-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LbDZe4v+5IFt4ntznAjB+32zFIaWCLQ2paYGhulIzs0uBxf0akewnf2wC4V1ghHE r8JFN2a5CfsmrcgERyrmOw== 0001017062-01-000270.txt : 20010214 0001017062-01-000270.hdr.sgml : 20010214 ACCESSION NUMBER: 0001017062-01-000270 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010213 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICROSEMI CORP CENTRAL INDEX KEY: 0000310568 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 952110371 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-08866 FILM NUMBER: 1537908 BUSINESS ADDRESS: STREET 1: 2830 S FAIRVIEW ST STREET 2: PO BOX 26890 CITY: SANTA ANA STATE: CA ZIP: 92704 BUSINESS PHONE: 7149798220 FORMER COMPANY: FORMER CONFORMED NAME: MICROSEMICONDUCTOR CORP DATE OF NAME CHANGE: 19830323 10-Q 1 0001.txt FORM 10Q DATED DECEMBER 31, 2000 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended December 31, 2000 ------------------------------------------------ or [X] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____ to ____ Commission File No. 0-8866 MICROSEMI CORPORATION --------------------- (Exact name of registrant as specified in its charter) Delaware 95-2110371 ------------------------------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2830 South Fairview Street, Santa Ana, California 92704 -------------------------------------------------------- (Address of principal executive offices) (Zip Code) (714) 979-8220 ---------------------------------------------------- (Registrant's telephone number, including area code) 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 [_] The number of shares outstanding of the issuer's Common Stock, $.20 par value, on January 19, 2001 was 13,847,406. PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS The unaudited consolidated financial information for the quarter ended December 31, 2000 of Microsemi Corporation and Subsidiaries ("Microsemi" or the "Company") and the comparative unaudited consolidated financial information for the corresponding period of the prior year, together with the balance sheet as of October 1, 2000, are attached hereto and incorporated herein. 2 MICROSEMI CORPORATION AND SUBSIDIARIES Unaudited Consolidated Balance Sheets (amounts in thousands)
October 1, 2000 December 31, 2000 --------------- ----------------- (restated - Note 2) ASSETS Current assets: Cash and cash equivalents $ 30,460 $ 34,321 Accounts receivable less allowance for doubtful accounts, $5,767 at October 1, 2000 and $6,080 at December 31, 2000 33,029 34,458 Inventories 52,553 51,214 Deferred income taxes 8,392 8,392 Other current assets 2,020 3,299 -------- -------- Total current assets 126,454 131,684 -------- -------- Property and equipment, net 55,458 54,975 Deferred income taxes 2,688 2,688 Goodwill and other intangible assets, net 22,559 21,895 Other assets 3,639 3,967 -------- -------- TOTAL ASSETS $210,798 $215,209 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 1,037 $ 1,016 Current maturities of long-term debt 1,230 1,234 Accounts payable 11,489 10,640 Accrued liabilities 23,992 25,856 Income taxes payable 8,549 7,905 Total current liabilities 46,297 46,651 -------- -------- Long-term debt 9,651 9,361 -------- -------- Other long-term liabilities 5,160 5,168 -------- -------- Commitments and contingencies Stockholders' equity: Preferred stock, 1,000 shares authorized; none issued, 100 shares designated as Series A, $1.00 par value - - Common stock, $.20 par value; authorized 20,000 shares; issued 13,794 at October 1, 2000 and 13,819 at December 31, 2000 2,759 2,764 Capital in excess of par value of common stock 105,161 105,425 Retained earnings 42,807 46,906 Accumulated other comprehensive loss (1,037) (1,066) -------- -------- Total stockholders' equity 149,690 154,029 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $210,798 $215,209 ======== ========
The accompanying notes are an integral part of these statements. 3 MICROSEMI CORPORATION AND SUBSIDIARIES Unaudited Consolidated Income Statements (amounts in thousands, except earnings per share)
Quarter Ended Quarter Ended January 2, 2000 December 31, 2000 ------------------- ----------------- (restated - Note 2) Net sales $54,588 $63,005 Cost of sales 41,011 43,031 ------- ------- Gross profit 13,577 19,974 ------- ------- Operating expenses: Selling, general and administrative 8,426 9,940 Amortization of goodwill and other intangible assets 394 673 Research and development 2,345 3,423 ------- ------- Total operating expenses 11,165 14,036 ------- ------- Operating income 2,412 5,938 ------- ------- Other (expense) income: Interest, net (1,048) 158 Other, net 87 22 ------- ------- Total other (expense) income (961) 180 ------- ------- Income before income taxes 1,451 6,118 Provision for income taxes 479 2,019 ------- ------- Net income $ 972 $ 4,099 ======= ======= Earnings per share: -Basic $ 0.09 $ 0.30 ======= ======= -Diluted $ 0.09 $ 0.28 ======= ======= Weighted average common shares outstanding: -Basic 10,920 13,804 -Diluted 11,027 14,556
The accompanying notes are an integral part of these statements. 4 MICROSEMI CORPORATION AND SUBSIDIARIES Unaudited Consolidated Statements of Cash Flows (amounts in thousands)
Quarter Ended Quarter Ended January 2, 2000 December 31, 2000 ------------------- ----------------- (restated - Note 2) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 972 $ 4,099 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,887 2,880 Allowance for doubtful accounts 153 313 Changes in assets and liabilities: Accounts receivable 1,938 (1,742) Inventories 1,286 1,339 Other current assets 354 (1,279) Accounts payable (692) (849) Accrued liabilities 75 2,528 Income taxes payable 191 (644) ------- ------- Net cash provided by operating activities 7,164 6,645 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in an unconsolidated affiliate (251) - Purchases of property and equipment (2,255) (2,865) Change in other assets (229) 140 ------- ------- Net cash used in investing activities (2,735) (2,725) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in notes payable to banks and other (2,995) (21) Payments on long-term debt (1,310) (286) (Decrease) increase in other long-term liabilities (36) 8 Exercises of employee stock options - 269 ------- ------- Net cash used in financing activities (4,341) (30) ------- ------- EFFECT OF EXCHANGE RATE CHANGES ON CASH - (29) ------- ------- Net increase in cash and cash equivalents 88 3,861 Cash and cash equivalents at beginning of period 7,624 30,460 ------- ------- Cash and cash equivalents at end of period $ 7,712 $34,321 ======= =======
The accompanying notes are an integral part of these statements. 5 MICROSEMI CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000 1. PRESENTATION OF FINANCIAL INFORMATION The financial information furnished herein is unaudited, but in the opinion of management of Microsemi Corporation includes all adjustments (all of which are normal, recurring adjustments) necessary for a fair presentation of the results of operations for the periods indicated. The results of operations for the first quarter of the current fiscal year are not necessarily indicative of the results to be expected for the full year. The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q, and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. The unaudited consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto in the Annual Report on Form 10-K for the fiscal year ended October 1, 2000. 2. INVENTORIES For interim reporting purposes, cost of goods sold and inventories are estimated based upon the use of the gross profit method. Inventories used in the computation of cost of goods sold were:
October 1, 2000 December 31, 2000 --------------- ----------------- (restated - Note 2) (amounts in thousands) Raw materials $12,503 $11,726 Work in process 22,239 21,007 Finished goods 17,811 18,481 ------- ------- $52,553 $51,214 ======= =======
During the first quarter of fiscal year 2001, the Company changed its method of determining the cost of inventories at its Scottsdale subsidiary ("Scottsdale") from the last-in, first-out ("LIFO") method to the first-in, first-out ("FIFO") method. The Company believes that the FIFO method is preferable since it will enhance the comparability of the Company's financial statements by changing to the predominant method utilized in its industry and will conform all inventories of the Company to the same accounting method. In addition, Scottsdale has experienced improvements in productivity and permanent declines in inventory costs. Accordingly, the FIFO method will result in a better matching of revenues and costs and measurement of operating results. The Company has also applied to the Internal Revenue Service to change to the FIFO inventory costing method for income tax purposes. As required by Accounting Principles Board Opinion No. 20, Accounting Changes, all previously reported results have been restated to reflect the retroactive application of this accounting change as of the beginning of fiscal year 2000. The effect of the restatement was to increase retained earnings at October 1, 2000 by $39,000. The effect on net income for the three-month period ended January 2, 2000 was immaterial. 3. CONTINGENCY 6 In Broomfield, Colorado, the owner of a property located adjacent to a manufacturing facility owned by a subsidiary of the Company had notified the subsidiary and other parties, claiming that contaminants migrated to his property, thereby diminishing its value. In August 1995, the subsidiary, together with former owners of the manufacturing facility, agreed to settle the claim and to indemnify the owner of the adjacent property for remediation costs. Although TCE and other contaminants previously used at the facility are present in soil and groundwater on the subsidiary's property, the Company vigorously contests any assertion that the subsidiary is the cause of the contamination. In November 1998, the Company signed an agreement with three former owners of this facility whereby the former owners 1) reimbursed the Company for $530,000 of past costs, 2) will assume responsibility for 90% of all future clean-up costs, and 3) indemnify and protect the Company against any and all third-party claims relating to the contamination of the facility. An Integrated Corrective Action Plan has been submitted to the State of Colorado. State and local agencies in Colorado are reviewing current data and considering study and cleanup options, and it is not yet possible to predict costs for remediation. In the opinion of management, the final outcome of the Broomfield, Colorado environmental matter will not have a material adverse effect on the Company's financial position, results of operations or cash flows. The Company is involved in various pending litigation matters, arising out of the normal conduct of its business, including from time to time litigation relating to commercial transactions, contracts, and environmental matters. In the opinion of management, the final outcome of these matters will not have a material adverse effect on the Company's financial position, results of operations or cash flows. 4. COMPREHENSIVE INCOME Comprehensive income is defined as the change in equity (net assets) of a business enterprise during the period from transactions and other events and circumstances from non-owner sources. Accumulated other comprehensive loss consists of the change in the cumulative translation adjustment. Total comprehensive income of the Company for the quarters ended January 2, 2000 and December 31, 2000 was $972,000 and $4,070,000, respectively. 5. EARNINGS PER SHARE Basic earnings per share have been computed based upon the weighted average number of common shares outstanding during the respective periods. Diluted earnings per share have been computed, when the result is dilutive, using the treasury stock method for stock options outstanding and giving effect to issuance of shares upon conversion of debt during the respective periods. Earnings per share for the quarters ended January 2, 2000 and December 31, 2000 were calculated as follows:
Quarter Ended ------------------------------------------ January 2, 2000 December 31, 2000 --------------- ----------------- (restated - Note 2) (in thousands, except per share data) BASIC Net income $ 972 $ 4,099 ======= ======= Weighted-average common shares outstanding 10,920 13,804 ======= ======= Basic earnings per share $ 0.09 $ 0.30 ======= ======= DILUTED Net income $ 972 $ 4,099 Interest savings from assumed conversions of convertible debt, net of income taxes - 29 ------- ------- Net income assuming conversions $ 972 $ 4,128 ======= =======
7 Weighted-average common shares outstanding for basic 10,920 13,804 Dilutive effect of stock options 107 585 Dilutive effect of convertible debt - 167 ------- ------- Weighted-average common shares outstanding on a diluted basis 11,027 14,556 ======= ======= Diluted earnings per share $ 0.09 $ 0.28 ======= =======
6. RECENTLY ISSUED ACCOUNTING STANDARD In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued, which establishes new standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The Company adopted SFAS No. 133 in fiscal year 2001; however, the adoption of the new statement did not have any material impact on the consolidated results of operations, financial position or cash flows of the Company. 7. SEGMENT INFORMATION In 1999, the Company adopted SFAS 131. The Company's reportable operating segments are based on geographic location, and the measure of segment profit is income from operations. The Company operates predominantly in a single industry segment as a manufacturer of discrete semiconductors and whole-circuit solutions. Geographic areas in which the Company operates include the United States, Europe and Asia. Intergeographic sales primarily represent intercompany sales which are accounted for based on established sales prices between the related companies and are eliminated in consolidation. Financial information by geographic segment is as follows:
