<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 27, 1997
REGISTRATION NO. 333-35327
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
PERICOM SEMICONDUCTOR CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------
CALIFORNIA 3674 77-0254621
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF INCORPORATION CLASSIFICATION CODE NO.) IDENTIFICATION NO.)
OR ORGANIZATION)
2380 BERING DRIVE
SAN JOSE, CALIFORNIA 95131
(408) 435-0800
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL
PLACE OF BUSINESS)
--------------
PATRICK B. BRENNAN
VICE PRESIDENT, FINANCE AND ADMINISTRATION
PERICOM SEMICONDUCTOR CORPORATION
2380 BERING DRIVE
SAN JOSE, CALIFORNIA 95131
(408) 435-0800
(NAME, ADDRESS, AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
MICHAEL C. PHILLIPS, ESQ. GREGORY M. GALLO, ESQ.
KEVIN A. FAULKNER, ESQ. JAMES M. KOSHLAND, ESQ.
HEIKE E. FISCHER, ESQ. PAUL A. BLUMENSTEIN, ESQ.
MORRISON & FOERSTER LLP GRAY CARY WARE & FREIDENRICH
755 PAGE MILL ROAD A PROFESSIONAL CORPORATION
PALO ALTO, CA 94304-1018 400 HAMILTON AVENUE
PALO ALTO, CA 94301-1825
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
-----------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
-----------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 27, 1997
PROSPECTUS
2,500,000 Shares
[LOGO OF PERICOM]
Common Stock
Of the 2,500,000 shares of Common Stock offered hereby, 2,000,000 shares are
being offered by Pericom Semiconductor Corporation (the "Company") and 500,000
shares are being offered by certain shareholders of the Company (the "Selling
Shareholders"). See "Principal and Selling Shareholders." The Company will not
receive any of the proceeds from the sale of shares by the Selling
Shareholders.
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price will be between $9.00 and $11.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price.
The Company has applied to have the Common Stock approved for quotation on
the Nasdaq National Market under the symbol "PSEM."
SEE "RISK FACTORS," BEGINNING ON PAGE 5, FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
-------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Per Share........................ $ $ $ $
Total(3)......................... $ $ $ $
</TABLE>
- ----
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $600,000.
(3) The Company and the Selling Shareholders have granted the Underwriters an
option, on the same terms and conditions as set forth above exercisable
within 30 days of the date hereof, to purchase up to 375,000 additional
shares of Common Stock solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, Proceeds to Company and Proceeds to Selling
Shareholders will be $ , $ , $ and $ , respectively. See
"Underwriting."
The shares are being offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters, subject to various prior
conditions, including their right to reject orders in whole or in part. It is
expected that delivery of share certificates will be made in New York, New
York, on or about , 1997.
SoundView Financial Group, Inc. Unterberg Harris
, 1997
<PAGE>
Set forth on the left hand side of the inside front cover page there are two
photos under the heading "Pericom High-Performance ICs," the one on the left
showing a gymnast performing a manouver on the still rings, the one to the
right showing a Pericom IC device on a circuit board. Below such photos, there
are three columns. The column on the left sets forth the following text:
"Pericom designs, develops and markets high-performance integrated circuits
(ICs) for the transfer, routing and timing of digital and analog signals in
personal computers, networking equipment and multimedia hardware. COMPUTERS--
Solutions for signal transfer, signal switching, clock distribution, hot-plug
interfaces, and mixed-voltage interface." The column in the center shows
graphics of seven Pericom IC devices of various types with the following
captions underneath: "Interface Logic," "Networking Transceivers," "Clock
Generators," "Digital Switches" and "Analog Switches." Below such graphics,
the center column includes the following text: "NETWORKING--Solutions used in
FastEthernet protocol switching, hub-to-hub connections, backplane signal
transfer, clock distribution, physical layer transceivers and hot-plug
interfaces." The column on the right sets forth the following text:
"MULTIMEDIA--Solutions used in TV/PC monitors, video switching, picture-in-
picture video overlay, audio switching and video multiplexing." Set forth
below such text is a stylized letter "P" in a circle and the name "PERICOM."
Set forth on the left hand side of the inside cover gatefold under the
caption "High-Performance Notebook Computer and Multimedia Applications" and
the sentence "Pericom supplies interface logic, digital and analog switches
and clock management products to notebook PC manufacturers such as Acer,
Compaq, Dell, IBM, Toshiba, and multimedia companies such as Avid, Diamond
Multimedia and Trident Microsystems." Set forth below are graphics consisting
of four rectangular boxes with smaller boxes inside, labeled as a docking
station, a notebook computer, an audio card, and a video card, respectively.
The box representing a docking station is connected to the box representing a
notebook computer. Within the boxes, certain elements of the applicable item
are depicted, with the interconnection of such elements shown by lines. The
elements offered by Pericom are highlighted: "Switch" in the box depicting a
docking station; "Logic," "Clock", and "Switch" in the box depicting a
notebook computer; "Clock," and three "Analog Switch[es]" in the box depicting
an audio card; and "Bus Switch," "Clock" and "Video Switch" in the box
depicting a video card. Set forth under such graphics is the following
sentence: "APPLICATION: High-performance notebook computer with Pentium-class
microprocessor with docking station connection."
Set forth on the right side of the inside cover gatefold under the caption
"Networking Application" and the sentence "Pericom supplies interface logic,
LAN switches, clock management products and transceivers to networking
equipment manufacturers such as 3COM, Ascend Communications, Bay Networks,
Cabletron Systems, Cisco Systems and Hewlett-Packard." Set forth below are
graphics consisting of rectangular boxes labeled "Network Switch" and
thereunder graphics and title "Network Interface Card." Within the boxes,
certain elements of the applicable items are depicted, with the
interconnection of such elements shown by lines. The elements offered by
Pericom are highlighted: two "Switch[es]," "Logic," "Clock," "PHY," and "LAN
Switch" in the box representing a network switch; and "Memory," "Multi-
Protocol Controller," two "LAN Transceiver[s]," and "Filter Magnetic" in the
box representing a network interface card. The element "PHY" is marked with an
asterisk. At the bottom of the graphic is the following phrase: "*Pericom is
currently shipping engineering samples of its PHY products." The boxes
depicting the two systems are connected by a line. Set forth to the left of
the box representing a network switch is a three-dimensional graphic labeled
"Network Switch," and to the left of the box depicting a network interface
card is a graphic labeled "Notebook Computer with Docking Station." Set forth
at the bottom of the page is the following sentence: "APPLICATION: Networking
system with multiprotocol 100-megabit transceivers for network switch and LAN
adapter."
[INSIDE FRONT COVER PHOTOGRAPHS]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT-COVERING
TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by independent accountants and to make
available quarterly reports containing unaudited summary financial information
for each of the first three quarters of each fiscal year.
Pericom is a registered trademark of the Company and SiliconConnect,
SiliconSwitch, SiliconClock, SiliconInterface, LanSwitch, DigitalSwitch,
AnalogSwitch, FlexClock and VideoSwitch are trademarks and trade names of the
Company. This Prospectus also contains other product names and trade names and
trademarks of the Company and of other organizations.
2
<PAGE>
Set forth on the left side of the inside cover gatefold under the caption
"High Performance Notebook Computer and Multimedia Applications" and the
sentence "Pericom supplies interface logic, digital and analog switches, and
clock management products to notebook companies such as Acer, Compaq, Dell,
Hitachi, IBM, and multimedia companies such as Avid, Diamond Multimedia, STB
Systems, and Trident Microsystems" are one circle, four rectangular boxes with
smaller boxes inside, and one square box, labeled as a file server, a docking
station, a notebook computer, a sound card, and a laser printer. The circle
representing a file server is connected to the box representing a docking
station which in turn is connected to the boxes representing a notebook computer
and a laser printer. Within the boxes, certain elements of the applicable item
are depicted, with the interconnection of such elements shown by lines. The
elements offered by Pericom are highlighted: "Switch" in the box depicting a
docking station; "Logic," "Clock", and two "Switches" in the box depicting a
notebook computer; "Switch," "Clock," and two "Analog Switch[es]" in the box
depicting a sound card; "Switch", "Clock" and "Video Switch" in the box
depicting a video card, and "Clock" in the box depicting a laser printer. Set
forth under such graphics is the following sentence: "APPLICATION: High-
performance notebook computers with Pentium-Class microprocessors communicating
with docking station connections".
<PAGE>
Set forth on the right side of the inside cover gatefold under the caption
"Networking Application" and the sentence "Pericom supplies interface logic, LAN
switches, clock management products, and transceivers to networking companies
such as 3COM, Ascend Communications, Cabletron Systems, Cisco Systems, Hewlett-
Packard and Samsung" are rectangular boxes labeled "Switching Hub System" and
thereunder graphics entitled "Adapter System." Within the boxes, certain
elements of the applicable item are depicted, with the interconnection of such
elements shown by lines. The elements offered by Pericom are highlighted:
"Switch,", "Logic," "Clock," "PHY," and "LAN Switch" in the box representing a
switching hub system; and "Logic," "Clock," and "LAN Switch" in the box
representing an adapter system. Elements of which Pericom is currently shipping
engineering samples are marked as such. The boxes depicting the systems are
connected by a line. Set forth to the left of the box representing a switching
hub system is a three-dimensional box labeled "Switching Hub," and to the left
of the box depicting an adapter system is a graphic labeled "Mobile Computer
with Docking Station." Set forth at the bottom of the page is the following
sentence: "APPLICATION: Networking systems with multiprotocol 100-megabit
transceivers for switching hub and adapter system."
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the detailed information and the Financial Statements,
including the Notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, the information in this Prospectus (i) assumes no exercise
of the Underwriters' over-allotment option, (ii) has been adjusted to reflect a
1-for-2 reverse stock split effected in October 1997, and (iii) has been
adjusted to reflect the conversion of all outstanding shares of Preferred Stock
into Common Stock upon the closing of the offering.
THE COMPANY
Pericom Semiconductor Corporation (the "Company" or "Pericom") designs,
develops and markets high-performance interface integrated circuits ("ICs")
used in many of today's advanced electronic systems. Interface ICs, such as
interface logic, switches and clock management products, transfer, route and
time electrical signals among a system's microprocessor, memory and various
peripherals and between interconnected systems. High-performance interface ICs,
which enable high signal quality, are essential for the full utilization of the
available speed and bandwidth of advanced microprocessors, memory ICs, LANs and
WANs. Pericom focuses on high-growth and high-performance segments of the
notebook computing, networking and multimedia markets, in which advanced system
designs require interface ICs with high-speed performance, reduced power
consumption, low-voltage operation, small size and higher levels of
integration.
Pericom has combined its extensive design technology and applications
knowledge with its responsiveness to the specific needs of electronic systems
developers to become a competitive supplier of interface ICs. The Company has
evolved from one product line in fiscal 1992 to four currently --
SiliconInterface, SiliconSwitch, SiliconClock and SiliconConnect -- with a
goal of providing an increasing breadth of interface IC solutions to its
customers. Pericom currently offers approximately 300 standard products, of
which 81 were introduced during the twelve months ended September 30, 1997, and
is planning to introduce 34 new products during the fourth quarter of calendar
1997.
Pericom has developed and is continuously refining a modular design
methodology which enables it to rapidly introduce proprietary and high-
performance products. Central to this methodology is Pericom's library of
advanced digital and analog macrocells and core functions, many of which are
not available in commercial ASIC libraries. A number of these macrocells and
core functions, including mixed-voltage input/output cells, a digital PLL, an
analog PLL and a charge pump, are designed with patented technology. This
advanced library allows Pericom to effectively address the market requirements
for interface ICs with short propagation delay, low noise and jitter, minimal
skew and reduced EMI emissions. The modular design methodology also allows the
Company to utilize a combination of digital macrocells, analog macrocells and
sea-of-gates arrays to rapidly design interface ICs optimized for power,
density, performance and manufacturing. Another key attribute of the design
methodology is the utilization of common mask sets from which multiple designs
can be developed, resulting in rapid product introductions, lower development
costs and fast response to volume requirements at competitive pricing.
The Company has adopted a fabless manufacturing strategy to gain access to a
broad range of advanced process technologies without incurring substantial
capital investments. The Company has a long-standing relationship with
Chartered, recently began using TSMC as an important supplier and is currently
qualifying LG. The Company also utilizes AMS and NJRC for BiCMOS and high-
voltage CMOS processes. See "Risk Factors--Dependence on Independent Wafer
Foundries."
Pericom pursues a three-tier customer strategy, consisting of (i) penetrating
target accounts by working with customer system design engineers to have
Pericom ICs incorporated into their product designs, (ii) solidifying customer
relationships through on-time delivery of high-quality, state-of-the-art,
competitively-priced ICs and
3
<PAGE>
(iii) expanding sales to existing customers by providing increasingly extensive
solutions to customer needs. The Company markets and distributes its products
through a worldwide network of independent sales representatives and
distributors. The Company's customers and OEM end users include 3Com
Corporation, Apple Computer, Inc., Ascend Communications, Inc., Avid
Technology, Inc., Cabletron Systems, Inc., Canon Inc., Cisco Systems, Inc.,
Compaq Computer Corporation, Digital Equipment Corporation, Hewlett-Packard
Company, Hitachi Ltd., International Business Machines Corporation, Intel
Corporation, Inventec, Inc., Smart Modular Technologies Inc., Solectron
Technology Corporation and Toshiba Corporation.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered:
By the Company.................................. 2,000,000 shares
By the Selling Shareholders..................... 500,000 shares
---------
Total..................................... 2,500,000 shares
Common Stock to be outstanding after the
offering(1)...................................... 9,023,790 shares
Use of proceeds................................... General corporate purposes,
including working capital, purchase
of capital equipment and potential
acquisitions.
Proposed Nasdaq National Market symbol............ PSEM
</TABLE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED JUNE 30, SEPTEMBER 30,
-------------------------------------- --------------
1993 1994 1995 1996 1997 1996 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net revenues............. $6,284 $18,886 $22,732 $41,174 $33,166 $6,601 $11,398
Gross profit............. 2,983 7,878 9,859 18,377 12,180 2,605 4,559
Income from operations... 367 2,432 2,879 7,492 2,004 171 1,434
Net income............... 333 2,544 2,041 4,710 1,578 185 1,023
Net income per common and
equivalent share........ $ 0.05 $ 0.33 $ 0.26 $ 0.57 $ 0.20 $ 0.02 $ 0.12
Shares used in computing
per share data(2) ...... 6,638 7,696 7,975 8,269 8,092 8,224 8,210
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
------------------------
ACTUAL AS ADJUSTED (3)
------- ----------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents.................................... $ 9,544 $27,544
Working capital......................................... 13,535 31,535
Total assets............................................ 24,086 42,086
Shareholders' equity.................................... 17,876 35,876
</TABLE>
- --------
(1) Excludes 1,486,057 shares reserved for issuance pursuant to the exercise of
stock options outstanding as of September 30, 1997 having a weighted
average exercise price of $2.56 per share. See "Management -- Stock Plans"
and Note 6 of Notes to Financial Statements.
(2) See Note 1 of Notes to Financial Statements for an explanation of the
method used to determine the number of shares used in computing net income
per common and equivalent share.
(3) Adjusted to reflect the receipt of the estimated net proceeds from the sale
of 2,000,000 shares offered by the Company hereby at an assumed initial
public offering price of $10.00 per share.
4
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, investors
should carefully consider the following risk factors in evaluating an
investment in the Common Stock offered hereby. This Prospectus contains
certain forward-looking statements. These statements are subject to risks and
uncertainties, including those set forth below, and actual results could
differ materially from those expressed or implied in these statements. All
forward-looking statements included in this Prospectus are made as of the date
hereof, and the Company assumes no obligation to update any such forward-
looking statements or reasons why actual results might differ.
LIMITED OPERATING HISTORY; POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
The Company was founded in 1990 and has a limited history of operations,
having shipped its first products in volume in fiscal 1993. There can be no
assurance that any past levels of revenue growth or profitability can be
sustained on a quarterly or annual basis. The Company's expense levels are
based in part on anticipated future revenue levels, which can be difficult to
predict. The Company's business is characterized by short-term orders and
shipment schedules. The Company does not have long-term purchase agreements
with any of its customers, and customers can typically cancel or reschedule
their orders without significant penalty. The Company typically plans its
production and inventory levels based on forecasts, generated with input from
customers and sales representatives, of customer demand which is highly
unpredictable and can fluctuate substantially. If customer demand falls
significantly below anticipated levels, the Company's business, financial
condition and results of operations would be materially and adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The Company has experienced significant fluctuations in its quarterly
operating results in the past three fiscal years and could continue to
experience such fluctuations in the future. For instance, in the quarter ended
June 30, 1997, sales to Harris Corporation ("Harris") under a private label
resale program were $3.1 million, compared to an average of $0.8 million in
each of the three previous quarters. Sales to Harris are not expected to
continue at the level achieved in the quarter ended June 30, 1997 and may
fluctuate significantly from quarter to quarter. The Company's operating
results are affected by a wide variety of factors that could materially and
adversely affect net revenues and results of operations, including a decline
in the gross margins of its products, the growth or reduction in the size of
the market for interface ICs, delay or decline in orders received from
distributors, the availability of manufacturing capacity with the Company's
wafer suppliers, changes in product mix, customer acceptance of the Company's
new products, the ability of customers to make payments to the Company, the
timing of new product introductions and announcements by the Company and its
competitors, increased research and development expenses associated with new
product introductions or process changes, expenses incurred in obtaining and
enforcing, and in defending claims with respect to, intellectual property
rights, changes in manufacturing costs and fluctuations in manufacturing
yields, and other factors such as general conditions in the semiconductor
industry. All of the above factors are difficult for the Company to forecast,
and these or other factors can materially and adversely affect the Company's
business, financial condition and results of operations for one quarter or a
series of quarters. The Company's expense levels are based in part on its
expectations regarding future sales and are fixed in the short term to a large
extent. Therefore, the Company may be unable to adjust spending in a timely
manner to compensate for any unexpected shortfall in sales. Any significant
decline in demand relative to the Company's expectations or any material delay
of customer orders could have a material adverse effect on the Company's
business, financial condition and results of operations. There can be no
assurance that the Company will be able to sustain profitability on a
quarterly or annual basis. In addition, it is possible that the Company's
operating results in future quarters may fall below the expectations of public
market analysts and investors, which would likely result in a material drop in
the market price of the Company's Common Stock. See "-- No Prior Market, Stock
Price Volatility; Dilution" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Historically, selling prices in the semiconductor industry generally, as
well as for the Company's products, have decreased significantly over the life
of each product. Beginning late in calendar 1995 and continuing into calendar
1997, the Company experienced a significant decrease in the selling prices of
many of its products,
5
<PAGE>
which had a material adverse effect on the Company's net revenues and overall
gross margins. The Company expects that selling prices for its existing
products will continue to decline over time and that average selling prices
for new products will decline significantly over the lives of these products.
Declines in selling prices for the Company's products, if not offset by
reductions in the costs of producing these products or by sales of new
products with higher gross margins, would reduce the Company's overall gross
margins and could materially and adversely affect the Company's business,
financial condition and results of operations. There can be no assurance that
the Company will be able to reduce production costs or to develop and market
new products with higher gross margins. See "-- Technological Change;
Dependence on New Products," "-- Competition," "-- Semiconductor Industry
Risks" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
DEPENDENCE ON INDEPENDENT WAFER FOUNDRIES
In fiscal 1996 and 1997, approximately 90% of the wafers for the Company's
semiconductor products were manufactured by Chartered Semiconductor
Manufacturing Pte, Ltd. ("Chartered"), and the remainder of the Company's
wafers were manufactured by Austria Mikro Systeme GmbH ("AMS"), New Japan
Radio Corporation ("NJRC") and Taiwan Semiconductor Manufacturing Corporation
("TSMC"). The Company is currently qualifying LG Semicon Co., Ltd. ("LG") as a
foundry supplier. The Company believes that it will receive an increasing
portion of its wafer requirements from TSMC and LG in the future. The
Company's reliance on independent wafer suppliers to fabricate its wafers at
their production facilities subjects the Company to such possible risks as
potential lack of adequate capacity and available manufactured products, lack
of control over delivery schedules and the risk of events limiting production
and reducing yields, such as fires or other damage to production facilities or
technical difficulties. Although, to date, the Company has not experienced any
material delays in obtaining an adequate supply of wafers, there can be no
assurance that the Company will not experience delays in the future. Any
inability or unwillingness of the Company's wafer suppliers generally, and
Chartered in particular, to provide adequate quantities of finished wafers to
meet the Company's needs in a timely manner or in needed quantities would
delay production and product shipments and have a material adverse effect on
the Company's business, financial condition and results of operations.
At present, the Company purchases wafers from its wafer suppliers through
the issuance of purchase orders based on rolling six-month forecasts provided
by the Company, and such purchase orders are subject to acceptance by each
wafer foundry. The Company does not have long-term purchase agreements with
any of its wafer suppliers, each of which has the right to reduce or terminate
allocations of wafers to the Company. In the event that these suppliers were
unable or unwilling to continue to manufacture the Company's key products in
required volumes, the Company would have to identify and qualify additional
foundries. In any event, the Company's future growth will also be dependent
upon its ability to identify and qualify new wafer foundries. The
qualification process can take up to six months or longer, and there can be no
assurance that any additional wafer foundries will become available to the
Company or will be in a position to satisfy any of the Company's requirements
on a timely basis. The Company also depends upon its wafer suppliers to
participate in process improvement efforts, such as the transition to finer
geometries, and any inability or unwillingness of such suppliers to do so
could delay or otherwise materially adversely affect the Company's development
and introduction of new products. Furthermore, sudden shortages of raw
materials or production capacity constraints can lead wafer suppliers to
allocate available capacity to customers other than the Company or for
internal uses, which could interrupt the Company's ability to meet its product
delivery obligations. Any significant interruption in the supply of wafers to
the Company would adversely affect the Company's operating results and
relations with affected customers. The Company's reliance on independent wafer
suppliers may also impact the length of the development cycle for the
Company's products, which may provide time-to-market advantages to competitors
that have in-house fabrication capacity.
In the recent past, some wafer foundries, including some of those utilized
by the Company, required certain customers to make substantial financial
commitments to them as a condition to future allocations of finished wafer
output. These financial commitments have taken the form of equity investments
in the foundry, full or
6
<PAGE>
partial pre-payments on orders, or the furnishing of capital equipment to the
foundry. The Company has not been required to make such financial commitments
to date. Although wafer foundries generally are no longer requiring such
financial commitments, there can be no assurance that wafer foundries will not
renew such requirements at some time in the future. The Company has limited
financial resources and would be substantially less able than many of its
competitors and other semiconductor companies to provide equity investments or
other financial accommodations to its foundries to obtain capacity allocation
guarantees. To the extent that such financial commitments are required to
maintain existing wafer output or to obtain new capacity, the Company's
ability to obtain wafers will be adversely affected if the Company is unable
to meet such requirements.
Each of Chartered, AMS, NJRC, TSMC and LG is located outside the United
States, which exposes the Company to risks associated with international
business operations, including foreign governmental regulations, currency
fluctuations, reduced protection for intellectual property, changes in
political conditions, disruptions or delays in shipments and changes in
economic conditions in the countries where these foundries are located, each
of which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and
"Business -- Manufacturing."
TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS
The markets for the Company's products are characterized by rapidly changing
technology, frequent new product introductions and declining selling prices
over product life cycles. The Company's future success is highly dependent
upon the timely completion and introduction of new products at competitive
price/performance levels. The success of new products depends on a variety of
factors, including product selection, product performance and functionality,
customer acceptance, competitive pricing, successful and timely completion of
product development, sufficient wafer fabrication capacity and achievement of
acceptable manufacturing yields by the Company's wafer suppliers. There can be
no assurance that the Company will be able to successfully identify new
product opportunities and develop and bring to market such new products or
that the Company will be able to respond effectively to new technological
changes or new product announcements by others. In addition, the Company may
experience delays, difficulty in procuring adequate fabrication capacity for
the development and manufacture of such products or other difficulties in
achieving volume production of these products. The failure of the Company to
complete and introduce new products in a timely manner at competitive
price/performance levels would materially and adversely affect the Company's
business, financial condition and results of operations.
The Company has relied in the past and continues to rely upon its
relationships with manufacturers of high-performance systems for insights into
product development strategies for emerging system requirements. The Company
believes it will rely on these relationships more in the future as the Company
focuses on the development and production of application specific standard
products. The Company generally incorporates its new products into a
customer's product or system at the design stage. However, these design
efforts, which can often require significant expenditures by the Company, may
precede the generation of volume sales, if any, by a year or more. Moreover,
the value of any design win will depend in large part on the ultimate success
of the customer's product and on the extent to which the system's design
accommodates components manufactured by the Company's competitors. No
assurance can be given that the Company will achieve design wins or that any
design win will result in significant future revenues. To the extent the
Company cannot develop or maintain such relationships, its ability to develop
well-accepted new products may be impaired, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business -- Products" and "Business -- Research
and Development."
CUSTOMER CONCENTRATION
A relatively small number of customers has accounted for a significant
portion of the Company's net revenues in each of the past several fiscal years
and the Company expects this trend to continue for the foreseeable future. In
fiscal 1997, sales to Harris and International Business Machines Corporation
("IBM")
7
<PAGE>
accounted for approximately 17% and 14%, respectively, of the Company's net
revenues, and sales to the Company's top five customers accounted for
approximately 47% of net revenues. In the fourth quarter of fiscal 1997, sales
to Harris under a private label resale program were $3.1 million and accounted
for 27.3% of the Company's net revenues during that quarter. In the first
quarter of fiscal 1998, the Company's top five customers accounted for 35% of
net revenues, although no single customer accounted for greater than 10% of
net revenues. The Company does not have long-term purchase agreements with any
of its customers. There can be no assurance that the Company's current
customers will continue to place orders with the Company, that orders by
existing customers will continue at the levels of previous periods or that the
Company will be able to obtain orders from new customers. In particular, sales
to Harris are not expected to continue at the level achieved in the fourth
quarter of fiscal 1997. Loss of one or more of the Company's large customers,
or a reduction in the volume of orders placed by any of such customers, could
materially and adversely affect the Company's business, financial condition
and results of operations. See "-- Limited Operating History; Potential
Fluctuations in Operating Results," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business -- Customers" and
"Business -- Sales and Marketing."
COMPETITION
The semiconductor industry is intensely competitive. Significant competitive
factors in the market for high- performance ICs include product features and
performance, product quality, price, success in developing new products,
adequate wafer fabrication capacity and sources of raw materials, efficiency
of production, timing of new product introductions, ability to protect
intellectual property rights and proprietary information, and general market
and economic conditions. The Company's competitors include Cypress
Semiconductor Corporation, Integrated Circuit Systems, Inc., Integrated Device
Technology, Inc., Maxim Integrated Products, Inc., Quality Semiconductor, Inc.
and Texas Instruments, Inc., most of which have substantially greater
financial, technical, marketing, distribution and other resources, broader
product lines and longer-standing customer relationships than the Company. The
Company also competes with other major or emerging companies that sell
products to certain segments of the markets addressed by the Company.
Competitors with greater financial resources or broader product lines may also
have greater ability than the Company to engage in sustained price reductions
in the Company's primary markets in order to gain or maintain market share.
The Company believes that its future success will depend on its ability to
continue to improve and develop its products and processes. Unlike the
Company, many of the Company's competitors maintain internal manufacturing
capacity for the fabrication and assembly of semiconductor products, which may
provide such competitors with more reliable manufacturing capability, shorter
development and manufacturing cycles and time-to-market advantages. In
addition, competitors with their own wafer fabrication facilities that are
capable of producing products with the same design geometries as those of the
Company may be able to manufacture and sell competitive products at lower
prices. Introduction of products by competitors that are manufactured with
improved process technology could materially and adversely affect the
Company's business and results of operations. As is typical in the
semiconductor industry, competitors of the Company have developed and marketed
products having functionality similar or identical to the Company's products,
and the Company expects this trend to continue in the future. To the extent
the Company's products do not achieve performance, price, size or other
advantages over products offered by competitors, the Company is likely to
experience greater price competition with respect to such products. The
Company also faces competition from the makers of microprocessors and other
system devices, including application specific integrated circuits ("ASICs"),
that have been and may be developed for particular systems. These devices may
include interface logic functions, which may eliminate the need or sharply
reduce the demand for the Company's products in particular applications. There
can be no assurance that the Company will be able to compete successfully in
the future or that competitive pressures will not materially and adversely
affect the Company's financial condition and results of operations.
Competitive pressures could also reduce market acceptance of the Company's
products and result in price reductions and increases in expenses that could
materially and adversely affect the Company's business, financial condition
and results of operations. See "-- Dependence on Independent Wafer Foundries,"
"-- Dependence on Single or Limited Source Assembly Subcontractors,"
"Business -- Manufacturing" and "Business -- Competition."
8
<PAGE>
VARIATION IN PRODUCTION YIELDS
The manufacture and assembly of semiconductor products is highly complex and
sensitive to a wide variety of factors, including the level of contaminants in
the manufacturing environment, impurities in the materials used and the
performance of manufacturing personnel and production equipment. In a typical
semiconductor manufacturing process, silicon wafers produced by the foundry
are sorted and cut into individual die that are then assembled into individual
packages and tested for performance. The Company's wafer fabrication suppliers
have from time to time experienced lower-than-anticipated yields of good die,
as is typical in the semiconductor industry. In the event of such decreased
yields, the Company would incur additional costs to sort wafers, an increase
in average cost per usable die and an increase in the time to market for its
products. These conditions could reduce the Company's net revenues and gross
margin, and have an adverse effect on the Company's business and results of
operations, and relations with affected customers. No assurance can be given
that the Company or its suppliers will not experience yield problems in the
future which could result in a material adverse effect on the Company's
business and results of operations. See "Business -- Manufacturing."
SEMICONDUCTOR INDUSTRY RISKS
The semiconductor industry has historically been cyclical and periodically
subject to significant economic downturns, characterized by diminished product
demand, accelerated erosion of selling prices, overcapacity and rapidly
changing technology and evolving industry standards. Beginning late in
calendar 1995 and continuing into calendar 1997, the Company experienced a
significant decrease in the selling prices of many of its products,
attributable primarily to a significant downward trend in pricing experienced
in the semiconductor industry. Although the semiconductor industry is
currently experiencing increased demand, it is uncertain how long these
conditions will continue. The Company does not expect that this high level of
demand will continue indefinitely. Accordingly, the Company may in the future
experience substantial period-to-period fluctuations in business and results
of operations due to general semiconductor industry conditions, overall
economic conditions or other factors. The Company's business is also subject
to the risks associated with the effects of legislation and regulations
relating to the import or export of semiconductor products. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business -- Manufacturing," "Business -- Sales and Marketing" and
"Business -- Competition."
