-----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, NJivRrn2paeAyvmsxnO6ZuAKC2iou5MATy0Ixa5QllkOok5HiRhSqNCEx38HPr29 MegFY1pn/c2H56Upvoy3KA== 0000929624-97-000997.txt : 19970814 0000929624-97-000997.hdr.sgml : 19970814 ACCESSION NUMBER: 0000929624-97-000997 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970629 FILED AS OF DATE: 19970813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEVEL ONE COMMUNICATIONS INC /CA/ CENTRAL INDEX KEY: 0000908985 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 330128224 STATE OF INCORPORATION: CA FISCAL YEAR END: 0101 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22068 FILM NUMBER: 97658837 BUSINESS ADDRESS: STREET 1: 9750 GOETHE RD CITY: SACRAMENTO STATE: CA ZIP: 95627 BUSINESS PHONE: 9168541138 MAIL ADDRESS: STREET 1: 9750 GOETHE ROAD CITY: SACREMENTO STATE: CA ZIP: 95827 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: June 29, 1997 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-22068 LEVEL ONE COMMUNICATIONS, INCORPORATED State: California I.R.S. Employer ID No.: 33-0128224 Address: 9750 Goethe Road, Sacramento, CA 95827 Telephone: (916) 855-5000 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 periods 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 Common Shares of the registrant outstanding on June 29, 1997, was 13,488,705. 1 INDEX
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of June 29, 1997, and December 30, 1996 3 Consolidated Statements of Income for the Six Months Ended June 29, 1997, and June 29, 1996 4 Consolidated Statements of Cash Flows for the Six Months Ended June 29, 1997, and June 29, 1996 5 Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 1. Litigation 14 Item 6. Exhibits and Reports on Form 8-K 14 Signatures S-1
2 LEVEL ONE COMMUNICATIONS, INCORPORATED CONSOLIDATED BALANCE SHEETS June 29, 1997, and December 29, 1996
(in thousands except share amounts) JUNE 29, 1997 DEC. 29, 1996 ---------------- --------------- (unaudited) ASSETS Current Assets: Cash and cash equivalents $ 16,435 $ 20,251 Short-term investments 18,833 10,211 Accounts receivable, net of allowance for doubtful 20,571 18,279 accounts of $156 and $156 for 1997 and 1996, respectively Inventories 17,476 9,990 Deferred income tax benefits 2,182 2,504 Prepaid expenses 2,152 2,351 ---------------- --------------- Total current assets 77,649 63,586 Property and equipment, net 27,324 23,676 Long-term investments 9,550 12,440 Foundry deposits 8,000 8,000 Other assets 4,227 4,400 ---------------- --------------- Total assets $126,750 $112,102 ================ =============== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of capital lease obligations $ 1,089 $ 1,129 Accounts payable 8,838 4,778 Accrued payroll costs 2,578 1,985 Income taxes payable 3,016 1,338 Other accrued liabilities 2,858 3,485 ---------------- --------------- Total current liabilities 18,379 12,715 Capital lease obligations, less current portion 2,667 3,194 Deferred lease expense 544 612 ---------------- --------------- Total liabilities 21,590 16,521 Shareholders' Equity: Common Stock, no par value 84,974 83,203 Authorized - 105,000,000 shares Outstanding - 13,488,705 and 13,116,227 shares for 1997 and 1996, respectively Unrealized gain on available-for-sale securities, net of tax 12 12 Retained earnings 20,174 12,366 ---------------- --------------- Total shareholders' equity 105,160 95,581 ---------------- --------------- Total liabilities and shareholders' equity $126,750 $112,102 ================ ===============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. 3 LEVEL ONE COMMUNICATIONS, INCORPORATED CONSOLIDATED STATEMENTS OF INCOME (unaudited) (in thousands, except earnings per share)
Three Months Ended Six Months Ended -------------------------------- --------------------------------- June 29, 1997 June 29, 1996 June 29, 1997 June 29, 1996 ------------- ------------- ------------- ------------- Revenues $32,642 $27,479 $62,749 $55,021 Cost of sales 13,566 11,521 26,466 23,109 ------- ------- ------- ------- Gross margin 19,076 15,958 36,283 31,912 Research & development 6,738 5,739 13,079 11,414 Sales & marketing 4,754 3,989 9,053 7,990 General & administrative 2,221 1,765 4,023 3,531 ------- ------- ------- ------- Total operating expenses 13,713 11,493 26,155 22,935 ------- ------- ------- ------- Operating income 5,363 4,465 10,128 8,977 Interest and other income, net 492 349 858 741 ------- ------- ------- ------- Income before provision for income taxes 5,855 4,814 10,986 9,718 Provision for income taxes 1,932 1,590 3,605 3,208 ------- ------- ------- ------- Net income $ 3,923 $ 3,224 $ 7,381 $ 6,510 ======= ======= ======= ======= Earnings per Share $ 0.28 $ 0.24 $ 0.52 $ 0.48 ======= ======= ======= ======= Weighted Average Common Shares Outstanding 14,261 13,681 14,185 13,684 ======= ======= ======= =======