Quarter Ended ------------------------------------------- January 2, 2000 December 31, 2000 --------------- ----------------- (restated - Note 2) (amounts in thousands) Net sales: United States Sales to unaffiliated customers $49,311 $55,876 Intergeographic sales 4,361 6,377 Europe Sales to unaffiliated customers 4,443 6,160 Intergeographic sales 748 1,094 Asia Sales to unaffiliated customers 834 969 Intergeographic sales 964 1,058 Eliminations of intergeographic sales (6,073) (8,529) ------- ------- $54,588 $63,005 ======= ======= Income from operations: United States $ 2,264 $ 5,572 Europe 148 323 Asia - 43 ------- ------- Total $ 2,412 $ 5,938 ======= ======= Capital expenditures: United States $ 2,216 $ 2,832 Europe 21 32 Asia 18 1
8 -------- -------- Total $ 2,255 $ 2,865 ======== ======== Depreciation and amortization: United States $ 2,769 $ 2,768 Europe 46 56 Asia 72 56 -------- -------- Total $ 2,887 $ 2,880 ======== ========
October 1, 2000 December 31, 2000 --------------- ----------------- (restated - Note 2) (amounts in thousands) Identifiable assets: United States $195,693 $198,534 Europe 8,401 10,245 Asia 6,704 6,430 -------- -------- Total $210,798 $215,209 ======== ========
9 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-Q includes current beliefs, expectations and other forward looking statements, the realization of which may be impacted adversely by any of the factors discussed below or referenced under the heading "Important Factors Related to Forward-Looking Statements and Associated Risks," found below. This Management's Discussion and Analysis of Financial Condition and Results of Operations and the unaudited consolidated financial statements and notes should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes thereto in the Annual Report on Form 10-K for the fiscal year ended October 1, 2000. INTRODUCTION - ------------ Microsemi Corporation is a leading designer, manufacturer and marketer of analog, mixed-signal and discrete semiconductors. The Company's semiconductors manage and regulate power, protect against transient voltage spikes and transmit, receive and amplify signals. Microsemi's products include individual components as well as complete circuit solutions that enhance customer end products by providing battery optimization, reducing size or protecting circuits. Microsemi's commercial products are used in dynamic high growth mobile connectivity applications, including mobile phones and handheld Internet devices, and broadband communications applications such as base stations, wireless LAN, cable and fiber optic systems. These high growth opportunities have emerged from ongoing capabilities in designing and manufacturing semiconductors for military, satellite and medical applications. The Company serves several end markets of the semiconductor industry. These end markets include battery-operated products, communications and Internet infrastructure, and military and aerospace. Battery-operated products include portable digital assistants (PDAs), mobile phones, portable or implantable medical equipment, hearing aids, notebook computers and wireless web tablets. The Company's diverse customer base includes Motorola, Lockheed Martin, Seagate, Mitsubishi, Guidant, Samsung, Medtronic, Boeing, Palm, Dell and Compaq. Results Of Operations For The Quarter Ended January 2, 2000 Compared To The Quarter Ended December 31, 2000. Net sales increased $8.4 million, from $54.6 million for first quarter of fiscal year 2000 to $63.0 million for first quarter of fiscal year 2001. The increase was attributable primarily to higher sales of power management, TVS and RF/Microwave products to the mobile connectivity and telecommunications markets, as well as renewed strength in sales to the space/satellite market. The Company sold a substantial portion of the assets of the Micro Commercial Components division ("MCC") in June 2000 and closed the division. MCC had revenues of $3.5 million for the quarter ended January 2, 2000. Gross profit increased $6.4 million, from $13.6 million for the first quarter of fiscal year 2000 to $20.0 million for the first quarter of fiscal year 2001. As a percentage of sales, gross profit was 24.9% for first quarter of fiscal year 2000, compared to 31.7% for the first quarter of fiscal year 2001. This increase was due primarily to higher capacity utilization and an increase in shipments of higher margin power management, TVS, RF/Microwave and space/satellite products. MCC had a gross profit of $0.5 million for the first quarter of fiscal year 2000. Selling, general and administrative expenses increased $1.5 million from $8.4 million for the first quarter of fiscal year 2000 to $9.9 million for the first quarter of fiscal year 2001, primarily due to higher sales. Research and development expense increased $1.1 million, from $2.3 million for first quarter of fiscal year 2000 to $3.4 million for first quarter of fiscal year 2001. The increase was primarily due to higher spending to develop power management and RF products for the mobile connectivity, telecommunications, medical and computer/peripheral markets. The effective income tax rate was 33.0% in the quarters ended January 2, 2000 and December 31, 2000. 10 Capital Resources And Liquidity Net cash provided by operating activities was $7.2 million and $6.6 million for the first quarter of fiscal years 2000 and 2001, respectively. The decrease in cash provided by operating activities was the result of the combined impact of changes in net income, accounts receivable, other current assets and accrued liabilities. Net cash used in investing activities was $2.7 million in each of the quarters ended January 2, 2000 and December 31, 2000 and was primarily due to purchases of capital equipment. Net cash used in financing activities was $4.3 million and $0.03 million for the first quarter of fiscal years 2000 and 2001, respectively. The net cash used in financing activities in the first quarter of fiscal year 2000 was primarily a result of payments on the Company's debt. The net cash used in financing activities in the first quarter of fiscal year 2001 was primarily a result of payments on the Company's debt, partially offset by proceeds from exercises of stock options. Microsemi's operations in the quarter ended December 31, 2000 were funded with internally generated funds. The Company maintains a credit line with a bank, from which it can borrow up to $30 million. This credit line expires in March 2003. As of December 31, 2000, there were no funds borrowed under this credit facility. At December 31, 2000, Microsemi had $34.3 million in cash and cash equivalents. Based upon information currently available, management believes that Microsemi can meet its current operating cash and debt service requirements with internally generated funds together with its available borrowings. 11 IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS - ---------------------------------------------------------------------------- Some of the statements in this report or incorporated by reference are forward- looking, including, without limitation, the statements under the captions "Management's Discussion and Analysis of Financial Condition and Results of Operations". These statements include those that contain words like "may," "will," "could," "should," "project," "believe," "anticipate," "expect," "plan," "estimate," "forecast," "potential," "intend," "continue" and variations of these words or comparable words including any statements about a future time, result or other circumstance. In addition, all of the non-historical information herein is forward-looking, include any statement about a future time, result or other circumstance. Forward-looking statements are not a guarantee of future performance and involve risks and uncertainties including any statement about a future time, result or other circumstance. Actual results may differ substantially from the results that the forward-looking statements suggest for various reasons. These forward-looking statements are made only as of the date of this report. Microsemi does not undertake to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements included in this report are based on, among other items, current assumptions that Microsemi will be able to meet its current operating cash and debt service requirements, that Microsemi will be able to successfully resolve disputes and other business matters as anticipated, that competitive conditions within the semiconductor, integrated circuit and custom diode assembly industries will not affect the Company materially or adversely, that Microsemi will retain existing key personnel, that Microsemi's forecasts will reasonably anticipate market demand for its products, and that there will be no other material adverse change in its operations or business. Other factors that could cause results to vary materially from current expectations are referred to elsewhere in this report. Assumptions relating to the foregoing involve judgments that are difficult to make and future circumstances that are difficult to predict accurately or correctly. Forecasting and other management decisions are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and business developments, the impact of which may cause Microsemi to alter its internal forecasts, which may in turn affect results or expectations. Microsemi Corporation does not undertake to announce publicly these changes that may occur in our expectations after the periods presented herein. Readers are cautioned against giving undue weight to any of the forward-looking statements. Adverse changes to our results could result from any number of factors, including for example fluctuations in economic conditions, potential effects of inflation, lack of earnings visibility, dependence upon certain customers or markets, dependence upon suppliers, future capital needs, rapid technological changes, difficulties in integrating acquired businesses, ability to realize cost savings or productivity gains, potential cost increases, dependence on key personnel, difficulties regarding hiring and retaining qualified personnel in a competitive labor market, risks of doing business in international markets, and problems of third parties. The inclusion of forward-looking information should not be regarded as a representation by Microsemi or any other person that its objectives or plans will be achieved. Additional factors that could cause results to vary materially from current expectations are discussed under the heading "Important factors related to forward-looking statements and associated risks" in the annual report in the Form 10-K as filed with the Securities and Exchange Commission in December 2000, and elsewhere in that Form 10-K, including but not limited to, under the headings, "Legal Proceedings," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the notes to the financial statements. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Inapplicable. 12 PART II - OTHER INFORMATION Item 1. Legal Proceedings ----------------- No material changes Item 2. Changes in Securities --------------------- The Company's Form 8-A as filed December 29, 2000, is incorporated herein by this reference. On and as of December 22, 2000, the Company issued a dividend of one Right for each one share of outstanding common stock. The Rights are represented by the Common Stock Certificates themselves at this time, and are not separately traded. Item 3. Defaults Upon Senior Securities ------------------------------- Inapplicable Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- None Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: 3.1* Certificate of Designation of Series A Junior Participating Preferred Stock, par value $1.00 per share, of the registrant 3.2* Legend on Common Stock certificates regarding Rights Agreement. 4.2* Rights Agreement dated December 22, 2000 between the registrant and Mellon Investor Services, LLC, as Rights Agent, and the exhibits thereto. 10.86 Transition and Consulting Agreement with Mr. Philip Frey, Jr. 10.87 Change of Control Agreement with Mr. James J. Peterson. 10.88 Change of Control Agreement with Mr. David R. Sonksen. 18.1 Letter on change in accounting principle. 20.1* Letter to Stockholders dated December 22, 2000 and attached Summary of Shareholder Rights Plan. 99.1* News Release dated December 22, 2000. * Incorporated by reference to the like-numbered exhibit as filed with the Registrant's Form 8-A filed on December 29, 2000. (b) Reports on Form 8-K: On December 29, 2000, a Shareholder Rights Plan was reported on Form 8-K under item 5 and the related documents were incorporated by reference as exhibits thereto under item 7. 13 SIGNATURES Pursuant to the requirements 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. MICROSEMI CORPORATION By: /s/ DAVID R. SONKSEN --------------------- David R. Sonksen Executive Vice President and Chief Financial Officer (Principal Financial Officer and Chief Accounting Officer and duly authorized to sign on behalf of the Registrant) DATED: February 12, 2001 14 MICROSEMI CORPORATION EXHIBIT INDEX ------------- Exhibit No. Description - ----------- ----------- 3.1 Certificate of Designation of Series A Junior Participating Preferred Stock, par value $1.00 per share, of the registrant(1) 3.2 Legend on Common Stock certificates regarding Rights Agreement(1) 4.2 Rights Agreement dated December 22, 2000 between the registrant and Mellon Investor Services, LLC, as Rights Agent, and the exhibits thereto(1) 10.86 Transition and Consulting Agreement with Mr. Philip Frey, Jr.