-----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, By2mkiN7BIHcuwIEFyu2ZMUT2qWq9EMNAFuip4Qu8BNfMwtOtPq4eHvOXM7kN8OI x8Q93T1oTaQNJLk7/EKvVA== 0000093384-05-000008.txt : 20050421 0000093384-05-000008.hdr.sgml : 20050421 20050421153445 ACCESSION NUMBER: 0000093384-05-000008 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20050418 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050421 DATE AS OF CHANGE: 20050421 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STANDARD MICROSYSTEMS CORP CENTRAL INDEX KEY: 0000093384 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 112234952 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-07422 FILM NUMBER: 05764708 BUSINESS ADDRESS: STREET 1: 80 ARKAY DRIVE CITY: HAUPPAUGE STATE: NY ZIP: 11788 BUSINESS PHONE: 6314342904 MAIL ADDRESS: STREET 1: 80 ARKAY DR CITY: HAUPPAUGE STATE: NY ZIP: 11788 8-K 1 form8_k.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------------------------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): April 18, 2005 --------------------------------------------------- STANDARD MICROSYSTEMS CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 0-7422 11-2234952 (State or other jurisdiction of (Commission File (I.R.S. Employer incorporation) Number) Identification No.) 80 Arkay Drive, Hauppauge, New York 11788 (Address of principal executive offices) (Zip Code) (631) 435-6000 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Item 1.01 - Entry into a Material Definitive Agreement On April 18, 2005, Standard Microsystems Corporation (SMSC) entered into an employment agreement with William D. Shovers, under which Mr. Shovers will be appointed Senior Vice President and Chief Financial Officer, effective on June 1, 2005. Andrew M. Caggia will retire as Chief Financial Officer at that time and will continue to be employed by SMSC in a part time capacity to ensure a smooth transition. It is expected that Mr. Caggia will continue as a member of SMSC's Board of Directors after his full retirement as an employee. Mr. Shovers, age 51, has no family relationship with any director or officer of SMSC, and has not been previously employed by SMSC except that he has been engaged as a consultant since January 2, 2005 for a consulting fee of $37,500 per month. Mr. Shovers was Vice President - Finance, International Group of Hayes Lemmerz International, Inc. (Hayes) from April 2002 through June 2003 and served as a consultant for Hayes' International Group from July 2003 through July 2004. Prior to that, he was Vice President and Chief Financial Officer of Hayes from January 1993 through October 2001, and a Vice President of Hayes from November 2001 through March 2002. Item 2.02 - Results of Operations and Financial Condition On April 18, 2005, Standard Microsystems Corporation issued a press release announcing its financial results for quarter and year ended February 28, 2005. A copy of the press release is attached as Exhibit 99.2. The information in Exhibit 99.2 attached hereto shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended. Item 5.02 - Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers Andrew M. Caggia will retire as Chief Financial Officer of SMSC and William D. Shovers will assume that position, effective June 1, 2005, as more fully described under Item 1.01 above. Item 9.01 - Financial Statements and Exhibits (c) Exhibits 10.1* - Employment Agreement with William Shovers, dated April 18, 2005 99.1 - SMSC press release dated April 18, 2005 99.2 - Press release dated April 18, 2005, reporting Standard Microsystems Corporation financial results for quarter and year ended February 28, 2005. * Indicates a management contract or compensatory plan or arrangement. --------------------------------------------------- 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 hereunto duly authorized. STANDARD MICROSYSTEMS CORPORATION (Registrant) Date: April 21, 2005 By: /s/ ANDREW M. CAGGIA ------------------------------------ Andrew M. Caggia Senior Vice President and Chief Financial Officer, and Director (Principal Financial Officer) --------------------------------------------------- Exhibit Index Exhibit No. Description 10.1* Employment Agreement with William Shovers, dated April 18, 2005 99.1 Press release dated April 18, 2005, entitled "SMSC Announces Appointment of William Shovers as CFO Upon Retirement of Andrew Caggia in June". 99.2 Press release dated April 18, 2005, entitled "SMSC Reports Fourth Quarter and Fiscal 2005 Results". * Indicates a management contract or compensatory plan or arrangement. EX-99.1 2 exhibit_99-1.txt PRESS RELEASE DATED APRIL 18, 2005 Exhibit 99.1 SMSC ANNOUNCES APPOINTMENT OF WILLIAM SHOVERS AS CFO UPON RETIREMENT OF ANDREW CAGGIA IN JUNE Hauppauge, NY - April 18, 2005 - SMSC (Nasdaq: SMSC) today announced that William D. Shovers has been appointed as Chief Financial Officer of SMSC, effective June 1, 2005. Mr. Shovers joins SMSC with a wealth of experience in corporate finance and management. He will succeed Andrew M. Caggia, who will retire as Chief Financial Officer after five years of service with SMSC. Mr. Caggia will continue in a part-time capacity to ensure a smooth transition. In addition, it is expected that he will continue as a member of SMSC's Board of Directors after his full retirement as an employee. "Andy has been a tremendous asset to SMSC," said Steven J. Bilodeau, Chairman and Chief Executive Officer. "He has been instrumental in helping to transform SMSC into a leading semiconductor supplier. I know that I speak on behalf of the entire SMSC family in wishing Andy all the best in his future retirement. At the same time, we are pleased to welcome Bill Shovers to SMSC. Bill brings extensive experience in running financial organizations on a global scale and I believe that his leadership and expertise will prove to be invaluable as we continue to pursue our growth initiatives." "It has been an extraordinary five years working with an extremely capable and dedicated team at SMSC," said Andy Caggia. "I am very proud of the accomplishments we have collectively made to expand into new markets and build a strong global infrastructure that will support the Company's continued growth. Although there is never a perfect time to leave a job that you enjoy, I look forward to pursuing other personal interests. Though my day-to-day involvement with SMSC will diminish over time, I will remain close to the Company through my board position, and I remain excited about SMSC's growth strategy and prospects for continued success." Mr. Shovers' responsibilities as Senior Vice President and Chief Financial Officer will include all financial and information systems functions, including accounting, strategic planning, forecasting, investor relations, risk management and treasury. Prior to joining SMSC, Mr. Shovers held the positions of Vice President, Finance for the international operations of Hayes Lemmerz International, Inc, and was based in Bonn, Germany and also served as Vice President and Chief Financial Officer of Hayes Lemmerz. Prior to that, he held various financial positions of increasing responsibility with Tenneco Inc. over a 17-year period, including Assistant Treasurer of Tenneco Inc. and, more recently, as Vice President, Finance for Tenneco's $1.1 billion Monroe Auto division. Most recently, Mr. Shovers spent several months acting as a consultant to SMSC and was instrumental in completing the acquisition of OASIS SiliconSystems Holding AG. "I am thrilled about the opportunity to assume the CFO position at SMSC and to work with Steve and the talented team he has assembled to successfully drive the Company into new growth markets," said Bill Shovers. "Supported by the investments SMSC has made in recent years to build its infrastructure and round out its technology expertise, I am joining the Company at an exciting time. I look forward to playing an active role in helping SMSC to achieve its ongoing global growth and diversification strategy, particularly leveraging my background in international business and finance." About SMSC: Many of the world's most successful global technology companies rely upon SMSC as a go-to resource for semiconductor system solutions that span analog, digital and mixed-signal technologies. Leveraging substantial intellectual property, integration expertise and a comprehensive global infrastructure, SMSC solves design