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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x Annual Report Pursuant to Section 13 or 15(d) of the Securities
--------- Exchange Act of 1934 for the Fiscal Year Ended September 30,
1996.
OR
--------- Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the Transition Period from
to .
------------ -----------
Commission File Number 0-26690
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ELANTEC SEMICONDUCTOR, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0408929
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
675 Trade Zone Boulevard, Milpitas, California 95035
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (408) 945-1323
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Securities registered pursuant to Section 12(b) of the Act:
None None
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(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
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Indicate by check mark if disclosure of delinquent filer 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. [ X ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the common stock on November
22, 1996 as reported on the Nasdaq National Market: $44,881,905. This
calculation does not include a determination that persons are affiliates for any
other purpose.
Number of shares outstanding of the registrant's common stock as of November 22,
1996: 8,757,445
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Documents Incorporated By Reference
Part III - Portions of the registrant's definitive proxy statement to be
delivered to stockholders in connection with the annual meeting of stockholders
to be held February 21, 1997.
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ELANTEC SEMICONDUCTOR, INC.
FORM 10-K
For the Fiscal Year Ended September 30, 1996
<TABLE>
Table of Contents
PART I
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Page
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Item 1. Business........................................................................ 3
Item 2. Properties...................................................................... 16
Item 3. Legal Proceedings............................................................... 16
Item 4. Submission of Matters to a Vote of Security Holders............................. 16
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........... 17
Item 6. Selected Financial Data......................................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations................................................................... 19
Item 8. Financial Statements and Supplementary Data..................................... 25
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure...................................................................... 25
PART III
Item 10. Directors and Executive Officers of the Registrant.............................. 26
Item 11. Executive Compensation.......................................................... 26
Item 12. Security Ownership of Certain Beneficial Owners and Management.................. 26
Item 13. Certain Relationships and Related Transactions.................................. 26
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................. 27
Signatures ................................................................................ 42
</TABLE>
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PART I
ITEM 1: BUSINESS
Elantec Semiconductor, Inc. ("Elantec" or the "Company") designs,
manufactures and markets high performance analog integrated circuits primarily
for the video/multimedia, data processing, instrumentation and communications
markets. The Company targets high growth commercial markets in which advances in
digital technology are driving increasing demand for high speed, high precision
and low power consumption analog circuits. Electronic systems manufacturers in
these markets typically have requirements for analog circuits with particular
precision, linearity, speed, power and signal amplification capabilities. The
Company addresses these requirements with standard products that serve several
markets or application specific standard products ("ASSPs") designed for
specific markets and applications. The Company offers families of standard
products and ASSPs that are used as building blocks to provide high performance
analog solutions to a broad range of customers in the Company's target markets.
By offering both standard products and ASSPs, the Company seeks to broaden its
customer base with standard products and to expand product sales to new and
existing customers with ASSPs that meet their specific requirements. The Company
offers more than 150 high performance analog products, such as amplifiers,
drivers, faders, transceivers and multiplexers, most of which are available in
multiple packaging configurations. The majority of the Company's products are
manufactured at the Company's internal manufacturing facility in Milpitas,
California.
Industry Overview
Semiconductor products are the fundamental components of all modern
electronic systems. These products process signals in two forms, analog and
digital. Analog signals are continuous electrical signals that fluctuate over a
wide range of values and represent real-world phenomena, such as light, sound,
temperature, pressure and speed, which fluctuate continuously over a wide range
of values. Digital signals are discrete electrical signals that are either on or
off, corresponding to the binary digits one and zero, and are used to represent
numerical values and alphanumeric characters. Digital circuits, such as memory
devices and microprocessors, typically process on-off electrical signals to
perform computational or data processing functions. Analog (or linear) circuits,
such as amplifiers, drivers, faders, transceivers and multiplexers, amplify,
transmit and modulate continuous analog signals associated with physical
properties. Sound, light and color are received by many electronic systems as
analog audio and video signals and must be transformed, filtered, amplified and
converted into a digital format before they can be digitally processed, and then
must be converted back to analog signals to be heard or displayed. Virtually all
electronic systems produced today require a combination of analog and digital
integrated circuits as well as mixed signal devices that combine both analog and
digital functions in the same integrated circuit and provide an interface
between the analog and digital worlds.
Analog circuits operate over a wide range of voltages, which limits the
minimum dimensions that can be used in the device structures of analog
integrated circuits. Thus, the development of successful analog integrated
circuits is generally more dependent on innovative design within technological
constraints rather than on achieving small feature sizes and high densities.
Typically, designers of analog circuits must take into account complex
interrelationships between the manufacturing process, the physical layout of the
circuit elements and the packaging of the end product, all of which can
significantly affect performance. Moreover, the high performance characteristics
required by new and emerging applications for analog circuits involve
increasingly advanced designs, which will in turn require more skilled analog
designers, innovative design strategies and rigorous design methodologies. The
number of design engineers who have the training, creativity and experience to
design complex analog circuits is very limited, and the available computer-aided
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design ("CAD") tools for analog circuit design typically require substantial
customization by the user in order to provide adequate utility for complex
analog circuit design.
In order to meet the needs of electronic systems manufacturers, analog
integrated circuit companies must offer a wide range of both high performance
standard products and market specific ASSPs. Standard products can serve as
basic building blocks to assist system designers in bringing new products to
market rapidly. ASSPs enhance performance and combine functions to reduce system
size and cost as end-user needs become better defined and system unit volumes
increase. The critical point of competition for analog integrated circuit
companies is at the "design-in" stage when the system designer evaluates various
alternative components for implementing the system architecture. Companies that
offer families of analog standard products and ASSPs that perform a number of
the functions required by the systems design will typically have an advantage at
the design-in stage because systems designers prefer to choose products from the
same vendor once the vendor has been qualified as a producer of reliable
products.
The Company believes that the pervasive use of digital integrated
circuits in electronic systems and the rapid advances in digital technology are
driving increasing demand for high performance analog products, particularly in
the video/multimedia, data processing, instrumentation and communications
markets.
Product Markets and Applications
Elantec targets four high growth commercial markets where it believes
there is an increasing demand for analog solutions: video/multimedia, data
processing, instrumentation and communications. In each of its target markets,
the Company offers a family of standard products and ASSPs that are designed to
be used as building blocks by addressing a number of common component
requirements, thereby providing more effective solutions for electronic systems
designers. Most of the Company's standard products are used in more than one of
these markets, while in general each ASSP is used in only one specific market.
The following table sets forth examples of typical applications of the
Company's products in each of the four target commercial markets and a
representative application:
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Market Typical Applications
----------------------------- ----------------------------------------
Video/Multimedia Overhead Displays
Set Top Converters
Special Effects Generators
Switchers/Routers
Video Cameras
Video Distribution Networks
Video Signal Processing
Workstations
----------------------------- ----------------------------------------
Data Processing Copiers
Document Scanners
Optical Disk Drives
Personal Computers
Power Supplies
Streaming Tape Drives
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----------------------------- ----------------------------------------
Instrumentation Analyzers
Automatic Testers
Measuring Instruments
Medical Instrumentation
----------------------------- ----------------------------------------
Communications ADSL Transceivers
HDSL Transceivers
Video Phones
Video Teleconferencing
----------------------------- ----------------------------------------
----------------------------- ----------------------------------------
Primary Markets
Video/Multimedia. Video images are increasingly being incorporated into
electronic applications such as multimedia computing and communications. This
trend is creating increasing demand for high speed amplifiers and specialty
analog circuits for the processing and display of video signals. The Company
focuses on several segments of the video/multimedia market, including displays,
set top converters, special effects generators, studio equipment and video
distribution networks.
Data Processing. The growth of data processing, particularly in
personal computers, has been driven by advances in digital technology, which
have in turn created new applications for analog functions. In this market, the
Company's products include amplifiers for document scanners and copiers, and
circuits for tape head drivers for streaming tape drives. In addition, the
emergence of microprocessors that operate at voltages as low as 2.7 volts is
creating requirements for new power conversion solutions. For example, the next
generation Intel Pentium Pro microprocessor series has the ability to interface
with the power supply to adjust its operating voltage for optimum microprocessor
performance. This capability has created an opportunity for a new class of
analog power supply products that interface with the microprocessor, and Elantec
is currently developing and improving a family of products to serve these
requirements.
Instrumentation. The detection and measurement of analog information
such as light, sound, temperature, pressure and speed in industrial, medical and
other measurement systems have been a traditional focus of analog circuits. As
systems grow more complex and information is processed at higher rates, there is
a concomitant requirement for higher speed analog circuits to process the
information in analog format. The Company supplies products for high speed
instrumentation, automatic testers and medical instrumentation, such as
ultrasound scanners.
Communications. The convergence of communications and computers has
also created opportunities for high performance analog circuits. For example,
electronic communications through telephone lines increasingly include both
digital and analog information such as audio, video and data and require digital
and analog circuits to transmit and process them. In this market, the Company
supplies transceivers and high speed amplifiers for Asymmetrical Digital
Subscriber Line ("ADSL") and High Bit Rate Digital Subscriber Line ("HDSL")
techniques for increasing the rate at which data is transmitted over
twisted-pair wires such as conventional telephone lines, which is important for
emerging communications applications such as Internet access, video-on-demand
and picture phones.
Other Markets
In addition to its primary markets, the Company provides its products
to electronic systems manufacturers in the military and automotive markets.
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Military. The Company has historically offered products for a variety
of military applications and continues to offer certain products to meet the
needs of customers of these products. However, the Company is not currently
designing new products for the military market. The Company does not expect
sales of military products to increase in the future as the Company continues to
focus its resources on its four target markets in the commercial sector. The
Company is subject to audits by the Defense Electronic Supply Center to assess
its compliance with certain military defense requirements. In fiscal 1995 and
fiscal 1996, sales of military products accounted for approximately 18% and 9%
of the Company's net product revenues, respectively.
Automotive. In February 1993, the Company entered into an agreement
with Aisin Seiki Co., Ltd. ("Aisin"), a manufacturer of automotive parts in
Japan and a member of the Toyota group of companies. Under the terms of the
agreement, Elantec has licensed to Aisin certain proprietary Elantec technology
to design and manufacture analog integrated circuits for the automotive market,
in return for certain license fees and royalty payments upon the sale of
products derived therefrom. Under the agreement, the Company is currently
developing, and plans to manufacture, certain automotive products for Aisin. The
current agreement continues through 1998 and provides for payment to Elantec of
a total of $7,000,000 in license fees of which $6,560,000 cash has been received
through 1996.
Products
The Company offers more than 150 high performance analog products, most
of which are available in multiple packaging configurations.
Standard Products. Amplifiers and buffers are used to amplify or
reproduce analog electrical signals (either voltage or current) without
distortion. High power amplifiers provide a large electrical output current or
voltage and are particularly useful in video transmission and communications
applications. High speed amplifiers and buffers are designed specifically to
process high frequency signals such as video information without distortion.
Comparators are circuits that accurately measure an electrical signal level in
comparison with a predetermined value and indicate the result. Mosfet drivers
are circuits that control the switching functions of mosfet
(metal-oxide-semiconductor field effect transistor) power transistors used in
power control applications.
Application Specific Standard Products. For the video/multimedia market
the Company offers a variety of ASSPs that can be used as standard building
blocks to provide solutions to the video system designer for many common video
circuit designs. Sync separators are timing circuits that control the position
and stability of the video image on a video display. D.C. restoration circuits
restore to the correct voltage level a video signal that has been amplified and
processed in order to ensure accurate transfer of video information. Video
multiplexers allow multiple video inputs to be connected to a single output in a
selected manner. Faders combine separate signals in different ratios for special
effects such as the fading of one video image into another. Tape head drivers
provide the signals that activate a magnetic tape head to transfer the
electrical signal to the magnetic tape for storage. In the instrumentation
market, pin drivers and receivers are used in automatic test equipment to
generate and detect electrical signals to test electronic components. In the
communications market, transceivers are used to transmit and receive high speed
analog signals containing encoded digital information over twisted pair
telephone lines.
Sales and Distribution
The Company sells its products either directly to customers with the
assistance of independent sales representatives, or indirectly through
independent distributors. The Company's direct sales force consists of sales
managers and field application engineers who support customers, sales
representatives and distributors in each major geographic market. The sales
staff and field application engineers are located at the Company's Milpitas,
California headquarters and in field sales offices in Massachusetts and London.
The Company's sales staff and field application engineers also manage, train and
support the Company's network of distributors.
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In North America, the Company sells its products through 25 independent
sales representative organizations having a total of more than 35 offices and
six distributors having a total of more than 90 locations. These distributors
are entitled to price rebates on unsold inventory if the Company lowers the
prices of its products. In addition, on a semi-annual basis, these distributors
are permitted to return for credit, against purchases of an equivalent dollar
value of products, up to 5% of their total product purchases during the most
recent six-month period.
In fiscal 1994, domestic sales to Marshall Industries represented
approximately 11% of the Company's net revenues, and In fiscal 1995, sales to
Marshall Industries, Internix, Inc. and Insight Electronics, Inc. represented
approximately 13%, 11% and 10% of the Company's net revenues, respectively. In
1996, no single domestic representative or distributor accounted for sales in
excess of 10% of the Company's net revenues. See Note 1 of Notes to Consolidated
Financial Statements.
Outside North America, the Company sells its products through a network
of international distributors. Such international sales represented
approximately 28%, 32% and 48% of the Company's net product revenues, excluding
Aisin contract revenues, in fiscal 1994, 1995, and 1996, respectively. During
fiscal 1996, approximately 15% of the Company's net revenues were to Microtek
International, Inc. in Japan. In 1994 and 1995, no single international
distributor accounted for sales in excess of 10% of the Company's net revenues.
On a semi-annual basis, international distributors are permitted to return for
credit, against purchases of an equivalent dollar value of products, up to 5% of
their total product purchases during the most recent six-month period.
In connection with its international sales, the Company is subject to
the normal risks of conducting business internationally. These risks include
unexpected changes in regulatory requirements, changes in legislation or
regulations relating to the import or export of semiconductor products, delays
resulting from difficulty in obtaining export licenses for certain technology,
tariffs, quotas and other barriers and restrictions, and the burdens of
complying with a variety of foreign laws. The Company is also subject to general
geopolitical risks, such as political and economic instability and changes in
diplomatic and trade relationships, in connection with its international
operations. Because sales of the Company's products are denominated in United
States dollars, fluctuations in the value of the dollar could increase the
prices in local currencies of the Company's products in foreign markets and make
the Company's products relatively more expensive than competitors' products that
are denominated in local currencies. Additionally, currency exchange
fluctuations could reduce the cost of products from the Company's foreign
competitors.
A substantial portion of the Company's product revenues are realized
through independent distributors and independent sales representatives that are
not under the direct control of the Company. These independent sales
organizations generally carry the product lines of a number of companies, are
not subject to any minimum purchase requirements and can discontinue selling the
Company's products at any time. Accordingly, the Company must compete for the
focus and sales efforts of its distributors and independent sales
representatives. In addition, the Company's distributors are permitted to return
to the Company a portion of the products purchased by them, and the Company's
business and results of operations could be materially adversely affected if the
amount of returns exceeds the Company's reserves. There can be no assurance that
the Company will be able to retain the loyalty and attention of its distributors
and representatives. The loss of one or more of the Company's distributors or
representatives could have a material adverse effect on the Company's business
and results of operations.
Backlog
At September 30, 1996, the Company's product backlog was approximately
$9.7 million, compared to $7.7 million at September 30, 1995. The Company
generally includes in backlog all orders scheduled for delivery within six
months. The Company's business, and to a large extent the entire semiconductor
industry, is characterized by short-term orders and shipment schedules. These
orders can generally be cancelled or rescheduled without significant penalty to
the customers. As a result, the quantities of the Company's products to be
delivered and their delivery schedules are frequently revised
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by customers to reflect changes in their needs. Since backlog can be cancelled
or rescheduled, the Company's backlog at any time is not necessarily indicative
of future revenues.