(2) 10.87 Change of Control Agreement with Mr. James J. Peterson.(2) 10.88 Change of Control Agreement with Mr. David R. Sonksen.(2) 18.1 Letter on change in accounting principle.(2) 20.1 Letter to Stockholders dated December 22, 2000 and attached Summary of Shareholder Rights Plan(1) 99.1 News Release dated December 22, 2000(1) - -------------------------------------------------------------------------------- (1) Filed by the Registrant as a like-numbered exhibit with the Registration Statement on Form 8-A filed December 29, 2000. (2) Filed herewith by the Registrant. 15 EX-10.86 2 0002.txt TRANSITION AND CONSULTING AGREEMENT EXHIBIT 10.86 Mr. Philip Frey, Jr. Chairman Microsemi Corporation 2830 S. Fairview Street Santa Ana, California 92704 Dear Phil: Re: Transition and Consulting Agreement The purpose of this letter is to confirm a formal arrangement between Microsemi Corporation (MSC) and your transition from your role as Chairman, Chief Executive Officer and President of MSC to your continuing role as the Chairman of the Board of Directors (BOD) and new role as a Consultant to MSC. Also this letter restates, amends and supersedes the version of this letter as previously signed on, before or about December 18, 2000. As discussed with the BOD you will retire December 18, 2000, but continue to support MSC in a consulting role. The following items outline the specific terms and conditions that are applicable regarding this transition and your services as a consultant to MSC. 1. The consulting period shall be from December 18, 2000, and shall continue until, December 17, 2001. 2. In your consulting role, you shall provide consulting services as specified in writing by the BOD, or its designee. These assignments may cover a variety of projects, but will focus primarily on strategic planning, business acquisitions, disposition of certain assets and interface with key military and aerospace accounts. As a consultant, you are an independent contractor, responsible for the means and manner of your performance of these consulting services. 3. MSC agrees to pay you the sum of Twenty Five Thousand Dollars ($ 25,000) per month during the consulting period under this agreement. 4. At the date you retire you will receive pay out of all accrued vacation (1,574 hours) and Three Hundred and Ten Thousand Eight Hundred and Eighteen Dollars ($310,818) as payment of your Executive Performance Bonus for your fiscal year 2000 performance. 5. Based on your December 18, 2000 retirement date, you will receive the initial payment of benefits from the Microsemi Corporation Supplemental Executive Retirement Plan of One Hundred Sixteen Thousand Five Hundred and Fifty Six Dollars and ninety-six Cents ($116,556.96) on February 1, 2001. 6. MSC will provide you medical, dental and life insurance coverage during the consulting period of this Agreement through the company's benefits plan. You will not be eligible to participate in other benefit, bonus or compensations plans except as provided by your role on the Board of Directors and by your participation in the Microsemi Corporation Supplemental Executive Retirement Plan. 7. As part of the medical benefits commitment made by the BOD, the company will provide you a Medicare Supplemental Insurance policy effective January 1, 2002. This is a lifetime benefit in recognition of your long service and significant contributions as Chairman, President and CEO. 8. As part of this Agreement Microsemi Corporation agrees to pay the $34,000 premium for your existing life insurance policy for a period of twelve months starting with the date of your retirement. 9. It is understood you will be taking some personal time during this transition and may not be available for consulting assignments during the last two weeks of December and possibly some time in January. 10. All of the stock options granted to you through December 2000 will continue to vest until their expiration as provided in your stock option agreements, and to the extent that each such option agreement is vested or hereafter vests, it shall remain exercisable for a period ending on the earlier to occur of (a) the first anniversary of your death or (b) the latest expiration date specified in the option agreement (generally five years from the date of grant). 11. The Board of Directors will approve a resolution awarding you options for Ten Thousand (10,000) shares of MSC stock upon your retirement. The Board will also award you options for Five Thousand (5,000) shares of Microsemi Corporation stock annually, starting in 2002 as part of the recognition for your service and as long as you continue to serve as Chairman. Your service as Chairman will also include a Fifteen Thousand-Dollar ($15,000) quarterly retainer. 12. MSC shall pay you a $1,000 per month car allowance during the consulting period and reimburse you for reasonable expenses that are incurred as a result of the work performed by you outside of the Santa Ana, California area. 13. Payments made under this Agreement shall be at a rate commensurate with the value of the services or expenses described herein. These payments shall not include any amount, which will be used improperly by you to influence the actions of another person on MSC's behalf. 14. To the extent required by law, you shall have the rights under the Consolidated Omnibus Budget Reconciliation Act ("COBRA"), or any successor statute. 15. Excise Taxes. You will be financially responsible for any taxes imposed on you on account of payments by MSC to you; provided, however, that if all or -------- any portion of the amounts payable to you or on your behalf under this letter agreement or otherwise are subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (or similar state tax and/or assessment), the Company shall pay you an amount necessary to place you in the same after-tax position as you would have been had no such excise tax been imposed. The amount payable pursuant to the preceding sentence shall be grossed-up to the extent necessary to pay income and excise taxes due on such amount. The determination of the amount of any such tax indemnity shall initially be made by the independent accounting firm then employed by the Company. If at a later date it is determined (pursuant to final regulations or published rulings of the IRS, final judgment of a court of competent jurisdiction or otherwise) that the amount of excise taxes payable by you is greater than the amount initially so determined, then the Company (or its successor) shall pay you an amount equal to the sum of (1) such additional excise taxes, (2) any interest, fines and penalties resulting from such underpayment, plus (3) a gross-up amount necessary to reimburse you for any income, excise or other taxes payable by you with respect to the amounts specified in (1) and (2) above, and the reimbursement provided by this clause (3). 2 16. Indemnification. For at least ten (10) years following the date of your retirement, you shall continue to be indemnified under the Company's Certificate of Incorporation and Bylaws at least to the same extent indemnification was available prior to the date of retirement and permitted by law, and you shall be insured under the directors' and officers' liability insurance, the fiduciary liability insurance and the professional liability insurance policies that are the same as, or provide coverage at least equivalent to, those applicable or made available by the Company to the then members of senior management of the Company. Independent of such provision, if at any time you are made, or threatened to be made, a party to any legal action or proceeding, whether civil or criminal, by reason of the fact that you are or were a director or officer of the Company or serves or served any other corporation or entity fifty percent (50%) or more owned or controlled by the Company in any capacity at the Company's request, you shall be indemnified by the Company, and the Company shall pay your related expenses when and as incurred, all to the full extent permitted by law. 17. You shall deliver to MSC detailed reports and documentation if requested by the BOD or its designee. Your reports to MSC should disclose all work or services completed to date during the course of your assigned projects and shall be supported by appropriate documentation, such as graphs, computer programs, formulae, sketches, drawings, summaries and the like. 18. The liaison and general administration of this Agreement shall be through the BOD or its designee. 19. You shall maintain confidential and secret all MSC information which has been or may be disclosed to you as being confidential or secret in character, and you shall not disclose this information to any other person, firm or corporation. You shall also maintain as confidential MSC's "know- how" and future plans relating to the fields of endeavor in which you perform your services as part of this Agreement. The terms of this section shall survive indefinitely after any termination of the consulting period. 20. You represent and warrant that no part of the payment of any sums due and payable under this Agreement will in any way be paid or distributed to MSC or its subsidiaries and affiliates, or any of the directors, officers, employees or agents thereof. 21. The consulting period shall continue and is irrevocable during the initial term specified above. However, if the consulting period is extended, MSC may terminate this Agreement for its convenience upon ninety days (90) prior written notice. In such event, MSC's sole obligation shall be to pay you for any authorized work performed prior to the end of such notice period in the amounts as set forth in paragraphs 3, 6 and 12 above. 22. We agree to attempt to settle any dispute arising out of this Agreement, the execution thereof, or in connection therewith, through friendly consultation and negotiation in the spirit of mutual cooperation. However, if settlement cannot be reached within a reasonable time, then the dispute shall first be submitted to a mutually acceptable neutral advisor for Non-Binding Mediation. Neither of us shall unreasonably withhold acceptance of such advisor, and the party requesting such Mediation shall make the selection within thirty (30) days after written notice. Any disputes arising from this Agreement, which we cannot resolve in good faith within three (3) months of the date of the written request for Mediation, shall be submitted to an Arbitration Association consisting of retired judges for arbitration in accordance with its rules of procedure. The party seeking ADR as provided by this Agreement, agrees that the other party shall select the venue for such mediations and arbitration. We agree that the Arbitrator's award shall be final and binding upon us. During Arbitration, the terms and conditions of this Agreement shall be executed continuously by us except for matters in dispute. Each party shall be responsible for all costs associated with the preparation and representation by attorneys, or any other persons retained thereby, to assist in connection with 3 any such Alternative Dispute Resolution. However, all costs charged by the mutually agreed upon Alternative Dispute Resolution Entity, shall be equally shared by us. 23. This Agreement shall be binding upon and inure to the benefit of MSC's successors and assigns, and shall be binding upon and inure to the benefit of your heirs, legal representatives, successors and assigns. 24. The validity, construction and performance of this Agreement, and the legal relations between the parties shall be governed by and construed in accordance with the laws of the State of California. 25. This Agreement shall not be assignable by you without MSC's prior written consent, and any purported assignment not permitted hereunder including full or partial assignment or delegation to any agent or subcontractor, shall be deemed void. This Agreement may be modified only by an instrument in writing and signed by you and duly authorized representatives of MSC Board of Directors. This document constitutes the entire Agreement between us with respect to the subject matter hereof, and supersedes all previous communications, representations, understanding and agreements either oral or written, between the parties or any official or representative thereof. The Agreement dated November 17, 1997 between the Company and you concerning generally a termination of your employment and change in control is hereby specifically terminated by written agreement effective as of the date of your retirement, and thereafter the Agreement dated November 17, 1997 shall be of no force or effect whatsoever. 26. In the event any court of competent jurisdiction determines that a particular provision of this Agreement is unenforceable and/or contrary to law, this will not affect the validity and enforceability of the other provisions of this Agreement in such jurisdiction, or the validity and enforceability of this Agreement as a whole in any other jurisdiction. 27. MSC's obligations under this Agreement shall not constitute the personal obligations of its shareholders, or of it's directors, officers, employees, consultants, agents or invitees, and you shall look only to the assets of MSC for the satisfaction of any liability with respect to this Agreement, and shall not seek recourse against its shareholders, or against its directors, officers, employees, consultants, agents, or invitees, or against their personal assets for such satisfaction. 