The accompanying notes are an integral part of these statements. 4 LEVEL ONE COMMUNICATIONS, INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
FOR SIX MONTHS ENDED ----------------------------------- (in thousands) JUNE 29, 1997 JUNE 29, 1996 ----------------- ----------------- Cash flows from operating activities: Net income $ 7,380 $ 6,510 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,516 3,277 Changes in assets and liabilities: Accounts receivable (2,292) 1,814 Inventories (7,486) 2,035 Deferred tax assets 322 390 Prepaid expenses 199 365 Accounts payable and accrued liabilities 5,704 (5,060) Deferred liabilities 0 (134) Deferred lease expense (68) (85) -------- ------- Net cash provided by operating activities 8,275 9,112 -------- ------- Cash flows from investing activities: Purchase of short-term investments (30,341) (1,400) Proceeds from sales and maturities of short-term investments 21,719 7,915 Purchase of long-term investments (7,740) (20) Proceeds from sales and maturities of long-term investments 10,630 0 Capital expenditures (7,888) (1,955) Payments for related party notes receivable 0 (1,025) Payments for foundry deposits and other assets (103) (5,782) -------- ------- Net cash provided by (used in) investing activities (13,723) (2,267) -------- ------- Cash flows from financing activities: Net principal payments under capital lease obligations (567) (532) Proceeds from issuance of stock, net of repurchases and costs of issuance 2,199 1,825 -------- ------- Net cash provided by (used in) financing activities 1,632 1,293 -------- ------- Net increase (decrease) in cash and cash equivalents (3,816) 8,138 Cash and cash equivalents at beginning of period 20,251 21,627 -------- ------- Cash and cash equivalents at end of period $ 16,435 $29,765 ======== ======= SUPPLEMENTARY DISCLOSURE OF CASH AND NONCASH TRANSACTIONS Cash payments for: Interest 295 179 Income taxes 80 2,052
The accompanying notes are an integral part of these statements. 5 LEVEL ONE COMMUNICATIONS, INCORPORATED NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six-month period ended June 29, 1997, are not necessarily indicative of the results that may be expected for the year ending December 28, 1997. The information reported in this Form 10-Q should be read in conjunction with the financial statements and footnotes contained in the Company's Form 10-K filed with the Securities and Exchange Commission for the year ended December 29, 1996, and subsequent filings with the Securities and Exchange Commission. NOTE 2 - EARNINGS PER SHARE Net income per share is computed using the weighted average number of shares of common stock outstanding, and the dilutive common equivalent shares outstanding from stock options and warrants (using the treasury stock method). Effective December 28, 1997, the Company is required to adopt Financial Accounting Standards Board No. 128, Earnings per Share. Among other things, the new standard will require replacement of primary EPS with basic EPS. Basic EPS would be computed by dividing reported earnings available to common stockholders by weighted average shares outstanding. No dilution for any potentially dilutive securities would be included. Fully diluted EPS, now called diluted EPS, would still be required. The Company has not quantified the effect of applying the new standard. 6 NOTE 3 - INVENTORIES Inventories, stated at the lower of cost (first in, first out) or market, consist of:
-------------------------------------------------------- (in thousands) June 29, 1997 December 30, 1996 -------------------------------------------------------- Raw materials $ 5,421 $ 32 Work-in-process 9,928 7,948 Finished goods 2,127 2,010 -------- -------- $ 17,476 $ 9,990 ======== ========
NOTE 4 - PROPERTY AND EQUIPMENT Property and equipment, net is comprised of the following:
-------------------------------------------------------------------- (in thousands) June 29, 1997 December 30, 1996 -------------------------------------------------------------------- Machinery and equipment $ 26,762 $ 25,254 Furniture and fixtures 18,436 11,899 Leasehold improvements 3,327 3,485 -------- -------- $ 48,525 $ 40,638 Less - accumulated depreciation (21,201) (16,962) -------- -------- $ 27,324 $ 23,676 ======== ========