Design Methodology and Process Technology
Design Methodology
The Company's designers apply a rigorous, standardized design
methodology intended to accelerate the development and introduction of new
products, maintain consistent quality and promote the development and sharing of
design expertise among the engineering staff. Each designer utilizes a common
set of customized CAD tools on a network of computer workstations and applies
standardized design rules in order to facilitate the integration of different
designs or design elements. The Company promotes design integrity and sharing of
expertise by requiring each designer to subject designs to a series of peer
reviews and simulation and verification tests at different stages of design
development. The Company has developed proprietary computer models of circuit
elements to assist in the modeling, simulation, layout and verification of
circuit designs.
In order to accelerate the rate of new product introductions, create
broad product families and respond to new market opportunities, the Company
designs multiple products simultaneously based on an array methodology and
common core designs. This approach enables the Company to produce several
different products, each with high performance characteristics tailored to a
variety of specific applications, by applying different circuit connections to a
single piece of silicon on which a core design is implemented.
The Company's approach to new product development is driven by specific
market requirements in addition to advances in technology and design
methodology. The Company has adopted a systematic approach of using its field
application engineers to identify market opportunities for new high performance
products, contacting other customers to determine whether there is an
opportunity to develop products that will be applicable to a broad range of
customers in the Company's target markets and consulting with the Company's
analog designers and marketing personnel to define ASSPs for the target markets.
Process Technology
The Company uses a variety of semiconductor process technologies for
its products in order to meet the particular requirements of different customers
and applications. The Company's process technologies include dielectric
isolation and junction isolation complementary bipolar, junction isolation
bipolar, and CMOS technologies. In addition, the Company utilizes other
manufacturing technologies to produce hybrid semiconductor products, primarily
for military applications.
Complementary Bipolar Technology. The Company uses complementary
bipolar technologies primarily for high speed applications such as video
amplifiers and video ASSPs. Complementary bipolar technology uses two different
types of transistors (referred to as "pnp" and "npn") to process high speed
analog signals efficiently in either positive or negative polarity, which
substantially simplifies the design process by allowing symmetrical design
architectures, permits improved speed and requires less power. For high speed,
high voltage applications, which constitute a majority of the Company's
applications, Elantec uses dielectric isolation complementary bipolar
technology. For low voltage, high speed applications such as certain amplifiers
and video ASSPs, the Company uses junction isolation complementary bipolar
technologies provided by an outside foundry.
Dielectric Isolation Technology. Dielectric isolation is an SOI
manufacturing technique that uses insulating oxide to isolate transistors from
each other electrically. This technique has the inherent advantages of low
electrical capacitance, which allows high speed signal processing and minimizes
cross-talk or unwanted interference from other signals, and higher voltage
operation, which is useful for instrumentation and many other analog
applications. Dielectric isolation technology also allows high
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temperature operation and provides a high degree of immunity from radiation,
which can be important for certain commercial and military applications.
Junction Isolation Technology. In junction isolation technology, the
transistors are isolated from each other electrically by a reverse biased
semiconductor junction. This technique is the most widely used semiconductor
manufacturing technology due to its relatively simple process and low costs but
does not offer the advantages of SOI technology such as lower capacitance,
higher temperature operation and relative immunity to interference from adjacent
electrical signals. The Company uses conventional junction isolation bipolar
technology from third-party foundries where high speed is not a prerequisite,
such as in disk drive controllers.
Complementary Metal-Oxide-Semiconductor Technology. Since 1992, Elantec
has pursued a strategy to provide a wider range of products using CMOS
technology. CMOS technology enables the design of circuits with lower power
consumption than bipolar circuits, but with relatively lower speed, and is well
suited for analog switching and mixed signal applications. As a result, CMOS
technology is used in portable applications where power consumption is of
concern and high speed is not critical. Elantec's family of high performance
CMOS products is based on processes that are optimized for analog applications
and can be used at frequencies up to 50 megahertz. Although CMOS technology is
widely used in the semiconductor industry and the process for manufacturing CMOS
products is well established, the Company's experience in selecting and
designing CMOS products is limited, and there can be no assurance that the
Company will be successful in selecting and designing CMOS products that meet
market needs.
Bonded Wafer Technology. As part of its future bipolar product
development strategy, the Company is developing an alternative form of SOI
technology called bonded wafers. The Company believes that, if successful, the
bonded wafer technology could provide many of the same benefits as dielectric
isolation but with lower wafer cost and improved performance due to higher speed
and smaller device size. However, there can be no assurance that the development
of the bonded wafer technology can be successfully accomplished in a timely
manner or that it will provide the desired improvements over the Company's
current technology. Significant delays in the development of the bonded wafer
technology or manufacturing problems associated with transferring the Company's
current product line to this technology would have a material adverse effect on
the Company's business and results of operations. In addition, delays in the
development of this technology would adversely affect the Company's new product
development program.
The markets for the Company's products are characterized by rapid
technological change and frequent new product introductions. There can be no
assurance that the Company's analog products or the process technologies
utilized by the Company will not become obsolete or that the bonded wafer
technology being developed by the Company will not be supplanted by alternative
new technologies. In addition, as digital integrated circuits have become faster
and their processing capacity has expanded, digital circuits have increasingly
been used to perform functions in electronic systems that were previously
performed with analog technologies. There can be no assurance that further
advances in digital processing power will not eventually supplant analog
technologies in those new applications, which could have a material adverse
effect on the Company's business and results of operations.
Manufacturing
The Company manufactures semiconductor wafers for its dielectric
isolation complementary bipolar products in its own facility to optimize the
performance of these products and maintain a high degree of manufacturing
control. The Company's manufacturing facilities in Milpitas, California include
a four-inch wafer fabrication facility and a 3,500 square foot clean room with a
class 10 masking facility (no more than 10 particles larger than 0.5 microns in
size per cubic foot of air). The Company broadens its manufacturing capabilities
by using third-party foundries to produce junction isolation bipolar wafers and
CMOS wafers. The use of third-party foundries enables the Company to focus on
its design
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strengths and minimize fixed costs and capital expenditures while providing
access to diverse manufacturing technologies without bearing the full risk of
obsolescence.
Sales of dieletric isolation products represented approximately 67% of
the Company's net product revenues in fiscal 1995 and 74% in 1996. The process
for manufacturing dielectrically isolated integrated circuits is more complex
than processes for junction isolation bipolar manufacturing, and the number of
foundries that have the capability to produce dielectrically isolated
semiconductor wafers is limited. The loss of any of these foundries would have a
material adverse effect on the Company's business and results of operations.
The Company uses different third-party foundries to supply
semiconductor wafers for its junction isolation bipolar, complementary bipolar
and its CMOS products. Sales of these products collectively represented
approximately 15% and 16% of the Company's net product revenues in fiscal 1995
and fiscal 1996, respectively. The Company currently uses a single source of
wafers for junction isolation bipolar and complementary bipolar processes, and
has two sources for CMOS processes. Elantec will continue to establish alternate
or second sources in the future. The Company believes that it has had good
long-term relationships with its foundries and that its relationships with its
foundries are stable. However, any interruption in the supply of wafers from the
Company's foundries would have a negative impact on the Company's business and
results of operations until an alternate source could be established. Although
the Company believes that it could develop alternative sources of supply, there
can be no assurance that the Company could do so in a timely manner to prevent
such a material adverse impact.
The Company's commercial products are assembled by a variety of
subcontractors in Asia. These subcontractors may also be subject to capacity,
yield and quality problems or have difficulty obtaining critical raw materials,
which could result in disruptions in the supply of assembled products. Any delay
or disruption in the supply of assembled products, whether by reason of
manufacturing or assembly delays or other problems, might result in the loss of
customers, limitations or reductions in the Company's revenue or other material
adverse effects on the Company's business and results of operations.
The Company tests each integrated circuit or "die" on the wafers
produced by the Company and its foundries for compliance with performance
specifications before assembly. Following assembly, the packaged units are
returned to the Company for final testing and inspection prior to shipment to
customers. The Company then performs extensive testing on all circuits using
advanced automated test equipment to ensure that the circuits satisfy specified
performance levels. The Company manufactures its military products in
conformance with the stringent quality and reliability requirements of Military
Standard 883, at its military-certified facility in Milpitas, California.
The Company anticipates that it will meet its future growth
requirements by expanding its manufacturing capability at its present location
in Milpitas, California. These plans include expanding its wafer fabrication
capability for dielectric isolation and bonded wafers, and expanding its analog
testing capability. On October 1, 1996 the Company signed a lease for a total of
approximately 24,000 square feet of space located adjacent to the Milpitas
manufacturing facility. Moving administrative functions to this new facility
will facilitate the manufacturing expansion.
Environmental Laws
The Company is subject to a variety of federal, state and local
governmental regulations related to the use, storage, discharge and disposal of
toxic, volatile or otherwise hazardous chemicals used in its manufacturing
process. Although the Company believes that its activities conform to presently
applicable environmental regulations, the failure to comply with present or
future regulations could result in fines being imposed on the Company,
suspension of production or a cessation of operations. There can be no assurance
that regulatory changes or changes in regulatory interpretation or enforcement
will not render compliance more difficult and costly. Any failure of the Company
to control the use of, or adequately restrict the discharge of, hazardous
substances, or otherwise comply with environmental regulations, could subject it
to significant future liabilities.
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Research and Development
The Company's ability to compete depends, in part, upon its continued
introduction of technologically innovative products on a timely basis. Elantec's
product development strategy emphasizes a broad line of products to address a
diversity of customer applications. The Company's research and development
efforts are directed primarily at designing and introducing new products and
technologies and, to a lesser extent, developing new testing and packaging
techniques. The Company continually upgrades its internal technology while also
working with foundries to develop new technologies for new generations of
products. In addition, the Company continually refines its manufacturing
practices and technology to improve the yields of its products.
The Company has assembled a team of highly skilled analog design
engineers. As performance demands have increased the complexity of analog
circuits, the design and development process has become a multi-disciplinary
effort, requiring expertise ranging from detailed knowledge of device physics to
expertise in device placement and packaging to avoid unwanted cross-talk and
signal interference. The Company supports its key designers with an
infrastructure of device physicists, product engineers and test engineers who
perform various support functions and allow the designers to focus on the core
elements of the design.
As part of its future bipolar product development strategy, the Company
is developing a form of SOI technology called bonded wafers. Bonded wafer
technology uses two flat oxidized silicon wafers that are thermally bonded to
one another, after which one wafer is precisely ground and polished to form a
thin silicon layer supported by the insulating oxide and the remaining silicon
wafer. This thin silicon layer is suitable for making individual elements of the
semiconductor circuits that are electrically isolated from each other by
insulating oxide to provide performance characteristics superior to those
achievable with other technologies such as dielectric isolation and junction
isolation. The Company believes that, if successful, the bonded wafer technology
could provide many of the same benefits as dielectric isolation but with lower
wafer cost and improved performance due to higher speed and smaller device size.
This technology could provide the Company with the capability to provide
products with higher levels of integration and performance to the Company's
target markets. However, there can be no assurance that the development of the
bonded wafer technology can be successfully accomplished in a timely manner or
that it will provide the desired improvements over the Company's current
technology. Significant delays in the development of this bonded wafer
technology or manufacturing problems associated with transferring the Company's
current product line to this technology would have a material adverse effect on
the Company's business and results of operations. In addition, delays in the
development of this technology would materially and adversely affect the
Company's new product development program.
In fiscal 1994, fiscal 1995 and fiscal 1996, the Company spent $3.9
million, $4.8 million and $6.4 million, respectively, on research and
development. The Company expects that it will continue to spend substantial
funds on research and development activities.
Patents and Licenses
The Company seeks to protect its proprietary technology through patents
and trade secret protection. Currently, the Company holds 29 United States
patents and three foreign patents, expiring on various dates between the years
2005 and 2013 and has additional pending United States patent applications,
although there can be no assurance that any patents will result from these
applications. While the Company intends to continue to seek patent coverage for
its products and manufacturing technology where appropriate, the Company
believes that its success depends more heavily on the technical expertise and
innovative abilities of its personnel than on its patent position. Accordingly,
the Company also relies on trade secrets and confidential technological know-how
in the conduct of its business. There can be no assurance that the Company's
patents or applicable trade secret laws will provide adequate protection for the
Company's technology against competitors who may develop or patent similar
technology or reverse engineer the Company's products. In addition, the laws of
certain territories in which the Company's products are or may be developed,
manufactured or sold, including
11
<PAGE>
Asia, Europe and Latin America, may not protect the Company's products and
intellectual property rights to the same extent as the laws of the United
States.
The Company has not been involved in any intellectual property
litigation to date. However, the semiconductor industry is characterized by
frequent litigation regarding patent and other intellectual property rights.
There can be no assurance that third parties will not assert claims against the
Company with respect to existing or future products or technologies. In the
event of litigation to determine the validity of any third-party claims, such
litigation, whether or not determined in favor of the Company, could result in
significant expense to the Company and divert the efforts of the Company's
technical and management personnel from productive tasks. In the event of an
adverse ruling in such litigation, the Company might be required to discontinue
the use of certain processes, cease the manufacture, use and sale of infringing
products, expend significant resources to develop non-infringing technology or
obtain licenses to the infringing technology. There can be no assurance that
licenses will be available on responsible commercial terms, or at all, with
respect to disputed third-party technology. In the event of a successful claim
against the Company and the Company's failure to develop or license a substitute
technology at a reasonable cost, the Company's business and results of
operations would be materially and adversely affected.
The Company has licensed to Aisin certain of the Company's proprietary
technology to design and manufacture analog semiconductor products for the
automotive market. See "Product Markets and Applications -- Other Markets."
Competition
The semiconductor industry is intensely competitive and is
characterized by rapid technological change, product obsolescence and price
erosion in many markets. The analog integrated circuit segment of the
semiconductor industry is also intensely competitive, and many major
semiconductor companies presently compete or could compete in some segment of
the Company's market. Most of these competitors have substantially greater
financial, technical, manufacturing, marketing, distribution and other resources
and broader product lines than Elantec. The Company also competes indirectly
with the in-house design staffs of certain of its customers, which often provide
alternative solutions to individual analog systems requirements. The Company's
current primary competitors are Analog Devices, Inc., Linear Technology
Corporation, Maxim Integrated Products, Inc., and National Semiconductor
Corporation. As the Company expands its product line, it expects that
competition will increase with these and other domestic and foreign companies.
Although foreign companies have not traditionally focused on the high
performance analog market, many foreign companies, particularly certain Asian
companies, have the financial and other resources to participate successfully in
these markets, and there can be no assurance that they will not become
formidable competitors in the future.
The Company believes that its ability to compete successfully depends
on a number of factors, including the breadth of its product line, the ability
to develop and introduce new products rapidly, product innovation, product
quality and reliability, product performance, price, technical service and
support, adequacy of manufacturing capacity and sources of raw materials,
efficiency of production, delivery capabilities and protection of the Company's
products by intellectual property laws. The Company believes that product
innovation, quality, reliability, performance and the ability to introduce
products rapidly are more important competitive factors than price in its target
markets because the Company competes primarily at the stage when system
manufacturers design analog products into their systems. At the design-in stage,
there is less price competition, particularly where there is only one source of
an application specific product. The Company believes that, by virtue of its
analog expertise and rigorous design methodology, it competes favorably in the
areas of rapid product introduction, product innovation, quality, reliability
and performance, but it may be at a disadvantage in comparison to larger
companies with broader product lines, greater technical and financial resources
and greater service and support capabilities. There can be no assurance that the
Company will be able to compete successfully in the future.
12
<PAGE>
Employees
At September 30, 1996, the Company had 162 full time employees. The
Company believes that its future success will depend, in part, on its ability to
attract and retain qualified technical and manufacturing personnel. This is
particularly important in the areas of product design and development, where
competition for skilled personnel, particularly those with analog experience, is
intense. None of the Company's employees is subject to a collective bargaining
agreement, and the Company has never experienced a work stoppage. The Company
believes that its relations with its employees are good.