RELIANCE ON DISTRIBUTORS; PRODUCT RETURNS
Sales through domestic and international distributors represented 40% and
36% of the Company's net revenues in fiscal 1996 and 1997, respectively. The
Company's distributors are not subject to minimum purchase requirements, may
reduce or delay orders periodically due to excess inventory and can
discontinue selling the Company's products at any time. The Company recognizes
revenue and related gross profit from sales of products through distributors
when shipped. Domestic distributors are generally permitted a return allowance
of 10% of their net purchases every six months. Although the Company believes
that, to date, it has provided adequate allowances for exchanges, returns,
price protection and other concessions and, to date, amounts incurred have not
been material, there can be no assurance that actual amounts incurred will not
exceed the Company's allowances, particularly in connection with the
introduction of new products, enhancements to existing products or price
reductions. The Company's distributors typically offer competing products. The
loss of one or more distributors, or the decision by one of the distributors
to reduce the number of the Company's products offered by such distributor or
to carry the product lines of the Company's competitors, could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Sales and Marketing."
MANAGEMENT OF GROWTH
The Company has recently experienced and may continue to experience growth
in the number of its employees and the scope of its operations, resulting in
increased responsibilities for management personnel. To manage recent and
potential future growth effectively, the Company will need to continue to
implement and
9
<PAGE>
improve its operational, financial and management information systems and to
hire, train, motivate and manage a growing number of employees. The future
success of the Company also will depend on its ability to attract and retain
qualified technical, marketing and management personnel, particularly highly-
skilled design, process and test engineers, for whom competition is intense.
In particular, the current availability of qualified engineers is limited, and
competition among companies for skilled and experienced engineering personnel
is very strong. The Company is currently attempting to hire a number of
engineering personnel and has experienced delays in filling such positions.
During strong business cycles, the Company expects to experience continued
difficulty in filling its needs for qualified engineers and other personnel.
The Company intends to implement a new management information system over the
next six months. There can be no assurance that the Company will not encounter
difficulties as it seeks to integrate this new system into its operations.
There can be no assurance that the Company will be able to achieve or manage
effectively any such growth, and failure to do so could delay product
development cycles or otherwise have a material adverse effect on the
Company's business, financial condition and results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company's future success will depend to a large extent on the continued
contributions of its executive officers and other key management and technical
personnel, none of whom has an employment agreement with the Company and each
of whom would be difficult to replace. The Company does not maintain any key
person life insurance policy on any such persons. The loss of the services of
one or more of the Company's executive officers or key personnel or the
inability to continue to attract qualified personnel could delay product
development cycles or otherwise have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Employees" and "Management."
PATENTS AND PROPRIETARY RIGHTS
The Company's success depends in part on its ability to obtain patents and
licenses and preserve other intellectual property rights covering its products
and development and testing tools. In the United States, the Company holds
five patents covering certain aspects of its product designs and has eight
additional patent applications pending. Copyrights, mask work protection,
trade secrets and confidential technological know-how are also key elements of
the Company's business. There can be no assurance that any additional patents
will be issued to the Company or that the Company's patents or other
intellectual property will provide meaningful protection from competition. The
Company may be subject to or may initiate interference proceedings in the U.S.
Patent and Trademark Office, which can consume significant financial and
management resources. In addition to the foregoing, the laws of certain
territories in which the Company's products are or may be developed,
manufactured or sold may not protect the Company's products and intellectual
property rights to the same extent as the laws of the United States. The
inability of the Company to protect its intellectual property adequately could
have a material adverse effect on its business, financial condition and
results of operations.
The semiconductor industry is characterized by frequent litigation regarding
patent and other intellectual property rights, and there can be no assurance
that the Company will not be subject to infringement claims by other parties.
In May 1995, Quality Semiconductor, Inc. ("QSI"), a competitor of the Company,
brought a lawsuit against the Company in the United States District Court for
the Northern District of California, San Francisco Division, claiming
infringement of one of its patents by certain features in certain of the
Company's bus switch products and seeking injunctive relief and unspecified
monetary damages. Discovery has commenced but is stayed pending a claim
construction hearing. The Company believes that it has meritorious defenses,
that the products involved are not material to the Company's business and that
the resolution of this matter will not have a material adverse effect on the
Company's business, financial position or results of operations. However, any
litigation, whether or not determined in favor of the Company, can result in
significant expense to the Company and can divert the efforts of the Company's
technical and management personnel from productive tasks. In the event of an
adverse ruling in any litigation involving intellectual property, the Company
might be required to discontinue the use of certain processes, cease the
manufacture, use and sale of infringing products,
10
<PAGE>
expend significant resources to develop non-infringing technology or obtain
licenses to the infringed technology, and may suffer significant monetary
damages, which could include treble damages. In the event the Company attempts
to license any allegedly infringed technology, there can be no assurance that
such a license would be available on reasonable terms or at all. In the event
of a successful claim against the Company and the Company's failure to develop
or license a substitute technology on commercially reasonable terms, the
Company's business and results of operations would be materially and adversely
affected. There can be no assurance that the claims brought by QSI or any
potential infringement claims by other parties (or claims for indemnity from
customers resulting from any infringement claims) will not materially and
adversely affect the Company's business, financial condition and results of
operations.
The process technology used by the Company's independent foundries,
including process technology that the Company has developed with its
foundries, can generally be used by such foundries to produce their own
products or to manufacture products for other companies, including the
Company's competitors. In addition, the Company does not generally have the
right to implement the process technology used to manufacture its products
with foundries other than the foundry with which it has developed such process
technology. See "Business --Intellectual Property."
RISKS OF INTERNATIONAL SALES
Sales outside of the United States accounted for approximately 35%, 30%, 37%
and 42% of the Company's net revenues in fiscal 1995, 1996 and 1997 and the
first quarter of fiscal 1998, respectively. The Company expects that export
sales will continue to represent a significant portion of net revenues. The
Company intends to expand its operations outside of the United States, which
will require significant management attention and financial resources and
further subject the Company to international operating risks. These risks
include unexpected changes in regulatory requirements, delays resulting from
difficulty in obtaining export licenses for certain technology, tariffs and
other barriers and restrictions, and the burdens of complying with a variety
of foreign laws. The Company is also subject to general geopolitical risks in
connection with its international operations, such as political and economic
instability and changes in diplomatic and trade relationships. In addition,
because the Company's international sales are denominated in U.S. dollars,
increases in the value of the U.S. dollar could increase the price in local
currencies of the Company's products in foreign markets and make the Company's
products relatively more expensive than competitors' products that are
denominated in local currencies, and there can be no assurance that the
Company will not be materially and adversely affected by fluctuating exchange
rates. There can be no assurance that regulatory, geopolitical and other
factors will not materially and adversely affect the Company's business,
financial condition and results of operations in the future or require the
Company to modify its current business practices. See "Business -- Customers"
and "Business -- Sales and Marketing."
DEPENDENCE ON SINGLE OR LIMITED SOURCE ASSEMBLY SUBCONTRACTORS
The Company primarily relies on foreign subcontractors for the assembly and
packaging of its products and, to a lesser extent, for the testing of its
finished products. Some of these subcontractors are the Company's single
source supplier for certain new packages. Although the Company believes that
it is not materially dependent upon any such subcontractor, changes in the
Company's or a subcontractor's business could cause the Company to become
materially dependent on a subcontractor. The Company has from time to time
experienced difficulties in the timeliness and quality of product deliveries
from the Company's subcontractors. Although delays experienced to date have
not been material, there can be no assurance that the Company will not
experience similar or more severe difficulties in the future. The Company
generally purchases these single or limited source components or services
pursuant to purchase orders and has no guaranteed arrangements with such
subcontractors. There can be no assurance that these subcontractors will
continue to be able and willing to meet the Company's requirements for any
such components or services. Any significant disruption in supplies from, or
degradation in the quality of components or services supplied by, these
subcontractors, or any other circumstance that would require the Company to
qualify alternative sources of supply could delay shipments and
11
<PAGE>
result in the loss of customers, or limitations or reductions in the Company's
revenues, or otherwise materially and adversely affect the Company's business,
financial condition and results of operations.
Each of the Company's assembly subcontractors is located outside the United
States, which exposes the Company to risks associated with international
business operations, including foreign governmental regulations, currency
fluctuations, reduced protection for intellectual property, changes in
political conditions, disruptions or delays in shipments and changes in
economic conditions in the countries where these subcontractors are located,
any of which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business --
Manufacturing."
CONTROL BY PRINCIPAL SHAREHOLDERS
Upon the consummation of this offering, the current officers, directors and
current holders of five percent or more of the Company's Common Stock will own
approximately 49.2% of the outstanding Common Stock. Accordingly, these
shareholders acting as a group will have control with respect to matters
requiring approval by the shareholders of the Company, including the ability
to elect a majority of the board of directors. In addition, the Company's
Restated Articles of Incorporation allow the Company to issue Preferred Stock
with rights senior to those of the Common Stock without any further vote or
action by the shareholders, which could make it more difficult for
shareholders to effect certain corporate actions. These provisions could also
have the effect of delaying or preventing a change in control of the Company.
See "Management," "Principal and Selling Shareholders" and "Description of
Capital Stock."
BROAD MANAGEMENT DISCRETION IN USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered by
the Company hereby at the estimated initial public offering price of $10.00
per share are estimated to be $18.0 million ($ million if the Underwriters'
over-allotment option is exercised in full) after deducting the underwriting
discounts and commissions and estimated offering expenses payable by the
Company. While the Company currently anticipates that it will use a portion of
such proceeds for acquisition of capital equipment, a substantial portion of
such proceeds are currently allocated only for general corporate purposes.
Consequently, management will have broad discretion over the use of a majority
of the proceeds of the offering. See "Use of Proceeds."
NO PRIOR MARKET; STOCK PRICE VOLATILITY; DILUTION
Prior to this offering, there has been no public market for the Company's
Common Stock. Consequently, the initial public offering price will be
determined by negotiations among the Company, the Selling Shareholders and the
representatives of the Underwriters. There can be no assurance that an active
public market for the Common Stock will develop or be sustained after the
offering or that the market price of the Common Stock will not decline below
the initial public offering price. The trading price of the Company's Common
Stock could be subject to wide fluctuations in response to quarter-to-quarter
variations in operating results, announcements of technological innovations or
new products by the Company or its competitors, general conditions in the
semiconductor and electronic systems industries, changes in earnings estimates
by analysts, or other events or factors. In addition, the stock market has
experienced extreme price and volume fluctuations, which have particularly
affected the market prices of many high technology companies and which have
often been unrelated to the operating performance of such companies. Any of
the foregoing factors may materially and adversely affect the market price of
the Company's Common Stock. In addition, purchasers of the Common Stock will
experience immediate and substantial dilution in net tangible book value per
share of the Common Stock from the initial public offering price per share.
See "Dilution" and "Underwriting."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON MARKET PRICE OF THE
COMMON STOCK
Sales of a substantial number of shares of Common Stock after this offering
could adversely affect the market price of the Common Stock and could impair
the Company's ability to raise capital through the sale of
12
<PAGE>
equity securities. Upon completion of this offering, the Company will have
approximately 9,023,790 shares of Common Stock outstanding, based on the
number of shares of Common Stock outstanding as of September 30, 1997. Of
these shares, the 2,500,000 shares offered hereby will be freely tradeable
without restriction under the Securities Act of 1933, as amended (the
"Securities Act"), unless they are held by "affiliates" of the Company as that
term is used in Rule 144 under the Securities Act.
The remaining 6,523,790 outstanding shares are "restricted securities"
within the meaning of Rule 144. None of these shares will be eligible for sale
in the public market at the effective date of the Registration Statement of
which this Prospectus is a part (the "Effective Date"). Upon the expiration of
agreements not to sell shares entered into with SoundView Financial Group,
Inc. and/or the Company, 180 days after the Effective Date, approximately
6,523,790 shares will become eligible for sale subject to the provisions of
Rule 144 or Rule 701 and 826,891 additional shares subject to vested options
will be eligible for sale subject to compliance with Rule 144 and Rule 701.
Any shares subject to lock-up agreements may be released by SoundView
Financial Group, Inc. prior to the expiration of the lock-up period at any
time without notice. See "Underwriting."
As soon as practicable after the Effective Date, the Company intends to file
one or more registration statements on Form S-8 under the Securities Act up to
register approximately 3,267,518 shares of Common Stock reserved for issuance
under the Company's 1990 Stock Option Plan, 1995 Stock Option Plan and 1997
Employee Stock Purchase Plan, thus permitting the resale of such shares by
non-affiliates in the public market without restriction under the Securities
Act unless subject to lock-up agreements. Such registration statement(s) will
become effective immediately upon filing. See "Management -- Stock Plans."
Prior to this offering, there has been no public market for the Common Stock
of the Company, and any sale of substantial amounts in the open market may
adversely affect the market price of the Common Stock offered hereby. See
"Shares Eligible for Future Sale."
13
<PAGE>
THE COMPANY
Pericom Semiconductor Corporation was incorporated in California on June 25,
1990. The principal executive offices of the Company are located at 2380
Bering Drive, San Jose, California 95131, and its telephone number at this
address is (408) 435-0800.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock being offered by the Company hereby at an assumed initial public
offering price of $10.00 per share are estimated to be $18.0 million ($
million if the Underwriters' over-allotment option is exercised in full),
after deducting the estimated underwriting discounts and commissions and
offering expenses. The principal purposes of this offering are to create a
public market for the Company's Common Stock, obtain additional capital and
facilitate future access by the Company to public equity markets. The net
proceeds to the Company are expected to be used for general corporate
purposes, including working capital. The Company expects to use approximately
$2.0 million of the net proceeds of the offering in fiscal 1998 to acquire
capital equipment for research and development and testing. The Company will
not receive any proceeds from the sale of shares of Common Stock by the
Selling Shareholders. See "Risk Factors -- Broad Management Discretion in Use
of Proceeds" and "Principal and Selling Shareholders."
The Company may also use a portion of the net proceeds to fund acquisitions
of complementary businesses, products or technologies. Although the Company
has in the past reviewed potential acquisition opportunities, there are no
current agreements or negotiations with respect to any such transactions.
Pending the foregoing uses, the net proceeds of this offering will be
invested in short-term, investment-grade or U.S. government securities.
DIVIDEND POLICY
The Company has never declared or paid dividends on its capital stock. The
Company currently does not intend to pay dividends in the foreseeable future
so that it may reinvest its earnings in the development of its business.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
September 30, 1997, (ii) on a pro forma basis to give effect to the conversion
into Common Stock of all outstanding shares of Preferred Stock upon the
closing of the offering, and (iii) as further adjusted to give effect to the
sale by the Company of the 2,000,000 shares of Common Stock being offered by
the Company hereby at an assumed initial public offering price of $10.00 per
share and the receipt of the estimated net proceeds therefrom. This table
should be read in conjunction with the Financial Statements, including the
Notes thereto, and "Selected Financial Data" included elsewhere herein.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
------------------------
PRO AS
ACTUAL FORMA ADJUSTED
------- ------- --------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C> <C>
Shareholders' equity:
Preferred Stock, no par value; 14,225,000 shares au-
thorized, actual; 5,000,000 shares authorized, pro
forma and as adjusted:
Series A Preferred Stock, 5,200,000 shares
designated, issued and outstanding, actual; none
designated, issued and outstanding, pro forma and as
adjusted............................................ $ 2,588 $ -- $ --
Series B Preferred Stock, 2,150,000 shares
designated, issued and outstanding, actual; none
designated, issued and outstanding, pro forma and as
adjusted............................................ 2,137 -- --
Series C Preferred Stock, 1,875,000 shares
designated, issued and outstanding, actual; none
designated, issued and outstanding, pro forma and as
adjusted............................................ 2,992 -- --
Common Stock, no par value; 30,000,000 shares
authorized; 2,411,290 shares outstanding, actual;
7,023,790 shares outstanding, pro forma; 9,023,790
shares outstanding, as adjusted(1).................. 259 7,976 25,976
Retained earnings.................................... 9,900 9,900 9,900
------- ------- -------
Total shareholders' equity........................ 17,876 17,876 35,876
------- ------- -------
Total capitalization............................ $17,876 $17,876 $35,876
======= ======= =======
</TABLE>
- --------
(1) Excludes 1,486,057 shares subject to outstanding options and 1,483,961
shares available for future issuance under the Company's 1990 Stock Option
Plan and 1995 Stock Option Plan and 300,000 shares available for future
issuance under the Company's 1997 Employee Stock Purchase Plan. See
"Management -- Stock Plans" and Note 6 of Notes to Financial Statements.
15
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of September 30,
1997 was approximately $17,876,000, or $2.55 per share. Pro forma net tangible
book value per share represents the amount of the Company's shareholders'
equity divided by 7,023,790 shares of Common Stock outstanding at September
30, 1997, assuming the conversion of all outstanding shares of Preferred Stock
into Common Stock. Pro forma net tangible book value dilution per share
represents the difference between the amount per share paid by purchasers of
shares of Common Stock in this offering and the pro forma net tangible book
value per share of Common Stock immediately after completion of the offering.
After giving effect to the sale by the Company of 2,000,000 shares of Common
Stock offered by the Company hereby at an assumed initial public offering
price of $10.00 per share, and the receipt of the estimated net proceeds
therefrom, the pro forma net tangible book value of the Company as of
September 30, 1997 would have been approximately $35,876,000, or $3.98 per
share. This represents an immediate increase in pro forma net tangible book
value of $1.43 per share to existing shareholders and an immediate dilution in
pro forma net tangible book value of $6.02 per share to the purchasers of
Common Stock in the offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $10.00
Pro forma net tangible book value per share as of September 30,
1997........................................................... $2.55
Increase in pro forma net tangible book value attributable to
new investors ................................................. 1.43
-----
Pro forma net tangible book value per share after offering........ 3.98
------
Dilution per share to new investors............................... $ 6.02
======
</TABLE>
The following table sets forth, on a pro forma basis as of September 30,
1997, the difference between the existing shareholders and the purchasers of
shares in the offering (at an assumed initial public offering price of $10.00
per share) with respect to the number of shares purchased from the Company,
the total consideration paid and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1).... 7,023,790 77.8% $ 7,976,000 28.5% $ 1.14
New investors............... 2,000,000 22.2% 20,000,000 71.5% 10.00
--------- ----- ----------- -----
Total..................... 9,023,790 100.0% $27,976,000 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) Sales by the Selling Shareholders in this offering will reduce the number
of shares held by existing shareholders as of September 30, 1997 to
6,523,790, or 72.3% ( % if the over-allotment option is exercised in
full), and will increase the number of shares held by new investors to
2,500,000, or 27.7% ( , or % if the over-allotment option is
exercised in full), of the total number of shares of Common Stock
outstanding after this offering. See "Principal and Selling Shareholders."
At September 30, 1997, there were outstanding stock options to purchase an
aggregate of 1,486,057 shares of Common Stock at a weighted average exercise
price of $2.56 per share. If all of these options had been exercised, the
Company's pro forma net tangible book value as of September 30, 1997 would
have been approximately $21,680,000, or $2.55 per share. After giving effect
to the sale by the Company of 2,000,000 shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of $10.00 per
share, and the receipt of the estimated net proceeds therefrom, the pro forma
net tangible book value of the Company as of September 30, 1997 would have
been approximately $39,680,000, or $3.78 per share. This would represent an
immediate increase in pro forma net tangible book value of $1.23 per share to
existing shareholders and an immediate dilution in pro forma net tangible book
value of $6.22 per share to the purchasers of Common Stock in the offering.
16
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data of the Company is qualified by
reference to and should be read in conjunction with the Financial Statements,
including the Notes thereto, and Management's Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere herein. The
Statement of Income Data for each of the years in the three-year period ended
June 30, 1997 and the Balance Sheet Data as of June 30, 1996 and 1997 are
derived from, and are qualified by reference to, the Financial Statements
included elsewhere in this Prospectus, which have been audited by Deloitte &
Touche LLP, independent accountants, whose report with respect thereto appears
elsewhere in this Prospectus. The Statement of Income Data for the years ended
June 30, 1993 and 1994 and the Balance Sheet Data as of June 30, 1993, 1994
and 1995 are derived from audited financial statements not included herein.
The Statement of Income Data for the three-month periods ended September 30,
1996 and 1997 and the Balance Sheet Data as of September 30, 1997 are derived
from unaudited interim financial statements contained elsewhere herein. The
unaudited interim financial statements include all adjustments, consisting
only of normal recurring adjustments, which the Company considers necessary
for a fair presentation of the data. Results of operations for interim periods
are not necessarily indicative of results to be expected for the full fiscal
year.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED JUNE 30, SEPTEMBER 30,
----------------------------------------- --------------
1993 1994 1995 1996 1997 1996 1997
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net revenues............ $6,284 $18,886 $22,732 $41,174 $33,166 $6,601 $11,398
Cost of revenues........ 3,301 11,008 12,873 22,797 20,986 3,996 6,839
------ ------- ------- ------- ------- ------ -------
Gross profit.......... 2,983 7,878 9,859 18,377 12,180 2,605 4,559
Operating expenses:
Research and
development.......... 1,167 2,303 2,942 4,414 4,187 986 1,169
Selling, general and
administrative....... 1,449 3,143 4,038 6,471 5,989 1,448 1,956
------ ------- ------- ------- ------- ------ -------
Total operating
expenses........... 2,616 5,446 6,980 10,885 10,176 2,434 3,125
------ ------- ------- ------- ------- ------ -------
Income from operations.. 367 2,432 2,879 7,492 2,004 171 1,434
Other income (expense),
net.................... (33) 106 144 (50) 351 105 93
------ ------- ------- ------- ------- ------ -------
Income before income
taxes.................. 334 2,538 3,023 7,442 2,355 276 1,527
Provision (credit) for
income taxes........... 1 (6) 982 2,732 777 91 504
------ ------- ------- ------- ------- ------ -------
Net income.............. $ 333 $ 2,544 $ 2,041 $ 4,710 $ 1,578 $ 185 $ 1,023
====== ======= ======= ======= ======= ====== =======
Net income per common
and equivalent share... $ 0.05 $ 0.33 $ 0.26 $ 0.57 $ 0.20 $ 0.02 $ 0.12
====== ======= ======= ======= ======= ====== =======
Shares used in computing
per share data(1)...... 6,638 7,696 7,975 8,269 8,092 8,224 8,210
====== ======= ======= ======= ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF
-------------------------------------- SEPTEMBER 30,
1993 1994 1995 1996 1997 1997
---- ---- ---- ---- ---- -------------
(IN THOUSANDS)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C>
Working capital............ $2,115 $ 6,625 $ 7,999 $12,145 $12,984 $13,535
Total assets............... 4,458 10,054 14,483 19,820 23,581 24,086
Long-term obligations...... 123 -- -- -- -- --
Shareholders' equity....... 2,742 8,294 10,352 15,095 16,795 17,876
</TABLE>
- -------
(1) See Note 1 of Notes to Financial Statements for an explanation of the
method used to determine the number of shares used in computing net income
per common and equivalent share.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company, founded in June 1990, designs, develops and markets high-
performance interface ICs for the transfer, routing and timing of signals
within electronic systems. The Company's first volume sales occurred in fiscal
1993 and consisted exclusively of 5-volt 8-bit interface logic circuits. The
Company expanded its product offering by introducing 3.3-volt 16-bit logic
circuits and 8-bit digital switches in fiscal 1994; clock generators, 3.3-volt
clock synthesizers and buffers, and high-speed interface products for the
networking industry in fiscal 1995; 32-bit logic, 16-bit digital switches and
Pentium, 56K modem and laser printer clock synthesizers in fiscal 1996; and an
analog switch family, mixed-voltage logic, a family of clock generators and a
FastEthernet transceiver in fiscal 1997.
The Company completed its first profitable fiscal year on June 30, 1993 and
has been profitable in each of its last nineteen quarters. Beginning late in
calendar 1995 and continuing into calendar 1997, the Company experienced a
significant decrease in the selling prices of many of its products, which had
a material adverse effect on the Company's net revenues and overall gross
margins. This decrease in selling prices was attributable primarily to a
significant downward trend in pricing experienced in the semiconductor
industry and by the Company and was not fully offset by cost reductions. The
decrease in net revenues and gross margins was also attributable to reduced
sales to two customers, Apple Computer, Inc. ("Apple") and American Computer &
Digital Components, Inc. ("ACDC"), which had previously accounted for
substantial sales of certain of the Company's higher margin products. In
addition, in the fourth quarter of fiscal 1997, the Company made significant
shipments to Harris under a private label resale program, which had lower
gross margins. Sales to Harris are not expected to continue at the level
achieved in that quarter. The Company's operating results are influenced by a
wide variety of factors that could materially and adversely affect net
revenues and results of operations. See "Risk Factors --Limited Operating
History; Potential Fluctuations in Operating Results."
As is typical in the semiconductor industry, the Company expects selling
prices for its products to decline over the life of each product. The
Company's ability to increase net revenues is highly dependent upon its
ability to increase unit sales volumes of existing products and to introduce
and sell new products in quantities sufficient to compensate for the
anticipated declines in selling prices of existing products. The Company seeks
to increase unit sales volume through increased wafer fabrication capacity
allocations from its existing foundries, qualification of new foundries,
increase the number of die per wafer through die size reductions and improve
yields of good die through the implementation of advanced process
technologies, but there can be no assurance that the Company will be
successful in these efforts. In fiscal 1996 and 1997, approximately 90% of the
wafers for the Company's semiconductor products were manufactured by
Chartered. The Company qualified AMS as a wafer supplier in fiscal 1991, NJRC
in fiscal 1995 and TSMC in fiscal 1997, and the Company is currently
qualifying LG as an additional foundry supplier. The Company believes that it
will receive an increasing portion of its wafer requirements from TSMC and LG
in the future. See "Risk Factors -- Dependence on Independent Wafer
Foundries."
Declining selling prices will adversely affect gross margins unless the
Company is able to offset such declines with the sale of new higher margin
products or achieve commensurate reductions in unit costs. The Company seeks
to improve its overall gross margin through the development and introduction
of selected new products that the Company believes will ultimately achieve
higher gross margins. A higher gross margin for a new product is typically not
achieved until some period after the initial introduction of the product --
\after start-up expenses for that product have been incurred and once volume
production of the product begins. In general, costs are higher at the
introduction of a new product due to the use of a more generalized design
schematic, lower economies of scale in the assembly phase and lower die yield.
The Company's ability to decrease unit cost depends on its ability to shrink
the die sizes of its products, improve yields, obtain favorable subcontractor
pricing, and make in-house test and assembly operations more productive and
efficient. There can be no assurance that these efforts, even if successful,
will be sufficient to offset declining selling prices.
18
<PAGE>
Revenue from product sales is recognized upon shipment. Estimated costs for
exchanges, returns, price protection and other concessions are accrued in the
period that sales are recognized. Although the Company believes that, to date,
it has provided adequate allowances for exchanges, returns, price protection
and other concessions, and, to date, amounts incurred have not been material,
there can be no assurance that actual amounts incurred will not exceed the
Company's allowances, particularly in connection with the introduction of new
products, enhancements to existing products or price reductions. See "Risk
Factors -- Reliance on Distributors; Product Returns."
RESULTS OF OPERATIONS
The following table sets forth certain statement of income data as a
percentage of net revenues for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED ENDED
JUNE 30, SEPTEMBER 30,
------------------- --------------
1995 1996 1997 1996 1997
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Net revenues............................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........................... 56.6 55.4 63.3 60.5 60.0
----- ----- ----- ------ ------
Gross margin.............................. 43.4 44.6 36.7 39.5 40.0
Operating expenses:
Research and development.................. 12.9 10.7 12.6 15.0 10.3
Selling, general and administrative....... 17.8 15.7 18.1 21.9 17.1
----- ----- ----- ------ ------
Total operating expenses................. 30.7 26.4 30.7 36.9 27.4
----- ----- ----- ------ ------
Income from operations..................... 12.7 18.2 6.0 2.6 12.6
Other income (expense), net................ 0.6 (0.1) 1.1 1.6 0.8
----- ----- ----- ------ ------
Income before income taxes................. 13.3 18.1 7.1 4.2 13.4
Provision for income taxes................. 4.3 6.6 2.3 1.4 4.4
----- ----- ----- ------ ------
Net income................................. 9.0% 11.5% 4.8% 2.8% 9.0%
===== ===== ===== ====== ======
</TABLE>
FIRST QUARTER OF FISCAL 1997 COMPARED TO FIRST QUARTER OF FISCAL 1998
NET REVENUES. Net revenues consist primarily of product sales, which are
recognized at time of shipment, less an estimate for returns and other
allowances as discussed above. Net revenues increased 73% from $6.6 million in
the first quarter of fiscal 1997 to $11.4 million in the first quarter of
fiscal 1998. This increase resulted from continued market acceptance of the
Company's existing products and sales of new products in the Company's
SiliconInterface and SiliconSwitch product lines, offset in part by a 22%
decline in selling prices.
GROSS PROFIT. Gross profit increased 75% from $2.6 million in the first
quarter of fiscal 1997 to $4.6 million in the first quarter of fiscal 1998.
Gross margin increased from 39.5% in the first quarter of fiscal 1997 to 40.0%
in the first quarter of fiscal 1998. These increases were primarily due to
cost reductions which were achieved primarily through lower per unit assembly
and test costs attributable to volume production economies and increased die
per wafer resulting from reduced design geometries. These cost reductions
exceeded the decline in selling prices of the Company's products.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of personnel costs associated with developing new products,
enhancing existing products, testing products and developing product
documentation as well as other costs directly related to product development.
Such expenses increased 19% from $1.0 million in the first quarter of fiscal
1997 to $1.2 million in the first quarter of fiscal 1998 but decreased as a
percentage of net revenues from 15.0% in the first quarter of fiscal 1997 to
10.3% in the first quarter of fiscal 1998. The increase in expenses was
primarily due to increased payroll-related expenses, increased mask expenses
and increased consulting expenses offset by reductions in legal and software
maintenance expenses. Research and development expenses decreased as a
percentage of net revenues due primarily to the increase in net revenues in
the first quarter of fiscal 1998 compared to the first quarter of fiscal 1997.
19
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses consist primarily of personnel and related overhead costs for sales,
marketing, finance, human resources and general management. Such costs also
include advertising, sales materials, sales commissions and other marketing
and promotional expenses. Selling, general and administrative expenses
increased 35% from $1.4 million in the first quarter of fiscal 1997 to $2.0
million in the first quarter of fiscal 1998 but decreased as a percentage of
net revenues from 21.9% in the first quarter of fiscal 1997 to 17.1% in the
first quarter of fiscal 1998. The increase in expenses was primarily due to
increased commission expenses resulting from higher sales as well as expenses
associated with increased staffing levels, particularly in sales and
marketing, and increased advertising expenses. Selling, general and
administrative expenses decreased as a percentage of net revenues due
primarily to the increase in net revenues in the first quarter of fiscal 1998
compared to the first quarter of fiscal 1997.
PROVISION FOR INCOME TAXES. The provision for income taxes increased from
$91,000 in the first quarter of fiscal 1997 to $504,000 in the first quarter
of fiscal 1998 due to increased profitability. The Company's effective tax
rate in each of these quarters was approximately 33%.