challenges and delivers performance, space, cost and time-to-market advantages to its customers. SMSC's application focus targets key vertical markets including mobile and desktop PCs, servers, consumer electronics, automotive infotainment and industrial applications. The Company has developed leadership positions in its select markets by providing application specific solutions such as mixed-signal PC system controllers, non-PCI Ethernet, ARCNET, MOST, USB2.0 and other high-speed serial communications. SMSC is headquartered in Hauppauge, New York with operations in North America, Taiwan, Japan, Korea, China and Europe. Engineering design centers are located in Arizona, New York, Texas and Karlsruhe, Germany. Additional information is available at www.smsc.com. Forward Looking Statements: Except for historical information contained herein, the matters discussed in this announcement are forward-looking statements about expected future events and financial and operating results that involve risks and uncertainties. These include the timely development and market acceptance of new products; the impact of competitive products and pricing; the effect of changing economic conditions in domestic and international markets; changes in customer order patterns, including loss of key customers or distributors, order cancellations or reduced bookings; and excess or obsolete inventory and variations in inventory valuation, among others. Such statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations and may not reflect the potential impact of any future acquisitions, mergers or divestitures. SMSC competes in the semiconductor industry, which has historically been characterized by intense competition, rapid technological change, cyclical market patterns, price erosion and periods of mismatched supply and demand. In addition, sales of many of the Company's products depend largely on sales of personal computers and peripheral devices, as well as general industry and market conditions. Reductions in the rate of growth of the PC, consumer electronics, embedded or automotive markets could adversely affect its operating results. SMSC conducts business outside the United States and is subject to tariff and import regulations and currency fluctuations, which may have an effect on its business. All forward-looking statements speak only as of the date hereof and are based upon the information available to SMSC at this time. Such information is subject to change, and the Company may not necessarily inform, or be required to inform, investors of such changes. These and other risks and uncertainties, including potential liability resulting from pending or future litigation, are detailed from time to time in the Company's reports filed with the SEC. Investors are advised to read the Company's Annual Report on Form 10-K and quarterly reports on Form 10-Q filed with the Securities and Exchange Commission, particularly those sections entitled "Other Factors That May Affect Future Operating Results" for a more complete discussion of these and other risks and uncertainties. SMSC is a registered trademark of Standard Microsystems Corporation. Product names and company names are trademarks of their respective holders. Contact: Carolynne Borders Director of Corporate Communications SMSC Voice: 631-435-6626 Fax: 631-273-5550 carolynne.borders@smsc.com EX-99.2 3 exhibit_99-2.txt Q4 FY05 EARNINGS RELEASE Exhibit 99.2 SMSC REPORTS FOURTH QUARTER AND FISCAL 2005 RESULTS Hauppauge, NY - April 18, 2005 - SMSC (Nasdaq: SMSC) today announced that revenues for the fourth quarter ended February 28, 2005 were $54.8 million, an increase of approximately 5% from last year's fourth quarter revenues of $52.1 million, and an increase of 8% from $50.8 million in the third quarter of fiscal 2005. SMSC previously disclosed a collectibility concern related to a Taiwan-based distributor, which prevented SMSC from recognizing $4.2 million of product sales in its third quarter of fiscal 2005. SMSC has not shipped product to this distributor since this issue first arose and there was no disruption of supply to SMSC's end customers as shipments were rerouted through alternate channels. Although SMSC initially believed that the distributor was on a path to recovering its financial stability, conditions deteriorated in the latter part of SMSC's fourth fiscal quarter, and the distributor recently filed a petition for reorganization. Since there can be no assurance that SMSC will receive the remaining balance owed by the distributor, SMSC has recorded a charge of $2.7 million in the fourth quarter, fully reserving its remaining balance sheet exposure on this issue. The $2.7 million charge is included in Cost of goods sold, as it represents the inventory value of the shipments on which revenue was not recognized. Gross profit percentage for the fourth quarter of fiscal 2005 was 38.1%, compared to 48.1% in the previous year's fourth quarter. The primary reason for the reduced percentage was the aforementioned write off. The gross profit percentage for the fourth quarter of fiscal 2005 was also adversely affected by increased sales of lower margin parts and by shipments of inventory purchased at high prices during a period of perceived supply shortage. The gross profit percentage is expected to improve in the first quarter of fiscal 2006 to between 44% and 46%, as noted in the Business Outlook section below, and to improve further in subsequent quarters. Research and development expenses for the quarter were $10.5 million, compared to $10.2 million in the year-ago quarter, and selling, general and administrative expenses were $12.1 million, compared to $11.1 million in last year's fourth quarter, including litigation costs of $1.1 million in the fourth quarter of fiscal 2005 and $0.2 million in the same period last year. Operating expenses for the quarter ended February 28, 2005 included a credit of $0.7 million to mark stock appreciation rights to market as a result of the decrease in SMSC's share price during the quarter. As previously disclosed, SMSC settled a patent infringement dispute with Analog Devices Inc. (ADI) in the fourth quarter of fiscal 2005. In connection with this settlement, SMSC made a one-time payment of $6 million to ADI, which was recorded in the same period. The litigation costs quoted in the preceding paragraph were directly related to the dispute with ADI and, as a result of the settlement, will no longer continue. Lastly, during the fourth quarter ended February 28, 2005, SMSC recorded a gain of $1.0 million on the sale of real estate. Due to the significance of the aggregate impact of the settlement charge, the distributor related asset write-off and the real estate gain in the fourth quarter of fiscal 2005, SMSC is presenting certain pro forma information to facilitate a comparison of operating results. A schedule reconciling the non-GAAP measures to the most comparable GAAP measures is attached to the release. On a GAAP basis, the net loss in the fourth quarter of fiscal 2005 was $0.15 per share, including the impact of special items, which in the aggregate decreased SMSC's earnings per share by a net of $0.26. On a pro forma basis, SMSC's net income was $0.11 per share, which compares to net income of $0.17 per share in the fourth quarter of fiscal 2004. Fiscal 2005 Financial Highlights: o SMSC posted record annual semiconductor product revenues of $197.8 million for fiscal 2005. o The Company achieved strong growth in year-over-year sales of networking and connectivity products with collective revenue growth of more than 30% over the prior year. o As a of percentage of product revenues, PC I/O sales comprised 59% and non-PC I/O sales were 41%, versus a split of 67% and 33% last year, respectively. o SMSC announced that it settled a patent infringement dispute with ADI, under which both parties agreed to dismiss all claims against each other. As part of the agreement, SMSC made a one-time payment of $6 million to ADI, and was granted a royalty-bearing license to the patents in question. o On a GAAP basis, net income per share for fiscal 2005 was $0.08 versus $1.16 in fiscal 2004. On a pro forma basis, excluding the impact of the special items mentioned above, net income per share for fiscal 2005 was $0.33 versus $1.14 in fiscal 2004. Slightly more than half of the year-to-year decrease in pro forma net income per share