Pension Plans of current or former ERISA Affiliates,
with respect to any Pension Plan. Except as disclosed in
Section 3.13 of the Company Disclosure Schedule, as of the
date hereof:
(a) the Company does not maintain or
participate in, and have any obligation to contribute to,
have in effect, and has not committed to adopt, any Welfare
Plan (or improvement thereto);
(b) each ERISA Plan conforms in form and
operation, in all material respects to all applicable Laws
and Orders, including ERISA and the applicable provisions of
the Code. All notices, reports, returns, applications and
disclosures have been timely made which are required to be
made to the Internal Revenue Service, the U.S. Department of
Labor, the Pension Benefit Guaranty Corporation, any
participants in the ERISA Plans, any trustee, or any insurer
with respect to the ERISA Plans;
(c) the Company has made or provided for
(with fully-funded reserves) all contributions heretofore
required to have been made under all of the ERISA Plans, and
will, by the Closing Date, have made or provided for (with
fully-funded reserves) all contributions required to be made
on or before the Closing Date under all such plans;
(d) no ERISA Plan nor any trust created
thereunder, nor any trustee or administrator thereof has
engaged in a transaction which may subject any of such ERISA
Plans, any such trust, or any party dealing with such ERISA
Plans or any such trust (including the Company), to the Tax
or penalty on prohibited transactions imposed by Section
4975 of the Code or to a civil penalty imposed by Section
502 of ERISA;
(e) there are no material actions, claims or
lawsuits which have been asserted or instituted against any
of the ERISA Plans or the trusts thereunder, and to the
knowledge of the Company or any Key Officer, no basis for
such action, claim or lawsuit exists, and no such action,
claim or lawsuit has been threatened;
(f) the Company has not agreed to indemnify
any other party for any liabilities or expenses which have
been or may in the future be incurred by or asserted against
such other party in respect of any ERISA Plan;
(g) the Company has no unpaid liability in
respect of any employee for any contribution and/or premium
due under any Welfare Plan constituting one of the ERISA
Plans and has no liability as to any benefits to which any
employee may be entitled under any Welfare Plan constituting
one of the ERISA Plans, whether for benefits due or claims
filed which is not fully and accurately reflected on its
Financial Statements;
(h) the Company does not maintain or
participate in any Welfare Plan which provides for
continuing benefits or coverage for any participant or any
spouse, dependent or beneficiary under such plan after
termination of employment, except as may be required by the
Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended ("COBRA") and the regulations thereunder and at the
expense of the participant or the beneficiary of the
participant. The Company is in compliance with the COBRA
notice and continuation coverage requirements with respect
to all plans which it maintains or in which it participates;
and
(i) except as disclosed in Section 3.13 of
the Company Disclosure Schedule, the transaction
contemplated by this Agreement will not (under a Labor
Agreement, an ERISA Plan or otherwise) result in any
increase in benefit payable or acceleration of benefit
vesting or liability for severance or termination pay or any
similar payment to any current or former employee of the
Company.
3.14 Insurance. Section 3.14 of the Company Dis-
closure Schedule sets forth a true and complete list of all
policies or binders of fire, liability, workers' compensa-
tion, vehicular or other insurance held by or on behalf of
the Company specifying the type of policy, the insurer, the
policy number or covering note number with respect to
binders and describing each pending claim thereunder. Such
policies and binders are in full force and effect and are in
all material respects in accordance with the customary
insurance requirements for the industry of the Company and
in compliance with all applicable Laws and Orders. The
Company is not, and has not been, in any material respect in
default, with respect to any provision contained in any such
policy or binder or failed to give any notice or present any
claim under any such policy or binder in due and timely
fashion. There are no outstanding unpaid claims under any
such policy or binder. The Company has not received a
notice of cancellation or non-renewal of any such policy or
binder. The Company has no knowledge of any inaccuracy in
any application for such policies or binders, any failure to
pay premiums when due, or any similar state of facts which
may form the basis for termination of any such insurance.
The Company has never been refused any insurance with
respect to its properties or operations, nor has its insur-
ance coverage ever been limited. No such policy is ter-
minable or cancelable by the insurer by virtue of the
consummation of the transactions contemplated herein.
3.15 Suppliers and Customers.
(a) Section 3.15(a) of the Company
Disclosure Schedule is a true, complete and current list of
the Company's customers (including distributors). All
information previously delivered by the Company to Buyer
relating to its customers and sales of its product is true,
complete and correct in all material respects. Except as
disclosed in Section 3.15(a) of the Company Disclosure
Schedule, no single supplier or customer of the Company is
of material importance to the Company. Except as set forth
in Section 3.15(a) of the Company Disclosure Schedule, the
relationships of the Company with its suppliers, customers,
and sales representatives are good commercial working
relationships, and no Person who was a supplier, customer,
or sales representative of the Company at any time during
the Company's previous fiscal year or the current fiscal
year has canceled or otherwise terminated, or threatened to
cancel or otherwise terminate, its relationship with the
Company or decreased or limited materially, or threatened to
decrease or limit materially, its services, supplies, or
materials to the Company or its purchases of the services or
products of the Company. Except as set forth in Section
3.15(a) of the Company Disclosure Schedule, the Company has
no knowledge that any such supplier, customer, or sales
representative intends to cancel or otherwise modify its
relationship with the Company or to decrease materially or
limit its services or products to the Company or its
purchases of the services or products of the Company.
Except as set forth in Section 3.15(a) of the Company
Disclosure Schedule, the execution, delivery, or performance
of this Agreement, or the consummation of the transactions
contemplated hereby will not, to the knowledge of the
Company or any Key Officer, adversely affect the
relationship of the Business with any such supplier,
customer or sales representative.
(b) Each written commitment or Contract or
Other Agreement to which an Authority is a party or
obligating Company, for the benefit of any Authority, to
maintain a supply of any Company product, and any
commitment, sales order, or Contract or Other Agreement
requiring the Company to deliver or sell any Company product
at a date later than six months after the date hereof, is
described in Section 3.15(b) of the Company Disclosure
Schedule or identified in Section 3.11(a) of the Company
Disclosure Schedule.
(c) Section 3.15(c) of the Company
Disclosure Schedule sets forth (i) a true, complete, and
accurate list, since January 1, 1995, of all sales
representatives of the Company and (ii) a true, complete,
and accurate list of each Person who has or to the Company's
knowledge, claims any right to sell Company products in any
geographic area or to any particular customer, and a
reasonably detailed description of such right or claim.
3.16 Warranties and Merchandising.
(a) Section 3.16(a) of the Company
Disclosure Schedule sets forth (i) true, complete and
accurate copies or descriptions of all of the Company's
forms of warranty now in effect with respect to any Company
product; (ii) a true, complete and accurate list of all
warranty claims made with respect to any Company product
during the last fiscal year or the current fiscal year,
identifying the product, customer, nature of the claim and
date made, remedial action taken, and dollar amount
involved; (iii) a true, complete, and accurate description
of all of the Company's stock rotation or co-op advertising
obligations; and (iv) a true, complete and accurate list of
all Contracts or Other Agreements and other documents of the
Company, other than Labor Agreements, providing for or
describing or otherwise obligating the Company with respect
to incentives for sales of Company products or to make
payments to or for a customer, or make any other
accommodation for a customer, or take back any Company
product from a customer (or in absence of such Contract or
Other Agreement or document, Section 3.16(a) of the Company
Disclosure Schedule accurately and completely describes each
such obligation and the customers to whom such obligation is
owed).
(b) As of December 31, 1995, the aggregate
of all unfilled accepted orders for the sale of Company
products is approximately $289,000. A true, complete, and
accurate list of all of such orders, specifying amount,
customer date accepted, and date due is contained in
Section 3.16(b) of the Company Disclosure Schedule.
3.17 Product Quality.
3.17.1 Claims and Occurrences. Except as
disclosed in Section 3.17.1 of the Company Disclosure
Schedule, there is no claim now pending or, to the knowledge
of the Company or any Key Officer in the ordinary course of
business and without special investigation, threatened by or
before any Authority alleging any defect in any product
manufactured, shipped, sold or delivered by the Company or
alleging, with respect thereto, any failure of the Company
to warn or any breach by the Company of any implied warranty
or representation, as a result of which personal injury or
property damage is alleged to have occurred, nor to the
knowledge of the Company or any Key Officer is there any
valid basis for any such claim.
3.17.2 Compliance With Standards. All
products, manufacturing standards applied, and testing
procedures used comply in all material respects with all
applicable specifications and the product literature in
which they are described and all applicable Laws
promulgated, administered or enforced by the Federal
Communications Commission and with all applicable standards
established by Underwriters Laboratory, or equivalent U.S.
laboratory, CISPR, or CSA.
3.18 Potential Conflicts of Interest. Except as
disclosed in Section 3.18 of the Company Disclosure Sched-
ule, none of the Key Employees, and no Affiliate of any of
them, (i) holds a beneficial interest in any Contract or
Other Agreement of the Company (other than contracts,
commitments, or agreements between the Company and such
persons in their capacities as employees, officers, or
directors of the Company) or (ii) owns, directly or
indirectly, in whole or in part, any tangible or intangible
property (including, without limitation any Patent, Mark,
franchise, invention, permit, license, Trade Secret, or
confidential information) that the Company uses or the use
of which is necessary for the Company's conduct of the
Business.
3.19 Certain Transactions. Except as disclosed in
Section 3.19 of the Company Disclosure Schedule, all
purchases and sales or other transactions, if any, between
the Company, on the one hand, and any Key Officer, officer,
director, Shareholder, Key Employee or Affiliate thereof, on
the other hand, have been made on the basis of prevailing
market rates and terms, such that all such transactions have
been on terms no less favorable to the Company than those
that would have been available from unrelated third parties.
3.20 Powers of Attorney and Suretyships. Except
as disclosed in Section 3.20 of the Company Disclosure
Schedule, the Company has no general or special powers of
attorney outstanding (whether as grantor or grantee thereof)
or any obligation or liability (whether actual, accrued,
accruing, contingent, or otherwise) as guarantor, surety,
co-signer, endorser, co-maker, indemnitor or otherwise in
respect of the obligation of any Person.
3.21 Banking Facilities. Section 3.21 of the Com-
pany Disclosure Schedule contains a true and complete list
of:
(a) each bank, savings and loan, or other
financial institution with which the Company has an account
or safety deposit box and the numbers of the accounts or
safety deposit boxes maintained by the Company thereat; and
(b) the names of all persons authorized to
draw on each such account or to have access to any such
safety deposit box facility, together with a description of
the authority (and conditions thereof, if any) of each such
person with respect thereto.
3.22 Absence of Adverse Changes. Neither the
Company nor any Key Officer knows or has reason to know of
any material fact or contingency that could reasonably be
expected to have a material adverse effect upon the
condition (financial or otherwise), Assets, liabilities,
Business, operations or prospects (before or after the
Closing Date) of the Company or the Core Logic Business
Unit, the value or utility of the Assets, or the ability of
the Company to consummate the transactions contemplated
herein or in the other Company Documents.
3.23 Full Disclosure. The Company has heretofore
made all of the Books and Records available to Buyer for its
inspection and has heretofore delivered to Buyer copies of
all Material Contracts and other documents referred to in
the Company Disclosure Schedule. All Material Contracts,
documents, and other papers or copies thereof delivered to
Buyer by or on behalf of the Company in connection with this
Agreement or the other Company Documents and the
transactions contemplated herein or therein are accurate,
complete, and authentic. Furthermore, the information
furnished to Buyer by or on behalf of the Company in
connection with this Agreement or the other Company
Documents and the transactions contemplated herein or
therein does not contain any untrue statement of a material
fact and does not omit to state any material fact necessary
to make the statements made, in the context in which they
are made, true or not misleading. Except for matters of
general application relating to companies similarly situated
to the Company, there is no fact that the Company has not
disclosed to Buyer in writing that could reasonably be
expected to have a material adverse effect upon the
condition (financial or otherwise), Assets, liabilities,
Business, operations, properties or prospects (before or
after the Closing Date), of the Company or the Core Logic
Business Unit, the value or utility of the Assets, or the
ability of the Company to consummate the transactions
contemplated herein or in the other Company Documents.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Company as
follows:
4.1 Due Incorporation. The Buyer is a
corporation duly organized, validly existing and in good
standing under the Laws of the State of Delaware and has all
requisite power and authority to own, lease, and operate its
assets, properties and business and to carry on its business
as now conducted.
4.2 Authority to Execute and Perform Agreements.
Subject to the further approval of the Board of Directors of
the Buyer referred to in Section 6.10, the Buyer has all
requisite corporate power, authority, and approval required
to enter into, execute, and deliver this Agreement and the
other agreements to be executed by it hereunder and to
perform fully its obligations hereunder and thereunder.
4.3 Due Authorization. Subject to the further
approval of the Board of Directors of the Buyer referred to
in Section 6.10, the Buyer has taken all action necessary to
authorize it to enter into and perform its obligations under
this Agreement and all other agreements to be executed by it
hereunder and to consummate the transactions contemplated
herein and therein. Subject to such further approval, this
Agreement and such other agreements will be, as of the Clos-
ing Date, the legal, valid, and binding obligations of the
Buyer, enforceable in accordance with their respective
terms, except as such may be subject to the effect of
bankruptcy, insolvency, reorganization, moratorium or
similar laws or equitable principles relating to or limiting
creditors' rights generally (including, without limitation,
laws pertaining to preferential and fraudulent transfers),
and that equitable remedies are subject to the discretion of
the court. Upon issuance pursuant to this Agreement, the
Buyer Common will be legally and validly issued, fully paid,
and nonassessable.
4.4 No Violation. Subject to Section 4.5,
neither the execution and delivery of this Agreement and all
other agreements to be executed by Buyer hereunder nor the
consummation of the transactions contemplated herein and
therein will (a) violate any provision of the Certificate of
Incorporation or bylaws of Buyer; (b) violate, conflict
with, or constitute a default under any agreement to which
Buyer is a party or by which it or its property is bound;
(c) require the consent of any party to any Material
Contract or Other Agreement to which Buyer is a party or by
which it or its property is bound; or (d) violate any Laws
or Orders to which Buyer or its property is subject.
4.5 Required Consents. Each consent, approval,
authorization, waiver, and other requirement prescribed by
any Law or Order or material contract or other material
agreement that must be obtained or satisfied by Buyer and
that is necessary for the execution and delivery by Buyer of
this Agreement and all other agreements to be executed by it
hereunder and the consummation of the transactions
contemplated herein or therein are listed on Section 4.5 of
the Buyer Disclosure Schedule.
ARTICLE V
CERTAIN COVENANTS
The parties hereto covenant and agree as follows:
5.1 Business Examinations and Physical
Investigations of Assets. Prior to the Closing Date, the
Buyer shall be entitled, through its employees and
representatives, including, without limitation, Loeb & Loeb
LLP and Arthur Andersen LLP, to make such investigations and
examinations of the Company, its Books and Records, the
Business, and the Assets as Buyer may reasonably request.
In order that Buyer may have the full opportunity to do so,
the Company shall furnish Buyer and its representatives
during such period with all information concerning the
Business and the Assets as Buyer or such representatives may
reasonably request and cause the Company's officers,
employees, consultants, agents, accountants, and attorneys
to cooperate fully with Buyer and such representatives and
to make full disclosure of all information and documents
requested by Buyer and/or such representatives. Any such
investigations and examinations shall be conducted at
reasonable times and under reasonable circumstances. No
investigation by Buyer shall, however, diminish or obviate
in any way, the effectiveness of any of the representations,
warranties, covenants, or agreements of the Company or any
of the Key Officers contained in this Agreement. All
information shall be kept confidential pursuant to Section
11.2.
5.2 Conduct of Business.
(a) From the date hereof through the Closing
Date, the Company shall conduct the Business in such a
manner that the representations and warranties contained in
Article III shall continue to be true and correct in all
material respects as of the Closing Date as if made at and
as of the Closing Date.
(b) From the date hereof through the Closing
Date, the Company shall conduct the Business only in the
ordinary course and consistent with its prior practices,
shall not make or institute any unusual or novel methods of
manufacture, purchase, sale, lease, management, accounting
or operation or that vary materially from those in use as of
the date hereof and shall maintain, keep and preserve the
Assets in good condition and repair. In addition, the
Company shall use its best efforts (i) to preserve the
Business and organization of the Company intact, (ii) to
keep available to Buyer the services of the Company's
present officers, employees, agents and independent
contractors, (iii) to preserve for the benefit of Buyer the
goodwill of the Company's suppliers, customers, landlords
and others having business relations with it, and (iv) to
cooperate with Buyer and use reasonable efforts to assist
Buyer in obtaining the consent of any landlord, licensor, or
other party to any lease or Contract or Other Agreement with
the Company where the consent of such landlord or other
party may be required by reason of the transactions
contemplated herein. Without limiting the generality of the
foregoing, prior to the Closing, the Company shall not with-
out Buyer's prior written approval:
(x) enter into any Contract or Other
Agreement, commitment or other understanding
or arrangement,
(y) perform, take any action or incur or
permit to exist any of the acts,
transactions, events or occurrences of the
type (1) described in Section 3.6.5 which
would have been inconsistent with the
representations and warranties set forth
therein had the same occurred after the
Balance Sheet Date and prior to the date
hereof or (2) described in Section 3.19 that
would be required to be set forth on Section
3.19 of the Company Disclosure Schedule if it
had previously taken place, or
(z) amend or propose to amend its
Articles of Incorporation or by-laws.
5.3 Changes in Business. From the date hereof
through the Closing Date, the Company shall consult with,
and in good faith consider implementing the instructions of,
Buyer with respect to (i) the cancellation of Contracts or
Other Agreements, commitments or other understandings or
arrangements to which the Company is a party, including,
without limitation, purchase orders for any item of
Inventory and commitments for capital expenditures or
improvements; (ii) entering into any Contract or Other
Agreement of a kind referred to in Section 3.11(c);
(iii) the commencement in one or more of the Company's loca-
tions of the orderly and gradual discontinuance of par-
ticular items or operations; (iv) the purchasing, pricing or
selling policies (including, without limitation, selling at
discounts merchandise of the Business); and (v) the
settlement or disposition of any litigation or claim.
5.4 Insurance. From the date hereof through the
Closing Date, the Company shall maintain in force (including
necessary renewals thereof) the insurance policies listed in
Section 3.14 of the Company Disclosure Schedule, except to
the extent that they may be replaced with equivalent
policies appropriate to insure the Assets and the Business,
to the same extent as currently insured at the same rates or
at different rates approved by Buyer.
5.5 No Defaults. From the date hereof through
the Closing Date, the Company shall not commit a material
default under any term or provision of, or suffer or permit
to exist any condition or event which, with notice or lapse
of time or both, would constitute a material default by the
Company under, any Material Contract or any License or
Permit.
5.6 Reporting and Compliance With Law. From the
date hereof through the Closing Date, the Company shall duly
and timely file all Tax Returns required to be filed with
Authorities and duly observe and conform, in all material
respects, to all applicable Laws and Orders.
5.7 Litigation. From the date hereof through the
Closing Date, the Company shall promptly notify Buyer of any
lawsuit, claim, proceeding, or investigation that after the
date hereof is threatened or commenced against the Company,
or to the Company's knowledge, any officer, director,
employee, consultant, agent or Shareholder, in his, her or
its capacity as such, which, if decided adversely, could
reasonably be expected to have a material adverse effect
upon the condition (financial or otherwise), Assets,
liabilities, Business, operations or prospects (before or
after the Closing Date) of the Company or the Core Logic
Business Unit, the value or utility of the Assets or the
ability of the Company to consummate the transactions
contemplated herein or the other Company Documents.
5.8 Arrangements with Employees. From the date
hereof until the Closing Date, the Company, after prior
reasonable notice from Buyer, shall permit Buyer to approach
and negotiate with any or all employees of the Company,
including, but not limited to, managerial staff, in an
effort to persuade them to continue in the employ of the
Company pending the Closing and thereafter to become
employees of the Buyer. The Company shall cooperate with
Buyer in such negotiations.
5.9 No Solicitation or Negotiation. Unless and
until this Agreement shall be terminated, the Company shall
not, nor shall it cause, suffer or permit its directors,
officers, employees, representatives, agents, accountants or
attorneys to, initiate or solicit, directly or indirectly,
any inquiries or the making of any proposal, or engage in
negotiations or discussions with any Person, or provide any
confidential information or data to any Person, with respect
to any acquisition, business combination or purchase of all
or substantially all of the Assets or any significant Asset
(other than Inventory in the ordinary course) of the
Company, or any direct or indirect equity interest in the
Company or otherwise facilitate any effort or attempt to
seek any of the foregoing. Furthermore, the Company shall
immediately terminate any existing activities, discussions
or negotiations with any Person with respect to any of the
foregoing.
5.10 Agreement with Monolithic Systems Technology.
The parties will use best efforts to cause to be executed
and delivered an agreement between Monolithic Systems
Technology, Inc., a California corporation ("MoSys"), Buyer,
and the Company (the "MoSys Agreement") satisfactory to
Buyer, granting to Buyer substantially the same rights as
are granted to Company pursuant to an Agreement dated
October 12, 1994 between MoSys and Company.