28. Separate Counsel. You have been invited and given opportunity to engage separate and independent counsel to review or negotiate this Agreement, and you have either done so or chosen not to engage counsel. Phil, we would like to personally thank you for your support and your many years of service to Microsemi Corporation, its customers, employees and shareholders. The corporation's success in large measure is a function of your many years of dedication, contribution and sacrifice. Much of what Microsemi has accomplished is a direct result of your efforts. You move into your new roles with the very best wishes from your colleagues, co-workers and the Board of Directors. If you agree with the foregoing terms and conditions please so indicate by signing and dating one copy hereof at the place provided and return to us for our records. Respectfully, /S/ JAMES J. PETERSON /S/ JOSEPH M. SCHEER - ---------------------- --------------------- James J. Peterson Joseph M. Scheer CEO and President Chairman, Compensation Committee 4 CC: John Holtrust, Corporate VP, Human Resources AGREED AND ACCEPTED ------------------- By: /S/ PHILIP FREY, JR. --------------------- Philip Frey, Jr. Date: January 24, 2001 5 EX-10.87 3 0003.txt CHANGE OF CONTROL AGREEMENT EXHIBIT 10.87 AGREEMENT by and between MICROSEMI CORPORATION and Mr. James J. Peterson TABLE OF CONTENTS 1. Term.............................................................. 1 2. Terminations by Executive......................................... 1 a. Termination by Executive for "Good Reason...................... 1 b. Change of Control.............................................. 2 c. Voluntary Termination by Executive............................. 2 3. Executive's Benefits Following Termination........................ 3 a. Executive's Benefits in Termination by Executive without "Good Reason" following Change in Control...................... 3 (i) Salary.................................................. 3 (ii) Incentive Compensation.................................. 3 (iii) Car Allowance........................................... 3 (iv) Stock Options........................................... 3 (v) Medical Insurance....................................... 3 (vi) Retirement Plans; Unvested Company Contribution......... 4 (vii) Vacation and Sick Leave................................. 4 (viii) General................................................. 4 b. Executive's Benefits in Termination by Executive for "Good Reason" or by Company following Change in Control........ 4 (i) Salary.................................................. 4 (ii) Incentive Compensation.................................. 5 (iii) Car Allowance........................................... 5 (iv) Stock Options........................................... 5 (v) Medical and Life Insurance.............................. 5 (vi) Retirement Plans; Unvested Company Contribution......... 5 (vii) Vacation and Sick Leave................................. 6 (viii) General................................................. 6 4. Other Benefits Following Termination.............................. 6 5. Excise Taxes...................................................... 7 6. Indemnification................................................... 7 7. Obligatory Restrictions on Executive.............................. 7 a. Non-Competition................................................ 8 b. No Solicitation of Employees................................... 8 c. Consideration.................................................. 8 8. Termination of Certain Benefits Following New Employment.......... 9 9. No Mitigation by Executive Required............................... 9 10. Binding Agreement................................................. 9 11. No Attachment..................................................... 10 12. Assignment and Other Rights....................................... 10 13. Waiver............................................................ 10 14. Notice............................................................ 10 15. Governing Law..................................................... 11 16. Costs............................................................. 11 17. Severability...................................................... 11 18. Arbitration....................................................... 11 19. Entire Agreement.................................................. 12 20. Withholding....................................................... 12 21. Separate Counsel.................................................. 13 ii AGREEMENT THIS AGREEMENT dated as of January 12, 2001 is made by and between James J. Peterson ("Executive") and MICROSEMI CORPORATION, a Delaware corporation ("Company") NOW, THEREFORE, for good and valuable considerations, receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Term. The term of this Agreement shall commence on the date hereof. -- ---- The term of this Agreement shall be renewed automatically on a daily basis so that the outstanding term is always two (2) years after the date on which notice of non-renewal or termination of this Agreement is given by the Executive to the Company or by the Company to the Executive. This Agreement relates to Executive's employment with the Company, or any subsidiary, successor, assign or affiliate of the Company, under any written or oral agreement. For purposes of the following provisions "Date of Termination" means the effective date of termination of Executive's employment with any of the entities described above, after notice and lapse of the notice period as required herein. 2. Terminations by Executive. -- ------------------------- a. Termination by Executive for "Good Reason." Following a -- ----------------------------------------- Change in Control, Executive may terminate his active employment under his oral or written employment agreement with the Company upon five (5) days' written notice to the Company given within ninety (90) days following the date on which the Executive becomes aware of any of the following events, each of which shall be deemed to be good reason for termination by Executive: (i) any reduction in, or limitation upon, the compensation, --- reimbursable expenses or other benefits provided in this Agreement, other than (A) as generally effected by valid public law or regulation or (B) as results from change in the amount of the incentive compensation pool if not resulting from changes in the incentive pool formula or allocations and not resulting from accounting or operational effects of the acquisition; (ii) any change in assignment of Executive's primary duties to ---- a work location more than 50 miles from the Company's principal executive office at 2830 South Fairview Street, Santa Ana, California 92704, without Executive's prior written consent; (iii) any failure by the Company to obtain the assumption of ----- this Agreement by any successor or assign of the Company; (iv) any material breach by the Company of any provision of ---- this Agreement; or (v) any action taken by the Board or a standing Committee of --- the Board in connection with, or the formation of a special Committee of the Board for the purpose of, effecting any of the events listed in subparagraphs (i) through (iv) immediately above; b. Change of Control. For purposes of this Agreement, "Change in -- ----------------- Control" means the occurrence of any of the following events: (i) Any "person" (as such term is used in Sections 13(d) and --- 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the total voting power represented by the Company's then outstanding voting securities; (ii) Consummation of a merger or consolidation of the Company ---- with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty-one percent (51%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approving a plan of complete liquidation of the Company or a consummation of the sale or disposition by the Company of all or substantially all of the Company's assets. c. Voluntary Termination by Executive. After a Change in Control, -- ---------------------------------- without reason or for any reason other than one set forth in Section 2.a above, Executive may voluntarily terminate his employment with the Company under any --------- oral or written employment agreement upon a minimum of one (1) month's written notice to the Company. 3. Executive's Benefits Following Termination. -- ------------------------------------------ a. Executive's Benefits in Termination by Executive without "Good -- -------------------------------------------------------------- Reason" following Change in Control. If Executive terminates his active - ----------------------------------- employment under his oral or 2 written employment agreement with the Company following a Change in Control without "Good Reason": (i) Salary. Executive or his estate shall be entitled to --- receive 100% of his latest base salary for a period of n months following the Date of Termination (where n is equal to the sum of three (3) months plus a number of months equal to the number of years elapsed from the Hire Date to the date notice of termination is given; provided, however that n shall be at least 12 and not more than 18). (ii) Incentive Compensation. Executive or his estate will be ---- entitled to receive a prorated portion of the incentive compensation for the partial year ending on the Date of Termination. (iii) Car Allowance. The car allowance shall continue until the ----- expiration of n months after the Date of Termination (where n is equal to the sum of three (3) months plus a number of months equal to the number of years elapsed from the Hire Date to the date the Company gives notice of termination; provided, however that n shall be at least 12 and not more than 18), subject to termination as described in Section 7. (iv) Stock Options. The restricted stock granted by the Company ---- to Executive under all plans and all stock options and general stock appreciation rights granted by the Company to Executive will remain in existence, and continue to vest and remain exercisable for a period ending n months after the Date of Termination (where n is equal to the sum of three (3) months plus a number of months equal to the number of years elapsed from the Hire Date to the date the Company gives notice of termination; provided, however that n shall be at least 12 and not more than 18), subject in either case to the latest expiration date specified in the restricted stock or option agreements. (v) Medical and Life Insurance. Payment of premiums for --- medical, dental and vision insurance and life insurance by the Company shall continue on and subject to the terms of this Agreement for a period ending n months after the Date of Termination (where n is equal to the sum of three (3) months plus a number of months equal to the number of years elapsed from the Hire Date to the date the Company gives notice of termination; provided, however that n shall be at least 12 and not more than 18), subject to termination under Section 7. 3 (vi) Retirement Plans; Unvested Company Contribution. The ---- ------- Executive shall be entitled to receive, not later than the fifteenth (15th) day -------- following the Date of Termination, all benefits payable to him upon or on account of termination under any of the Company's tax-qualified employee benefit plans and any other plan, program or arrangement relating to deferred compensation, retirement or other benefits including, without limitation, any profit sharing, 401(k), employee stock ownership plan, or any plan established as a supplement to any of the aforementioned plans. The Company shall not be required to pay Executive any amount of unvested Company contributions credited to the Executive's account under any tax-qualified employee benefit plan maintained by the Company as of the Date of Termination. In the event that this paragraph should conflict with the provisions of any of the Company's tax- qualified employee benefit plans and any other plan, program or arrangement relating to deferred compensation, retirement or other benefits including, without limitation, any profit sharing, 401(k), employee stock ownership plan, or any plan established as a supplement to any of the aforementioned plans, then the provisions of the plan shall govern. (vii) Vacation and Sick Leave. The Company shall also pay ----- ---- Executive, not later than the second day following the Date of Termination, a pro rata amount of his base salary under his employment agreement, in effect on the Date of Termination, for each day of vacation leave which has accrued as of ---- the Date of Termination, but which is unpaid as of such date, to which Executive is entitled under the Company's vacation leave policy. The Company shall be required to pay for sick leave days only to the extent that Executive has taken sick leave on or prior to the Date of Termination to which Executive is entitled under the Company's sick leave policy. (viii) General. Executive or his estate shall also be entitled ------ ------- --------- to any other amounts then owing or accrued but unpaid to the Executive pursuant --- to any plans or arrangements of the Company. b. Executive's Benefits in Termination by Executive for "Good -- ---------------------------------------------------------- Reason" or by Company following Change in Control. If Executive terminates