7 LEVEL ONE COMMUNICATIONS, INCORPORATED _____ ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following information should be read in conjunction with the unaudited interim financial statements and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q, and the Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's Form 10-K filed with the Securities and Exchange Commission on March 31, 1997. This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results could differ materially from those projected in the forward-looking statements as a result of the factors set forth in "Factors that May Affect Future Results" and elsewhere in this Report. REVENUES Revenues increased 18.8% to $32.6 million in the second quarter of 1997 compared to $27.5 million for the same quarter of 1996. Revenues increased 14% to $62.7 million in the first six months of 1997 compared to $55.0 million for the first six months of 1996. The increases during the second quarter and first six months of 1997 reflect unit sales growth due to the continued market acceptance of the Company's products in both the networking and transmission markets, and the broadening of the Company's customer base. International sales were $10.8 million or 33.1% and $11.1 million or 40.4% of sales, respectively, for the second quarter of 1997 and 1996, and $21.6 million or 34% and $21.3 million or 39% of sales, respectively, for the first six months of 1997 and 1996. All sales are denominated in U.S. dollars, thereby eliminating the impact of foreign currency exchange rate fluctuations on revenues. GROSS MARGIN Gross margin is affected by several factors, including average selling prices, the mix between older and newer products, test equipment utilization, foundry manufacturing yields, timing of cost reductions and the mix between direct and distributor sales. Margin on domestic and international sales is similar. Gross margin as a percentage of revenues in the second quarter of 1997 was 58.4% versus 58.1% in the second quarter of 1996 and 57.2% in the first quarter of 1997. Gross margin as a percentage of revenues in the first six months of 1997 was 57.8% versus 58.0% in the first six months of 1996. RESEARCH AND DEVELOPMENT 8 Research and development expenses were $6.7 million or 20.6% of revenues in the second quarter of 1997 versus $5.7 million, or 20.9% of revenues in the second quarter of 1996. Research and development expenses were $13.1 million or 20.8% of revenues in the first six months of 1997 versus $11.4 million, or 20.7% of revenues in the first six months of 1996. The research and development expense increase in each period in 1997 is due to additions to the Company's design engineering staff and related new product design expenses. SALES AND MARKETING Sales and marketing expenses were $4.7 million or 14.6% of revenues in the second quarter of 1997 versus $4.0 million or 14.5% of revenues in the second quarter of 1996. Sales and marketing expenses were $9.1 million or 14% of revenues in the first six months of 1997 versus $8.0 million or 14.5% of revenues in the first six months of 1996. The increased dollar expenditures in each period in 1997 are attributable to sales commissions associated with increased revenues, and the expansion of the Company's sales and marketing staffs. GENERAL AND ADMINISTRATIVE In the second quarter of 1997, general and administrative expenses were $2.2 million or 6.8% of revenues versus $1.8 million or 6.4% of revenues in the same period of 1996. In the first six months of 1997, general and administrative expenses were $4.0 million or 6.4% of revenues versus $3.5 million or 6.4% of revenues in the same period of 1996. LIQUIDITY AND CAPITAL RESOURCES The Company's principal sources of liquidity as of June 29, 1997, consisted of $35.3 million of cash, cash equivalents and short-term investments, and $10 million available under the Company's revolving line of credit. At June 29, 1997, the Company had no outstanding balance under this line of credit. Working capital as of June 29, 1997, was $59.3 million. During the first six months of 1997, the Company generated $8.3 million of cash from operating activities, as compared to $9.1 million in the same period in 1996. In both years, net cash generated from operations during the period was primarily due to net income before depreciation and amortization expense. Disparities in such line items as accounts receivable, accounts payable, capital expenditures or foundry deposits reported in the first half of 1997 and 1996 reflect differences in timing, and not material changes in the Company's operations. FACTORS THAT MAY AFFECT FUTURE RESULTS The following factors may have an impact on the Company's business: 9 Manufacturing Risks The Company does not manufacture the wafers used for its products. The Company's wafers are manufactured by foundries