5.11 Registration of Buyer Common.
5.11.1 Registration Procedures. Buyer
hereby agrees to use best efforts to cause to be registered
under and in accordance with the Securities Act (a
"Registration") the Buyer Common constituting the Initial
Payment. In addition, Buyer hereby agrees to use best
efforts to cause a Registration, on one occasion in each 12
month period in which a Contingent Payment is made, of the
Buyer Common so issued to the Company during such 12 month
period In Connection with such Registrations, Buyer will,
as expeditiously as practicable, after the Closing in the
case of the Initial Payment, and after the second, fourth
and sixth Contingent Payments are made in the case of the
Contingent Payments:
(a) prepare and file with the Securities and
Exchange Commission (the "SEC") a registration statement
under the Securities Act covering the applicable Buyer
Common issued to the Company hereunder (a "Registration
Statement") and use its best efforts to cause such
Registration Statement to become and remain effective as
provided herein and shall use its best efforts to comply
with the Securities Act of 1933, as amended (the "Securities
Act") and the rules and regulations of the SEC in preparing
and filing such Registration Statement;
(b) prepare and file with the SEC such
amendments and post-effective amendments to the Registration
Statement as may be necessary to keep the Registration
Statement effective for a period of not less than two years
from the date of issuance of the Buyer Common covered by
such Registration Statement; cause the prospectus which is
part of the Registration Statement ("Prospectus") to be
supplemented by any required Prospectus supplement, and as
so supplemented to be filed pursuant to Rule 424 under the
Securities Act; and comply with the provisions of the
Securities Act applicable to it with respect to the
disposition of all securities covered by such Registration
Statement during such two-year period;
(c) make every reasonable effort to obtain
the withdrawal of any order suspending the effectiveness of
the Registration Statement at the earliest practicable time;
and
(d) on or prior to the date on which the
Registration Statement is declared effective, use its best
efforts to register or qualify the Buyer Common covered by
such Registration Statement under the securities laws of the
States of California and New York.
5.11.2 Obligations of the Company.
(a) The Company will furnish to Buyer in
writing such information and affidavits as Buyer may
reasonably request or as may be required in connection with
any registration, qualification or compliance with respect
to the Buyer Common. The Company shall give prompt notice
to Buyer of each sale by the Company of Buyer Common
registered pursuant hereto.
(b) The Company will not sell any Buyer
Common issued to the Company hereunder until a Registration
Statement covering same shall become effective and same
shall have been qualified for sale under applicable state
securities laws, except pursuant to applicable exemptions.
Immediately on notice from Buyer, the Company will cease
sales of the Buyer Common, for so long as Buyer shall advise
Company such cessation is required under applicable Federal
or state securities laws. The Company shall not adopt any
plan to dissolve the Company or distribute Buyer Common to
Shareholders until after two years from the Closing Date.
(c) At the end of any period during which
Buyer keeps any Registration Statement current and effective
as provided by Section 5.11.1(b) hereof, the Company shall
discontinue sales of Buyer Common pursuant to such
Registration Statement and the Company shall notify Buyer of
the number of shares of Buyer Common registered which remain
unsold at the end of such period.
5.11.3 Registration Expenses. All of the
costs and expenses of each registration hereunder will be
borne by the Buyer, including all registration and filing
fees, the fees and expenses of Buyer's counsel and
accountants and all other costs and expenses incident to
Buyer's performance of or compliance with this Agreement,
including without limitation the preparation, printing (or
otherwise duplicating) and filing under the Securities Act
of the Registration Statement (and all amendments and
supplements thereto) and furnishing copies thereof and of
the Prospectus included therein, and the costs and expenses
incurred in connection with the qualification of the Buyer
Common issued to the Company hereunder under the securities
laws of the States of California and New York; provided,
that Buyer shall not bear costs and expenses of the Company
comprising brokerage fees, transfer taxes, the fees and
expenses of any counsel, accountants or other
representatives retained by the Company, or any fees, costs
or expenses required to be borne by the Company under state
securities laws.
5.11.4 Indemnification.
(a) The Buyer agrees to indemnify and hold
harmless the Company and its officers and directors and each
Person who controls the Company (within the meaning of the
Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), against any losses, claims,
damages, liabilities (joint or several) and expenses
(including attorneys' fees) caused by any untrue or alleged
untrue statement of a material fact contained in any
Registration Statement, Prospectus, or preliminary
Prospectus or any amendment or supplement to any of the
foregoing or any omission or alleged omission to state
therein a material fact necessary to make the statements
therein (in the case of the Prospectus or any preliminary
Prospectus, in light of the circumstances under which they
were made) not misleading, except insofar as the same are
caused by (i) or contained in any written information
furnished to Buyer in connection with the preparation of
such Prospectus by the Company, (ii) violation by the
Company of Section 5.11.2, or (iii) the failure of the
Company to deliver a copy of the Registration Statement or
Prospectus or any amendment or supplement thereto after
Buyer has furnished the Company with a copy thereof.
(b) The Company and the Key Officers,
jointly and severally, agree to indemnify, to the full
extent permitted by Law, Buyer, its directors and officers
and each Person who controls Buyer (within the meaning of
the Securities Act and the Exchange Act) against any losses,
claims, damages, liabilities and expenses (including
attorneys' fees) resulting from (i) any untrue or alleged
untrue statement of a material fact or any omission or
alleged omission to state a material fact necessary to make
the statements in the Registration Statement or Prospectus
or preliminary Prospectus (in the case of the Prospectus or
any preliminary Prospectus, in light of the circumstances
under which they were made) not misleading to the extent,
that such untrue statement or omission was made in reliance
upon written information furnished by the Company in
connection with the preparation of such Prospectus or (ii)
the breach of any covenant in Section 5.11.2.
(c) Any Person entitled to indemnification
hereunder will (i) give prompt written notice to the
indemnifying party of any claim with respect to which it
seeks indemnification, and (ii) unless in such indemnified
party's reasonable judgement a conflict of interest may
exist between such indemnified and indemnifying parties with
respect to such claim, permit such indemnifying party to
assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. Whether or not such
defense is assumed by the indemnifying party, the
indemnifying party will not be subject to any liability for
any settlement made without its consent (but such consent
will not be unreasonably withheld). The failure of an
indemnified party to give notice pursuant to clause (i)
above shall not relieve any indemnifying party of its
obligations hereunder except to the extent such indemnifying
party is prejudiced by such failure. No indemnifying party
will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect
of such claim or litigation. An indemnifying party who is
not entitled to, or elects not to, assume the defense of a
claim will not be obligated to pay the fees and expenses of
more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless, in
the reasonable judgment of any indemnified party, a conflict
of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such
claim, in which event the indemnifying party shall be
obligated to pay the fees and expenses of such additional
counsel of counsels.
(d) If for any reason the indemnification
provided for in the preceding clauses (a) and (b) is
unavailable to an indemnified party as contemplated by the
preceding clauses (a) and (b), then the indemnifying party
shall as a result of such loss, claim, damage or liability
in such proportion as is appropriate to reflect not only the
relative benefits received by the indemnified party and the
indemnifying party, but also the relative fault of the
indemnified party and the indemnifying party, as well as any
other relevant equitable considerations.
5.12 Shareholder Matters.
5.12.1 Notices to Shareholders.
Immediately following execution hereof, Company shall (a)
notify each Option Holder, in accordance with paragraph 9b
of the Company's 1992 Stock Option Plan, that the Company
has declared the options outstanding thereunder terminated
in accordance therewith and (b) transmit to each Shareholder
the Consent Solicitation.
5.12.2 CA-GCL Section 1301. The Company
shall comply with CA-GCL Section 1301 after Shareholder
Approval shall have been obtained.
5.12.3 Review by Buyer. Company shall
afford Buyer reasonable opportunity to review and comment
upon all notices, Consent Solicitations, and other documents
and instruments to be distributed by Company pursuant to
this Section 5.12, prior to distribution of same.
5.13 Records. Following the Closing, upon the
request of Buyer, on the one hand, or the Company on the
other, the other party shall make available to the
requesting party such records and information relating to
the Company in its possession that the other party may
reasonably require in connection with income, franchise or
other tax matters or for any other proper purpose under
circumstances where such information cannot be readily
obtained from other sources.
5.14 Covenants Not to Compete.
5.14.1 Covenant. The Company covenants
and agrees that for a period of ten years from the date
hereof, it shall not, directly or indirectly, as principal,
partner, agent, servant, employee, consultant, stockholder,
or otherwise, anywhere in the world (the "Territory"),
engage or attempt to engage in any business activity
competitive with the Business.
5.14.2 Reasonableness of Restrictions.
Buyer and Company acknowledge and agree that it is not
possible to limit the geographic scope of the covenants not
to compete contained in this Agreement to particular cities,
counties or other geographic subdivisions of any
jurisdiction. For purposes of Section 16601 of the
California Business and Professions Code, the parties agree
that the names of each and every city and county of
California, which are listed on Exhibit 5.14.2, and every
other jurisdiction covered hereby, are incorporated by
reference herein. The Company recognizes that the foregoing
territorial and time limitations are reasonable and properly
required for the adequate protection of the business of
Buyer and the Affiliates of Buyer and that in the event that
any such territorial or time limitation is deemed to be
unreasonable in arbitration or otherwise, the Company agrees
to request, and to submit to, the reduction of said
territorial and/or time limitation to such an area or period
as shall be deemed reasonable by the Arbitrator, as herein-
after defined, or other tribunal.
5.14.3 Separate Covenants. Buyer and the
Company intend for the covenants not to compete contained in
this Agreement to comply with the provisions of California
Business and Professions Code Section 16601, and to be
construed as a series of separate covenants, one for each
county, state, market area or business area, and for each
year. Except for geographic coverage, each such covenant
shall be deemed identical in terms to the covenants in
Section 5.14.1 of this Agreement.
5.14.4 Increased Time Limitations. In the
event that the Company shall be in violation of the
aforementioned restrictive covenants, then the time
limitation thereof shall be extended for a period of time
during which such breach or breaches shall occur.
5.14.5 Severability of Claims. The
existence of any claim or cause of action by the Company
against Buyer or any Affiliate of Buyer, if any, whether
predicated upon this Agreement or otherwise, shall not
constitute a defense to the enforcement by Buyer or any
Affiliate of Buyer of the foregoing restrictive covenants
but shall be resolved by separate proceeding.
5.14.6 Injunctive Relief. The Company
agrees that a remedy at law for any breach of the foregoing
shall be inadequate and that Buyer or any Affiliate of Buyer
shall be entitled to injunctive relief, in addition to any
other remedy it might have.
5.15 Core Logic Technology Package. The parties
shall, on the day before the Closing Date, prepare a
technology package (the "Core Logic Technology Package"),
the partial contents of which are defined and documented in
the Escrow Agreement. The Core Logic Technology Package
shall contain the source database materials for two
revisions of the following Company devices:
EC924
EC932
EC926
The first database shall reflect the last revisions of each
design database which was used to produce working
semiconductor devices for each part number. A copy of each
device, labeled according to the appropriate revision, shall
be included in the Core Logic Technology Package. The
second database shall reflect the latest revision of the
designs of each referenced Company device, effective
48 hours prior to the Closing. The Company covenants that
the Core Logic Technology Package, when utilized with
appropriate Assets, and without undue additional engineering
or other planning, will enable a person ordinarily skilled
in the art to design, develop, make, use, sell, support,
service, and maintain the Core Logic Products.
5.16 Remittance of Payments. The Company shall
promptly remit and pay over in kind to the Buyer any and all
payments received by it from customers or vendors of the
Company in respect of products or services provided by the
Company prior to the Closing Date, including any payments
made in respect of the Accounts Receivable. Any payment
made in the form of a check or other negotiable instrument
shall be endorsed and made payable by the Company to the
Buyer. The Company will cooperate with the Buyer,
immediately after the Closing, in notifying all Persons
owing any obligation to the Company, thereafter to remit or
pay same to the Buyer.
5.17 Company Debts. The Company shall promptly
pay or satisfy any and all of its debts or obligations not
assumed by the Buyer pursuant to this Agreement as the same
shall become due and payable.
5.18 Core Logic Business Unit. The Buyer intends
to operate the Assets as a business unit to be named the
"Core Logic Business Unit" on a basis substantially the same
as the other business units of the Buyer are operated.
Buyer agrees that it will not take any action or execute any
transaction (other than to enforce this Agreement), with a
principal intention of avoiding or eliminating any
Contingent Payment.
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATION
OF BUYER TO CLOSE
The obligation of Buyer to consummate the trans-
actions contemplated herein shall be subject to the
fulfillment, at or before the Closing Date, of all of the
conditions set forth below in this Article VI. Buyer may
waive any or all of such conditions in whole or in part
without prior notice; provided, however, that no such waiver
shall constitute a waiver by Buyer of any right or remedy
otherwise available to it if the Company or any Key Officer
shall be in default of any of its, his or her
representations, warranties or covenants contained in this
Agreement, or any Shareholder shall be in default of any of
his, her, or its representations, warranties, or covenants
contained in the Solicitation Documents.
6.1 Representations and Warranties; Performance
of Covenants. The representations and warranties of the
Company and the Key Officers contained in this Agreement and
in any other Company Document shall be true in all material
respects on and as of the Closing Date with the same force
and effect as though made on and as of the Closing Date, and
each obligation of the Company or any of the Key Officers to
be performed by him, her, or it on or before the Closing
Date pursuant to the terms of this Agreement shall have been
duly performed in all material respects on or before the
Closing Date; there shall not have occurred between the date
hereof and the Closing Date any material adverse change in
the condition (financial or otherwise), Assets, liabilities
(whether absolute, accrued, contingent or otherwise),
Business, operations, or prospects of the Company, or in the
value or utility of the Assets, or in the ability of the
Company to consummate the transactions contemplated herein
or the other Company Documents; no action, suit or
proceeding shall have been instituted before any court or
governmental body or instituted or threatened by any
governmental agency or body which has or may have, in the
opinion of Buyer, a material adverse effect on the condition
(financial or otherwise), Assets, properties, Business or
prospects of the Company or the Core Logic Business Unit;
and the Company shall have delivered to Buyer a certificate
to such effect dated the Closing Date signed by the
President and Chief Financial Officer of the Company.
6.2 Shareholder Action. Shareholder Approval
shall have been obtained by unanimous vote or written
consent of the Shareholders.
6.3 Third Party Consents. All consents, Licenses
and Permits, or approvals from Authorities parties to any
Material Contract which may be required or be desirable in
connection with (a) the consummation of the transactions
contemplated hereby and (b) the Buyer's ownership of the
Assets and operation of the Business, shall have been
obtained upon terms and conditions satisfactory to Buyer.
Consent of the lenders to Buyer which may be required or be
desirable in connection with the consummation of the
transactions contemplated hereby shall have been obtained
upon terms and conditions satisfactory to Buyer.
6.4 Opinion of Counsel to the Company. Buyer
shall have received the favorable opinion of Skjerven,
Morrill, MacPherson, Franklin & Friel, counsel to the
Company in the form of Exhibit 6.4. Such opinion shall also
cover such other matters incident to the transactions
contemplated by this Agreement as Buyer may reasonably
request.
6.5 Approval of Counsel to Buyer. All actions
and proceedings hereunder and all documents and other papers
required to be delivered by the Company hereunder or in
connection with the consummation of the transactions
contemplated herein, and all other related matters shall
have been approved in its reasonable discretion by Loeb &
Loeb LLP, counsel to Buyer, as to their form and substance.
6.6 No Amendments to Resolutions; Corporate
Status. The resolutions of the Company's Board of Directors
referred to in Section 3.1.4 and of the Shareholders
constituting Shareholder Approval shall not have been
modified or rescinded. The Company shall be in good
standing under the laws of California and each jurisdiction
in which it shall have qualified to do business and shall
have delivered to Buyer (a) a certified copy of its Articles
of Incorporation, (b) a true and correct copy of its bylaws
certified by the Company's Secretary, (c) good standing
certificates from the Secretary of State of each
jurisdiction in which the Company is qualified to do
business, and (d) a long form good standing certificate from
the California State Secretary as of a date which is not
more than seven days prior to the Closing Date.
6.7 Employment Agreements. Each of the employees
listed in Section 6.7 of the Company Disclosure Schedule
shall have entered into employment agreements with Buyer in
the form of Exhibit 6.7 (the "Employment Agreements").
6.8 MoSys Agreement. The MoSys Agreement shall
have been executed and delivered by the parties thereto and
be in full force and effect.
6.9 No Action or Proceeding. No action, suit or
proceeding shall have been instituted or threatened before
any Authority seeking to challenge or restrain the
transactions contemplated herein that presents a substantial
risk that such transactions will be restrained or that
either party hereto may suffer material damages or other
relief as a result of consummating such transactions.
6.10 Approval of Board of Directors. The
execution, delivery and performance of this Agreement and
all of the other Company Documents to which the Buyer is a
party shall have been approved by the Board of Directors of
the Buyer at the meeting of the Board of Directors of the
Buyer scheduled to be held on February 19, 1996.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATION
OF THE COMPANY TO CLOSE
The obligation of the Company to consummate the
transactions contemplated herein shall be subject to the
fulfillment, at or before the Closing Date, of all the
conditions set forth below in this Article VII. The Company
may waive any or all of such conditions in whole or in part
without prior notice; provided, however, that no such waiver
shall constitute a waiver by the Company of any right or
remedy otherwise available to it if Buyer shall be in
default of any of its representations, warranties or cove-
nants contained in this Agreement.
7.1 Representations and Warranties. The
representations and warranties of Buyer contained in this
Agreement shall be true in all material respects on and as
of the Closing Date with the same force and effect as though
made on and as of the Closing Date; each of the obligations
of Buyer to be performed by it on or before the Closing Date
pursuant to the terms of this Agreement shall have been duly
performed in all material respects on or before the Closing
Date; and at the Closing Buyer shall have delivered to the
Company a certificate dated the Closing Date to such effect.
7.2 Shareholder Approval; Further Board Approval.
7.2.1 Shareholder Approval. This Agreement
shall have been approved and adopted by the consent in
writing or by the affirmative vote of the holders of at
least the minimum number of shares of Company Capital Stock
and of each class thereof necessary to approve this
Agreement under California Law.
7.2.2 Board Approval. The Company's Board of
Directors shall have approved any amendment of this
Agreement required by Buyer's Board of Directors in
approving this Agreement pursuant to Section 6.10.
7.3 Opinion of Counsel to Buyer.The Company shall
have received the favorable opinion of Loeb & Loeb LLP,
counsel to Buyer, dated as of the Closing Date in the form
of Exhibit 7.3. Such opinion shall cover such other matters
incident to the transactions contemplated by this Agreement
as the Company may reasonably request.
7.4 Approval of Counsel to the Company. All
actions and proceedings hereunder and all documents or other
papers required to be delivered by Buyer hereunder or in
connection with the consummation of the transactions con-
templated herein; and all other related matters shall have
been approved by Skjerven, Morrill, MacPherson, Franklin &
Friel, counsel to the Company, as to their form and
substance.
7.5 Good Standing. The Buyer shall be in good
standing under the laws of Delaware and shall each have
delivered to the Company (a) a certified copy of its
Certificate of Incorporation, (b) a true and correct copy of
its bylaws and (c) a long form good standing certificate
from the Secretary of State of the State of Delaware as of a
date which is not more than seven days prior to the Closing
Date.
7.6 No Action or Proceeding. No action, suit or
proceeding shall have been instituted or threatened before
any Authority seeking to challenge or restrain the
transactions contemplated herein that presents a substantial
risk that such transactions will be restrained or that
either party hereto may suffer material damages or other
relief as a result of consummating such transactions.
7.7 Governmental Approvals. Any and all
approvals or Licenses and Permits from any Authority
required for (a) the lawful consummation of the transactions
contemplated herein and (b) the Buyer's ownership of the
Assets and operation of the Business, shall have been
obtained.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
8.1 Survival of Representations and Covenants of
the Company and the Key Officers. Notwithstanding any right
of Buyer fully to investigate the affairs of the Company and
notwithstanding any knowledge of facts determined or
determinable by Buyer pursuant to such investigation or
right of investigation, Buyer shall have the right to rely
fully upon the representations, warranties, covenants and
agreements of the Company and the Key Officers contained in
this Agreement, provided that Buyer shall advise the Company
of any breach of the foregoing that Buyer shall discover.
Each representation, warranty, covenant and agreement of
Company or any Key Officer contained herein shall survive
the execution and delivery of this Agreement and the Closing
and shall thereafter terminate and expire on the second
anniversary of the Closing Date, except that the representa-
tions and warranties of the Company contained in Sections
3.7, 3.8.2, and 3.19 shall terminate and expire 90 days
after the expiration of the statute of limitations
applicable to claims by third parties against Buyer or the
Company, in respect of the matter or matters which are the
subject of said representations and warranties, unless, on
or before such date, Buyer shall have delivered to any of
the Key Officers a written notice of a claim with respect to
such representation, warranty, covenant or agreement.