was due to the fact that intellectual property payments from Intel were much higher in fiscal 2004 than in fiscal 2005. o Cash and liquid investments at the end of fiscal 2005 increased to $172.6 million. Inventories at the end of the fiscal year totaled $33.3 million, and are appropriate relative to expected demand. The Company has no bank debt, and book value per share as of February 28, 2005 was $14.44, of which $9.24 was cash and short-term investments. "SMSC's total revenues for the fourth quarter increased on both a year-over-year and sequential comparison," said Steven J. Bilodeau, Chairman and Chief Executive Officer. "Though quarterly PC I/O sales were roughly flat with last year's fourth quarter and connectivity grew slightly, SMSC's networking business increased by 27%." Mr. Bilodeau continued, "Looking ahead, with the contributions of the OASIS acquisition, SMSC will experience an immediate acceleration in revenues, on top of organic growth." Fiscal 2005 Business Highlights: In fiscal 2005, SMSC: o Celebrated the unveiling of a new global brand identity at the opening of the NASDAQ Stock Market at the NASDAQ MarketSite in Times Square on April 26, 2004. Through this identity launch, SMSC placed a new emphasis on positioning the Company as a stronger and more competitive supplier of innovative solutions to a broad range of end markets. o Unveiled the industry's first USB2.0 2-port hub controller. Addressing the growing demand in applications such as digital media, mobile, printers and multi-functional devices, this hub controller offers a 2-port device for those applications where the primary system requirement is to double the available number of USB2.0 ports. o Unveiled five new USB2.0-based products, including a 3-port, second generation 4-port and 7-port hub controller; a controller for 12-in-1 flash card readers; and a second generation USB2.0 physical layer transceiver (PHY). With this introduction, SMSC is offering the market the most comprehensive, highest performing line of USB2.0 hub controller products for a wide range of consumer and commercial connectivity applications. o Introduced its 10-in-1 USB2.0 card reader controllers delivering optimized, cost-effective performance with low power for flash media cards. With today's proliferation of flash cards, embedded hardware designers now have a better way to leverage fast USB2.0 data transfer speeds, while also addressing the requirements of advanced card formats, most importantly, increased compatibility and lower system costs. o Introduced the Company's second generation 10/100 non-PCI Ethernet controller addressing the growing demand to connect multiple PCs with digital media in the home. Applications include video streaming, such as cable, HDTV, digital video recorders, home gateways, printers and more. o Announced that VOCAL Technologies, Ltd. selected SMSC's Ethernet controller for its reference design serving the Voice over IP market space. In addition, SMSC is VOCAL's silicon supplier for all IP interaction. o Targeting the consumer notebook PC market, introduced a family of integrated microcontrollers, which expand the role of the traditional keyboard controller to deliver the industry's first mobile embedded controller solution that integrates critical thermal, power and system management capabilities with keyboard scan, serial port and consumer infrared functionality into a single device. o Introduced a super Input/Output (I/O) controller targeting the media-rich mobile PC market and the digital home. With the growing demand for mobility and the consumer's desire to access audio, video and data, this I/O controller is ideally suited for a market where cost, size and performance are critical benchmarks. o Launched a family of pin compatible system controller I/O chips. The suite of I/O controllers delivers a more flexible design that enables system design engineers to standardize on a single part across a wide range of applications with similar characteristics. o In response to customer challenges associated with overcoming heat dissipation and cooling system issues, expanded its line of Environmental Monitoring and Control (EMC) solutions to include four new temperature sensors, providing industry first solutions that address these customer issues with the highest levels of accuracy while conserving board space. o Shortly after the close of fiscal 2005, SMSC announced that it had acquired OASIS SiliconSystems Holding AG (OASIS), a leading provider of Media Oriented Systems Transport (MOST(R)) technology, which enables the seamless transport of digital audio, video, and packet-based data, along with control information, within automobiles. The acquisition, which closed on March 30, 2005, marks another major step in SMSC's diversification strategy by moving into a new vertical market with the leader in automotive infotainment networking in Europe. Business Outlook: The following expectations include the impact of the OASIS SiliconSystems acquisition for two months of the first quarter of fiscal 2006, beginning on March 31, 2005. For the first quarter, SMSC expects revenues to be between $63 million and $67 million, reflecting a year-over-year increase of 22% at the midpoint of that range. Gross profit percentage is expected to be between 44% and 46%. Research and development expenses and selling, general and administrative expenses are both expected to be between $13.25 million and $14 million. The effective tax rate is estimated to be approximately 32%. Before in-process R&D charges and amortization of acquired intangibles, the Company expects first quarter net income to be between $0.08 and $0.12 per share. Sarbanes-Oxley: Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, SMSC will report on the effectiveness of its internal controls as of fiscal 2005 in its upcoming Form 10K. This is the first annual period for which such an assessment has been required, and management and SMSC's independent auditors are in the process of finalizing their evaluation of the design and tests of effectiveness of its internal controls as defined by Section 404. There can be no assurance that the Company's Form 10K will not include reportable deficiencies. About SMSC: Many of the world's most successful global technology companies rely upon SMSC as a go-to resource for semiconductor system solutions that span analog, digital and mixed-signal technologies. Leveraging substantial intellectual property, integration expertise and a comprehensive global infrastructure, SMSC solves design challenges and delivers performance, space, cost and time-to-market advantages to its customers. SMSC's application focus targets key vertical markets including mobile and desktop PCs, servers, consumer electronics, automotive infotainment and industrial applications. The Company has developed leadership positions in its select markets by providing application specific solutions such as mixed-signal PC system controllers, non-PCI Ethernet, ARCNET, MOST, USB2.0 and other high-speed serial communications. SMSC is headquartered in Hauppauge, New York with operations in North America, Taiwan, Japan, Korea, China and Europe. Engineering design centers are located in Arizona, New York, Texas and Karlsruhe, Germany. Additional information is available at www.smsc.com. Forward Looking Statements: Except for historical information contained herein, the matters discussed in this announcement are forward-looking statements about expected future events and financial and operating results that involve risks and uncertainties. These include the timely development and market acceptance of new products; the impact of competitive products and pricing; the effect of changing economic conditions in domestic and international markets; changes in customer order patterns, including loss of key customers or distributors, order cancellations or reduced bookings; and excess or obsolete inventory and variations in inventory valuation, among others. Such statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations and may not reflect the potential impact of any future acquisitions, mergers or divestitures. SMSC competes in the semiconductor industry, which has historically been characterized by intense competition, rapid technological change, cyclical market patterns, price erosion and periods of mismatched supply and demand. In addition, sales of many of the Company's