<TABLE>
Executive Officers and Directors of the Company
The executive officers and directors of the Company are as follows:
<CAPTION>
Name Age Positions
<S> <C> <C>
David O'Brien 57 President, Chief Executive Officer and Director
Terrence W. Plette 48 Vice President of Finance and Administration,
Chief Financial Officer and Secretary
Richard E. Corbin 61 Vice President of Bipolar Design Engineering
Ralph S. Granchelli, Jr. 41 Vice President of Marketing
Barry L. Siegel 57 Vice President of Engineering
Donald T. Valentine (1) 64 Director and Chairman of the Board
Chuck K. Chan (2) 46 Director
James V. Diller (2) 61 Director
B. Yeshwant Kamath (1) 48 Director
<FN>
- ----------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
</FN>
</TABLE>
David O'Brien has served as President, Chief Executive Officer and a
director of the Company since September 1987, and served as Chief Financial
Officer from August 1995 to December 1995. From 1982 to September 1987, he
served as President and Chief Executive Officer of Precision Monolithics, Inc.
("Precision Monolithics"), a semiconductor company. From 1979 to 1982, he was
Vice President of Engineering and Senior Vice President of Operations at
Precision Monolithics. Previously, Dr. O'Brien was employed by Fairchild
Semiconductor Corporation ("Fairchild Semiconductor") from 1973 to 1979, where
he served in several managerial positions in engineering and operations. Dr.
O'Brien holds a B.S. degree in physics and M.S. and Ph.D. degrees in electrical
engineering from the University of Wales, Swansea, United Kingdom, and an M.B.A.
degree from the University of Santa Clara, California.
Terrence W. Plette has served as Vice President of Finance and
Administration, Chief Financial Officer and Secretary of the Company since
December 1995. Previously, Mr. Plette held various positions at Intel
Corporation from 1973 to 1994, including Network Products Division Controller,
Semiconductor Products Group Controller and Corporate Accounting and
International Controller. Mr. Plette holds a B.A. degree in economics from the
University of California, Santa Barbara, an M.A. degree in economics from San
Jose State University, and an M.B.A. degree in finance from the University of
Santa Clara.
13
<PAGE>
Richard E. Corbin has served as Vice President of Bipolar Design
Engineering of the Company since September 1992. From October 1987 to August
1992, he served as the Company's Vice President of Operations. From 1981 to
1987, Mr. Corbin was employed at Precision Monolithics, in a variety of
management positions including Director of CMOS Operations and Vice President of
New Product Development. From 1976 to 1980, Mr. Corbin held various positions at
Fairchild Semiconductor including Division Operations Manager of CMOS. Mr.
Corbin holds a B.S. degree in mathematics and physics from Arizona State
University.
Ralph S. Granchelli, Jr. has served as Vice President of Marketing
since September 1994 and Vice President of Marketing and Sales of the Company
from November 1990 to August 1994. From 1985 to October 1990 he served as the
Company's Vice President of Sales. From 1983 to 1985, Mr. Granchelli was
National Sales Manager of Teledyne Semiconductor, Inc., a division of Teledyne
Industries, Inc. Previously, Mr. Granchelli held senior sales positions with
Micro Power Systems, Inc., an analog semiconductor company, and the Advanced
Analog Division of Intech, Inc., an analog hybrid semiconductor company, and an
engineering position at Teledyne Philbrick, a division of Teledyne Industries,
Inc. Mr. Granchelli holds an A.S. degree in Electronics Engineering from
Wentworth Institute of Technology and attended the University of Massachusetts,
Amherst from 1976 to 1979, where he studied electrical engineering and
marketing.
Barry L. Siegel co-founded the Company and has served as Vice President
of Engineering of the Company since its inception in 1983. Prior to joining
Elantec, Mr. Siegel was employed by National Semiconductor Corporation
("National Semiconductor") from 1970 to 1983, where he held positions as Manager
of Hybrid Product Design and Manager of Corporate Applications Engineering.
Previously, Mr. Siegel was a design engineer at Fairchild Semiconductor and
Emerson Electric Co.. Mr. Siegel holds a B.S. in electrical engineering from
Washington University of Missouri and an M.S. degree in electrical engineering
from the University of Missouri at St. Louis.
Donald T. Valentine has been a director of the Company since January
1992 and Chairman of the Board since March 1994. Mr. Valentine has been a
general partner of Sequoia Capital, a venture capital firm, since 1974. He is
also Chairman of the Board of C-Cube Microsystems Inc., a semiconductor video
compression company, Vice Chairman of Cisco Systems, Inc., an internetworking
communications company, and a director of Sierra Semiconductor Corporation, a
communications semiconductor company. He is also Chairman of the Board of
Network Appliance Corporation, a company in the network file server business.
Chuck K. Chan has been a director of the Company since January 1992 and
also served as a director from 1983 to 1984. Dr. Chan has been a partner in
Alpine Technology Ventures, a venture capital firm, since December 1994 and has
also been a partner in Associated Venture Investors, a venture capital firm,
since 1982. Dr. Chan holds B.S., M.S. and Ph.D. degrees in physics from the
Massachusetts Institute of Technology and an M.B.A. degree from Harvard
University.
James V. Diller has been a director of the Company since 1986. Mr.
Diller was a founder of Sierra Semiconductor Corporation, a communications
semiconductor company, was its President from 1983 to 1993 and is currently its
Chairman of the Board of Directors and Chief Executive Officer. Mr. Diller holds
a B.S. degree in physics from the University of Rhode Island.
B. Yeshwant Kamath has been a director of the Company since July 1993.
Dr. Kamath is the Division President of the KUB division of Videonics Inc.. KUB
Systems, a company that manufactures video special effects equipment, was
founded by Dr. Kamath in February 1992 and acquired by Videonics in May 1996.
Previously, Dr. Kamath was a founder of Abekas Video Systems, Inc., a subsidiary
of Carlton Communications PLC, where he was President from 1982 to August 1990.
Dr. Kamath is also a director of Euphonix, Inc., a company that manufactures
digitally controlled analog audio consoles for the music industry. Dr. Kamath
holds a B.Tech. degree in electrical engineering from the Indian Institute of
Technology, and M.S. and Ph.D. degrees in electrical engineering from the
University of California, Berkeley.
14
<PAGE>
Each director holds office until the next annual meeting of
stockholders and until his successor has been elected and qualified or until his
earlier resignation or removal. Each officer was chosen by the Board of
Directors and serves at the pleasure of the Board of Directors until his
successor is appointed or until his earlier resignation or removal.
15
<PAGE>
ITEM 2: PROPERTIES
The Company leases approximately 39,000 square feet of space located in
Milpitas, California for its manufacturing and engineering functions pursuant to
a lease that expires on June 30, 2005. In addition, on October 1, 1996 the
Company signed a lease for a total of approximately 24,000 square feet of space
located adjacent to the Milpitas manufacturing facility for administrative
functions. This seven year lease expires on October 1, 2003. The company also
leases 2,500 square feet of space for its sales offices in Massachusetts and
London and approximately 2,700 square feet of warehouse space in San Jose,
California. The Company believes that its current facilities are adequate to
meet its current requirements for the near term. See Note 1 of Notes to
Consolidated Financial Statements.
ITEM 3: LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter ended September 30, 1996.
16
<PAGE>
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Price Range Of Common Stock
Elantec's Common Stock has been traded on the Nasdaq National Market
under the Nasdaq symbol "ELNT" since the Company's initial public offering on
October 11, 1995. The high and low closing sales prices indicated below are as
reported on the Nasdaq National Market.
Common Stock Prices
- --------------------------------------------------------------------------------
HIGH LOW
----------------------
Fiscal 1996
- ------------
Quarter ended December 31,1995 (Starting on 10/11/95) $ 11 7/8 $ 7
Quarter ended March 31,1996 $ 10 1/4 $ 7 1/4
Quarter ended June 30,1996 $ 13 1/4 $ 6 3/4
Quarter ended September 30,1996 $ 9 1/8 $ 5 1/2
As of September 30, 1996, there were approximately 343 stockholders of record.
Dividend Policy
The Company has never paid cash or declared dividends on its stock.
Elantec anticipates that it will continue to retain its earnings to finance the
growth of its business.
17
<PAGE>
<TABLE>
ITEM 6: SELECTED FINANCIAL DATA
The following selected consolidated financial data is qualified by reference to
and should be read in conjunction with the consolidated financial statements and
related notes thereto and the section captioned "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and other financial
information included elsewhere in this Annual Report on Form 10-K.
<CAPTION>
Year Ended September 30,(1)
-------------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues $15,426 $18,477 $22,937 $26,884 $36,806
Gross profit 6,896 9,510 10,819 13,928 18,798
Income from operations 447 1,588 1,859 2,887 4,300
Income before taxes 272 1,553 1,568 2,951 4,761
Net income $ 260 $ 1,270 $ 1,125 $ 2,713 $ 4,389
Net income per share(2) $ 0.05 $ 0.18 $ 0.15 $ 0.34 $ 0.47
Number of shares used in computing per share
amounts(2) 7,372 7,495 7,736 7,874 9,332
September 30,(1)
--------------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(in thousands)
Balance Sheet Data:
Working capital $4,563 $5,537 $6,018 $6,854 $17,638
Total assets 9,373 11,058 14,919 20,910 35,246
Long-term debt and capital lease obligations 368 298 517 1,313 1,566
Total stockholders' equity 5,788 7,064 8,318 11,142 24,074
<FN>
- --------------
(1) The Company's fiscal periods end on the Sunday closest to the end of the
calendar period. For ease of presentation, each fiscal period has been
presented as though it ended on the final day of the calendar period.
(2) See Note 1 of Notes to Consolidated Financial Statements for an
explanation of the determination of the number of shares used in
computing net income per share.
</FN>
</TABLE>
18
<PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations
The following table sets forth, as a percentage of net revenues,
certain consolidated statement of operations data for the periods indicated.
Year Ended September 30,
------------------------------------
1994 1995 1996
---- ---- ----
Net revenues 100.0% 100.0% 100.0%
Gross profit 47.2% 51.8% 51.1%
Income from operations 8.1% 10.7% 11.7%
Income before income taxes 6.8% 11.0% 12.9%
Net income 4.9% 10.1% 11.9%
Net Revenues. The Company's net revenues increased 17.2% from $22.9
million in fiscal 1994 to $26.9 million in fiscal 1995 and increased an
additional 36.9% to $36.8 million in fiscal 1996. Contract revenues declined by
$54,000 and $195,000 in fiscal 1995 and 1996 respectively. Net product revenues
increased 18.8% from $21.2 million in fiscal 1994 to $25.2 million in fiscal
1995 and increased an additional 40.0% to $35.3 million in fiscal 1996. The
increase in net product revenues in each period was primarily a result of
increases in commercial product revenues.
Commercial product revenues, driven by increased unit sales, increased
22.5% from $16.9 million in fiscal 1994 to $20.7 million in fiscal 1995 and
increased an additional 57.0% to $32.5 million in fiscal 1996. The increases in
unit volumes in each period were attributable to stronger demand for the
Company's products in the video/multimedia, instrumentation and communications
markets, offset in part by a decline in demand for the Company's disk drive
controller products in the data processing market. Disk drive product demand
continued to decline in 1996 while unit sales of power control parts to the data
processing market tripled. The Company's average selling prices decreased
slightly in fiscal 1995 and remained flat from 1995 to 1996. However, the
Company expects the average selling prices of its commercial products to
decrease over time.
The Company's military product revenues increased 4.4% from $4.3
million in fiscal 1994 to $4.5 million in fiscal 1995 and decreased 29% to $3.2
million in fiscal 1996. The growth in military product revenues between 1994 and
1995 was a result of increases in average selling prices, partially offset by
reductions in unit volumes. In 1996, the decrease in military product revenues
was a result of a 54% unit volume decrease which was partially offset by an
increase in average selling prices. The Company continues to focus on its four
target markets in the commercial product sector and is not currently designing
new products for the military. Accordingly, the Company expects military product
revenues to decrease in the future.
Export sales were 42.3%, 43.7% and 52.3% of net revenues in fiscal
1994, 1995 and 1996, respectively. The increase in export sales was primarily
the result of the development of Japanese and Taiwanese markets for the
Company's products. See Note 9 of Notes to Consolidated Financial Statements.
Gross Margin. The Company's gross margin increased from 47.2% in fiscal
1994 to 51.8% in fiscal 1995 and then decreased slightly to 51.1% in fiscal
1996. The increase in gross margin from fiscal
19
<PAGE>
1994 to fiscal 1995 resulted from reductions in manufacturing variances and in
unit manufacturing costs associated with process improvements and higher
utilization of manufacturing capacity due to increased levels of shipments,
offset in part by decreases in average selling prices for commercial products as
well as certain manufacturing difficulties associated with third party foundry
services and the transition to new test and fabrication equipment. The decrease
in gross margin from fiscal 1995 to 1996 resulted from continued reductions in
average selling prices and increases in unfavorable manufacturing yield
variances associated with third party foundry services. While the Company is
working on programs to reduce these manufacturing variances, there can be no
assurance that the Company will not encounter similar difficulties in the
future, and gross margin may continue to fluctuate from quarter to quarter.
Research and Development Expenses. Research and development expenses
increased 22.4% from $3.9 million in fiscal 1994 to $4.8 million in fiscal 1995
and increased an additional 33.4% to $6.4 million in fiscal 1996. The increases
in research and development are primarily the result of costs associated with
additional employees and consultants and, to a lesser extent, increased
expenditures for mask sets, silicon and other materials. During these periods,
the Company's research and development activities focused on incorporating CMOS
process technology into the Company's commercial product line, which resulted in
the introduction of a number of new CMOS products. The Company also introduced
new bipolar products from fiscal 1994 through fiscal 1996 at a rate exceeding
the pre-1994 levels. The Company expects to incur higher absolute research and
development expenses in the future, although these expenses are expected to
remain relatively constant as a percentage of net revenues. There can be no
assurance, however, that net revenues will grow at the same rate as the
anticipated research and development expenses.
Marketing, Sales, General and Administrative Expenses. Marketing,
sales, general and administrative expenses increased 23.9% from $5.0 million in
fiscal 1994 to $6.2 million in fiscal 1995 and increased an additional 29.7% to
$8.1 million in fiscal 1996. For 1995, selling and administrative expenses
included added compensation expenses for additional personnel, increased sales
commissions due to increased sales, increases in the level of advertising
expenses, and, higher absolute marketing, sales, general and administrative
expenses due to reporting and other requirements of a public company. In 1996,
selling and administrative expenses included added compensation expenses for
additional personnel, increased sales commissions due to increased sales and
increases in the level of advertising expenses.
Interest and Other Income (Expense), Net. Interest and other income
(expense), net was ($291,000) in fiscal 1994, $64,000 in fiscal 1995 and
$461,000 in fiscal 1996. Interest and other income (expense), net in fiscal 1994
included a charge of $312,000 resulting from a proposed initial public offering
that was not completed. The increase in interest expense in fiscal 1995 reflects
increased borrowings under the Company's working capital lines of credit. The
increase of interest income in 1996 resulted from investing proceeds from the
Company's initial public offering in October of 1995 in cash equivalents and
short-term investments. See Note 1 of Notes to Consolidated Financial
Statements.
Provision for Taxes on Income. Provisions for taxes on income for
fiscal 1994, 1995 and 1996 were lower than the statutory rate principally due to
the benefit of net operating loss carryforwards offset by alternative minimum
taxes, state taxes and foreign withholding taxes. At September 30, 1996, the
Company had federal net operating loss carryforwards of approximately $3,500,000
that expire in the years 2004 through 2005. In addition, the Company had federal
general business credit carryforwards of approximately $644,000 that expire in
the years 1999 through 2010 and foreign tax credit carryforwards of $625,000
that expire in 1998 through 2001.
20
<PAGE>
Under certain provisions of the Internal Revenue Code of 1986, as amended, the
availability of the Company's net operating loss and tax credit carryforwards
may be subject to limitation if it should be determined that there has been a
change in ownership of more than 50% of the value of the Company's stock. See
Note 7 of Notes to Consolidated Financial Statements.
Factors Affecting Future Results
This Annual Report on Form 10-K contains historical information as
well as forward looking statements. Forward looking statements concern matters
that involve risks and uncertainties, including but not limited to those set
forth below, that could cause actual results to differ materially from those
projected in the forward looking statements. In any event, the matters set forth
below should be carefully considered when evaluating the Company's business and
prospects.