COMPARISON OF FISCAL 1995, 1996 AND 1997
NET REVENUES. Net revenues increased 81% from $22.7 million in fiscal 1995
to $41.2 million in fiscal 1996. The increase in net revenues in fiscal 1996
was primarily attributable to the Company's 16-bit logic family introduced in
fiscal 1995, which accounted for 42% of net revenues in fiscal 1996 up from
19% of net revenues in fiscal 1995. Net revenues decreased 19% from $41.2
million in fiscal 1996 to $33.2 million in fiscal 1997. This decrease was
primarily attributable to the significant downward trend in pricing
experienced by the semiconductor industry and the Company in late fiscal 1996
through fiscal 1997. A 30% increase in the number of units shipped in fiscal
1997 compared to fiscal 1996 was not sufficient to offset a 36% decline in
selling prices experienced by the Company in fiscal 1997. In addition, sales
to two of the Company's principal customers decreased significantly in fiscal
1997. Apple, which accounted for 20% of the Company's net revenues in fiscal
1996, curtailed a number of programs and, as a result, significantly reduced
its purchases of the Company's products. ACDC, a chip module supplier which
accounted for 8% of the Company's net revenues in fiscal 1996, experienced a
downturn in its business and reduced its purchases of integrated circuits from
a number of suppliers, including the Company. ACDC has not purchased any
products from the Company since the fourth quarter of fiscal 1996. In the
fourth quarter of fiscal 1997, sales to Harris totaled $3.1 million, compared
to an average of $0.8 million in each of the three previous fiscal quarters.
Sales to Harris in future periods are not expected to continue at the level
achieved in the fourth quarter of fiscal 1997.
GROSS PROFIT. Gross profit increased 86% from $9.9 million in fiscal 1995 to
$18.4 million in fiscal 1996. Gross profit as a percentage of net revenues, or
gross margin, increased from 43.4% in fiscal 1995 to 44.6% in fiscal 1996.
These increases were primarily due to changes in product mix, as well as cost
reductions, which were achieved primarily through lower per unit assembly and
test costs attributable to volume production economies and increased die per
wafer resulting from reduced design geometries. Gross profit decreased 34%
from $18.4 million in fiscal 1996 to $12.2 million in fiscal 1997. Gross
margin decreased from 44.6% in fiscal 1996 to 36.7% in fiscal 1997. These
decreases were primarily the result of the significant downward trend in
pricing experienced by the semiconductor industry and the Company in late
fiscal 1996 through fiscal 1997 that was not fully offset by cost reductions,
as well as the significant decrease in high-margin sales to Apple and ACDC and
significant shipments in fiscal 1997 of the Company's products to Harris under
a private label resale program which had lower margins.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 50%
from $2.9 million in fiscal 1995 to $4.4 million in fiscal 1996, but decreased
as a percentage of net revenues from 12.9% in fiscal 1995 to 10.7% in fiscal
1996. The increase in expense was primarily due to an expansion of the
Company's engineering staff, additional depreciation expense for new design
hardware and software, increased mask expenses and additional legal expenses
associated with patent and other intellectual property rights. Research and
development expenses decreased 5% from $4.4 million in fiscal 1996 to $4.2
million in fiscal 1997 but increased as a percentage of net revenues from
10.7% in fiscal 1996 to 12.6% in fiscal 1997. The decrease in
20
<PAGE>
research and development expense was due primarily to reduced legal expenses
associated with patent and other intellectual property rights and reduced mask
expenses. Research and development expenses increased as a percentage of net
revenues from fiscal 1996 to fiscal 1997 due to the decrease in net revenues
in that period, as well as the Company's commitment to continued product
development efforts.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 60% from $4.0 million in fiscal 1995 to $6.5 million in
fiscal 1996, but decreased as a percentage of net revenues from 17.8% in
fiscal 1995 to 15.7% in fiscal 1996. The increase in expenses was primarily
due to increased staffing levels, particularly in sales and marketing, as well
as increased commission expense due to higher sales levels. Selling, general
and administrative expenses decreased 7% from $6.5 million in fiscal 1996 to
$6.0 million in fiscal 1997, but increased as a percentage of net revenues
from 15.7% in fiscal 1996 to 18.1% in fiscal 1997 due to the lower net
revenues recorded in fiscal 1997. The decrease in expenses was primarily due
to reduced commissions resulting from lower net revenues in fiscal 1997
compared to fiscal 1996.
OTHER INCOME (EXPENSE), NET. Other income (expense), net includes interest
income and expense and the Company's allocated portion of net losses of
Pericom Technology, Inc., a British Virgin Islands corporation based in
Shanghai, People's Republic of China ("PTI"). PTI was formed by Pericom and
certain Pericom shareholders in 1994 to develop and market semiconductors in
China and certain other Asian countries. See Note 4 of Notes to Financial
Statements. Other income (expense), net decreased from income of $144,000 in
fiscal 1995 to an expense of $50,000 in fiscal 1996 due to the one-time write-
off in fiscal 1996 of $382,000 in costs associated with the Company's proposed
initial public offering, which was not consummated, partially offset by a
$199,000 increase in interest income from the investment of the Company's
cash. Other income (expense), net increased from an expense of $50,000 in
fiscal 1996 to income of $351,000 in fiscal 1997 due to interest earned on
cash balances in fiscal 1997 and the fact that fiscal 1996 included costs
associated with the initial public offering that was not consummated.
PROVISION FOR INCOME TAXES. The provision for income taxes was $982,000,
$2,732,000 and $777,000 in fiscal 1995, 1996 and 1997, respectively. In each
of these fiscal years, the provision for income taxes differed from the
federal statutory rate primarily due to state income taxes and the utilization
of research and development tax credits.
21
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables present certain unaudited quarterly results in dollars
and as a percentage of net revenues for fiscal 1996, fiscal 1997 and the first
quarter of fiscal 1998. The Company believes that all necessary adjustments,
consisting only of normal recurring accruals, have been included in the
amounts stated below to present fairly the selected quarterly information when
read in conjunction with the Financial Statements, including the Notes
thereto, included elsewhere herein. The results of operations for any quarter
are not necessarily indicative of results that may be expected for any
subsequent periods.
<TABLE>
<CAPTION>
FISCAL
1998
FISCAL 1996 QUARTER ENDED FISCAL 1997 QUARTER ENDED QUARTER
-------------------------------------- ------------------------------------ ENDED
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1995 1995 1996 1996 1996 1996 1997 1997 1997
STATEMENT OF INCOME DATA: --------- -------- -------- -------- --------- -------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............. $9,776 $11,553 $11,359 $8,486 $6,601 $7,300 $8,008 $11,257 $11,398
Cost of revenues......... 5,377 6,147 6,197 5,076 3,996 4,676 5,017 7,297 6,839
------ ------- ------- ------ ------ ------ ------ ------- -------
Gross profit............ 4,399 5,406 5,162 3,410 2,605 2,624 2,991 3,960 4,559
Operating expenses:
Research and
development............ 974 1,175 1,159 1,106 986 989 1,078 1,134 1,169
Selling, general and
administrative......... 1,563 1,684 1,737 1,487 1,448 1,407 1,497 1,637 1,956
------ ------- ------- ------ ------ ------ ------ ------- -------
Total operating
expenses.............. 2,537 2,859 2,896 2,593 2,434 2,396 2,575 2,771 3,125
------ ------- ------- ------ ------ ------ ------ ------- -------
Income from operations... 1,862 2,547 2,266 817 171 228 416 1,189 1,434
Other income (expense),
net..................... 58 110 (296) 78 105 75 90 81 93
------ ------- ------- ------ ------ ------ ------ ------- -------
Income before income
taxes................... 1,920 2,657 1,970 895 276 303 506 1,270 1,527
Provision for income
taxes................... 720 996 739 277 91 100 167 419 504
------ ------- ------- ------ ------ ------ ------ ------- -------
Net income............... $1,200 $ 1,661 $ 1,231 $ 618 $ 185 $ 203 $ 339 $ 851 $ 1,023
====== ======= ======= ====== ====== ====== ====== ======= =======
Net income per common and
equivalent share........ $ 0.15 $ 0.20 $ 0.15 $ 0.07 $ 0.02 $ 0.03 $ 0.04 $ 0.11 $ 0.12
====== ======= ======= ====== ====== ====== ====== ======= =======
Shares used in computing
per share data.......... 8,097 8,364 8,328 8,287 8,224 8,112 8,044 7,987 8,210
====== ======= ======= ====== ====== ====== ====== ======= =======
<CAPTION>
FISCAL
1998
FISCAL 1996 QUARTER ENDED FISCAL 1997 QUARTER ENDED QUARTER
-------------------------------------- ------------------------------------ ENDED
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
AS A PERCENTAGE 1995 1995 1996 1996 1996 1996 1997 1997 1997
OF NET REVENUES: --------- -------- -------- -------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues......... 55.0 53.2 54.6 59.8 60.5 64.1 62.6 64.8 60.0
------ ------- ------- ------ ------ ------ ------ ------- -------
Gross margin............ 45.0 46.8 45.4 40.2 39.5 35.9 37.4 35.2 40.0
Operating expenses:
Research and
development............ 10.0 10.2 10.2 13.0 15.0 13.5 13.5 10.1 10.3
Selling, general and
administrative......... 16.0 14.6 15.3 17.5 21.9 19.3 18.7 14.5 17.1
------ ------- ------- ------ ------ ------ ------ ------- -------
Total operating
expenses.............. 26.0 24.8 25.5 30.5 36.9 32.8 32.2 24.6 27.4
------ ------- ------- ------ ------ ------ ------ ------- -------
Income from operations... 19.0 22.0 19.9 9.7 2.6 3.1 5.2 10.6 12.6
Other income (expense),
net..................... 0.6 1.0 (2.6) 0.9 1.6 1.0 1.1 0.7 0.8
------ ------- ------- ------ ------ ------ ------ ------- -------
Income before income
taxes................... 19.6 23.0 17.3 10.6 4.2 4.1 6.3 11.3 13.4
Provision for income
taxes................... 7.4 8.6 6.5 3.3 1.4 1.3 2.1 3.7 4.4
------ ------- ------- ------ ------ ------ ------ ------- -------
Net income............... 12.2% 14.4% 10.8% 7.3% 2.8% 2.8% 4.2% 7.6% 9.0%
====== ======= ======= ====== ====== ====== ====== ======= =======
</TABLE>
22
<PAGE>
The Company has a limited history of operations, having shipped its first
products in volume in fiscal 1993. There can be no assurance that any past
levels of revenue growth or profitability can be sustained on a quarterly or
annual basis. The Company's expense levels are based in part on anticipated
future revenue levels, which can be difficult to predict. The Company's
business is characterized by short-term orders and shipment schedules. The
Company does not have long-term purchase agreements with any of its customers,
and customers can typically cancel or reschedule their orders without
significant penalty. The Company typically plans its production and inventory
levels based on a combination of external and internal forecasts of customer
demand. If net revenues fall significantly below anticipated levels, the
Company's business and results of operations would be materially and adversely
affected.
The Company's future operating results may fluctuate as a result of a number
of additional factors, including a decline in the gross margins of its
products, the growth or reduction in the size of the market for interface
circuits, delay or decline in orders received from distributors, the
availability of manufacturing capacity with the Company's wafer suppliers,
changes in product mix, customer acceptance of the Company's new products, the
ability of customers to make payments to the Company, the timing of new
product introductions and announcements by the Company and its competitors,
increased research and development expenses associated with new product
introductions or process changes, expenses incurred in obtaining and
enforcing, and in defending claims with respect to, intellectual property
rights, changes in manufacturing costs and fluctuations in manufacturing
yields, and other factors such as general conditions in the semiconductor
industry. See "Risk Factors -- Limited Operating History; Potential
Fluctuations in Operating Results and "Risk Factors -- Semiconductor Industry
Risks."
NET REVENUES. The Company's net revenues have fluctuated over the last nine
quarters from a low of $6.6 million in the first quarter of fiscal 1997 to a
high of $11.6 million in the second quarter of fiscal 1996. Beginning with the
third quarter of fiscal 1996, the Company's net revenues declined for three
consecutive quarters. This decrease was primarily attributable to the
significant downward trend in pricing experienced by the semiconductor
industry and the Company in late fiscal 1996 through fiscal 1997. Reduced
sales to Apple and ACDC beginning in the fourth quarter of fiscal 1996,
combined with this general downturn in the semiconductor industry, caused the
Company's net revenues to decrease significantly beginning in the fourth
quarter of fiscal 1996. Unit shipments declined 7% from the second quarter of
fiscal 1996 to the first quarter of fiscal 1997 but increased on a quarterly
basis through the remainder of fiscal 1997. Unit shipments increased 119% from
the first quarter of fiscal 1997 to the first quarter of fiscal 1998, and net
revenues grew on a quarterly basis in that period as well. Increased net
revenues have resulted from continued market acceptance of the Company's
existing products, and additions to the Company's SiliconInterface and
SiliconSwitch product lines. In the fourth quarter of fiscal 1997, sales to
Harris totaled $3.1 million. Sales to Harris are not expected to continue at
this level in future periods and were $0.5 million in the first quarter of
fiscal 1998.
GROSS PROFIT. Gross profit and gross margin fluctuated significantly from
quarter to quarter over the last nine quarters. Gross margin ranged from a low
of 35.2% in the fourth quarter of fiscal 1997 to a high of 46.8% in the second
quarter of fiscal 1996. Gross margin was adversely affected by the significant
downward trend in pricing experienced by the semiconductor industry and the
Company in late fiscal 1996 and through fiscal 1997, as well as the
significant decrease in high-margin sales to Apple and ACDC. Cost reductions
achieved by lower per unit assembly and test costs attributable to volume
production economies and increased die per wafer resulting from reduced design
geometries were not sufficient to offset the decline in selling prices
experienced by the Company during most of this time period. After rising in
the third quarter of fiscal 1997 due primarily to cost reductions, gross
margin declined in the fourth quarter of fiscal 1997 as the Company made
significant shipments of its products to Harris under a private label resale
program which has lower gross margins. Gross margin increased to 40.0% in the
first quarter of fiscal 1998 primarily due to a change in customer mix, as
shipments to Harris declined from $3.1 million in the fourth quarter of fiscal
1997 to $0.5 million in the first quarter of fiscal 1998.
OPERATING EXPENSES. Research and development expenses have consistently
ranged from approximately $1.0 million to $1.2 million on a quarterly basis
over the last nine quarters. Research and development expenses
23
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are expected to grow in the future in absolute amounts as the Company intends
to increase its commitment of resources to develop new products. Selling,
general and administrative expenses fluctuated on a quarterly basis over the
last nine quarters, primarily due to varying levels of sales commissions based
on net revenues during these periods.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has used proceeds from the private sale of
equity securities, bank borrowings and internal cash flow to support its
operations, acquire capital equipment and finance inventory and accounts
receivable growth. The Company has raised a total of $8.0 million from the
private sale of equity securities. Operating activities provided approximately
$1.6 million in cash in fiscal 1995, $4.9 million in fiscal 1996, $2.9 million
in fiscal 1997 and $0.8 million in the first quarter of fiscal 1998.
The Company made capital expenditures of approximately $1.3 million, $1.4
million and $2.0 million in fiscal 1995, 1996, and 1997, respectively, and
$0.7 million in the first quarter of fiscal 1998, primarily for the purchase
of test equipment and design and engineering systems. The Company expects to
spend approximately $2.0 million of the net proceeds of the offering to
acquire capital equipment for research and development and testing in fiscal
1998. See "Use of Proceeds."
As of September 30, 1997, the Company's principal source of liquidity
included cash and cash equivalents of approximately $9.5 million. The Company
believes that cash generated from operations and the net proceeds of the
offering will be sufficient to fund necessary purchases of capital equipment
and to provide working capital at least through the next 12 months. However,
there can be no assurance that future events will not require the Company to
seek additional capital sooner or, if so required, that adequate capital will
be available at all or on terms acceptable to the Company.
24
<PAGE>
BUSINESS
Pericom Semiconductor Corporation (the "Company" or "Pericom") designs,
develops and markets high-performance interface integrated circuits ("ICs")
used in many of today's advanced electronic systems. Interface ICs, such as
interface logic, switches and clock management products, transfer, route and
time electrical signals among a system's microprocessor, memory and various
peripherals and between interconnected systems. High-performance interface
ICs, which enable high signal quality, are essential for the full utilization
of the available speed and bandwidth of advanced microprocessors, memory ICs,
LANs and WANs. Pericom focuses on high-growth and high-performance segments of
the notebook computing, networking and multimedia markets, in which advanced
system designs require interface ICs with high-speed performance, reduced
power consumption, low-voltage operation, small size and higher levels of
integration.
Pericom has combined its extensive design technology and applications
knowledge with its responsiveness to the specific needs of electronic systems
developers to become a competitive supplier of interface ICs. The Company has
evolved from one product line in fiscal 1992 to four currently --
SiliconInterface, SiliconSwitch, SiliconClock and SiliconConnect -- with a
goal of providing an increasing breadth of interface IC solutions to its
customers. Pericom currently offers approximately 300 standard products, of
which 81 were introduced during the twelve months ended September 30, 1997,
and is planning to introduce 34 new products during the fourth quarter of
calendar 1997. The Company's customers and OEM end users include 3Com
Corporation, Apple Computer, Inc., Ascend Communications, Inc., Avid
Technology, Inc., Cabletron Systems, Inc., Canon, Inc., Cisco Systems, Inc.,
Compaq Computer Corporation, Digital Equipment Corporation, Hewlett-Packard
Company, Hitachi Ltd., International Business Machines Corporation, Intel
Corporation, Inventec, Inc., Smart Modular Technologies Inc., Solectron
Technology Corporation and Toshiba Corporation.
INDUSTRY BACKGROUND
OVERVIEW
The presence of electronic systems and subsystems permeates our everyday
life, as evidenced by the growth of the personal computer, mobile
communications, networking and consumer electronics markets. The growth of
these markets has been driven by systems characterized by ever-improving
performance, flexibility, reliability and multifunctionality, as well as
decreasing size, weight and power consumption. Advances in ICs through
improvements in semiconductor technology have contributed significantly to the
increased performance of, and demand for, electronic systems and to the
increasing presence of ICs as a proportion of overall system cost. This
technological progress has occurred at an accelerating pace, while the cost of
electronic systems has remained steady or declined.
ROLE OF THE INTEGRATED CIRCUIT IN ELECTRONIC SYSTEMS
Performance of electronic systems has benefited significantly from advances
in IC technology, which has fostered innovations in applications such as
notebook computers, networking and multimedia and associated software.
Innovations in these applications have in turn created new opportunities and
challenges that foster further innovations by IC designers. In this way, IC
and application developers have participated in a cyclical process that has
led to shorter product lives, increasing the pressure on system manufacturers
to introduce products with enhanced capabilities and performance while keeping
prices within reach of their target markets. This process in turn is driving
the demand for timely, cost-effective IC solutions.
An electronic system generates and manipulates electrical signals using
three types of ICs: (1) system logic ICs, such as microprocessors and
controllers, which perform arithmetic and logic functions and control specific
system operations; (2) memory ICs, such as DRAMs and EPROMs, which store data
and instructions for future retrieval; and (3) "interface" ICs, such as
interface logic, switches and clock management products, which control the
transfer, routing and timing of data. Data is retrieved from the memory and is
received from various system peripherals, such as a keyboard, mouse, modem,
scanner, microphone or camera, and from network
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interface cards. Data is manipulated by the microprocessor in accordance with
its arithmetic and logic functions to produce the desired output, which the
microprocessor communicates to the memory and various output devices, such as
printers, video display terminals, modems, speakers and network interface
cards. In this environment, data travels in the form of electrical signals,
which convey information in the form of rising and falling voltage levels.
In order to efficiently move data from the input devices and memory to the
microprocessor and from the microprocessor to memory and output devices, the
electrical signals must be precisely timed, synchronized, transmitted and
routed by a variety of interface ICs. For example, interface logic and bus
switches are used to transfer and route data between system logic ICs and
memory within the system and between systems. Analog switches are used to
transfer and route signals such as video and audio signals. Clock management
ICs are used to generate, buffer and distribute precise timing signals that
are required to synchronize the operation of different system logic and memory
ICs. Network transceivers are used to transmit and receive data packets
between different network nodes. Without a very high degree of precision in
the transfer, routing and timing of electrical signals, the system will either
operate at a degraded performance level or crash.
Whereas system logic and memory ICs consist entirely of digital circuits,
interface ICs can consist of digital circuits, analog circuits, or mixed
digital and analog ("mixed-signal") circuits. Digital circuits process
discrete electrical signals in a binary format, i.e., as either a "1" or a
"0," typically represented by different voltage levels. Analog circuits
process continuous electrical signals that vary over a specified operating
range, performing such functions as amplification and transmission. Mixed-
signal circuits process both digital and analog signals on a single IC to
achieve higher levels of integration and enhanced performance. Increasingly,
interface circuits are combining both analog and digital circuitry to achieve
better IC performance. The development of these mixed-signal ICs incorporates
a level of circuit design complexity which presents significant development
challenges, requiring a high level of design expertise.
PERFORMANCE CHALLENGES
The development of high-performance personal computers, the requirement for
higher network performance and the increased level of connectivity among
different types of electronic devices have driven the demand for high-speed,
high-performance interface circuits to handle the transfer, routing and timing
of digital and analog signals at high speeds with minimal loss of signal
quality. High-speed signal transfer is essential to fully utilize the speed
and bandwidth of the microprocessor, the memory and the LAN or WAN. High
signal quality is equally essential to achieve optimal balance between high
data transmission rates and reliable system operation. Market requirements for
interface circuits are driven by the same market pressures as those imposed on
microprocessors, including higher speed, reduced power consumption, lower-
voltage operation, smaller size and higher levels of integration.
The problems associated with signal quality that must be addressed by the
interface ICs are magnified by increases in the speeds at which interface ICs
must transfer, route and time electrical signals, the number of interconnected
devices that send or receive signals and the variety of types of signals
processed by the interface ICs. The most significant performance challenges
faced by designers of interface ICs are the requirements to transfer signals
at high speed with low propagation delay, minimize signal degradation caused
by "noise," "jitter," and "skew" and reduce electromagnetic interference
("EMI"). Minimizing propagation delay sources of signal degradation and
interference is needed to enable today's state-of-the-art electronic systems
to function.
Propagation Delay. Propagation delay refers to the time it takes to
transfer an electrical signal from a source to a destination (e.g., from
the microprocessor to the memory). Such transmission time depends on the
strength of the transmitted signal, length of the signal path and the
electrical load. Long propagation delays create signal transfer bottlenecks
and cause a system to run slower.
Noise. Noise refers to electrical interference among a system's
components, which can distort, mask or weaken the intended signal.
Excessive noise causes poor signal quality and loss of signal fidelity,
misinterpretation of transmitted data (such as mistaking a "1" for a "0" as
a result of a distorted voltage
26
<PAGE>
level) and potential system malfunctions. The tendency of a system to
produce this kind of interference has grown as circuit operating
frequencies have increased and additional functions are integrated into the
system.
Jitter. Jitter refers to the inevitable random fluctuations in the
frequency and phase of signals. Excess jitter in a signal can cause a loss
of data or a system crash. As advanced microprocessors, memories and
certain interface ICs are designed to tighter tolerances, they require
clock sources with an increasingly precise frequency range to achieve
reliable operation. For example, a microprocessor designed to operate at
200 MHz needs a very precise clock timing source within a range of plus or
minus one ten-billionth of a second between adjacent clock cycles.
Skew. Skew refers to a failure of two or more given signals to properly
synchronize their arrival at a designated place in the IC or system for
reasons such as varying lengths and electrical loads of signal paths on the
system board or within the interconnects inside the ICs. The need to wait
for all signals to arrive before a function can be performed results in
added delay and lower system performance. As advanced systems operate at
higher frequencies and shorter cycle times, the acceptable amount of skew
has been decreasing.
Electromagnetic Interference. EMI refers to emissions from electronic
systems that generate noise and cause interference with other systems. As
these systems operate at increasingly higher frequencies, EMI emissions are
increasing and the systems are becoming more sensitive to such emissions.
Reduction in EMI is essential in order to remain in compliance with
governmental standards and obtain required certification from appropriate
government agencies.
Pericom believes that several major market trends will make reliable
operations of systems at high frequency and high data transfer rates even more
challenging in the future. Multimedia and high-performance network
applications will continue to push for more data bandwidth on system buses and
across system boundaries. Computer and networking system clock frequencies
will continue to increase at a very rapid rate, shortening the time available
to perform data transfers. While the data transfer rate is expected to
increase several fold within the next few years, the continuing desire for
higher system reliability with minimal system downtime will create increasing
pressure to achieve lower data error rates. Increasing system-wide EMI
emissions resulting from higher-frequency ICs compels system designers to
develop and implement new ways to further reduce these emissions. These
factors all increase the need for very high-speed interface circuits with
outstanding performance specifications.
Pericom also believes that electronic systems designers and OEMs are
increasingly requiring solutions to the technical challenges described above
in order to take advantage of continuing speed and performance enhancements in
microprocessor and memory ICs. These customers are also continuing to migrate
from single-part vendors to suppliers who can provide multiple parts for their
systems, both to reduce the number of vendors they must deal with and to
address interoperability requirements among the interface ICs within the
system. Due to the short design times and product life cycles these customers
face for their own products, they are requiring rapid response time and part
availability from interface IC vendors. Interface IC vendors are further
required to accomplish these tasks in a cost-effective manner that flexibly
responds to specific customer needs.
THE PERICOM SOLUTION
Pericom has combined its extensive signal transfer, routing and timing
technology with its responsiveness to the specific needs of electronic systems
developers to become a competitive supplier of interface ICs. While Pericom's
products address a wide spectrum of applications, Pericom primarily devotes
its resources to responding to the requirements of the OEM customer base in
its target markets. Pericom currently offers approximately 300 standard
products, of which 81 were introduced during the twelve months ended
September 30, 1997, and is planning to introduce 34 new products during the
fourth quarter of calendar 1997.
27
<PAGE>
EXTENSIVE TECHNOLOGY UTILIZATION. Since its founding in 1990, Pericom has
developed and continuously refined a modular design methodology that enables
it to rapidly introduce proprietary and high-performance products. Central to
this methodology is Pericom's library of digital and analog functions composed
of many high-performance macrocells, several of which are patented, such as
mixed-voltage input/output cells, a digital PLL, an analog PLL and a charge
pump, as well as numerous core functions, many of which are not available in
commercial ASIC libraries. The Company utilizes various digital cells, analog
cells and sea-of-gates arrays to rapidly design interface ICs optimized for
power, density, performance and manufacturability, while addressing the market
requirements for short propagation delay, low noise and jitter, minimal skew
and reduced EMI emissions. The Company's design methodology utilizes common
mask sets from which multiple designs can be developed, resulting in rapid
product introductions, lower development costs and fast response to volume
requirements at competitive pricing.
CUSTOMER RESPONSIVENESS. With a primary focus on three rapidly-growing
markets, Pericom has been able to work with leading designers of notebook
computing, networking and multimedia systems to develop products integral to
their designs. Pericom's approach is to provide its customers with extensive
solutions to their signal transfer, routing and timing needs, which has
allowed Pericom to become an important supplier to them, rather than only a
specific part provider. The Company endeavors to work with its customers at
the product specification stage, keeping abreast of system logic and memory
performance enhancements in order to anticipate the engineering challenges
interface ICs will face and thereby shorten customers' system development
cycle times. While Pericom can typically satisfy a customer need with one of
its standard designs, Pericom's design methodology can enable the design and
delivery of a derivative product solution in as little as four to six weeks to
meet that need.
THE PERICOM STRATEGY
Pericom is a market-driven supplier of high-performance digital, analog and
mixed-signal ICs, focusing on providing superior solutions for the transfer,
routing and timing of high-speed electrical signals. Utilizing the Company's
design expertise, advanced process technologies and collaborative
relationships with leading wafer foundries, the Company aims to expeditiously
deliver superior solutions to its customers, with the objective of becoming
the acknowledged leader in providing interface ICs that are both state-of-the-
art and cost-effective. Key elements of the Company's strategy for achieving
this objective are:
MARKET FOCUS. Pericom's market strategy is to focus on the high-growth,
high-performance segments of the computing and networking markets and emerging
opportunities in multimedia. Currently, the Company designs and sells products
for specific high-volume applications within these target markets, including
notebook computers, LAN and WAN switches, routers and hubs, and multimedia
switches. The Company's customers include a number of leading OEMs in each
market: Acer Incorporated, Compaq, Dell, Hitachi and IBM in the notebook
market; 3Com, Ascend Communications, Bay Networks, Cabletron Systems, Cisco
Systems, Hewlett-Packard and Samsung in the network equipment market; and
Acer, Avid, Diamond Multimedia Systems, Inc. and Trident Microsystems in the
multimedia applications market. Pericom intends to pursue new opportunities in
these markets where its rapid-cycle IC design and development expertise and
understanding of the product evolution of its customers enable Pericom to
become the leading solution supplier.
CUSTOMER FOCUS. Pericom's customer strategy is to use a superior level of
responsiveness to customer needs to continually expand its customer base and
further penetrate its existing customers. Key elements of the Company's
customer strategy are:
. Penetrate target accounts with appropriate business solutions. The
Company approaches prospective customers primarily by working with their
system design engineers at the product specification stage with the goal
that one or more Pericom ICs will be incorporated into a new system
design. Pericom's understanding of its customers' requirements combined
with its ability to develop and deliver reliable, high-performance
products within its customers' product introduction schedules has enabled
Pericom to establish strong relationships with several leading OEMs.
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<PAGE>
. Solidify customer relationships through superior responsiveness. Pericom
believes that its customer service orientation is a significant
competitive advantage. Pericom seeks to maintain short product lead times
and provide its customers with excellent delivery-to-schedule
performance, in part by having available adequate finished goods
inventory for anticipated customer demands. Pericom puts heavy emphasis
on product quality and maintaining very competitive defect levels for its
products. Pericom has been ISO-9001 certified since March 1995. The
Company is flexible in responding to its customers' changing
requirements, rescheduling deliveries if necessary or developing a new
derivative product, typically in four to six weeks, should a customer's
revised system design require modified performance features. The Company
regularly enhances the performance of its product lines through
innovation and seeks to offer products and implementation solutions at
the lowest achievable costs.
. Expand customer relationships through broad-based solutions. Pericom aims
to grow its business with existing customers by offering a product line
that provides an increasingly extensive solution for their signal
transfer, routing and timing needs. Pericom believes that suppliers with
the broadest offerings of high-performance, reliable, cost-effective and
dependably delivered products are enjoying increasing competitive
advantages as customers continue to seek reductions in their vendor
counts. By providing its customers with superior vendor support in
existing programs and anticipating its customers' needs in next-
generation products, Pericom has often been able to substantially
increase its overall volume of business with those customers. With its
larger customers Pericom has also initiated EDI and remote warehousing
programs, annual purchase and supply programs, joint development projects
and other services intended to enhance the Company's position as a key
vendor.
TECHNOLOGY FOCUS. Pericom's technology strategy is to maintain its leading
position in the development of new, higher-performance interface ICs by
continuing to design additional core cells that address the more challenging
problems of signal interface as electronic systems become faster and require
lower power and voltages. Pericom's primary efforts are in the creation of
additional proprietary digital, analog and mixed-signal functionalities.