his - ------------------------------------------------- active employment under his oral or written employment agreement with the Company for "Good Reason" following a Change in Control or the Company terminates his active employment under his oral or written employment agreement with the Company following a Change in Control: 4 (i) Salary. Executive or his estate shall be entitled to --- payment, to be received not later than the fifteenth (15th) day following the Date of Termination, of an amount equal to two (2) times his base salary as of the Date of Termination. (ii) Incentive Compensation. Executive or his estate will be ---- entitled to receive, not later than the fifteenth (15th) day following the Date of Termination, an incentive compensation payment of two (2) times the highest annual incentive compensation amount paid during any of the preceding three (3) full plan years. (iii) Car Allowance. The car allowance shall continue for a ----- period of two (2) years following the Date of Termination, subject to termination as described in Section 7. (iv) Stock Options. The restriction or forfeiture period on any ---- restricted stock granted by the Company to Executive under all plans and all stock options and general stock appreciation rights granted by the Company to Executive shall lapse or accelerate, as the case may be, and become fully vested and exercisable on the Date of Termination, and shall remain exercisable for a period of two (2) years following the Date of Termination, subject to the latest expiration date specified in the restricted stock or option agreements. (v) Medical and Life Insurance. Payment of premiums for --- medical, dental and vision insurance and life insurance by the Company shall continue on and subject to the terms of this Agreement for a period of two (2) years following the Date of Termination, subject to termination under Section 7. (vi) Retirement Plans; Unvested Company Contribution. The ---- Executive shall be entitled to receive, not later than the fifteenth (15th) day -------- following the Date of Termination, all benefits payable to him upon or on account of termination under any of the Company's tax-qualified employee benefit plans and any other plan, program or arrangement relating to deferred compensation, retirement or other benefits including, without limitation, any profit sharing, 401(k), employee stock ownership plan, or any plan established as a supplement to any of the aforementioned plans. The Company shall also pay Executive, not later than the fifteenth (15th) day following the Date of Termination, an amount equal to all unvested Company contributions credited to the Executive's account under any tax-qualified employee benefit plan maintained by the Company as of the Date of Termination. In the event that this paragraph should conflict with the provisions of any of the Company's tax-qualified employee benefit plans and any 5 other plan, program or arrangement relating to deferred compensation, retirement or other benefits including, without limitation, any profit sharing, 401(k), employee stock ownership plan, or any plan established as a supplement to any of the aforementioned plans, then the provisions of the plan shall govern, provided that the Company's contribution shall vest pursuant to this Section. (vii) Vacation and Sick Leave. The Company shall also pay ----- Executive, not later than the second day following the Date of Termination, a pro rata amount of his base salary under his employment agreement, in effect on the Date of Termination, for each day of vacation leave which has accrued as of ---- the Date of Termination, but which is unpaid as of such date, to which Executive is entitled under the Company's vacation leave policy. The Company shall be required to pay for sick leave days only to the extent that Executive has taken sick leave on or prior to the Date of Termination to which Executive is entitled under the Company's sick leave policy. (viii) General. Executive or his estate shall also be entitled ------ ------- --------- to any other amounts then owing or accrued but unpaid to the Executive pursuant --- to any plans or arrangements of the Company. 4. Other Benefits Following Termination. Executive shall also be -- ------------------------------------ entitled to the following additional benefits upon or following any such termination following a Change in Control as described in Section 3: a. During the period following employment or benefits hereunder, to -- the extent required by law, Executive shall have the rights under the Consolidated Omnibus Budget Reconciliation Act ("COBRA"), or any successor statute. 5. Excise Taxes. If all or any portion of the amounts payable to -- ------------ Executive or on Executive's behalf under this Agreement or otherwise are subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (or similar state tax and/or assessment), the Company shall pay to Executive an amount necessary to place Executive in the same after-tax position as Executive would have been had no such excise tax been imposed. The amount payable pursuant to the preceding sentence shall be grossed-up to the extent necessary to pay income and excise taxes due on such amount. The determination of the amount of any such tax indemnity shall initially be made by the independent accounting firm then employed by the Company. If at a later date it is determined (pursuant to final regulations or published rulings of the IRS, final judgment of a court of competent jurisdiction or otherwise) that the amount of excise taxes 6 payable by Executive is greater than the amount initially so determined, then the Company (or its successor) shall pay Executive an amount equal to the sum of (1) such additional excise taxes, (2) any interest, fines and penalties resulting from such underpayment, plus (3) a gross-up amount necessary to reimburse Executive for any income, excise or other taxes payable by Executive with respect to the amounts specified in (1) and (2) above, and the reimbursement provided by this clause (3). 6. Indemnification. For at least ten (10) years following the Date of -- --------------- Termination for any reason, Executive shall continue to be indemnified under the Company's Certificate of Incorporation and Bylaws at least to the same extent indemnification was available prior to the Date of Termination and permitted by law, and Executive shall be insured under the directors' and officers' liability insurance, the fiduciary liability insurance and the professional liability insurance policies that are the same as, or provide coverage at least equivalent to, those applicable or made available by the Company to the then members of senior management of the Company. Independent of such provision, if at any time Executive is made, or threatened to be made, a party to any legal action or proceeding, whether civil or criminal, by reason of the fact that Executive is or was a director or officer of the Company or serves or served any other corporation fifty percent (50%) or more owned or controlled by the Company in any capacity at the Company's request, Executive shall be indemnified by the Company, and the Company shall pay Executive's related expenses when and as incurred, all to the full extent permitted by law. 7. Obligatory Restrictions on Executive. Executive agrees that during -- ------------------------------------ the period of the commencing on the Date of Termination and extending n months (where n is equal to the sum of three (3) months plus a number of months equal to the number of years elapsed from the Hire Date to the date notice of termination is given; provided, however that n shall be at least 12 and not more than 18), except as provided below or with the Company's written consent, he will be bound by the following restrictive covenants: a. Non-Competition. Following any involuntary termination following -- --------------- a Change in Control or a termination by Executive for Good Reason following a Change in Control, the restrictions in this paragraph, and any similar restrictions under any employment agreement between the Company and Executive or otherwise shall be of no force or effect. In the event of a voluntary termination (other than for Good Reason) by Executive following a Change in Control, Executive will not, directly or indirectly, engage for his own account in, or own, manage, operate, 7 control, be employed as an employee or consultant, buy, participate in, or be connected in any manner with the ownership, management, operation or control of any firm, corporation, association, or other business entity which is in competition with the business of the Company; provided that Executive may invest in a business competitive with the Company to an extent not exceeding five percent (5%) of the total outstanding shares at the time of such investment in each one or more companies. A business will be considered for this purpose in competition with the Company if and only if the products of such business include more than one-third of the Company's products as of immediately prior to the Change in Control. In the event of a breach or threatened breach by Executive of the provisions of this paragraph, the Company shall be entitled to an injunction restraining Executive from violating the provisions of this paragraph. b. No Solicitation of Employees. Executive will not solicit or, with -- ---------------------------- the exception of any persons related to Executive by blood, marriage, or adoption, not more remote than first cousin, employ any current or future employee of the Company and will not intentionally disparage the Company, its management or its products. c. Consideration. Executive's obligations are made partly in -- ------------- consideration of the salary and other benefits paid or committed to be paid by the Company following the Date of Termination. The restrictive covenants on the part of Executive set forth in this Section 20 shall survive the termination of this Agreement, and the existence of any claims or cause of action by Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense in the enforcement of these covenants. 8. Termination of Certain Benefits Following New Employment. If Executive -- -------------------------------------------------------- accepts a substantial engagement or employment ("New Employment") with any other corporation, partnership, trust, government or other entity at any time during the term of benefit continuation referred to above, the Company may elect that Executive cease to be entitled to car allowance or medical, dental or vision insurance benefits effective upon the commencement of such other engagement or employment. However, Executive shall nevertheless continue to be entitled to the other benefits of this Agreement and shall continue to be bound by the provisions of this Agreement for any remaining duration of any period then applicable to Executive. For the purposes of this provision, "employment" or "engagement" shall exclude (i) service as an officer or director of a personal investment holding company, (ii) service as a director on the Board of a corporation or nonprofit organization, (iii) engagement as a bona fide part-time consultant, or (iv) self-employment 8 or engagement as an officer or director of an operating corporation or enterprise (as opposed to a personal investment holding company) founded or controlled by Executive and which has (and only so long as it continues to have) revenues of less than $25 million per year. 9. No Mitigation by Executive Required. Company recognizes that because -- ----------------------------------- of Executive's special talents, stature and opportunities in the electronics industry, in the event of termination by the Company or Executive before the end of the agreed term, the parties acknowledge and agree that the provisions of this Agreement regarding further payment of base salary, bonuses, and the exercisability of stock options and lapse of the restrictive or forfeiture period on restricted stock constitute fair and reasonable provisions for the consequences of such termination, do not constitute a penalty, and such payments and benefits shall not be limited or reduced by amounts Executive might earn or be able to earn from any other employment or ventures during the remainder of the agreed term of this Agreement. Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise. 10. Binding Agreement. This Agreement shall be binding upon and inure --- ----------------- to the benefit of Executive, his heirs, distributees and assigns, and the Company, its successors and assigns. Executive may not, without the express written permission of the Company, assign or pledge any rights or obligations hereunder to any person, firm or corporation. Such permission shall not be unreasonably withheld. If the Executive should die while any amount would still be payable to Executive if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with this Agreement to the Executive's estate. 11. No Attachment. Except as required by law, no right to receive --- ------------- payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to execution, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 12. Assignment and Other Rights. The Company will require any successor --- --------------------------- (whether direct or indirect, by operation of law, by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company) to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such 9 assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled hereunder, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its business and/or assets that assumes and agrees to perform this Agreement by operation of law, or otherwise. 