products depend largely on sales of personal computers and peripheral devices, as well as general industry and market conditions. Reductions in the rate of growth of the PC, consumer electronics, embedded or automotive markets could adversely affect its operating results. SMSC conducts business outside the United States and is subject to tariff and import regulations and currency fluctuations, which may have an effect on its business. All forward-looking statements speak only as of the date hereof and are based upon the information available to SMSC at this time. Such information is subject to change, and the Company may not necessarily inform, or be required to inform, investors of such changes. These and other risks and uncertainties, including potential liability resulting from pending or future litigation, are detailed from time to time in the Company's reports filed with the SEC. Investors are advised to read the Company's Annual Report on Form 10-K and quarterly reports on Form 10-Q filed with the Securities and Exchange Commission, particularly those sections entitled "Other Factors That May Affect Future Operating Results" for a more complete discussion of these and other risks and uncertainties. SMSC is a registered trademark of Standard Microsystems Corporation. Product names and company names are trademarks of their respective holders. Contact: Carolynne Borders Director of Corporate Communications SMSC Voice: 631-435-6626 Fax: 631-273-5550 carolynne.borders@smsc.com STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share amounts)
Three Months Ended Fiscal Year Ended February 28 or 29, February 28 or 29, ---------------------------------- ------------------------------- 2005 2004 2005 2004 Sales and revenues: Product sales $ 52,192 $ 49,218 $ 197,803 $ 191,969 Intellectual property revenues 2,658 2,896 11,012 23,904 - -------------------------------------------------------------------------------------------------------------------------------- 54,850 52,114 208,815 215,873 Cost of goods sold 33,938 27,044 114,066 106,236 - -------------------------------------------------------------------------------------------------------------------------------- Gross profit 20,912 25,070 94,749 109,637 Operating expenses (income): Research and development 10,516 10,168 42,988 38,793 Selling, general and administrative 12,066 11,120 48,759 42,168 Amortization of intangible assets 265 317 1,113 1,311 Settlement charge 6,000 - 6,000 - Gains on real estate transactions (1,017) - (1,017) (1,444) - -------------------------------------------------------------------------------------------------------------------------------- Income (loss) from operations (6,918) 3,465 (3,094) 28,809 Interest income 806 467 2,532 1,918 Other expense, net (45) (43) (103) (933) - -------------------------------------------------------------------------------------------------------------------------------- Income (loss) before provision for (benefit from) income taxes and minority interest (6,157) 3,889 (665) 29,794 Provision for (benefit from) income taxes (3,339) 461 (2,267) 8,051 Minority interest in net income of subsidiary - 62 - 201 - -------------------------------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations (2,818) 3,366 1,602 21,542 Gain (loss) from discontinued operations (net of income taxes of $94 and $(14)) - 169 - (24) - -------------------------------------------------------------------------------------------------------------------------------- Net income (loss) (2,818) 3,535 1,602 21,518 Gain on redemption of preferred stock of subsidiary - 6,685 - 6,685 - -------------------------------------------------------------------------------------------------------------------------------- Net income (loss) applicable to common shareholders $ (2,818) $ 10,220 $ 1,602 $ 28,203 ================================================================================================================================ Basic net income (loss) per share: Income (loss) from continuing operations $ (0.15) $ 0.19 $ 0.09 $ 1.25 Gain (loss) from discontinued operations - 0.01 - - - -------------------------------------------------------------------------------------------------------------------------------- Basic net income (loss) per share (0.15) 0.20 0.09 1.25 Gain on redemption of preferred stock of subsidiary - 0.37 - 0.39 - -------------------------------------------------------------------------------------------------------------------------------- Basic net income (loss) per share applicable to common shareholders $ (0.15) $ 0.57 $ 0.09 $ 1.64 ================================================================================================================================ Diluted net income (loss) per share: Income (loss) from continuing operations $ (0.15) $ 0.17 $ 0.08 $ 1.17 Gain (loss) from discontinued operations - 0.01 - - - -------------------------------------------------------------------------------------------------------------------------------- Diluted net income (loss) per share (0.15) 0.18 0.08 1.16 Gain on redemption of preferred stock of subsidiary - 0.34 - 0.36 - -------------------------------------------------------------------------------------------------------------------------------- Diluted net income (loss) per share applicable to common shareholders $ (0.15) $ 0.51 $ 0.08 $ 1.53 ================================================================================================================================ Weighted average common shares outstanding: Basic 18,552 18,007 18,376 17,226 Diluted 18,552 19,887 19,318 18,479
The sum of the income (loss) per share amounts may not total due to rounding. STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share amounts)
Three Months Ended Fiscal Year Ended February 28 or 29, February 28 or 29, ---------------------------------- ------------------------------- 2005 2004 2005 2004 Sales and revenues: Product sales $ 52,192 $ 49,218 $ 197,803 $ 191,969 Intellectual property revenues 2,658 2,896 11,012 23,904 - ------------------------------------------------------------------------------------------------------------------------------ 54,850 52,114 208,815 215,873 Cost of goods sold 31,204 27,044 111,332 106,236 - ------------------------------------------------------------------------------------------------------------------------------ Gross profit 23,646 25,070 97,483 109,637 Operating expenses: Research and development 10,516 10,168 42,988 38,793 Selling, general and administrative 12,066 11,120 48,759 42,168 Amortization of intangible assets 265 317 1,113 1,311 - ------------------------------------------------------------------------------------------------------------------------------ Income from operations 799 3,465 4,623 27,365 Interest income 806 467 2,532 1,918 Other expense, net (45) (43) (103) (184) - ------------------------------------------------------------------------------------------------------------------------------ Income before provision for (benefit from) income taxes and minority interest 1,560 3,889 7,052 29,099 Provision for (benefit from) income taxes (484) 461 588 7,794 Minority interest in net income of subsidiary - 62 - 201 - ------------------------------------------------------------------------------------------------------------------------------ Net income 2,044 3,366 6,464 21,104 ============================================================================================================================== Basic net income per share $ 0.11 $ 0.19 $ 0.35 $ 1.23 ============================================================================================================================== Diluted net income per share $ 0.11 $ 0.17 $ 0.33 $ 1.14 ============================================================================================================================== Weighted average common shares outstanding: Basic 18,552 18,007 18,376 17,226 Diluted 19,224 19,887 19,318 18,479
These pro forma Consolidated Statements of Operations exclude: from fiscal 2005, a settlement charge, a distributor-related asset write-off and a gain of the sale of real estate, and from fiscal 2004, a gain on the sale of real estate, a loss on the sale of Chartered Semiconductor stock and a gain(loss) from discontinued operations. STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES RECONCILIATION OF GAAP AND PRO FORMA INFORMATION (Unaudited) (in thousands, except per share amounts)