Pericom is working closely with its wafer foundry partners to incorporate
their advanced CMOS process technologies to improve its ability to introduce
next generation products expeditiously. Pericom intends to expand its patent
portfolio with the goal of providing increasingly proprietary product lines.
MANUFACTURING FOCUS. The Company's manufacturing strategy is closely
integrated with its focus on customer needs. Central to this strategy is the
Company's intent to support high-volume shipment requirements on short notice
from customers. Pericom designs its products for manufacturability to enable
it to manufacture any one of many different ICs from a single partially-
processed wafer. Accordingly, the Company keeps inventory in the form of wafer
banks, from which wafers can be completed to produce a variety of specific ICs
in two to four weeks. This approach has enabled the Company to reduce its
overall work-in-process inventory while providing increased availability for a
single product. In addition, the Company keeps some inventory in the form of
die banks, which can become finished product in two weeks or less. To ensure
adequate, timely supply, the Company has established relationships with two
leading foundries, Chartered and TSMC, is qualifying LG as a third, and is
maintaining its relationships with AMS and NJRC for certain products which are
manufactured in BiCMOS or high-voltage CMOS processes.
STRATEGIC AND COLLABORATIVE RELATIONSHIPS FOCUS. Pericom pursues a strategy
of entering into new relationships and expanding existing relationships with
companies in the product design, manufacturing and marketing of integrated
circuits. The Company believes that these relationships have enabled it to
access additional design and application expertise, accelerate product
introductions, reduce costs and obtain additional needed capacity. In product
design, the Company has engaged PTI, an affiliated company, and certain design
houses to develop interface ICs as a means of rapidly expanding the Company's
product portfolio. Pericom has established collaborative relationships with
leading foundries capable not only of providing adequate capacity and advanced
process migration paths, but which also have digital core libraries of
sufficiently high performance to be utilized in the Company's future products.
In February 1996, the Company entered into a private label resale program with
Harris, under which Harris buys certain Pericom products and resells them
under its own name. Pericom intends to seek additional such relationships in
the future.
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<PAGE>
PRODUCTS
The Company has used its expertise in high-performance digital, analog and
mixed-signal IC design, its re-usable core cell library and its modular design
methodology to achieve a rapid rate of new product introductions. As
demonstrated by the chart below, the Company has evolved from one product line
in fiscal 1992 to four product lines currently, with a goal of providing an
increasing breadth of product solutions to its customers. Within each product
line, the Company has continued to introduce products with higher performance,
higher levels of integration, and new features and options.
[GRAPH OF COMPANY PRODUCTS]
SILICONINTERFACE
Through its SiliconInterface product line, Pericom offers a broad range of
high-performance 5-volt and 3.3-volt CMOS logic interface circuits. These
products provide logic functions to handle data transfer between
microprocessors and memory, bus exchange, backplane interface, and other logic
interface functions where high-speed, low-power, low-noise and high-output
drive characteristics are essential. The Company's thin and tight-lead-pitch
packages allow significant reduction in board space and provide enhanced
switching characteristics. The Company has two patents that relate to certain
SiliconInterface products: one that relates to mixed-voltage operations that
are scaleable for future generations of low-voltage logic families, and one
that relates to a high-speed, low-noise input/output buffer design. The
SiliconInterface product line is used in a wide array of systems applications,
including notebook computers, high-speed network hubs, routers and switches
and multimedia systems.
5-VOLT INTERFACE LOGIC. The Company's high-speed 5-volt interface logic
products in 8-, 16- and 32-bit configurations address specific system
applications, including a "Quiet Series" family for high-speed, low-noise,
point-to-point data transfer in computing and networking systems and a
"Balanced Drive" family with series resistors at output drivers to reduce
switching noise in high-capacitive load switching in the main and cache
memories of high-performance computers.
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3.3-VOLT INTERFACE LOGIC. Pericom's 3.3-volt interface logic products in 8-
and 16-bit configurations address a range of cost and performance
requirements. The Company's 3.3-volt ALVCH, LPT, LCX and FCT3 interface logic
families offer a comprehensive range of performance at very low power. The
ALVCH, LPT and LCX families allow customers the flexibility to use certain
Pericom 3.3-volt products in pure 3.3-volt or mixed 3.3/5-volt designs.
Because a full range of 3.3-volt components is not always available, this
flexibility is important as computer and networking designs make the
transition from 5 volts to 3.3 volts. ALVCH, a leading-edge performance family
that targets high-speed computer and networking designs, offers bus hold and
5-volt I/O tolerance options. LPT is a mid-range performance family and the
industry's first 3.3-volt CMOS logic family with 5-volt I/O tolerance. LCX is
a relatively slow-speed family that is targeted for low-cost applications.
FCT3 is a mid-range performance family that can interface only with 3.3-volt
components.
The table below lists Pericom's 223 SiliconInterface products, indicating
the number of 8-, 16- and 32-bit products in each product family.
SILICONINTERFACE PRODUCT LINE
<TABLE>
<CAPTION>
NUMBER OF
PRODUCTS OFFERED
-------------------
PRODUCT FAMILIES 8-BIT 16-BIT 32-BIT
<S> <C> <C> <C>
5-Volt Interface Logic
FCT Interface Logic Family 83 56 2
3.3-Volt Interface Logic
ALVCH Interface Logic Family -- 31 --
LPT Interface Logic Family 11 12 --
LCX Interface Logic Family 10 11 --
FCT3 Interface Logic Family 2 5 --
</TABLE>
SILICONSWITCH
Through its SiliconSwitch product line, Pericom offers a broad range of
high-performance ICs for switching digital and analog signals. The ability to
switch or route high-speed digital or analog signals with minimal delay and
signal distortion is a critical requirement in many high-speed computers,
networking and multimedia applications. Historically, systems designers have
used mechanical relays, solid-state relays and analog switches, which have
significant disadvantages compared to IC switches: mechanical relays are
bulky, dissipate significant power and have very low response times; solid-
state relays are expensive and dissipate significant power; and traditional
analog switches have relatively high resistance that can cause significant
signal distortion.
DIGITALSWITCH. The Company offers a family of digital switches in 8-, 16-
and 32-bit densities that address the switching needs of high-performance
systems. These digital switches offer performance and cost advantages over
traditional switch functions, offering low on-resistance (less than 5 ohms),
low propagation delay (less than 250 picoseconds), low standby power (less
than 1 microamp) and series resistor options that support low EMI emission
requirements. Applications for the Company's digital switches include 5-volt-
to-3.3-volt signal translation, high-speed data transfer and switching between
microprocessors and multiple memories, and hot plug interfaces in notebook and
desktop computers, servers and switching hubs and routers.
ANALOGSWITCH. The Company offers a family of analog switches for low-voltage
(2- to 5-volt) applications such as multimedia audio and video signal
switching with enhanced characteristics such as low power, high bandwidth, low
crosstalk and low distortion to maintain analog signal integrity. Traditional
analog switches cause unacceptable levels of distortion due to high on-
resistance. The Company's analog switches have significantly lower on-
resistance, resulting in significant improvement in bandwidth and distortion.
This allows the Company's analog switches to be used for state-of-the-art
video and audio switching applications where traditional analog
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switches cannot be used. Applications for Pericom's analog switches include
multimedia, telecommunications systems, cellular phones and instrumentation.
LANSWITCH AND VIDEOSWITCH. The Company offers a line of application-specific
standard product ("ASSP") switches for specific applications. These products
include LANSwitches, which are used to switch among multiple LAN protocols
(e.g., Ethernet, FastEthernet and Token Ring) on networking systems, and
VideoSwitches, which are used in graphic and multimedia systems to switch
among different video and audio sources at very high frequencies with minimal
distortion, hence preserving high video and audio fidelity.
The table below lists Pericom's 56 SiliconSwitch products.
SILICONSWITCH PRODUCT LINE
<TABLE>
<CAPTION>
NO. OF
PRODUCTS
PRODUCT FAMILIES OFFERED
<S> <C>
DigitalSwitch Family 40
----------------------------------
AnalogSwitch Family 11
----------------------------------
LANSwitch/VideoSwitch Family 5
</TABLE>
SILICONCLOCK
Through its SiliconClock product line, Pericom offers a broad range of
general-purpose solutions including clock buffers, PLL-based zero-delay clock
generators and ASSP PLL-based frequency synthesizer products for Pentium,
Pentium Pro, Pentium II and PowerPC-based systems, as well as a number of ASSP
clock products for laser printers and modem applications. As system designers
use microprocessors and memories that run at increasingly high frequencies,
there is a demand for correspondingly reliable clock management circuits to
generate and distribute high-precision, high-frequency timing control signals
for advanced computer, networking, multimedia and embedded applications. To
enable the reliable operations of these ICs with precise timing, the clock
circuits need to have short propagation delay, low jitter and low pin-to-pin
signal skew.
CLOCK BUFFERS AND ZERO-DELAY CLOCK GENERATOR. Clock buffers receive a
digital signal from a frequency source and create multiple copies of the
signal for distribution across system boards. Pericom offers 3.3-volt and 5-
volt clock buffers for high-speed, low-skew applications in computers and
networking equipment. PLL-based clock generators, also known as zero-delay
clock generators, virtually eliminate propagation delays by synchronizing the
clock outputs with the incoming frequency source. Pericom's zero-delay clock
generator offers frequencies of up to 100 MHz for applications in computer
servers, PCI bridges and SDRAM modules.
CLOCK FREQUENCY SYNTHESIZERS. Clock frequency synthesizers use single or
multiple PLLs to generate various output frequencies using a crystal
oscillator as an input frequency source. Clock frequency synthesizers are used
to provide critical timing signals to microprocessors, PCI buses, SDRAM and
peripheral functions. Pericom's PLL-based clock synthesizers support Pentium,
Pentium Pro, Pentium II and PowerPC microprocessors and are designed with an
emphasis on minimizing jitter and power consumption. In addition, some of the
products come with integrated serial I/2/C serial link communications and
options for spread-spectrum selection that meet low EMI requirements for
mobile and desktop PC motherboards. The Company's PLL-based laser printer
clock provides a cost effective solution for high-speed, high-resolution video
clock generation at 40 MHz for low-cost color laser printer controllers and at
80 MHz for high-speed color laser printer controllers. The Company offers
modem clocks to support 28.8K and 56K rack-mount modem designs.
FLEXCLOCK. To support embedded processor and data transmission operations,
telecom and datacom applications often require unique combinations of
frequencies on the system board. Traditionally, such requirements have been
handled by the simultaneous use of several crystal oscillators. This approach
is costly,
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<PAGE>
however, and requires significant board space. Also, certain uncommon
frequencies require very long purchase order lead times. Supporting quick-turn
customer prototyping as well as volume production requirements, Pericom's
FlexClock product offers customers programmable PLL-based clock synthesizers
that provide multiple customer-specified frequencies in a single IC with short
lead time and with fast factory programming of custom requested frequencies.
The table below lists Pericom's 26 SiliconClock products.
SILICONCLOCK PRODUCT LINE
<TABLE>
<CAPTION>
NO. OF
PRODUCTS
PRODUCT FAMILIES OFFERED
<S> <C>
5-Volt Clock Buffers 7
3-Volt Clock Buffers 5
Zero-Delay Clock Generator 1
Clock Frequency Synthesizers 12
FlexClock 1
</TABLE>
SILICONCONNECT
Through its SiliconConnect product line, Pericom offers a range of highly-
integrated physical layer ("PHY") interface ICs for various high-speed LAN
standards such as Token Ring and FastEthernet. Pericom's earlier development
effort in Token Ring and other networking protocols helped the Company develop
expertise in the design and testing of high-speed network transceivers, much
of which expertise is applicable to the current FastEtherent development
efforts.
100TX FASTETHERNET TRANSCEIVERS. The Company is currently shipping
engineering samples of two recently-developed 4-port FastEthernet PHY
transceiver products for 100TX FastEthernet hub and switch markets. Pericom's
PI2C6040 is designed to integrate 4-port 100TX PHY channels into a single-chip
PHY for networking switch designs. For the repeater hub market, Pericom's
PI2C6050 is designed to integrate four-port 100TX PHY channels with
multiplexing circuits in a space-saving, 100-pin QFP package. By using higher
levels of integration, the Company is developing multiport PHY solutions
designed to connect seamlessly to popular physical medium dependent (PMD) ICs
at reduced system cost and board space.
PBX TELECOM SWITCHES. The Company offers two telecom products for digital
switch matrix PBX applications: the PT9085, which provides serial-to-parallel
or parallel-to-serial conversion, and the PT9085, which provides address and
switching functions for PBX switching stations.
TOKEN RING AND OTHER LAN PROTOCOL TRANSCEIVERS. For Token Ring switch hub
applications, the Company offers two Token Ring PHY transceivers that use a
patented attenuator retiming circuit that can significantly reduce signal
jitter as data is transmitted between network nodes. The Company also offers a
100Mbps transceiver that implements the physical layer interface for the
100VG-AnyLAN hub and network interface card applications.
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The table below lists Pericom's seven SiliconConnect products.
SILICONCONNECT PRODUCT LINE
<TABLE>
<CAPTION>
NO. OF
PRODUCTS
PRODUCT FAMILIES OFFERED
<S> <C>
100TX FastEthernet* 2
PBX Switch 2
Token Ring Transceivers 3
</TABLE>
* The Company is currently providing engineering samples of these
products.
The Company is continuing to enhance and refine the offerings in its
existing product lines, while working to add next-generation products which
address new market opportunities on a timely basis. In particular, the Company
is developing PCI bridge products targeted for the networking, workstation and
PC markets, additional 3.3-volt and high-voltage digital and analog switches
complementing its current product families, additional ALVCH 3.3-volt products
to expand the current ALVCH product family, additional high-performance
frequency synthesizers and clock buffers intended for new markets or
applications. The failure of the Company to complete and introduce new
products in a timely manner at competitive price/performance levels would
materially and adversely affect the Company's business and results of
operations. See "Risk Factors -- Technological Changes; Dependence on New
Products."
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<PAGE>
TARGETED MARKETS AND APPLICATIONS
Pericom's products and technology are applicable to the transfer, routing
and timing of signals in many different system designs. Pericom currently
focuses on three high-volume, high-growth market segments: notebook computers,
networking and multimedia.
NOTEBOOK COMPUTERS
Pericom's SiliconInterface, SiliconSwitch and SiliconClock products are
currently used by notebook OEMs for a broad range of applications, including
docking station interface, high-speed transfer and timing of signals among
memories and microprocessors, mixed-voltage translations and audio and video
switching. Set forth below is a simplified block diagram of a typical high-
performance multimedia notebook computer connected to a docking station.
[FLOW CHART OF DOCKING STATION & HIGH-PERFORMANCE NOTEBOOK COMPUTER]
DOCKING STATION HIGH PERFORMANCE NOTEBOOK COMPUTER
[Inserted in the text are graphics consisting of two rectangular boxes with
smaller boxes inside, labeled as a docking station and a high performance
notebook computer, which are connected by a double-sided arrow. Within the
boxes, certain elements of the applicable items are depicted, with the
interconnection of such elements shown by lines. The elements offered by
Pericom are highlighted: "Switch" in the box depicting a docking station, and
"Logic," "Clock", and "Switch" in the box depicting a notebook. In addition,
the elements "Audio," "Video," and "LAN" are marked as functions that may also
incorporate Pericom products, as depicted on pages 34 and 35.]
High-performance notebook computers pose unique engineering challenges due
to their small size, the need for long battery life and the desire to achieve
performance levels comparable to desktop computers. To enable higher overall
system speed, Pericom provides fast interface logic and switches for data
buffering and memory bank switching between high-precision microprocessors and
memory. To reduce power consumption and extend battery life, Pericom provides
a variety of 3.3-volt interface logic, clock management and switching ICs. To
accommodate the smaller size of a notebook motherboard, many of the Company's
products feature high levels of integration with advanced packaging in 1 mm
thickness and 0.4 mm lead pitch. To comply with various governmental standards
regarding EMI emissions, the Company offers ICs with special circuits to
reduce EMI. To provide multimedia options in this demanding environment,
Pericom offers low-distortion, high-bandwidth video switches for high-
resolution video and low-distortion analog switches for high-fidelity audio
signal switching. To permit connection to office networks without turning the
power off, Pericom provides digital switches for implementing hot-plug docking
station interface and PCMCIA cards. Pericom's representative customers in the
notebook computer segment include Acer, Compaq, Dell, Hitachi and IBM.
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<PAGE>
NETWORKING HUBS, SWITCHES AND ROUTERS
Pericom currently supplies a broad range of products for high-performance
hubs, switches and routers, servicing applications such as Ethernet and
FastEtherent protocol switching, hub-to-hub connections, clock distribution,
backplane drive and hot plug interface. The Company has also started sampling
two integrated four-port FastEthernet PHY transceiver products targeting
FastEthernet repeater and switch designs. Set forth below is a simplified
block diagram of a typical network switching hub and adapter system connected
to a network interface card.
[GRAPH OF NETWORK SWITCH & NETWORK INTERFACE CARD]
[Inserted in the text are graphics consisting of rectangular boxes labeled
"Network Switch" and "Network Interface Card." Within the boxes, certain
elements of the applicable item are depicted, with the interconnection of such
elements shown by lines. The elements offered by Pericom are highlighted: two
"Switch[es]", "Logic," "Clock," "PHY," and "LAN Switch" in the box
representing a network switch and "Logic," "Clock," and "LAN Switch" in the
box representing a network interface card. The element "PHY" is marked to
indicate that Pericom is currently shipping engineering samples thereof. The
boxes depicting the systems are connected by a line.
Advanced networking systems require high-bandwidth performance, multi-
protocol processing and high levels of system integration, ease of maintenance
and reliability. Pericom offers numerous products to address these
requirements. For high-level system integration and high-bandwidth
performance, Pericom has developed a four-channel 100Mbps FastEthernet PHY
transceiver with low latency and higher data rate throughput. To save board
space, Pericom integrates the timing signals for the microprocessor, memory
and peripherals into a single programmable clock synthesizer that eliminates
multiple crystal oscillators. To support ease of system maintenance, Pericom
offers digital switches for hot-plug interfacing to permit insertion of
additional circuit boards while power remains on. To support multiple protocol
switching, Pericom offers two low-distortion LanSwitches for selecting
multiple LAN protocols. To support design flexibility, Pericom offers a 3.3-
volt interface with 5-volt tolerant I/Os for mixed-voltage system design
requirements.
Pericom's representative customers in this segment include 3Com, Ascend
Communications, Bay Networks, Cabletron Systems, Cisco Systems, Hewlett-
Packard and Samsung.
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<PAGE>
MULTIMEDIA
The Company currently supplies its high-bandwidth, low-noise VideoSwitch,
AnalogSwitch and other SiliconSwitch products to a variety of multimedia
system suppliers. These products support applications such as TV/PC monitor
video switching, picture-in-picture video overlay, audio switching and video
multiplexing. Set forth below are simplified block diagrams of typical sound
card and video card applications.
AUDIO CARD
[FLOW CHART OF AUDIO CARD]
VIDEO CARD
[FLOW CHART OF VIDEO CARD]
[Inserted in the text are graphics consisting of two rectangular boxes labeled
"Audio Card" and "Video Card." Within the boxes, certain elements of the
applicable card are depicted, with the interconnection of such elements shown
by lines. The elements offered by Pericom are highlighted: "Clock" and three
"Analog Switch[es]" in the box depicting an audio card, and "Digital Switch,"
"Clock," and "Video Switch" in the box depicting a video card.]
Products offered by Pericom.
Desktop and mobile computers integrate audio and other multimedia functions
either on the motherboard or through add-on cards. These functions are often
required to support both 3.3-volt and 5-volt signal levels, high-speed data
transfer between MPEG or other DSP processors and memory, hot-plug insertions
for card options and small packaging. Pericom supplies the following IC
solutions for multimedia applications: low-distortion analog switches for high
fidelity audio switching; high-bandwidth and low cross talk video switches for
high fidelity video switching; high-speed interface logic and switches for
interface between MPEG and DSP processor functions and memory; 3.3-volt
interface logic with 5-volt-tolerant I/Os for mixed 3.3/5-volt system
requirements; for processor and memory requirements, a low-cost FlexClock that
replaces multiple crystal oscillators with a single programmable IC for all
the multimedia clock signals; digital switches for hot-plug insertion; and
small, thin packages and a high level of circuit integration for small form
factor packaging requirements. Representative customers in this segment
include Acer, Avid, Diamond Multimedia and Trident Microsystems.
37
<PAGE>
OTHER MARKETS
In addition to Pericom's three target markets, its products are also used in
other market segments by customers such as Apple, Canon, Dell, Digital
Equipment Corporation, Hitachi, Samsung and Smart Modular Technologies. Some
of the more significant segments include desktop PCs and workstations, laser
printers, memory modules, instrumentation and set-top boxes. In particular,
Pericom offers high-frequency, programmable video clock generators for high-
speed, high-resolution laser printer engine designs; zero-delay clock
generators for high-performance PCs, workstations and memory modules; and
multiple-frequency output clock generators for rack-mounted modem
applications. Further, the Company offers telecom PBX switches and clock
generators for cellular base stations and clock generators for high-
performance embedded systems ranging from arcade games to medical instruments.
For all of these applications, Pericom also provides interface logic and
switches.
CUSTOMERS
The following is a list of selected customers of the Company, including end
users and OEMs:
<TABLE>
<CAPTION>
COMPUTER NETWORKING
<S> <C>
Acer 3Com
Apple Ascend Communications
Compaq Bay Networks
Dell Cabletron
Digital Equipment Corporation Cisco
Hitachi Samsung
IBM
Intel
Inventec MULTIMEDIA, PERIPHERALS AND OTHERS
NEC Adaptec
Toshiba Avid
Canon
CONTRACT MANUFACTURING Diamond Multimedia
AVEX Electronics Mylex
Celestica PictureTel
Jabil Circuit Trident Microsystems
SCI Xerox
Smart Modular Technologies
Solectron
</TABLE>
The Company's customers include a broad range of end users and OEMs in the
computer, peripherals, networking and contract manufacturing markets. In
fiscal 1996, sales to Apple and Pioneer Standard Electronics, Inc., a
distributor, accounted for approximately 20% and 16%, respectively, of net
revenues, and sales to the Company's top five customers accounted for
approximately 52% of net revenues. In fiscal 1997, sales to Harris and IBM
accounted for approximately 17% and 14%, respectively, of the Company's net
revenues, and sales to the Company's top five customers accounted for
approximately 47% of net revenues. In the first quarter of fiscal 1998, no
customer accounted for greater than 10% of net revenues, and the Company's top
five customers accounted for 35% of net revenues. See "Risk Factors --
Customer Concentration."
Contract manufacturers have become important customers for the Company as
systems designers in the Company's target markets are increasingly outsourcing
portions of their manufacturing. In addition, these contract manufacturers are
playing an increasingly vital role in determining which vendors' ICs are
incorporated into new designs.
38
<PAGE>
DESIGN AND PROCESS TECHNOLOGY
The Company's design efforts focus on the development of high-performance
digital, analog and mixed-signal ICs. To minimize design cycle times of high-
performance products, the Company utilizes a modular design methodology that
has enabled it to produce many new products each year and to meet its
customers' need for fast time-to-market response. This methodology uses state-
of-the-art computer-aided design software tools such as HDL description, logic
synthesis, full-chip mixed-signal simulation, and automated design layout and
verification using Pericom's library of high-performance digital and analog
core cells. This family of core cells has been developed over several years
and contains high-performance, specialized digital and analog functions not
available in commercial ASIC libraries. Among these cells are the Company's
proprietary mixed-voltage I/O cells, high-speed, low-noise I/O cells, analog
and digital PLLs, charge pumps and datacom transceiver circuits. Pericom has
been granted four U.S. patents relating to its circuit designs and has several
U.S. and foreign patent applications pending. Another advantage of this
modular design methodology is that it allows the application of final design
options late in the wafer manufacturing process to determine a product's
specific function. This option gives the Company the ability to use pre-staged
wafers, which significantly reduces the design and manufacturing cycle time
and enables the Company to respond rapidly to a customer's prototype needs and
volume requirements.
The Company utilizes advanced CMOS processes to achieve optimal performance
and die cost. The Company's process and device engineers work closely with its
independent wafer foundry partners to develop and evaluate new process
technologies. The Company's process engineers also work closely with circuit
design engineers to optimize the performance and reliability of its cell
library. The Company currently manufactures a majority of its products using
0.5 micron and 0.6 micron CMOS process technologies and is using an advanced
0.35 micron CMOS process in the design of a number of its new products. The
Company is also using a high-voltage CMOS process developed by one of its
foundry partners in the design of new switch products.
SALES AND MARKETING
The Company markets and distributes its products through a worldwide network
of independent sales representatives and distributors. In fiscal years 1995,
1996 and 1997, international sales comprised 35%, 30% and 37%, respectively,
of the Company's net revenues. The Company has five regional sales offices in
the United States, a sales office in Taiwan and a sales office in Europe. The
Company also supports field sales design-in and training activities with
application engineers. All marketing and product management personnel are
located at the Company's corporate headquarters in San Jose, California. See
"Risk Factors -- Risks of International Sales."
The Company focuses its marketing efforts on product definition, new product
introduction, product marketing, advertising and public relations. The Company
actively seeks cooperative relationships in product development and product
marketing. For example, the Company is working with NJRC on the development
and marketing of clock synthesis products for the Japanese market. In February
1996, the Company and Harris entered into a private label program (the "Harris
Agreement") pursuant to which Harris sells certain of the Company's
SiliconInterface products under its own label. The Company uses advertising
both domestically and internationally to market its products. Pericom product
information is available on its web site, which contains technical information
on all of its products and offers both fax-back and sample-request
capabilities online. The Company also publishes and circulates technical
briefs relating to its products and their applications.
The Harris Agreement sets forth the terms under which Harris may purchase
certain SiliconInterface products from the Company for resale under Harris's
private label. Under the Harris Agreement, the Company has guaranteed certain
production allocations and delivery times to Harris, and Harris may cancel a
portion of unshipped orders without liability. Further, Harris and the Company
have agreed to discuss the terms of an agreement to grant to PTI the right to
distribute certain Harris products in the Peoples Republic of China. If
Pericom determines to sell any of its technology that is incorporated into
Harris products, Harris has a 30-day right of first refusal to purchase such
technology. The Harris Agreement automatically terminates on a specified date,
or may be terminated earlier by either party upon notice or default of the
other party.
39
<PAGE>
In March 1997, the Company was issued ISO-9001 certification by the
International Organization for Standards for Quality Management after the
Company successfully completed the required Registration Assessment Audit with
Underwriter's Laboratories, which entails a rigorous quality assessment. To
maintain its ISO-9001 certification, the Company is required to pass semi-
annual Reassessment Audits, all of which the Company has passed to date. The
Company believes that ISO-9001 certification is a widely-recognized indicator
that its manufacturing processes satisfy certain objective quality control
standards and thus enhances its image as a reliable supplier of high-quality
products.
Pericom believes that contract manufacturing customers are growing in
importance and employs sales and marketing personnel who focus on servicing
these customers and on expanding Pericom's product sales via these customers
to OEMs. In addition, Pericom uses programs such as EDI, bonded inventories
and remote warehousing to enhance its service and attractiveness to contract
manufacturers.
Sales through domestic and international distributors were approximately 40%
of the Company's net revenues in fiscal 1996 compared to approximately 36% in
fiscal 1997. Major distributors in the United States include All American
Semiconductor, Bell Microproducts, Interface Electronics, Pioneer Standard,
and Reptron Electronics. Major international distributors include Ambar
(U.K.), Desner Electronics (Singapore), Internix (Japan), Macro Vision
(Taiwan), MCM (Japan) and Techmosa (Taiwan). See "Risk Factors -- Reliance on
Distributors."
The Company does not have long-term purchase agreements with any of its
customers, and customers can typically cancel or reschedule their orders
without significant penalty. As a result, customers frequently revise product
quantities and delivery schedules to reflect their changing needs. Since most
of the Company's backlog can be canceled or rescheduled, the Company does not
believe its backlog is a meaningful indicator of future revenue. See "Risk
Factors -- Limited Operating History; Potential Fluctuations in Operating
Results."
MANUFACTURING
The Company has adopted a fabless manufacturing strategy by subcontracting
its wafer production to independent wafer foundries. The Company has
established collaborative relationships with selected independent foundries
and targets additional foundry partners with which it can develop a strategic
relationship to the benefit of both parties. The Company believes that its
fabless strategy enables it to introduce high performance products quickly at
competitive cost. To date, the Company's principal manufacturing relationship
has been with Chartered. The Company provides Chartered with new product
designs to be used for testing and qualifying advanced manufacturing processes
from development to production. In exchange, Chartered provides the Company
with wafer allocation and early access to process technology. The Company has
also used AMS as a foundry since 1992. The Company is qualifying a 0.8 micron
high-voltage CMOS process at NJRC and plans to use this process for some of
its future products. Recently the Company qualified a 0.5 micron CMOS process
at TSMC.
In fiscal 1996 and 1997, approximately 90% of the wafers for the Company's
semiconductor products were manufactured by Chartered, and the remainder of
the Company's wafers were manufactured by AMS, NJRC and TSMC. The Company is
currently qualifying LG as a foundry supplier. The Company believes that it
will receive an increasing portion of its wafer requirements from TSMC and LG
in the future. The Company's reliance on independent wafer suppliers to
fabricate its wafers at their production facilities subjects the Company to
such possible risks as potential lack of adequate capacity and available
manufactured products, lack of control over delivery schedules and the risk of
events limiting production and reducing yields, such as fires or other damage
to production facilities or technical difficulties. Although, to date, the
Company has not experienced any material delays in obtaining an adequate
supply of wafers, there can be no assurance that the Company will not
experience delays in the future. Any inability or unwillingness of the
Company's wafer suppliers generally, and Chartered in particular, to provide
adequate quantities of finished wafers to meet the Company's needs in a timely
manner or in needed quantities would delay production and product shipments
and have a material adverse effect on the Company's business, financial
condition and results of operations.