located in the United States, Europe and Asia. The Company depends upon these suppliers to produce wafers at acceptable yields and to deliver them in a timely manner at competitive prices. The Company may sustain an adverse impact on operating results from problems with the cost, timeliness, yield and quality of wafer deliveries from suppliers. From time to time, the available industry-wide foundry capacity can fluctuate significantly. During periods of constrained supply, the Company may experience difficulty in securing an adequate supply of wafers, and/or its suppliers may increase wafer prices. The Company's operating results depend in substantial part on its ability to maintain or increase the capacity available from its existing or new foundries. In prior years, the Company has experienced increased costs and delays in customer shipments as a result of a foundry reducing shipments to the Company without prior notice, requiring the Company to transfer products to a new foundry. Although the Company believes that it has planned to meet customer demand, there can be no assurances that unforeseen demand, current supplier interruptions or other changes will not have a material impact on the Company's business. Manufacturing process technologies are subject to rapid change. Other companies in the industry have experienced difficulty in migrating to new manufacturing processes, and, consequently, have suffered reduced yields, delays in product deliveries and increased expense levels. The Company's business, financial condition and results of operations could be materially adversely affected if any such transition is substantially delayed or inefficiently implemented. The Company is also dependent upon third-party assembly companies that package the semiconductor die. The Company depends upon these suppliers to produce products in a timely manner and at competitive prices. The Company may sustain an adverse financial impact from problems with the cost, timeliness, yield and quality of product deliveries from these suppliers. Factors Affecting Annual and Quarterly Operating Results The semiconductor industry is characterized by rapid technological change, intense competitive pressure and cyclical market patterns. The Company's results of operations are affected by a wide variety of factors, including general economic conditions, semiconductor industry environment, changes in average selling prices, the timing of new product introductions (by the Company and its customers), use of new technologies, the ability to safeguard patents and intellectual property, and rapid change of demand for products. The level of net revenues in any specific quarter can also be affected by the level of orders placed during that quarter. The Company attempts to respond to changes in market conditions as soon as possible; however, the rapidity of their onset may make prediction of and reaction to such events difficult. Due to the foregoing and other factors, past results, such as those described in this Offering Circular, may not be predictive of future performance. 10 Dependence on New Products The Company's future success depends on its ability to timely develop and introduce new products which compete effectively. Because of the complexity of its products, the Company may experience delays in completing development and introduction of new products, and, as a result, not achieve the market share anticipated for such products. The Company's strategy is to develop products for the fastest growing segments of the communications market. The Company conducts its own analysis of market trends and reviews forecasts and information provided by industry analysts. Market conditions may change rapidly as technology, economic, or user-preference conditions cause different communications technologies to experience growth other than that forecast by the Company or others. There can be no assurance that the Company will successfully identify new product opportunities and bring new products to market in a timely manner, that products or technologies developed by others will not render the Company's products or technologies obsolete or noncompetitive, or that the Company's products will be selected for design into the products of its targeted customers. In addition, the average selling price for any particular product tends to decrease over the product's life. To offset such price decreases, the Company relies primarily on obtaining yield improvements and corresponding cost reductions in the manufacture of existing products and on introducing new products which incorporate advanced features and other price/performance factors