Three Months Ended Year Ended February 28 or 29, February 28 or 29, ----------------------- ------------------------ 2005 2004 2005 2004 - ----------------------------------------------------------------------------------------------------------- Net income (loss) As reported, per GAAP $ (2,818) $ 3,535 $ 1,602 $ 21,518 Add (Deduct):* Settlement charge 3,780 - 3,780 - Write off of distributor-related asset 1,723 - 1,723 - Gains on real estate transactions (641) - (641) (910) Loss on sale of Chartered Semiconductor stock - - - 472 (Gain) Loss from discontinued operations - (169) - 24 - ----------------------------------------------------------------------------------------------------------- Pro forma net income $ 2,044 $ 3,366 $ 6,464 $ 21,104 =========================================================================================================== Diluted net income (loss) per share: As reported, per GAAP $ (0.15) $ 0.18 $ 0.08 $ 1.16 Pro forma $ 0.11 $ 0.17 $ 0.33 $ 1.14 Diluted weighted average common shares outstanding: As reported, per GAAP 18,552 19,887 19,318 18,479 Pro forma 19,224 19,887 19,318 18,479
* All amounts added and deducted in calculating pro forma net income are presented net of applicable income taxes at 37%. STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands) February 28, February 29, 2005 2004 ---- ---- Assets Current assets: Cash and cash equivalents $ 116,126 $ 14,050 Short-term investments 56,519 144,247 Accounts receivable, net 23,788 21,946 Inventories 33,310 23,162 Deferred income taxes 17,701 15,064 Other current assets 4,295 8,549 - ------------------------------------------------------------------------------- Total current assets 251,739 227,018 - ------------------------------------------------------------------------------- Property, plant and equipment, net 22,630 23,430 Long-term investments - 15,600 Goodwill 29,435 29,595 Intangible assets, net 3,584 4,697 Deferred income taxes 7,163 6,493 Other assets 4,708 3,192 - ------------------------------------------------------------------------------- $ 319,259 $ 310,025 =============================================================================== Liabilities and shareholders' equity Current liabilities: Accounts payable $ 15,995 $ 14,679 Deferred income on shipments to distributors 7,689 7,972 Accrued expenses, income taxes and other liabilities 13,400 13,168 - ------------------------------------------------------------------------------- Total current liabilities 37,084 35,819 - ------------------------------------------------------------------------------- Other liabilities 12,326 12,104 Shareholders' equity: Preferred stock - - Common stock 2,053 2,019 Additional paid-in capital 187,854 181,830 Retained earnings 100,612 99,010 Treasury stock, at cost (23,799) (23,454) Deferred stock-based compensation (1,925) (1,962) Accumulated other comprehensive income 5,054 4,659 - ------------------------------------------------------------------------------- Total shareholders' equity 269,849 262,102 - ------------------------------------------------------------------------------- $ 319,259 $ 310,025 =============================================================================== EX-10.1 4 exhibit_10-1.txt WILLIAM SHOVERS - EMPLOYMENT AGMT. Exhibit 10.1 EMPLOYMENT AGREEMENT Agreement made as of April 18, 2005 between Standard Microsystems Corporation, a Delaware corporation having an office at 80 Arkay Drive, Hauppauge, New York 11788 ("Company"), and William Shovers, residing at 3921 Indian Road, Toledo, Ohio 43606 ("Executive"). W I T N E S S E T H: WHEREAS, Company desires to employ Executive as Company's Chief Financial Officer ("CFO"), upon the terms and conditions hereinafter in this Employment Agreement (the "Agreement") set forth, and Executive desires to be so employed; Now, therefore, in consideration of the promises and the mutual covenants and conditions contained herein, the parties hereto agree as follows: 1. Employment. Subject to the next sentence, Company hereby agrees to employ Executive, and Executive hereby accepts such employment, upon the terms and conditions hereinafter set forth. The Agreement shall not be effective unless approved by Company's Board of Directors. 2. Title and Duties. Company shall employ Executive as Senior Vice President upon the commencement of such employment, and Chief Financial Officer ("CFO"), effective as of the retirement of the current CFO, Andrew Caggia on approximately May 31, 2005. Executive will render his services faithfully and to the best of his ability and devote his full business time and attention to the services to be rendered by him hereunder. 3. Term; Severance; Change in Control. a. The term of employment under the Agreement shall commence as of April 18, 2005 and shall continue through April 17, 2008 (the "Employment Term"). Thereafter, the Employment Term shall be automatically extended for one-year periods, unless either party shall give notice ("Contrary Notice") as per section 12 (e) herein, at least six months prior to the end of the initial Employment Term, or any extended Employment Term, that the Employment Term shall not be so extended. b. Notwithstanding Section 3.a, the Employment Term shall terminate prior to any date otherwise specified in Section 3.a, upon: (i) Executive's death or disability ("disability" shall mean the physical or mental incapacity of Executive, which cannot be overcome by making any reasonable accommodations and which prevents Executive from performing Executive's duties as herein provided for a continuous period of 60 days or an aggregate period of 90 days during any consecutive six-month period, and disability shall be deemed to have occurred as of the end of the applicable period); (ii) Notice by Company of termination for cause, which shall mean Executive's (x) material dishonesty in the course of employment, (y) willful and material failure to perform his duties hereunder, following delivery of written notice thereof and a reasonable period, not to exceed 30 days from delivery of notice, to cure such failure, or (z) conduct, regardless whether in the course of employment, constituting a felony or any crime involving moral turpitude or being charged or sanctioned by a federal or state government or governmental authority or agency with violations of federal or state securities laws in any judicial or administrative process or proceeding, or having been found by any court or governmental authority or agency to have committed any such violation; (iii) Notice by Company of termination other than for cause. Reduction of compensation or duties, OR requirement to relocate outside of Long Island OR other breach hereof and failure to cure within 30 days following delivery of written notice thereof by the Executive to the Company shall be considered notice of termination under this subsection; or, (iv) Notice of voluntary termination by Executive within six months after a Change in Control of Company (for purposes hereof, a "Change in Control of Company" shall mean an event that Company would be required to report as such pursuant to Securities and Exchange Commission ("SEC") Form 8-K). c. Should Company terminate the Employment Term pursuant to clauses (i) or (iii) of Section 3.b: (i) Company shall pay Executive, in lump sum on the day of termination, an amount equal to one year's Base Salary, any vested or unvested stock grants, any deferred compensation (e.g. stock appreciation rights (SARs), etc., excluding the SERP addressed in Section 5.), any accrued, unused vacation and unreimbursed business expenses (including automobile expenses, and tax gross up on such automobile expenses); (ii) Company shall pay any accrued, unpaid Bonus, as hereinafter defined, (i.e., a pro-rated amount of the Bonus that Executive would have earned if Executive remained employed through the then current fiscal year of Company, to be based on the number of weeks employed during the then current fiscal year), payable at the same time such Bonus would have been paid for such fiscal year; (iii) Company shall continue to provide paid coverage for any Company-paid individual life insurance, and all group health insurance plans under COBRA, provided by Company to Executive as of the date of such termination, excluding group life and group disability plans, for