40
<PAGE>
At present, the Company purchases wafers from its wafer suppliers through
the issuance of purchase orders based on rolling six-month forecasts provided
by the Company, and such purchase orders are subject to acceptance by each
wafer foundry. The Company does not have long-term purchase agreements with
any of its wafer suppliers, each of which has the right to reduce or terminate
allocations of wafers to the Company. In the event that these suppliers were
unable or unwilling to continue to manufacture the Company's key products in
required volumes, the Company would have to identify and qualify additional
foundries. In any event, the Company's future growth will also be dependent
upon its ability to identify and qualify new wafer foundries. The
qualification process can take up to six months or longer, and there can be no
assurance that any additional wafer foundries will become available to the
Company or will be in a position to satisfy any of the Company's requirements
on a timely basis. The Company also depends upon its wafer suppliers to
participate in process improvement efforts, such as the transition to finer
geometries, and any inability or unwillingness of such suppliers to do so
could delay or otherwise materially adversely affect the Company's development
and introduction of new products. Furthermore, sudden shortages of raw
materials or production capacity constraints can lead wafer suppliers to
allocate available capacity to customers other than the Company or for
internal uses, which could interrupt the Company's ability to meet its product
delivery obligations. Any significant interruption in the supply of wafers to
the Company would adversely affect the Company's operating results and
relations with affected customers. The Company's reliance on independent wafer
suppliers may also impact the length of
the development cycle for the Company's products, which may provide time-to-
market advantages to competitors that have in-house fabrication capacity. See
"Risk Factors -- Dependence on Independent Wafer Foundries" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company relies on foreign subcontractors primarily for the assembly and
packaging of its products and, to a lesser extent, for the testing of its
finished products. Some of these subcontractors are the Company's single
source supplier for certain new packages. Although the Company believes that
it is not materially dependent upon any such subcontractor, changes in the
Company's or a subcontractor's business could cause the Company to become
materially dependent on a subcontractor. The Company has from time to time
experienced difficulties in the timeliness and quality of product deliveries
from the Company's subcontractors. Although delays experienced to date have
not been material, there can be no assurance that the Company will not
experience similar or more severe difficulties in the future. The Company
generally purchases these single or limited source components or services
pursuant to purchase orders and has no guaranteed arrangements with such
subcontractors. There can be no assurance that these subcontractors will
continue to be able and willing to meet the Company's requirements for any
such components or services. Any significant disruption in supplies from, or
degradation in the quality of components or services supplied by, these
subcontractors, or any other circumstance that would require the Company to
qualify alternative sources of supply could delay shipments and result in the
loss of customers, or limitations or reductions in the Company's revenues, or
otherwise materially and adversely affect the Company's business and results
of operations. See "Risk Factors -- Dependence on Single or Limited Source
Assembly Subcontractors."
The manufacture and assembly of semiconductor products is highly complex and
sensitive to a wide variety of factors, including the level of contaminants in
the manufacturing environment, impurities in the materials used, and the
performance of manufacturing personnel and production equipment. In a typical
semiconductor manufacturing process, silicon wafers produced by the foundry
are sorted and cut into individual die that are then assembled into individual
packages and tested for performance. The Company's wafer fabrication suppliers
have from time to time experienced lower-than-anticipated yields of good die,
as is typical in the semiconductor industry. In the event of such decreased
yields, the Company would incur additional costs to sort wafers, an increase
in average cost per usable die and an increase in the time to market for its
products. See "Risk Factors -- Variation in Production Yields."
COMPETITION
The semiconductor industry is intensely competitive. Significant competitive
factors in the market for high- performance ICs include product features and
performance, product quality, price, success in developing new
41
<PAGE>
products, adequate wafer fabrication capacity and sources of raw materials,
efficiency of production, timing of new product introductions, ability to
protect intellectual property rights and proprietary information, and general
market and economic conditions. The Company's competitors include Cypress
Semiconductor Corporation, Integrated Circuit Systems, Inc., Integrated Device
Technology, Inc., Maxim Integrated Products, Inc., Quality Semiconductor, Inc.
and Texas Instruments, Inc., most of which have substantially greater
financial, technical, marketing, distribution and other resources, broader
product lines and longer-standing customer relationships than the Company. The
Company also competes with other major or emerging companies that sell
products to certain segments of the markets addressed by the Company.
Competitors with greater financial resources or broader product lines may also
have greater ability than the Company to engage in sustained price reductions
in the Company's primary markets in order to gain or maintain market share.
The Company believes that its future success will depend on its ability to
continue to improve and develop its products and processes. Unlike the
Company, many of the Company's competitors maintain internal manufacturing
capacity for the fabrication and assembly of semiconductor products, which may
provide such competitors with more reliable manufacturing capability, shorter
development and manufacturing cycles and time-to-market advantages. In
addition, competitors with their own wafer fabrication facilities that are
capable of producing products with the same design geometries as those of the
Company may be able to manufacture and sell competitive products at lower
prices. Introduction of products by competitors that are manufactured with
improved process technology could materially and adversely affect the
Company's business and results of operations. As is typical in the
semiconductor industry, competitors of the Company have developed and marketed
products having functionality similar or identical to the Company's products,
and the Company expects this trend to continue in the future. To the extent
the Company's products do not achieve performance, price, size or other
advantages over products offered by competitors, the Company is likely to
experience greater price competition with respect to such products. The
Company also faces competition from the makers of microprocessors and other
system devices, including ASICs, that have been and may be developed for
particular systems. These devices may include interface logic functions, which
may eliminate the need or sharply reduce the demand for the Company's products
in particular applications. There can be no assurance that the Company will be
able to compete successfully in the future or that competitive pressures will
not materially and adversely affect the Company's financial condition and
results of operations. Competitive pressures could also reduce market
acceptance of the Company's products and result in price reductions and
increases in expenses that could materially and adversely affect the Company's
business and results of operations. See "Risk Factors --Dependence Upon
Independent Wafer Foundries," "Risk Factors -- Competition," "Risk Factors --
Dependence on Single or Limited Source Assembly Subcontractors" and "--
Manufacturing."
RESEARCH AND DEVELOPMENT
The Company believes that the continued timely development of new interface
ICs is essential to maintaining its competitive position. Accordingly, the
Company has assembled a team of highly-skilled engineers whose activities are
focused on the development of signal transfer, routing and timing technologies
and products. As of September 30, 1997, Pericom had 29 employees engaged in
research and development activities, many of whom have advanced technical
degrees. Research and development expenses in fiscal 1995, 1996, and 1997 were
$2.9 million, $4.4 million and $4.2 million, respectively.
By leveraging its proprietary high-performance cell library, the Company
plans to expand product offerings in each of its key product lines. The
Company intends to design high-speed, low-noise 2.5-volt and 3.3-volt
interface logic products using its proprietary low-noise I/O technology. Some
of these logic products will also incorporate the Company's patented mixed-
voltage I/O technology. The Company intends to use the combination of low-
noise, mixed-voltage technology with advanced 0.35 micron and 0.25 micron
process technology to develop a broad portfolio of versatile, high-performance
interface logic circuits essential for high-speed, low-power computer and
networking systems. In the digital and analog switch areas, the Company
intends to apply its low-resistance, low-noise techniques to a family of
switches with new functions operating under different power supply voltages.
Based on the Company's core analog and digital PLL technologies, the Company
intends
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<PAGE>
to develop new families of clock generators and frequency synthesizers for
applications in Pentium II class computers, laser printers and modems. The
Company is developing a new family of 100Base-X FastEthernet network
transceivers and PMD ICs based on the Company's mixed-signal design
technologies. In an effort to expand its product offerings in the mobile
computing and data communication markets, the Company is exploring
opportunities to develop new products for wireless applications.
To address increasing price/performance requirements, the Company intends to
continue to redesign its high-volume products by using more advanced
fabrication processes and refined design techniques, with the goal of
enhancing product performance and reducing die size and product costs. The
Company also intends to further refine noise performance by using newly
developed low-noise I/O technology.
Most of the Company's new products are manufactured using 0.5 micron and 0.6
micron process technologies. The Company plans to manufacture some of its
products using advanced 0.35 micron and 0.25 micron CMOS process technologies
beginning in fiscal 1998 and will continue new process technology work with
its foundry partners. In an effort to further reduce costs and enhance
reliability, the Company is developing new high-speed test hardware and
software to support testing and characterization of its products.
The success of new products depends on many factors, including product
selection, timely completion of product development, ability to gain access to
advanced fabrication processes, achievement of acceptable wafer fabrication
yield, and the ability to secure sufficient wafer fabrication capacity. There
can be no assurance that the Company will be able to successfully identify new
product opportunities and timely develop and bring to market such new
products. Failure of the Company to complete, introduce and bring to volume
production new products in a timely manner and at competitive
price/performance levels could adversely affect the Company's results of
operations. See "Risk Factors -- Technological Change; Dependence on New
Products."
INTELLECTUAL PROPERTY
In the United States, the Company holds five patents covering certain
aspects of its product designs and has eight additional patent applications
pending. The Company expects to continue to file patent applications where
appropriate to protect its proprietary technologies; however, the Company
believes that its continued success depends primarily on factors such as the
technological skills and innovation of its personnel, rather than on its
patents.
The Company's success depends in part on its ability to obtain patents and
licenses and preserve other intellectual property rights covering its products
and development and testing tools. Copyrights, mask work protection, trade
secrets and confidential technological know-how are also key elements of the
Company's business. There can be no assurance that any additional patents will
be issued to the Company or that the Company's patents or other intellectual
property will provide meaningful protection from competition. The Company may
be subject to or may initiate interference proceedings in the U.S. Patent and
Trademark Office, which can consume significant financial and management
resources. In addition to the foregoing, the laws of certain territories in
which the Company's products are or may be developed, manufactured or sold may
not protect the Company's products and intellectual property rights to the
same extent as the laws of the United States. The inability of the Company to
protect its intellectual property adequately could have a material adverse
effect on its business and results of operations.
The semiconductor industry is characterized by frequent litigation regarding
patent and other intellectual property rights, and there can be no assurance
that the Company will not be subject to infringement claims by other parties.
In May 1995, Quality Semiconductor, Inc. ("QSI"), a competitor of the Company,
brought a lawsuit against the Company in the United States District Court for
the Northern District of California, San Francisco Division, claiming
infringement of one of its patents by certain features in certain of the
Company's bus switch products and seeking injunctive relief and unspecified
monetary damages. Discovery has commenced but is stayed pending a claim
construction hearing. The Company believes that it has meritorious defenses,
that the products involved are not material to the Company's business and that
the resolution of this matter will not
43
<PAGE>
have a material adverse effect on the Company's business, financial position
or results of operations. However, any litigation, whether or not determined
in favor of the Company, can result in significant expense to the Company and
can divert the efforts of the Company's technical and management personnel
from productive tasks. In the event of an adverse ruling in any litigation
involving intellectual property, the Company might be required to discontinue
the use of certain processes, cease the manufacture, use and sale of
infringing products, expend significant resources to develop non-infringing
technology or obtain licenses to the infringed technology, and may suffer
significant monetary damages, which could include treble damages. In the event
the Company attempts to license any allegedly infringed technology, there can
be no assurance that such a license would be available on reasonable terms or
at all. In the event of a successful claim against the Company and the
Company's failure to develop or license a substitute technology on
commercially reasonable terms, the Company's business and results of
operations would be materially and adversely affected. There can be no
assurance that the claims brought by QSI or any potential infringement claims
by other parties (or claims for indemnity from customers resulting from any
infringement claims) will not materially and adversely affect the Company's
business, financial condition and results of operations.
The process technology used by the Company's independent foundries,
including process technology that the Company has developed with its
foundries, can generally be used by such foundries to produce their own
products or to manufacture products for other companies, including the
Company's competitors. In addition, the Company does not generally have the
right to implement the process technology used to manufacture its products
with foundries other than the foundry with which it has developed such process
technology. See "Risk Factors -- Patents and Proprietary Rights."
EMPLOYEES
As of September 30, 1997, the Company had 137 full-time employees, including
26 in sales, marketing and customer support, 65 in manufacturing, assembly and
testing, 33 in engineering and quality assurance and 13 in finance and
administration, including information systems. The Company has never had a
work stoppage and no employee is represented by a labor organization. The
Company considers its employee relations to be good.
The Company's future success will depend to a large extent on the continued
contributions of its executive officers and other key management and technical
personnel, none of whom has an employment agreement with the Company and each
of whom would be difficult to replace. The Company does not maintain any key
person life insurance policy on any of such persons. The loss of the services
of one or more of the Company's executive officers or key personnel or the
inability to continue to attract qualified personnel could delay product
development cycles or otherwise have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors -- Dependence on Key Personnel."
FACILITIES
The Company leases approximately 34,000 square feet of space in San Jose,
California in which its headquarters, technology and product development and
testing facilities are located. The facility is leased through 2001 with
certain renewal options. The Company also has sales offices located in San
Jose, California, Laguna Niguel, California, Marlborough, Massachusetts, Cary,
North Carolina and Austin, Texas, as well as in Taiwan and the United Kingdom.
The Company believes its current facilities are adequate to support its needs
through the end of fiscal 1998.
44
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers, directors and key employees of the Company and their
respective ages as of September 30, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Executive Officers and
Directors
Alex Chi-Ming Hui......... 41 Chief Executive Officer, President and Director
Chi-Hung (John) Hui,
Ph.D.(1).................. 42 Vice President, Technology and Director
Patrick B. Brennan........ 59 Vice President, Finance and Administration
Daniel W. Wark............ 41 Vice President, Operations
Glen R. Wiley............. 47 Vice President, Sales
Yao T. (Michael) Yen,
Ph.D...................... 61 Vice President, Applications
Tay Thiam Song(1)(2)...... 42 Director
Jeffrey Young(1)(2)....... 48 Director
Key Employee
Van Lewing................ 59 Director of Marketing
</TABLE>
- --------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Alex Chi-Ming Hui has been Chief Executive Officer, President and a member
of the Board of Directors of the Company since its inception in June 1990.
From August 1982 to May 1990, Mr. Hui was employed by LSI Logic Corporation,
most recently as its Director of Advanced Development. From August 1980 to
July 1982, Mr. Hui was a member of the technical staff of Hewlett-Packard
Company. Mr. Hui holds a B.S.E.E. from the Massachusetts Institute of
Technology and an M.S.E.E. from the University of California at Los Angeles.
Chi-Hung (John) Hui, Ph.D., has been Vice President, Technology and a member
of the Board of Directors of the Company since its inception in June 1990.
From August 1987 to June 1990, Dr. Hui was employed by Integrated Device
Technology, most recently as Manager of its Research and Development
Department. From August 1984 to August 1987, Dr. Hui was a member of the
technical staff of Hewlett-Packard Company. Dr. Hui holds a B.S.E.E. from
Cornell University and an M.S.E.E. and a Ph.D. in Electrical Engineering from
the University of California at Berkeley.
Patrick B. Brennan has been Vice President, Finance and Administration of
the Company since March 1993. From February 1991 to March 1993, Mr. Brennan
was employed by Datacord, Inc., a subsidiary of Newell Research, Inc., as its
Vice President, Finance, and from July 1985 to February 1991, he was employed
as the Vice President, Finance of SEEQ Technology, Inc. From January 1980 to
June 1985, he was employed by National Semiconductor Corporation, most
recently as Vice President and Treasurer. Mr. Brennan holds a B.S. in Business
Administration from Arizona State University.
Daniel W. Wark joined the Company in April 1996 as its Director of
Operations and became its Vice President, Operations in July 1997. From May
1983 to December 1995, Mr. Wark was employed by Linear Technology Corporation
("Linear"), most recently as Director of Corporate Services. Other positions
that Mr. Wark held at Linear included Managing Director of its Singapore
Operations and Production Control Manager. Prior to his employment with
Linear, Mr. Wark was employed by National Semiconductor Corporation and
Avantek, Inc. Mr. Wark holds a B.S. in Business Administration from San Jose
State University and an APICS certification.
45
<PAGE>
Glen R. Wiley has been Vice President, Sales of the Company since April
1997. From April 1992 to November 1996, Mr. Wiley was the Vice President of
Sales at Orbit Semiconductor, and from January 1990 to March 1992, he served
as Vice President of Pro Associates, a manufacturers' representative firm.
From January 1989 to December 1989, Mr. Wiley was employed by Gazelle
Microcircuits as its Western Area Sales Manager, and from February 1980 to
December 1988, he served as a Senior Account Salesman with Pro Associates.
Mr. Wiley holds a B.A. in English from Humboldt State University.
Yao T. (Michael) Yen, Ph.D., has been Vice President, Applications of the
Company since September 1992. From January 1990 to August 1992, Dr. Yen was
employed by Transcomputer Inc. as Vice President, Engineering, and from
January 1983 to December 1989, he was employed by Answer Software Corporation
as Vice President, Engineering. Dr. Yen was also employed as Engineering
Manager Microcomputer Systems at Intel Corporation. Dr. Yen holds a B.S.E.E.
from National Taiwan University and an M.S.E.E. and a Ph.D. in Electrical
Engineering from the University of Illinois at Urbana-Champaign.
Tay Thiam Song has been a member of the Board of Directors since June 1992.
Mr. Tay resides in Singapore, and, since 1985, has been serving as the
Executive Director of various companies in Singapore and Malaysia, including
Daiman Group (a Malaysian public company) and Chye Seng Tannery (Pte) Ltd. Mr.
Tay holds a B.A. in Accounting from the North East London Polytechnic
University.
Jeffrey Young has been a member of the Board of Directors since August 1995.
Since 1988, Mr. Young has been a resident of Singapore and has served as the
Executive Director of Daiman Roof Tiles Sdn. Bhd., a subsidiary of the Daiman
Group, and Great Wall Brick Work Sdn. Bhd., and as a Director of Daiman
Singapore (Pte) Ltd., Teletel System (Pte) Ltd. and Daiman Investments
(Australia) Pty. Ltd. Mr. Young holds a B.S. from the Electronic College of
Canton, People's Republic of China.
Van Lewing joined the Company in March 1995 as its Director of Marketing.
Prior to joining the Company, Mr. Lewing was employed as Marketing Manager,
Mixed-Signal Products at National Semiconductor Corporation from November 1993
to March 1995. He also served as Marketing Manager, RISC Microprocessors at
Performance Semiconductor from April 1990 to November 1993 and as Director of
Marketing, ASIC Products at LSI Logic Corporation from January 1987 to April
1990. Mr. Lewing holds a B.S.E.E. from the University of New Mexico and an
M.B.A. from National University.
All directors of the Company serve until the next annual meeting of the
shareholders of the Company and until their successors have been duly elected
and qualified. The Company's Articles of Incorporation provide for the
elimination of cumulative voting in the election of directors upon qualifying
as a "listed corporation" under the California Corporations Code, which will
occur when the Company has at least 800 shareholders of record as of its most
recent annual shareholders meeting. Each officer serves at the discretion of
the Board of Directors. Mr. Hui and Dr. Hui are brothers, and Mr. Young and
Mr. Tay are brothers-in-law. There are no other family relationships among any
of the directors, officers or key employees of the Company.
BOARD COMMITTEES
AUDIT COMMITTEE. The Audit Committee of the Board of Directors was formed in
September 1995, and has been inactive to date. The Company intends to activate
this committee upon completion of the offering, after which the Audit
Committee's duties will be to review the results and scope of the annual audit
and other services provided by the Company's independent auditors, review and
evaluates the Company's internal control functions and monitor transactions
between the Company and its employees, officers and directors. Dr. Hui, Mr.
Young and Mr. Tay are the members of the Audit Committee.
COMPENSATION COMMITTEE. The Compensation Committee of the Board of
Directors, which was formed in September 1995, administers the 1995 Stock
Option Plan and 1997 Employee Stock Purchase Plan and reviews and approves the
compensation and benefits for the Company's executive officers. Mr. Young and
Mr. Tay are the members of the Compensation Committee.
46
<PAGE>
DIRECTOR COMPENSATION
The Company's directors receive no fees for their services as members of the
Board of Directors or committee members and are not reimbursed for expenses
incurred in connection with attending meetings of the Board of Directors or
any committee thereof. Each non-employee director was granted (i) on September
18, 1996 an option to purchase 7,500 shares of Common Stock at an exercise
price of $3.80 per share which was vested immediately upon grant and (ii) on
June 30, 1997 an option to purchase 7,500 shares of Common Stock at an
exercise price of $4.40 per share, 3,750 of which vested immediately upon
grant and 3,750 of which vest over a one year period, beginning on the date of
grant. Pursuant to the 1995 Stock Option Plan, all non-employee directors of
the Company receive automatic stock option grants upon joining the Board of
Directors and annually thereafter. The exercise price of such stock options is
equivalent to the fair market value of the underlying Common Stock on the date
of grant. See "-- Stock Plans -- 1995 Stock Option Plan."
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
of the Company's Chief Executive Officer and each of the other most highly
compensated executive officers of the Company whose aggregate salary, bonus
and other compensation exceeded $100,000 during fiscal 1997 (collectively, the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL
COMPENSATION SHARES
---------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS
- ------------------------------------------------- -------- ------- ------------
<S> <C> <C> <C>
Alex Chi-Ming Hui................................ $152,849 $23,000 --
Chief Executive Officer, President and Director
Chi-Hung (John) Hui.............................. 137,039 18,000 --
Vice President, Technology and Director
Patrick B. Brennan............................... 118,070 9,000 20,000
Vice President, Finance and Administration
Daniel W. Wark................................... 106,693 9,000 25,000
Vice President, Operations
Yao T. (Michael) Yen............................. 104,962 -- 5,000
Vice President, Applications
Henry O'Hara (1)................................. 119,214 -- --
Former Vice President, Sales
</TABLE>
- --------
(1) Mr. O'Hara resigned as Vice President, Sales in March 1997.
47
<PAGE>
OPTION GRANTS. The following table sets forth certain information concerning
stock option grants to each of the Named Executive Officers during fiscal
1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
----------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF OF STOCK PRICE
SHARES PERCENT OF TOTAL EXERCISE APPRECIATION FOR OPTION
UNDERLYING OPTIONS GRANTED PRICE TERM(4)
OPTIONS TO EMPLOYEES IN PER EXPIRATION ---------------------------
NAME GRANTED FISCAL 1997(1) SHARE(2) DATE(3) 5% 10%
- ------------------------ ---------- ---------------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alex Chi-Ming Hui....... -- -- -- -- -- --
Chi-Hung (John) Hui..... -- -- -- -- -- --
Patrick B. Brennan...... 5,000 1.0% $3.80 09/26/06 $ 11,949 $ 30,281
15,000 3.1 2.40 04/24/07 22,640 57,375
Daniel W. Wark.......... 25,000 5.1 2.40 05/19/06 34,269 85,030
Yao T. (Michael) Yen.... 5,000 1.0 3.80 09/26/06 11,949 30,281
Henry O'Hara............ -- -- -- -- -- --
</TABLE>
OPTION GRANTS IN FISCAL 1997
- --------
(1) In fiscal 1997, the Company granted options to employees to purchase an
aggregate of 488,825 shares.
(2) Each of these options was granted pursuant to the Company's 1995 Stock
Option Plan and is subject to the terms of such plan as described below.
These options were granted at an exercise price equal to the fair market
value of the Company's Common Stock as determined by the Board of
Directors of the Company on the date of the grant. All such options vest
over a four-year period, subject to continued employment with the Company.
(3) Options may terminate before their expiration dates if the optionee's
status as an employee or consultant is terminated or upon the optionee's
death or disability.
(4) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of the Company's future
Common Stock prices.
OPTION EXERCISES AND YEAR-END HOLDINGS. The following table sets forth
certain information as of June 30, 1997 concerning exercisable and
unexercisable stock options held by each of the Named Executive Officers.
AGGREGATE OPTION EXERCISES IN FISCAL 1997 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
NUMBER OF OPTIONS AT JUNE 30, 1997 JUNE 30, 1997 (2)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alex Chi-Ming Hui....... -- -- 150,000 -- $210,000 --
Chi-Hung (John) Hui..... -- -- 100,000 -- 140,000 --
Patrick B. Brennan...... -- -- 54,376 21,624 113,000 $2,760
Daniel W. Wark.......... -- -- 6,771 18,229 -- --
Yao T. (Michael) Yen.... 50,000 $110,000 4,376 5,624 5,156 2,344
Henry O'Hara............ 45,104 67,966 -- -- -- --
</TABLE>
- --------
(1) No public market existed for the Company's Common Stock during fiscal
1997. The value realized represents the estimated value of shares of
Common Stock determined by the Board of Directors of the Company, less the
option exercise price.
(2) The value of "in-the-money" stock options represents the difference
between the exercise price of such stock options and the fair market value
of $2.40 per share of Common Stock as of June 30, 1997, as determined by
the Company's Board of Directors, multiplied by the total number of shares
subject to such options on June 30, 1997.
48
<PAGE>
STOCK PLANS
1990 STOCK OPTION PLAN. The Company's 1990 Stock Option Plan (the "1990
Plan") was approved by the Board of Directors in February 1991 and by the
Company's shareholders in May 1991. The 1990 Plan provides for the grant of
options intended to qualify as "incentive stock options" under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified
stock options. The 1990 Plan also provides for the issuance or sale of Common
Stock in connection with the performance of services to the Company or its
affiliates. As of September 30, 1997, 554,130 shares of Common Stock had been
issued upon exercise of options granted under the 1990 Plan and 719,794 shares
remained reserved for future issuance upon the exercise of outstanding
options. The Board of Directors terminated the 1990 Plan effective June 30,
1997, and no further options will be granted under the 1990 Plan.
The Board of Directors or a committee designated by the Board is authorized
to administer the 1990 Plan, including the selection of individuals eligible
for grants of options, issuances of Common Stock, the terms of such grants or
issuances and the interpretation of the terms of, and adoption of rules for,
the 1990 Plan. The maximum term of any stock option granted under the 1990
Plan is ten years, except that with respect to incentive stock options granted
to a person possessing more than 10% of the combined voting power of the
Company (a "10% Shareholder"), the term of such stock options shall be no more
than five years. The exercise price of nonqualified stock options and
incentive stock options granted under the 1990 Plan must be at least 85% and
100%, respectively, of the fair market value of the Company's Common Stock on
the grant date, except that the exercise price of incentive stock options
granted to a 10% Shareholder must be at least 110% of such fair market value
on the grant date. Options granted to employees under the 1990 Plan generally
vest over a four-year period. The aggregate fair market value on the date of
grant of the Common Stock for which incentive stock options are exercisable
for the first time by an employee during any calendar year may not exceed
$100,000. The 1990 Plan may be amended at any time by the Board, except that
certain amendments require shareholder approval.
1995 STOCK OPTION PLAN. The Company's 1995 Stock Option Plan (the "1995
Plan") was approved by the Board of Directors in September 1995 and by the
Company's shareholders in October 1995. The 1995 Plan permits the grant of
incentive stock options to employees of the Company (including officers and
directors who are also employees of the Company) and the grant of nonqualified
stock options to employees, officers, directors, independent contractors and
consultants of the Company. Initially, 1,800,000 shares of Common Stock were
reserved for issuance in connection with the grant of options under the 1995
Plan. The 1995 Plan provides that the share reserve will be increased on July
1 of each year by an amount equal to 10% of the total number of shares of
Common Stock outstanding as of the immediately preceding June 30; provided,
however, that the maximum number of shares of Common Stock reserved for
issuance under the 1995 Plan shall not exceed 2,700,000 shares. The aggregate
number of shares of Common Stock available for issuance pursuant to incentive
stock options, however, remains at 1,800,000 shares and is not subject to
annual adjustment. As of September 30, 1997, an aggregate of 2,251,120 shares
of Common Stock was reserved for issuance under the 1995 Plan, 896 shares had
been issued upon exercise of outstanding options under the 1995 Plan, 766,263
shares remained reserved for issuance upon the exercise of outstanding options
and 1,483,961 shares remained available for future grant. In addition, the
maximum number of shares of Common Stock with respect to which options may be
granted to any individual in any calendar year under the 1995 Plan is 150,000.
Options granted to employees under the 1995 Plan generally vest over a four-
year period.
The 1995 Plan provides for automatic grants to directors who are not
employees of the Company (the "Non-Employee Directors") of nonqualified
options to purchase 7,500 shares of Common Stock when first elected to the
Board ("Initial Grants") and 3,750 shares annually thereafter ("Subsequent
Grants") to continuing Non-Employee Directors immediately following each
annual meeting of shareholders of the Company. The exercise price of options
granted to Non-Employee Directors will be equal to the fair market value on
the date of grant. Initial Grants will be fully vested and exercisable as of
the date of grant and Subsequent Grants will vest at the rate of 25% each
quarter following the date of grant, so that the option will be fully vested
and exercisable twelve months following the date of grant. Non-Employee
Directors are not eligible to receive any other option grants under the 1995
Plan or any other current stock plans of the Company.
49
<PAGE>
The Board of Directors or a committee designated by the Board (the
"Committee") is authorized to administer the 1995 Plan, including the
selection of persons (other than Non-Employee Directors) to whom options may
be granted and the interpretation and implementation of the 1995 Plan. Options
granted under the 1995 Plan will vest and become exercisable as determined by
the Committee at the time of the option grant. The maximum term of an option
granted under the 1995 Plan is ten years (five years in the case of an
incentive stock option granted to a 10% Shareholder). The aggregate fair
market value, on the date of grant, of the Common Stock for which incentive
stock options are exercisable for the first time by an employee during any
calendar year may not exceed $100,000. The exercise price of each option
granted under the 1995 Plan shall not be less than the fair market value of
the Common Stock on the date of grant (or not less than 110% of fair market
value in the case of an incentive stock option granted to a 10% Shareholder).
Except for the provisions relating to the grant of stock options to Non-
Employee Directors, the 1995 Plan may be amended at any time by the Board of
Directors, although certain amendments require shareholder approval. The 1995
Plan will terminate in September 2005, unless earlier terminated by the Board.
1997 EMPLOYEE STOCK PURCHASE PLAN. The Company's 1997 Employee Stock
Purchase Plan (the "Stock Purchase Plan"), which was approved by the Board of
Directors in September 1997 and by the Company's shareholders in October 1997,
is intended to qualify as an "employee stock purchase plan" under Section 423
of the Code and to provide employees of the Company with an opportunity to
purchase shares of Common Stock through payroll deductions. A total of 300,000
shares of the Company's Common Stock has been reserved for issuance under the
Stock Purchase Plan, none of which have been issued. The Stock Purchase Plan
permits eligible employees to purchase Common Stock at a discount through
payroll deductions, during concurrent 24-month purchase periods, except that
the first purchase period will be 27 months. Each purchase period will be
divided into four consecutive three-month accrual periods, except that the
first accrual period will be six months. The price at which stock is purchased
under the Stock Purchase Plan is equal to 85% of the fair market value of the
Common Stock on the first day of the purchase period or the last day of the
accrual period, whichever is lower. The initial purchase period will commence
on the Effective Date and will end on January 30, 2000. The maximum number of
shares of Common Stock that any employee may purchase under the Stock Purchase
Plan during an accrual period is 500 shares.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Bylaws provide that the Company will indemnify its directors,
executive officers, employees and other agents to the fullest extent permitted
by California law. Prior to the consummation of this offering, the Company
intends to enter into indemnification agreements with each of its directors
and executive officers and to obtain a directors' and officers' liability
insurance policy that insures such persons against the cost of defense,
settlement or payment of judgments under certain circumstances.
In addition, the Company's Amended and Restated Articles of Incorporation
(the "Articles") eliminate the liability of the Company's directors to the
fullest extent permitted by California law. This provision in the Articles
does not eliminate a director's duty of care and, in appropriate
circumstances, equitable remedies such as an injunction or other forms of non-
monetary relief would remain available under California law. Each director
will continue to be subject to liability for breach of the director's duty of
loyalty to the Company, acts or omissions not in good faith or involving
intentional misconduct or knowing violations of law, acts or omissions that
the director believes to be contrary to the best interests of the Company or
its shareholders, any transaction from which the director derived an improper
personal benefit, improper transactions between the director and the Company
and improper distributions to shareholders and loans to directors and
officers. This provision also does not affect a director's responsibilities
under any other laws, such as the federal securities laws, or federal or state
environmental laws. The Articles also authorize the Company's indemnification
of its agents for breach of their duty through Bylaw provisions or agreements
to the fullest extent permitted under California law.