Elantec's operating results have been, and in the future may be,
subject to fluctuations due to a wide variety of factors including the timing of
or delays in new product and process technology announcements and product
introductions by the Company or its competitors, competitive pricing pressures,
fluctuations in manufacturing yields, changes in the mix of product sold,
availability and costs of raw materials, the cyclical nature of the
semiconductor industry, industry-wide wafer processing capacity, economic
conditions in various geographic areas, and costs associated with other events,
such as underutilization or expansion of production capacity, intellectual
property disputes, environmental regulation, or other litigation. Further, there
can be no assurance that the Company will be able to compete successfully in the
future against existing or potential competitors or that the Companies operating
results will not be adversely affected by increased price competition.
The semiconductor industry is highly cyclical and has been subject to
significant economic fluctuations at various times that have been characterized
by rapidly fluctuating product demand, periods of over and under capacity, and
accelerated erosion of average selling prices. A material change in
industry-wide production capacity, shift in industry capacity toward products
competitive with the Company's products, rapidly fluctuating demand, or other
factors could result in a rapid decline in product pricing or unit volumes which
could adversely affect the Company's operating results.
To address future capacity requirements, the Company plans to complete
an extensive production expansion at its primary manufacturing facility in
Milpitas, California. This expansion program faces a number of substantial risks
including, but not limited to, delays in construction, cost overruns, equipment
delays or shortages, manufacturing start-up or process problems, or difficulties
in hiring key managers and technical personnel. From time to time, the Company
has experienced production difficulties that have caused delivery delays and
quality problems. There can be no assurance that the Company will not experience
manufacturing problems and product delivery delays in the future as a result of,
among other things, changes to its process technologies, ramping production,
installing new equipment at its facilities and constructing new facilities in
California. Further, the Company's has a single wafer fabrication facility. If
the Company were unable to use this facility, as a result of a natural disaster
or otherwise, the Company's operations would be materially adversely affected.
The Company's manufacturing expansion will result in a significant
increase in fixed and operating expenses. As commercial production at the new
fabrication facility commences, the operating costs will be classified as cost
of revenues, and the Company will begin to recognize depreciation expense
relating to the facility. Accordingly, although the Company expects the Milpitas
fabrication facility to contribute to revenues in fiscal 1997, the Company will
recognize substantial operating expenses associated with the facility in 1997,
which could reduce gross margins. Specifically, as commercial production begins
in fiscal 1997, the Company anticipates incurring substantial operating costs
and depreciation expense relating to the facility before production of
substantial volume is achieved. Accordingly, if revenue levels do not increase
sufficiently to offset these additional expense levels, or if the Company is
unable to achieve gross comparable to the Company's current products, the
Company's future results of operations could be adversely impacted.
21
<PAGE>
New products, process technology and start-up costs associated with the
Milpitas wafer fabrication facility will require significant research and
development expenditures. However, there can be no assurance that the Company
will be able to develop and introduce new products in a timely manner, that new
products will gain market acceptance or that new process technologies can be
successfully implemented. If the Company is unable to develop new products in a
timely manner, and to sell them at gross margins comparable to the Company's
current products, the future results of operations could be adversely impacted.
The Company's manufacturing operations depend upon obtaining adequate
raw materials on a timely basis. The number of vendors of certain raw materials,
such as silicon wafers, ultra-pure metals and certain chemicals and gases, is
very limited. In addition, certain materials used by the Company require long
lead times and are available from only a few suppliers. For example, the Company
uses four inch silicon wafers in its wafer fabrication processes. From time to
time, vendors have extended lead times or limited supply of four inch wafers to
the Company. The Company's results of operations would be adversely affected if
it were unable to obtain adequate supplies of raw materials in a timely manner
or if there were significant increases in the costs of raw materials.
Part of the Company's future bipolar product development strategy
includes the development of an alternative form of silicon-on-insulator ("SOI")
technology called bonded wafers. The Company believes that, if successful, the
bonded wafer technology could provide technologically advanced products at a
lower cost than the current dielectric isolation complementary bipolar
technology. However, there can be no assurance that the development of the
bonded wafer technology can be successfully accomplished in a timely manner or
that it will proved the desired improvements over the Company's current
technology. Significant delays in the development of the bonded wafer technology
or manufacturing problems associated with transferring the Company's current
product line to this technology would have a material adverse affect on the
Company's business and results of operations. In addition, delays in the
development of this technology would adversely affect the Company's new product
development program.
The semiconductor industry is extremely capital intensive. To remain
competitive, the Company must continue to invest in advanced manufacturing and
test equipment. In fiscal 1997, the Company expects to expend approximately $9.8
million in capital expenditures and anticipates significant continuing capital
expenditures in the next several years. There can be no assurance that the
Company will not be required to seek financing to satisfy its cash and capital
needs or that such financing will be available on terms satisfactory to the
Company. If such financing is required and if such financing is not available on
terms satisfactory to the Company, its operations would be materially adversely
affected.
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights or positions, which have resulted in
significant and often protracted and expensive litigation. In recent years,
there has been a growing trend of companies to resort to litigation to protect
their semiconductor technology from unauthorized use by others. The Company
believes its products do not infringe upon any valid patents. However, there can
be no assurance that the Company's position in these matters will prevail. There
can be no assurance that additional future claims alleging infringement of
intellectual property rights will not be asserted against the Company. The
intellectual property claims that have been made, or may be asserted against the
Company in the future, could require that the Company discontinue the use of
certain processes or cease the manufacture, use and sale of infringing products.
Additionally, the company may incur significant litigation costs and damages to
develop noninfringing technology. There can be no assurance that the Company
would be able to obtain such licenses on acceptable terms or to develop
noninfringing technology without a material adverse effect on the Company.
The Company is subject to a variety of regulations related to hazardous
materials used in its manufacturing process. Any failure by the Company to
control the use of, or to restrict adequately the discharge of, hazardous
materials under present or future regulations could subject it to substantial
liability or could cause its manufacturing operations to be suspended.
22
<PAGE>
The Company's Common Stock has experienced substantial price volatility
and such volatility may occur in the future, particularly as a result of
quarter-to-quarter variations in the actual or anticipated financial results of
the Company, the companies in the semiconductor industry or in the markets
served by the Company, or announcements by the Company or its competitors
regarding new product introductions. In addition, the stock market has
experienced extreme price and volume fluctuations that have affected the market
price of many technology companies' stock in particular. These factors may
adversely affect the price of the Common Stock.
Liquidity and Capital Resources
From fiscal 1994 through fiscal 1996, the Company financed its
operations primarily from cash provided by operating activities.
Net cash provided by operating activities was $3.1 million, $2.8
million and $5.1 million in fiscal 1994, 1995 and 1996, respectively. Net cash
provided by operating activities in fiscal 1994 resulted primarily from proceeds
received from the Aisin agreement, depreciation and net income, offset in part
by an increase in inventories. Net cash provided by operating activities in
fiscal 1995 resulted primarily from net income of $2.7 million and depreciation
of $1.2 million, offset in part by increased working capital, principally from
increased accounts receivable and inventories. Net cash provided by operating
activities in fiscal 1996 resulted primarily from net income of $4.4 million and
depreciation of $1.7 million, offset in part by increased working capital, again
principally from increased accounts receivable and inventories.
Net cash used in investing activities was $1.1 million in fiscal 1994,
$2.2 million in fiscal 1995 and $8.6 million in fiscal 1996. The Company's
investing activities in fiscal 1994 and 1995 were principally the purchase of
property and equipment. In addition to property and equipment purchases, $6.7
million net cash was invested in available for sale investments. Cash purchases
of property and equipment totaled $1.0 million in fiscal 1994, $1.7 million in
fiscal 1995 and $2.1 million in fiscal 1996. At September 30, 1996, there were
outstanding commitments for capital expenditures of approximately $1.6 million.
The Company plans to spend $9.8 million on capital expenditures during fiscal
1997, primarily on expanding manufacturing capabilities in Milpitas, California.
Net cash used in financing activities was $254,000 in fiscal 1994 and $355,000
in fiscal 1995. Financing activities in fiscal 1994 and 1995 were primarily
repayments on capital lease obligations and long-term debt. Net cash provided by
financing activities in 1996 was $6.8 million primarily due to proceeds of the
Company's initial public offering in October of 1995 which were offset by
repayments on capital lease obligations and long-term debt.
Net cash provided by financing activities was $0.3 million in 1994,
$0.4 million in 1995 and $6.8 million in fiscal 1996. In October 1995, the
Company raised net proceeds of approximately $8.2 million by issuing common
stock in its initial public offering. This financing activity was partially
offset by payments on long-term debt during 1996 of $1.6 million, primarily on
long-term notes and capital leases.
At September 30, 1996, the Company had working capital of $17.6 million
and cash and cash equivalents of $9.4 million. At September 30, 1996 the Company
had a nonrevolving lease line of credit for up to $2.5 million, which can be
utilized for up to 100% of the value of the equipment financed. Amounts drawn
under this line are periodically converted into three-year notes. The
nonrevolving lease line of credit expires in December 1996. The company expects
to secure a new lease line of credit upon expiration of the existing line. At
September 30, 1996, $973,000 was outstanding, and approximately $1.5 million
remained available under the line. Amounts drawn under this line as well as
under the notes
23
<PAGE>
are payable at interest rates ranging from prime plus 0.25% to prime plus 1.75%
(8.5% to 10.0% at September 30, 1996). The Company believes that its existing
cash and cash equivalents, its current line of credit and cash from operations
will be sufficient to support its operating and capital needs for at least the
next twelve months. Any major change in the nature of the Company's business,
such as the acquisition of products, the design of products not currently under
development or the need for significant new capital expenditures, could change
the Company's capital requirements. To the extent the Company requires
additional cash, there can be no assurance that the Company will be able to
obtain such financing on terms favorable to the Company, or at all.
24
<PAGE>
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following Financial Statements are filed as part of this
Report.
Page No.
Report of Ernst & Young LLP, Independent Auditors................. 29
Consolidated Balance Sheets as of September 30, 1996 and 1995..... 30
Consolidated Statements of Income for each of the three fiscal
years in the period ended September 30, 1996...................... 31
Consolidated Statements of Stockholders' Equity for each of the
three fiscal years in the period ended September 30, 1996......... 32
Consolidated Statements of Cash Flows for each of the three fiscal
years in the period ended September 30, 1996...................... 33
Notes to Consolidated Financial Statements........................ 34
2. INDEX TO FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule of Elantec
Semiconductor, Inc. for the years ended September 30, 1996, 1995
and 1994 is filed as part of this report and should be read in
conjunction with the Consolidated Financial Statements of Elantec
Semiconductor, Inc.
Schedule II - Valuation and Qualifying Accounts for
each of the three fiscal years in the period ended
September 30, 1996............................................ 41
Schedules other than that listed above have been omitted since
they are either not required, not applicable, or the information
is otherwise included.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
25
<PAGE>
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item with respect to Directors may be found
in the section captioned "Election of Elantec Directors" appearing in the
definitive Proxy Statement to be delivered to stockholders in connection with
the Annual Meeting of Stockholders to be held on February 21, 1997. Such
information is incorporated herein by reference. Information required by this
Item with respect to executive officers may be found in Part I hereof in the
section captioned "Executive Officers of the Company." Such information is
incorporated herein by reference.
ITEM 11: EXECUTIVE COMPENSATION
Information with respect to this Item may be found in the section
captioned "Executive Compensation" appearing in the definitive Proxy Statement
to be delivered to stockholders in connection with the Annual Meeting of
Stockholders to be held on February 21, 1997. Such information is incorporated
herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this Item may be found in the section
captioned "Security Ownership of Certain Beneficial Owners and Management"
appearing in the definitive Proxy Statement to be delivered to stockholders in
connection with the Annual Meeting of Stockholders to be held on February 21,
1997. Such information is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this Item may be found in the section
captioned "Certain Transactions" appearing in the definitive Proxy Statement to
be delivered to stockholders in connection with the Annual Meeting of
Stockholders to be held on February 21, 1997. Such information is incorporated
herein by reference.
26
<PAGE>
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements and Financial Statement Schedules -- See Index to
Consolidated Financial Statements and Financial Statement Schedules at
Item 8 on page 25 of this Report.
<TABLE>
2. Exhibits. The following exhibits are filed as part of, or incorporated
by reference into, this Report:
<CAPTION>
Exhibit
Number Exhibit Title
- ----- -------------
<S> <C>
3.01 -- Company's Certificate of Incorporation.*
3.02 -- Company's Bylaws.*
4.01 -- Registration Rights Agreement dated August 12, 1988 by and among the Company and certain
stockholders and warrantholders, as amended January 12, 1990 and as of August 4, 1995.*
10.01 -- Company's 1983 Stock Option Plan, as amended, and related documents.*
10.02 -- Company's 1994 Equity Incentive Plan, as amended, and related documents.*
10.03 -- Form of Company's 1995 Equity Incentive Plan and related documents.*
10.04 -- Form of Company's 1995 Directors Stock Option Plan and related documents.*
10.05 -- Form of Company's 1995 Employee Stock Purchase Plan and related documents.*
10.06 -- Form of Indemnification Agreement to be entered into by the Company with each of its directors and executive
officers.*
10.07 -- Form of Executive Compensation Agreement, dated as of March 22, 1991, by and between the Company and David
O'Brien.*
10.08 -- Form of Executive Compensation Agreement dated as of March 22, 1991, by and between the Company and each of
Ralph Granchelli, Richard Corbin and Barry Siegel.*
10.09 -- Standard Industrial/Commercial Single-Tenant Lease, dated June 23, 1993, by and between the Company and Robert
Ruggles, including amendments one through five thereto.*
10.10 -- Technology Transfer Agreement, dated February 24, 1993, between the Company and Aisin Seiki Co., Ltd. ("Aisin").*
10.11 -- Product Development Agreement No. 1, dated March 24, 1993, between the Company and Aisin.*
10.12 -- Product Development Agreement No. 2, dated March 24, 1995, between the Company and Aisin.*
10.13 -- Distributor Agreement, dated December 8, 1986, between the Company and Insight Electronics, Inc. ("Insight").*
10.14 -- Distributor Agreement, dated October 1, 1989, between the Company and Insight.*
10.15 -- Distributor Agreement, dated November 1, 1987, between the Company and Marshall Industries.*
10.16 -- Distributor Agreement, dated March 7, 1994, between the Company and Internix, Inc.*
10.17 -- Amendment to Standard Industrial/Commercial Single-Tenant Lease, Dated June 23, 1993**
10.18 -- Standard Industrial/Commercial Single-Tenant Lease, Dated February 20, 1996**
10.19 -- Amendment to Standard Industrial/Commercial Single-Tenant Lease, Dated February 20, 1996**
10.20 -- Distributor Agreement, dated August 1, 1996, between the Company and Microtek Inc.
11.01 -- Statement re computation of per share earnings.
21.01 -- Subsidiary of the Company.*
23.01 -- Consent of Ernst & Young LLP, Independent Auditors (see page 57 of this Report).
24.01 -- Powers of Attorney (see page 44 of this Report).
27.00 -- Financial Data Schedule
<FN>
- -------------
* Incorporated by reference to the Company's Registration Statement on
Form S-1, filed August 24, 1995, as amended (File No. 33-96136).
** Incorporated by reference to the Company's Quarterly report on Form
10-Q for the quarter ended June 30, 1996.
</FN>
</TABLE>
27
<PAGE>
(b) Reports on Form 8-K
No current reports on Form 8-K were filed during the fiscal quarter
ended September 30, 1996.
(c) Exhibits:
The Registrant hereby files as part of this Report the exhibits listed
in Item 14(a)(2), as set forth above.
(d) Financial Statement Schedules:
See Item 14(a)(1) above.
28
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders
Elantec Semiconductor, Inc.