such that higher average selling prices and higher margins are achievable relative to existing product lines. To the extent that cost reductions and new product introductions with higher margins do not occur in a timely manner, or the Company's products do not achieve market acceptance, the Company's operating results could be adversely affected. Management of Growth; Dependence on Key Personnel The Company is currently experiencing a period of significant growth which has placed, and could continue to place, a significant strain on the Company's personnel and other resources. The Company's ability to manage its growth effectively will require continued expansion and refinement of the Company's operational, financial and management and control systems as well as a significant increase in the Company's development, testing, quality control, marketing, logistics and service capabilities, any of which could place a significant strain on the Company's resources. The Company's success also depends to a significant extent upon the continued services of its key personnel and its ability to attract and retain key technical, sales and management personnel in the future. Competition for such personnel is intense and there can be no assurance that the Company will be able to attract and retain key technical, sales and management personnel in the future. If the Company's management is unable to manage growth effectively, maintain the quality and marketability of the Company's products and retain, hire and integrate key personnel, the Company's business, financial condition and results of operations could be materially adversely affected. Intellectual Property The Company relies upon patent, trademark, trade secret and copyright law to protect its intellectual property. There can be no assurance that such intellectual property rights can be successfully asserted or will not be invalidated, circumvented or challenged. Litigation, regardless of its outcome, could result in substantial cost and diversion of resources for the Company. Any infringement claim or other litigation against or by the Company could have a material effect on the Company's financial condition and results of operations. In November 1995 the Company commenced infringement litigation against a competitor. Semiconductor Industry The semiconductor industry has historically been cyclical and subject to significant economic downturns at various times. The Company may experience substantial period-to-period fluctuations in operating results due to general semiconductor industry conditions, overall economic conditions or other factors. In addition, the securities of many high technology companies have historically been subject to extreme price and volume fluctuations, factors which may affect the market price of the Company's Common Stock. As is common in the semiconductor industry, the Company frequently ships more product in the third month 11 of a quarter than in the other months. If a disruption in the Company's production or shipping occurs near the end of a quarter, the Company's revenues for that quarter could be adversely affected. The Company must order wafers and build inventory in advance of product shipments. There is risk that the Company could produce excess or insufficient inventories of particular products because the Company's markets are volatile and subject to rapid technology and price changes. This inventory risk is heightened because certain of the Company's customers place orders with long lead times which may be subject to cancellation or rescheduling by that customer. To the extent the Company produces excess or insufficient inventories of particular products, the Company's revenues and earnings could be adversely affected. Increased demand for semiconductor products may result in a reduction in the availability of wafers from foundries. Such capacity limitations may adversely affect the Company's ability to deliver products on a timely basis and affect the Company's margins. Additionally, the Company believes that during periods of strong demand and/or restricted semiconductor capacity, customers will over-order to assure an adequate supply. Certain of the Company's customers may cancel or postpone orders without notice if product becomes available elsewhere. Shortages of components from other suppliers could cause the Company's customers to cancel or delay programs incorporating the Company's products, resulting in the cancellation or delay of orders for the Company's products. Intense Competition The semiconductor industry is intensely competitive. The Company's competition consists of semiconductor companies and