There is no pending litigation or proceeding involving a director or officer
of the Company as to which indemnification is being sought, nor is the Company
aware of any pending or threatened litigation that may result in claims for
indemnification by any director or officer.
50
<PAGE>
CERTAIN TRANSACTIONS
In April 1994, the Company, Alex Chi-Ming Hui, Chief Executive Officer,
President and a director of the Company, and Chi-Hung (John) Hui, Vice
President, Technology and a director of the Company, and Dato' Kia Hong Tay
and members of his immediate family, most of whom are principal shareholders
of the Company, formed Pericom Technology, Inc., a British Virgin Islands
corporation ("PTI") with principal offices in Shanghai, People's Republic of
China. 18.4% of the outstanding voting stock of PTI is held by the Company and
substantially all of the remaining 81.6% of the outstanding PTI voting stock
is held by the foregoing directors, officers and principal shareholders of the
Company. Each of the directors of the Company is a director of PTI, and Alex
Chi-Ming Hui is the President and Chief Executive Officer of PTI. Pericom and
PTI are parties to an agreement, dated as of March 17, 1995, which provides
for cost reimbursement between the Company and PTI for any facility sharing or
personnel time and certain procedures for funding research and development and
joint development projects. During the fiscal years ended June 30, 1996 and
1997, the Company sold $24,000 and $39,000 respectively, in services to PTI.
As of June 30, 1997, $99,000 was owed to the Company by PTI for certain
administrative expenses incurred by the Company on behalf of PTI. See
"Principal and Selling Shareholders" and Note 4 of Notes to Financial
Statements.
In September 1995, the Company and PTI entered into an international
distributor agreement, pursuant to which PTI was appointed a non-exclusive
distributor for certain Pericom products in People's Republic of China.
In February 1996, the Company entered into the Harris Agreement, pursuant to
which Harris and the Company have agreed to discuss the terms of an agreement
to grant PTI the right to distribute certain Harris products in the Peoples
Republic of China.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions between the Company and
its officers, directors, principal shareholders and their affiliates,
including transactions with PTI, will continue to be on terms no less
favorable to the Company than could be obtained from unaffiliated third
parties.
The Company intends to enter into indemnification agreements with each of
its executive officers and directors. See "Management -- Limitation of
Liability and Indemnification Matters."
51
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information known to the Company with
respect to beneficial ownership of the Company's Common Stock as of September
30, 1997 and as adjusted to reflect the sale of the shares offered hereby, by
(i) each person known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) each of the Company's directors,
(iii) each of the Named Executive Officers, (iv) each of the Selling
Shareholders, and (v) all executive officers and directors of the Company as a
group.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED PRIOR TO SHARES TO BE BENEFICIALLY
5% SHAREHOLDERS, OFFERING(1) HARES TO BE OWNED AFTER OFFERING(1)
DIRECTORS AND NAMED ----------------- SOLD IN -----------------------------
EXECUTIVE OFFICERS NUMBER PERCENT OFFERING(1) NUMBER PERCENT
- ------------------------ --------- ------- ------------ --------------- -------------
<S> <C> <C> <C> <C> <C>
Dato' Kia Hong Tay(2)... 1,312,500 18.6% 120,000 1,130,000 12.5%
48 Andrew Road
Singapore 299964
Tay Thiam Song(3)....... 1,088,126 15.5 45,000 980,626 10.9
16 Linden Drive
Singapore 288691
Tay Tian Liang(4)....... 1,075,000 15.3 45,000 967,500 10.7
48 Andrew Road
Singapore 299964
Tay Thiang Phong(5)..... 1,075,000 15.3 45,000 967,500 10.7
No. 1, Chuan Walk
Singapore 558407
Tay Thiam Yew(6)........ 1,075,000 15.3 45,000 967,500 10.7
No. 3, Chuan Walk
Singapore 558409
Alex Chi-Ming Hui(7)(8). 919,278 12.8 -- 919,278 10.0
Jeffrey Young (9)....... 900,626 12.8 22,500 811,876 9.0
67 Saraca Road
Singapore 807402
Tay Lee Kiang (10)...... 900,626 12.8 3,750 811,876 9.0
67 Saraca Road
Singapore 807402
Chi-Hung (John)
Hui(8)(11).............. 717,180 10.1 -- 717,180 7.9
Chye Seng Tannery (Pte)
Ltd.(12)................ 625,000 8.9 62,500 562,500 6.2
741/743 Geylang Road
Singapore 0820
Patrick B. Brennan(13).. 59,979 * -- 59,979 *
Yao T. (Michael)
Yen(14)................. 55,312 * -- 55,312 *
Henry O'Hara............ 45,104 * -- 45,104 *
Daniel W. Wark(15)...... 10,313 * -- 10,313 *
All executive officers
and directors as a
group (8 persons)(16).. 3,125,814 42.5 67,500 2,992,064 32.0
<CAPTION>
OTHER SELLING
SHAREHOLDERS
- -------------
<S> <C> <C> <C> <C> <C>
Lee Chin-Chung.......... 156,250 2.2 15,625 140,625 1.6
Lue Shuh-Mei............ 156,250 2.2 15,625 140,625 1.6
Hsu Chih-Ray............ 150,000 2.1 35,000 115,000 1.3
Hsu Yu-Pu............... 125,000 1.8 12,500 112,500 1.2
Koh Quee Chew........... 75,000 1.1 7,500 67,500 *
Koh Kwee Khoon.......... 75,000 1.1 7,500 67,500 *
Koh Kwee Ngee........... 75,000 1.1 7,500 67,500 *
Tay Noi Hiang (17)...... 37,500 * 3,750 33,750 *
Tay Siang Kiang (18).... 37,500 * 3,750 33,750 *
Chen Yueh-Chin.......... 2,500 * 2,500 0 *
</TABLE>
- --------
* Less than 1% of the outstanding Common Stock.
52
<PAGE>
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "SEC"). In computing the number
of shares beneficially owned by a person and the percentage ownership of
that person, shares of Common Stock subject to options held by that
person that are currently exercisable or exercisable within 60 days of
September 30, 1997 are deemed outstanding. Percentage of beneficial
ownership is based upon 7,023,790 shares of Common Stock outstanding
before this offering and 9,023,790 shares of Common Stock outstanding
after this offering, as of September 30, 1997 and assuming no exercise of
the Underwriters' over-allotment option. To the Company's knowledge,
except as set forth in the footnotes to this table and subject to
applicable community property laws, each person named in the table has
sole voting and investment power with respect to the shares set forth
opposite such person's name. Shares shown beside each shareholder's name
in the column captioned "Shares to be Sold in Offering" includes only
those shares held of record by that shareholder and does not include
other shares deemed to be beneficially owned by that shareholder pursuant
to the SEC's beneficial ownership rules. In the event that the
Underwriters' over-allotment option is exercised, the Selling
Shareholders and the Company may sell an additional aggregate of up to
375,000 shares, of which, approximately 90,000 may be sold by Alex Chi-
Ming Hui and approximately 70,000 may be sold by Chi-Hung (John) Hui.
(2) Dato' Kia Hong Tay is the father of Tay Thiam Song, a director of the
Company, Tay Tian Liang, Tay Thiang Phong, Tay Thiem Yew, Tay Noi Hiang,
Tay Siang Kiang, and Tay Lee Kiang and the father-in-law of Jeffrey
Young, a director of the Company. Includes 50,000 shares issuable upon
exercise of stock options exercisable within 60 days of September 30,
1997. Also includes 625,000 shares owned by Chye Seng Tannery (Pte) Ltd.,
which company is controlled by Dato' Kia Hong Tay, who may therefore be
deemed to beneficially own such shares. Dato' Kia Hong Tay disclaims
beneficial ownership of such shares except to the extent of his pecuniary
interest therein. See footnote 12.
(3) Tay Thiam Song is a brother-in-law of Mr. Young. Includes 13,126 shares
issuable upon exercise of stock options exercisable within 60 days of
September 30, 1997. Also includes 625,000 shares owned by Chye Seng
Tannery (Pte) Ltd. Mr. Tay, as Executive Director of Chye Seng Tannery
(Pte) Ltd., may be deemed to beneficially own such shares, but Mr. Tay
disclaims beneficial ownership of all such shares. See footnote 12.
(4) Tay Tian Liang is a son of Dato' Kia Hong Tay and, accordingly, is
related to other principal and selling shareholders. See footnote 2.
Includes 625,000 shares owned by Tian Liang Chye Seng Tannery (Pte) ltd.
Tay Tian Lian, as a Director of such entity, may be deemed to
beneficially own such shares, but Tay Tian Liang disclaims beneficial
ownership of all such shares. See footnote 12. Number of shares to be
beneficially owned after offering reflects the sale of 62,500 shares in
the offering by Chye Seng Tannery (Pte) Ltd.
(5) Tay Thiang Phong is a son of Dato' Kia Hong Tay and accordingly related
to other principal and selling shareholders. See footnote 2. Also
includes 625,000 shares owned by Chye Seng Tannery (Pte) Ltd. Tay Thiang
Phong, as a Director of such entity, may be deemed to beneficially own
such shares, but Tay Thiang Phong disclaims beneficial ownership of all
such shares. See footnote 12.
(6) Tay Thiam Yew is a son of Dato' Kia Hong Tay and, accordingly, is related
to other principal and selling shareholders. See footnote 2. Includes
625,000 shares owned by Chye Seng Tannery (Pte) Ltd. Tay Thiam Yew, as a
Director of such entity, may be deemed to beneficially own such shares,
but Tay Thiam Yew disclaims beneficial ownership of all such shares. See
footnote 12.
(7) Includes 158,333 shares issuable upon exercise of stock options
exercisable within 60 days of September 30, 1997.
(8) The address of such person is 2380 Bering Drive, San Jose, California
95131.
(9) Mr. Young is the husband of Tay Lee Kiang. Includes (i)13,126 shares
issuable upon exercise of stock options exercisable within 60 days of
September 30, 1997, (ii) 625,000 shares owned by Chye Seng Tannery (Pte)
Ltd., and (iii) 37,500 shares owned by Tay Lee Kiang. Mr. Young, as
Managing Director of Chye Seng Tannery (Pte) Ltd., may be deemed to
beneficially own the shares held by such entity, as well as the shares
held by Tay Lee Kiang, but Mr. Young disclaims beneficial ownership of
all such shares. See footnotes 10 and 12.
(10) Tay Lee Kiang is a daughter of Dato' Kia Hong Tay and, accordingly, is
related to other principal and selling shareholders. See footnote 2.
Includes 863,126 shares beneficially owned by her husband, Mr. Young, as
to which she disclaims beneficial ownership. See footnote 9.
(11) Includes 106,250 shares issuable upon exercise of stock options
exercisable within 60 days of September 30, 1997.
(12) Chye Seng Tannery (Pte) Ltd. is controlled by Dato' Kia Hong Tay, the
former Chairman of the Board of Directors of the Company and a principal
shareholder of the Company, and certain members of his immediate family,
each of whom is also a principal shareholder of the Company. See
footnotes 2, 3, 4, 5, 6 and 9.
(13) Includes 31,979 shares issuable upon exercise of stock options
exercisable within 60 days of September 30, 1997.
(14) Includes 50,000 shares held as community property with Mei Y. Yen and
5,312 shares issuable upon exercise of stock options exercisable within
60 days of September 30, 1997.
(15) Consists of 10,313 shares issuable upon exercise of stock options
exercisable within 60 days of September 30, 1997.
(16) Includes (i) 338,439 shares issuable upon exercise of stock options
exercisable within 60 days of September 30, 1997, (ii) 625,000 shares
owned by Chye Seng Tannery (Pte) Ltd. (see footnote 12), and (iii) 37,500
shares owned by Tay Lee Kiang (see footnote 10).
(17) Tay Noi Hiang is a daughter of Dato' Kia Hong Tay and, accordingly, is
related to other principal and selling shareholders. See footnote 2.
(18) Tay Siang Kiang is a daughter of Dato' Kia Hong Tay and, accordingly, is
related to other principal and selling shareholders. See footnote 2.
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue up to 30,000,000 shares of Common Stock,
no par value per share, and 5,000,000 shares of Preferred Stock, no par value
per share.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Company's Articles, which
are included as an exhibit to the Registration Statement of which this
Prospectus is a part, and by the provisions of applicable law.
COMMON STOCK
As of September 30, 1997, there were 7,023,790 shares of Common Stock
outstanding that were held of record by approximately 126 shareholders,
including 4,612,500 that will be issued upon the automatic conversion of the
outstanding shares of Preferred Stock into Common Stock upon the closing of
the offering. As of September 30, 1997, 1,486,057 shares of Common Stock were
reserved for issuance pursuant to outstanding options. Upon completion of the
offering, there will be 9,023,790 shares of Common Stock outstanding. The
holders of Common Stock are entitled to one vote for each share held of record
on all matters submitted to a vote of the shareholders of the Company. Subject
to preferences that may be granted to any then outstanding Preferred Stock,
holders of Common Stock are entitled to receive ratably such dividends as may
be declared by the Board of Directors out of funds legally available therefor
as well as any distributions to the shareholders. See "Dividend Policy." In
the event of a liquidation, dissolution or winding up of the Company, holders
of Common Stock are entitled to share ratably in all assets of the Company
remaining after payment of liabilities and the liquidation preference of any
then outstanding Preferred Stock. Holders of Common Stock have no preemptive
or other subscription or conversion rights. There are no redemption or sinking
fund provisions applicable to the Common Stock. All outstanding shares of
Common Stock are, and all shares of Common Stock to be outstanding upon
completion of the offering will be, validly issued, fully paid and
nonassessable.
PREFERRED STOCK
As of the closing of this offering, no shares of Preferred Stock will be
outstanding. Effective at such time and pursuant to the Company's Articles,
the Board of Directors will have the authority, without further action by the
Company's shareholders, to issue up to 5,000,000 shares of Preferred Stock in
one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences, sinking fund terms and
the number of shares constituting any series or the designation of such
series, any or all of which may be greater than the rights of the Common
Stock. The issuance of Preferred Stock could adversely affect the voting power
of holders of Common Stock and the likelihood that such holders will receive
dividend payments and payments upon liquidation and could have the effect of
delaying, deferring or preventing a change in control of the Company. The
Company has no present plan to issue any additional shares of Preferred Stock.
REGISTRATION RIGHTS
Pursuant to an agreement between the Company and the holders (the "Holders")
of approximately 3,915,000 shares of Common Stock after the completion of this
offering (the "Registrable Securities"), the Holders or their transferees are
entitled to certain rights with respect to the registration of such shares
under the Securities Act. If the Company proposes to register any of its
securities under the Securities Act, either for its own account or the account
of other security holders, the Company is required to use its best efforts to
effect such registration, and the Holders are entitled to notice of such
registration and, subject to certain conditions and limitations, are entitled
to include, at the Company's expense, such shares therein. In addition, at any
time, the Holders of at least 50% of the Registrable Securities may require
the Company, on not more than two occasions, to file a registration statement
under the Securities Act at the Company's expense, and the Company is required
to use its best efforts to effect such registration, subject to certain
conditions and limitations. Further, the Holders
54
<PAGE>
of such Registrable Securities may require the Company to file additional
registration statements on Form S-3 when such form becomes available to the
Company, subject to certain conditions and limitations. The expenses incurred
in connection with such Form S-3 registrations will be borne pro rata by the
Holders participating in such registrations.
LISTING
Application has been made for quotation of the Company's Common Stock on The
Nasdaq National Market under the symbol "PSEM."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is Boston
EquiServe LP. Its address is 150 Royall Street, Canton, Massachusetts 02021,
and its telephone number is (617) 774-5573.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock after this offering
could adversely affect the market price of the Common Stock and could impair
the Company's ability to raise capital through the sale of equity securities.
Upon completion of this offering, the Company will have approximately
9,023,790 shares of Common Stock outstanding, based on the number of shares of
Common Stock outstanding as of September 30, 1997. Of these shares, the
2,500,000 shares offered hereby will be freely tradeable without restriction
under the Securities Act, unless they are held by "affiliates" of the Company
as that term is used in Rule 144 under the Securities Act.
The remaining 6,523,790 outstanding shares are "restricted securities"
within the meaning of Rule 144. None of these shares will be eligible for sale
in the public market as of the Effective Date. Upon the expiration of
agreements not to sell shares entered into with SoundView Financial Group,
Inc. and/or the Company, 180 days after the Effective Date, approximately
6,523,790 shares will become eligible for sale subject to the provisions of
Rule 144 or Rule 701 and approximately 826,891 additional shares subject to
vested options will be eligible for sale subject to compliance with Rule 144
and Rule 701. Any shares subject to lock-up agreements may be released by
SoundView Financial Group, Inc. prior to the expiration of the lock-up period
at any time without notice. See "Underwriting."
As soon as practicable after the Effective Date, the Company intends to file
one or more registration statements on Form S-8 under the Securities Act to
register up to approximately 3,267,518 shares of Common Stock reserved for
issuance under the Company's 1990 Plan, 1995 Plan and Stock Purchase Plan,
thus permitting the resale of such shares by non-affiliates in the public
market without restriction under the Securities Act unless subject to lock-up
agreements. Such registration statement(s) will become effective immediately
upon filing. See "Management -- Stock Plans."
Prior to this offering, there has been no public market for the Common Stock
of the Company, and any sale of substantial amounts in the open market may
adversely affect the market price of the Common Stock offered hereby. See
"Risk Factors -- Potential Effect of Shares Eligible for Future Sale on Market
Price of the Common Stock."
55
<PAGE>
UNDERWRITING
Upon the terms and subject to the conditions set forth in an underwriting
agreement (the "Underwriting Agreement"), the Underwriters named below, for
whom SoundView Financial Group, Inc. and Unterberg Harris are acting as
representatives (the "Representatives"), have severally agreed to purchase
from the Company and the Selling Shareholders an aggregate of 2,500,000 shares
of Common Stock. The number of shares of Common Stock that each underwriter
has agreed to purchase is set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
SoundView Financial Group, Inc.....................................
Unterberg Harris...................................................
---------
Total............................................................ 2,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to the approval of
certain legal matters by counsel and to certain other conditions. If any of
the shares of Common Stock are purchased by the Underwriters pursuant to the
Underwriting Agreement, all such shares of Common Stock (other than the shares
of Common Stock covered by the over-allotment option described below) must be
so purchased.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments that the Underwriters may be
required to make in respect thereof.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers (who may include the Underwriters) at
such price less a concession not to exceed $ per share. The Underwriters
may allow, and such dealers may reallow, a concession not to exceed $ per
share to any other Underwriter and certain other dealers. After the initial
public offering of the shares offered hereby, the offering price and other
selling terms may be changed by the Representatives. The Representatives have
advised the Company that the Underwriters do not intend to confirm any shares
to any accounts over which they exercise discretionary control.
The Company and the Selling Shareholders have granted to the Underwriters an
option, exercisable for 30 days from the date of this Prospectus, to purchase
up to an aggregate of 375,000 additional shares of Common Stock at the initial
public offering price less underwriting discounts and commissions. Such option
may be exercised solely for the purpose of converting overallotments, if any,
in connection with the offering of the shares offered hereby. To the extent
that the Underwriters exercise such option, each of the Underwriters will be
committed, subject to certain conditions, to purchase a number of additional
shares proportionate to such Underwriter's initial commitment as indicated in
the preceding table.
The offering of the shares offered hereby is made for delivery when, as and
if accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offering without notice. The Underwriters
reserve the right to reject an order for the purchase of shares in whole or in
part.
The Company, all directors and executive officers of the Company, and
certain shareholders and optionholders of the Company have agreed that,
without the prior written consent of SoundView Financial Group, Inc., they
will not, with certain limited exceptions, directly or indirectly, offer,
sell, contract to sell, grant
56
<PAGE>
any option to purchase or otherwise dispose of any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common
Stock or, in any manner, transfer all or a portion of the economic
consequences associated with the ownership of the Common Stock, for a period
of 180 days after the Effective Date, other than the shares of Common Stock
offered hereby. See "Shares Eligible for Future Sale."
In connection with this offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M under the Securities Exchange Act of
1934, as amended, pursuant to which such persons may bid for or purchase
shares of Common Stock for the purpose of stabilizing the market price for
shares of Common Stock. The Underwriters also may create a short position for
the account of the Underwriters by selling more shares of Common Stock in
connection with this offering than they are committed to purchase from the
Company and the Selling Shareholders, and in such case may purchase shares of
Common Stock in the open market following the completion of this offering to
cover all or a portion of the shares of Common Stock or by exercising the
Underwriters' over-allotment option referred to above. In addition, SoundView
Financial Group, Inc., on behalf of the Underwriters, may impose "penalty
bids" under contractual arrangements with the other Underwriters whereby it
may reclaim for an Underwriter (or a dealer participating in this offering)
for the account of the other Underwriters, the selling concession with respect
to shares of Common Stock that are distributed in this offering but
subsequently purchased for the account of the Underwriters in the open market.
Any of the transactions described in this paragraph may result in the
maintenance of the price of the Common Stock at a level above that which might
otherwise prevail in the open market. None of the transactions described in
this paragraph are required, and, if they are undertaken, may be discontinued
at any time.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock offered hereby
will be determined by negotiation among the Company, the Selling Shareholders
and the Representatives. Among the factors to be considered in determining the
initial public offering price are prevailing market conditions, revenues and
earnings of the Company, market valuations of other companies engaged in
activities similar to the Company, estimates of the business potential and
prospects of the Company, the present state of the Company's business
operations, the history of and prospects for the Company's business and the
industry in which it competes, the Company's management and other factors
deemed relevant. The estimated initial public offering price range set forth
on the cover of this preliminary prospectus is subject to change as a result
of market conditions and other factors.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company and the Selling Shareholders by Morrison & Foerster LLP, Palo Alto,
California. Certain legal matters in connection with this offering will be
passed upon for the Underwriters by Gray Cary Ware & Freidenrich, A
Professional Corporation, Palo Alto, California.
EXPERTS
The financial statements as of June 30, 1996 and 1997 and for each of the
three years in the period ended June 30, 1997 included in this Prospectus and
the related financial statement schedule included elsewhere in the
registration statement have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein and elsewhere in the
registration statement, and have been so included in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
57
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with Securities and Exchange Commission (the
"Commission") in Washington, D.C. a registration statement (together with all
amendments, the "Registration Statement") on Form S-1 under the Securities Act
with respect to the Common Stock offered hereby. This Prospectus, filed as
part of the Registration Statement, does not contain all of the information
set forth in the Registration Statement and the exhibits and schedules
thereto, certain portions of which have been omitted as permitted by the rules
and regulations of the Commission. For further information with respect to the
Company and the Common Stock, reference is made to the Registration Statement
and to such exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any contract, agreement or other document are
not necessarily complete and, in each instance, reference is made to the copy
of such contract, agreement or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement and the exhibits and schedules
thereto may be inspected by anyone without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at 7 World
Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any part of such
materials may be obtained from the Commission upon the payment of certain fees
prescribed by the Commission. Such reports and other information may also be
inspected without charge at the Commission's web site. The address of such
site is http://www.sec.gov.
58
<PAGE>
PERICOM SEMICONDUCTOR CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements:
Independent Auditors' Report............................................. F-2
Balance Sheets as of June 30, 1996 and 1997 and September 30, 1997
(unaudited)............................................................. F-3
Statements of Income for the Fiscal Years Ended June 30, 1995, 1996 and
1997 and the three months ended September 30, 1996 and 1997 (unaudited). F-4
Statements of Shareholders' Equity for the Fiscal Years Ended June 30,
1995, 1996 and 1997 and the three months ended September 30, 1996 and
1997 (unaudited)........................................................ F-5
Statements of Cash Flows for the Fiscal Years Ended June 30, 1995, 1996
and 1997 and the three months ended September 30, 1996 and 1997
(unaudited)............................................................. F-6
Notes to Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Pericom Semiconductor Corporation:
We have audited the accompanying balance sheets of Pericom Semiconductor
Corporation as of June 30, 1996 and 1997, and the related statements of
income, shareholders' equity, and cash flows for each of the three years in
the period ended June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Pericom Semiconductor Corporation at June
30, 1996 and 1997, and the results of its operations and its cash flows for
each of the three years in the period ended June 30, 1997, in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
San Jose, California
July 31, 1997
(October 23, 1997 as to the third and fourth sentences of Note 1)
F-2
<PAGE>
PERICOM SEMICONDUCTOR CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AS OF JUNE 30,
--------------- AS OF
1996 1997 SEPTEMBER 30, 1997
------- ------- ------------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents....................... $ 8,556 $ 9,566 $ 9,544
Accounts receivable:
Trade (net of allowances of $1,605, $1,198
and $1,543).............................. 1,849 3,247 3,009
Related party............................. 74 99 74
Inventories................................ 5,469 6,182 6,445
Prepaid expenses and other current assets.. 82 149 146
Income taxes refundable.................... 295 -- --
Deferred income taxes...................... 413 339 339
------- ------- -------
Total current assets.................... 16,738 19,582 19,557
Property and equipment -- net............... 2,394 3,422 3,889
Investments................................. 625 545 515
Other assets................................ 63 32 125
------- ------- -------
Total................................... $19,820 $23,581 $24,086
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................... $ 3,283 $ 4,984 $ 4,092
Accrued liabilities........................ 1,310 1,203 1,364
Income taxes payable....................... -- 411 566
------- ------- -------
Total current liabilities............... 4,593 6,598 6,022
Commitments and contingencies (Notes 8 and
9)
Deferred income taxes....................... 132 188 188
Shareholders' equity:
Preferred stock, no par value; 14,225,000
shares authorized (aggregate liquidation
preference of outstanding series A, B and
C of $7,750,000):
Series A, 5,200,000 shares designated and
outstanding.............................. 2,588 2,588 2,588
Series B, 2,150,000 shares designated and
outstanding.............................. 2,137 2,137 2,137
Series C, 1,875,000 shares designated and
outstanding.............................. 2,992 2,992 2,992
Common stock, no par value, 30,000,000
shares authorized;
shares issued and outstanding: 1996,
2,165,251; 1997, 2,345,951; September 30,
1997, 2,411,290.......................... 79 201 259
Retained earnings.......................... 7,299 8,877 9,900
------- ------- -------
Total shareholders' equity.............. 15,095 16,795 17,876
------- ------- -------
Total................................... $19,820 $23,581 $24,086
======= ======= =======
</TABLE>
See notes to financial statements.
F-3
<PAGE>
PERICOM SEMICONDUCTOR CORPORATION
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED JUNE 30, SEPTEMBER 30,
---------------------------- --------------
1995 1996 1997 1996 1997
-------- -------- -------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues..................... $ 22,732 $ 41,174 $ 33,166 $6,601 $11,398
Cost of revenues................. 12,873 22,797 20,986 3,996 6,839
-------- -------- -------- ------ -------
Gross profit.................... 9,859 18,377 12,180 2,605 4,559
-------- -------- -------- ------ -------
Operating expenses:
Research and development........ 2,942 4,414 4,187 986 1,169
Selling, general and
administrative................. 4,038 6,471 5,989 1,448 1,956
-------- -------- -------- ------ -------
Total.......................... 6,980 10,885 10,176 2,434 3,125
-------- -------- -------- ------ -------
Income from operations........... 2,879 7,492 2,004 171 1,434
Equity in net loss of joint
venture.......................... (55) (70) (80) -- (30)
Interest income.................. 203 402 431 105 123
Interest expense................. (4) -- -- -- --
Other expense.................... -- (382) -- -- --
-------- -------- -------- ------ -------
Income before income taxes....... 3,023 7,442 2,355 276 1,527
Provision for income taxes....... 982 2,732 777 91 504
-------- -------- -------- ------ -------
Net income....................... $ 2,041 $ 4,710 $ 1,578 $ 185 $ 1,023
======== ======== ======== ====== =======
Net income per common and
equivalent share................. $ 0.26 $ 0.57 $ 0.20 $ 0.02 $ 0.12
======== ======== ======== ====== =======
Shares used in computing per
share data....................... 7,975 8,269 8,092 8,224 8,210
======== ======== ======== ====== =======
</TABLE>
See notes to financial statements.
F-4
<PAGE>
PERICOM SEMICONDUCTOR CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED
STOCK COMMON STOCK TOTAL
------------- ------------- RETAINED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT EARNINGS EQUITY
------ ------ ------ ------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, July 1, 1994...... 9,225 $7,717 2,061 $ 29 $ 548 $ 8,294
Exercise of employee stock
options..................... -- -- 58 17 -- 17
Net income.................. -- -- -- -- 2,041 2,041
----- ------ ----- ---- ------ -------
Balances, June 30, 1995..... 9,225 7,717 2,119 46 2,589 10,352
Exercise of employee stock
options..................... -- -- 46 33 -- 33
Net income.................. -- -- -- -- 4,710 4,710
----- ------ ----- ---- ------ -------
Balances, June 30, 1996..... 9,225 7,717 2,165 79 7,299 15,095
Exercise of employee stock
options..................... -- -- 181 122 -- 122
Net income.................. -- -- -- -- 1,578 1,578
----- ------ ----- ---- ------ -------
Balances, June 30, 1997..... 9,225 7,717 2,346 201 8,877 16,795
----- ------ ----- ---- ------ -------
Exercise of employee stock
options*.................... -- -- 65 58 -- 58
Net income*................. -- -- -- -- 1,023 1,023
----- ------ ----- ---- ------ -------
Balances, September 30,
1997*....................... 9,225 $7,717 2,411 $259 $9,900 $17,876
===== ====== ===== ==== ====== =======
</TABLE>
- --------
*Unaudited
See notes to financial statements.
F-5
<PAGE>
PERICOM SEMICONDUCTOR CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED JUNE 30, SEPTEMBER 30,
---------------------------- --------------
1995 1996 1997 1996 1997
-------- -------- -------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income...................... $ 2,041 $ 4,710 $ 1,578 $ 185 $1,023
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization.. 448 698 966 214 277
Equity in net loss of joint
venture....................... 55 70 80 -- 30
Deferred income taxes.......... 30 (97) 130 -- --
Changes in assets and
liabilities:
Accounts receivable........... (2,541) 1,287 (1,423) 254 263
Inventories................... (815) (2,050) (713) 599 (263)
Prepaid expenses and other
current assets............... (30) 18 (67) -- 3
Accounts payable.............. 1,862 533 1,701 (1,020) (892)
Accrued liabilities........... 418 306 (107) (353) 162
Income taxes payable
(refundable)................. 143 (600) 706 91 155
-------- -------- -------- ------ ------
Net cash provided by (used
in) operating activities... 1,611 4,875 2,851 (30) 758
-------- -------- -------- ------ ------
Cash flows from investing
activities:
Additions to property and
equipment..................... (1,260) (1,384) (2,001) (364) (745)
(Increase) decrease in other
assets........................ (7) (43) 31 1 (93)
Proceeds from sale of property
and equipment................. -- -- 7 -- --
-------- -------- -------- ------ ------
Net cash used for investing
activities................. (1,267) (1,427) (1,963) (363) (838)
-------- -------- -------- ------ ------
Cash flows from financing
activities:
Sale of common stock........... 17 33 122 10 58
Note payable repayments........ (123) -- -- -- --
-------- -------- -------- ------ ------
Net cash provided by (used
for) financing activities.. (106) 33 122 10 58
-------- -------- -------- ------ ------
Net increase (decrease) in cash
and equivalents 238 3,481 1,010 (383) (22)
Cash and equivalents:
Beginning of period............ 4,837 5,075 8,556 8,556 9,566
-------- -------- -------- ------ ------
End of period.................. $ 5,075 $ 8,556 $ 9,566 $8,173 $9,544
======== ======== ======== ====== ======
Supplemental disclosure of cash
flow information:
Cash paid during the period
for:
Interest...................... $ 4 $ -- $ -- $ -- $ --
======== ======== ======== ====== ======
Income taxes.................. $ 809 $ 3,429 $ 50 $ -- $ 350
======== ======== ======== ====== ======
</TABLE>
See notes to financial statements.