We have audited the accompanying consolidated balance sheets of Elantec
Semiconductor, Inc. as of September 30, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended September 30, 1996. Our audits also
included the financial statement schedule listed in the index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Elantec
Semiconductor, Inc. at September 30, 1996 and 1995, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended September 30, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
San Jose, California
October 22, 1996
29
<PAGE>
<TABLE>
Elantec Semiconductor, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
<CAPTION>
September 30,
1996 1995
--------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 9,377 $ 6,009
Short-term investments 6,663 --
Accounts receivable, net of allowances of $340 in 1996
and $265 in 1995 4,175 4,125
Inventories 6,475 4,590
Prepaid expenses and other current assets 554 585
--------------------------
Total current assets 27,244 15,309
Property and equipment:
Machinery and equipment 13,005 9,790
Furniture and fixtures 314 297
Leasehold improvements 2,407 1,800
--------------------------
15,726 11,887
Accumulated depreciation and amortization (8,366) (7,166)
--------------------------
7,360 4,721
Other assets, net 642 880
--------------------------
Total assets $ 35,246 $ 20,910
==========================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 3,749 $ 2,864
Income taxes payable 315 173
Accrued salaries and benefits 1,027 889
Other accrued liabilities 244 192
Deferred revenue 3,143 3,416
Current portion of long-term debt and capital lease obligations 1,128 921
--------------------------
Total current liabilities 9,606 8,455
Long-term debt and capital lease obligations 1,566 1,313
Commitments
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares - 5,000,000 in 1996 and 1995 -- --
Issued and outstanding shares - none
Convertible preferred stock, no par value:
Issued and outstanding shares - none in 1996 and 4,936,648 in 1995 -- 24,543
Common stock, $.01 par value:
Authorized shares - 25,000,000 in 1996 and 1995
Issued and outstanding shares - 8,748,000 in 1996 and
6,957,000 in 1995 87 20
Additional paid-in capital 33,475 456
Accumulated deficit (9,488) (13,877)
--------------------------
Total stockholders' equity 24,074 11,142
--------------------------
Total liabilities and stockholders' equity $ 35,246 $ 20,910
==========================
<FN>
See accompanying notes.
</FN>
</TABLE>
30
<PAGE>
<TABLE>
Elantec Semiconductor, Inc.
Consolidated Statements of Income
(in thousands, except per share amounts)
<CAPTION>
Year Ended September 30,
1996 1995 1994
--------------------------------------------------
<S> <C> <C> <C>
Net revenues $ 36,806 $ 26,884 $ 22,937
Cost of revenues 18,008 12,956 12,118
--------------------------------------------------
Gross profit 18,798 13,928 10,819
Operating expenses:
Research and development 6,413 4,806 3,928
Marketing, sales, general, and administrative 8,085 6,235 5,032
--------------------------------------------------
Total operating expenses 14,498 11,041 8,960
--------------------------------------------------
Income from operations 4,300 2,887 1,859
Interest and other income (expense), net 687 195 (217)
Interest expense (226) (131) (74)
--------------------------------------------------
Income before taxes 4,761 2,951 1,568
Provision for taxes on income 372 238 443
--------------------------------------------------
Net income $ 4,389 $ 2,713 $ 1,125
==================================================
Net income per share $ 0.47 $ 0.34 $ 0.15
==================================================
Shares used in computing per share amounts 9,332 7,874 7,736
==================================================
<FN>
See accompanying notes.
</FN>
</TABLE>
31
<PAGE>
<TABLE>
Elantec Semiconductor, Inc.
Consolidated Statements of Stockholders' Equity
(in thousands)
Convertible
Preferred Stock Common Stock Additional Total
----------------------------------------------- Paid-In Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1993 4,937 $ 24,543 1,443 $ 15 $ 221 $(17,715) $ 7,064
Exercise of stock options -- -- 323 3 96 -- 99
Exercise of warrants -- -- 16 -- 30 -- 30
Net income -- -- -- -- -- 1,125 1,125
-----------------------------------------------------------------------------------
Balance at September 30, 1994 4,937 24,543 1,782 18 347 (16,590) 8,318
Exercise of stock options -- -- 239 2 129 -- 131
Exercise of warrants -- -- 3 -- -- -- --
Repurchase of common stock -- -- (4) -- (20) -- (20)
Net income -- -- -- -- -- 2,713 2,713
-----------------------------------------------------------------------------------
Balance at September 30, 1995 4,937 24,543 2,020 20 456 (13,877) 11,142
Conversion of preferred stock (4,937) (24,543) 4,937 49 24,494 -- --
Proceeds from IPO, net of -- -- 1,400 14 8,189 -- 8,203
offering expenses of $911
Exercise of stock options -- -- 369 4 293 -- 297
Exercise of warrants -- -- 22 -- 43 -- 43
Net income -- -- -- -- -- 4,389 4,389
-----------------------------------------------------------------------------------
Balance at September 30, 1996 -- $ -- 8,748 $ 87 $ 33,475 $ (9,488) $ 24,074
===================================================================================
<FN>
See accompanying notes.
</FN>
</TABLE>
32
<PAGE>
<TABLE>
Elantec Semiconductor, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Year Ended September 30,
1996 1995 1994
---------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 4,389 $ 2,713 $ 1,125
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,677 1,182 846
Changes in operating assets and liabilities:
Accounts receivable (50) (1,971) 202
Inventories (1,885) (765) (1,495)
Prepaid expenses and other current assets 31 (179) 128
Accounts payable and accrued liabilities 1,217 1,657 384
Deferred revenue (273) 207 1,896
---------------------------------------------
Net cash provided by operating activities 5,106 2,844 3,086
Investing activities
Purchase of available for sale investments, net (6,663) -- --
Purchase of property and equipment (2,144) (1,673) (1,017)
Decrease (increase) in other assets 238 (524) (111)
---------------------------------------------
Net cash used in investing activities (8,569) (2,197) (1,128)
Financing activities
Payments on capital lease obligations (145) (176) (274)
Payments on long-term debt (1,567) (290) (109)
Issuances of common stock 8,543 111 129
---------------------------------------------
Net cash provided by (used in) financing activities 6,831 (355) (254)
---------------------------------------------
Increase in cash and cash equivalents 3,368 292 1,704
Cash and cash equivalents at beginning of period 6,009 5,717 4,013
---------------------------------------------
Cash and cash equivalents at end of period $ 9,377 $ 6,009 $ 5,717
=============================================
Supplemental disclosures of cash flow information
Lease and installment financing for capital equipment $ 2,172 $ 1,769 $ 710
Interest paid $ 202 $ 117 $ 74
Taxes paid $ 236 $ 86 $ 498
<FN>
See accompanying notes.
</FN>
</TABLE>
33
<PAGE>
1. Business and Summary of Significant Accounting Policies
Basis of Presentation -- Elantec Semiconductor, Inc. (the Company) designs,
manufactures and markets high performance analog integrated circuits used in the
video/multimedia, data processing, instrumentation and communications markets.
Principal markets include sales in North America, Asia, Europe and other
countries.
On October 11, 1995, the Company effected an initial public offering of its
shares pursuant to which it issued 1,400,000 common shares for net proceeds of
approximately $8,203,000. Upon the closing of the initial public offering, each
outstanding share of Series 1 preferred stock was converted to common stock on a
share-for-share basis.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, Elantec Government Products, Inc., which is
currently inactive.
Fiscal Year -- The Company's fiscal year ends on the Sunday closest to September
30. Fiscal years 1996, 1995, and 1994 ended on September 29, October 1, and
October 2, respectively. The Company also follows a 4/4/5 week quarterly cycle.
For convenience, the accompanying financial statements have been shown as ending
on September 30 for each fiscal year.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents -- The Company considers all highly liquid investments
with an original maturity (at the date of purchase) of three months or less to
be the equivalent of cash for the purposes of the balance sheet and statement of
cash flows presentation. Cash and cash equivalents are carried at cost which
approximates market value.
Short-Term Investments -- The Company's policy is to invest in various
short-term instruments with investment grade credit ratings. Generally such
investments have contractual maturities of less than one year. All of the
Company's marketable investments are classified as "available-for-sale" and the
Company views its available-for-sale portfolio as available for use in its
current operations. At September 30, 1996, short-term investments consisted of
corporate debt of $2,152,000, auction-rate securities of $3,200,000, and US
Treasury bills of $1,311,000. At September 30, 1995 there were no short-term
investments.
In accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," the Company
classifies its short-term investments as "available-for-sale" securities and the
cost of securities sold is based on the specific identification method. At
September 30, 1996 there was no significant difference between the fair market
value and the underlying cost of such investments.
Inventories -- Inventories are stated at the lower of standard cost (which
approximates actual cost using the first-in, first-out method) or market.
Property and Equipment -- Machinery and equipment as well as furniture and
fixtures are stated at cost and depreciated over the estimated useful lives of
the assets (generally three to ten years) using the straight-line method.
Leasehold improvements are stated at cost and amortized on a straight-line basis
over the shorter of the useful lives of the assets or the remaining lease term.
Assets under capital leases are recorded at the present value of the related
lease obligations and amortized on a straight-line basis over the lease term.
34
<PAGE>
Long-Lived Assets -- On October 1, 1995 the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." This statement requires long-lived assets to be evaluated for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Provision under the
statement did not have a material effect on the Company's consolidated financial
statements.
Income Taxes -- The Company accounts for income taxes in accordance with SFAS
No. 109, "Accounting for Income Taxes," which requires the asset and liability
approach for financial accounting and reporting of income taxes. Deferred income
taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes.
Employee Stock Plans -- The Company accounts for its stock option plans and its
employee stock purchase plan in accordance with provisions of the Accounting
Principles Board's Opinion No. 25 (APB 25), "Accounting for Stock Issued to
Employees." In 1995, the Financial Accounting Standards Board released the
Statements of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock Based Compensation." SFAS 123 provides an alternative to APB 25 and is
effective for fiscal years beginning after December 15, 1995. The Company
expects to continue to account for its employee stock plans in accordance with
the provisions of APB 25. Accordingly, SFAS 123 is not expected to have any
material impact on the Company's financial position or results of operations.
Revenue Recognition -- Net revenues are stated net of discounts and allowances.
Revenue from product sales direct to customers and foreign distributors is
generally recognized upon shipment. However, the Company defers the recognition
of revenue and the related cost of revenue on shipments to domestic distributors
that have certain rights of return and price protection privileges on unsold
merchandise until the merchandise is sold by the distributor.
In fiscal 1993, the Company entered into an agreement with a third party for the
transfer of certain proprietary process technology and technical information,
training and, if requested by the third party, engineering assistance with the
design of integrated circuits. The agreement also provides for the payment of
royalties to the Company upon the sale by the third party of products that
utilize the transferred technology. The initial term of the agreement is five
years with optional renewal for an additional five successive one-year periods.
Revenue related to the transfer of technical information is recognized over the
life of the agreement in proportion to the total effort expected to be incurred,
which the Company expects will occur ratably. Training revenue is recognized as
performed. Fees for engineering services are recognized over the development
periods. The unearned portion of technology transfer and engineering services
fees are included in deferred revenue ($1,064,000 and $1,487,000 at September
30, 1996 and 1995, respectively).
Advertising Expense -- The Company expenses the costs of advertising as
incurred. Advertising expense was approximately $617,000, $576,000, and $313,000
for the fiscal years ended September 30, 1996, 1995, and 1994, respectively.
Concentration of Credit Risk -- Financial instruments that potentially subject
the Company to concentrations of credit risk consist principally of cash
investments and trade receivables.
The Company's policy is to place its cash and short-term investments with high
credit quality institutions and limit the amount invested with any one
institution or in any type of financial instrument. The company does not hold or
issue financial instruments for trading purposes.
35
<PAGE>
The Company's products are sold to a wide variety of original equipment
manufacturers through a direct sales force and to a network of distributors. The
Company generally does not require collateral from its trade creditors. The
concentration of credit risk in the Company's trade receivables is substantially
mitigated by the Company's credit evaluation process and the geographical
dispersion of sales transactions. Bad debt write-offs have been insignificant.
Customers comprising 10% or greater of the Company's net revenues are summarized
as follows:
Year Ended September 30,
1996 1995 1994
-------------------------------
Microtek International, Inc. 15% -- --
Marshall Industries -- 13% 11%
Internix, Inc. -- 11% --
Insight Electronics, Inc. -- 10% --
Net Income Per Share -- Net income per share is computed using the weighted
average number of shares of common stock and dilutive common equivalent shares
from convertible preferred stock (using the if-converted method) and from stock
options and warrants (using the treasury stock method).
2. Inventories
Inventories consisted of the following (in thousands):
September 30,
1996 1995
-----------------------
Raw materials $ 800 $ 347
Work-in-process 4,266 3,710
Finished goods 1,409 533
-----------------------
$6,475 $4,590
=======================
3. Borrowing Arrangements
At September 30, 1996 the Company had a non-revolving lease line of credit for
up to $2,500,000, which can be utilized for up to 100% of the value of the
equipment financed. Draw downs under this line represent three year capital
leases. The nonrevolving lease line of credit expires in December 1996. At
September 30, 1996, $973,000 was outstanding, and approximately $1,477,000
remained available under the line. Amounts drawn under this are payable at an
interest rate of prime plus 0.25% (8.5% at September 30, 1996).
In addition, as of September 30, 1996, the Company had six outstanding notes
payable totaling $1,693,000. These three-year notes are payable at interest
rates ranging from prime plus 0.25% to prime plus 1.75% (8.5% to 10.0% at
September 30, 1996). These notes originated from the above-mentioned and
previously expired, nonrevolving equipment lines of credit.
Future payments on notes payable as of September 30, 1996 were as follows (in
thousands):
36
<PAGE>
1997 $ 908
1998 657
1999 128
After 1999 --
--------
Total $1,693
========
4. Obligations Under Capital Leases
Machinery and equipment included approximately $1,576,000 and $1,760,000 of
equipment acquired under capital leases and approximately $1,507,000 and
$1,583,000 of related accumulated amortization at September 30, 1996 and 1995,
respectively.
The following is a schedule by year of future minimum lease payments under
capital leases, together with the present value of the net minimum lease
payments as of September 30, 1996 (in thousands):
1997 $ 291
1998 263
1999 246
2000 223
2001 170
--------
Total minimum lease payments 1,193
Amount representing interest (192)
-------
Present value of net minimum lease payments $1,001
=======
5. Commitments
The Company leases its principal facilities under operating leases that expire
at various dates through the year 2005. The Company is generally responsible for
taxes, assessments, maintenance, and insurance under its leases.
Future minimum lease payments under operating leases that have initial or
remaining noncancelable lease terms in excess of one year, as of September 30,
1996, were approximately as follows (in thousands):
1997 $ 658
1998 671
1999 690
2000 708
2001 714
Thereafter 2,334
--------
Total $5,775
========
Total rental expense on all operating leases was approximately $339,000,
$401,000, and $314,000 for the fiscal years ended September 30, 1996, 1995, and
1994, respectively. At September 30, 1996, there were outstanding commitments
for capital expenditures of approximately $1.6 million.
6. Stockholders' Equity
Preferred Stock
Upon the closing of the initial public offering in October 1995, all 4,936,648
outstanding shares of Series 1 Convertible Preferred Stock of the Company (the
"Convertible Preferred") were automatically converted into 4,936,648 shares of
Common Stock.
37
<PAGE>
Employee Stock Purchase Plan -- The Company has reserved and the stockholders
approved 225,000 shares of common stock for issuance to eligible employees under
the 1995 Purchase Plan (the Purchase Plan).
Under the Purchase Plan, eligible employees, subject to certain restrictions,
may purchase shares of common stock at a price equal to the lesser of 85% of the
fair market value at either the beginning of each six-month offering period or
the end of each six-month offering period. As of September 30, 1996, no shares
have been issued under the Purchase Plan.