a period of 18 months from the date of termination of the Employment Term, or until Executive shall have sooner obtained full-time employment; (iv) insofar as any stock option granted by Company to Executive would have, but for such termination, become exercisable in accordance with its terms within 24 months of the date of such termination, such option shall become exercisable as of such termination date, remain exercisable during the 24-month period immediately following such termination date, and expire at the end of such 24-month period, except that if the termination of the Employment Term pursuant to clause (iii) of Section 3.b occurs within twelve months from the date of grant of such option, such option shall become exercisable to the extent permitted under the provisions of the plan from which any such stock option was granted. This Section 3.c sets forth Company's entire obligation to Executive in case of termination of the Employment Term on any basis referred to in this Section 3.c. d. Should Company terminate the Employment Term pursuant to clause 3.b (ii), Company's obligations hereunder shall then be fully satisfied upon payment by Company to Executive of any unpaid Base Salary, accrued, unused vacation time and unreimbursed business expenses through the date of termination, provided, however, that such payment shall not prevent the Company from seeking relief respecting any claim it might have against the Executive hereunder or otherwise. e. In the event of a Change in Control of Company all stock options, all stock grants (RSAs), and deferred compensation (e.g. stock appreciation rights, etc., excluding the SERP addressed in Section 5.) shall immediately vest and become exercisable, and should Executive's employment be terminated pursuant to clause 3.b (iv) or, within six months after the Change in Control, by Company pursuant to clause 3.b (iii), Executive shall be entitled to the payments referred to in clause 3.c (i), the insurance coverage referred to in clause 3.c (iii), a payment in an amount equal to 50% of Base Salary on the day of termination, and any unexercised stock option shall remain exercisable for the 24-month period immediately following such termination. With respect to the immediate vesting of any stock option in this section 3.e. by reason of a Change in Control of Company that occurs within twelve months from the date of grant, immediate vesting will only occur to the extent permitted under the provisions of the plan from which any such stock option was granted. f. Notwithstanding any provisions to the contrary, to the extent the provisions of this Section or any other provisions of this Agreement would result in any adverse tax consequences under Section 409A of the Code of 1986, the Executive agrees to delay and/or accelerate the payment of any benefits to the extent necessary to satisfy Section 409A. For example, Section 409A provides that any form of nonqualified deferred compensation may not be paid to key employees of a publicly traded company for a period of at least six months after the date of a separation from service. Accordingly, any required payments under the deferred compensation provision above shall not be paid until after the expiration of the applicable six-month period. Similarly, severance benefits may be subject to Section 409A. To the extent that any severance benefits are deemed to result in a deferral of compensation, acceleration of payments may be required, such as the commitment to provide certain benefits for a period of 18 months. 4. Annual compensation. a. In consideration of the services to be rendered by Executive hereunder, Company shall pay to Executive: (i) An annual base salary of $290,000, which may be increased, but not decreased without Executive's consent, from time to time, by Company's Board of Directors, based upon Compensation Committee review and recommendation ("Base Salary"). Executive's annual base salary shall be increased to $300,000 upon assumption of the CFO position and (ii) A management incentive bonus ("Bonus") target, with respect to fiscal year 2006 ending February 28, 2006 and thereafter, equal to 50 percent of Base Salary, i.e., $145,000 (the "At Plan Bonus"). An additional bonus payment for over target performance (the "Over Target Bonus") equal to 50% of the At Plan Bonus amount. Therefore, the maximum total bonus is 75% of Base Salary. Any Bonus plan approved by the Board of Directors for Executive will be consistent with the management incentive bonus plan for other Company executives. Executive shall be paid a Bonus equal to the At Plan Bonus for fiscal 2005 ending February 28, 2005 prorated based on the number of days employed during fiscal 2005. Notwithstanding Section 4. a. iii. of this Agreement, Executive shall be paid all of his fiscal year 2005 prorated bonus in cash. Executive shall be paid a minimum Bonus equal to 50% of the At Plan Bonus for fiscal year 2006. (iii) Any Bonus payable shall be paid 50% in cash, and the balance shall be paid in shares of Company restricted stock having a total Market Value equal to 50% of the amount of such Bonus. All restricted stock so issued shall be subject to the same transfer restrictions and forfeiture under the same conditions as shall apply generally to Company bonus awards of Company restricted stock, except as otherwise provided herein in paragraphs 3 and 6. Executive shall have the right to demand registration for all vested stock and Company shall use best effort to cause such registration at Company expense to be effective. b. For purposes hereof, Market Value of a share of Company restricted stock (RSA) shall mean the closing sale price of Company stock on the date the RSA is actually granted following approval by the Compensation Committee of Company's Board of Directors. 5. Benefits; Expenses. Executive shall be entitled to such benefits as are provided generally to Company's senior executive officers. In addition, Executive shall receive a $1,100 per month car allowance, plus insurance, fuel and normal travel expenses (i.e. tolls, parking, etc.). The preceding expenses (excluding the car allowance) are fully tax protected. Company shall furnish Executive with individual supplemental life insurance coverage in the amount of $250,000 and individual disability income coverage if insurance underwriting can be obtained based on Executive's health examination results. Company shall furnish and maintain continuously directors and officers liability insurance coverage during employment, and will continue to indemnify and advance legal expenses on behalf of Executive, during Employment Term and after termination for actions occurring during the Employment Term to the extent permitted by law. Executive shall accrue vacation time at a rate of twenty days per year. Company will grant Executive, as soon as practical following April 18, options to purchase 175,000 shares of Company Common Stock with five-year (20% per year) vesting and ten-year expiration. Executive's benefit under the Executive Retirement Plan (the "SERP") shall vest 50% after five years of service and pro-ratably over the next five years as to the remaining 50%. Executive's eligibility for and enrollment in the SERP shall commence upon Executive's first day of employment with Company. The Company's Board of Directors shall fully vest Executive's SERP benefits upon a change in control of Company. The acceleration of vesting does not otherwise change the distribution rules in existence under the SERP. In the case of a Change in Control of Company, Executive is entitled to a "gross-up" payment in an amount sufficient to offset the effect of any excise tax incurred in accordance with Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"). Executive must follow the Company's stock, options and appreciation rights trading policy. 