F-6
<PAGE>
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO FINANCIAL STATEMENTS
FISCAL YEARS ENDED JUNE 30, 1995, 1996 AND 1997
(INFORMATION AS OF SEPTEMBER 30, 1997 AND
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Pericom Semiconductor Corporation (the "Company") was incorporated in June
1990. The Company designs, manufactures and markets high performance digital,
analog and mixed-signal integrated circuits for the personal computer,
servers, peripherals and networking markets. In September 1997 and October
1997, the Company's Board of Directors and shareholders, respectively,
approved a one-for-two reverse split of the common stock effected in October
1997. All common stock data in the accompanying financial statements have been
retroactively adjusted to reflect the reverse split.
FINANCIAL STATEMENT ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses during the reporting period. Such estimates
include the level of the allowance for potentially uncollectible receivables,
estimated costs for sales returns, price protection, stock rotation and other
allowances, inventory reserves for obsolete, slow moving or nonsalable
inventory and accrued liabilities. Actual results could differ from those
estimates.
CASH EQUIVALENTS -- The Company considers all highly liquid debt instruments
purchased with a remaining maturity of three months or less to be cash
equivalents. The recorded carrying amounts of the Company's cash and cash
equivalents approximate their fair market value.
INVENTORIES are stated at the lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT are stated at cost. Depreciation and amortization are
computed using the straight-line method over estimated useful lives of three
to five years.
INVESTMENT IN JOINT VENTURE is accounted for using the equity method (see
Note 4).
LONG-LIVED ASSETS -- On July 1, 1996, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 121
requires long-lived assets to be evaluated for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company's policy is to review the recoverability of all
intangible assets based upon undiscounted cash flows on an annual basis at a
minimum, and in addition, whenever events or changes indicate that the
carrying amount of an asset may not be recoverable. Adoption of SFAS No. 121
did not have a material effect on the Company's financial statements.
INCOME TAXES -- The Company accounts for income taxes under SFAS No. 109,
"Accounting for Income Taxes," which requires an asset and liability approach
to recording deferred taxes.
STOCK-BASED COMPENSATION -- The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock-Based Compensation."
REVENUE RECOGNITION -- Revenue from product sales is recognized upon
shipment. Estimated costs for sales returns, price protection, stock rotation
and other allowances are accrued in the period that sales are recognized.
Domestic distributors are permitted a return allowance of 10% of their net
purchases every six months. Revenue from design services, included in net
revenues, is recognized on the completion of project milestones set forth in
the related agreements.
FISCAL PERIOD -- The Company's fiscal years in the accompanying financial
statements have been shown as ending on June 30. Fiscal years 1995, 1996 and
1997 ended on July 1, 1995, June 29, 1996 and June 28, 1997, respectively, and
each includes 52 weeks.
F-7
<PAGE>
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO FINANCIAL STATEMENTS
FISCAL YEARS ENDED JUNE 30, 1995, 1996 AND 1997
(INFORMATION AS OF SEPTEMBER 30, 1997 AND
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
CONCENTRATION OF CREDIT RISK AND CERTAIN SIGNIFICANT RISKS AND
UNCERTAINTIES -- The Company sells its products primarily to large
organizations and generally does not require its customers to provide
collateral or other security to support accounts receivable. The Company
maintains allowances for estimated bad debt losses.
The Company participates in a dynamic high technology industry and believes
that changes in any of the following areas could have a material adverse
effect on the Company's future financial position or results of operations:
advances and trends in new technologies; competitive pressures in the form of
new products or price reductions on current products; changes in product mix;
changes in the overall demand for products and services offered by the
Company; changes in customer relationships; litigation or claims against the
Company based on intellectual property, patent, product, regulatory or other
factors; risks associated with changes in domestic and international economic
and/or political conditions or regulations; availability of necessary
components; and the Company's ability to attract and retain employees
necessary to support its growth.
RECENTLY ISSUED ACCOUNTING STANDARDS -- In June 1997, the Financial
Accounting Standards Board (FASB) issued SFAS No. 130, "Reporting
Comprehensive Income," which requires an enterprise to report, by major
components and as a single total, the change in net assets during the period
from nonowner sources; and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes annual and interim
reporting standards for an enterprise's business segments and related
disclosures about its products, services, geographic areas and major
customers. Adoption of these statements will not impact the Company's
financial position, results of operations or cash flows. Both statements are
effective for fiscal years beginning after December 15, 1997, with earlier
application permitted.
NET INCOME PER SHARE -- Net income per common and equivalent share is based
upon the weighted average number of common and dilutive common equivalent
shares (preferred stock, common stock options and warrants) outstanding.
Pursuant to rules of the Securities and Exchange Commission, all common shares
issued and options, warrants and other rights to acquire shares of Common
Stock at a price less than the initial public offering price granted by the
Company during the period subsequent to November 6, 1996 (using the treasury
stock method until shares are issued and an estimated initial public offering
price) have been included in the computation of common and common equivalent
shares outstanding for all periods presented.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share." The
Company is required to adopt SFAS 128 in the second quarter of fiscal 1998 and
will restate at that time earnings per share (EPS) data for prior periods to
conform with SFAS 128. Earlier application is not permitted.
SFAS 128 replaces current EPS reporting requirements and requires a dual
presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income attributable to common stockholders by the
weighted average of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
However, the SEC rules regarding share issuances and option and other rights
granted to acquire shares prior to an initial public offering, as stated
above, are still applicable and such amounts are included in both basic and
diluted EPS.
F-8
<PAGE>
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO FINANCIAL STATEMENTS
FISCAL YEARS ENDED JUNE 30, 1995, 1996 AND 1997
(INFORMATION AS OF SEPTEMBER 30, 1997 AND
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
Pro forma amounts for basic and diluted EPS assuming SFAS 128 had been in
effect for the periods presented are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS
JUNE 30, ENDED SEPTEMBER 30,
----------------- --------------------
1995 1996 1997 1996 1997
----- ----- ----- ---------- ----------
<S> <C> <C> <C> <C> <C>
Basic EPS......................... $0.71 $1.61 $0.54 $ 0.06 $ 0.33
Diluted EPS....................... $0.26 $0.57 $0.20 $ 0.02 $ 0.12
</TABLE>
UNAUDITED INTERIM FINANCIAL INFORMATION -- The unaudited interim financial
information as of September 30, 1997 and for the three months ended September
30, 1996 and 1997 has been prepared on the same basis as the audited financial
statements. In the opinion of management, such unaudited information includes
all adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of this interim information. Operating results for the three
months ended September 30, 1997 are not necessarily indicative of the results
that may be expected for the year ending June 30, 1998.
2. INVENTORIES
Inventories consist of (in thousands):
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF
--------------- SEPTEMBER 30,
1996 1997 1997
------- ------- -------------
<S> <C> <C> <C>
Finished goods................................. $ 1,151 $ 1,327 $1,452
Work-in-process................................ 2,455 3,659 3,954
Raw materials.................................. 1,863 1,196 1,039
------- ------- ------
$ 5,469 $ 6,182 $6,445
======= ======= ======
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consist of (in thousands):
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF
---------------- SEPTEMBER 30,
1996 1997 1997
------- ------- -------------
<S> <C> <C> <C>
Machinery and equipment...................... $ 1,809 $ 3,195 $3,411
Computer equipment and software.............. 1,545 1,844 1,878
Furniture and fixtures....................... 312 322 322
Leasehold improvements....................... 71 80 92
Construction-in-progress..................... 260 544 1,026
------- ------- ------
Total........................................ 3,997 5,985 6,729
Accumulated depreciation and amortization.... (1,603) (2,563) (2,840)
------- ------- ------
Property and equipment -- net................ $ 2,394 $ 3,422 $3,889
======= ======= ======
</TABLE>
F-9
<PAGE>
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO FINANCIAL STATEMENTS
FISCAL YEARS ENDED JUNE 30, 1995, 1996 AND 1997
(INFORMATION AS OF SEPTEMBER 30, 1997 AND
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
4. INVESTMENT IN JOINT VENTURE
In fiscal 1994, the Company purchased 1,500,000 shares of Series A
Convertible Preferred Stock issued by Pericom Technology, Inc. ("PTI") for
$750,000 (an 18.4% equity investment). Such preferred stock is convertible at
the option of the Company into 1,500,000 shares of PTI common stock, does not
bear dividends, has a liquidation preference up to the purchase price and
votes based on the number of common shares into which it is convertible. PTI
was incorporated in 1994 and in 1995 established a design center and sales
office to pursue opportunities and participate in joint ventures in China. The
investment in PTI is accounted for using the equity method due to the
Company's significant influence over its operations. In addition, several of
the directors of the Company are also directors of PTI, and certain
shareholders of the Company are also shareholders of PTI. During the years
ended June 30, 1996 and 1997, the Company sold $24,000 and $39,000,
respectively, in services to PTI. At June 30, 1996 and 1997, $74,000 and
$99,000, respectively, was owed to the Company by PTI for reimbursement of
certain administrative expenses incurred by the Company on behalf of PTI.
Condensed financial information of the joint venture at June 30, 1997 is as
follows (in thousands):
<TABLE>
<S> <C>
Total assets...................................................... $2,096
Total liabilities................................................. 99
Total equity...................................................... 1,997
Expenses.......................................................... 502
------
Operating loss.................................................... (490)
Interest income................................................... 65
------
Net loss.......................................................... $ (425)
======
</TABLE>
The Company's investment in preferred stock of PTI has a liquidation
preference of $545,000 at June 30, 1997. This carrying value of the PTI
investment at June 30, 1997, is greater that the 18.4% equity interest
consistent with the Company's liquidation preference.
5. ACCRUED LIABILITIES
Accrued liabilities consist of (in thousands):
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF
--------------- SEPTEMBER 30,
1996 1997 1997
------- ------- -------------
<S> <C> <C> <C>
Accrued compensation........................... $ 716 $ 591 $ 462
External sales representative commissions...... 296 310 492
Other accrued expenses......................... 298 302 410
------- ------- ------
$1,310 $ 1,203 $1,364
======= ======= ======
</TABLE>
F-10
<PAGE>
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO FINANCIAL STATEMENTS
FISCAL YEARS ENDED JUNE 30, 1995, 1996 AND 1997
(INFORMATION AS OF SEPTEMBER 30, 1997 AND
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
6. SHAREHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
Significant terms of the Series A, Series B and Series C Convertible
Preferred Stock are as follows:
. Two shares of preferred stock are convertible at the option of the holder
into one share of common stock (subject to adjustments for events of
dilution). Shares will be converted automatically upon the earlier of the
closing of an underwritten public offering of the Company's common stock
meeting certain criteria, such as that contemplated by this offering, or
the voluntary conversion of 70% or more of the preferred stock.
. Each share of preferred stock has voting rights equivalent to the number
of shares of common stock into which it is convertible.
. Dividends may be declared at the discretion of the Board of Directors and
are noncumulative. Dividends of $0.04, $0.08 and $0.13 per share for
Series A, Series B and Series C preferred stock, respectively, must be
declared and paid before payment of any common stock dividends.
. In the event of liquidation, dissolution, merger or winding up of the
Company, Series A, Series B and Series C preferred shareholders are
entitled to receive $0.50 per share, $1.00 per share and $1.60 per share,
respectively, (subject to adjustments for events of dilution) plus all
accrued and unpaid dividends prior to any distribution to the common
shareholders. Any remaining assets will be shared by common shareholders
on a pro rata basis.
STOCK OPTION PLANS
Under the Company's 1990 Stock Option Plan and 1995 Stock Option Plans,
incentive and nonqualified stock options to purchase up to 3,525,044 shares of
common stock have been reserved at September 30, 1997 for issuance to
employees, officers, directors, independent contractors and consultants of the
Company.
The options may be granted at not less than the fair value, as determined by
the Board of Directors, and not less than 85% of the fair value on grant date
for incentive stock options and nonqualified stock options, respectively.
Options vest over periods of up to 48 months as determined by the Board.
Options granted under the Plans expire 10 years from grant date.
F-11
<PAGE>
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO FINANCIAL STATEMENTS
FISCAL YEARS ENDED JUNE 30, 1995, 1996 AND 1997
(INFORMATION AS OF SEPTEMBER 30, 1997 AND
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
Activity in the Company's option plans is summarized below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Balance July 1, 1994.............................. 600,344 $0.36
Granted......................................... 567,251 1.12
Exercised....................................... (57,851) 0.28
Canceled........................................ (105,702) 0.46
--------- -----
Balance June 30, 1995............................. 1,004,042 0.78
Granted (weighted average fair value: $1.04 per
share)......................................... 639,881 4.42
Exercised....................................... (45,917) 0.82
Canceled........................................ (393,037) 3.98
--------- -----
Balance June 30, 1996............................. 1,204,969 1.56
Granted (weighted average fair value: $0.94 per
share)......................................... 488,825 2.48
Exercised....................................... (180,700) 0.64
Canceled........................................ (316,479) 3.08
--------- -----
Balance June 30, 1997............................. 1,196,615 1.70
--------- -----
Granted......................................... 406,575 4.84
Exercised....................................... (65,339) 0.89
Canceled........................................ (51,794) 2.68
--------- -----
Balance September 30, 1997........................ 1,486,057 $2.56
========= =====
</TABLE>
At September 30, 1997, 1,483,961 shares were available for future issuance
under the option plans.
In fiscal 1996, the Company canceled options to purchase 277,700 shares of
common stock with exercise prices ranging from $5.00 to $6.00 per share and
issued replacement options with an exercise price of $3.80 per share.
In fiscal 1997, the Company canceled options to purchase 160,700 shares of
common stock with an exercise price of $3.80 per share and issued replacement
options with an exercise price of $2.40 per share.
Additional information regarding options outstanding as of June 30, 1997 is
as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------
OPTIONS EXERCISABLE
WEIGHTED --------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
--------------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.10-0.90 273,802 5.87 $0.30 265,522 $0.30
$1.00 250,000 7.22 1.00 250,000 1.00
$1.20-1.44 89,073 7.75 1.34 56,986 1.32
$2.40 453,636 9.37 2.40 58,930 2.40
$3.80 130,104 8.48 3.80 66,870 3.80
--------- -------
1,196,615 $1.70 698,308 $1.14
========= =======
</TABLE>
F-12
<PAGE>
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO FINANCIAL STATEMENTS
FISCAL YEARS ENDED JUNE 30, 1995, 1996 AND 1997
(INFORMATION AS OF SEPTEMBER 30, 1997 AND
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
ADDITIONAL STOCK PLAN INFORMATION -- As discussed in Note 1, the Company
continues to account for its stock-based awards using the intrinsic value
method in accordance with Accounting Principles Board No. 25, "Accounting for
Stock Issued to Employees," and its related interpretations. Accordingly, no
compensation expense has been recognized in the financial statements for
employee stock arrangements.
SFAS No. 123, "Accounting for Stock-Based Compensation," (SFAS 123),
requires the disclosure of pro forma net income as if the Company had adopted
the fair value method as of the beginning of fiscal 1996. Under SFAS 123, the
fair value of stock-based awards to employees is calculated through the use of
option pricing models, even though such models were developed to estimate the
fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the terms of the Company's stock
option awards. These models also require subjective assumptions, including
expected time to exercise, which greatly affect the calculated values. The
Company's calculations were made using the Black-Scholes option pricing model
with the following weighted average assumptions: expected life, five years;
risk-free interest rates, 5.9% in 1996 and 6.3% in 1997; and no dividends
during the expected term. The Company's calculations are based on a single
option valuation approach, and forfeitures are recognized as they occur. If
the computed fair values of the 1996 and 1997 awards had been amortized to
expense over the vesting period of the awards, pro forma net income would have
been $4,637,000 ($0.56 per share) in 1996 and $1,398,000 ($0.17 per share) in
1997. However, the impact of outstanding nonvested stock options granted prior
to fiscal 1996 has been excluded from the pro forma calculation; accordingly,
the 1996 and 1997 pro forma adjustments are not indicative of future period
pro forma adjustments, when the calculation will apply to all applicable stock
options.
7. INCOME TAXES
The provision for income taxes consists of (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JUNE 30,
-------------------
1995 1996 1997
----- ------ ----
<S> <C> <C> <C>
Federal:
Current................................................ $ 784 $2,552 $652
Deferred............................................... 180 (121) 104
----- ------ ----
964 2,431 756
State:
Current................................................ 168 277 (5)
Deferred............................................... (150) 24 26
----- ------ ----
18 301 21
----- ------ ----
Provision for income taxes.............................. $ 982 $2,732 $777
===== ====== ====
</TABLE>
F-13
<PAGE>
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO FINANCIAL STATEMENTS
FISCAL YEARS ENDED JUNE 30, 1995, 1996 AND 1997
(INFORMATION AS OF SEPTEMBER 30, 1997 AND
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
A reconciliation between the Company's effective tax rate and the U.S
statutory rate is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED JUNE 30,
----------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Tax at federal statutory rate.............................. 35.0% 35.0% 35.0%
State income taxes, net of federal benefit................. 5.7 6.4 5.3
Research and development tax credits....................... (6.9) (3.6) (8.7)
Other...................................................... (1.3) (1.1) 1.4
---- ---- ----
Provision for income taxes................................. 32.5% 36.7% 33.0%
==== ==== ====
</TABLE>
The Company has provided income taxes for the three months ended September
30, 1996 and 1997 based on the expected annual income tax rate for that year.
The components of the net deferred tax assets were as follows (in
thousands):
<TABLE>
<CAPTION>
AS OF
JUNE 30,
------------
1996 1997
----- -----
<S> <C> <C>
Deferred tax assets:
Accruals and reserves recognized in different periods......... $ 274 $ 398
Capitalized research and development costs.................... 17 4
Other......................................................... 122 11
----- -----
413 413
----- -----
Deferred tax liabilities:
Tax basis depreciation........................................ (132) (188)
Other......................................................... -- (74)
----- -----
(132) (262)
----- -----
Net deferred tax assets....................................... $ 281 $ 151
===== =====
</TABLE>
8. LEASES
The Company leases certain facilities under operating leases through 2001,
with an option to extend the facilities lease for an additional three years
upon termination of the original lease term. The future minimum operating
lease commitments at June 30, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
Fiscal Year:
1998.............................................................. $ 266
1999.............................................................. 275
2000.............................................................. 281
2001.............................................................. 235
------
$1,057
======
</TABLE>
Rent expense for operating leases for the years ended June 30, 1995, 1996
and 1997 was $211,000, $281,000 and $366,000, respectively.
F-14
<PAGE>
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO FINANCIAL STATEMENTS
FISCAL YEARS ENDED JUNE 30, 1995, 1996 AND 1997
(INFORMATION AS OF SEPTEMBER 30, 1997 AND
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
9. CONTINGENCIES
The semiconductor industry is characterized by frequent claims and related
litigation regarding patent and other intellectual property rights. The
Company is party to one claim of this nature. Although the ultimate outcome of
this matter is not presently determinable, management believes that the
resolution of this matter will not have a material adverse effect on the
Company's financial position or results of operations.
10. MAJOR CUSTOMERS AND FOREIGN SALES
In fiscal 1995, two customers accounted for 12% and 11% of net product
sales, respectively, and one customer represented 21% of trade accounts
receivable at June 30, 1995. In fiscal 1996, two customers accounted for 20%
and 16% of net revenues, respectively, and three customers represented 14%,
11%, and 10% of trade accounts receivable at June 30, 1996. In fiscal 1997,
two customers accounted for 17% and 14% of net revenues, respectively, and two
customers represented 12% and 11% of trade accounts receivable, respectively,
at June 30, 1997. For the three months ended September 30, 1997, no customer
accounted for greater than 10% of net revenues, and one customer represented
10% of trade accounts receivable at September 30, 1997.
Total export sales represented approximately 35%, 30%, 37% and 42% of net
revenues in fiscal years 1995, 1996 and 1997 and the three months ended
September 30, 1997, respectively. Export sales to Asia were approximately 27%,
22%, 26% and 34% of net revenues in fiscal years 1995, 1996 and 1997 and the
three months ended September 30, 1997, respectively. Export sales to Europe
were approximately 11% in fiscal 1997 and were less than 10% in fiscal years
1995 and 1996 and the three months ended September 30, 1997.
11. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) tax-deferred savings plan under which eligible
employees may elect to have a portion of their salary deferred and contributed
to the plan. Employer matching contributions are determined by the Board of
Directors and are discretionary. There were no employer matching contributions
in fiscal 1995, 1996 or 1997.
F-15
<PAGE>
[Photo of an IC die]
Set forth on the left hand side of the inside back cover page is a
photo of an IC die, four areas of which are labeled as "ANALOG CELLS," "CORE
CELLS," "STANDARD CELLS," and "SEA OF GATES." The text under such photo reads:
"Pericom's products are designed with a modular methodology using a
combination of sea-of-gates arrays, standard cells, core cells and proprietary
analog cells. This methodology provides for the rapid design of interface
integrated circuits optimized for performance, density, low power and
manufacturability. The company's four-port FastEthernet PHY transceiver
product is designed with this innovative technology".
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, COMMON
STOCK IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PRO-
SPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 5
The Company............................................................... 14
Use of Proceeds........................................................... 14
Dividend Policy........................................................... 14
Capitalization............................................................ 15
Dilution.................................................................. 16
Selected Financial Data................................................... 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 18
Business.................................................................. 25
Management................................................................ 45
Certain Transactions...................................................... 51
Principal and Selling Shareholders........................................ 52
Description of Capital Stock.............................................. 54
Shares Eligible for Future Sale........................................... 55
Underwriting.............................................................. 56
Legal Matters............................................................. 57
Experts................................................................... 57
Additional Information.................................................... 58
Index to Financial Statements............................................. F-1
</TABLE>
------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEAL-
ERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPEC-
TUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
================================================================================
================================================================================
2,500,000 Shares
[PERICOM LOGO APPEARS HERE]
Common Stock
----------------
PROSPECTUS
----------------
SoundView Financial Group, Inc.
Unterberg Harris
, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the Registrant in connection with the
distribution of the securities being registered, other than underwriting
discounts and commissions, are as follows:
<TABLE>
<CAPTION>
AMOUNT*
--------
<S> <C>
Securities and Exchange Commission Filing Fee................... $ 10,891
NASD Filing Fee................................................. 4,094
Nasdaq National Market Listing Fee.............................. 42,247
Accounting Fees and Expenses.................................... 105,000
Blue Sky Fees and Expenses...................................... 7,500
Legal Fees and Expenses......................................... 150,000
Transfer Agent and Registrar Fees and Expenses.................. 7,000
Directors' and Officers' Liability Insurance Premium............ 95,000
Printing Expenses............................................... 115,000
Miscellaneous Expenses.......................................... 63,268
--------
Total......................................................... $600,000
========
</TABLE>
- --------
* All amounts are estimates except the SEC filing fee and the NASD filing
fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 317 of the California Corporations Code, the Registrant has
broad powers to indemnify its directors and officers against liabilities they
may incur in such capacities, including liabilities under the Securities Act.
The Registrant's Bylaws also provide for mandatory indemnification of its
directors and executive officers and permissive indemnification of its
employees and agents, to the fullest extent permissible under California law.
The Registrant's Articles of Incorporation provide that the liability of its
directors for monetary damages shall be eliminated to the fullest extent
permissible under California law. Pursuant to California law, this includes
elimination of liability for monetary damages for breach of the directors'
fiduciary duty of care to the Registrant and its shareholders. These
provisions do not eliminate the directors' duty of care and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of non-
monetary relief will remain available under California law. In addition, each
director will continue to be subject to liability for breach of the director's
duty of loyalty to the Registrant, for acts or omissions not in good faith or
involving intentional misconduct, for knowing violations of law, for any
transaction from which the director derived an improper personal benefit, and
for payment of dividends or approval of stock repurchases or redemptions that
are unlawful under California law. The provision also does not affect a
director's responsibilities under any other laws, such as the federal
securities laws or state or federal environmental laws.
Prior to the effective date of this Registration Statement, the Registrant
intends to enter into agreements with its directors and certain of its
executive officers that require the Registrant to indemnify such persons
against expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred (including expenses of a derivative action) in connection
with any proceeding, whether actual or threatened, to which any such person
may be made a party by reason of the fact that such person is or was a
director or officer of the Registrant or any of its affiliated entities,
provided such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Registrant and, with respect to any criminal proceeding, had no reasonable
cause to believe his or her conduct was unlawful. The indemnification
agreements also set forth certain procedures that will apply in the event of a
claim for indemnification thereunder.
II-1
<PAGE>
The Registrant intends to obtain prior to the effective date of the
Registration Statement a policy of directors' and officers' liability
insurance that insures the Company's directors and officers against the cost
of defense, settlement or payment of a judgment under certain circumstances.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant
and its officers and directors for certain liabilities arising under the
Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since September 10, 1994, the Registrant has issued and sold the following
unregistered securities:
1. During the period, the Registrant granted stock options to employees,
directors and consultants under its 1990 Stock Option Plan and 1995 Stock
Option Plan covering an aggregate of 2,115,588 shares of the Registrant's
Common Stock, at exercise prices ranging from $1.20 to $7.80 per share.
<TABLE>
<CAPTION>
EXERCISE
QUARTER ENDED SHARES PRICE
------------- ------ --------
<S> <C> <C>
September 1994.................................... 332,750 $0.90 - $1.00
December 1994..................................... 0 N/A
March 1995........................................ 85,500 $1.20
June 1995......................................... 144,000 $1.44
September 1995.................................... 76,088 $2.40 - $5.80
December 1995..................................... 194,750 $5.00 - $6.00
March 1996........................................ 58,700 $5.00
June 1996......................................... 289,700 $3.80
September 1996.................................... 72,000 $2.40 - $3.80
December 1996..................................... 0 N/A
March 1997........................................ 231,575 $2.40
June 1997......................................... 200,250 $2.40
September 1997.................................... 406,575 $4.00 - $7.50
December 1997..................................... 23,700 $7.80
---------
Total......................................... 2,115,588
</TABLE>
2. During the period, the Registrant issued and sold an aggregate of
339,740 shares of its Common Stock to 45 employees for cash in the
aggregate amount of $227,737.40 upon exercise of stock options granted
pursuant to the Registrant's 1990 Stock Option Plan and 1995 Stock Option
Plan.
<TABLE>
<CAPTION>
QUARTER ENDED SHARES PROCEEDS
------------- ------ --------
<S> <C> <C>
September 1994....................................... 13,803 $ 2,760.50
December 1994........................................ 2,500 $ 1,500.00
March 1995........................................... 28,760 $ 7,522.90
June 1995............................................ 14,037 $ 5,078.30
September 1995....................................... 19,740 $ 16,196.24
December 1995........................................ 15,844 $ 10,087.85
March 1996........................................... 9,521 $ 6,650.40
June 1996............................................ 8,104 $ 10,669.80
September 1996....................................... 8,594 $ 10,312.80
December 1996........................................ 9,198 $ 7,451.60
March 1997........................................... 102,617 $ 38,735.26
June 1997............................................ 52,791 $ 54,952.15
September 1997....................................... 65,534 $ 58,080.10
December 1997........................................ 2,500 $ 500.00
------- -----------
Total............................................ 353,543 $230,497.90
</TABLE>
The sales and issuance of securities in the transactions described in
paragraphs 1 and 2 above were deemed to be exempt from registration under the
Securities Act by virtue of Rule 701 promulgated thereunder in that they were
offered and sold either pursuant to written compensatory benefit plans or
pursuant to a written contract relating to compensation, as provided by Rule
701.
II-2
<PAGE>
Appropriate legends were affixed to the stock certificates issued in the
above transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. No Underwriters were employed in any
of the above transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
The exhibits are as set forth in the Exhibit Index.
(b) FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts. See page II-6.
Schedules other than those listed above have been omitted since they are not
required or are not applicable or the required information is shown in the
financial statements or related notes. Columns omitted from schedules filed
have been omitted since the information is not applicable.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
The Registrant hereby undertakes that:
(1) For purposes of any liability under the Act, the information omitted
from the form of prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall
be deemed to be part of this Registration Statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of San
Jose, State of California on the 27th day of October, 1997.
PERICOM SEMICONDUCTOR CORPORATION
By /s/ Alex C. Hui
_________________________________
Alex C. Hui
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
_________ _____ ____
<S> <C> <C>
/s/ Alex C. Hui Chief Executive Officer, October 27, 1997
____________________________________ President and Director
Alex C. Hui (Principal Executive
Officer)
/s/ Patrick B. Brennan Vice President, Finance & October 27, 1997
____________________________________ Administration
Patrick B. Brennan (Principal Financial and
Accounting Officer)
/s/ John Chi-Hung Hui* Vice President, Technology October 27, 1997
____________________________________ and Director
John Chi-Hung Hui
/s/ Jeffrey Young* Director October 27, 1997
____________________________________
Jeffrey Young
/s/ Tay Thiam Song* Director October 27, 1997
____________________________________
Tay Thiam Song
</TABLE>
/s/ Alex C. Hui
*By: _____________________________
Alex C. Hui Attorney-in-Fact
II-4
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
To the Board of Directors and Stockholders of
Pericom Semiconductor Corporation:
We consent to the use in this Registration Statement No. 333-35327 of
Pericom Semiconductor Corporation (the "Company") on Form S-1 of our report
dated July 31, 1997 (October 23, 1997 as to the third and fourth sentences of
Note 1), appearing in the Prospectus, which is a part of this Registration
Statement, and to the references to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned
report also included the financial statement schedule of the Company, listed
in Item 16b. The financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
San Jose, California
October 27, 1997
II-5
<PAGE>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
---------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
- ------------------------ ------------ ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Accounts receivable
allowances
June 30,
1995.................. $ 606 $129 $-- $-- $ 735
1996.................. 735 870 -- -- 1,605
1997.................. 1,605 19 -- 426 1,198
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
------- --------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Restated Articles of Incorporation of the Registrant, as currently in
effect.
3.2* Form of Certificate of Amendment of Articles of Incorporation of the
Registrant, to be filed prior to the closing of the offering made
under this Registration Statement.