Stock Option Plans -- In August 1995, the Board of Directors approved and in
September 1995, the stockholder approved (i) the adoption of the 1995 Equity
Incentive Plan (the 1995 Equity Plan) as the successor to the 1994 Incentive
Plan (the Predecessor Plan), pursuant to which an additional 550,000 shares of
the Company's common stock, plus the number of shares remaining unissued and not
subject to outstanding options under the Predecessor Plan and any shares
issuable upon exercise of options granted under the Predecessor Plan that expire
or become unexercisable for any reason without having been exercised in full,
have been reserved for future issuance, and (ii) the adoption of the 1995
Directors' Stock Option Plan (the 1995 Directors' Plan) pursuant to which
150,000 shares of the Company's common stock have been reserved for future
issuance. Each outstanding option under the Predecessor Plan will continue to be
governed by the terms and conditions of such plan; no additional options will be
granted under the Predecessor Plan.
Under the 1995 Equity Plan, incentive stock options may be granted to employees
only at the price per share that is not less than the fair market value of
common stock on the date of grant. Nonqualified options may be granted to
employees or others at a price per share not less than 85% of fair market value
of the common stock on the date of grant. Options are exercisable to the extent
vested. Vesting, as established by the Board of Directors, generally accrues
monthly over four years from the date of grant. The Company may also grant stock
bonuses and issue restricted stock to employees and others. The Company has made
no such grants since the 1995 Equity Plan's inception. The 1995 Equity Plan
expires ten years after adoption.
Under the 1995 Directors' Plan, nonqualified options may be granted to
nonemployee directors only at the price per share that is not less than the fair
market value of common stock on the date of grant. Vesting under the 1995
Directors' Plan accrues monthly over four years from the date of grant. The 1995
Director's Plan expires ten years after adoption.
<TABLE>
Additional information with respect to the Company's stock option plans follows:
<CAPTION>
Options Outstanding
--------------------------------------
Shares Number Price
Available of Shares Per Share
--------------------------------------------------------
<S> <C> <C> <C>
Balance at September 30, 1993 -- 1,513,510 $0.20 - $1.50
Options authorized 450,000 -- $ --
Options granted (269,200) 269,200 $3.50 - $6.00
Options exercised -- (323,068) $0.20 - $3.50
Options canceled 45,915 (45,915) $0.20 - $5.00
Options expired (41,335) -- $ --
--------------------------------------------------------
Balance at September 30, 1994 185,380 1,413,727 $0.20 - $6.00
Additional share reservation 860,000 -- $ --
Options granted (562,387) 562,387 $6.00 - $9.00
Options exercised -- (238,517) $0.20 - $7.00
Options canceled 52,740 (52,740) $0.20 - $7.00
Options expired (12,590) -- $ --
--------------------------------------------------------
Balance at September 30, 1995 523,143 1,684,857 $0.20 - $9.00
Options granted (204,000) 204,000 $5.75 - $11.25
Options exercised -- (369,240) $0.20 - $9.00
Options canceled 147,465 (147,465) $0.20 - $11.25
Options expired (23,865) -- $ --
--------------------------------------------------------
Balance at September 30, 1996 442,743 1,372,152 $0.20 - $11.25
========================================================
</TABLE>
38
<PAGE>
At September 30, 1996 and 1995, 794,891, and 898,146 options were exercisable,
respectively.
7. Taxes on Income
The provision for taxes on income consisted of the following (in thousands):
Year Ended September 30,
1996 1995 1994
----------------------------------------------
Current:
Federal $207 $178 $ 99
State 90 10 34
Foreign 75 50 310
----------------------------------------------
Total $372 $238 $443
==============================================
Foreign income taxes are incurred on technology transfer fees received from a
foreign third party.
Significant components of the Company's deferred tax assets for federal and
state income taxes were as follows (in thousands):
Year Ended September 30,
1996 1995
-------------------------------
Deferred tax assets:
Net operating loss carryforwards $ 1,201 $ 2,780
Tax credit carryforwards 1,269 1,345
Distributor reserves 722 865
Deferred revenue 669 610
Other 389 351
-------------------------------
Total deferred tax assets 4,250 5,951
Less valuation allowance (4,250) (5,951)
-------------------------------
Net deferred tax $ -- $ --
===============================
The valuation allowance decreased by approximately $1,701,000 and $870,000 in
1996 and 1995 respectively. Management has concluded that a full valuation
allowance is necessary due to the Company's limited earnings history and
volatility of the industry.
The provisions for taxes on income differed from the provisions calculated by
applying the federal statutory rate to income before taxes as follows (in
thousands):
Year Ended September 30,
1996 1995 1994
--------------------------------
Expected provisions at statutory rates $1,619 $1,003 $533
State taxes, net of federal benefit 59 -- --
Foreign taxes 75 50 310
Benefit of net operating loss
carryforwards (1,418) (993) (451)
Other 37 178 51
--------------------------------
$ 372 $ 238 $443
================================
39
<PAGE>
At September 30, 1996, the Company had federal net operating loss carryforwards
of approximately $3,500,000 that expire in the years 2004 through 2005. In
addition, the Company had federal general business credit carryforwards of
approximately $644,000 that expire in the years 1999 through 2010 and foreign
tax credit carryforwards of $625,000 that expire in 1998 through 2001.
Under certain provisions of the Internal Revenue Code of 1986, as amended, the
availability of the Company's net operating loss and tax credit carryforwards
may be subject to limitation if it should be determined that there has been a
change in ownership of more than 50% of the value of the Company's stock. Such
determination could limit the utilization of net operating loss and tax credit
carryforwards.
8. Employee Benefit Plan
The Company has a 401(k) savings plan that covers substantially all full-time
employees. Eligible employees are permitted to make fully vested tax deferred
contributions of up to 15% of their annual gross compensation, subject to
certain Internal Revenue Service limitations. The plan provides for employer
contributions at the discretion of the Board of Directors. Contributions made by
the Company for the years ended September 30, 1996, 1995, and 1994 were
approximately $20,000, $14,000, and $15,000, respectively.
9. Industry and Geographic Information
The Company operates in a single industry segment. The Company markets its
products in the United States and in foreign countries through its sales
personnel, independent sales representatives, and distributors. The Company's
geographic sales, as a percentage of net revenues, were as follows:
Year Ended September 30,
1996 1995 1994
--------------------------------------
Domestic 48% 56% 58%
Export:
Europe 13 11 11
Asia 39 33 31
--------------------------------------
100% 100% 100.0%
======================================
10. Contingencies
The Company is a party to a number of legal proceedings arising in the ordinary
course of its business. These actions include patent liability and
employee-related issues. While it is not feasible to predict or determine the
outcome of these matters, the Company believes that the ultimate resolution of
these claims will not ultimately have a material adverse effect on its financial
position or results of operations.
40
<PAGE>
Schedule II
<TABLE>
Elantec Semiconductor, Inc.
Valuation And Qualifying Accounts
Years ended September 30, 1996, 1995, and 1994
<CAPTION>
Additions
Balance at Charged to
Beginning Cost and Balance at
of Year Expense Deductions End of Year
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended September 30, 1996
Allowance for doubtful accounts and product
returns (deducted from accounts receivable) $265 $566 ($491) $340
=============================================================
Year ended September 30, 1995
Allowance for doubtful accounts and product
returns (deducted from accounts receivable) $287 $776 ($798) $265
=============================================================
Year ended September 30, 1994
Allowance for doubtful accounts and product
returns (deducted from accounts receivable) $130 $568 ($411) $287
=============================================================
</TABLE>
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Milpitas, State of California, on the 20th day of December, 1996.
ELANTEC SEMICONDUCTOR, INC.
By: /s/ David O'Brien
--------------------------------------------
David O'Brien
President and Chief Executive Officer
NO ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David O'Brien and Terry Plette, jointly
and severally, his true and lawful attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign amendments to this
Report on Form 10-K, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and conforming all that said attorneys-in-fact, or his or her
substitute or substitutes, may do or cause to be done by virtue thereof.
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons in the capacities
and on the dates indicated.
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
Principal Executive Officer:
/s/ David O'Brien President and Chief Executive Officer and a December 20, 1996
- -------------------------------------------- Director
David O'Brien
Principal Financial Officer:
/s/ Terrence W. Plette Vice President of Finance and Administration December 20, 1996
- -------------------------------------------- and Chief Financial Officer
Terrence W. Plette
Additional Directors:
/s/ Donald T. Valentine Chairman of the Board of Directors December 20, 1996
- --------------------------------------------
Donald T. Valentine
/s/ Chuck K. Chan Director December 20, 1996
- --------------------------------------------
Chuck K. Chan
/s/ James V. Diller Director December 20, 1996
- --------------------------------------------
James V. Diller
/s/ B. Yeshwant Kamath Director December 20, 1996
- --------------------------------------------
B. Yeshwant Kamath
</TABLE>
42
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
EXHIBITS
to
Form 10-K
Under
THE SECURITIES ACT OF 1933
-----------
ELANTEC SEMICONDUCTOR, INC.
43
<PAGE>
INDEX TO EXHIBITS
Exhibit Page
Number Description No.
------ ----------- ---
10.20 Distributor Agreement, dated August 1,1996 between
the Company and Microtek Inc. 45
11.01 Statement Re Computation of Per Share Earnings. 62
23.01 Consent of Ernst & Young LLP, Independent Auditors. 63
24.01 Powers of Attorney. 64
27.00 Financial Data Schedule 65
44
Exhibit 10.20
ELANTEC SEMICONDUCTOR, INC.
STOCKING INDEPENDENT REPRESENTATIVE AGREEMENT
This Stocking Independent Representative Agreement (this "Agreement")
is made and entered into as of August 1, 1996 (the "Effective Date") by and
between Elantec Semiconductor, Inc., a Delaware corporation maintaining its
principal place of business at 1996 Tarob Court, Milpitas, California 95035
("Elantec"), and Microtek, Inc. a [corporation/partnership/sole proprietorship]
organized under the laws of Japan with its principal place of business located
at 2-7-5 Izumi, Suginami-Ku, Tokyo 168.
RECITALS
A. Elantec designs, manufactures and sells certain hybrid and monolithic
integrated circuit products, including the products listed in Exhibit A hereto,
as it may be amended from time to time (the "Elantec Products").
B. Elantec and Representative desire that Representative act as a stocking
independent manufacturer's representative for the promotion and sale of Elantec
Products under the terms and conditions set forth below.
The parties hereto agree as follows:
1. Appointment as Stocking Independent Representative of Elantec.
(a) Appointment. Elantec hereby appoints Representative, and
Representative hereby accepts such appointment, as its non-exclusive stocking
independent manufacturer's representative for the limited purposes of (i)
identifying prospective purchasers and promoting the sale of, and soliciting
orders for, Elantec Products in and limited to the territory described in
Exhibit B attached hereto (the "Territory"), and (ii) distribution of Elantec
Products in the Territory.
(b) Limitations. This appointment authorizes Representative to
solicit orders of Elantec Products only within the Territory. Representative has
no authority to, and agrees that it will not solicit, directly or indirectly,
orders of Elantec Products outside of the Territory.
(c) Independent Contractors. Representative's relationship
with Elantec during the term of this Agreement will be that of an independent
contractor. Representative will not have, and will not represent that it has,
any authority to bind Elantec, to assume, or create any obligation, express or
implied, to enter into any agreements, or to make any warranties or
representations, on behalf of Elantec or in Elantec's name other than as
expressly authorized herein.
(d) Elantec's Reserved Rights.
(i) Elantec Accounts. Elantec reserves the right to
sell Elantec Products directly to those customers in the Territory designated as
"Elantec Accounts" and listed in Exhibit C hereto, and Representative agrees
that it will not be entitled to receive any commission in connection with the
sale of Elantec Products to Elantec Accounts. Elantec further reserves the right
from time to time and in its sole discretion to designate additional Elantec
Accounts.
(ii) In General. Elantec further reserves the right
and privilege to solicit and make sales of its products directly to anyone
anywhere, including without limitation end-users and other distributors, without
being obligated or liable to Representative in any manner or on account of any
such solicitation or sale.
45
<PAGE>
(iii) OEM Orders. While it is Elantec's usual policy
not to accept orders from OEM customers in quantities fewer than 100 units per
item, but to refer such orders to its distributors, Elantec reserves the right
to fill any such OEM orders directly, at its sole discretion.
(iv) Changes in Elantec Products. Elantec reserves
the right, from time to time, in its sole discretion and without liability to
Representative, to add to or delete from the list of Elantec Products which
Representative is authorized to promote and sell
2. Obligations of Representative. Representative warrants and
represents to and agrees with Elantec that Representative has, and during the
term of this Agreement will continue to maintain, the capacity, facilities and
personnel necessary to perform such functions as are required to carry out its
obligations under this Agreement, that it is ready and willing to do so, and in
particular that:
(a) Marketing Efforts. Representative will use its best
efforts to (i) vigorously and aggressively promote and solicit orders for
Elantec Products within the Territory in accordance with the terms and policies
of Elantec as announced from time to time, and (ii) satisfy those reasonable
criteria and policies with respect to Representative's obligations under this
Agreement developed and announced by Elantec from time to time. Representative,
at its expense, will take an active part in Elantec's sales programs and
participate in distributor product training courses.
(b) Advertising Obligations. Representative will aggressively
advertise Elantec Products in the Territory, provided that Representative will
not use advertisements that have not been approved in writing by Elantec.
(c) Facilities and Personnel. Representative will provide and
maintain, at Representative's expense, (i) a sufficient number of technical and
sales personnel having the knowledge and training necessary to inform customers
properly concerning the features and capabilities of Elantec Products, and to
service and support Elantec Products, and (ii) sufficient sales offices in the
Territory to adequately serve the demand for Elantec Products.
(d) Customer Responsibilities. Representative will: (i) assist
Elantec in locating prospective purchasers of Elantec Products and will provide
all pertinent information concerning Elantec Products to prospective purchasers;
(ii) promptly transmit to Elantec all customer inquiries, complaints and other
important information Representative obtains from or with respect to such
customers; (iii) assist customers in placing orders for Elantec Products and
promptly transmit such orders to Elantec for acceptance or rejection by Elantec
as set forth in this Agreement; and (iv) assist in expediting deliveries of
Elantec Products to purchasers of Elantec Products.
(e) Service and Support. Representative will provide prompt
pre- and post-sale service and support for all Elantec Products located in the
Territory.
(f) Adaptation for Local Market. Unless Elantec otherwise
agrees in writing, Representative will translate all data sheets and Elantec
advertising and promotional materials used in connection with Elantec Products
into the language of the Territory. Representative will obtain Elantec's written
approval of the translated materials prior to distributing or using any such
materials. Representative hereby assigns to Elantec all of its rights in and to
all such translated materials, including but not limited to all related
copyrights.
46
<PAGE>
(g) No Competing Products. Representative will not sell during
the term of this Agreement any products which Elantec in its sole discretion
deems to be competitive with Elantec Products. Representative warrants that
Exhibit E hereto lists all of the manufacturers and distributors, and their
respective products, that Representative represents as of the Effective Date
and, if Representative undertakes to represent any additional manufacturers or
distributors, or to promote any additional products of the manufacturers and
distributors listed in Exhibit E, Representative will so inform Elantec by
written notice within ten (10) days after such undertaking.
(h) Meetings and Trade Show Attendance. Representative will:
(i) attend, and aggressively promote Elantec Products in such trade shows,
conventions and exhibits as Elantec reasonably requests; (ii) attend any sales
meetings held by Elantec to which Elantec invites Representative with reasonable
notice; and (iii) notify Elantec of Representative's sales meetings and provide
Elantec personnel adequate opportunity to provide sales and promotion
information regarding Elantec Products in such meetings.
(i) Representative Covenants. Representative will: (i) conduct
business in a manner that reflects favorably at all times on Elantec Products
and the good name, goodwill and reputation of Elantec; (ii) avoid deceptive,
misleading or unethical practices that are or might be detrimental to Elantec,
Elantec Products or the public; (iii) make no false or misleading
representations with regard to Elantec or Elantec Products; (iv) not publish or
employ, or cooperate in the publication or employment, of any misleading or
deceptive advertising material with regard to Elantec or Elantec Products; (v)
make no representations, warranties or guarantees to customers or to the trade
with respect to the specifications, features or capabilities of Elantec Products
that are inconsistent with the literature distributed by Elantec; and (vi) not
enter into any contract or engage in any practice detrimental to the interests
of Elantec.