semiconductor divisions of vertically integrated companies. In the transmission market, the Company's principal competitors are Brooktree Corporation (a subsidiary of Rockwell International, Inc.), Crystal Semiconductor, Inc. (a subsidiary of Cirrus Logic, Inc.) ("Crystal"), Dallas Semiconductor, Inc., Lucent Technologies Inc. ("Lucent"), PMC-Sierra Inc. and Siemens A.G. In the networking market, the Company's principal competitors are Advanced Micro Devices, Inc., Crystal, Integrated Circuit Systems, Inc., Lucent, Micro Linear Corp., National Semiconductor Corporation, Quality Semiconductor, Inc., Seeq Technologies, Inc. and Texas Instruments, Incorporated. Many of these competitors have longer operating histories, greater name recognition, access to larger customer bases and significantly greater financial and other resources than the Company with which to pursue engineering, manufacturing, marketing and distribution of products. The ability of the Company to compete successfully in the rapidly evolving area of high performance integrated circuit technology depends on factors both within and outside of the Company's control. Such factors include, without limitation, success in designing and manufacturing new products, implementing new technologies, intellectual property programs, product quality, reliability, price, efficiency of production, and general economic conditions. There is no assurance that the Company will be able to compete successfully against current and future competitors. Increased competition may result in price reductions, reduced gross margins and loss of market share, any of which may have a material adverse effect on the Company's business, financial condition and results of operations. International Operations Due to its reliance on international sales and foreign third-party manufacturing and assembly operations, the Company is subject to the risks of conducting business outside of the United States including government regulatory risks, political, social and economic instability, potential hostilities and changes in diplomatic and trade relationships. There can be no assurance that one or more of the foregoing factors will not have a material adverse effect on the Company's business, financial condition or operating results. 12 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On November 28, 1995, the Company initiated a patent infringement suit against Seeq Technologies, Inc. in United States District Court for the Northern District of California. The suit relates to two Level One patents, No. 5,267,269 and No. 5,249,183, and to certain Seeq products used in Ethernet system products. The suit seeks damages and injunctive relief. Seeq has denied the allegations and may file a counter claim against the Company. Although the Company does not believe such litigation will have a material impact on the Company, litigation, regardless of its outcome, could result in substantial cost and diversion of resources of the Company. See "Factors That May Affect Future Results". In the course of business the Company is from time to time party to other litigation. In the opinion of the Company, any such litigation currently pending is not likely to have a material impact on the Company's business. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibits - 10.41 - Amendment to Deposit Agreement (confidential treatment requested) 27.1 --Financial Data Schedule, June 29, 1997 (b) Reports on Form 8-K - None. 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LEVEL ONE COMMUNICATIONS, INCORPORATED Date: August 12, 1997 By: /s/ Robert S. Pepper ---------------------- Robert S. Pepper, Ph.D. Chairman of the Board of Directors, President and Chief Executive Officer (Principal Executive Officer) Date: August 12, 1997 By: /s/ John Kehoe --------------- John Kehoe Vice President and Chief Financial Officer (Principal Financial Officer) S-1 EX-10.41 2 AMENDMENT TO DEPOSIT AGREEMENT EXHIBIT 10.41 AMENDMENT AGREEMENT (NO. 1) THIS AMENDMENT AGREEMENT (NO. 1) is made the __________ day of ______________ 1997, by and between:- (1) [*]; and (2) LEVEL ONE COMMUNICATIONS INCORPORATED, a company incorporated in California and having its place of business at 9750 Goethe Road, Sacramento, CA 95827, United States of America ("Customer"). WHEREAS (A) [*] and Customer had entered into a Deposit Agreement dated 9 November 1995 (the "Deposit Agreement") for the purpose of Customer depositing certain funds with [*] and to procure [*] to make available to Customer certain wafer manufacturing capacity. (B) [*] and Customer hereto are entering into this Amendment Agreement to vary the Deposit Agreement with effect from the date hereof. NOW THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, the parties agree as follows: 1. INTERPRETATION All terms and references used in the Deposit Agreement and which are defined or construed in the Deposit Agreement but are not defined or construed in this Amendment Agreement shall have the same meaning and construction in this Amendment Agreement. 