8.2 Survival of Representations and Covenants of
Buyer. Each representation, warranty, covenant, and
agreement of Buyer contained herein shall survive the
execution and delivery of this Agreement and shall
thereafter terminate and expire on the second anniversary of
the Closing Date, unless, on or before such date, the
Company shall have delivered to Buyer a written notice of a
claim with respect to such representation, warranty, cove-
nant, or agreement.
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification of Buyer.
(a) The Key Officers and the Company, jointly and
severally, shall indemnify, defend and hold harmless Buyer,
and its stockholders, directors, officers, employees,
agents, attorneys and representatives, from and against (a)
any and all Losses that may be incurred or suffered by any
such party and arising out of or resulting from any breach
of any representation, warranty, covenant or agreement of
the Company or any Key Officer contained in this Agreement,
including, without limitation, any attempt (whether or not
successful) by any Person to cause or require Buyer or
Company, to pay, perform or discharge any debt, obligation,
deficiency, liability or commitment the existence of which
constitutes a breach of any such representation, warranty,
covenant or agreement, (b) any and all Losses that may be
incurred or suffered by any such Person from the ownership
or operations of Company, the Assets, or the Business
arising prior to the Closing Date, except to the extent (i)
reflected in the Financial Statements or (ii) incurred after
the Balance Sheet Date and prior to the Closing Date and not
related to the violation or breach of any Law or Order,
Contract or Other Agreement, or right or interest of any
third Person, whether or not such Loss or potential Loss
shall have been disclosed to or discovered by Buyer before
the Closing Date, (c) any and all Losses that may be
incurred or suffered by any such Person arising out of or
resulting from any failure of the parties hereto to comply
with the California Bulk Sales laws, and (d) any and all
Losses from any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and expenses,
incurred in enforcing this indemnity to the extent that the
aggregate amount of Losses shall exceed $40,000. No Key
Officer shall have liability under clause (a) or (b) of the
preceding sentence respecting any matter as to which the
Company has made a representation or warranty that by its
terms is limited to the knowledge of the Company, unless
such Key Officer shall have had knowledge of facts or
circumstances constituting a breach of such representation
or warranty. Buyer may set off against any Contingent
Payment otherwise due any amounts to which it may be
entitled pursuant to this Article IX.
(b) Notwithstanding anything else contained
herein, the Key Officers and the Company, jointly and
severally, shall indemnify and hold harmless Buyer and its
stockholders, directors, officers, employees, agents,
attorneys and representatives with respect to any Losses
that may be incurred from any claims made prior to the fifth
anniversary of the date of this Agreement arising from any
alleged violation of Section 6 of an Agreement dated August
20, 1992 between Company and ASICtronics Solutions Inc. and
any corresponding improper use of the intellectual property
of ASICtronics Solutions Inc.
9.2 Indemnification of Company. If this
Agreement shall be terminated by the Company pursuant to
Section 10.2.2, Buyer shall indemnify, defend and hold
harmless Company from and against any and all Losses that
may be incurred or suffered by Company on account of the
breach by Buyer of the agreement, covenant, representation,
or warranty giving rise to such termination. Buyer shall
indemnify, defend, and hold harmless the Company and the Key
Officers from and against any and all Losses that may be
incurred or suffered by them, as officers of the Company,
arising from the Core Logic Business Unit's operations after
the Closing.
9.3 Notice of Indemnification. Any Person
entitled to indemnification hereunder will (a) give prompt
written notice to the indemnifying party of any claim with
respect to which it seeks indemnification and (b) unless in
such indemnified party's reasonable judgment a conflict of
interest may exist between such indemnified and indemnifying
parties with respect to such claim, permit such indemnifying
party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. Whether
or not such defense is assumed by the indemnifying party,
the indemnifying party will not be subject to any liability
for any settlement made without its consent (but such
consent will not be unreasonably withheld). The failure of
an indemnified party to give notice pursuant to clause (a)
above shall not relieve any indemnifying party of its
obligations hereunder except to the extent such indemnifying
party shall have been prejudiced thereby. An indemnifying
party who is not entitled to, or elects not to, assume the
defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such
claim, unless, in the reasonable judgment of any indemnified
party, a conflict of interest may exist between such
indemnified party and any other of such indemnified parties
with respect to such claim, in which event the indemnifying
party shall be obligated to pay the fees and expenses of
such additional counsel or counsels. The indemnified party
shall cooperate in any defense assumed by the indemnifying
party and may participate in the defense of any claim.
9.4 Contribution. If for any reason the
indemnification provided for in Section 9.1 or 9.2 is
unavailable to an indemnified party as contemplated by such
Sections, then the indemnifying party shall contribute to
the amount paid or payable by the indemnified party as a
result of such loss, claim, damage or liability in such
proportion as is appropriate to reflect not only the
relative benefits received by the indemnified party and the
indemnifying party, but also the relative fault of the
indemnified party and the indemnifying party, as well as any
other relevant equitable considerations.
ARTICLE X
TERMINATION; REMEDIES
10.1 Termination Without Default. In the event
that, as of the Closing Date, any event or state of facts
not constituting a default by a party shall exist, which
event or state of facts constitutes a failure of the condi-
tions precedent for the benefit of Buyer on the one hand, or
the Company on the other, the side for whose benefit such
condition precedent is imposed hereby shall have the right,
at its sole option, to terminate this Agreement prior to the
Closing without liability to the other side. If Shareholder
Approval shall not have been obtained within 30 days from
the date hereof, or the Closing shall not have occurred
within 90 days of the date hereof, Buyer, on the one hand,
or the Company on the other, shall have the right to
terminate this Agreement without liability to either side.
Such right may be exercised by Buyer, on the one hand, or
the Company on the other, as the case may be, giving written
notice to the other on or before the Closing Date,
specifying the event or state of facts giving rise to such
right of termination.
10.2 Termination Upon Default.
10.2.1 Termination by Buyer. Buyer may
terminate this Agreement by giving notice to the Company on
or prior to the Closing Date, without prejudice to any
rights or obligations Buyer may have, if the Company or any
Key Officer or any Shareholder shall have materially
breached any agreement, covenant, representation, or
warranty contained herein or in any Company Document unless
such breach shall be curable and shall have been cured by
the Closing Date.
10.2.2 Termination by the Company. The
Company may terminate this Agreement by giving notice to
Buyer, without prejudice to any rights or obligations
Company may have, if Buyer shall have materially breached
any of its covenants, agreements, representations, and
warranties contained herein unless such breach shall be
curable and shall have been cured by the Closing Date.
10.2.3 Rights Reserved. In event of
termination pursuant to Section 10.2.1 or 10.2.2, the side
not guilty of the breach may pursue such remedies as are
available to it at law or equity, or as are provided
hereunder.
10.3 Arbitration.
\NYBS\ Mandatory Arbitration. Buyer, on
the one hand, and the Company and any Key Officer, on the
other, shall promptly submit any dispute, claim, or
controversy arising out of or relating to this Agreement or
any Company Document (including, without limitation, with
respect to the meaning, effect, validity, termination,
interpretation, performance, or enforcement of this
Agreement or such Company Document) or any alleged breach
(including any action in tort, contract, equity, or
otherwise), to binding arbitration before one arbitrator
("Arbitrator"). The parties agree that, except as otherwise
provided herein respecting temporary or preliminary
injunctive relief, binding arbitration shall be the sole
means of resolving any dispute, claim, or controversy
arising out of or relating to this Agreement or any Company
Document (including, without limitation, with respect to the
meaning, effect, validity, termination, interpretation,
performance or enforcement of this Agreement or such Company
Document) or any alleged breach (including any claim in
tort, contract, equity, or otherwise).
10.3.2 Arbitrator's Qualifications and
Selection. The Arbitrator shall be an active member of the
California Bar, specializing for at least 15 years in
mergers and acquisitions of high technology companies and
corporate and securities law. The Arbitrator shall be
selected by the New York chapter head of the American
Arbitration Association upon the request of either side.
The Arbitrator shall be selected within thirty 30 days of
request.
10.3.3 Governing Law; Written Decision.
In any arbitration hereunder, this Agreement and any Company
Document shall be governed by the laws of the State of
California applicable to a contract negotiated, signed, and
wholly to be performed in California, which laws the
Arbitrator shall apply in rendering his or her decision.
The Arbitrator shall issue a written decision, setting forth
findings of fact and conclusions of law, within 60 days
after he or she shall have been selected. The Arbitrator
shall have no authority to award punitive or other exemplary
damages.
10.3.4 Procedures; Evidence; Experts.
(a) Any arbitration instituted by the
Company shall be held in Los Angeles, California and any
arbitration instituted by Buyer shall be held, at the
Buyer's option, in either San Francisco or San Jose,
California, in each case in accordance with and under the
then-current provisions of the rules of the American
Arbitration Association, except as otherwise provided
herein.
(b) On application to the Arbitrator,
any party shall have rights to discovery to the same extent
as would be provided under the Federal Rules of Civil
Procedure, and the Federal Rules of Evidence shall apply to
any Arbitration under this Agreement; provided, however,
that the Arbitrator shall limit any discovery or evidence
such that his or her decision shall be rendered within the
period referred to in Section 10.3.3.
(c) The Arbitrator may, at his or her
discretion and at the expense of the party(ies) who will
bear the cost of the Arbitration, employ experts to assist
him or her in his or her determinations.
10.3.5 Costs. The costs of the
Arbitration proceeding and any proceeding in court to
confirm or to vacate any arbitration award or to obtain
temporary or preliminary injunctive relief as provided in
Section 10.3.7, as applicable (including, without
limitation, actual attorneys' fees and costs), shall be
borne by the unsuccessful party and shall be awarded as part
of the Arbitrator's decision, unless the Arbitrator shall
otherwise allocate such costs, for the reasons set forth, in
such decision.
10.3.6 Consent to Jurisdiction. Any
judgment upon any award rendered by the Arbitrator may be
entered in and enforced by any court of competent
jurisdiction. The parties expressly consent to the
jurisdiction of the courts (Federal and state) in California
to enforce any award of the Arbitrator or to render any
provisional or injunctive relief in connection with or in
aid of the Arbitration. The parties expressly consent to
the personal and subject matter jurisdiction of the
Arbitrator to arbitrate any and all matters to be submitted
to arbitration hereunder. None of the parties hereto shall
challenge any arbitration hereunder on the grounds that any
party necessary to such arbitration (including, without
limitation, the parties hereto) shall have been absent from
such arbitration for any reason, including, without
limitation, that such party shall have been the subject of
any bankruptcy, reorganization, or insolvency proceeding.
10.3.7 Injunctive Relief. This Section
10.3 shall not prevent any party from seeking or obtaining
temporary or preliminary injunctive relief in a court for
any breach or threatened breach of any provision of this
Agreement or any Company Document; provided that the
determination whether such breach or threatened breach shall
have occurred and the remedy therefor (other than with
respect to such preliminary or temporary relief) shall be
made by arbitration pursuant to this Section 10.3.
10.3.8 Indemnification. The parties shall
indemnify the Arbitrator and any experts employed by the
Arbitrator and hold them harmless from and against any claim
or demand arising out of any arbitration under this
Agreement or any Company Document, unless resulting from the
willful misconduct of the person indemnified.
10.3.9 Survival. This arbitration clause
shall survive the termination of this Agreement and any
Company Document.
10.4 WAIVER OF JURY TRIAL; EXEMPLARY DAMAGES. ALL
PARTIES HEREBY WAIVE THEIR RIGHTS TO TRIAL BY JURY WITH
RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT OR ANY
COMPANY DOCUMENT. No party shall be awarded punitive or
other exemplary damages respecting any dispute arising under
this Agreement or any Company Document.
10.5 Attorneys' Fees. The unsuccessful party to
any court or other proceeding arising out of this Agreement
that is not resolved by arbitration under Section 10.3 shall
pay to the prevailing party all attorneys' fees and costs
actually incurred by the prevailing party, in addition to
any other relief to which it may be entitled. As used in
this Section 10.5 and elsewhere in this Agreement, "actual
attorneys' fees" or "attorneys' fees actually incurred"
means the full and actual cost of any legal services
actually performed in connection with the matter for which
such fees are sought, calculated on the basis of the usual
fees charged by the attorneys performing such services, and
shall not be limited to "reasonable attorneys' fees" as that
term may be defined in statutory or decisional authority.
10.6 Interest On Amounts Due. Any amount payable
by one party to another under any provision of this Article
X shall bear interest at the rate of 12% per annum from the
date due until paid.
ARTICLE XI
MISCELLANEOUS
11.1 Expenses of Transaction. The Company, on the
one hand, and Buyer on the other, shall each bear its own
direct and indirect expenses incurred in connection with the
negotiation and preparation of this Agreement and the other
Company Documents and the consummation and performance of
the transactions contemplated herein or therein (it being
understood that such expenses of the Company, to the extent
unpaid as of the Closing, shall be paid from Company cash on
hand as of the Closing).
11.2 Confidentiality. Subject to any obligation
to comply with (i) any Law (ii) any rule or regulation of
any Authority or securities exchange or (iii) any subpoena
or other legal process to make information available to the
Persons entitled thereto, whether or not the transactions
contemplated herein shall be concluded, all information
obtained by any party about any other and all of the terms
and conditions of this Agreement and the other Company
Documents shall be kept in confidence by each party, and
each party shall cause its directors, officers, employees,
agents and attorneys to hold such information confidential;
provided, however, that the foregoing shall not apply to any
information obtained by Buyer through its own independent
investigations of the Company or received by Buyer from a
third party that, to the knowledge of Buyer after due
inquiry, was not under any obligation to keep such informa-
tion confidential, or to any information obtained by Buyer
that is generally known to others engaged in the trade or
Business of the Company; and provided, further, that from
and after the Closing, Buyer shall not be under any
obligation to maintain confidential any such information
concerning the Company. If this Agreement shall be
terminated for any reason, each party shall return or cause
to be returned to the other all written data, information,
files, records and copies of documents, worksheets and other
materials obtained by such party in connection with the
transactions contemplated herein.
11.3 Publicity. No publicity release or announce-
ment concerning this Agreement or the transactions con-
templated herein shall be issued without advance written
approval of the form and substance thereof by Buyer and the
Company; provided, however, that such restrictions shall not
apply to any disclosure required by regulatory Authorities,
applicable Law or the rules of any securities exchange which
may be applicable.
11.4 Notices. All notices, requests and other
communications hereunder shall be in writing and shall be
delivered by courier or other means of personal service
(including by means of a nationally recognized courier
service or a professional messenger service), or sent by
telex or telecopy or mailed first class, postage prepaid, by
certified mail, return receipt requested, in all cases,
addressed to:
Buyer:
Standard Microsystems Corporation
80 Arkay Drive
Hauppauge, New York 11788
Telecopy: (516) 273-5550
Attention: George W. Houseweart
With copies to:
Standard Microsystems Corporation
80 Arkay Drive
Hauppauge, New York 11788
Telecopy: (516) 273-5550
Attention: Sandra Sefcsik
Standard Microsystems Corporation
80 Arkay Drive
Hauppauge, New York 11788
Telecopy: (516) 273-5550
Attention: Arthur Sidorsky
Loeb & Loeb LLP
345 Park Avenue
New York, New York 10154
Telecopy: (212) 407-4990
Attention: David C. Fischer, Esq.
Company:
EFAR Microsystems, Inc.
3211 Scott Blvd., Suite 100
Santa Clara, California 95054
Telecopy: (408) 496-1116
Attention: Mr. Peter C.R. Ju
With a copy to:
Skjerven, Morrill, MacPherson, Franklin
& Friel
25 Metro Drive, Suite 700
San Jose, California 95110
Telecopy: (408) 283-1233
Attention: Marc David Freed, Esq.
All notices, requests and other communications shall be
deemed given on the date of actual receipt or delivery as
evidenced by written receipt, acknowledgement or other
evidence of actual receipt or delivery to the addressee. In
case of service by telecopy, a confirmation copy of such
notice shall be sent, on the date notice is given, by
certified mail as set forth above. Either party hereto may
from time to time by notice in writing served as set forth
above designate a different address or a different or
additional person to which all such notices or
communications thereafter are to be sent or given.
11.5 Further Assurances. Buyer, on the one hand,
and Company and the Key Officers on the other hand, shall
each use its reasonable and diligent best efforts to proceed
promptly with the transactions contemplated herein, to
fulfill or to cause to be fulfilled the covenants made by it
or the conditions precedent to the obligations of the side
and to execute (before or after the Closing) such further
documents and other papers and perform such further acts as
may be reasonably required or desirable to carry out the
provisions hereof and the transactions contemplated herein.
11.6 Modifications and Amendments; Waivers and
Consents. At any time prior to the Closing Date or termina-
tion of this Agreement, Buyer, on the one hand, and the
Company, on the other hand, may, by written agreement:
(a) extend the time for the performance
of any of the obligations or other acts of the other side;
(b) waive any inaccuracies in the
representations and warranties made by the other side
contained in this Agreement or any other agreement or
document delivered pursuant to this Agreement; and
(c) waive compliance with any of the
covenants or agreements of the other side contained in this
Agreement. However, no such waiver shall operate as a
waiver of, or estoppel with respect to, any subsequent or
other failure. Whenever this Agreement requires or permits
a waiver or consent by or on behalf of any party hereto,
such waiver or consent shall and may only be given in
writing.
11.7 Entire Agreement. This Agreement (including
the exhibits hereto and the Company and Buyer Disclosure
Schedules), the Company Documents, agreements, documents and
instruments to be executed and delivered pursuant hereto or
thereto are the final, complete, and exclusive agreement
among the parties with respect to the transactions
contemplated hereby; supersede all prior agreements,
understandings and representations written or oral, with
respect thereto; and may not be contradicted by evidence of
any such prior or contemporaneous agreement, understanding
or representation, whether written or oral.
11.8 Governing Law and Venue. This Agreement is
to be governed by and construed in accordance with the laws
of the State of California. Subject to the provisions of
Section 10.4 requiring arbitration of disputes, any suit
brought hereon, any and all legal proceedings, to enforce
this Agreement, including any action to compel arbitration
pursuant to Section 10.4 or to enforce or vacate any
judgment or award rendered therein, whether in contract,
tort, equity or otherwise, shall be brought in the
California state courts or Federal courts sitting in
California. The parties hereto hereby waiving any claim or
defense that such forum is not convenient or proper. Each
party hereby agrees that any such court shall have in
personam jurisdiction over it, consents to service of
process in any manner prescribed in Section 11.4 or in any
other manner authorized by Federal or California law, and
agrees that a final judgment in any such action or proceed-
ing shall be conclusive and may be enforced in other juris-
dictions by suit on the judgment or in any other manner
specified by Law.
11.9 Binding Effect. This Agreement and the
rights, covenants, conditions and obligations of the
respective parties hereto and any instrument or agreement
executed pursuant hereto shall be binding upon the parties
and their respective successors, assigns, and legal
representatives. Neither this Agreement, nor any rights or
obligations of any party hereunder, may be delegated or
assigned by a party without the prior written consent of the
other parties; provided, however, that prior to or following
the Closing, this Agreement and any rights and obligations
of Buyer hereunder may, without the prior written consent of
the Company or any Key Officer or any Shareholder, be
assigned and delegated by Buyer to any Affiliate of Buyer or
pledged or hypothecated to any lender(s) of Buyer or any
such Affiliate, and, following the Closing, Buyer may assign
this Agreement and any rights and obligations of Buyer
hereunder, except that Buyer's obligations to the Company or
any Key Officer shall not be impaired by any of the
foregoing.
11.10 Counterparts. This Agreement may be
executed simultaneously in any number of counterparts, each
of which shall be deemed an original but all of which
together shall constitute one and the same instrument. In
making proof of this Agreement it shall not be necessary to
produce or account for more than one counterpart.
11.11 Section Headings. The section headings of
this Agreement are for convenience of reference only and
shall not be deemed to alter or affect any provision hereof.
11.12 Gender; Tense, Etc. Where the context or
construction requires, all words applied in the plural shall
be deemed to have been used in the singular, and vice versa;
the masculine shall include the feminine and neuter, and
vice versa; and the present tense shall include the past and
future tense, and vice versa.
11.13 No Third Party Rights. Nothing in this
Agreement, whether express or implied, is intended to confer
any rights or remedies under or by reason of this Agreement
on any Person other than the parties hereto, and their
respective successors and assigns, nor is anything in this
Agreement intended to relieve or discharge the obligation or
liability of any third Person to any party to this Agree-
ment, nor shall any provision give any third Person any
right of subrogation or action over against any party to
this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly
executed this Agreement as of the day and year first above
written.
STANDARD MICROSYSTEMS
CORPORATION
By:___________________________
Paul Richman
Chairman and Chief
Executive Officer
_____________________________
Peter C.R. Ju
Ying Feng Chang
______________________________
Chin Hwaun Wu
EFAR MICROSYSTEMS, INC.