(j) Representative Financial Condition. Representative
warrants and represents that it is in good financial condition, solvent and able
to pay its bills when due. Representative will maintain and employ in connection
with Representative's business under this Agreement such working capital and net
worth as may be required in the reasonable opinion of Elantec to enable
Representative to carry out and perform all of Representative's obligations and
responsibilities under this Agreement; and from time to time, on reasonable
notice by Elantec, Representative will furnish such financial reports and other
financial data as Elantec may reasonably request as necessary to determine
Representative's financial condition.
(k) Compliance with Law. Representative will at all times have
all necessary legal permits and licenses required by any governmental unit or
agency and will comply with all applicable international, national, state,
regional and local laws and regulations, including United States export laws, in
performing its duties hereunder and in any of its dealings with respect to
Elantec Products.
(l) Market Conditions. Representative will advise Elantec
promptly concerning any market information that comes to Representative's
attention respecting Elantec, Elantec Products, Elantec's market position or the
continued competitiveness of Elantec Products in the marketplace. Representative
will confer from time to time, with and at the request of Elantec, on matters
relating to market conditions, sales forecasting and product planning.
(m) Costs and Expenses. Except as expressly provided herein or
agreed to in writing by Elantec and Representative, Representative will pay all
costs and expenses incurred in the performance of Representative's obligation
under this agreement.
(n) Inventory. Representative will carry a representative
inventory of Elantec Products to assure adequate and timely "off-the-shelf"
delivery to customers;
47
<PAGE>
(o) Export. Representative will take all reasonable and
necessary precautions to prevent ultimate exportation of Elantec products to
countries prohibited by rules or regulations of the United States government,
and to obtain all export licensees and other governmental approvals necessary
prior to the export of any Elantec Products.
3. Obligations of Elantec.
(a) Customer Information. Elantec will transmit to
Representative the names and addresses of prospective customers in the Territory
from whom Elantec receives inquiries regarding Elantec Products.
(b) Marketing and Technical Information. Elantec will provide
Representative with marketing and technical information concerning Elantec
Products, as well as catalogs, suggested resale price lists, and other sales
aids, all in the English language, for the use of Representative, in amounts to
be determined by Elantec in its sole discretion. When Elantec so requests and
upon termination of this Agreement, Representative shall promptly return all
such materials to Elantec in good and usable condition. If Representative fails
to return such materials, the cost of such materials shall be deducted from
commissions otherwise payable to Representative.
4. Forecasts and Records.
(a) Forecasts. Within fifteen (15) days after the end of each
calendar month, Representative will provide to Elantec a written forecast of
orders to be placed for the following four months, by customer and part number,
and a written report containing such other information as Elantec may reasonably
request from time to time.
(b) Records. Representative will maintain, for at least two
(2) years after termination of this Agreement, accurate books and records,
including copies of all customer and other correspondence, relating to
Representative's performance of its obligations under this Agreement, and will
permit examination thereof by Elantec personnel at all reasonable times.
(c) Notification. Representative will notify Elantec in
writing (i) of any claim or proceeding involving Elantec Products within ten
(10) days after Representative learns of such claim or proceeding and (ii)
within thirty (30) days of any change in the management or control of
Representative or any transfer of more than twenty-five percent (25%) of
Representative's voting control or a transfer of substantially all its assets.
5. Customer Orders, Terms of Sale and Billing.
(a) Acceptance. No customer order received by Elantec from
Representative or directly from any customer of Representative for Elantec
Products shall be considered binding unless and until accepted in writing by
Elantec, or, if no written acceptance is given by Elantec, unless or until the
order is shipped. Representative has no right, power or authority, express or
implied to accept any order as binding upon Elantec and Elantec reserves the
right to reject any order placed through Representative.
48
<PAGE>
(b) Terms of Sale. All sales to customers of Representative
shall be according to Elantec's prices, terms and conditions in effect at the
time of sale. Elantec reserves the right to, in its sole discretion, establish,
change, alter or amend its prices, price lists, discount rates, terms and
conditions of sale, warranty, delivery and packaging charges, methods of payment
and any other matters relating to the sale of Elantec Products without thereby
incurring any obligation or liability to Representative.
(c) Billing. All Elantec Products for which orders are
accepted by Elantec will be shipped and billed by Elantec directly to the
customer. All invoice payments shall be made directly to Elantec by the
customer.
6. Representative Compensation. As full consideration for the
services of Representative under this Agreement in its capacity as an
independent representative, Elantec will pay Representative commissions as set
forth below:
(a) Criteria for Commissions. Representative is eligible to
receive commissions only with respect to orders for Elantec Products placed by
customers in the Territory (other than Elantec Accounts), which orders have been
accepted by Elantec. Except for those cases in which split commissions are
deemed appropriate by Elantec, no commissions be paid on sales to customers
located outside of the Territory. Notwithstanding the other provisions of this
Section 6, no commissions will be paid on orders for which Representative, or an
entity controlled by Representative or which controls Representative, acts as a
distributor. [Representative will also be entitled to receive commissions on
distributor point of sales orders (i. e. orders placed by customers in the
Territory through authorized Elantec distributors) ("Disti POS").]
(b) Commissions on Net Billing Price. As to purchases meeting
the criteria of Section 6(a), Elantec will pay Representative commissions at the
rate set forth in Exhibit D hereto based upon the "Net Billing Price" of sales
of Elantec Products. "Net Billing Price" is defined as the gross selling price
of an Elantec Product, not including any repair, support, interest or finance
charges, reduced by direct costs associated with the sale of such Elantec
Product, including but not limited to discounts, warehousing allowances,
insurance and transportation charges, taxes, rebates, cancellations and returns.
[For Disti POS, the gross selling price is based on the price paid to the
distributor by the customer.] (e.g., stocking orders for resale as described in
Section 7 below.)
(c) Engineering Services Commissions. If as a result of
Representative's efforts Elantec provides engineering services or supplies
products other than Elantec Products to customers in the Territory, Elantec will
pay Representative commissions at the rate set forth in Exhibit D hereto based
on the Net Billing Price of such services or products.
(d) Split Commissions. If Elantec, in its sole discretion,
determines that the sale of Elantec Products within the Territory is the result
of the combined efforts of Representative and any other party or parties,
Elantec will allocate a portion of the commission otherwise payable to
Representative in respect of such sale to such other party or parties. Elantec
shall divide the commission between Representative and the other party or
parties in such proportions as Elantec determines to be equitable, and its
decision to do so and the manner in which it does so shall be final and binding
on all parties involved.
(e) Adjustment of Commission Rate. Elantec reserves the right
to adjust or eliminate commission rates payable on the sale of Elantec Products
on ninety (90) days' prior notice to Representative.
(f) Timing of Payment. Subject to the provisions of Section
11(d) below, Elantec will pay representative commissions earned by
Representative on sales of Elantec Products no later than the last day of the
month following the month in which Elantec receives payment from the customers
for the sales to which such commissions relate. For commissions earned on Disti
POS, Elantec will pay representative on sales of Elantec Products no later than
the last day of the month following the month in which Elantec receives
notification from the distributor of the customer shipments to which such
commissions relate.
49
<PAGE>
(g) Refunds. No commission shall be due to Representative, and
any commission paid shall be refunded by Representative, with regard to sales of
Elantec Products if (i) such Elantec Products are rejected or returned in whole
or in part, (ii) any portion of the purchase price for such Elantec Products
becomes subject to adjustment or refund or rebate to the customer, or (iii) any
portion of the purchase price for such Elantec Products must be returned by
Elantec to the customer in connection with any proceeding, whether voluntary or
involuntary, involving such customer under any bankruptcy, insolvency or
debtor's relief law. Elantec may deduct any amounts owed] Representative to
Elantec from any commissions owed by Representative to Elantec from any
commissions owed by Elantec to Representative.
7. Stocking for Resale.
(a) General Terms and Conditions of Sale. The terms and
conditions hereof, and Elantec's standard sales terms and conditions as set
forth in Elantec's purchase order acknowledgment form and on Elantec's
Distributor Price List shall apply to all sales hereunder. Any additional or
different terms and conditions set forth on Representative's forms or otherwise
shall be of no effect, even if accepted by Elantec.
(i) Elantec shall notify Representative by Elantec's
standard purchase order acknowledgment form of the estimated shipment dates of
the products covered by purchase orders accepted in accordance with the standard
terms and conditions. In no event, however, will Elantec be liable for delay or
failure to make any shipment or delivery.
(ii) The prices to Representative for all products
shall be Elantec's standard distributor prices as set forth on Elantec's
Distributor Price List in effect at the time of shipment.
(iii) The minimum order quantities shall be Elantec's
standard minimums established from time to time and as in effect at the time
Representative's orders are acknowledged.
(iv) Terms of payment shall be net 30 days, subject
to credit approval by Elantec, payable to Elantec, Inc., at its Milpitas,
California office.
(v) Elantec's prices do not include any federal,
state or local taxes, use, value-added or other taxes, customs duties or similar
fees which Elantec may be required to pay or collect upon the sale or delivery
of the Elantec products or upon collection of the sales price. Representative
agrees to pay all such taxes and fees to Elantec upon Elantec's demand therefor.
(vi) Representative represents and warrants to
Elantec that all products purchased hereunder are for resale in the ordinary
course of Representative's business, and Representative agrees to provide
Elantec with appropriate resale certificate numbers and other documentation
satisfactory to the applicable taxing authorities to substantiate any claim of
exemption from any such taxes or fees.
(vii) Elantec reserves and Representative grants to
Elantec a purchase money security interest in any and all Elantec products
purchased hereunder and the proceeds therefrom to secure the payment of all
amounts owed by Representative to Elantec for such products. Elantec is hereby
authorized, at its election, to file this Agreement as a security agreement or
financing statement with any appropriate government agency necessary to protect
such security interest. Upon the request of Elantec, Representative agrees to
sign any other form of financial statement or other documents necessary to
protect Elantec's security interest in Elantec products as contemplated in this
Section 7(a)(vii).
(viii) Title to all products purchased by
Representative and all risk of loss or damage will pass to Representative or to
such financing institution or other parties as may have been designated by
Representative upon delivery by Elantec of such products to the carrier or to
Representative, whichever first occurs.
50
<PAGE>
(b) Price Protection. In the event of a reduction in the price
of a product as set forth in Elantec's published Distributor Price List between
the time that such product is ordered by Representative and the time that such
product is shipped to Representative by Elantec, Representative will be billed
for such product at the reduced price.
(c) Product Packaging. All products shipped by Elantec will be
suitably packaged using anti-static materials. Representative is responsible for
assuring that all orders shipped to its customers are similarly packaged in
anti-static material, and that anti-static handling procedures are maintained.
These procedures must be maintained during repackaging, storage, shipment and at
all other times.
(d) Returns Policy.
(i) Representative may return for credit against
future or pending purchase orders a quantity of Elantec products from
Representative's inventory the aggregate price of which (as adjusted where
appropriate pursuant to Section 7(b)) does not exceed 5% of the net sales
(excluding initial stocking quantities) invoiced to Representative by Elantec
for products shipped to Representative in the six months immediately preceding
such return. No return shall be permitted within six months of a prior return
pursuant to this Section 7(d)(i). This return privilege shall apply only if (i)
the returned products have not been in Representative's inventory for more than
twenty-four (24) months after shipment from Elantec; (ii) the returned products
have not been damaged, altered or misused; (iii) the returned products have been
and are currently approved for Representative stocking; (iv) concurrently with
the return, Representative has ordered a quantity of Elantec products the dollar
value of which equals the dollar value of the products returned; (v) all returns
have been made within the time periods specified above; (vi) all products
returned hereunder have been shipped prepaid and accompanied by Elantec's
written authorization; and (vii) products returned to Elantec have been packaged
in suitable anti-static material. Any returned material not so packaged or found
to have been damaged by static electricity may be deemed invalid, and credit may
not be issued.
(ii) Elantec will periodically notify Representative
of discontinued, obsolete or modified products, which may be returned within 30
days of such notification for credit against future or pending purchase orders.
Credit will be given on the basis of Representative's actual purchase price, as
adjusted where appropriate pursuant to Section 7(b). No returns will be
permitted more than 30 days after Elantec's notification.
(e) Warranty; Disclaimer of Warranty; Limitation on Remedy for
Breach of Warranty. EXCEPT AS SET FORTH IN ELANTEC'S MOST CURRENT STANDARD
PRINTED APPLICABLE WARRANTY, ELANTEC MAKES NO WARRANTIES AS TO THE PERFORMANCE
OF ANY ELANTEC PRODUCT AND EACH SUCH ELANTEC PRODUCT IS OTHERWISE SOLD "AS IS."
ELANTEC DISCLAIMS ALL OTHER WARRANTIES, EXPRESS AND IMPLIED, INCLUDING WITHOUT
LIMITATION ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. THE SOLE REMEDY FOR ANY BREACH OF ELANTEC'S WARRANTY IS
LIMITED TO REPLACEMENT OF DEFECTIVE COMPONENTS, AND DOES NOT COVER INJURY TO
PERSONS OR PROPERTY OR CONSEQUENTIAL DAMAGES OF ANY KIND.
(f) Life Support Systems. LIFE SUPPORT SYSTEMS ARE EQUIPMENT
INTENDED TO SUPPORT OR SUSTAIN LIFE AND WHOSE FAILURE TO PERFORM WHEN PROPERLY
USED IN ACCORDANCE WITH INSTRUCTIONS PROVIDED CAN BE REASONABLY EXPECTED TO
RESULT IN SIGNIFICANT PERSONAL INJURY OR DEATH. REPRESENTATIVE ACKNOWLEDGES THAT
ELANTEC PRODUCTS ARE NOT DESIGNED FOR AND SHOULD NOT BE USED WITHIN LIFE SUPPORT
SYSTEMS WITHOUT THE PRIOR WRITTEN CONSENT OF ELANTEC. REPRESENTATIVE WILL INFORM
USERS CONTEMPLATING APPLICATION OF ELANTEC PRODUCTS IN LIFE SUPPORT SYSTEMS THAT
THEY ARE REQUESTED TO CONTACT ELANTEC FACTORY HEADQUARTERS TO ESTABLISH SUITABLE
TERMS AND CONDITIONS FOR SUCH APPLICATIONS.
51
<PAGE>
(g) Sales Records and Reports. Representative will provide
Elantec by the 15th of each month with a report containing a list of customers
that purchased Elantec products during the previous month. Each report will
include customer name and location, transshipment location (if any), product
description, quantity, and resale amount (for purposes of verifying the
commissions payable by Elantec to its sales representatives). Representative
will permit Elantec to have full and free access to its sales records for the
purpose of verifying the accuracy of such reports. Representative will provide
Elantec each month with an updated list of Elantec products in Representative's
inventory as of the first day of each month, with quantity on hand and cost
data, and will permit a designated representative of Elantec to inspect and
review such inventory from time to time.
8. Confidentiality. Certain materials and information provided to
Representative by Elantec must be considered confidential. These materials and
information include, but are not limited to, price lists, specifications,
prints, and related items, product plans, marketing plans, as well as
confidential information concerning the business or affairs of Elantec. During
the term of this Agreement and for five years thereafter, Representative will
not use such materials or information in any way contrary to the directions of
Elantec and shall not copy, reproduce, lend, or use such materials or
information in any manner which would allow them to fall into the possession of
persons other than those authorized to have access to them within
Representative's organization.
9. Indemnification.
(a) No Indemnification of Representative. Elantec shall not be
liable for any losses, injuries, damages, or claims of any nature whatsoever
which Representative may be subject to or incur as a result of any of its
activities in connection with this Agreement.
(b) Indemnification by Representative. Representative shall
indemnify Elantec and hold it harmless from any claims, losses or damages, for
personal injury, property damage or any other liability, arising from (i) the
negligence or fault of Representative, its employees or agents, (ii) any
unauthorized use by Representative, its employees or agents of any trademarks,
copyrights or patents relating to Elantec Products, or (iii) any unauthorized
warranty made by Representative, its employees or agents relating to Elantec
Products.