13. Waiver. No term or condition of this Agreement shall be deemed to --- ------ have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. 14. Notice. For the purposes of this Agreement, notices and all other --- ------ communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Executive at his home address appearing in the records of the Company, in the case of the Executive, and in the case of the Company, to the attention of the Chairman of the Board at the principal executive offices of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. Acceptance by Executive of benefits of participation shall constitute a certification by Executive of his continued eligibility for participation. 15. Governing Law. This Agreement shall be governed and construed in --- ------------- accordance with the laws of the State of California. 16. Costs. Each of the parties shall pay its own expenses, including --- ----- attorneys' fees, in the negotiation and preparation of this Agreement. 17. Severability. If, for any reason, any provision of this Agreement is --- ------------ held invalid, such invalidity shall not affect any other provision of this Agreement not held so invalid, and each such other provision shall to the full extent consistent with law continue in full force and effect. If any provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the 10 rest of such provision not held so invalid, and the rest of such provision, together with all other provisions of this Agreement, shall to the full extent consistent with law continue in full force and effect. If this Agreement is held invalid or cannot be enforced, then to the full extent permitted by law, any prior agreement between the Company (or any predecessor thereof) and Executive shall be deemed reinstated as if this Agreement has not been executed. 18. Arbitration. --- ----------- a. Any disagreement, dispute, controversy or claim arising out of or -- in any way related to this Agreement or the subject matter thereof or the interpretation hereof or any arrangements relating hereto or contemplated herein or the breach, termination or invalidity hereof shall be settled exclusively and finally by arbitration. b. The arbitration shall be conducted in accordance with the -- Commercial Arbitration Rules (the "Arbitration Rules") of the American Arbitration Association (the "AAA"). The arbitral tribunal shall consist of one arbitrator. c. The Company shall pay all of the fees, if any, and expenses of -- such arbitration, and shall also pay all Executive's expenses, including attorneys' fees, incurred in connection with the arbitration regardless of the final outcome of such arbitration. d. The arbitration shall be conducted in Orange County, California, -- or in any other city or county in the United States of America as the parties to the dispute may designate by mutual written consent. e. Any decision or award of the tribunal shall be final and binding -- upon the parties to the arbitration proceeding. The parties hereto hereby waive to the extent permitted by law any rights to appeal or to review such award by any court or tribunal. The parties hereto agree that the award may be enforced against the parties to the arbitration proceeding or their assets wherever the award may be entered in any court having jurisdiction thereof. f. The parties stipulate that discovery may be held in any such -- arbitration proceeding as provided in Section 1283.05 of the California Code of Civil Procedure, as may be amended or revised from time to time. 11 g. During the period until the dispute is finally resolved in -- accordance with this Section, the Company will continue to pay the Executive his full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue the Executive as a participant in all compensation, employee benefit and insurance plans, programs, arrangements and perquisites in which the Executive was participating or entitled when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this paragraph (c). Amounts paid under this paragraph (c) shall be repaid to the Company or be offset against or reduce any other amounts due the Executive under this Agreement, as appropriate, only upon the final resolution of the dispute. 19. Entire Agreement. As of the date hereof, all previous agreements --- ---------------- relating to the employment of Executive, however styled, are hereby superseded to the extent inconsistent herewith, and, excepting Executive's present participation in Company stock and/or other benefit plans or programs and the agreements thereunder, which are hereby reaffirmed in all respects by both parties thereto except as expressly modified by this Agreement, this Agreement embodies all agreements, contracts, and understandings by and between the parties hereto. In addition, this Agreement supersedes and amends any subsequent employment agreement between Executive and the Company except to the extent such subsequent agreement expressly provides or provides benefits in excess of those herein provided. Should any other agreement, plan or arrangement between Company and Executive or other officers or employees of the Company provide for greater benefits upon a change in control, the terms of such other agreement, plan or arrangement shall apply to Executive on a "most favored" basis. This Agreement may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension, or discharge is sought. 20. Withholding. All payments or benefits under this Agreement are --- ----------- subject to, and the net payment to Executive will be reduced by, any applicable payroll tax withholding requirements, and will be payable net of appropriate amounts properly credited to the payment of income taxes of the Executive. The determination of the amount of any such withholding shall be made or confirmed by the independent accounting firm then employed by the Company. 21. Separate Counsel. The Company has been represented by Yocca Patch & --- ---------------- Yocca, LLP in the negotiation and execution of this Agreement. The Executive has been invited and given 12 opportunity to engage counsel to review or negotiate this Agreement, and Executive has either done so or chosen not to engage counsel. IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the day and year first above written. COMPANY: MICROSEMI CORPORATION By: /S/ JAMES J. PETERSON ---------------------- James J. Peterson President and CEO EXECUTIVE: /S/ JAMES J. PETERSON ---------------------- James J. Peterson 13 EX-10.88 4 0004.txt CHANGE OF CONTROL AGREEMENT DAVID SONKSEN EXHIBIT 10.88 AGREEMENT by and between MICROSEMI CORPORATION and Mr. David R. Sonksen TABLE OF CONTENTS
1. Term................................................................. 1 2. Terminations by Executive............................................ 1 a. Termination by Executive for "Good Reason........................ 1 b. Change of Control................................................ 2 c. Voluntary Termination by Executive............................... 2 3. Executive's Benefits Following Termination........................... 3 a. Executive's Benefits in Termination by Executive without "Good Reason" following Change in Control.............................. 3 (i) Salary.................................................. 3 (ii) Incentive Compensation.................................. 3 (iii) Car Allowance........................................... 3 (iv) Stock Options........................................... 3 (v) Medical Insurance....................................... 3 (vi) Retirement Plans; Unvested Company Contribution......... 4 (vii) Vacation and Sick Leave................................. 4 (viii) General................................................. 4 b. Executive's Benefits in Termination by Executive for "Good Reason" or by Company following Change in Control................ 4 (i) Salary.................................................. 4 (ii) Incentive Compensation.................................. 5 (iii) Car Allowance........................................... 5 (iv) Stock Options........................................... 5 (v) Medical and Life Insurance.............................. 5 (vi) Retirement Plans; Unvested Company Contribution......... 5 (vii) Vacation and Sick Leave................................. 6 (viii) General................................................. 6 4. Other Benefits Following Termination................................. 6 5. Excise Taxes......................................................... 7 6. Indemnification...................................................... 7 7. Obligatory Restrictions on Executive................................. 7 a. Non-Competition.................................................. 8 b. No Solicitation of Employees..................................... 8 c. Consideration.................................................... 8 8. Termination of Certain Benefits Following New Employment............. 9 9. No Mitigation by Executive Required.................................. 9 10. Binding Agreement.................................................... 9 11. No Attachment........................................................ 10 12. Assignment and Other Rights.......................................... 10 13. Waiver............................................................... 10 14. Notice............................................................... 10 15. Governing Law........................................................ 11
16. Costs................................................................ 11 17. Severability......................................................... 11 18. Arbitration.......................................................... 11 19. Entire Agreement..................................................... 12 20. Withholding.......................................................... 12 21. Separate Counsel..................................................... 13
ii AGREEMENT THIS AGREEMENT dated as of January 12, 2001 is made by and between David R. Sonksen ("Executive") and MICROSEMI CORPORATION, a Delaware corporation ("Company") NOW, THEREFORE, for good and valuable considerations, receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Term. The term of this Agreement shall commence on the date hereof. -- ---- The term of this Agreement shall be renewed automatically on a daily basis so that the outstanding term is always two (2) years after the date on which notice of non-renewal or termination of this Agreement is given by the Executive to the Company or by the Company to the Executive. This Agreement relates to Executive's employment with the Company, or any subsidiary, successor, assign or affiliate of the Company, under any written or oral agreement. For purposes of the following provisions "Date of Termination" means the effective date of termination of Executive's employment with any of the entities described above, after notice and lapse of the notice period as required herein. 2. Terminations by Executive. -- ------------------------- a. Termination by Executive for "Good Reason." Following a Change in -- ----------------------------------------- Control, Executive may terminate his active employment under his oral or written employment agreement with the Company upon five (5) days' written notice to the Company given within ninety (90) days following the date on which the Executive becomes aware of any of the following events, each of which shall be deemed to be good reason for termination by Executive: (i) any reduction in, or limitation upon, the compensation, --- reimbursable expenses or other benefits provided in this Agreement, other than (A) as generally effected by valid public law or regulation or (B) as results from change in the amount of the incentive compensation pool if not resulting from changes in the incentive pool formula or allocations and not resulting from accounting or operational effects of the acquisition; (ii) any change in assignment of Executive's primary duties to a work ---- location more than 50 miles from the Company's principal executive office at 2830 South Fairview Street, Santa Ana, California 92704, without Executive's prior written consent; (iii) any failure by the Company to obtain the assumption of this ----- Agreement by any successor or assign of the Company; (iv) any material breach by the Company of any provision of this ---- Agreement; or (v) any action taken by the Board or a standing Committee of --- the Board in connection with, or the formation of a special Committee of the Board for the purpose of, effecting any of the events listed in subparagraphs (i) through (iv) immediately above; b. Change of Control. For purposes of this Agreement, "Change in -- ----------------- Control" means the occurrence of any of the following events: (i) Any "person" (as such term is used in Sections 13(d) and --- 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the total voting power represented by the Company's then outstanding voting securities; (ii) Consummation of a merger or consolidation of the Company ---- with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty-one percent (51%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approving a plan of complete liquidation of the Company or a consummation of the sale or disposition by the Company of all or substantially all of the Company's assets. c. Voluntary Termination by Executive. After a Change in Control, -- ---------------------------------- without reason or for any reason other than one set forth in Section 2.a above, Executive may voluntarily terminate his employment with the Company under any --------- oral or written employment agreement upon a minimum of one (1) month's written notice to the Company. 