By:__________________________
Peter C.R. Ju
President
Company Disclosure Schedule
2.3(b) Warranties
3.2 Ownership of Company Capital Stock
3.4 No Violation
3.5 Regulatory Approvals and Other Consents
3.6.1 Financial Statements
3.6.2 Liabilities
3.6.3 Inventories
3.6.4 Accounts Receivable
3.6.5 Absence of Certain Changes
3.7 Tax Matters
3.8.1 Licenses and Permits
3.8.2 Environmental and Industrial Hygiene
3.9 Toshiba Settlement; Pending or Threatened
Litigation
3.10.1 Leases for Real Property
3.10.2 Tangible Personal Property Owned by or in the
Possession of the Company
3.10.3 Intangible Personal Property
3.10.3(f) Employee Confidentiality Agreements and Former
Employees in Possession of Trade Secrets
3.10.4 Use Restrictions
3.10.5 Necessary Properties
3.11(a) Contracts and Other Agreements
3.11(b) Enforceability of Contracts or Other Agreements
3.11(c) Agreements Under Current Discussion
3.12.1 Labor Agreements
3.12.2 Compliance with Labor Laws and Agreements
3.13 Pension and Benefit Plans
3.14 Insurance
3.15(a) Customers, Distributors and Suppliers
3.15(b) Supply, Delivery and Sales Contracts or Other
Agreements
3.15(c) Sales Agents
3.16(a) Warranties and Merchandising
3.16(b) Back Order Status
3.17.1 Pending or Threatened Claims
3.18 Potential Conflicts of Interest
3.19 Certain Transactions with Insiders Not Made on
Basis of Prevailing Market Rates and Terms
3.20 Powers of Attorney and Suretyships
3.21 Banking Facilities
6.7 Key Employees
Buyer Disclosure Schedule
4.5 Required Consents
Exhibits
Exhibit 1 Escrow Agreement
Exhibit 2.3(a) Assumed Obligations Schedule
Exhibit 2.7.2 Purchase Price Allocation
Exhibit 2.8(b) Bill of Sale
Exhibit 5.14.2 California Counties
Exhibit 6.4 Form of Opinion of Company Counsel
Exhibit 6.8 Form of Employee Agreement
Exhibit 7.3 Form of Opinion of Loeb & Loeb LLP
Exhibit 2.8(b)(1)
BILL OF SALE
WHEREAS, STANDARD MICROSYSTEMS, INC., a
Delaware corporation ("Buyer"), EFAR MICROSYSTEMS, INC., a
California corporation (the "Company"), and the Key Officers
named therein are parties to that certain Agreement for
Purchase and Sale of Assets dated as of February 6, 1996
(the "Asset Purchase Agreement"), for the purchase and sale
of the Assets, as defined in Article I of the Asset Purchase
Agreement.
KNOW ALL PERSONS BY THESE PRESENTS THAT the
Company, for good and valuable consideration paid to it,
receipt and sufficiency of which is hereby acknowledged,
does hereby grant, sell, convey, assign (to the extent
assignable), transfer and deliver to Buyer all of the
Company's right, title and interest in and to all of the
Assets, to have and to hold the same unto Buyer.
The Company covenants with Buyer as follows,
which covenants shall survive the sale, transfer and
delivery of the Assets:
On and after the date hereof and without
further consideration, the Company will, from time to time
at Buyer's reasonable request, execute and deliver such
further instruments of conveyance, assignment and transfer
and will take or cause to be taken such other action as
Buyer may reasonably request for the more effective
conveyance, assignment and transfer to Buyer of any of the
Assets.
IN WITNESS WHEREOF, the Company has caused
this Bill of Sale to be duly executed as of this ___ day of
________, 1996.
EFAR MICROSYSTEMS, INC.
By:
Name: Peter C.R. Ju
Title: President Exhibit 2.8(b)(2)
BILL OF SALE
WHEREAS, STANDARD MICROSYSTEMS, INC., a
Delaware corporation ("Buyer"), EFAR MICROSYSTEMS, INC., a
California corporation (the "Company"), and the Key Officers
named therein are parties to that certain Agreement for Purchase
and Sale of Assets dated as of February 6, 1996 (the "Asset
Purchase Agreement"), for the purchase and sale of the Assets, as
defined in Article I of the Asset Purchase Agreement.
KNOW ALL PERSONS BY THESE PRESENTS THAT the
Company, for good and valuable consideration paid to it, receipt
and sufficiency of which is hereby acknowledged, does hereby
grant, sell, convey, assign (to the extent assignable), transfer
and deliver to Standard Microsystems Corporation (Asia), a
Delaware corporation ("SMC Asia"), all of the Company's right,
title and interest in and to all of the Assets physically located
in Taiwan, to have and to hold the same unto SMC Asia.
The Company covenants with SMC Asia as
follows, which covenants shall survive the sale, transfer and
delivery of the Assets physically located in Taiwan:
On and after the date hereof and without
further consideration, the Company will, from time to time at SMC
Asia's reasonable request, execute and deliver such further
instruments of conveyance, assignment and transfer and will take
or cause to be taken such other action as SMC Asia may reasonably
request for the more effective conveyance, assignment and
transfer to SMC Asia of any of the Assets physically located in
Taiwan.
IN WITNESS WHEREOF, the Company has caused
this Bill of Sale to be duly executed as of this ___ day of
_________, 1996.
EFAR MICROSYSTEMS, INC.
By:
Name: Peter C.R. Ju
Title: President
Exhibit 5.14.2
(a) Alameda County
(b) Alpine County
(c) Amador County
(d) Butte County
(e) Calaveras County
(f) Colusa County
(g) Contra Costa County
(h) Del Norte County
(i) El Dorado County
(j) Fresno County
(k) Glenn County
(l) Humboldt County
(m) Imperial County
(n) Inyo County
(o) Kern County
(p) Kings County
(q) Lake County
(r) Lassen County
(s) Los Angeles County
(t) Madera County
(u) Marin County
(v) Mariposa County
(w) Mendocino County
(x) Merced County
(y) Modoc County
(z) Mono County
(aa) Monterey County
(ab) Napa County
(ac) Nevada County
(ad) Orange County
(ae) Placer County
(af) Plumas County
(ag) Riverside County
(ah) Sacramento County
(ai) San Benito County
(aj) San Bernardino County
(ak) San Diego County
(al) San Francisco County
(am) San Joaquin County
(an) San Luis Obispo
(ao) San Mateo County
(ap) Santa Barbara County
(aq) Santa Clara County
(ar) Santa Cruz County
(as) Shasta County
(at) Sierra County
(au) Siskiyou County
(av) Solano County
(aw) Sonoma County
(ax) Stanislaus County
(ay) Sutter County
(az) Tehama County
(ba) Trinity County
(bb) Tulare County
(bc) Tuolumne County
(bd) Ventura County
(be) Yolo County
(bf) Yuba County
Exhibit 6.4
1. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State
of California and has all requisite corporate power, authority
and approvals to enter into, execute and deliver the Agreement,
the Assignments, and the other agreements, instruments,
certificates and documents to be executed by the Company in
connection therewith (collectively, the "Company Documents"), to
fully perform its obligations thereunder and to fully carry out
the transactions contemplated thereby.
2. The Company has all requisite corporate power to
own, lease and operate the Assets and to carry on the Business as
conducted prior to the date hereof, presently conducted, and as
proposed to be conducted, and is duly qualified or licensed to do
business as a foreign corporation in each jurisdiction in which
the location of its Assets or the nature of its business requires
such qualification, except for such jurisdictions where the
failure to so qualify or be so licensed would not have any
material adverse effect upon the condition (financial or
otherwise), assets, liabilities, operations or prospects of the
Business.
3. Except as disclosed in Section 3.4 of the Company
Disclosure Schedule, neither the execution or delivery by the
Company of the Agreement or any of the other Company Documents
nor the consummation of the transactions contemplated therein:
(a) violates any provision of the Articles of Incorporation or
Bylaws of the Company; (b) violates, conflicts with or
constitutes a default under, permits the termination or
acceleration of, or causes the loss of any material right or
option under any Material Contract of which we have knowledge;
(c) to our knowledge, results in the creation or imposition of
any Lien or Other Encumbrance upon any of the Assets; or (d)
violates any Law or Order to which the Company or any of its
Assets is subject.
4. The execution and delivery of the Agreement and
each of the other Company Documents by the Company, the
performance by the Company of its obligations thereunder, and the
carrying out by the Company of the transactions contemplated
thereby, have been duly authorized by all necessary corporate
action by the Company. No other corporate or shareholder
authorization or approval with respect to the Company is or was
required for the Company to enter into the Agreement and each of
the other Company Documents, perform its obligations thereunder,
and carry out the transactions contemplated thereby. The
Agreement and each of the other Company Documents to which the
Company or any Key Officer is a party constitute valid and
binding obligations of such Person enforceable against such
Person in accordance with their respective terms, except as such
enforceability may be subject to the effect of bankruptcy,
insolvency, reorganization, moratorium or similar laws or
equitable principles relating to or limiting a creditors' rights
generally (including, without limitation, laws pertaining to
preferential or fraudulent transfers), and that equitable
remedies are subject to the discretion of the court. No opinion
is rendered hereunder with respect to Sections 10.4 or 11.8 of
the Agreement or provisions of the other Company Documents to the
same effect.
5. To our knowledge, except as set forth in Section
3.9 of the Company Disclosure Schedule, there is no pending or
threatened adverse claim, dispute, governmental investigation,
suit, action (including without limitation, nonjudicial real or
personal property foreclosure actions), arbitration, legal,
administrative or other proceeding of any nature, domestic or
foreign, criminal or civil, at law or in equity, by or against or
otherwise affecting the Company, which, if decided adversely to
the Company, could reasonably be expected to have a material
adverse effect upon the condition (financial or otherwise),
assets, liabilities, operations, business or prospects of the
Business, the Assets, the ability of the Buyer to employ the Key
Employees, or the Company's ability to perform its obligations
under and carry out the transactions contemplated in the
Agreement and the other Company Documents.
6. No consent, approval, authorization, notice,
waiver, exemption or filing which has not been obtained or made
is required (i) by the Articles of Incorporation or Bylaws of the
Company, (ii) by any Law or Order to which the Company is
subject, (iii) pursuant to the terms of any of the Material
Contract of which we are aware, or (iv) pursuant to the terms of
any of the Contracts or Other Agreements to which the Company is
a party of which we are aware, in connection with the execution
by the Company of the Agreement or any of the other Company
Documents, or the performance by the Company of its obligations
thereunder.
7. To our knowledge, the Company has in all material
respects complied with, and is now in all material respects in
compliance with, all Laws or Orders applicable to the Business,
the Key Employees and the Assets. To our knowledge, except for
the Licenses or Permits held by the Company listed in Section
3.8.1 of the Company Disclosure Schedule, and local permits or
licenses that are not unique to the computer peripheral or
electronics business, no other franchise, license, permit, order
or approval of any Authority is material to or necessary for the
conduct of the Business. To our knowledge, each License or
Permit listed in Section 3.8.1 of the Company Disclosure Schedule
is in full force and effect and the Company is in compliance
therewith in all material respects. To our knowledge, the
Company has received no notice of any asserted present failure by
the Company to comply with any such Law, Order, Permit or
License.
8. Except as disclosed in Section 3.9 of the Company
Disclosure Schedule, to our knowledge, there exists no order
enjoining the Company from taking or requiring the Company to
take any action of any kind with respect to or otherwise relating
to the Business or the Assets.
9. The Assignments are sufficient and in proper form
to convey all of the Company's right, title and interest in and
to all of the Assets and have been duly authorized and properly
executed and delivered by the Company to the Buyer.
10. To our knowledge based upon the search of, or
certificates of public officials relating to, such public records
as we have determined to be appropriate, as of ____________,
1995, except as disclosed in the Company Disclosure Schedule,
there was no Lien or Encumbrance on any of the Assets of the type
which may be perfected only by filing a financing statement under
the Uniform Commercial Code, or by a filing with the United
States Patent & Trademark Office or the United States Copyright
Office.
11. To our knowledge, all Patents, Marks, copyrights,
and mask work rights, and all state and federal registrations and
all applications therefor are valid and in full force and effect
and none thereof are subject to any refiling or renewal actions
falling due within six months after the Closing Date, and none of
the Patents is subject to any Taxes, maintenance fees or actions
falling due within six months of the Closing Date. To our
knowledge, no claim has been asserted against the Company
challenging the validity of any of the Patents.
12. The Company has the right, free and clear of any
other right or claim of any third party of which we are aware to
sell and deliver the Intangible Personal Property being sold and
delivered to the Buyer under the Agreement.
13. The Company has the right, free and clear of any
right or claim of any third party of which we are aware, to
deliver the Care Logic Package to the Buyer under the Agreement.
14. To our knowledge, no claim has been asserted
against the Company or any of its Affiliates challenging the
validity of any assignment or contract (or portion thereof) for
assignment or license of any portion of the Intangible Personal
Property, or property right therein, to the Company or any of its
Affiliates, or for maintaining confidentiality of any Trade
Secret, and we know of no basis for any such claim.
15. To our knowledge, except as set forth in section
3.9 of the Company Disclosure Schedule, there are no pending
claims, actions, judicial or other adversary proceedings,
interferences, disputes, or disagreements concerning any item of
Intangible Personal Property owned by the Company, to which the
Company or any of its Affiliates is named as a party, including,
without limitation, respecting infringement of any Patent, Mark,
mask work right, or copyright, or misappropriation or misuse of
any invention, Trade Secret, or other proprietary information,
and no such action, proceeding, dispute or disagreement is
threatened by or against Company or any of its Affiliates.
16. To our knowledge, except as set forth in Section
3.10.3 of the Company Disclosure Schedule, and subject to the
transactions contemplated by the Agreement, the Company has the
right to use each material item of Intangible Personal Property
in perpetuity in connection with the conduct of the Business;
(ii) such use does not infringe upon or violate any Patent, Mark,
mask work right, copyright, Trade Secret, or other proprietary
right of any other Person; (iii) the Company has not infringed
and is not now infringing on any proprietary right of any other
Person; and (iv) no Person has made any assertion to the
contrary.
17. To our knowledge, the Company has not entered into
any settlement regarding the breach or infringement of any United
States or foreign license, Patent, Trade Secret, mask work right,
copyright, invention or similar right directly and uniquely
related to the Business.
18. To our knowledge, the Patents identified in
Section 3.10.3 of the Company Disclosure Schedule are the only
Patents or Patent applications owned solely or jointly by the
Company or any of its Affiliates, containing claims covering the
practice of any of the Business.
This opinion is limited to the present laws of the
States of California (except for and without giving effect to the
choice of laws or conflicts of laws principles thereof) and the
federal laws of the United States, and to the present judicial
interpretations thereof and to the facts as they presently exist.
We express no opinion as to the applicability or effect of the
laws of any other jurisdiction.
Exhibit 7.3
1. The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to
enter into the Agreement and the other Buyer Documents, to fully
perform its obligations thereunder and to fully carry out the
transactions contemplated thereby.
2. Neither the execution or delivery by the Buyer of
the Agreement or the other Buyer Documents nor the performance by
the either of the Buyer of its obligations thereunder: (a)
violates any provision of its Certificate of Incorporation, by-
laws or other charter documents; (b) to our knowledge, violates,
conflicts with or constitutes an event which (with or without
notice and/or lapse of time) would constitute a default under,
permit or result in the termination or acceleration of, or cause
the loss of any rights or options under any Material Agreement to
which it is a party; (c) to our knowledge, violates any Order to
which it or any of its properties is subject; or (d) to our
knowledge, violates any Law to which it is subject.
3. The execution and delivery of the Agreement and
the other Buyer Documents by the Buyer, the performance by the
Buyer of its obligations thereunder, and the carrying out by the
Buyer of the transactions contemplated thereby have been duly
authorized by all necessary corporate action by the Buyer. No
shareholder authorization or approval with respect to the Buyer
is or was required for the Buyer to enter into the Agreement and
the other Buyer Documents, perform its obligations thereunder and
carry out the transactions contemplated thereby. The Agreement
constitutes, and the other Buyer Documents constitute, valid and
binding obligations of the Buyer enforceable against the Buyer in
accordance with their respective terms, except as such validity,
binding nature and enforceability may be subject to the effect of
bankruptcy, insolvency, reorganization, moratorium or similar
laws (including, without limitation, laws pertaining to
preferential or fraudulent transfers) relating to or limiting a
creditor's rights generally, general principles of good faith,
fair dealing, materiality, reasonableness and equity (regardless
of whether considered in a proceeding in equity or at law), and
that equitable remedies are subject to the discretion of the
court, and no opinion is rendered hereunder with respect to
Sections 5.1, 5.11.4, 5.14, 9.1, 9.2, 9.3, 9.4, 10.3.7, 10.3.8 or
10.4 of the Agreement or any provision of any other Buyer
Document to the same effect or any provision contained in any of
the Buyer Documents which relate, by incorporation by reference,
reaffirmation or otherwise, to any agreements or documents other
than the Buyer Documents or any such agreement or document other
than the Buyer Documents.
4. Except for reporting requirements of the Exchange
Act, no consent, approval, authorization, notice, waiver,
exemption or filing is required (i) by the Certificate of
Incorporation, by-laws or other charter document of the Buyer,
(ii) to our knowledge, by any Law or Order to which the Buyer is
subject, or (iii) to our knowledge, pursuant to the terms of any
Material Agreement of which the Buyer is a party, in connection
with the execution by the Buyer of the Agreement or any of the
other Buyer Documents, or the performance by the Buyer of it's
obligations thereunder.
5. To our knowledge, there is no pending or
threatened adverse claim, dispute, governmental investigation,
suit, action (including, without limitation, nonjudicial real or
personal property foreclosure actions), arbitration, legal,
administrative or other proceeding of any nature, domestic or
foreign, criminal or civil, at law or in equity, by or against
the Buyer, which, if decided adversely to the Buyer, could
reasonably be expected to have a material adverse effect upon the
Buyer's ability to perform its respective obligations under the
Agreement and the other Buyer Documents, except as relating to
matters disclosed in the Buyer Disclosure Schedule and in filings
made by the Buyer with the Securities Exchange Commission.
Buyer Disclosure Schedule
Section 4.5
Required Consents
Consents of Lenders to Buyers Exhibit 2.7.2
PURCHASE PRICE ALLOCATION
Intentionally Omitted
Exhibits and Disclosure Schedule
are contained in Volume II.
