<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 13, 1995.
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
CHIPS AND TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 77-0047943
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
2950 ZANKER ROAD
SAN JOSE, CALIFORNIA 95134
(408) 434-0600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JAMES F. STAFFORD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CHIPS AND TECHNOLOGIES, INC.
2950 ZANKER ROAD
SAN JOSE, CALIFORNIA 95134
(408) 434-0600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
J. HOWARD CLOWES, ESQ. GORDON K. DAVIDSON, ESQ.
BRADLEY J. ROCK, ESQ. DENNIS R. DEBROECK, ESQ.
REBECCA K. SCHMITT, ESQ. ADAM W. WEGNER, ESQ.
WILLIAM A. RODONI, ESQ. TRAM T. PHI, ESQ.
GRAY CARY WARE & FREIDENRICH, FENWICK & WEST
A PROFESSIONAL CORPORATION TWO PALO ALTO SQUARE
400 HAMILTON AVENUE PALO ALTO, CALIFORNIA 94306
PALO ALTO, CALIFORNIA 94301
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
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. / /
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING PRICE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED (1) PER SHARE (2) (2) REGISTRATION FEE
<S> <C> <C> <C> <C>
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Common Stock ($.01 par value) 3,852,500 shares $11.9375 $45,989,218 $15,859
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</TABLE>
(1) Includes 350,000 shares to be sold on behalf of a selling stockholder and
502,500 shares issuable upon exercise of an option granted by the Company to
the Underwriters to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457 under the Securities Act of 1933 and based on the
average of the high and low prices of the Registrant's Common Stock as
reported on the Nasdaq National Market on October 11, 1995.
------------------------
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.
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<PAGE> 2
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 13, 1995
PROSPECTUS
3,350,000 SHARES
LOGO
COMMON STOCK
Of the 3,350,000 shares of Common Stock offered hereby, 3,000,000 shares
are being sold by the Company and 350,000 are being sold by a Selling
Stockholder. The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholder. See "Principal and Selling Stockholders." The
Company's Common Stock is quoted on the Nasdaq National Market under the symbol
CHPS. On October 11, 1995, the last reported sale price for the Common Stock was
$11.625 per share. See "Price Range of Common Stock."
------------------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" ON
PAGE 5.
------------------------
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.
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<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) STOCKHOLDER
<S> <C> <C> <C> <C>
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Per Share................. $ $ $ $
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Total (3)................. $ $ $ $
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</TABLE>
(1) See "Underwriting" for indemnification arrangements with the several
underwriters.
(2) Before deducting expenses payable by the Company estimated at $275,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 502,500 additional shares of Common Stock solely to cover
over-allotments, if any. If all shares are purchased, the total Price to
Public, Underwriting Discount and Proceeds to the Company will be
$ , $ and $ , respectively. See "Underwriting".
------------------------
The shares of Common Stock are offered by the Underwriters subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about November , 1995 at the office of the agent of
Hambrecht & Quist LLC in New York, New York.
HAMBRECHT & QUIST
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
November , 1995
<PAGE> 3
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Reports, proxy statements and other information filed by the
Company can be inspected and copied (at prescribed rates) at the Commission's
Public Reference Section, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, as well as the New York Regional Office, Seven World Trade Center, Suite
1300, New York, New York 10048, and the Chicago Regional Office, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Quotations relating to the
Company's Common Stock appear on the Nasdaq National Market and such reports,
proxy statements and other information concerning the Company can also be
inspected at the offices of the Nasdaq Stock Market, 1735 K Street, N.W.,
Washington, D.C. 20006.
Additional information regarding the Company and the shares offered hereby
is contained in the Registration Statement on Form S-3 and the exhibits thereto
filed with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"). For further information pertaining to the Company and the
shares, reference is made to the Registration Statement and the exhibits
thereto, which may be inspected without charge at, and copies thereof may be
obtained at prescribed rates from, the office of the Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated herein by reference: (i) the
Company's Annual Report on Form 10-K for the year ended June 30, 1995, as filed
with the Commission on September 22, 1995, (ii) the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1995, as filed with the
Commission on October 13, 1995 and (iii) the description of the Company's Common
Stock and rights associated therewith set forth in the Company's Registration
Statements on Form 8-A filed with the Commission on September 22, 1986 and
September 5, 1989.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of this offering shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement incorporated by reference herein shall be deemed to be
modified or suspended for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or suspended, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request, a copy of any or all of
the foregoing documents incorporated by reference in this Prospectus. Requests
for such documents should be directed to Chips and Technologies, Inc., 2950
Zanker Road, San Jose, California 95134, (408) 434-0600.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMPANY'S COMMON STOCK ON THE NASDAQ NATIONAL MARKET
IN ACCORDANCE WITH RULE 10b-6A UNDER THE EXCHANGE ACT. SEE "UNDERWRITING."