3.3* Registrant's Bylaws.
3.4* Form of Registrant's Certificate of Amendment of Bylaws.
4.1 Specimen certificate for Common Stock (in standard printer form, not
provided).
5.1 Opinion of Morrison & Foerster LLP.
10.1* Registrant's 1990 Stock Option Plan, including forms of Agreements
thereunder.
10.2* Registrant's 1995 Stock Option Plan, including forms of Agreements
thereunder.
10.3 Registrant's 1997 Employee Stock Purchase Plan, including forms of
Agreements thereunder.
10.4* Lease, dated November 29, 1993, by and between Orchard Investment
Company Number 510 as Landlord and Registrant as Tenant, as amended.
10.5* Common Stock Purchase Agreement, dated June 25, 1990, by and between
Alex C. Hui and the Registrant.
10.6* Common Stock Purchase Agreement, dated June 25, 1990, by and between
Chi-Hung Hui and the Registrant.
10.7* Series A Stock Purchase Agreement, dated July 10, 1990, by and among
the Registrant and the Investors listed on the signature pages
thereto.
10.8* Series B Stock Purchase Agreement, dated December 30, 1991, by and
among the Registrant and the Investors listed on the signature pages
thereto.
10.9* Series C Stock Purchase Agreement, dated July 21, 1993 by and among
the Registrant and the Investors listed on the signature pages
thereto.
10.10* Second Amended Investors Rights Agreement, dated July 21, 1993, by
and among the Registrant and the holders of Series A, Series B and
Series C Preferred Stock.
10.11* Form of Indemnification Agreement.
10.12* Agreement, dated March 17, 1995, by and between the Registrant and
Pericom Technology, Inc.
10.13*+ Agreement, dated February 28, 1996, by and between the Registrant and
Harris Corporation.
11.1* Statement regarding calculation of net income per share.
23.1* Consent of Morrison & Foerster LLP. Reference is made to Exhibit 5.1.
23.2 Independent Auditors' Consent and Report on Schedule. Reference is
made to Page II-5.
24.1* Powers of Attorney.
27.1* Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
+ Confidential treatment has been requested as to a portion of this Exhibit.
<PAGE>
[LETTERHEAD OF MORRISON & FOERSTER LLP]
Pericom Semiconductor Corporation
2380 Bering Drive
San Jose, CA 95131
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form
S-1 filed by Pericom Semiconductor Corporation, a California corporation (the
"Company"), with the Securities and Exchange Commission on September 10,
1997 (Registration No. 333-35327) and Amendment No. 1 thereto filed October 14,
1997 (the "Registration Statement"), relating to the registration under the
Securities Act of 1933, as amended, of up to 2,875,000 shares of the Company's
common stock, no par value (the "Stock"), including up to _____ authorized but
unissued shares being offered by the Company and up to _______ presently
issued and outstanding shares being offered by certain selling shareholders
(the "Selling Shareholders") to be issued and sold by the Company or sold by
the Selling Shareholders. The Stock is to be sold to the underwriters named in
the Registration Statement for resale to the public.
As counsel to the Company, we have examined the proceedings taken by
the Company in connection with the proposed issuance and sale by the Company
of up to 2,375,000 shares of Stock. We have also examined the proceedings
taken by the Company in connection with the sale of up to 875,000 shares of
Stock that may be sold by the Selling Shareholders.
We are of the opinion that (a) the shares of Stock to be offered and
sold by the Company have been duly authorized and, when issued and sold by the
Company in the manner described in the Registration Statement and in
accordance with the resolutions adopted by the Board of Directors of the
Company, will be legally issued, fully paid and nonassessable, and (b) the
shares of Stock that may be sold by the Selling Shareholders ate legally and
validly issued, fully paid and nonassessable.
<PAGE>
Pericom Semiconductor Corporation
October 14, 1997
Page 2
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us in the Registration
Statement, the prospectus constituting a part thereof and any amendments
thereto.
Very truly yours,
/s/ Morrison & Foerster LLP
<PAGE>
EXHIBIT 10.3
PERICOM SEMICONDUCTOR CORPORATION
1997 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
The following constitute the provisions of the 1997 Employee Stock
Purchase Plan of Pericom Semiconductor Corporation.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Parents or Subsidiaries with an opportunity to
purchase Common Stock of the Company through accumulated payroll deductions. It
is the intention of the Company to have the Plan qualify as an "Employee Stock
Purchase Plan" under Section 423 of the Code. The provisions of the Plan,
accordingly, shall be construed so as to extend and limit participation in a
manner consistent with the requirements of that section of the Code.
2. Definitions. As used herein, the following definitions shall
-----------
apply:
(a) "Accrual Period" means a period of approximately three months,
--------------
commencing on February 1, May 1, August 1 and November 1 of each year and
terminating on the next following April 30, July 31, October 31 or January 31,
respectively; provided, however, that the first Accrual Period shall commence on
the Effective Date and shall end on April 30, 1998 and further provided that the
Accrual Period commencing on November 1, 1999 shall end on January 30, 2000.
(b) "Board" means the Board of Directors of the Company.
-----
(c) "Change in Control" means a change in ownership or control of the
-----------------
Company effected through the direct or indirect acquisition by any person or
related group of persons (other than an acquisition from or by the Company or by
a Company-sponsored employee benefit plan or by a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Company) of beneficial ownership (within the meaning of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended) of securities possessing more than
fifty percent (50%) of the total combined voting power of the Company's
outstanding securities.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Common Stock" means the common stock of the Company.
------------
(f) "Company" means Pericom Semiconductor Corporation, a California
-------
corporation.
(g) "Compensation" means an Employee's base salary from the Company or
------------
one or more Designated Parents or Subsidiaries, including such amounts of base
salary as are deferred by the Employee (i) under a qualified cash or deferred
arrangement described in Section 401(k) of the Code, or (ii) to a plan qualified
under Section 125 of the Code. Compensation does not include overtime, bonuses,
annual awards, other incentive payments, reimbursements or other expense
allowances, fringe benefits (cash or noncash), moving expenses, deferred
1
<PAGE>
compensation, contributions (other than contributions described in the first
sentence) made on the Employee's behalf by the Company or one or more Designated
Parents or Subsidiaries under any employee benefit or welfare plan now or
hereafter established, and any other payments not specifically referenced in the
first sentence.
(h) "Corporate Transaction" means any of the following stockholder-
---------------------
approved transactions to which the Company is a party:
(1) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of
which is to change the state in which the Company is incorporated;
(2) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the capital
stock of the Company's subsidiary corporations) in connection with
complete liquidation or dissolution of the Company; or
(3) any reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's outstanding
securities are transferred to a person or persons different from those
who held such securities immediately prior to such merger; provided
that if such merger is preceded by a Change in Control within six (6)
months of the merger, then a Corporate Transaction will be deemed to
have occurred if securities possessing more than fifty percent (50%)
of the total combined voting power of the Company's outstanding
securities are transferred pursuant to the merger to a person or
persons different from those who held such securities immediately
prior to such Change in Control.
(i) "Designated Parents or Subsidiaries" means the Parents or
----------------------------------
Subsidiaries which have been designated by the Plan Administrator from time to
time as eligible to participate in the Plan.
(j) "Effective Date" means the effective date of the Registration
--------------
Statement relating to the Company's initial public offering of its Common Stock.
However, should any Designated Parent or Subsidiary become a participating
company in the Plan after such date, then such entity shall designate a separate
Effective Date with respect to its employee-participants.
(k) "Employee" means any individual, including an officer or director,
--------
who is an employee of the Company or a Designated Parent or Subsidiary for
purposes of Section 423 of the Code. For purposes of the Plan, the employment
relationship shall be treated as continuing intact while the individual is on
sick leave or other leave of absence approved by the individual's employer.
Where the period of leave exceeds ninety (90) days and the individual's right to
reemployment is not guaranteed either by statute or by contract, the employment
relationship will be deemed to have terminated on the ninety-first (91st) day of
such leave, for purposes of determining eligibility to participate in the Plan.
2
<PAGE>
(l) "Enrollment Date" means the first day of each Purchase Period.
---------------
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(n) "Exercise Date" means the last day of each Accrual Period.
-------------
(o) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(1) Where there exists a public market for the Common Stock, the
Fair Market Value shall be (A) the closing price for a share of Common
Stock for the last market trading day prior to the time of the
determination (or, if no closing price was reported on that date, on
the last trading date on which a closing price was reported) on the
stock exchange determined by the Plan Administrator to be the primary
market for the Common Stock or the Nasdaq National Market, whichever
is applicable or (B) if the Common Stock is not traded on any such
exchange or national market system, the average of the closing bid and
asked prices of a share of Common Stock on the Nasdaq Small Cap Market
for the day prior to the time of the determination (or, if no such
prices were reported on that date, on the last date on which such
prices were reported), in each case, as reported in The Wall Street
Journal or such other source as the Plan Administrator deems reliable;
or
(2) In the absence of an established market of the type described
in (1), above, for the Common Stock, and subject to (3), below, the
Fair Market Value thereof shall be determined by the Plan
Administrator in good faith; or
(3) On the Effective Date, the Fair Market Value shall be the
price at which the Board, or if applicable, the Pricing Committee of
the Board, and the underwriters agree to offer the Common Stock to the
public in the initial public offering of the Common Stock, net of
discounts and underwriting commissions.
(p) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(q) "Participant" means an Employee of the Company or Designated
-----------
Parent or Subsidiary who is actively participating in the Plan.
(r) "Plan" means this Employee Stock Purchase Plan.
----
(s) "Plan Administrator" means either the Board or a committee of the
------------------
Board that is responsible for the administration of the Plan.
(t) "Purchase Period" means a purchase period established pursuant to
---------------
Section 4 hereof.
3
<PAGE>
(u) "Purchase Price" shall mean an amount equal to 85% of the Fair
--------------
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(v) "Reserves" means the number of shares of Common Stock covered by
--------
each option under the Plan which have not yet been exercised and the number of
shares of Common Stock which have been authorized for issuance under the Plan
but not yet placed under option.
(w) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Eligibility.
-----------
(a) General. Any individual who is an Employee on a given Enrollment
-------
Date shall be eligible to participate in the Plan for the Purchase Period
commencing with such Enrollment Date.
(b) Limitations on Grant and Accrual. Any provisions of the Plan to
--------------------------------
the contrary notwithstanding, no Employee shall be granted an option under the
Plan (i) if, immediately after the grant, such Employee (taking into account
stock owned by any other person whose stock would be attributed to such Employee
pursuant to Section 424(d) of the Code) would own stock and/or hold outstanding
options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or of any
Parent or Subsidiary, or (ii) which permits his/her rights to purchase stock
under all employee stock purchase plans of the Company and its Parents or
Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the Fair Market Value of the shares at
the time such option is granted) for each calendar year in which such option is
outstanding at any time. The determination of the accrual of the right to
purchase stock shall be made in accordance with Section 423(b)(8) of the Code
and the regulations thereunder.
(c) Other Limits on Eligibility. Notwithstanding Subsection (a),
---------------------------
above, the following Employees shall not be eligible to participate in the Plan
for any relevant Purchase Period: (i) Employees whose customary employment is 20
hours or less per week; (ii) Employees whose customary employment is for not
more than 5 months in any calendar year; and (iii) Employees who are subject to
rules or laws of a foreign jurisdiction that prohibit or make impractical the
participation of such Employees in the Plan.
4. Purchase Periods.
----------------
(a) The Plan shall be implemented through overlapping or consecutive
Purchase Periods until such time as (i) the maximum number of shares of Common
Stock available for issuance under the Plan shall have been purchased or (ii)
the Plan shall have been sooner terminated in accordance with Section 19 hereof.
The maximum duration of a Purchase Period shall be twenty-seven (27) months.
Initially, the Plan shall be implemented through
4
<PAGE>
overlapping Purchase Periods of twenty-four (24) months' duration commencing
each February 1, May 1, August 1 and November 1 following the Effective Date
(except that the initial Purchase Period shall commence on the Effective Date
and shall end on January 30, 2000). The Plan Administrator shall have the
authority to change the length of any Purchase Period and the length of Accrual
Periods within any such Purchase Period subsequent to the initial Purchase
Period by announcement at least thirty (30) days prior to the commencement of
the Purchase Period and to determine whether subsequent Purchase Periods shall
be consecutive or overlapping.
(b) A Participant shall be granted a separate option for each Purchase
Period in which he/she participates. The option shall be granted on the
Enrollment Date and shall be automatically exercised in successive installments
on the Exercise Dates ending within the Purchase Period.
(c) An Employee may participate in only one Purchase Period at a time.
Accordingly, except as provided in Section 4(d), an Employee who wishes to join
a new Purchase Period must withdraw from the current Purchase Period in which
he/she is participating and must also enroll in the new Purchase Period prior to
the Enrollment Date for that Purchase Period.
(d) If on the first day of any Accrual Period in a Purchase Period in
which a Participant is participating, the Fair Market Value of the Common Stock
is less than the Fair Market Value of the Common Stock on the Enrollment Date of
the Purchase Period (after taking into account any adjustment during the
Purchase Period pursuant to Section 18(a)), the Purchase Period shall be
terminated automatically and the Participant shall be enrolled automatically in
the new Purchase Period which has its first Accrual Period commencing on that
date, provided the Participant is eligible to participate in the Plan on that
date and has not elected to terminate participation in the Plan.
(e) Except as specifically provided herein, the acquisition of Common
Stock through participation in the Plan for any Purchase Period shall neither
limit nor require the acquisition of Common Stock by a Participant in any
subsequent Purchase Period.
5. Participation.
-------------
(a) An eligible Employee may become a Participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the designated payroll office of
the Company at least ten (10) business days prior to the Enrollment Date for the
Purchase Period in which such participation will commence, unless a later time
for filing the subscription agreement is set by the Plan Administrator for all
eligible Employees with respect to a given Purchase Period.
(b) Payroll deductions for a Participant shall commence with the first
payroll period following the Enrollment Date and shall end on the last complete
payroll period during the Purchase Period, unless sooner terminated by the
Participant as provided in Section 10.
5
<PAGE>
6. Payroll Deductions.
------------------
(a) At the time a Participant files his/her subscription agreement,
he/she shall elect to have payroll deductions made during the Purchase Period in
an amount not exceeding ten percent (10%) of the Compensation which he/she
receives during the Purchase Period.
(b) All payroll deductions made for a Participant shall be credited to
his/her account under the Plan and will be withheld in whole percentages only.
A Participant may not make any additional payments into such account.
(c) A Participant may discontinue his/her participation in the Plan as
provided in Section 10, or may decrease the rate of his/her payroll deductions
during the Purchase Period by completing and filing with the Company a new
subscription agreement authorizing a decrease in the payroll deduction rate.
The decrease in rate shall be effective with the first full payroll period
commencing ten (10) business days after the Company's receipt of the new
subscription agreement unless the Company elects to process a given change in
participation more quickly. A Participant may increase the rate of his/her
payroll deductions for a future Purchase Period by filing with the Company a new
subscription agreement authorizing an increase in the payroll deduction rate
within ten (10) business days (unless the Company elects to process a given
change in participation more quickly) before the commencement of the upcoming
Purchase Period. A Participant's subscription agreement shall remain in effect
for successive Purchase Periods unless terminated as provided in Section 10.
The Plan Administrator shall be authorized to limit the number of payroll
deduction rate changes during any Purchase Period.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) herein, a Participant's
payroll deductions may be decreased to 0% at such time during any Accrual Period
which is scheduled to end during the current calendar year (the "Current Accrual
Period") that the aggregate of all payroll deductions which were previously used
to purchase stock under the Plan in a prior Accrual Period which ended during
that calendar year plus all payroll deductions accumulated with respect to the
Current Accrual Period equal $21,250. Payroll deductions shall recommence at
the rate provided in such Participant's subscription agreement at the beginning
of the first Accrual Period which is scheduled to end in the following calendar
year, unless terminated by the Participant as provided in Section 10.
7. Grant of Option. On the Enrollment Date, each Participant in
---------------
such Purchase Period shall be granted an option to purchase on each Exercise
Date of such Purchase Period (at the applicable Purchase Price) up to a number
of shares of the Common Stock determined by dividing such Participant's payroll
deductions accumulated prior to such Exercise Date and retained in the
Participant's account as of the Exercise Date by the applicable Purchase Price;
provided (i) that such purchase shall be subject to the limitations set forth in
Sections 3(b) and 12 hereof, and (ii) the maximum number of shares of Common
Stock a Participant shall be permitted to purchase in any Accrual Period shall
be 500 shares, subject to adjustment as provided in Section 18 hereof.
Exercise of the option shall occur as provided in Section 8, unless
6
<PAGE>
the Participant has withdrawn pursuant to Section 10, and the option, to the
extent not exercised, shall expire on the last day of the Purchase Period.
8. Exercise of Option. Unless a Participant withdraws from the Plan
------------------
as provided in Section 10, below, his/her option for the purchase of shares will
be exercised automatically on each Exercise Date, and the maximum number of full
shares subject to the option shall be purchased for such Participant at the
applicable Purchase Price with the accumulated payroll deductions in his/her
account. No fractional shares will be purchased; any payroll deductions
accumulated in a Participant's account which are not sufficient to purchase a
full share shall be carried over to the next Accrual Period or Purchase Period,
whichever applies, or returned to the Participant, if the Participant withdraws
from the Plan. Any amount remaining in a Participant's account following the
purchase of shares on the Exercise Date which exceeds the cost of one full share
of Common Stock on the Exercise Date shall be returned to the Participant and
shall not be carried over to the next Purchase Period. During a Participant's
lifetime, a Participant's option to purchase shares hereunder is exercisable
only by him/her.
9. Delivery. Upon receipt of a request from a Participant after
--------
each Exercise Date on which a purchase of shares occurs, the Company shall
arrange the delivery to such Participant, as promptly as practicable, of a
certificate representing the shares purchased upon exercise of his/her option.
10. Withdrawal; Termination of Employment.
-------------------------------------
(a) A Participant may withdraw all but not less than all the payroll
deductions credited to his/her account and not yet used to exercise his/her
option under the Plan at any time by giving written notice to the Company in the
form of Exhibit B to this Plan. All of the Participant's payroll deductions
credited to his/her account will be paid to such Participant as promptly as
practicable after receipt of notice of withdrawal, such Participant's option for
the Purchase Period will be automatically terminated, and no further payroll
deductions for the purchase of shares will be made during the Purchase Period.
If a Participant withdraws from a Purchase Period, payroll deductions will not
resume at the beginning of the succeeding Purchase Period unless the Participant
delivers to the Company a new subscription agreement.
(b) Upon a Participant's ceasing to be an Employee for any reason or
upon termination of a Participant's employment relationship (as described in
Section 2(j)), the payroll deductions credited to such Participant's account
during the Purchase Period but not yet used to exercise the option will be
returned to such Participant or, in the case of his/her death, to the person or
persons entitled thereto under Section 14, and such Participant's option will be
automatically terminated.
11. Interest. No interest shall accrue on the payroll deductions
--------
credited to a Participant's account under the Plan.
7
<PAGE>
12. Stock.
-----
(a) The maximum number of shares of Common Stock which shall be made
available for sale under the Plan shall be 300,000 shares, subject to adjustment
upon changes in capitalization of the Company as provided in Section 18. If on
a given Exercise Date the number of shares with respect to which options are to
be exercised exceeds the number of shares then available under the Plan, the
Plan Administrator shall make a pro rata allocation of the shares remaining
available for purchase in as uniform a manner as shall be practicable and as it
shall determine to be equitable.
(b) A Participant will have no interest or voting right in shares
covered by his/her option until such shares are actually purchased on the
Participant's behalf in accordance with the applicable provisions of the Plan.
No adjustment shall be made for dividends, distributions or other rights for
which the record date is prior to the date of such purchase.
(c) Shares to be delivered to a Participant under the Plan will be
registered in the name of the Participant or in the name of the Participant and
his/her spouse.
13. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all persons.
14. Designation of Beneficiary.
--------------------------
(a) Each Participant will file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the Participant's account
under the Plan in the event of such Participant's death. If a Participant is
married and the designated beneficiary is not the spouse, spousal consent shall
be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the Participant
(and his/her spouse, if any) at any time by written notice. In the event of the
death of a Participant and in the absence of a beneficiary validly designated
under the Plan who is living at the time of such Participant's death, the
Company shall deliver such shares and/or cash to the executor or administrator
of the estate of the Participant, or if no such executor or administrator has
been appointed (to the knowledge of the Plan Administrator), the Plan
Administrator, in its discretion, may deliver such shares and/or cash to the
spouse or to any one or more dependents or relatives of the Participant, or if
no spouse, dependent or relative is known to the Plan Administrator, then to
such other person as the Plan Administrator may designate.
15. Transferability. Neither payroll deductions credited to a
---------------
Participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the Participant. Any
8
<PAGE>
such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Plan Administrator may treat such act as an
election to withdraw funds from a Purchase Period in accordance with Section 10.
16. Use of Funds. All payroll deductions received or held by the
------------
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each
-------
Participant in the Plan. Statements of account will be given to Participants at
least annually, which statements will set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
18. Adjustments Upon Changes in Capitalization; Corporate
-----------------------------------------------------
Transactions.
- ------------
(a) Adjustments Upon Changes in Capitalization. Subject to any
------------------------------------------
required action by the stockholders of the Company, the Reserves, as well as the
Purchase Price, shall be proportionately adjusted for any increase or decrease
in the number of issued shares of Common Stock resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, or any other similar event resulting in an increase or decrease in
the number of issued shares of Common Stock. Such adjustment shall be made by
the Plan Administrator, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an option. The Plan Administrator may, if it so determines in the exercise
of its sole discretion, make provision for adjusting the Reserves, as well as
the price per share of Common Stock covered by each outstanding option, in the
event the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock.
(b) Corporate Transactions. In the event of a proposed Corporate
----------------------
Transaction, each option under the Plan shall be assumed or an equivalent option
shall be substituted by such successor corporation or a parent or subsidiary of
such successor corporation, unless the Plan Administrator determines, in the
exercise of its sole discretion and in lieu of such assumption or substitution,
to shorten the Purchase Period then in progress by setting a new Exercise Date
(the "New Exercise Date"). If the Plan Administrator shortens the Purchase
Period then in progress in lieu of assumption or substitution in the event of a
Corporate Transaction, the Plan Administrator shall notify each Participant in
writing, at least ten (10) days prior to the New Exercise Date, that the
Exercise Date for his/her option has been changed to the New Exercise Date and
that his/her option will be exercised automatically on the New Exercise Date,
unless prior to such date he/she has withdrawn from the Purchase Period as
provided in Section 10. For purposes of this Subsection, an option granted
under the Plan shall be deemed to be assumed if, following the Corporate
Transaction, the option confers the right to purchase, for each share of Common
Stock subject to the option immediately prior to the Corporate Transaction, the
9
<PAGE>
consideration (whether stock, cash or other securities or property) received in
the Corporate Transaction by holders of Common Stock for each share of Common
Stock held on the effective date of the Corporate Transaction (and if such
holders were offered a choice of consideration, the type of consideration chosen
by the holders of a majority of the outstanding shares of Common Stock);
provided, however, that if such consideration received in the Corporate
Transaction was not solely common stock of the successor corporation or its
Parent, the Plan Administrator may, with the consent of the successor
corporation and the Participant, provide for the consideration to be received
upon exercise of the option to be solely common stock of the successor
corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the Corporate Transaction.
19. Amendment or Termination.
------------------------
(a) The Plan Administrator may at any time and for any reason
terminate or amend the Plan. Except as provided in Section 18, no such
termination can affect options previously granted, provided that a Purchase
Period may be terminated by the Plan Administrator on any Exercise Date if the
Plan Administrator determines that the termination of the Plan is in the best
interests of the Company and its stockholders. Except as provided in Section
18, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any Participant. To the extent necessary to
comply with Section 423 of the Code (or any successor rule or provision or any
other applicable law or regulation), the Company shall obtain stockholder
approval in such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
Participant rights may be considered to have been "adversely affected," the Plan
Administrator shall be entitled to change the Purchase Periods, limit the
frequency and/or number of changes in the amount withheld during Purchase
Periods, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, establish additional terms, conditions, rules
or procedures to accommodate the rules or laws of applicable foreign
jurisdictions, permit payroll withholding in excess of the amount designated by
a Participant in order to adjust for delays or mistakes in the Company's
processing of properly completed withholding elections, establish reasonable
waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of Common Stock for each
Participant properly correspond with amounts withheld from the Participant's
Compensation, and establish such other limitations or procedures as the Plan
Administrator determines in its sole discretion advisable and which are
consistent with the Plan.
20. Notices. All notices or other communications by a Participant to
-------
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Plan Administrator at the
location, or by the person, designated by the Plan Administrator for the receipt
thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign,
10
<PAGE>
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance. As a condition to the exercise of an option, the Company may
require the Participant to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law. In addition, no options shall be
exercised or shares issued hereunder before the Plan shall have been approved by
stockholders of the Company as provided in Section 23.
22. Term of Plan. The Plan shall become effective upon the earlier
------------
to occur of its adoption by the Board or its approval by the stockholders of the
Company. It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 19.
23. Stockholder Approval. Continuance of the Plan shall be subject
--------------------
to approval by the stockholders of the Company within twelve (12) months before
or after the date the Plan is adopted. If such stockholder approval is obtained
at a duly held stockholders' meeting, the Plan must be approved by a majority of
the votes cast at such stockholders' meeting at which a quorum representing a
majority of all outstanding voting stock of the Company is, either in person or
by proxy, present and voting on the Plan. If such stockholder approval is
obtained by written consent, it must be obtained by the written consent of the
holders of a majority of all outstanding voting stock of the Company. However,
approval at a meeting or by written consent may be obtained by a lesser degree
of stockholder approval if the Plan Administrator determines, in its discretion
after consultation with the Company's legal counsel, that such a lesser degree
of stockholder approval will comply with all applicable laws and will not
adversely affect the qualification of the Plan under Section 423 of the Code.
24. No Employment Rights. The Plan does not, directly or indirectly,
--------------------
create any right for the benefit of any employee or class of employees to
purchase any shares under the Plan, or create in any employee or class of
employees any right with respect to continuation of employment by the Company or
a Designated Parent or Subsidiary, and it shall not be deemed to interfere in
any way with such employer's right to terminate, or otherwise modify, an
employee's employment at any time.
25. Effect of Plan. The provisions of the Plan shall, in accordance
--------------
with its terms, be binding upon, and inure to the benefit of, all successors of
each Participant, including, without limitation, such Participant's estate and
the executors, administrators or trustees thereof, heirs and legatees, and any
receiver, trustee in bankruptcy or representative of creditors of such
Participant.
26. Applicable Law. The laws of the State of California (excluding
--------------
that body of law pertaining to its conflicts of law) will govern all matters
relating to this Plan except to the extent it is superseded by the laws of the
United States.
11
<PAGE>
EXHIBIT A
---------
PERICOM SEMICONDUCTOR CORPORATION
1997 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
___ Original Application Enrollment Date:_____________
___ Change in Payroll Deduction Rate
___ Change of Beneficiary(ies)
1. I,________________________, hereby elect to participate in the
Pericom Semiconductor Corporation 1997 Employee Stock Purchase Plan (the
"Employee Stock Purchase Plan") and subscribe to purchase shares of the
Company's Common Stock in accordance with this Subscription Agreement and the
Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the
amount of ______% of my Compensation on each payday (not to exceed 10%) during
the Purchase Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that the payroll deductions shall be accumulated for
the purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I understand
that if I do not withdraw from a Purchase Period, any accumulated payroll
deductions will be used to automatically exercise my option.
4. I have received a copy of the complete "Pericom Semiconductor
Corporation 1997 Employee Stock Purchase Plan." I understand that my
participation in the Employee Stock Purchase Plan is in all respects subject to
the terms of the Plan. I understand that the grant of the option by the Company
under this Subscription Agreement is subject to obtaining stockholder approval
of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan
should be issued in the name(s) of:
_________________________________
_________________________________
6. I understand that if I dispose of any shares received by me
pursuant to the Employee Stock Purchase Plan within two (2) years after the
Enrollment Date (the first day of the Purchase Period during which I purchased
such shares) or within one (1) year after the Exercise Date (the date I
purchased such shares), I will be treated for federal income tax purposes as
having received ordinary income at the time of such disposition in an amount
equal to the excess of the fair market value of the shares on the date such
shares were purchased for me over
12
<PAGE>
the price which I paid for the shares. I hereby agree to notify the Company in
---------------------------------------
writing within 30 days after the date of any such disposition and I will make
- -----------------------------------------------------------------------------
adequate provision for foreign, federal, state or other tax withholding
- -----------------------------------------------------------------------
obligations, if any which arise upon the disposition of the Common Stock. The
- ------------------------------------------------------------------------
Company may, but will not be obligated to, withhold from my compensation the
amount necessary to meet any applicable withholding obligation including any
withholding necessary to make available to the Company any tax deductions or
benefits attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the 2-year and 1-year
holding periods described above, I understand that I will be treated for federal
income tax purposes as having received income only at the time of such
disposition, and that such income will be taxed as ordinary income only to the
extent of an amount equal to the lesser of (1) the excess of the fair market
value of the shares at the time of such disposition over the purchase price
which I paid for the shares, or (2) 15% of the fair market value of the shares
on the first day of the Purchase Period. The remainder of the gain, if any,
recognized on such disposition will be taxed as long-term capital gain. I also
understand that the foregoing income tax consequences are based on current
federal income tax law and that the Company is not responsible for advising me
of any changes in the applicable tax rules.
7. I hereby agree to be bound by the terms of the Employee Stock
Purchase Plan. The effectiveness of this Subscription Agreement is dependent
upon my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the Employee
Stock Purchase Plan.
NAME: (Please print) _________________________________________________
(First) (Middle) (Last)
Relationship: _________________________________________________
Address: _________________________________________________
_________________________________________________
_________________________________________________
Employee's Social
Security Number: _________________________________________________
Employee's Home Address: _________________________________________________
_________________________________________________
_________________________________________________
13
<PAGE>
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE PURCHASE PERIODS UNLESS TERMINATED BY ME
Employee's Signature: ____________________________________________________
Dated: ____________________________________________________
Signature of spouse
if beneficiary is other
than spouse: ____________________________________________________
Dated: ____________________________________________________
14
<PAGE>
EXHIBIT B
PERICOM SEMICONDUCTOR CORPORATION
1997 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
NOTICE OF WITHDRAWAL
The undersigned Participant in the Purchase Period of the Pericom
Semiconductor Corporation 1997 Employee Stock Purchase Plan which began on
_________________, 19___, hereby notifies the Company that he or she hereby
withdraws from the Purchase Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his/her account with respect to such Purchase Period. The
undersigned understands and agrees that his/her option for such Purchase Period
will be automatically terminated. The undersigned understands further that no
further payroll deductions will be made for the purchase of shares in the
current Purchase Period and the undersigned shall be eligible to participate in
succeeding Purchase Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address
of Participant: ________________________________________________
________________________________________________
________________________________________________
Signature: ________________________________________________
Date: ________________________________________________
15