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . 1
ARTICLE II PURCHASE AND SALE OF ASSETS; THE CLOSING. . . . . 11
2.1 Assets to be Transferred.. . . . . . . . . . . . . . . 11
2.2 Instruments of Sale. . . . . . . . . . . . . . . . . . 11
2.3 Assumed Liabilities and Obligations. . . . . . . . . . 11
2.4 No Other Liabilities or Obligations Assumed. . . . . . 12
2.5 Initial Payment. . . . . . . . . . . . . . . . . . . . 13
2.6 Closing. . . . . . . . . . . . . . . . . . . . . . . . 13
2.7 Taxes and Other Matters. . . . . . . . . . . . . . . . 14
2.7.1 Payment of Taxes . . . . . . . . . . . . . . 14
2.7.2 Allocation of Purchase Price . . . . . . . . 14
2.8 Company's Deliveries at Closing. . . . . . . . . . . . 14
2.8.1 Deliveries to Buyer. . . . . . . . . . . . . 14
2.8.2 Location for delivery. . . . . . . . . . . . 15
2.9 Buyer Deliveries at Closing. . . . . . . . . . . . . . 16
2.10 Contingent Payment.. . . . . . . . . . . . . . . . . . 16
2.10.1 Contingent Payment Obligation. . . . . . . . 16
2.10.2 Calculation of Contingent Payment. . . . . . 17
2.10.3 Adjustment Amount. . . . . . . . . . . . . . 17
2.11 No Fractional Shares; Adjustments. . . . . . . . . . . 17
2.11.1 No Fractional Shares . . . . . . . . . . . . 17
2.11.2 Adjustments. . . . . . . . . . . . . . . . . 17
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . 17
3.1 Organization; Authority; Due Authorization; Vote
Required.. . . . . . . . . . . . . . . . . . . . . . . 18
3.1.1 Organization and Good Standing. . . . . . . 18
3.1.2 Authority to Execute and Perform
Agreements.. . . . . . . . . . . . . . . . . 18
3.1.3 Due Authorization; Enforceability. . . . . . 18
3.1.4 Specific Board Action. . . . . . . . . . . . 18
3.1.5 Vote Required. . . . . . . . . . . . . . . . 19
3.2 Capitalization and Ownership of Company Capital
Stock. . . . . . . . . . . . . . . . . . . . . . . . . 19
3.3 Subsidiaries.. . . . . . . . . . . . . . . . . . . . . 20
3.4 No Violation.. . . . . . . . . . . . . . . . . . . . . 20
3.5 Regulatory Approvals and Other Consents. . . . . . . . 20
3.6 Financial Condition. . . . . . . . . . . . . . . . . . 20
3.6.1 Financial Statements.. . . . . . . . . . . . 20
3.6.2 No Undisclosed Liabilities.. . . . . . . . . 21
3.6.3 Inventories. . . . . . . . . . . . . . . . . 21
3.6.4 Accounts Receivable. . . . . . . . . . . . . 22
3.6.5 Absence of Certain Changes.. . . . . . . . . 22
3.7 Tax Matters. . . . . . . . . . . . . . . . . . . . . . 23
3.8 Compliance with Laws; Governmental Matters. . . . . . 25
3.8.1 General. . . . . . . . . . . . . . . . . . . 25
3.8.2 Environmental and Industrial Hygiene
Compliance.. . . . . . . . . . . . . . . . . 25
3.9 Litigation.. . . . . . . . . . . . . . . . . . . . . . 26
3.10 Property of the Company. . . . . . . . . . . . . . . 27
3.10.1 Real Property. . . . . . . . . . . . . . . 27
3.10.2 Tangible Personal Property. . . . . . . . . 28
3.10.3 Intangible Personal Property. . . . . . . . 28
3.10.4 Use Restrictions . . . . . . . . . . . . . . 30
3.10.5 Necessary Properties.. . . . . . . . . . . . 31
3.11 Agreements. . . . . . . . . . . . . . . . . . . . . . 31
3.12 Labor and Employment Matters.. . . . . . . . . . . . . 33
3.12.1 Labor Agreements.. . . . . . . . . . . . . . 33
3.12.2 Compliance With Labor Laws and Agreements. . 33
3.13 Pension and Benefit Plans. . . . . . . . . . . . . . . 34
3.14 Insurance. . . . . . . . . . . . . . . . . . . . . . . 36
3.15 Suppliers and Customers. . . . . . . . . . . . . . . 37
3.16 Warranties and Merchandising.. . . . . . . . . . . . . 38
3.17 Product Quality. . . . . . . . . . . . . . . . . . . . 39
3.17.1 Claims and Occurrences.. . . . . . . . . . . 39
3.17.2 Compliance With Standards. . . . . . . . . . 39
3.18 Potential Conflicts of Interest. . . . . . . . . . . . 39
3.19 Certain Transactions.. . . . . . . . . . . . . . . . . 39
3.20 Powers of Attorney and Suretyships.. . . . . . . . . . 40
3.21 Banking Facilities.. . . . . . . . . . . . . . . . . . 40
3.22 Absence of Adverse Changes.. . . . . . . . . . . . . . 40
3.23 Full Disclosure. . . . . . . . . . . . . . . . . . . . 40
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . 41
4.1 Due Incorporation. . . . . . . . . . . . . . . . . . . 41
4.2 Authority to Execute and Perform Agreements. . . . . . 41
4.3 Due Authorization. . . . . . . . . . . . . . . . . . . 41
4.4 No Violation.. . . . . . . . . . . . . . . . . . . . . 42
4.5 Required Consents. . . . . . . . . . . . . . . . . . . 42
ARTICLE V CERTAIN COVENANTS. . . . . . . . . . . . . . . . . . . 42
5.1 Business Examinations and Physical Investigations of
Assets. . . . . . . . . . . . . . . . . . . . . . . . 42
5.2 Conduct of Business. . . . . . . . . . . . . . . . . . 43
5.3 Changes in Business. . . . . . . . . . . . . . . . . . 44
5.4 Insurance. . . . . . . . . . . . . . . . . . . . . . . 44
5.5 No Defaults. . . . . . . . . . . . . . . . . . . . . . 44
5.6 Reporting and Compliance With Law. . . . . . . . . . . 44
5.7 Litigation.. . . . . . . . . . . . . . . . . . . . . . 44
5.8 Arrangements with Employees. . . . . . . . . . . . . . 45
5.9 No Solicitation or Negotiation.. . . . . . . . . . . . 45
5.10 Agreement with Monolithic Systems Technology. . . . . 45
5.11 Registration of Buyer Common.. . . . . . . . . . . . . 46
5.11.1 Registration Procedures. . . . . . . . . . . 46
5.11.2 Obligations of the Company.. . . . . . . . . 47
5.11.3 Registration Expenses. . . . . . . . . . . . 47
5.11.4 Indemnification. . . . . . . . . . . . . . . 48
5.12 Shareholder Matters. . . . . . . . . . . . . . . . . . 49
5.12.1 Notices to Shareholders. . . . . . . . . . . 49
5.12.2 CA-GCL Section 1301. . . . . . . . . . . . . 49
5.12.3 Review by Buyer. . . . . . . . . . . . . . . 49
5.13 Records. . . . . . . . . . . . . . . . . . . . . . . . 50
5.14 Covenants Not to Compete . . . . . . . . . . . . . . . 50
5.14.1 Covenant . . . . . . . . . . . . . . . . . . 50
5.14.2 Reasonableness of Restrictions . . . . . . . 50
5.14.3 Separate Covenants . . . . . . . . . . . . . 50
5.14.4 Increased Time Limitations . . . . . . . . . 51
5.14.5 Severability of Claims . . . . . . . . . . . 51
5.14.6 Injunctive Relief. . . . . . . . . . . . . . 51
5.15 Core Logic Technology Package. . . . . . . . . . . . . 51
5.16 Remittance of Payments . . . . . . . . . . . . . . . . 52
5.17 Company Debts. . . . . . . . . . . . . . . . . . . . . 52
5.18 Core Logic Business Unit. . . . . . . . . . . . . . . 52
ARTICLE VI CONDITIONS PRECEDENT TO THE OBLIGATION OF
BUYER TO CLOSE. . . . . . . . . . . . . . . . . . 52
6.1 Representations and Warranties; Performance of
Covenants. . . . . . . . . . . . . . . . . . . . . . . 52
6.2 Shareholder Action.. . . . . . . . . . . . . . . . . . 53
6.3 Third Party Consents.. . . . . . . . . . . . . . . . . 53
6.4 Opinion of Counsel to the Company. . . . . . . . . . . 53
6.5 Approval of Counsel to Buyer.. . . . . . . . . . . . . 53
6.6 No Amendments to Resolutions; Corporate Status.. . . . 54
6.7 Employment Agreements. . . . . . . . . . . . . . . . . 54
6.8 MoSys Agreement. . . . . . . . . . . . . . . . . . . . 54
6.9 No Action or Proceeding. . . . . . . . . . . . . . . . 54
6.10 Approval of Board of Directors.. . . . . . . . . . . . 54
ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATION
OF THE COMPANY TO CLOSE . . . . . . . . . . . . . 54
7.1 Representations and Warranties.. . . . . . . . . . . . 55
7.2 Shareholder Approval; Further Board Approval.. . . . . 55
7.2.1 Shareholder Approval . . . . . . . . . . . . . . 55
7.2.2 Board Approval. . . . . . . . . . . . . . . . . 55
7.3 Opinion of Counsel to Buyer. . . . . . . . . . . . . . 55
7.4 Approval of Counsel to the Company.. . . . . . . . . . 55
7.5 Good Standing. . . . . . . . . . . . . . . . . . . . . 55
7.6 No Action or Proceeding. . . . . . . . . . . . . . . . 56
7.7 Governmental Approvals.. . . . . . . . . . . . . . . . 56
ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES. . . . 56
8.1 Survival of Representations and Covenants of the
Company and the Key Officers.. . . . . . . . . . . . . 56
8.2 Survival of Representations and Covenants of Buyer.. . 56
ARTICLE IX INDEMNIFICATION . . . . . . . . . . . . . . . . . 57
9.1 Indemnification of Buyer.. . . . . . . . . . . . . . . 57
9.2 Indemnification of Company.. . . . . . . . . . . . . . 58
9.3 Notice of Indemnification. . . . . . . . . . . . . . . 58
9.4 Contribution.. . . . . . . . . . . . . . . . . . . . . 59
ARTICLE X TERMINATION; REMEDIES. . . . . . . . . . . . . . . . . 59
10.1 Termination Without Default. . . . . . . . . . . . . . 59
10.2 Termination Upon Default. . . . . . . . . . . . . . . 59
10.2.1 Termination by Buyer. . . . . . . . . . . . 59
10.2.2 Termination by the Company.. . . . . . . . . 60
10.2.3 Rights Reserved. . . . . . . . . . . . . . . 60
10.3 Arbitration. . . . . . . . . . . . . . . . . . . . . . 60
10.3.1 Mandatory Arbitration. . . . . . . . . . . . 60
10.3.2 Arbitrator's Qualifications and Selection. . 60
10.3.3 Governing Law; Written Decision. . . . . . . 60
10.3.4 Procedures; Evidence; Experts. . . . . . . . 61
10.3.5 Costs. . . . . . . . . . . . . . . . . . . . 61
10.3.6 Consent to Jurisdiction. . . . . . . . . . . 61
10.3.7 Injunctive Relief. . . . . . . . . . . . . . 62
10.3.8 Indemnification. . . . . . . . . . . . . . . 62
10.3.9 Survival.. . . . . . . . . . . . . . . . . . 62
10.4 WAIVER OF JURY TRIAL; EXEMPLARY DAMAGES. . . . . . . . 62
10.5 Attorneys' Fees. . . . . . . . . . . . . . . . . . . . 62
10.6 Interest On Amounts Due. . . . . . . . . . . . . . . . 63
ARTICLE XI MISCELLANEOUS . . . . . . . . . . . . . . . . . . 63
11.1 Expenses of Transaction. . . . . . . . . . . . . . . . 63
11.2 Confidentiality. . . . . . . . . . . . . . . . . . . . 63
11.3 Publicity. . . . . . . . . . . . . . . . . . . . . . . 64
11.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . 64
11.5 Further Assurances.. . . . . . . . . . . . . . . . . . 65
11.6 Modifications and Amendments; Waivers and Consents.. . 65
11.7 Entire Agreement.. . . . . . . . . . . . . . . . . . . 66
11.8 Governing Law and Venue. . . . . . . . . . . . . . . . 66
11.9 Binding Effect.. . . . . . . . . . . . . . . . . . . . 66
11.10 Counterparts. . . . . . . . . . . . . . . . . . . . . 67
11.11 Section Headings. . . . . . . . . . . . . . . . . . . 67
11.12 Gender; Tense, Etc. . . . . . . . . . . . . . . . . . 67
11.13 No Third Party Rights.. . . . . . . . . . . . . . . . 67
AGREEMENT FOR PURCHASE AND SALE OF ASSETS
Among
STANDARD MICROSYSTEMS CORPORATION
EFAR MICROSYSTEMS, INC.
and
THE KEY OFFICERS
Dated:
February 6, 1996
FINANCIAL REVIEW
Selected
Financial Data.... 24
Management's
Discussion and
Analysis.......... 25
Consolidated
Balance Sheets.... 32
Consolidated
Statements
of Income......... 33
Consolidated
Statements of
Shareholders'
Equity............ 34
Consolidated
Statements
of Cash Flows..... 35
Notes to
Consolidated
Financial
Statements........ 36
Report on
Management's
Responsibilities.. 45
Report of
Independent
Public Accountants 45
23
<PAGE>
Standard Microsystems Corporation
and Subsidiaries
Selected Financial Data
(IN THOUSANDS, EXCEPT PER SHARE DATA)
AS OF FEBRUARY 29 OR 28, AND
FOR THE YEARS THEN ENDED
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Revenues $341,926 $378,671 $322,575 $250,495 $132,744
Cost of goods sold and operating expenses 370,835 338,049 287,139 219,712 130,679
Income (loss) from operations (28,909) 40,622 35,436 30,783 2,065
Other income (expense), net 48,913 670 (1,964) (2,865) (134)
Income before minority interest, provision
for income taxes and extraordinary item 20,004 41,292 33,472 27,918 1,931
Minority interest in net income (loss)
of subsidiary 202 185 (209) (430) (425)
Income before provision for income
taxes and extraordinary item 19,802 41,107 33,681 28,348 2,356
Provision for income taxes 8,201 15,940 13,770 12,510 1,761
Income before extraordinary item 11,601 25,167 19,911 15,838 595
Extraordinary item -- (944) -- -- --
Net income $11,601 $24,223 $19,911 $15,838 $595
Weighted average common and
common equivalent shares 13,515 13,305 13,090 12,469 11,604
PER SHARE DATA
Income before extraordinary item $0.86 $1.89 $1.52 $1.27 $0.05
Extraordinary item -- (0.07) -- -- --
Net income $0.86 $1.82 $1.52 $1.27 $0.05
Shareholders' equity at year end $14.11 $13.16 $11.18 $9.50 $7.70
Market price at year end 15.63 26.50 19.13 18.75 9.13
BALANCE SHEET DATA
Current assets $148,884 $162,776 $140,393 $111,326 $79,718
Current liabilities 55,781 43,421 41,842 40,962 35,085
Working capital $93,103 $119,355 $98,551 $70,364 $44,633
Property, plant and equipment, net $60,208 $34,908 $30,600 $30,775 $33,116
Total assets 260,659 228,578 205,833 183,926 154,299
Long-term debt -- -- 9,190 12,135 18,240
Minority interest in subsidiary 11,376 11,174 10,989 11,198 11,628
Shareholders' equity 193,502 173,983 143,812 119,631 89,346
</TABLE>
24
<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 29, 1996:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED FEBRUARY 29 OR 28, 1996 1995 1994
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Cost of goods sold 64.1 56.6 60.2
Gross profit 35.9 43.4 39.8
Research and development 9.3 7.5 7.4
Selling, general and administrative 31.1 23.8 19.7
Amortization of intangible assets 2.4 1.4 1.7
Purchased in-process technology 1.6 -- --
Total operating expenses 44.4 32.7 28.8
Income (loss) from operations (8.5) 10.7 11.0
Other income (expense), net 14.3 0.2 (0.6)
Income before minority interest, income taxes and
extraordinary item 5.8 10.9 10.4
Minority interest in net income (loss) of subsidiary 0.1 0.1 (0.1)
Income before taxes and extraordinary item 5.7 10.8 10.5
Provision for income taxes 2.4 4.2 4.3
Income before extraordinary item 3.3 6.6 6.2
Extraordinary item -- (0.2) --
Net income 3.3% 6.4% 6.2%
</TABLE>
BUSINESS DIVESTITURE AND ACQUISITION
In January 1996, the Company and SMC Enterprise Networks, Inc., a wholly-owned
subsidiary, sold substantially all of the assets and technology of the Company's
Enterprise Networks Business Unit (ENBU) to Cabletron Systems, Inc., for $74.0
million in cash. This business unit, which originated through the Company's
December 1992 acquisition of Massachusetts-based Sigma Network Systems, Inc.,
developed, manufactured and sold enterprise-wide switching products for computer
networks. The Company realized a $49.7 million pre-tax gain on the sale, after
related costs. As security for the Company's indemnification obligations under
the agreement, $7.1 million of the purchase price was placed in escrow to be
used as a source from which indemnifiable losses may be paid by the Company to
Cabletron. The Company anticipates no material claims for indemnifiable losses.
In February 1996, the Company acquired the assets and technology of EFAR
Microsystems, Inc., of Santa Clara, California. EFAR supplies core logic
chipsets for use in personal computers using x86-architecture and Pentium
microprocessors. The transaction was valued at $5.6 million, including the
issuance of 240,000 shares of the Company's common stock, the assumption of
liabilities, and transaction fees. $5.5 million of the purchase price
represented purchased in-process technology and was charged to the Company's
operations. The Company may issue up to $20 million of additional common stock
to EFAR over the next three years, contingent upon the acquired business
achieving certain operating results.
25
<PAGE>
Standard Microsystems Corporation
and Subsidiaries
RESULTS OF OPERATIONS BY INDUSTRY SEGMENT
The following table presents the Company's revenues and operating income by
industry segment for the three years ended February 29, 1996 (in millions):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED % CHANGE % CHANGE
FEBRUARY 29 OR FEBRUARY 28, 1996 96/95 1995 95/94 1994
<S> <C> <C> <C> <C> <C>
SYSTEM PRODUCTS
Adapter revenues $ 144.5 -29% $ 204.9 -10% $228.1
Hub and switch revenues 42.0 -19 51.5 46 35.3
Total system products revenues $ 186.5 -27% $ 256.4 -3% $ 263.4
Operating income (loss) (40.5) -257 25.9 -41 44.1
% of revenues (21.7) %10.1% 16.7%
COMPONENT PRODUCTS
Integrated circuit revenues $ 123.0 15% $ 106.9 102% $ 52.8
Foundry device revenues 15.6 320 3.7 226 1.1
Total component products revenues $ 138.6 25% $ 110.6 105% $ 53.9
Operating income 31.2 5 29.7 467 5.2
% of revenues 22.5% 26.8% 9.7%
TOYO MICROSYSTEMS CORPORATION
Revenues $ 16.8 44% $ 11.7 120% $ 5.3
Operating income (loss) 1.0 52 0.7 -- (1.2)
% of revenues 5.9% 5.6% (23.6)%
GENERAL, CORPORATE AND OTHER
Operating (loss) ($ 20.5) 32% ($ 15.6) 23% ($ 12.6)
</TABLE>
Standard Microsystems Corporation conducts its operations primarily through the
System Products Division and the Component Products Division. The System
Products Division designs, produces and markets products that connect personal
computers to, and allow communications over, local area networks (LANs). The
Component Products Division designs, produces and markets
very-large-scale-integrated circuits, mainly for control of various personal
computer functions, as well as specialized semiconductor-related products that
are produced in SMC's own foundry. As a separate profit center, the Company's
subsidiary, Toyo Microsystems Corporation (TMC), sells component and system
products in the Japanese market.
REVENUES
The Company's revenues declined 10% to $341.9 million in fiscal 1996,
from $378.7 million in fiscal 1995. As a percentage of consolidated revenues,
system products declined to 54.6% in fiscal 1996 from 67.7% in fiscal 1995, as
component products increased to 40.5% from 29.2% and TMC increased to 4.9% from
3.1%. Results for the year were handicapped by system products' 27% revenue
decline, only partially offset by component products' 25% growth and TMC's 44%
growth.
System products' lower revenues reflected a decline in shipments to
distributors, SMC's principal customers for adapter, hub and LAN switch
networking products. The decline resulted primarily from a reduction of
distributor inventory to levels that were considered appropriate for the rate of
sales of SMC's products by distributors to their reseller customers during
fiscal 1996. Revenues of network interface cards (adapters) fell 29% in fiscal
1996, including a 25% decline in Ethernet adapter revenues. The decline in
Ethernet adapter revenues resulted from a 9% decline in unit volume and a 17%
decline in average selling prices.
26
<PAGE>
Standard Microsystems Corporation
and Subsidiaries
Hub and LAN switch revenues declined by $9.5 million, or 19%, in fiscal
1996. Most of this decline occurred in the Enterprise Networks Business Unit
that was sold to Cabletron Systems, Inc. That business, which was included
within the Company's operations for approximately ten months in fiscal 1996,
accounted for approximately 4% and 6% of consolidated revenues in fiscal 1996
and fiscal 1995, respectively.
Component products' growth in fiscal 1996 was generated principally by
continued broad acceptance of PC I/O integrated circuits by major PC producers
and by specialized semiconductor-related revenues that grew more than 300% from
a very small base in fiscal 1995. In addition, growth at TMC came primarily from
increased sales of PC I/O devices in Japan. SMC believes that an industry-wide
shortage of capacity to produce semiconductors during most of fiscal 1996
curtailed revenues of integrated circuits. During the fourth quarter, SMC
received initial production wafers from two suppliers under specific programs
discussed in the WAFER PURCHASE AGREEMENTS section of this discussion. The
Company also received initial wafers from other suppliers, requiring no specific
investment. All of these sources of integrated circuit wafer capacity
contributed to an increase in fourth quarter component products revenues over
the levels of the first three quarters of fiscal 1996.
The Company's revenues increased 17% in fiscal 1995, reflecting
increased shipments of component products, hubs and LAN switches. Component
products' revenues grew 105%, reflecting broad acceptance of PC I/O circuits by
major PC manufacturers. Adapter revenues declined 10% in fiscal 1995, including
a 16% decrease in Ethernet adapter revenues, primarily from lower average
selling prices. Hub and LAN switch revenues grew 46%, reflecting increased
shipments of the ES/1 LAN Switch, initial shipment of the TigerSwitch and
increased shipments of wiring hubs. 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 due to lower than
anticipated shipments from distributors to their customers. TMC also contributed
to the Company's overall improvement with revenue growth of 120%, principally
from networking products growth.
The following table presents the Company's revenues by geographic area
as percentages of total revenues to unaffiliated customers. All but Japan (TMC),
within the category REVENUES OUTSIDE THE UNITED STATES, are considered export
revenues shipped from U.S. operations.
FISCAL YEARS ENDED FEBRUARY 29 OR 28, 1996 1995 1994
United States 43.7% 53.2% 56.0%
Asia and Pacific Rim 25.4 14.2 9.3
Europe 20.3 22.9 26.1
Canada 3.2 4.0 4.3
Other 2.5 2.6 2.6
Export revenues 51.4 43.7 42.3
Japan (TMC) 4.9 3.1 1.7
Revenues outside the United States 56.3 46.8 44.0
Total revenues 100.0% 100.0% 100.0%
International revenues were 56.3% of the Company's revenues in fiscal
1996, compared with 46.8% in fiscal 1995 and 44.0% in fiscal 1994. The principal
shift occurred in revenues to Asia and the Pacific Rim, which grew 62% in fiscal
1996 and 79% in fiscal 1995. This growth was caused primarily by a trend of
component products' domestic-branded customers to produce a greater proportion
of their PCs in offshore factories. In system products' major international
market, Europe, revenues declined 20% in 1996 and grew 3% in 1995.