3. Executive's Benefits Following Termination. -- ------------------------------------------ a. Executive's Benefits in Termination by Executive without "Good -- -------------------------------------------------------------- Reason" following Change in Control. If Executive terminates his active - ----------------------------------- employment under his oral or written employment agreement with the Company following a Change in Control without "Good Reason": 2 (i) Salary. Executive or his estate shall be entitled to receive --- 100% of his latest base salary for a period of n months following the Date of Termination (where n is equal to the sum of three (3) months plus a number of months equal to the number of years elapsed from the Hire Date to the date notice of termination is given; provided, however that n shall be at least 12 and not more than 18). (ii) Incentive Compensation. Executive or his estate will be ---- entitled to receive a prorated portion of the incentive compensation for the partial year ending on the Date of Termination. (iii) Car Allowance. The car allowance shall continue until the ----- expiration of n months after the Date of Termination (where n is equal to the sum of three (3) months plus a number of months equal to the number of years elapsed from the Hire Date to the date the Company gives notice of termination; provided, however that n shall be at least 12 and not more than 18), subject to termination as described in Section 7. (iv) Stock Options. The restricted stock granted by the Company to ---- Executive under all plans and all stock options and general stock appreciation rights granted by the Company to Executive will remain in existence, and continue to vest and remain exercisable for a period ending n months after the Date of Termination (where n is equal to the sum of three (3) months plus a number of months equal to the number of years elapsed from the Hire Date to the date the Company gives notice of termination; provided, however that n shall be at least 12 and not more than 18), subject in either case to the latest expiration date specified in the restricted stock or option agreements. (v) Medical and Life Insurance. Payment of premiums for medical, --- dental and vision insurance and life insurance by the Company shall continue on and subject to the terms of this Agreement for a period ending n months after the Date of Termination (where n is equal to the sum of three (3) months plus a number of months equal to the number of years elapsed from the Hire Date to the date the Company gives notice of termination; provided, however that n shall be at least 12 and not more than 18), subject to termination under Section 7. (vi) Retirement Plans; Unvested Company Contribution. The Executive ---- ------- shall be entitled to receive, not later than the fifteenth (15th) day following -------- the Date of Termination, all benefits payable to him upon or on account of termination under any of the Company's tax-qualified employee benefit plans and any other plan, program or arrangement 3 relating to deferred compensation, retirement or other benefits including, without limitation, any profit sharing, 401(k), employee stock ownership plan, or any plan established as a supplement to any of the aforementioned plans. The Company shall not be required to pay Executive any amount of unvested Company contributions credited to the Executive's account under any tax-qualified employee benefit plan maintained by the Company as of the Date of Termination. In the event that this paragraph should conflict with the provisions of any of the Company's tax-qualified employee benefit plans and any other plan, program or arrangement relating to deferred compensation, retirement or other benefits including, without limitation, any profit sharing, 401(k), employee stock ownership plan, or any plan established as a supplement to any of the aforementioned plans, then the provisions of the plan shall govern. (vii) Vacation and Sick Leave. The Company shall also pay Executive, ----- ---- not later than the second day following the Date of Termination, a pro rata amount of his base salary under his employment agreement, in effect on the Date of Termination, for each day of vacation leave which has accrued as of the Date ---- of Termination, but which is unpaid as of such date, to which Executive is entitled under the Company's vacation leave policy. The Company shall be required to pay for sick leave days only to the extent that Executive has taken sick leave on or prior to the Date of Termination to which Executive is entitled under the Company's sick leave policy. (viii) General. Executive or his estate shall also be entitled to ------ ------- --------- any other amounts then owing or accrued but unpaid to the Executive pursuant to --- any plans or arrangements of the Company. b. Executive's Benefits in Termination by Executive for "Good Reason" or -- --------------------------------------------------------------------- by Company following Change in Control. If Executive terminates his active - -------------------------------------- employment under his oral or written employment agreement with the Company for "Good Reason" following a Change in Control or the Company terminates his active employment under his oral or written employment agreement with the Company following a Change in Control: (i) Salary. Executive or his estate shall be entitled to payment, to --- be received not later than the fifteenth (15th) day following the Date of Termination, of an amount equal to two (2) times his base salary as of the Date of Termination. (ii) Incentive Compensation. Executive or his estate will be ---- entitled to receive, not later than the fifteenth (15th) day following the Date of Termination, an 4 incentive compensation payment of two (2) times the highest annual incentive compensation amount paid during any of the preceding three (3) full plan years. (iii) Car Allowance. The car allowance shall continue for a period ----- of two (2) years following the Date of Termination, subject to termination as described in Section 7. (iv) Stock Options. The restriction or forfeiture period on any ---- restricted stock granted by the Company to Executive under all plans and all stock options and general stock appreciation rights granted by the Company to Executive shall lapse or accelerate, as the case may be, and become fully vested and exercisable on the Date of Termination, and shall remain exercisable for a period of two (2) years following the Date of Termination, subject to the latest expiration date specified in the restricted stock or option agreements. (v) Medical and Life Insurance. Payment of premiums for medical, --- dental and vision insurance and life insurance by the Company shall continue on and subject to the terms of this Agreement for a period of two (2) years following the Date of Termination, subject to termination under Section 7. (vi) Retirement Plans; Unvested Company Contribution. The Executive ---- shall be entitled to receive, not later than the fifteenth (15th) day following -------- the Date of Termination, all benefits payable to him upon or on account of termination under any of the Company's tax-qualified employee benefit plans and any other plan, program or arrangement relating to deferred compensation, retirement or other benefits including, without limitation, any profit sharing, 401(k), employee stock ownership plan, or any plan established as a supplement to any of the aforementioned plans. The Company shall also pay Executive, not later than the fifteenth (15th) day following the Date of Termination, an amount equal to all unvested Company contributions credited to the Executive's account under any tax-qualified employee benefit plan maintained by the Company as of the Date of Termination. In the event that this paragraph should conflict with the provisions of any of the Company's tax-qualified employee benefit plans and any other plan, program or arrangement relating to deferred compensation, retirement or other benefits including, without limitation, any profit sharing, 401(k), employee stock ownership plan, or any plan established as a supplement to any of the aforementioned plans, then the provisions of the plan shall govern, provided that the Company's contribution shall vest pursuant to this Section. (vii) Vacation and Sick Leave. The Company shall also pay Executive, ----- not later than the second day following the Date of Termination, a pro rata amount of his 5 base salary under his employment agreement, in effect on the Date of Termination, for each day of vacation leave which has accrued as of the Date of ---- Termination, but which is unpaid as of such date, to which Executive is entitled under the Company's vacation leave policy. The Company shall be required to pay for sick leave days only to the extent that Executive has taken sick leave on or prior to the Date of Termination to which Executive is entitled under the Company's sick leave policy. (viii) General. Executive or his estate shall also be entitled to ------ ------- --------- any other amounts then owing or accrued but unpaid to the Executive pursuant to --- any plans or arrangements of the Company. 4. Other Benefits Following Termination. Executive shall also be entitled -- ------------------------------------ to the following additional benefits upon or following any such termination following a Change in Control as described in Section 3: a. During the period following employment or benefits hereunder, to -- the extent required by law, Executive shall have the rights under the Consolidated Omnibus Budget Reconciliation Act ("COBRA"), or any successor statute. 5. Excise Taxes. If all or any portion of the amounts payable to -- ------------ Executive or on Executive's behalf under this Agreement or otherwise are subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (or similar state tax and/or assessment), the Company shall pay to Executive an amount necessary to place Executive in the same after-tax position as Executive would have been had no such excise tax been imposed. The amount payable pursuant to the preceding sentence shall be grossed-up to the extent necessary to pay income and excise taxes due on such amount. The determination of the amount of any such tax indemnity shall initially be made by the independent accounting firm then employed by the Company. If at a later date it is determined (pursuant to final regulations or published rulings of the IRS, final judgment of a court of competent jurisdiction or otherwise) that the amount of excise taxes payable by Executive is greater than the amount initially so determined, then the Company (or its successor) shall pay Executive an amount equal to the sum of (1) such additional excise taxes, (2) any interest, fines and penalties resulting from such underpayment, plus (3) a gross-up amount necessary to reimburse Executive for any income, excise or other taxes payable by Executive with respect to the amounts specified in (1) and (2) above, and the reimbursement provided by this clause (3). 6 6. Indemnification. For at least ten (10) years following the Date of -- --------------- Termination for any reason, Executive shall continue to be indemnified under the Company's Certificate of Incorporation and Bylaws at least to the same extent indemnification was available prior to the Date of Termination and permitted by law, and Executive shall be insured under the directors' and officers' liability insurance, the fiduciary liability insurance and the professional liability insurance policies that are the same as, or provide coverage at least equivalent to, those applicable or made available by the Company to the then members of senior management of the Company. Independent of such provision, if at any time Executive is made, or threatened to be made, a party to any legal action or proceeding, whether civil or criminal, by reason of the fact that Executive is or was a director or officer of the Company or serves or served any other corporation fifty percent (50%) or more owned or controlled by the Company in any capacity at the Company's request, Executive shall be indemnified by the Company, and the Company shall pay Executive's related expenses when and as incurred, all to the full extent permitted by law. 7. Obligatory Restrictions on Executive. Executive agrees that during the -- ------------------------------------ period of the commencing on the Date of Termination and extending n months (where n is equal to the sum of three (3) months plus a number of months equal to the number of years elapsed from the Hire Date to the date notice of termination is given; provided, however that n shall be at least 12 and not more than 18), except as provided below or with the Company's written consent, he will be bound by the following restrictive covenants: a. Non-Competition. Following any involuntary termination following -- --------------- a Change in Control or a termination by Executive for Good Reason following a Change in Control, the restrictions in this paragraph, and any similar restrictions under any employment agreement between the Company and Executive or otherwise shall be of no force or effect. In the event of a voluntary termination (other than for Good Reason) by Executive following a Change in Control, Executive will not, directly or indirectly, engage for his own account in, or own, manage, operate, control, be employed as an employee or consultant, buy, participate in, or be connected in any manner with the ownership, management, operation or control of any firm, corporation, association, or other business entity which is in competition with the business of the Company; provided that Executive may invest in a business competitive with the Company to an extent not exceeding five percent (5%) of the total outstanding shares at the time of such investment in each one or more companies. A business will be considered for this purpose in competition with the Company if and only if the products of such business include more than one-third of the Company's products as of immediately prior to the Change in Control. In the event of a breach or threatened breach by 7 Executive of the provisions of this paragraph, the Company shall be entitled to an injunction restraining Executive from violating the provisions of this paragraph. b. No Solicitation of Employees. Executive will not solicit or, with -- ---------------------------- the exception of any persons related to Executive by blood, marriage, or adoption, not more remote than first cousin, employ any current or future employee of the Company and will not intentionally disparage the Company, its management or its products. c. Consideration. Executive's obligations are made partly in -- ------------- consideration of the salary and other benefits paid or committed to be paid by the Company following the Date of Termination. The restrictive covenants on the part of Executive set forth in this Section 20 shall survive the termination of this Agreement, and the existence of any claims or cause of action by Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense in the enforcement of these covenants. 