Unified Architecture, TechBlock and Video Cache are trademarks of the
Company and the CHIPS logo and SuperState are registered trademarks of the
Company. This Prospectus also contains trademarks of other companies.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and related Notes
appearing elsewhere in, or incorporated by reference into, this Prospectus.
THE COMPANY
Chips and Technologies is a fabless supplier of highly integrated
semiconductor and software solutions which provide graphics, video and other
capabilities to portable and desktop personal computers. The Company has
achieved a leadership position in graphics accelerators for portable computers
by developing products which allow manufacturers to rapidly design graphics
subsystems that combine increased performance and high levels of functionality.
The Company provides graphics accelerators to most of the industry's leading
manufacturers of portable computers. The Company also provides a family of
semiconductor and related software solutions for desktop computers, including
core logic, I/O controllers and graphics accelerators. In addition, the Company
offers a single chip computer product for embedded and industrial control
applications. The Company's customers include Acer, Apple Computer, Fujitsu,
Gateway 2000, Hewlett-Packard, IBM, NEC, Siemens and Toshiba.
All of the Company's new products are designed using its modular
TechBlock(TM) design library, which the Company believes reduces product
development cycle time and will enable it to offer a broader variety of
products. The Company's next family of portable graphics accelerators is being
designed to bring desktop levels of graphics performance and video capabilities
to portable computers. This new family of products, to be introduced in fiscal
1996, will be based on a 64-bit graphics accelerator engine which provides full
motion video and MPEG playback capabilities. Drawing upon its broad range of
expertise in PC semiconductor technologies, the Company has also developed a
proprietary system architecture called Unified Architecture(TM). The Company is
developing Unified Architecture products which integrate graphics and video with
core logic and I/O functions in a single product, while eliminating the need for
the separate graphics memory used in existing system architectures. The Company
believes these products will provide desired levels of features and
functionality while allowing PC manufacturers to significantly reduce system
costs, and therefore will be well suited for the high volume desktop computer
market. The Company intends to introduce its first Unified Architecture product
for the desktop market in calendar 1996.
The Company provides complete hardware and software solutions, including
BIOS and device driver software. The Company seeks to reduce PC manufacturers'
time to market by maintaining software compatibility for each successive
generation of its products. The Company relies on third party manufacturers for
all of its manufacturing needs, and works closely with its foundry partners to
optimize process technologies. The Company has built long-term relationships
with leading foundry partners such as TSMC and Samsung. The Company is currently
negotiating agreements with two foundries to secure additional foundry capacity
in the future for advanced process technologies.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company..................... 3,000,000 shares
Common Stock offered by the Selling Stockholder......... 350,000 shares
Common Stock to be outstanding after the offering....... 23,279,928 shares (1)
Use of proceeds......................................... Deposits, loans or other
transactions to secure additional
wafer capacity; working capital and
other general corporate purposes
Nasdaq National Market symbol........................... CHPS
</TABLE>
- ---------------
(1) Based on shares outstanding as of September 30, 1995. Excludes approximately
4,021,747 shares of Common Stock issuable upon exercise of options
outstanding as of September 30, 1995 with a weighted average exercise price
of $7.21 per share. Also excludes 41,216 shares of Common Stock reserved for
issuance upon exercise of outstanding warrants with a weighted average
exercise price of $6.24 per share.
3
<PAGE> 5
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------
SEPT. DEC. MARCH JUNE SEPT.