(c) Not Employees. In all matters relating to this Agreement,
neither Representative nor its employees or agents are, or shall act as,
employees of Elantec within the meaning or application of any federal or state
unemployment insurance laws, old age benefit laws, social security laws, workers
compensation or industrial accident laws, or under any other laws or regulations
which may impute any obligations or liability to Elantec by reason of an
employment relationship. Representative shall indemnify Elantec and hold it
harmless from and against any liabilities or obligations imposed or attempted to
be imposed upon Elantec by virtue of any such law with respect to employees of
Representative in performance of this Agreement.
10. Proprietary Rights.
(a) Trademark Use During Agreement. During the term of this
Agreement, Representative is authorized by Elantec to use the trademarks and
logos used by Elantec for Elantec Products in the course of Representative's
advertisement and promotion of the Elantec Products. Representative's use of
such trademarks and logos will be in accordance with Elantec's policies in
effect from time to time, including but not limited to trademark usage and
cooperative advertising policies.
52
<PAGE>
(b) Use of Type Number Designation; Labels. In connection with
the sales promotion or advertising of Elantec Products, Representative shall use
the name and type number designated by Elantec for each such Elantec Product.
Representative shall not in any way alter Elantec's labels or other identifying
marks on its products.
(c) Advertising. In no event shall Representative's
advertising create the impression that Representative or any entity other than
Elantec is the manufacturer of the Elantec Products. All Representative
advertising which includes use of Elantec trademarks or trade names shall
designate such trademarks with the identification symbol "(R)," where federally
registered, and "O" where not federally registered. All such Representative
advertising must be submitted to Elantec for approval, and such approval must
have been given by Elantec prior to publication. Representative agrees to make
all changes in such advertising reasonably requested by Elantec.
(d) No Representative Rights in Trademarks or Copyrights.
Representative has paid no consideration for the use of Elantec's trademarks,
logos, copyrights, trade names or designations, and nothing contained in this
Agreement shall give Representative any interest in any of them. Representative
acknowledges that Elantec owns and retains all copyrights and other proprietary
rights in all Elantec Products, and agrees that it will not at any time during
or after this Agreement assert or claim any interest in or do anything that may
adversely effect the validity or enforceability of any patent, trademark, trade
name, copyright or logo belonging or licensed to Elantec.
(e) No Continuing Rights. Upon expiration or termination of
this Agreement, Representative will forthwith cease all display, advertising and
use of all Elantec names, marks, logos and designations and will not thereafter,
use, advertise or display any name, mark, logo or designation which is, or any
part of which is, confusingly similar to that which is associated with any
Elantec Product.
(f) Obligation to Protect. Representative agrees to use
reasonable efforts to protect Elantec's proprietary rights and to cooperate
without charge in Elantec's efforts to protect its proprietary rights.
Representative agrees to notify Elantec of any known or suspected breach of
Elantec's proprietary rights that comes to Representative's attention.
(g) Unauthorized Use of Elantec Products. Representative will
not alter or reverse-engineer Elantec Products.
11. Duration and Termination of Agreement.
(a) Term. The term of this Agreement shall begin on the
Effective Date, and shall expire twelve (12) months thereafter unless earlier
terminated as provided herein. Nothing contained herein shall be interpreted as
requiring either party to renew this Agreement, and neither party expects this
Agreement to be renewed.
(b) Termination at Will. Notwithstanding the above,
Representative or Elantec may terminate this Agreement at will, at any time
during the one year term of this Agreement, with or without cause, by written
notice given to the other party not less than thirty (30) days prior to the
effective date of such termination. Due to the personal nature of this
Agreement, Elantec also reserves the right to terminate this Agreement
immediately upon any material change in ownership or control of Representative.
(c) Automatic Termination. This Agreement terminates
automatically, with no further act or action of either party, if a receiver is
appointed for Representative or its property, Representative makes an assignment
for the benefit of its creditors, any proceedings are commenced by, for or
against Representative under any bankruptcy, insolvency or debtors relief law,
Representative is liquidated or dissolved or the assets of Representative are
nationalized.
53
<PAGE>
(d) Commission Rights on Expiration or Termination. Upon
termination or expiration of this Agreement, Representative shall be entitled to
commissions on orders for Elantec Products that satisfy the requirements of
Section 6(a) of this Agreement only if such orders are accepted by Elantec prior
to the effective date of termination and only to the extent such orders are
acknowledged for shipment within three (3) months after such date. Elantec
reserves the right to withhold a reasonable portion of Representative's final
commission payment for a period of up to ninety (90) days to allow for customer
returns.
(e) Effect of Termination or Expiration. Upon termination or
expiration of this Agreement: (i) Representative shall cease to use any Elantec
trademark, trade name, logo or designation; (ii) Representative shall
immediately refund to Elantec any excess commission paid pursuant to Section 6
of this Agreement; and (iii) for a period of two (2) years after the date of
termination, Representative shall make available to Elantec for inspection and
copying all books and records of Representative that pertain to Representative's
performance of and compliance with its obligations and representations under
this Agreement. In the event of any termination of this Agreement for which a
notice period is required, all shipments from Elantec to Representative on or
after the date of giving written notice of termination shall be on a C.O.D.
basis. However, if the Representative's account is past due at the time of
shipment, Elantec, in its sole discretion, may require cash in advance, may hold
up shipment until the account is brought up to date, or may cancel any order to
be shipped if the account is not brought up to date on or before the effective
date of termination.
(f) No Damages for Termination or Expiration. NEITHER ELANTEC
NOR REPRESENTATIVE SHALL BE LIABLE TO THE OTHER FOR DAMAGES OF ANY KIND,
INCLUDING INCIDENTAL OR CONSEQUENTIAL DAMAGES, ON ACCOUNT OF THE TERMINATION OR
EXPIRATION OF THIS AGREEMENT IN ACCORDANCE WITH THIS SECTION 10. REPRESENTATIVE
WAIVES ANY RIGHT IT MAY HAVE TO RECEIVE ANY COMPENSATION OR REPARATIONS ON
TERMINATION OR EXPIRATION OF THIS AGREEMENT, OTHER THAN AS EXPRESSLY PROVIDED IN
THIS AGREEMENT. NEITHER ELANTEC NOR REPRESENTATIVE SHALL BE LIABLE TO THE OTHER
ON ACCOUNT OF TERMINATION OR EXPIRATION OF THIS AGREEMENT FOR REIMBURSEMENT OR
DAMAGES FOR THE LOSS OF GOODWILL, PROSPECTIVE PROFITS OR ANTICIPATED SALES, OR
ON ACCOUNT OF ANY EXPENDITURES, INVESTMENTS, LEASES OR COMMITMENTS MADE BY
EITHER ELANTEC OR REPRESENTATIVE OR FOR ANY OTHER REASON WHATSOEVER BASED UPON
OR GROWING OUT OF SUCH TERMINATION OR EXPIRATION. REPRESENTATIVE ACKNOWLEDGES
AND AGREES THAT (i) REPRESENTATIVE HAS NO EXPECTATION AND HAS RECEIVED NO
ASSURANCES THAT ITS BUSINESS RELATIONSHIP WITH ELANTEC WILL CONTINUE BEYOND THE
STATED TERM OF THIS AGREEMENT OR ITS EARLIER TERMINATION IN ACCORDANCE WITH THIS
SECTION 10, THAT ANY INVESTMENT BY REPRESENTATIVE IN THE DISTRIBUTION ON ELANTEC
PRODUCTS WILL BE RECOVERED OR RECOUPED, OR THAT REPRESENTATIVE SHALL OBTAIN ANY
ANTICIPATED AMOUNT OF PROFITS BY VIRTUE OF THIS AGREEMENT; AND (ii)
REPRESENTATIVE SHALL NOT HAVE OR ACQUIRE BY VIRTUE OF THIS AGREEMENT OR
OTHERWISE ANY VESTED, PROPRIETARY OR OTHER RIGHT IN THE DISTRIBUTION OF ELANTEC
PRODUCTS OR IN ANY GOODWILL CREATED BY ITS EFFORTS HEREUNDER.
(g) Survival. Elantec's rights and Representative's obligating
under Sections 4(b), 6(g), 8, 9 and 10 shall survive expiration or termination
of this Agreement.
12. Limitation of Liability. IN NO EVENT SHALL ELANTEC BE LIABLE,
EITHER IN CONTRACT OR IN TORT, FOR DAMAGES, INCLUDING BUT NOT LIMITED TO
CONSEQUENTIAL, INCIDENTAL, OR SPECIAL DAMAGES BY REASON OF FAILURE OF ANY
ELANTEC PRODUCT TO FUNCTION PROPERLY, OR OTHERWISE HEREUNDER, EVEN IF ELANTEC
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
54
<PAGE>
13. General.
(a) Assignment. This Agreement shall not be assignable by
either party, and Representative may not delegate its duties hereunder without
the prior written consent of Elantec; provided, however, that Elantec may assign
this Agreement to a subsidiary or entity controlling, controlled by or under
common control with Elantec. The provisions hereof shall be binding upon and
inure to the benefit of the parties, their successors and permitted assigns.
(b) Notices. All notices hereunder shall be in writing and
shall be served by personal service, by facsimile, or by certified or registered
mail, return receipt requested, at the address of the receiving party set forth
on the signature page hereof, or at such other address as may be designated by
such party by written notice to the other party. Notice by personal service
shall be deemed given when delivered. Notice by facsimile shall be deemed given
when sent. Notice by mail shall be deemed given five days after mailing.
(c) Section Headings and Language Interpretation. The section
headings contained herein are for reference only and shall not be considered
substantive parts of this Agreement. The use of the singular or plural form
shall include the other form, and the use of masculine, feminine or neuter
genders shall include the other genders.
(d) Governing Law and Choice of Forum. This Agreement shall be
governed by and construed in accordance with the laws of the State of
California, U.S.A. (except that body of laws controlling conflicts of law). The
English-language version of this Agreement controls when interpreting this
Agreement. Representative agrees that any litigation regarding the
interpretation, breach or enforcement of this Agreement shall be filed in and
heard by the state or federal courts with jurisdiction to hear such disputes in
Santa Clara County, California, and Representative hereby submits to the
personal jurisdiction of such courts.
(e) Choice of Language. The original of this Agreement has
been written in English. Representative waives any right it may have under the
law of the Territory to have this Agreement written in the language of the
Territory.
(f) Force Majeure. Neither Elantec nor Representative shall be
responsible for any failure to perform due to unforeseen circumstances or to
causes beyond Elantec's or Representative's control, including but not limited
to acts of God, war, riot, embargoes, acts of civil or military authorities,
fire, floods, accidents, strikes, or shortages of transportation, facilities,
fuel, energy, labor or materials.
(g) Equitable Relief. Representative acknowledges that any
breach of its obligations under this Agreement with respect to the proprietary
rights or confidential information of Elantec will cause Elantec irreparable
injury for which there are inadequate remedies at law, and therefore Elantec
will be entitled to obtain equitable relief in addition to all of the remedies
provided by this Agreement or available at law.
(h) Entire Agreement and Waiver. This Agreement constitutes
the entire agreement between the parties pertaining to the subject matter
hereof, and supersedes in their entirety any and all written or oral agreements
previously existing between the parties with respect to such subject matter. By
acceptance of this Agreement, Representative waives and releases any and all
claims against Elantec arising under prior agreements, whether oral or in
writing. Representative acknowledges that it is not entering into this Agreement
on the basis of any representations not expressly contained herein. Any
modifications of this Agreement must be in writing and signed by both parties
hereto. The waiver by Elantec of any default by Representative shall not waive
subsequent defaults by Representative of the same or a different kind.
55
<PAGE>
(i) Agreement, the prevailing party in such
litigation shall be entitled to recover from the other party all the costs,
attorneys' fees and other expenses incurred by such prevailing party in the
litigation.
(ii) Severability. In the event any of the provisions
of this Agreement shall be held by a court or other tribunal of competent
jurisdiction to be unenforceable, the other portions of this Agreement shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
Effective Date.
ELANTEC SEMICONDUCTOR, INC. REPRESENTATIVE
By: /s/ Ralph Granchelli By: /s/ Sadao Honda
-------------------- ---------------
Signature Signature
Ralph Granchelli Sadao Honda
- ---------------- -----------
Printed Name Printed Name
Vice President of Marketing Director of Marketing
- --------------------------- ---------------------
Printed Title Printed Title
Address: Address:
1996 Tarob Court 2-7-5 Izumi
Milpitas CA 95035 Suginami-Ku
USA Tokyo Japan
56
<PAGE>
EXHIBIT A
ELANTEC PRODUCTS
----------------
All current Elantec products.
57
<PAGE>
EXHIBIT B
TERRITORY
---------
Japan
58
<PAGE>
EXHIBIT C
ELANTEC ACCOUNTS
----------------
Accounts continuously assigned by RSM.
59
<PAGE>
EXHIBIT D
COMMISSION RATES
----------------
SALES BY REPRESENTATIVE OF ELANTEC PRODUCTS:
ENGINEERING SERVICES OR SALES OF NON-ELANTEC
PRODUCTS (AS DEFINED HEREIN) BY ELANTEC:
10%
60
<PAGE>
EXHIBIT E
COMPETITION
-----------
Analog Devices
Burr Brown
Gennum
Harris Semi
Linear Technology
Maxim
Micrel
Microlinear
National Semiconductor/Comlinear
Raytheon
Semtech
Telcom
Unitrode
61
<TABLE>
Exhibit 11.01
Elantec Semiconductor, Inc.
Statement Re Computation of Per Share Earnings
<CAPTION>
Years Ended September 30,
1996 1995 1994
------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C>
Net income $4,389 $2,713 $1,125
Adjustment to income (1) -- -- 5
------------------------------------
4,389 2,713 1,130
====================================
Common and common equivalent shares outstanding:
Common stock 8,505 1,858 1,670
Convertible preferred stock -- 4,937 4,937
Common stock options 827 1,055 1,105
------------------------------------
9,332 7,850 7,712
Common and common equivalent shares related to stock
and option issuances in accordance with SAB Nos. 55,
64, and 83 -- 24 24
------------------------------------
Common and common equivalent shares used in computing per
share amounts 9,332 7,874 7,736
====================================
Net income per share $ 0.47 $ 0.34 $ 0.15
====================================
<FN>
- ----------
(1) Net income per share has been computed using the modified treasury stock
method. Assumed proceeds from the exercise of outstanding options and
warrants exceeded amounts necessary to buy back 20% of the common shares
outstanding at the end of each respective period. Such excess proceeds are
assumed to be applied first to reduce any short-term or long-term
borrowings, and any remaining funds are assumed to be invested in U.S.
government securities or commercial paper.
</FN>
</TABLE>
62
Exhibit 23.01
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-98880) pertaining to the 1995 Employee Stock Purchase Plan, the 1995
Directors Stock Option Plan, the 1995 Equity Incentive Plan, the 1994 Equity
Incentive Plan and the 1983 Stock Option Plan of Elantec Semiconductor, Inc., of
our report dated October 22, 1996, with respect to the consolidated financial
statements and schedule of Elantec Semiconductor, Inc. included in the Annual
Report (Form 10-K) for the year ended September 30, 1996.
ERNST & YOUNG LLP
San Jose, California
December 16 , 1996
63
Exhibit 24.01
POWERS OF ATTORNEY
(See page 42 of this Report)
64
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 9,377
<SECURITIES> 6,663
<RECEIVABLES> 4,515
<ALLOWANCES> 340
<INVENTORY> 6,475
<CURRENT-ASSETS> 27,244
<PP&E> 15,726
<DEPRECIATION> 8,366
<TOTAL-ASSETS> 35,246
<CURRENT-LIABILITIES> 9,606
<BONDS> 1,566
<COMMON> 87
0
0
<OTHER-SE> 23,987
<TOTAL-LIABILITY-AND-EQUITY> 24,074
<SALES> 35,350
<TOTAL-REVENUES> 36,806
<CGS> 18,008
<TOTAL-COSTS> 18,008
<OTHER-EXPENSES> 14,498
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 687
<INCOME-PRETAX> 4,761
<INCOME-TAX> 372
<INCOME-CONTINUING> 4,389
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,389
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.47
</TABLE>