The European market was relatively more stable than North American
markets, which incurred a greater proportion of the previously-cited adjustments
in networking products' distribution inventory during fiscal 1996 and fiscal
1995. United States and Canadian revenues declined 26% and 29%, respectively, in
fiscal 1996 after fiscal 1995 gains of 12% and 11%,
27
<PAGE>
Standard Microsystems
Corporation and Subsidiaries
respectively. The improvement in Japan resulted principally from TMC selling
more PC I/O devices in fiscal 1996 and selling more networking products in
fiscal 1995.
Revenue transfers between industry segments are reported in note 10
of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. The majority of these
transfers consists of components and systems products shipped to TMC for
resale in Japan.
GROSS PROFIT
The gross profit margin declined to 35.9% in fiscal 1996 from 43.4% in fiscal
1995. An $11.8 million inventory write-down accounted for 4 percentage points of
the gross profit margin decline. This charge, provided in the second quarter,
wrote down certain system products' inventory to estimated net realizable value.
The write-down reflected the disappointing reception of a new product and the
reduction of its selling price, lower than projected demand for several older
product lines being replaced by newer products, and a decision to reduce the
variety of networking products that perform similar functions.
Factors contributing to the remaining 3.5 percentage points of the gross
margin decline were:
(Bullet) Lower average selling prices for network interface cards,
switching and hub products, only partially offset by a reduction in
production costs
(Bullet) Distribution of manufacturing overhead over reduced system
products' revenues
(Bullet) A disproportionate decline in revenues of generally higher
margined networking products such as Token Ring and ARCNET adapters and
enterprise switches
(Bullet) Lower margins for the newest generation of PC I/O integrated
circuits, in which higher costs more than offset higher average selling
prices
(Bullet) A partial offset to these items from higher foundry
business margins
Fiscal 1995 gross profit margins improved to 43.4% from 39.8% in fiscal
1994. The improvement in fiscal 1995 was attributable to increased unit volume
of PC I/O devices, leading to lower production costs and more efficient
utilization of manufacturing overhead for component products. In addition, the
growth of LAN switching revenues, which carried higher gross margins than
adapter revenues, led to improved gross margins for system products.
SMC maintains programs to reduce product costs and develop innovative
products that have helped to offset price competition that characterizes the
Company's business. These programs have generally contributed to maintaining
gross profit margins. The percentage of revenues from new products in fiscal
1996 was above the year earlier percentage, but was insufficient to offset the
variables enumerated above that led to a reduction in gross profit margins. New
product revenues were approximately 26% of total revenues in fiscal 1996
compared to 17% in fiscal 1995 and 27% in fiscal 1994. New products are defined
as those products that were initially shipped to customers during the preceding
four quarters.
OPERATING EXPENSES
Research and development expenses increased to $31.7 million, or 9.3% of
revenues, in fiscal 1996 from $28.3 million, or 7.5% of revenues, in fiscal 1995
and $24.0 million, or 7.4% of revenues, in fiscal 1994. Of these amounts, $9.8
million was spent by the divested ENBU in fiscal 1996, compared to $7.6 million
in fiscal 1995. In fiscal 1997, engineering efforts for networking products will
focus on developing Fast Ethernet, ATM and PC Card technology products and
reducing costs and enhancing the performance of adapter, hub and LAN switch
products. Development for component products is directed toward enhancing the
functionality and performance and reducing device costs of PC I/O, PCsystems
logic chipset and LAN integrated circuits.
Selling, general and administrative expenses increased 18% to $106.3
million, or 31.1% of revenues, in fiscal 1996, compared to $90.0 million, or
23.8% of revenues, in fiscal 1995 and $63.5 million, or 19.7% of revenues, in
fiscal 1994. These expenses included spending for advertising, which decreased
to $17.4 million in fiscal 1996 from $23.2 million in fiscal 1995 and increased
from $13.6 million in fiscal 1994.
Included within fiscal 1996 expenses are $2.5 million related to the
severance of several executives and a $1.2 million reserve for estimated legal
fees. Excluding these items, fiscal 1996 selling, general and administrative
expenses increased by 14% over fiscal 1995 expenses to $102.6 million, or 30.0%
of revenues. Of these amounts, $10.8 million was directly related
28
<PAGE>
Standard Microsystems Corporation
and Subsidiaries
to the fiscal 1996 operation of the ENBU, compared to $7.9 million in fiscal
1995. Most of the increases in fiscal 1996, excluding the severance charges and
legal fee accrual, reflected higher selling and marketing expenses for LAN
switching and hub products and for component products. The increased spending
also resulted from an expansion of the infrastructure to support the growth in
the component products business.
Sales and marketing personnel declined to approximately 285 at the end
of fiscal 1996, chiefly reflecting the divestiture of the ENBU. As a result, the
Company no longer needs to support a networking sales force that sells directly
to end users and will concentrate chiefly on existing distribution and major
account channels. 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 increases in amortization of intangible assets in fiscal 1996 from
fiscal 1995 reflected an accelerated write-off of certain assets. The increase
also included a $2.4 million write-down of previously acquired LAN technology to
its estimated realizable value in the second quarter. The charge was taken as a
result of a reassessment of the Company's business prospects for this
technology, and the decision to reduce related development activity.
OPERATING PROFITS
In fiscal 1996, the Company reported an operating loss of $28.9 million,
or -8.5% of revenues, which compares to an operating profit of $40.6 million, or
10.7% of revenues, in fiscal 1995 and $35.4 million, or 11.0% of revenues, in
fiscal 1994. The major contributor to the decline in fiscal 1996 was the system
products business, which incurred an operating loss of $40.5 million, or -21.7%
of its revenues. Operating income for component products business rose 5% in
fiscal 1996 to $31.2 million, or 22.5% of its revenues.
In fiscal 1995, when the Company's operating profits rose 15%, system
products' operating profits declined 41% to $25.9 million, or 10.1% of revenues.
The impetus behind the Company's overall growth was the 467% improvement in
component products' operating income to $29.7 million, or 26.8% of revenues. TMC
recorded growth in both fiscal 1996 and 1995, ameliorating the fiscal 1996
decline and aiding the progress in fiscal 1995. General, corporate and other
operating expenses increased to restrain the grow th in overall operating
profits in both years.
As discussed in the previous sections, portions of the fiscal 1996
operating loss resulted primarily from lower gross margins for both systems and
components products, system products' inventory write-downs, increases in
intangible asset amortization and charges for in-process technology, severance
and legal fees. Also, in both fiscal 1996 and 1995, system products' profits
were restrained by losses at the ENBU, prior to its sale.
OTHER INCOME AND EXPENSE
In fiscal 1996, interest expense decreased $0.2 million, associated with
lower interest rates on a new credit line negotiated in January 1995. The impact
was partially offset by higher average borrowings in fiscal 1996 although, after
selling the ENBU, the Company repaid all its bank debt in the fourth quarter.
Interest income declined $0.8 million, primarily reflecting a decrease in
average cash balances available for investment during fiscal 1996.
Fiscal 1995 interest expense declined $0.4 million due to lower average
borrowings outstanding and the fourth quarter retirement 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.
EXTRAORDINARY ITEMS
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
of the early debt retirement, the Company incurred prepayment penalties, the
write-off of unamortized financing costs, and other fees, amounting to $1.5
million or $0.9 million after taxes.
29
<PAGE>
Standard Microsystems Corporation
and Subsidiaries
INCOME TAXES
In fiscal 1996, income taxes were provided at an effective rate of
41.4%, compared to 38.8% for fiscal 1995 and 40.9% for fiscal 1994. The
effective rate for fiscal 1996 included the 35.0% federal tax rate and a 3.8%
effective state tax rate. In addition, goodwill written off in connection with
the sale of the ENBU was not deductible for tax purposes, raising the Company's
fiscal 1996 effective tax rate.
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
allowing the deductibility of goodwill associated with a fiscal 1992 acquisition
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.
WAFER PURCHASE AGREEMENTS
Pursuant to a September 1994 agreement with AT&T Corp., the Company
purchased $16.0 million of wafer fabrication equipment for installation in a
semiconductor plant owned by AT&T's Microelectronics Business Unit in Madrid,
Spain. This agreement allocates sub-micron wafer production capacity to the
Company for five years beginning in March 1996. The $16.0 million is included
within the Company's fiscal 1996 capital expenditures.
In fiscal 1996, the Company purchased a minority equity interest in
Singapore-based Chartered Semiconductor Pte Ltd. for $19.9 million. Under this
agreement, Chartered allocates sub-micron wafer production capacity to the
Company for ten years. The $19.9 million is included within Other assets on the
accompanying balance sheet. This arrangement, along with the AT&T agreement, is
intended to provide a portion of the Company's long-term production requirements
for state-of-the-art integrated circuits.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased to $93.1 million at the end of
fiscal 1996 from $119.4 million at the end of fiscal 1995. The decrease in
working capital was primarily from decreases of $11.0 million in cash and cash
equivalents and $19.9 million in accounts receivable and an increase of $12.4
million in current liabilities. These items were partially offset by increases
of $14.6 million in inventories and $2.4 million in deferred tax benefits and
other assets.
The decrease in cash and cash equivalents to $18.5 million at the end of
fiscal 1996 primarily reflected paying income taxes of $17.7 million, $39.0
million for capital expenditures, and $19.9 million for an interest in Chartered
Semiconductor Pte Ltd. Partially funding these transactions was the receipt of
$63.4 million of net cash realized from the sale of the ENBU. These net proceeds
resulted from the ENBU's $74.0 million selling price, reduced by $7.1 million
placed into escrow and $3.5 million of transaction costs.
Cash and cash equivalents decreased by $2.6 million to $29.5 million at
the end of fiscal 1995, 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.
The reduction of inventory in the system products' distribution channel
resulted in a more even dispersal of revenues and lower days of sales
outstanding (DSO). During fiscal 1996, DSOs declined to 54 in the fourth quarter
from 67 in the fourth quarter of fiscal 1995 and from 63 in the fourth quarter
of fiscal 1994. The increased DSOs in the fourth quarter of fiscal 1995
reflected a greater percentage of sales occurring toward the end of the quarter
when compared to the year earlier period.
Annualized inventory turnover declined to 4.0 times for the fourth
quarter of fiscal 1996 from 5.1 times for the year earlier period. The decline
in inventory turnover primarily reflects an investment in component products'
inventory in anticipation of higher sales in the coming quarter. During fiscal
1997, the Company intends to reduce system products' inventory, in part, by
reducing the variety of Ethernet adapters that are installed in PCs.
30
<PAGE>
Standard Microsystems Corporation
and Subsidiaries
Concurrent with the early retirement of all of its bank debt in January
1995, the Company negotiated an $80.0 million unsecured revolving credit line
that replaced a $35.0 million revolving credit agreement. During fiscal 1996,
the Company borrowed varying amounts under this credit line, peaking at $18.0
million at the end of November 1995. During fiscal 1996, the Company experienced
reduced revenues, losses from operations and asset write-downs. This performance
resulted in the Company's non-compliance with certain financial condition
covenants under the $80.0 million line of credit agreement. In connection
therewith, the Company obtained waivers from its banks respecting the failure to
meet these covenants, and, in October 1995, the agreement was amended to reduce
the credit line to $25.0 million.
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 next twelve months. It is anticipated that
cash flow from operations, supplemented by borrowings under the revolving credit
line as necessary, will be used chiefly to fund capital expenditures in fiscal
1997. Significant capital expenditures expected in fiscal 1997 include the
continuing upgrade to a new client/server information system and purchases of
various foundry production, design, and test equipment.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Except for the historical information contained in this annual report,
certain matters discussed herein are forward-looking statements that involve
risks and uncertainties. The forward-looking statements herein are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995.
A number of variables could affect the Company's future operating
results, including worldwide demand for personal computers and numerous
competitive factors. The Company's most important customers for component
products are personal computer producers, and a slowdown in the rate of growth
in demand for PCs could affect the Company's growth and intensify competition.
The inability to obtain adequate integrated circuit wafers could allow
competitors who process wafers internally to gain market share relative to the
Company. These competitors may also, more aggressively, reduce product prices.
The Company's adapters are inserted in newly sold and previously
installed PCs, so that the sales growth of PCs influences sales of adapters.
Improvements in PC performance require more powerful adapters, and that has led
to a shift in the mix of adapters that the Company sells towards the high speed
PCI bus and Fast Ethernet adapters. The Company also sells PC cards for portable
computers. Product mix, product prices and the acceptance of newly introduced
products can be altered by competitors' new products, promotions and pricing.
The Company's product development, sales and marketing progress is
dependent on hiring and retaining employees with specific skills. The Company is
also dependent on a limited number of suppliers for certain components,
assemblies, software and finished products.
High levels of production by PC manufacturers led to an industry-wide
shortage of silicon wafer fabrication capacity in fiscal 1996 and 1995. While
these shortages eased during the fourth quarter of fiscal 1996, they could occur
again and lead to difficulty in securing additional manufacturing capacity,
potentially curtailing revenue and profit growth in fiscal 1997 and beyond.
Alternatively, PC production could weaken, leading customers to cancel or delay
orders for the Company's products.
With 56% of the Company's revenues in fiscal 1996 shipped to customers
located outside of the United States, global economic conditions and changes in
foreign currency exchange rates can influence the demand for the Company's
products. Because of these and other circumstances that could affect the
Company's operating results, past financial performance is not necessarily
indicative of results to be expected in the future.
31
<PAGE>
Standard Microsystems Corporation
and Subsidiaries
Consolidated Balance Sheets
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
AS OF FEBRUARY 29 OR 28, 1996 1995
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 18,459 $ 29,478
Accounts receivable, net of allowance for doubtful
accounts of $1,369 and $1,102, respectively 55,976 75,826
Inventories 60,408 45,789
Deferred tax benefits 8,607 5,392
Other current assets 5,434 6,291
TOTAL CURRENT ASSETS 148,884 162,776
PROPERTY, PLANT AND EQUIPMENT:
Land 3,832
Buildings and improvements 26,839 26,901
Machinery and equipment 109,235 77,639
139,906 108,372
Less: accumulated depreciation 79,698 73,464
PROPERTY, PLANT AND EQUIPMENT, NET 60,208 34,908
OTHER ASSETS
51,567 30,894
$260,659 $228,578
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 30,801 $ 24,193
Accrued expenses and other liabilities 23,884 15,527
Income taxes payable 1,096 3,701
TOTAL CURRENT LIABILITIES 55,781 43,421
COMMITMENTS AND CONTINGENCIES -- --
MINORITY INTEREST IN SUBSIDIARY
11,376 11,174
SHAREHOLDERS' EQUITY:
Preferred stock, $0.10 par value
Authorized 1,000,000 shares, none outstanding -- --
Common stock, $0.10 par value
Authorized 30,000,000 shares
Outstanding 13,711,000 and 13,222,000
shares, respectively 1,371 1,322
Additional paid-in capital 84,737 77,319
Retained earnings 100,217 88,616
Unrealized gain on investment, net of tax 2,226 718
Foreign currency translation adjustment 4,951 6,008
TOTAL SHAREHOLDERS' EQUITY 193,502 173,983
$260,659 $228,578
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
32
<PAGE>
Standard Microsystems Corporation
and Subsidiaries
Consolidated Statements of Income
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FEBRUARY 29 OR 28, 1996 1995 1994
<S> <C> <C> <C>
Revenues $341,926 $ 378,671 $ 322,575
Cost of goods sold 219,141 214,269 194,210
Gross profit 122,785 164,402 128,365
Operating expenses:
Research and development 31,666 28,286 23,963
Selling, general and administrative 106,337 90,005 63,477
Amortization of intangible assets 8,237 5,489 5,489
Purchased in-process technology 5,454 -- --
151,694 123,780 92,929
Income (loss) from operations (28,909) 40,622 35,436
Other income (expense):
Interest income 630 1,453 912
Interest expense (1,072) (1,255) (1,649)
Gain on sale of business unit 49,663 -- --
Other income (expense), net (308) 472 (1,227)
48,913 670 (1,964)
Income before minority interest, provision for
income taxes and extraordinary item 20,004 41,292 33,472
Minority interest in net income (loss) of subsidiary 202 185 (209)
Income before provision for income taxes and
extraordinary item 19,802 41,107 33,681
Provision for income taxes 8,201 15,940 13,770
Income before extraordinary item 11,601 25,167 19,911
Extraordinary item
Loss on retirement of debt, net of applicable
income taxes of $600 -- 944 --
Net income $ 11,601 $ 24,223 $ 19,911
Income (loss) per common and common equivalent share:
Income before extraordinary item $ 0.86 $ 1.89 $ 1.52
Extraordinary item -- (0.07) --
Net income per common and
common equivalent share $ 0.86 $ 1.82 $ 1.52
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
33
<PAGE>
Standard Microsystems Corporation
and Subsidiaries
Consolidated Statements of Shareholders' Equity
(IN THOUSANDS)
<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 28, 1993 12,591 $ 1,259 $ 69,807 $ 44,482 $-- $ 4,083
Shares issued under employee
stock purchase plan 46 5 879 -- -- --
Stock options exercised 194 19 1,253 -- -- --
Tax effect of employee stock plans -- -- 992 -- -- --
Restricted stock grants to
employees, net 36 4 185 -- -- --
Foreign currency translation
adjustment -- -- -- -- -- 933
Net income -- -- -- 19,911 -- --
BALANCE AT FEBRUARY 28, 1994 12,867 1,287 73,116 64,393 -- 5,016
Shares issued under employee
stock purchase plan 60 6 1,173 -- -- --
Stock options exercised 245 24 1,967 -- -- --
Tax effect of employee stock plans -- -- 707 -- -- --
Restricted stock grants to
employees, net 50 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 1,322 77,319 88,616 718 6,008
Shares issued under employee
stock purchase plan 91 9 1,564 -- -- --
Stock options exercised 72 7 674 -- -- --
Tax effect of employee stock plans -- -- 377 -- -- --
Stock issued for business acquisition 240 24 3,880 -- -- --
Restricted stock grants to
employees, net 86 9 923 -- -- --
Unrealized gain on investment,
net of taxes -- -- -- -- 1,508 --
Foreign currency translation
adjustment -- -- -- -- -- (1,057)
Net income -- -- -- 11,601 -- --
BALANCE AT FEBRUARY 29, 1996 13,711 $ 1,371 $ 84,737 $100,217 $ 2,226 $ 4,951
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
34
<PAGE>
Standard Microsystems Corporation
and Subsidiaries
Consolidated Statements of Cash Flows
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FEBRUARY 29 OR 28, 1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 361,215 $ 367,342 $ 293,927
Cash paid to suppliers and employees (357,981) (331,406) (276,443)
Interest received 622 3,027 1,284
Interest paid (1,082) (1,168) (1,699)
Income taxes paid (17,670) (16,467) (11,884)
Net cash provided by (used for) operating activities (14,896) 21,328 5,185
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (39,012) (13,578) (8,119)
Acquisition of business (1,440) -- --
Sale of business unit, net of related costs 70,473 -- --
Escrow investment (7,050) -- --
Investment in Chartered Semiconductor Pte Ltd. (19,944) -- --
Other 50 39 3,089
Net cash provided by (used for) investing activities 3,077 (13,539) (5,030)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,573 1,991 1,403
Borrowings under line of credit agreements 34,000 927 1,055
Principal payments of long-term debt (34,000) (14,117) (7,000)
Net cash provided by (used for) financing activities 1,573 (11,199) (4,542)
Effect of foreign exchange rate changes on cash
and cash equivalents (773) 773 630
Net decrease in cash and cash equivalents (11,019) (2,637) (3,757)
Cash and cash equivalents at beginning of year 29,478 32,115 35,872
Cash and cash equivalents at end of year $ 18,459 $ 29,478 $ 32,115
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net income $ 11,601 $ 24,223 $ 19,911
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Depreciation and amortization 18,976 14,813 13,799
Gain on sale of business unit (49,663) -- --
Purchased in-process technology 5,454 -- --
Other adjustments, net 1,423 2,168 1,040
CHANGES IN OPERATING ASSETS AND LIABILITIES, NET OF EFFECTS OF ACQUISITION
AND SALE OF BUSINESSES:
Accounts receivable 19,058 (11,027) (28,265)
Inventories (24,459) (11,608) (5,921)
Accounts payable and accrued expenses
and other liabilities 13,425 4,714 2,678
Other changes, net (10,711) (1,955) 1,943
Net cash provided by (used for) operating activities $ (14,896) $ 21,328 $ 5,185
CASH USED FOR ACQUISITION OF BUSINESS AS REFLECTED IN THE CONSOLIDATED
STATEMENTS OF CASH FLOWS IS SUMMARIZED AS FOLLOWS:
Net assets and technology acquired $ 5,554
Common stock issued (3,904)
Liabilities assumed and created (210)
Cash used for acquisition of business $ 1,440
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
35
<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 all its subsidiaries (the Company). All
significant intercompany accounts and 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. 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, these debt instruments are
categorized as available for sale and are recorded at fair value which
approximates cost.