2. AMENDMENT TO THE DEPOSIT AGREEMENT The Parties agree that with effect from the date of this Amendment Agreement, the Deposit Agreement shall be amended as follows:- 2.1 CLAUSE 1.3 (THE DEPOSIT) ------------------------ The entire Clause 1.3 shall be deleted in its entirety and replaced with the following:- "1.3 Upon the expiry of the term of this Agreement or the earlier termination thereof in accordance with Clause 5 or Clause 6.2, [*] [*] Confidential treatment has been requested with respect to the information contained within the "[*]" markings. Such marked portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission. 1 will return to Customer the Deposit, without interest and subject to any deductions [*] pursuant to the terms of this Agreement." 2.2 CLAUSE 2 ([*] SUPPLY COMMITMENT) -------------------------------- i) The words "second calendar quarter of 1996" appearing in the fifth line of Clause 2.1 shall be deleted and the words "first calendar quarter of 1997" substituted therefor. ii) The word "Clause 8.6" appearing at the third line of Clause 2.4 shall be deleted and the word "Clause 7.6" substituted therefor. 2.3 CLAUSE 3.3 (CUSTOMER LOADING COMMITMENT) ---------------------------------------- Clause 3.3 shall be deleted in its entirety. 2.4 [*] 2.5 CLAUSE 5 (SET OFF AND MAINTENANCE OF DEPOSIT) --------------------------------------------- The provisions of Clause 5 shall be amended as follows:- i) by renumbering the heading "5." as "4.". ii) by deleting Clause 5.2 in its entirety and replacing it with the following new Clause 4.1:- "4.1 [*] shall be entitled to deduct from and set-off against the Deposit, any payment falling due and remaining unpaid by Customer under the Foundry Agreement." iii) by deleting Clause 5.1 in its entirety and replacing it with the following new Clause 4.2:- "4.2 At the end of each calendar quarter, [*] shall issue a written notice to Customer stating the amount of the [*] Confidential treatment has been requested with respect to the information contained within the "[*]" markings. Such marked portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission. 2 overdue payments and Customer shall pay the relevant sum to [*] within 30 days of the date of such notice, so as to maintain the Deposit at [*]. (iv) by renumbering Clause 5.3 as Clause "4.3"; by deleting the word "Clause 5.2" appearing in the first line and substituting the word "Clause 4.2" therefor; and by deleting the words [*] appearing in the second line. (v) by inserting the following new Clause 4.4:- (a) [*] "A" means such quantity of the aggregate Customer Actual Loading for the calendar year which is less than or equal to 50% of the aggregate Customer Loading Commitment for the calendar year. "C" means the aggregate Customer Loading Commitment for the calendar year. [*] Confidential treatment has been requested with respect to the information contained within the "[*]" markings. Such marked portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission. 3 (b) [*] "A" means such quantity of the aggregate Customer Actual Loading for the calendar year if Customer exceeds 50% of the aggregate Customer Loading Commitment for the calendar year. "HC" means 50% of the aggregate Customer Loading Commitment for the calendar year "C" means the aggregate Customer Loading Commitment for the calendar year. [*] 2.6 CLAUSE 6 (TERM AND TERMINATION) ------------------------------- The provisions of Clause 6 shall be amended as follows:- i) By renumbering the heading "6." as "5.". ii) By renumbering Clause "6.1" as Clause "5.1". iii) By deleting sub-clause 6.1(a) in its entirety and replacing it with the following new sub-clause 6.1(a):- "(a) At the option of [*], in the event that the amount of the Deposit falls below 50% of [*] and Customer fails to make payment of the shortfall to [*] within the period set out in Clause 4.1." iv) By renumbering Clause "6.1" as Clause "5.2"; and by deleting the word "Clause 6.1" appearing in the first line and substituting the word "Clause 5.1" therefor. 2.7 CLAUSE 7 (FORCE MAJEURE) ------------------------ i) The heading "7." and Clause "7.1" shall be renumbered as "6." and Clause "6.1" respectively. ii) Clause "7.2" shall be renumbered as Clause "6.2"; and the word "Clause 7" appearing in the first line shall be deleted and the word "Clause 6" substituted therefor. 