6. Appointment Bonus. A cash appointment bonus of $200,000 less applicable withholdings shall be paid to Executive immediately following the date Executive is appointed CFO. This bonus will be earned by Executive over the first two years of continuous employment following the date of this bonus payment ("Bonus Date") on an annually prorated basis. If, prior to a Change in Control of the Company, Executive resigns from Company prior to one year after Bonus Date, Executive shall pay the entire bonus of $200,000 back to Company on or before his last day of employment without regard to any income taxes Executive may have paid or be responsible to pay relating to this bonus. If, prior to a Change in Control of the Company, Executive resigns after one year, but prior to two years, from the Bonus Date, Executive shall pay the prorated amount of $100,000 to Company on or before his last day of employment without regard to any income taxes Executive may have paid or be responsible to pay relating to this bonus. This bonus shall be fully earned by Executive upon two years after the Bonus Date. Although the appointment bonus is subject to a substantial risk of forfeiture, requiring repayments in the event of termination of employment as described above, the Executive shall nevertheless be taxed on the signing bonus when it is paid and it is not believed that the appointment bonus will be treated as a deferral of compensation. 7. Intellectual Property; Noncompetition. a. Assignment of Inventions. (i) Subject to paragraph (a)(ii) below, Executive hereby assigns and agrees to assign to Company, or to any business concern controlled by or under common control with Company ("Company Affiliate") as Company shall specify, all of Executive's right, title and interest in and to any inventions, formulas, techniques, processes, ideas, algorithms, discoveries, designs, developments and improvements which Executive may make, reduce to practice, conceive, invent, discover, design or otherwise acquire during Executive's employment by Company or any Company Affiliate, whether or not made during regular working hours, relating to the actual or anticipated business, products, research or development of Company or any Company Affiliate (collectively, "Inventions"). (ii) The foregoing shall not apply to, and Executive shall not be required to assign any of Executive's rights in, an invention that Executive developed entirely on Executive's own time without using any equipment, supplies, facilities, computer programs, or trade secret(s) and/or other proprietary and/or confidential information of Company or any Company Affiliate, except for those inventions that either: (1) Relate directly or indirectly at the time of conception or reduction to practice of the invention, to the business of Company or any Company Affiliate, or to the actual or contemplated products, research or development of Company or any Company Affiliate, or (2) Result from any work performed by Executive for Company or any Company Affiliate. b. Trade Secrets. Executive shall regard and preserve as confidential: (x) all trade secrets and/or other proprietary and/or confidential information belonging to Company or any Company Affiliate; and (y) all trade secrets and/or other proprietary and/or confidential information belonging to a third party which have been confidentially disclosed to Company or any Company Affiliate, which trade secrets and/or other proprietary and/or confidential information described in (x) and (y) above (collectively, "Confidential Information") have been or may be developed or obtained by or disclosed to Executive by reason of Executive's employment. Executive shall not, without written authority from Company to do so, use for Executive's own benefit or purposes, or the benefit or purpose of any person or entity other than Company or any Company Affiliate, nor disclose to others, either during Executive's employment with Company or thereafter, except as required in the course of employment with Company or any Company Affiliate, or except as required by law, any Confidential Information (Executive, as CFO, shall have the usual and customary discretion to determine when disclosure is required for the benefit of Company). This provision shall not apply to Confidential Information that has been voluntarily disclosed to the public by Company or any Company Affiliate, or otherwise entered the public domain through lawful means. Confidential Information shall include, but not be limited to, all nonpublic information relating to any of the following regarding Company or any Company Affiliate: (1) business, research, development and marketing plans, strategies and forecasts; (2) business; (3) products (whether existing, in development, or being contemplated); (4) customers' identities, usages, and requirements; (5) reports; (6) formulas; (7) specifications; (8) designs, software and other technology; (9) research and development programs; and (10) terms of contracts. c. Works of Authorship. Executive agrees that any original works of authorship, including, without limitation, all documents, blueprints, drawings, mask works and computer programs (including, without limitation, all software, firmware, object code, source code, documentation, specifications, revisions, supplements, modules, and upgrades), conceived, created, performed or produced during the term of Executive's employment with Company or any Company Affiliate, and all foreign and domestic, registered and unregistered, copyrights and mask work rights and applications for registrations therefore related to any such work of authorship, in each case, whether or not made during regular working hours, relating to the actual or anticipated business, products, research or development of Company or any Company Affiliate (collectively, "Works of Authorship") shall be the exclusive property of Company or any Company Affiliate as Company shall specify. To the extent that Executive has or obtains any right, title or interest in or to any Works of Authorship, Executive hereby assigns and agrees to assign to Company or any Company Affiliate as Company shall specify, all of such right, title and interest therein and thereto. This paragraph does not include any publicly available materials, unless such materials shall have become public in violation of this Agreement. d. Disclosure. Executive shall promptly and fully disclose any and all Inventions and Works of Authorship to Company's General Counsel or other official as Company's Board of Directors may designate for such purpose. e. Further Assistance. Executive shall, during Executive's employment with Company or any Company Affiliate and at any time thereafter, upon the request of and at the expense of Company or such Company Affiliate, but at no additional compensation to Executive: do all acts and things including, but not limited to, making and executing documents, applications and instruments and giving information and testimony, in each case, deemed by Company from time to time, in its sole discretion, to be necessary or appropriate (1) to vest, secure, defend, protect or evidence the right, title and interest of Company in and to any and all Inventions, Works of Authorship and Confidential Information; and (2) to obtain for Company, in relation to all such, letters patent, design registrations, copyright registrations and/or mask work registrations, in the United States and any foreign countries, and/or any reissues, renewals and/or extensions thereof. f. Previous Obligations. Executive represents and warrants to Company that Executive has no continuing obligation with respect to assignment of inventions, developments or improvements to any previous employer(s), respecting any invention, development, or improvement made prior to April 18, 2005, nor does Executive claim any existing title in any previous unpatented inventions, developments or improvements within the scope of this Section 7 except as may be set forth on an Exhibit hereto acknowledged on the face thereof as an Exhibit hereto by an authorized representative of Company. g. Return of Documents. All media on which any Inventions, Works of Authorship or Confidential Information may be recorded or located, including, without limitation, documents, samples, models, blueprints, photocopies, photographs, drawings, descriptions, reproductions, cards, tapes, discs and other storage facilities (collectively, "Documentation") made by Executive or that come into Executive's possession by reason of Executive's employment are the property of Company and shall be returned to Company by Executive upon termination of employment. Executive will not deliver, reproduce, or in any way allow any Documentation to be delivered or used by any third party without the written direction or consent of a duly authorized representative of Company. 