INVENTORIES
Inventories are valued at the lower of first-in, first-out cost or market and
consist of the following (in thousands):
AS OF FEBRUARY 29 OR 28, 1996 1995
Inventories:
Raw materials $ 9,556 $ 11,547
Work-in-process 34,622 16,239
Finished goods 16,230 18,003
$ 60,408 $ 45,789
During fiscal 1996, an $11,800,000 charge to cost of goods sold was recorded to
reduce the carrying value of certain system products inventory to estimated net
realizable value. The principal reasons for the write-down were the
disappointing reception of a new product and the reduction of its selling price,
lower than projected demand for several older product lines and a decision to
reduce the variety of networking products that perform the same function.
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 resulting gain or loss is reflected
currently.
INVESTMENT IN EQUITY SECURITIES
In accordance with the provisions of SFAS 115, at February 29, 1996, and
February 28, 1995, an investment in a publicly traded equity security is carried
at fair value within Other assets on the accompanying Consolidated Balance
Sheets. A corresponding unrealized gain, net of taxes, is reported as a separate
component of Shareholders' equity.
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 primarily on a straight-line basis over
their respective estimated useful lives, ranging from three to ten years. The
carrying values of these assets are periodically reviewed to assess
recoverability. During the second quarter of fiscal 1996, the Company canceled
certain product development projects related to a particular LAN technology,
resulting in a write-down of $2,400,000 in the value of this acquired technology
and an acceleration of its amortization to reflect a reduction in its estimated
useful life.
REVENUE RECOGNITION
The Company recognizes revenues from product sales and accrues for
estimated product returns and price protection and other sales allowances at the
time of shipment.
PRODUCT WARRANTY
The Company's products are generally under limited 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.
SOFTWARE DEVELOPMENT EXPENSES
Software development costs incurred after achieving technological
feasibility are not material and, therefore, are expensed as incurred.
36
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Standard Microsystems Corporation
and Subsidiaries
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.
NEW ACCOUNTING STANDARDS
During fiscal 1997, the Company is required to adopt Statement of Financial
Accounting Standards (SFAS) No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF and SFAS 123, ACCOUNTING FOR
STOCK BASED COMPENSATION. Adoption of SFAS 121 will not have a material effect
on the Company's consolidated financial statements. The Company expects to
disclose the fair value of options granted under stock option plans in a
footnote to its 1997 consolidated financial statements, as permitted by SFAS
123.
RECLASSIFICATIONS
Certain items shown have been reclassified to conform with the fiscal 1996
presentation.
USE OF ESTIMATES The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
2. BUSINESS DIVESTITURE AND ACQUISITION
In January 1996, the Company and its wholly-owned subsidiary, SMC
Enterprise Networks, Inc., sold substantially all of the assets and technology
associated with the Company's Enterprise Networks Business Unit to Cabletron
Systems, Inc., for $74,000,000 in cash, resulting in a gain of $49,663,000
before taxes. The business unit, which originated through the Company's December
1992 purchase of Massachusetts-based Sigma Network Systems, Inc., developed,
manufactured and sold enterprise-wide switching products for computer networks.
As security for the Company's indemnification obligations, $7,050,000 of the
purchase price was placed in escrow to be used as a source from which
indemnifiable losses, if they occur, may be paid by the Company to Cabletron.
The Company expects no material claims for indemnification pursuant to this
contract.
In February 1996, the Company acquired the assets and technology of EFAR
Microsystems, Inc., of Santa Clara, CA. Accounted for as a purchase, the
acquisition was valued at $5,554,000 based on the issuance of 240,000 shares of
the Company's common stock, the assumption of liabilities and transaction fees.
As a result of this acquisition, the Company recorded a $5,454,000 charge for
the purchase of in-process technology. The acquisition agreement also provides
for the issuance of up to $20,000,000 of additional common stock over the next
three years to EFAR, contingent upon the acquired business achieving certain
operating results. Pro forma information for this acquisition is not presented
because the pro forma amounts would not differ materially from historical
results.
3. LONG-TERM DEBT
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 consisted 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 an $80,000,000
unsecured revolving line of credit, which permitted the Company to borrow funds
on a revolving basis through January 1998, bearing interest at rates varying
from .625% to 1.0% above the London Interbank
37
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Standard Microsystems Corporation
and Subsidiaries
Subsidiaries Offering Rate (LIBOR). The unused portion of the line bears an
annual commitment fee of 0.25%.
The Company had no borrowings under this line during fiscal 1995. During fiscal
1996, the Company borrowed varying amounts under this line bearing interest at
rates between 6.4% and 8.8%. During fiscal 1996, the Company obtained waivers
respecting the fail ure to meet certain financial condition covenants under this
revolving credit agreement and, in October 1995, the agreement was amended to
reduce the credit line to $25,000,000. There were no borrowings under the line
of credit as of February 29, 1996.
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 29 OR 28, 1996 1995 1994
Current
Federal $12,950 $16,242 $11,897
Foreign 619 345 188
State 580 2,281 1,907
14,149 18,868 13,992
Deferred (5,948) (2,928) (222)
$ 8,201 $15,940 $13,770
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 29 OR 28, 1996 1995 1994
Provision for income
taxes computed at
the statutory rate 35.0% 35.0% 35.0%
State taxes 3.8 3.7 3.7
Differences between
foreign and U.S.
income tax rates -- -- 1.2
Foreign sales
corporation (1.0) (1.3) (0.5)
Income tax credits (2.9) (0.1) (0.3)
Goodwill amortization 2.4 0.5 1.9
ENBU goodwill 7.6 -- --
Other (3.5) 1.0 (0.1)
41.4% 38.8% 40.9%
The tax effects of temporary differences that result in deferred tax benefits
are as follows (in thousands):
AS OF FEBRUARY 29 OR 28, 1996 1995
Reserves and accruals not
currently deductible
for tax purposes $ 3,143 $ 1,031
Intangible asset amortization 3,832 2,360
Inventory valuation 3,046 2,151
Net operating loss carryforward -- 857
Purchased in-process
technology 1,909 --
Depreciation 273 1,031
Other (71) (243)
$ 12,131 $ 7,187
Goodwill associated with the Company's January 1996 sale of its Enterprise
Networks Business Unit was not deductible for tax purposes, raising the
Company's fiscal 1996 effective tax rate by 7.6 percentage points.
During fiscal 1995, the Company elected a fifteen-year amortization of
certain intangible assets related to the fiscal 1992 acquisition of a local area
networking business. This election allows the Company to take a tax deduction
for previously non-deductible goodwill.
Realization of tax benefits from NOL carryforwards created by the
Company's Japanese subsidiary is uncertain, and accordingly is fully reserved.
At a current foreign exchange rate, these carryforwards aggregated approximately
$6,212,000 as of February 29, 1996, and will expire between fiscal 1997 and
fiscal 1999.
Income tax benefits of $377,000, $707,000 and $992,000 related to the
Company's stock option plans for fiscal 1996, 1995 and 1994, respectively, have
been credited to additional paid-in capital.
The Company has $1,851,000 of New York State tax credit carryforwards of
which $950,000 and $289,000 expire in fiscal 1997 and 1998, respectively. The
remaining $612,000 of credit carryforwards expire at various dates in fiscal
1999 through fiscal 2004.
38
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Standard Microsystems Corporation
and Subsidiaries
5. OTHER BALANCE SHEET DATA
(IN THOUSANDS)
AS OF FEBRUARY 29 OR 28, 1996 1995
Other assets:
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) 7,797 15,279
36,397 43,879
Less: accumulated amortization 22,388 17,400
14,009 26,479
Common stock of
Chartered Semiconductor Pte Ltd. $19,944 --
Deferred tax benefits 3,524 1,795
Escrow deposit 7,050 --
Other assets 7,040 2,620
$51,567 $30,894
Accrued expenses and other liabilities:
Salaries and fringe benefits $ 7,046 $ 6,502
Advertising 1,587 3,683
Other 15,251 5,342
$23,884 $15,527
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 $1,234,000 at an exchange rate of 105 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 on
various dates through fiscal 2000. These agreements provide, among other things,
for annual base salaries totaling $932,000 in fiscal 1997 and declining amounts
as the agreements expire through fiscal 2000.
The Company has also entered into agreements with certain senior 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 fiscal years are as follows
(in thousands):
1997 $1,218
1998 1,090
1999 1,000
2000 979
2001 751
Total rent expense was $1,317,000, $1,013,000 and $755,000 in fiscal 1996, 1995
and 1994, respectively.
WAFER PURCHASE AGREEMENTS
In September 1994, the Company entered into an agreement with AT&T Corp.'s
Microelectronics Business Unit (AT&T) whereby the Company purchased $15,979,000
of wafer manufacturing equipment for installation at AT&T's Madrid, Spain,
facility during fiscal 1996. The agreement provides that a portion of AT&T's
wafer production capacity during the five-year period beginning in March 1996
will be reserved for the Company's requirements at favorable pricing.
In March 1995, the Company entered into an agreement with Singapore-based
Chartered Semiconductor Pte Ltd., whereby the Company acquired a minority equity
interest in Chartered for $19,944,000 during fiscal 1996. This investment is
reported at cost on the accompanying balance sheet. Under this agreement, the
Company is to be allocated sub-micron wafer production capacity for ten years in
Chartered's recently constructed wafer fabrication facility.
39
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Standard Microsystems Corporation
and Subsidiaries
CUSTOMER SUPPLY AGREEMENT
The Company has an agreement with one customer to deliver components, and
the customer is obligated to purchase these components, according to agreed-upon
schedules over the next two years. The Company will sell the components at
specified prices as defined in the agreement.
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 June 1993, Penril Datacom Networks, Inc., commenced an action against
the Company, its wholly-owned subsidiary SMC Enterprise Networks, Inc.
(successor by merger to Sigma Network Systems, Inc.), and two former officers of
Sigma, alleging, among other items, breach of September 1991 and March 1990
agreements between Sigma and Penril and seeking $8,000,000. The Company
counterclaimed against Penril, alleging breach of contract and sought damages in
excess of $1,400,000. In November 1995, Penril filed a First Amended complaint
seeking $50,000,000 in damages and a trebling of those damages. Penril has filed
further motions that the Company has opposed. While it is not possible to assess
the likelihood of Penril establishing liability, nor predict the amount of
damages that might be awarded in the event of a successful claim, the Company
has accrued the estimated cost of legal fees to defend against these claims and
intends to defend against these claims vigorously.
In June 1995, several actions were filed against the Company and certain of
its officers and directors. The actions have been consolidated into one
complaint. The consolidated claims purport to be a class action on behalf of the
purchasers of the Company's common stock between September 19, 1994, and June 2,
1995. The consolidated complaint asserts claims under federal securities laws
and alleges that the price of the Company's common stock was artificially
inflated during the class action period by false and misleading statements and
the failure to disclose certain information. While it is not possible to assess
the likelihood of any liability being established, nor predict the amount of
damages that might be awarded in the event of a successful claim, the Company
has answered the consolidated complaint, has accrued the estimated cost of legal
fees to defend against these claims, and intends to defend against these claims
vigorously.
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
totaled $1,066,000, $866,000 and $729,000 in fiscal 1996, 1995 and 1994,
respectively.
The Company has authorized unissued common stock reserved for issuance to
the Plan. As of February 29, 1996, 121,000 unissued shares remain in reserve.
Since its inception, 729,000 shares of the Company's common stock have been
contributed to the Plan.
As of February 29, 1996, 547 of the 745 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 29, 1996, the expiration
dates of the outstanding options range from March 31, 1996, to February 28,
2006, and the exercise prices range from $4.13 to $30.00 (average $17.55) per
share. The following is a summary of activity under the plans over the past
three fiscal years:
40
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Standard Microsystems Corporation
and Subsidiaries
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FEBRUARY 29 OR 28, 1996 1995 1994
<S> <C> <C> <C>
Shares under option, beginning of year 867,000 732,000 602,000
Options granted during the year 821,000 402,000 304,000
Options canceled or terminated (225,000) (53,000) (26,000)
Options exercised:
1996 ($4.13 to $17.38 per share) (69,000) -- --
1995 ($4.13 to $26.00 per share) -- (214,000) --
1994 ($4.13 to $19.38 per share) -- -- (148,000)
Shares under option, end of year 1,394,000 867,000 732,000
Options exercisable, end of year 369,000 167,000 128,000
Shares available for future grants, end of year 42,000 665,000 290,000
</TABLE>
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 29, 1996, 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 $14.80) per
share.
The following is a summary of activity under the Director Stock Option
Plan over the past three fiscal years:
FOR THE YEARS ENDED FEBRUARY 29 OR 28, 1996 1995 1994
Shares under option, beginning of year 43,000 59,000 90,000
Options granted during the year 104,500 15,000 15,000
Options exercised:
1996 ($11.75 per share) (3,500) -- --
1995 ($7.13 per share) -- (31,000) --
1994 ($7.13 to $11.75 per share) -- -- (46,000)
Shares under option, end of year 144,000 43,000 59,000
Options exercisable, end of year 59,000 13,000 34,000
Shares available for future grants, end of year 175,000 30,000 45,000
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.
These 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
183,000, net of cancellations, have been awarded as of February 29, 1996. 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 $761,000, $361,000 and
$189,000 in fiscal 1996, 1995 and 1994, respectively.
41
<PAGE>
Standard Microsystems Corporation
and Subsidiaries
RETIREMENT PLANS
In March 1994, the Company adopted an unfunded Supplemental Executive
Retirement Plan to provide senior management with retirement, disability and
death benefits. The retirement benefits are based upon average compensation
during the three-year period prior to retirement. The Company is the beneficiary
of life insurance policies that have been purchased as a method of partially
financing these benefits. Based on the latest actuarial information available,
the following table sets forth the components of the net periodic pension
expense, the funded status and the assumptions used in determining the present
value of benefit obligations (in thousands):
FOR THE YEAR ENDED FEBRUARY 29, 1996
Service cost - benefits earned
during the year $33
Interest cost on projected
benefit obligations 298
Net amortization and deferral 245
Net periodic pension expense $576
AS OF FEBRUARY 29, 1996
Actuarial present value of:
Vested benefit obligation $2,868
Nonvested benefit obligation 503
Accumulated benefit obligation 3,371
Effect of projected future salary increases 1,903
Projected benefit obligation 5,274
Unrecognized net loss (1,042)
Unrecognized net transition asset (3,186)
Additional minimum liability 2,325
Accrued pension cost $3,371
Assumptions used in determining
actuarial present value of benefit obligations:
Discount rate 7.50%
Weighted-average rate of
compensation increase 7.00%
In addition to the net periodic pension expense detailed above, the Company
recorded a $1,000,000 charge in the second quarter of fiscal 1996 related to the
separation of two fully vested executive officers.
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 $162,000, $264,000 and $270,000
was accrued during fiscal 1996, 1995 and 1994, respectively.
EXECUTIVE INCENTIVES
The Company's Board of Directors has provided that certain executives
receive incentive compensation based upon certain revenues, earnings and other
performance measures. As such, incentive compensation of $1,483,000 was earned
during fiscal 1996, of which $342,000 will be issued in common stock pursuant to
the Company's Restricted Stock Bonus Plan. $1,506,000 and $1,700,000 of
incentive compensation was earned during fiscal 1995 and 1994, respectively.
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. INDUSTRY SEGMENT, GEOGRAPHIC AND CUSTOMER INFORMATION
The Company operates in two principal industries:
very-large-scale-integrated circuits primarily used in personal computers for
input/output and network control (Component Products) and local area network
products used to connect personal computers (System Products). Although the
Company's subsidiary, Toyo Microsystems Corporation (TMC), sells component and
system products in the Japanese market, it operates as a separate profit center
and is reported within this disclosure as a separate segment of the Company's
operations.
Income (loss) from operations by industry segment excludes general
corporate expenses, other income and expenses, and income taxes. Transfers
between industry segments are accounted for on an arm's length pricing basis.
General corporate assets include primarily cash and cash equivalents, assets
associated with general corporate activities, tax assets, and certain
investments.
42
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Standard Microsystems Corporation
and Subsidiaries
INDUSTRY SEGMENT INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
GENERAL
COMPONENT SYSTEM CORPORATE
PRODUCTS PRODUCTS TMC AND OTHER CONSOLIDATED
<S> <C> <C> <C> <C> <C>
FISCAL 1996
Total revenues $ 143,084 $ 190,097 $ 16,790 $ -- $ 349,971
Intersegment transfers (4,487) (3,558) -- -- (8,045)
Revenues from unaffiliated customers $ 138,597 $ 186,539 $ 16,790 $ -- $ 341,926
Income (loss) from operations 31,177 (40,543) 995 (20,538) (28,909)
Identifiable assets 101,878 93,405 12,634 52,742 260,659
Depreciation and amortization 2,522 14,708 112 1,634 18,976
Capital expenditures 23,999 5,671 132 9,445 39,247
FISCAL 1995
Total revenues $ 112,815 $ 259,499 $ 11,661 $ -- $ 383,975
Intersegment transfers (2,226) (3,078) -- -- (5,304)
Revenues from unaffiliated customers $110,589 $ 256,421 $ 11,661 $ -- $ 378,671
Income (loss) from operations 29,676 25,862 656 (15,572) 40,622
Identifiable assets 39,267 137,769 11,486 40,056 228,578
Depreciation and amortization 2,308 11,005 120 1,380 14,813
Capital expenditures 2,560 8,114 59 2,533 13,266
FISCAL 1994
Total revenues $ 55,203 $ 264,079 $ 5,291 $ -- $ 324,573
Intersegment transfers (1,267) (731) -- -- (1,998)
Revenues from unaffiliated customers $ 53,936 $ 263,348 $ 5,291 $ -- $ 322,575
Income (loss) from operations 5,232 44,086 (1,249) (12,633) 35,436
Identifiable assets 30,640 126,738 10,488 37,967 205,833
Depreciation and amortization 2,952 9,781 159 907 13,799
Capital expenditures 1,196 6,255 16 699 8,166
</TABLE>
GEOGRAPHIC INFORMATION
The Company's domestic operations include the worldwide revenues and
operating results of the Component Products and System Products business
segments, and corporate activities. The Component Products and System Products
business segments conduct their sales and marketing operations outside of the
United States through TMC in Japan, and through sales subsidiaries in Canada,
Europe, Asia and the Pacific Rim, Latin America, and South Africa. Revenues and
operating profits from customers in Japan are recorded by TMC.
Less than 10% of the combined Component Products business segment, System
Products business segment and general corporate identifiable assets are located
outside of the United States. Included within the identifiable assets of the
Component Products business segment is $15,979,000 of equipment installed at an
AT&T Microelectronics wafer fabrication facility in Madrid, Spain.
43
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Standard Microsystems Corporation
and Subsidiaries
EXPORT SALES
The information below summarizes sales to unaffiliated
customers for the Component Products and System Products business segments by
geographic region (in thousands):
FOR THE YEARS ENDED
FEBRUARY 29 OR 28, 1996 1995 1994
United States $149,414 $201,539 $180,736
Export
Asia and
Pacific Rim 86,975 53,721 30,065
Europe 69,304 86,510 84,266
Canada 10,816 15,294 13,759
Other 8,627 9,946 8,458
$325,136 $367,010 $317,284
MAJOR CUSTOMERS
During fiscal 1996 no customer accounted for more than 10% of the Company's
revenues. In fiscal 1995, one customer accounted for 10.3% of revenues. In
fiscal 1994, one customer accounted for 11.9% of revenues.
CONCENTRATIONS OF CREDIT RISK
The Company sells a significant amount of its products through several
distributors and PC producers and, as a result, maintains individually
significant accounts receivable balances from each of these customers. 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 the Company's expectations.
Distributors have the right to return slow moving inventory in exchange
for other inventory of equal value. Distributors also have the right to
protection with respect to the price paid for inventories on hand. The
Company maintains a reserve for anticipated product returns and price
protection.
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED MAY 31 AUG. 31 NOV. 30 FEB. 29
<S> <C> <C> <C> <C>
FISCAL 1996
Revenues $ 72,209 $ 85,434 $ 90,570 $ 93,713
Gross profit 28,395 22,823 37,656 33,910
Operating income (loss) (4,718) (17,687) 867 (7,372)
Net income (loss) (3,001) (12,105) 303 26,404
Per Share Data:
Net income (loss) $ (0.22) $ (0.91) $ 0.02 $ 1.94
Market price
High 26.50 19.75 23.50 21.13
Low 15.38 12.50 15.25 15.25
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
High19.50 19.63 25.25 31.63
Low 14.88 13.38 18.38 21.38
</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. There
were approximately 1,360 holders of record of the Company's common stock at
April 8, 1996. 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.
44
<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 29, 1996, and February 28, 1995, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended February 29, 1996. 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 29, 1996, and February 28, 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended February 29, 1996, in conformity with generally accepted
accounting principles.
April 8, 1996 ARTHUR ANDERSEN LLP
Washington, D.C.