2.8 CLAUSE 8 (WARRANTY AND INDEMNITY) --------------------------------- [*] Confidential treatment has been requested with respect to the information contained within the "[*]" markings. Such marked portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission. 4 i) The heading "8." shall be renumbered as "7.". ii) Clauses "8.1", "8.2", "8.3", "8.4", "8.5" and "8.6" shall be renumbered as Clauses "7.1", "7.2", "7.3", "7.4", "7.5" and "7.6" respectively. 2.9 CLAUSE 9 (CONFIDENTIALITY) -------------------------- The heading "9." and Clauses "9.1", "9.2" and "9.3" shall be renumbered as "8.", and Clauses "8.1", "8.2" and "8.3" respectively. 2.10 CLAUSE 10 (NOTICES) ------------------- By amending Clause 10 as follows:- i) By renumbering the heading "10." as "9.". ii) By renumbering Clause "10.1" as Clause "9.1" and by deleting the address and facsimile number for [*] in its entirety and replacing it with the following:- [*] --- iii) By renumbering Clause "10.2" as Clause "9.2". 2.11 CLAUSE 11 (WAIVER AND REMEDIES) ------------------------------- The heading "11." and Clauses "11.1", and "11.2" shall be renumbered as "10.", Clauses "10.1" and "10.2" respectively. 2.12 CLAUSE 12 (SEVERANCE) --------------------- The heading "12." shall be renumbered as "11.". 2.13 CLAUSE 13 (ENTIRE AGREEMENT) ---------------------------- The heading "13." shall be renumbered as "12.". 2.14 CLAUSE 14 (GOVERNING LAW) ------------------------- The heading "14." shall be renumbered as "13.". 2.15 ANNEX A (PAYMENT SCHEDULE) -------------------------- [*] Confidential treatment has been requested with respect to the information contained within the "[*]" markings. Such marked portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission. 5 Item 3. Of Annex A shall be deleted in its entirety and replaced with the following:- "3. Upon signing of the Amendment Agreement (No. 1) to Deposit Agreement [*] 2.16 ANNEX B ([*] ------------ The entire Annex B shall be deleted in its entirety and replaced with the following:- "ANNEX B [*] --- Number of 8-inch silicon wafers (based on 15 mask level) (A) [*]
Quarterly ================================================================================ 2Q96 3Q96 4Q96 1Q97 2Q97 3Q97 4Q97 through 4Q2000 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [ * ] ================================================================================
(B) THRESHOLD
================================================================================ 1997 1998 1999 2000 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [ * ] ================================================================================
3. SAVING AND INCORPORATION 3.1 Save as expressly amended by this Amendment Agreement, the terms and conditions of the Deposit Agreement shall continue to be in full force and effect in all other respects. 3.2 The Deposit Agreement and this Amendment Agreement shall be construed as one document and this Amendment Agreement shall be deemed to be part of the Deposit Agreement. Where the context so permits, references in the Deposit Agreement and in this Amendment Agreement to "the Deposit Agreement" or [*] Confidential treatment has been requested with respect to the information contained within the "[*]" markings. Such marked portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission. 6 "this Agreement" shall be read and construed as references to the Deposit Agreement as amended and supplemented by this Amendment Agreement. 4. GOVERNING LAW This Amendment Agreement shall be governed by and construed in accordance with the laws of [*]. The parties hereto irrevocably submit to the non- exclusive jurisdiction of the courts of [*]. IN WITNESS WHEREOF the Parties have hereunto entered into this Agreement the date first above written. [*] Signed by John Kehoe, V.P. and CFO ) LEVEL ONE COMMUNICATIONS ) INCORPORATED ) in the presence of:- ) /s/ John Kehoe ------------------------------ /s/ Bruce Dravis - ---------------------------------- Name: Bruce Dravis General Counsel [*] Confidential treatment has been requested with respect to the information contained within the "[*]" markings. Such marked portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission. 7 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 29, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-30-1996 JUN-29-1997 16,435 18,833 20,727 156 17,476 77,649 48,525 21,201 126,750 18,379 0 0 0 84,974 20,174 126,750 32,642 32,642 13,566 13,566 13,713 0 295 5,855 1,932 3,923 0 0 0 3,923 0 .28
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