8. Competition. Executive covenants and agrees that (a) for so long as he shall be employed by Company or any Company Affiliate, he shall not, directly or indirectly, as principal, partner, agent, servant, employee, stockholder, or otherwise, anywhere in the world (the "Territory"), engage or attempt to engage in any business activity competitive with the business being conducted or, to the knowledge of Executive prior to Notice of Termination or actual termination, whichever is earlier, being planned to be conducted by Company or any Company Affiliate, and (b) for one year after termination, Executive shall not, in the Territory, so engage or attempt to engage in any business activity competitive with any business conducted or planned to be conducted by any of Company or any Company affiliate within one year prior to termination. The foregoing shall not prohibit Executive, his affiliates, spouse, and children from owning beneficially any publicly traded security, so long as the beneficial ownership by all of them, when combined with the beneficial ownership of such publicly traded security by any person (as defined in Section 13(d) of the Exchange Act) of which any of them is a member, constitutes less than 5% of the class of such publicly traded security. Executive recognizes that the foregoing territorial and time limitations are reasonable and properly required for the adequate protection of the business of Company and that in the event that any such territorial or time limitation is deemed to be unreasonable in any proceeding to enforce these provisions or otherwise, Executive agrees to request, and to submit to, the reduction of said territorial or time limitation to such an area or period as shall be deemed reasonable by the relevant tribunal. In the event that Executive shall be in violation of the foregoing restrictive covenants, then the time limitation thereof shall be extended for a period of time during which such breach or breaches shall occur. The existence of any claim or cause of action by Executive against Company, if any, whether predicated upon this Agreement or otherwise, shall not constitute a defense to the enforcement by Company of the foregoing restrictive covenants. 9. Non-solicitation of Employees. Executive covenants and agrees that for a period of 24 months after Executive's termination of employment with Company for any reason, Executive shall not, directly or indirectly, whether on behalf of the Executive or others, solicit, lure or hire away any employees of Company or assist or aid in any such activity. 10. Release of Violation of Covenants. Any options or SARs that are granted to Executive are an incentive for Executive to remain employed by Company and to exert his best efforts to enhance the value of Company over the long-term. Accordingly, in addition to all the rights Company shall have against Executive, in the event Executive violates the provisions of Section 7, Intellectual Property/Non-Competition; Section 8, regarding Competition; and Section 9, addressing the Non-Solicitation of Employees ("Violation"), Company shall have the following rights: a. Any stock option or SAR granted to Executive during his employment, whether or not fully vested, shall be immediately canceled as of the date of such "Violation". b. Any gain attributable to the exercise of any stock option or SAR by Executive (represented by the closing market price on the date of exercise over the exercise price, multiplied by the number of option shares or SARs exercised, without regard to any subsequent market price decreases or increases) within a period of 12 months prior to the date of any Violation shall be paid by Executive to Company. Executive hereby agrees to pay to Company the difference between the fair market value of Company stock on the date of exercise, and the option or SAR price, without regard to any income taxes Executive may have paid or be responsible to pay relating to the exercise of any options or SARs. For purposes of this Section 10, the date of the Violation shall be established in good faith by Company. The date of Violation shall be deemed to have occurred within 10 days after Company provides Executive with notice of any Violation. If Executive disagrees with the determination of any Violation, the date of Violation shall be extended until the dispute is resolved, but the damages shall nevertheless be determined as of the date of Violation determined by Company, if such Violation is upheld in any Court Order, mediator's decision, or other similar forum. Company shall have the right, in its sole discretion, not to enforce the provisions of this Section 10 with respect to Executive. 11. Release from prior agreements. Executive releases Company and Company releases Executive from any prior agreements between Company and Executive upon the commencement of the term of this Employment Agreement, except for any continuing obligations of Executive relating to proprietary or confidential information of the Company. 12. Miscellaneous. a. Executive agrees that a remedy at law for any breach or proposed or attempted breach of the provisions of Sections 7, 8 or 9 shall be inadequate and that Company shall be entitled to injunctive relief with respect to such breach or proposed or attempted breach, in addition to any other remedy it might have. The provisions of Sections 7, 8 and 9 shall be enforceable notwithstanding the existence of any claim or cause of action of Executive against Company or any Company Affiliate, whether predicated on such Section or otherwise. b. Except as otherwise provided herein, the agreements, assignments and appointments made by Executive hereunder and the obligations of Executive herein shall survive the termination of Executive's employment with Company, whether by Executive or Company. c. This Agreement may be modified only by a written instrument duly executed by the parties hereto. No term or provision of this Agreement shall be deemed waived. And no breach excused, unless such waiver or consent shall be in writing and signed by the parties hereto. The failure of either party or any Company Affiliate at any time to enforce performance of any provision of this Agreement shall in no way affect such person's rights thereafter to enforce the same, nor shall the waiver by any such person of any breach of any provision hereof be deemed to be a waiver of any other breach of the same or any other provision hereof. d. If any provision of this Agreement, or the application of such provision, is held invalid, the remainder of this Agreement and the application of such provision to persons or circumstances other than those as to which it is held invalid shall not be affected thereby. e. Any notice authorized or required to be given hereunder shall be deemed given or made, if in writing, upon personal delivery, by telecopy on the date that transmission is confirmed electronically, if such confirmation occurs by 4:00PM on such date and such date is a business day, or otherwise, on the first business day thereafter, or three days after mailing by certified or registered mail, return receipt requested, to the Company, at the address set forth at the top of the first page, to the attention of Mr. Steven J. Bilodeau, Chief Executive Officer, or to the Executive at the address to which this letter is addressed, as set forth above, or such other address of which either party shall give notice to the other. f. This agreement shall be governed by the laws of the state of New York, applicable to an agreement negotiated, signed, and wholly to be performed in such state. g. Any dispute arising hereunder (including but not limited to interpretation of performance) shall be resolved in New York NY by arbitration before the American Arbitration Association, in accordance with its rules, except that the arbitrator shall be an active member of the New York bar specializing for at least 15 years in general corporate law and contracts practice, who shall apply the terms of this agreement and make findings of fact and conclusions of law in making his award. IN WITNESS WHEREOF, the undersigned have executed this agreement on the dates below as of the date first written above. EXECUTIVE STANDARD MICROSYSTEMS CORPORATION By: /s/ WILLIAM SHOVERS By: /s/ STEVEN J. BILODEAU ---------------------- ------------------------- William Shovers Steven J. Bilodeau, Date: April 18, 2005 Chief Executive Officer Date: April 18, 2005 -----END PRIVACY-ENHANCED MESSAGE-----