30 31, 31, 30, 30,
1994 1994 1995 1995 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................. $20,373 $23,277 $27,231 $33,850 $37,219
Income from operations................ 1,200 2,500 2,283 3,765 4,552
Net income(1)......................... $ 1,256 $ 2,371 $ 2,109 $ 3,652 $ 4,428
Net income per share(1)............... $ 0.07 $ 0.13 $ 0.11 $ 0.18 $ 0.20
Shares used in per share
calculation......................... 17,020 19,967 20,290 20,614 22,168
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
---------------------------------- --------------------
1993 1994 1995 1994 1995
-------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales............................ $ 97,874 $73,444 $104,731 $20,373 $37,219
Income (loss) from operations........ (52,654) (1,077) 9,748 1,200 4,552
Net income (loss) (2)................ $(49,055) $ 2,714 $ 9,388 $ 1,256 $ 4,428
Net income (loss) per share (2)...... $ (3.13) $ 0.16 $ 0.47 $ 0.07 $ 0.20
Shares used in per share
calculation........................ 15,650 16,623 20,182 17,020 22,168
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
----------------------
AS
ACTUAL ADJUSTED(3)
------- -------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital..................................................... $60,821 $93,503
Total assets........................................................ 88,273 120,955
Long-term obligations............................................... 1,977 1,977
Total stockholders' equity.......................................... 70,005 102,687
</TABLE>
- ------------------------------
(1) Net income for the quarters ended September 30, 1994 and December 31, 1994
included credits of $372,000 and $1.1 million, respectively, associated with
the completion of and recoveries from fiscal 1993 restructuring activities.
There were no recoveries associated with the fiscal 1993 restructuring
activities for the quarters ended March 31, 1995, June 30, 1995 or September
30, 1995. Excluding these recoveries, net income would have been
approximately $884,000 and $1.3 million and net income per share would have
been approximately $0.05 and $0.07 per share for the quarters ended
September 30, 1994 and December 31, 1994, respectively.
(2) Net income (loss) for the year ended June 30, 1993 included charges of $23.3
million associated with restructuring the Company's operations. Net income
(loss) for the years ended June 30, 1994 and 1995 included credits of
$372,000 and $1.4 million, respectively, and net income (loss) for the
quarter ended September 30, 1994 included a credit of $372,000 all
associated with completion of and recoveries from the fiscal 1993
restructuring activities. In addition, net income (loss) for the year ended
June 30, 1994 included a $2.2 million income tax benefit reflecting the
reversal of previously established reserves as a result of resolving a
number of the Company's tax issues. Excluding these charges and credits, net
income (loss) and net income (loss) per share would have been approximately
$(25.8) million, $142,000 and $8.0 million, and $(1.65), $0.01 and $0.39 per
share for each of the years ended June 30, 1993, 1994 and 1995,
respectively, and $884,000 and $4.4 million and $0.05 and $0.20 per share
for the quarters ended September 30, 1994 and 1995, respectively.
(3) Gives effect to the receipt of the estimated net proceeds of this offering,
based on an assumed public offering price of $11.625 per share. See "Use of
Proceeds" and "Capitalization."
------------------------------
Except as otherwise noted, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option. See "Underwriting."
4
<PAGE> 6
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing the Common Stock offered by this Prospectus.
Fluctuations in Operating Results; History of Losses. The Company's
quarterly and annual operating results have been and will continue to be
affected by a wide variety of factors that could have a material adverse effect
on revenues and profitability during any particular period, including the level
of orders that are received and can be shipped in a quarter, the rescheduling or
cancellation of orders by its customers, gain or loss of any strategic
relationships or customers, availability and cost of foundry capacity and raw
materials, the Company's ability to predict product demand and manage its
inventory levels, fluctuations in manufacturing yields, the timing of
qualification of new foundries or foundry production lines, new product
introductions by the Company's competitors, the Company's ability and timing in
introducing new products and technologies, market acceptance of products of both
the Company and its customers, supply constraints and price or other
fluctuations for other components incorporated into its customers' products,
such as portable display screens and memory devices, competitive pressures on
selling prices, changes in product or customer mix, and the level of
expenditures for research and development and for selling, general and
administrative functions. In addition, the Company's operating results are
subject to fluctuations in the markets for its customers' products, which have
been extremely volatile in the past. A significant portion of the Company's
expenses is relatively fixed, and the timing of increases in expenses is based
in large part on the Company's forecast of future revenues. As a result, if
revenues do not meet the Company's expectations, it may be unable to reduce
expenses quickly, which could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company has
experienced losses and the need for significant business restructurings in the
past and there can be no assurance that the Company will not experience losses
in the future. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Dependence on Third Party Wafer Suppliers and Subcontractors. The Company
does not own or operate a wafer fabrication facility, and all of its
semiconductor device requirements are supplied by outside foundries. Currently,
substantially all of the Company's semiconductor products are manufactured by
two outside foundries, Taiwan Semiconductor Manufacturing Company ("TSMC") and
Samsung Semiconductor, Inc. ("Samsung"). In addition, all of the Company's
semiconductor products are assembled and tested by third party vendors,
primarily in Asia. The Company's reliance on subcontractors to manufacture,
assemble and test its products involves significant risks, including reduced
control over delivery schedules, quality assurance, manufacturing yields and
cost and potential misappropriation of the Company's intellectual property.