8. Termination of Certain Benefits Following New Employment. If Executive -- -------------------------------------------------------- accepts a substantial engagement or employment ("New Employment") with any other corporation, partnership, trust, government or other entity at any time during the term of benefit continuation referred to above, the Company may elect that Executive cease to be entitled to car allowance or medical, dental or vision insurance benefits effective upon the commencement of such other engagement or employment. However, Executive shall nevertheless continue to be entitled to the other benefits of this Agreement and shall continue to be bound by the provisions of this Agreement for any remaining duration of any period then applicable to Executive. For the purposes of this provision, "employment" or "engagement" shall exclude (i) service as an officer or director of a personal investment holding company, (ii) service as a director on the Board of a corporation or nonprofit organization, (iii) engagement as a bona fide part-time consultant, or (iv) self-employment or engagement as an officer or director of an operating corporation or enterprise (as opposed to a personal investment holding company) founded or controlled by Executive and which has (and only so long as it continues to have) revenues of less than $25 million per year. 9. No Mitigation by Executive Required. Company recognizes that because -- ----------------------------------- of Executive's special talents, stature and opportunities in the electronics industry, in the event of termination by the Company or Executive before the end of the agreed term, the parties acknowledge and agree that the provisions of this Agreement regarding further payment of base salary, bonuses, and the exercisability of stock options and lapse of the restrictive or forfeiture period on restricted stock constitute fair and reasonable provisions for the consequences of such termination, do not 8 constitute a penalty, and such payments and benefits shall not be limited or reduced by amounts Executive might earn or be able to earn from any other employment or ventures during the remainder of the agreed term of this Agreement. Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise. 10. Binding Agreement. This Agreement shall be binding upon and inure to --- ----------------- the benefit of Executive, his heirs, distributees and assigns, and the Company, its successors and assigns. Executive may not, without the express written permission of the Company, assign or pledge any rights or obligations hereunder to any person, firm or corporation. Such permission shall not be unreasonably withheld. If the Executive should die while any amount would still be payable to Executive if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with this Agreement to the Executive's estate. 11. No Attachment. Except as required by law, no right to receive --- ------------- payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to execution, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 12. Assignment and Other Rights. The Company will require any successor --- --------------------------- (whether direct or indirect, by operation of law, by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company) to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled hereunder, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its business and/or assets that assumes and agrees to perform this Agreement by operation of law, or otherwise. 13. Waiver. No term or condition of this Agreement shall be deemed to --- ------ have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver 9 shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. 14. Notice. For the purposes of this Agreement, notices and all other --- ------ communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Executive at his home address appearing in the records of the Company, in the case of the Executive, and in the case of the Company, to the attention of the Chairman of the Board at the principal executive offices of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. Acceptance by Executive of benefits of participation shall constitute a certification by Executive of his continued eligibility for participation. 15. Governing Law. This Agreement shall be governed and construed in --- ------------- accordance with the laws of the State of California. 16. Costs. Each of the parties shall pay its own expenses, including --- ----- attorneys' fees, in the negotiation and preparation of this Agreement. 17. Severability. If, for any reason, any provision of this Agreement is --- ------------ held invalid, such invalidity shall not affect any other provision of this Agreement not held so invalid, and each such other provision shall to the full extent consistent with law continue in full force and effect. If any provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held so invalid, and the rest of such provision, together with all other provisions of this Agreement, shall to the full extent consistent with law continue in full force and effect. If this Agreement is held invalid or cannot be enforced, then to the full extent permitted by law, any prior agreement between the Company (or any predecessor thereof) and Executive shall be deemed reinstated as if this Agreement has not been executed. 10 18. Arbitration. --- ----------- a. Any disagreement, dispute, controversy or claim arising out of or -- in any way related to this Agreement or the subject matter thereof or the interpretation hereof or any arrangements relating hereto or contemplated herein or the breach, termination or invalidity hereof shall be settled exclusively and finally by arbitration. b. The arbitration shall be conducted in accordance with the -- Commercial Arbitration Rules (the "Arbitration Rules") of the American Arbitration Association (the "AAA"). The arbitral tribunal shall consist of one arbitrator. c. The Company shall pay all of the fees, if any, and expenses of -- such arbitration, and shall also pay all Executive's expenses, including attorneys' fees, incurred in connection with the arbitration regardless of the final outcome of such arbitration. d. The arbitration shall be conducted in Orange County, California, -- or in any other city or county in the United States of America as the parties to the dispute may designate by mutual written consent. e. Any decision or award of the tribunal shall be final and binding -- upon the parties to the arbitration proceeding. The parties hereto hereby waive to the extent permitted by law any rights to appeal or to review such award by any court or tribunal. The parties hereto agree that the award may be enforced against the parties to the arbitration proceeding or their assets wherever the award may be entered in any court having jurisdiction thereof. f. The parties stipulate that discovery may be held in any such -- arbitration proceeding as provided in Section 1283.05 of the California Code of Civil Procedure, as may be amended or revised from time to time. g. During the period until the dispute is finally resolved in -- accordance with this Section, the Company will continue to pay the Executive his full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue the Executive as a participant in all compensation, employee benefit and insurance plans, programs, arrangements and perquisites in which the Executive was participating or entitled when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this paragraph (c). Amounts paid under this paragraph (c) shall be repaid to the Company or be offset 11 against or reduce any other amounts due the Executive under this Agreement, as appropriate, only upon the final resolution of the dispute. 19. Entire Agreement. As of the date hereof, all previous agreements --- ---------------- relating to the employment of Executive, however styled, are hereby superseded to the extent inconsistent herewith, and, excepting Executive's present participation in Company stock and/or other benefit plans or programs and the agreements thereunder, which are hereby reaffirmed in all respects by both parties thereto except as expressly modified by this Agreement, this Agreement embodies all agreements, contracts, and understandings by and between the parties hereto. In addition, this Agreement supersedes and amends any subsequent employment agreement between Executive and the Company except to the extent such subsequent agreement expressly provides or provides benefits in excess of those herein provided. Should any other agreement, plan or arrangement between Company and Executive or other officers or employees of the Company provide for greater benefits upon a change in control, the terms of such other agreement, plan or arrangement shall apply to Executive on a "most favored" basis. This Agreement may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension, or discharge is sought. 20. Withholding. All payments or benefits under this Agreement are ----------- subject to, and the net payment to Executive will be reduced by, any applicable payroll tax withholding requirements, and will be payable net of appropriate amounts properly credited to the payment of income taxes of the Executive. The determination of the amount of any such withholding shall be made or confirmed by the independent accounting firm then employed by the Company. 21. Separate Counsel. The Company has been represented by Yocca Patch & --- ---------------- Yocca, LLP in the negotiation and execution of this Agreement. The Executive has been invited and given opportunity to engage counsel to review or negotiate this Agreement, and Executive has either done so or chosen not to engage counsel. IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the day and year first above written. COMPANY: MICROSEMI CORPORATION By: /S/ DAVID R. SONKSEN --------------------- David R. Sonksen Executive Vice President and CFO 12 EXECUTIVE: /S/ DAVID R. SONKSEN --------------------- David R. Sonksen 13 EX-18.1 5 0005.txt LETTER ON CHANGE IN ACCOUNTING January 25, 2001 EXHIBIT 18.1 Board of Directors Microsemi Corporation 2830 South Fairview Street Santa Ana, California 92704 Dear Directors: We are providing this letter to you for inclusion as an exhibit to your Form 10-Q filing pursuant to Item 601 of Regulation S-K. We have been provided a copy of the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2000. Note 2 therein describes a change in accounting principle from the last-in, first-out ("LIFO") inventory method to the first-in, first-out inventory method at Microsemi Corporation - Scottsdale, a subsidiary of the Company. It should be understood that the preferability of one acceptable method of accounting over another for the determination of the costing of inventory has not been addressed in any authoritative accounting literature and, in expressing our concurrence below, we have relied on management's determination that this change in accounting principle is preferable. Based on our reading of management's stated reasons and justification for this change in accounting principle in the Form 10-Q, and our discussions with management as to their judgment about the relevant business planning factors relating to the change, we concur with management that such change represents, in the Company's circumstances, the adoption of a preferable accounting principle in conformity with Accounting Principles Board Opinion No. 20. We have not audited any consolidated financial statements of the Company as of any date or for any period subsequent to October 1, 2000. Accordingly, our comments are subject to change upon completion of an audit of the consolidated financial statements covering the period of the accounting change. Very truly yours, /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP -----END PRIVACY-ENHANCED MESSAGE-----