45
<PAGE>
Standard Microsystems Corporation
and Subsidiaries
SHAREHOLDER INFORMATION
Corporate Headquarters:
80 Arkay Drive, Hauppauge, NY 11788
Telephone: 516-435-6000
COMMON STOCK
SYMBOL: SMSC
During the fiscal year ended February 29, 1996,
prices as reported by NASDAQ were:
High $261/2
Low $121/2
Closing $155/8
1996 ANNUAL MEETING
The Annual Shareholders' Meeting will be held at 10:00 a.m., Monday, July 22,
1996, at The Radisson Hotel Islandia, 3635 Expressway Drive North, Hauppauge, NY
11788 (Exit 58 on the Long Island Expressway).
FORM 10-K
A copy of Form 10-K filed with the Securities and Exchange Commission can be
obtained upon written request to Manager of Investor Relations, Standard
Microsystems Corporation, at the corporate headquarters' address above.
SHAREHOLDER INQUIRIES, CHANGE OF ADDRESS OR DUPLICATE MAILINGS
Questions concerning stock transfer, lost certificates or other administrative
matters should be directed to Chemical Mellon Shareholder Services, L.L.C., by
calling 1-800-526-0801. For hearing or speech impaired, call 1-800-231-5469.
Chemical Mellon has installed TELECOMMUNICATIONS DEVICES FOR THE DEAF. If you
change your address or wish to consolidate duplicate mailings, please write to
Chemical Mellon Shareholder Services, L.L.C., at the address below.
TRANSFER AGENT AND REGISTRAR
Chemical Mellon Shareholder Services, L.L.C.
P.O. Box 590, Ridgefield Park, NJ 07660
AUDITORS
Arthur Andersen LLP
1666 K Street, N.W., Washington, D.C. 20006
COUNSEL
General Counsel: Loeb and Loeb
345 Park Avenue, New York, NY 10154
Patent Counsel:
Hopgood, Calimafde, Kalil & Judlowe
60 East 42nd Street, New York, NY 10165
DIVISIONS
System Products Division
350 Kennedy Drive, Hauppauge, NY 11788
Component Products Division
300 Kennedy Drive, Hauppauge, NY 11788
INTERNATIONAL OPERATIONS
Standard Microsystems Corporation (Asia)--Taipei, Taiwan
SMC Australia Pty. Ltd.--Melbourne and Sydney, Australia
Standard Microsystems Corporation (Canada)--Toronto,
Ontario, Canada
Standard Microsystems (Europe) Ltd.--London, England
SMC France, Inc.--St. Germain-en-Laye, France
Standard Microsystems GmbH--Munich, Germany
SMC de Mexico SA de CV--Mexico DF, Mexico
SMC Singapore--Singapore
SMC South Africa--Johannesburg, South Africa
Toyo Microsystems Corporation--Tokyo, Japan
PATENT/TECHNOLOGY LICENSEES
Acer Laboratories Inc.
Advanced Micro Devices, Inc.
AT&T Corp.
Data General Corporation
Fujitsu, Ltd.
General Motors Corporation
Hitachi, Ltd.
Hualon Microelectronics Corporation
Intel Corporation
International Business Machines Corporation (IBM)
ITT Corporation
Kawasaki Steel Corporation
M/A-COM, Inc.
Matsushita Electric Industrial Co., Ltd.
Micron Technology, Inc.
Mitsubishi Electric Corporation
MOSTEK Corporation
National Semiconductor Corporation
NEC Corporation
Nippon Steel Semiconductor Corporation
Oki Electric Industry Company, Ltd.
Samsung Electronics Co., Ltd.
Sanyo Electric Co., Ltd.
SGS-Thomson Microelectronics BV
Sharp Corporation
Texas Instruments Incorporated
Toshiba Corporation
United Microelectronics Corporation
Winbond Electronics Corporation
46
<PAGE>
Directors, Corporate & Divisional Officers
BOARD OF DIRECTORS
Paul Richman
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Evelyn Berezin
VENTURE CAPITAL CONSULTANT
Robert M. Brill
GENERAL PARTNER
POLY VENTURES, L.P.,
VENTURE INVESTMENT MANAGEMENT
Peter F. Dicks
CORPORATE DIRECTOR
Herman Fialkov
GENERAL PARTNER
POLY VENTURES, L.P.,
VENTURE INVESTMENT MANAGEMENT
Raymond Frankel
PORTFOLIO MANAGER
GLICKENHAUS & CO.,
INVESTMENT MANAGEMENT
Ivan T. Frisch
PROVOST
POLYTECHNIC UNIVERSITY
CORPORATE OFFICERS
Paul Richman*
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Arthur Sidorsky*
EXECUTIVE VICE PRESIDENT
COMPONENT PRODUCTS DIVISION
Lance Murrah*
SENIOR VICE PRESIDENT AND GENERAL MANAGER
SYSTEM PRODUCTS DIVISION
Anthony M. D'Agostino*
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Walter J. Kmeta
SENIOR VICE PRESIDENT
WAFER FAB OPERATIONS
Douglas L. Finke
VICE PRESIDENT
COMPONENT PRODUCTS MARKETING
Lawrence H. Goldstein
VICE PRESIDENT
COMPONENT PRODUCTS ENGINEERING
George W. Houseweart
VICE PRESIDENT
LAW AND INTELLECTUAL PROPERTY
Di Ma
VICE PRESIDENT
COMPONENT PRODUCTS OPERATIONS
Reginald R. Maton Jr.
VICE PRESIDENT AND
CHIEF INFORMATION OFFICER
Eric M. Nowling*
VICE PRESIDENT AND CONTROLLER
Harold I. Kahen
SECRETARY
LOEB AND LOEB, SPECIAL COUNSEL
COMPONENT PRODUCTS
DIVISION OFFICERS
John E. Burgess
DIVISIONAL VICE PRESIDENT
SALES
Ian F. Harris
DIVISIONAL VICE PRESIDENT
ENGINEERING
Robert E. Hollingsworth
DIVISIONAL VICE PRESIDENT
TECHNICAL MARKETING
Peter C. R. Ju
DIVISIONAL VICE PRESIDENT
PC SYSTEMS LOGIC BUSINESS UNIT
John E. Meade
DIVISIONAL VICE PRESIDENT
MANUFACTURING ENGINEERING
R. Edwin Shaddix
DIVISIONAL VICE PRESIDENT
MANUFACTURING
SYSTEM PRODUCTS
DIVISION OFFICERS
Kenneth W. Brinkerhoff
DIVISIONAL VICE PRESIDENT
ENGINEERING
Eileen M. Conlon
DIVISIONAL VICE PRESIDENT
MANUFACTURING
Clemente J. Russo
DIVISIONAL VICE PRESIDENT
CUSTOMER MANAGEMENT
Steven Schmid
DIVISIONAL VICE PRESIDENT
NEW PRODUCT DEVELOPMENT
*Executive Officer
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
May 25, 1996
Washington, D.C.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<CASH> 18,459
<SECURITIES> 0
<RECEIVABLES> 55,976
<ALLOWANCES> 1,369
<INVENTORY> 60,408
<CURRENT-ASSETS> 148,884
<PP&E> 139,906
<DEPRECIATION> 79,798
<TOTAL-ASSETS> 260,659
<CURRENT-LIABILITIES> 55,781
<BONDS> 0
<COMMON> 1,371
0
0
<OTHER-SE> 192,131
<TOTAL-LIABILITY-AND-EQUITY> 260,659
<SALES> 341,926
<TOTAL-REVENUES> 341,926
<CGS> 219,141
<TOTAL-COSTS> 219,141
<OTHER-EXPENSES> 151,694
<LOSS-PROVISION> 654
<INTEREST-EXPENSE> 1,072
<INCOME-PRETAX> 20,004
<INCOME-TAX> 8,201
<INCOME-CONTINUING> 11,601
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,601
<EPS-PRIMARY> 0.86
<EPS-DILUTED> 0.86
</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,
1995
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. D'Agostino
Member, Plan Committee
May 25, 1996
<PAGE>
STANDARD MICROSYSTEMS CORPORATION
INCENTIVE SAVINGS AND RETIREMENT PLAN
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.......................................................................4
Statement of Financial Condition as of
December 31, 1995 and December 31, 1994...............................................................5-6
Statement of Income and Changes in Plan Equity
For the Plan Year ended December 31, 1995.............................................................7
Notes To Financial Statements..................................................................................8-13
Schedule I - Assets Held for Investment as of
December 31, 1995....................................................................................14
Schedule I - Assets Held For Investment as of
December 31, 1994....................................................................................15
Schedule II - Reportable Transactions For the
Year Ended December 31, 1995.........................................................................16
</TABLE>
<PAGE>
ARTHUR ANDERSEN LLP
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, 1995, and December 31, 1994, and the related Statement of Income
and Changes in Plan Equity for the year ended December 31, 1995. 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, 1995 and
1994, and its income and changes in plan equity for the plan year ended December
31, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
April 8, 1996
Washington, D.C.
-4-
<PAGE>
STANDARD MICROSYSTEMS CORPORATION
INCENTIVE SAVINGS AND RETIREMENT PLAN
STATEMENT OF FINANCIAL CONDITION
As of December 31, 1995
<TABLE>
<CAPTION>
---------------- ---------------- --------------- ----------------
Puritan Ginnie Mae Magellan
Total Fund Fund Fund
---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
ASSETS $ 1,119 $ - $ - $ -
Cash and cash equivalents
Contributions receivable: 157,045 46,321 7,789 66,632
Employee - - - -
Employer matching
Investments:
Fidelity Puritan Fund 3,329,782 3,329,782 - -
(cost of $3,099,963)
Fidelity Ginnie Mae Fund 700,345 - 700,345 -
(cost of $688,305)
Fidelity Magellan Fund 5,825,814 - - 5,825,814
(cost of $5,046,454)
Fidelity Asset Manager Fund 2,728,228 - - -
(cost of $2,596,574)
Fidelity Managed Income Fund 1,704,808 - - -
(cost of $1,704,808)
Standard Microsystems Corp. Common Stock 7,215,434 - - -
(437,299 shares; cost of $8,916,734) 766,388 - - -
Loans Receivable ---------------- ---------------- --------------- ----------------
22,428,963 3,376,103 708,134 5,892,446
Total Assets ---------------- ---------------- --------------- ----------------
LIABILITIES 28,314 - - -
Benefits Payable ---------------- ---------------- --------------- ----------------
28,314 0 0 0
Total Liabilities ---------------- ---------------- --------------- ----------------
$ 22,400,649 $ 3,376,103 $ 708,134 $ 5,892,446
PLAN EQUITY ================ ================ =============== ================
</TABLE>
<TABLE>
<CAPTION>
---------------- --------------- ---------------- ----------------
Asset Manager Managed Income Company
Fund Fund Stock Fund Loan Fund
---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
ASSETS $ - $ - $ 1,119 $ -
Cash and cash equivalents
Contributions receivable: 21,470 13,825 1,008 -
Employee - - - -
Employer matching
Investments:
Fidelity Puritan Fund - - - -
(cost of $3,099,963)
Fidelity Ginnie Mae Fund - - - -
(cost of $688,305)
Fidelity Magellan Fund - - - -
(cost of $5,046,454)
Fidelity Asset Manager Fund 2,728,228 - - -
(cost of $2,596,574)
Fidelity Managed Income Fund - 1,704,808 - -
(cost of $1,704,808)
Standard Microsystems Corp. Common Stock - - 7,215,434 -
(437,299 shares; cost of $8,916,734) - - - 766,388
Loans Receivable ---------------- --------------- ---------------- ----------------
2,749,698 1,718,633 7,217,561 766,388
Total Assets ---------------- --------------- ---------------- ----------------
LIABILITIES - - 28,314 -
Benefits Payable ---------------- --------------- ---------------- ----------------
0 0 28,314 0
Total Liabilities ---------------- --------------- ---------------- ----------------
$ 2,749,698 $ 1,718,633 $ 7,189,247 $ 766,388
PLAN EQUITY ================ =============== ================ ================
</TABLE>
The accompanyingnotes are an integral part of this statement.
-5-
<PAGE>
STANDARD MICROSYSTEMS CORPORATION
INCENTIVE SAVINGS AND RETIREMENT PLAN
STATEMENT OF FINANCIAL CONDITION
As of December 31, 1994
<TABLE>
<CAPTION>
---------------- ---------------- --------------- ----------------
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 $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 0 0 0
---------------- ---------------- --------------- ----------------
PLAN EQUITY $ 21,449,935 $ 2,290,666 $ 536,400 $ 3,599,896
================ ================ =============== ================
</TABLE>
<TABLE>
<CAPTION>
---------------- --------------- ---------------- ----------------
Asset Manager Managed Income Company
Fund Fund Stock Fund Loan 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 $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 - - - 720,734
---------------- --------------- ---------------- ----------------
Total Assets 2,027,843 1,358,084 10,917,851 720,734
---------------- --------------- ---------------- ----------------
LIABILITIES
Benefits Payable - - 1,539 -
---------------- --------------- ---------------- ----------------
Total Liabilities 0 0 1,539 0
---------------- --------------- ---------------- ----------------
PLAN EQUITY $ 2,027,843 $ 1,358,084 $ 10,916,312 $ 720,734
================ =============== ================ ================
</TABLE>
The accompanying notes are an integral part of this statement.
-6-
<PAGE>
STANDARD MICROSYSTEMS CORPORATION
INCENTIVE SAVINGS AND RETIREMENT PLAN
STATEMENT OF INCOME AND CHANGES IN PLAN EQUITY
For the plan year ended December 31, 1995
<TABLE>
<CAPTION>
---------------- ---------------- --------------- ----------------
Puritan Ginnie Mae Magellan
Total Fund Fund Fund
---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
BEGINNING BALANCE, PLAN EQUITY $ 21,449,935 $ 2,290,666 $ 536,400 $ 3,599,896
---------------- ---------------- --------------- ----------------
Employee contributions 3,558,539 829,866 165,294 1,236,827
Employer matching contributions 1,073,690 - - -
Investment Income 775,481 173,031 41,034 332,945
Realized gains (losses) on securities
transactions (138,134) 51,945 5,732 114,932
Unrealized appreciation (depreciation) of
investments (2,953,821) 339,766 45,046 924,242
Interfund Transfers 0 (106,880) (35,580) (1,611)
---------------- ---------------- --------------- ----------------
2,315,755 1,287,728 221,526 2,607,335
Benefit payments 1,365,041 202,291 49,792 314,785
---------------- ---------------- --------------- ----------------
INCREASE (DECREASE) IN PLAN EQUITY 950,714 1,085,437 171,734 2,292,550
---------------- ---------------- --------------- ----------------
ENDING BALANCE, PLAN EQUITY $ 22,400,649 $ 3,376,103 $ 708,134 $ 5,892,446
================ ================ =============== ================
</TABLE>
<TABLE>
<CAPTION>
---------------- --------------- ---------------- ----------------
Asset Manager Managed Income Company
Fund Fund Stock Fund Loan Fund
---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
BEGINNING BALANCE, PLAN EQUITY $ 2,027,843 $ 1,358,084 $ 10,916,312 $ 720,734
---------------- --------------- ---------------- ----------------
Employee contributions 579,975 441,245 305,823 (491)
Employer matching contributions - - 1,073,690 -
Investment Income 74,716 92,000 560 61,195
Realized gains (losses) on securities
transactions 21,732 - (332,475) -
Unrealized appreciation (depreciation) of
investments 298,854 - (4,561,729) -
Interfund Transfers (84,486) (25,056) 261,826 (8,213)
---------------- --------------- ---------------- ----------------
890,791 508,189 (3,252,305) 52,491
Benefit payments 168,936 147,640 474,760 6,837
---------------- --------------------------------- ----------------
INCREASE (DECREASE) IN PLAN EQUITY 721,855 360,549 (3,727,065) 45,654
---------------- --------------- ---------------- ----------------
ENDING BALANCE, PLAN EQUITY $ 2,749,698 $ 1,718,633 $ 7,189,247 $ 766,388
================ =============== ================ ================
</TABLE>
The accompanying notes 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 Employee Stock Purchase Plan (the
"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 Portfolio - This fund seeks a high level of
current income, by investing primarily in mortgage-related
securities issued by the Government National Mortgage
Association.
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.
-8-
<PAGE>
4. Fidelity Asset Manager Portfolio - 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 Portfolio - 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 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
1995). Participant contributions, which are entirely voluntary, are
allocated by the employee between the six investment programs in ten
percent increments. There were 812 and 699, active participants in the
Plan and 605 and 542 participants making contributions as of December
31, 1995 and 1994, respectively.
There were 130 and 76 terminated employees with funds in the plan as of
December 31, 1995 and 1994, respectively.
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, 1995, "rollover" contributions of
$555,634 were received by the Plan and are included in Employee
contributions in the accompanying Statement of Income and Changes in
Plan Equity.
-9-
<PAGE>
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
participant's 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%
The unvested portion of a former participant's 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 continues 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,
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<PAGE>
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, 1995:
December 31, 1995
------------------
Shares in the Plan, beginning of the period 359,384
Shares issued to the Plan 91,664
Shares redeemed and transferred to former participants <23,676>
Other Purchases/Redemptions 9,927
--------------
Shares in the Plan, end of the period 437,299
==============
The per share price at which the Plan purchased the Company's stock
ranged from $14.75 to $30.13 for the Plan year ended December 31, 1995.
See Note 8 for the effect of changes in the Company's stock price
subsequent to December 31, 1995.
-11-
<PAGE>
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 Company's
management.
b) Midlantic National Bank, (the "Trustee"), is the custodian of
the Plan's 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.
Plan Costs
Administrative costs of $54,800 for the Plan year ended December 31,
1995, 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
Company's 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
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<PAGE>
exempt from Federal taxes until distributed to the participants or
their beneficiaries.
6) Benefits Payable
Benefits payable, as of December 31, 1995 and 1994, include
approximately 1,716 and 52 shares, respectively, of the Company's
common stock to be distributed to former participants, with the
remainder payable in cash.
7) Forfeitures
During the Plan year ended December 31, 1995, $40,295 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%, when compared to the total of all 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 30, 1996,
there has been no significant change in the value of the Company's
stock or any 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,
1995 and 1994. Schedule II lists reportable transactions, as defined by
ERISA, which occurred during the Plan year ended December 31, 1995.
During this period, there were no investments in default or
transactions with parties in interest.
-13-
<PAGE>
Standard Microsystems Corporation Schedule I
Incentive Savings and Retirement Plan
Schedule of Assets Held for Investment
As of December 31, 1995
<TABLE>
<CAPTION>
Number Of Value Per
Investment Description Cost Current Value Units or Shares Fund Unit
---------- ------------- ---------------- -------------
<S> <C> <C> <C> <C>
Fidelity Puritan Fund $3,099,963 $3,329,782 195,754 $17.01
Fidelity Ginnie Mae Fund $ 688,305 $ 700,345 64,311 $10.89
Fidelity Magellan Fund $5,046,454 $5,825,814 67,758 $85.98
Fidelity Asset Manager Fund $2,596,574 $2,728,228 172,128 $15.85
Fidelity Managed Income Fund $1,704,808 $1,704,808 1,704,808 $ 1.00
SMC Common Stock $8,916,734 $7,215,434 437,299 $16.50
</TABLE>
-14-
<PAGE>
Standard Microsystems Corporation Schedule I
Incentive Savings and Retirement Plan
Schedule of Assets Held for Investment
As of December 31, 1994
<TABLE>
<CAPTION>
Number Of Value Per
Investment Description Cost Current Value Units or Shares 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
Fidelty 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>
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<PAGE>
Standard Microsystems Corporation Schedule II
Incentive Savings and Retirement Plan
Schedule of Reportable Transactions
As of December 31, 1995
AMOUNTS IN DOLLARS
<TABLE>
<CAPTION>
Realized Number of
Investment Description Type Cost Proceeds Gain (Loss) Transactions
- - -------------------------- ---------------- --------------- -------------- -------------- --------------------
<S> <C> <C> <C> <C>
FIDELITY:
Puritan Fund Sale 612,616 664,560 51,945 63
Puritan Fund Purchase 1,187,721 69
Ginnie Mae Sale 122,90 128,640 5,732 41
Ginnie Mae Purchase 212,324 55
Magellan Fund Sale 738,687 853,619 114,932 66
Magellan Fund Purchase 1,778,160 77
Asset Manager Fund Sale 386,403 408,135 21,732 50
Asset Manager Fund Purchase 752,349 61
Managed Income Fund Sale 399,670 399,670 0 48
Managed Income Fund Purchase 675,621 64
SMC Common Stock Sale 1,149,565 817,091 (332,475) 51
SMC Common Stock Purchase 2,146,738 57
</TABLE>
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<PAGE>
STANDARD MICROSYSTEMS CORPORATION
INCENTIVE SAVINGS AND RETIREMENT PLAN
EXHIBIT INDEX
- - --------------------- ------------------------------------------
Exhibit No. Description
- - --------------------- ------------------------------------------
1.....................................Consent of Independent Public Accountants
<PAGE>
ARTHUR ANDERSEN LLP
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 Statements on Forms S-8 (No. 2-78324).
ARTHUR ANDERSEN LLP
May 25, 1996
Washington, D.C.