Delays in delivery of the Company's products, problems with quality or yields,
cost increases and other factors beyond the Company's control could result in
the loss of customers, limitations or reductions in the Company's revenues or
other material adverse effects on the Company's business, financial condition
and results of operations.
The Company's foundry suppliers also fabricate products for other companies
and may produce products of their own design. The Company does not presently
have long-term agreements with any of its foundry suppliers and purchases wafers
pursuant to purchase orders; however, two long-term foundry supply agreements
are currently under negotiation by the Company and other possible arrangements
are under consideration. In the absence of such agreements, the foundries
generally are not obligated to supply products to the Company for any specific
period, in any specific quantity or at any specific price, except as may be
provided in a particular purchase order. The foundries may allocate their
available manufacturing capacity to other customers or to their own products as
they determine to be in their best interests. Accordingly, the foundries may
give preference to their own products, to larger customers, or to customers that
have made equity or other investments in, or otherwise formed strategic
relationships with, such foundries. While the Company has not experienced any
material disruptions in supply to date, there can be no assurance that
manufacturing problems will not occur in the future or that capacity will be
available to meet the Company's requirements. Any material disruption in supply
or failure to secure an adequate supply of wafers could have a material adverse
effect on the Company's business, financial condition and results of operations.
5
<PAGE> 7
In the event that any of the Company's foundry suppliers are unable or
unwilling to continue to manufacture the Company's products in required volumes
or at prices acceptable to the Company, the Company will have to identify and
qualify acceptable additional or alternative foundries. No assurance can be
given that any alternative foundry would become available to the Company or that
any alternative foundry would be in a position to satisfy the Company's
production requirements on a timely basis, if at all. In connection with the
manufacture of its newer products, the Company also needs to obtain access to
and qualify new foundries or new production lines at established foundries that
employ advanced manufacturing and process technologies, which are currently
available from a limited number of foundries. The majority of the Company's
current products are implemented in 0.8 micron semiconductor process fabrication
technology; however, the Company expects that in the near future the majority of
its products will utilize 0.6 and 0.5 micron geometries in order to achieve high
performance and lower production costs. The Company is currently qualifying a
new foundry supplier and is in the process of qualifying certain of its products
at additional foundry suppliers and on new semiconductor process technology. The
qualification process can take six months or longer. The Company has in the past
experienced increased costs and delays in connection with the qualification of
new foundries or new production lines or processes at established foundries.
Failure to qualify and obtain adequate access to advanced process technologies
to supply products on a timely basis would delay product introduction and
delivery to the Company's customers. Delays, as well as cost increases or
quality problems resulting from the qualification of new foundries or new
production lines or processes at established foundries, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Potential Capacity Constraints; Capital Commitments to Obtain Capacity. The
semiconductor industry is experiencing worldwide capacity limitations on the
production of advanced semiconductor devices similar to those of the Company,
and access to wafer fabrication capacity is becoming increasingly difficult to
secure. The Company believes that available foundry manufacturing capacity is in
particularly short supply for advanced process geometries of 0.6 and 0.5 micron.
As a result of this capacity shortage, manufacturers may be able to raise prices
and to impose burdensome terms and conditions on their customers in exchange for
assurances of supply allocation. The Company is aware that many of its
competitors are engaging in long-term relationships with wafer foundries to
ensure the availability of sufficient manufacturing capacity, which may provide
them with a competitive advantage in the event of increasing demand on foundry
capacity. While the Company is not currently a party to any such arrangements,
the Company is currently negotiating agreements with two foundries to secure
additional foundry capacity and expects that such agreements, if concluded, will
require the Company to make advances, deposits or loans in an aggregate amount
of approximately $63 million, including up to $40 million during the next twelve
months. The Company expects to use substantially all of the proceeds of this
offering in making those advances, deposits or loans. See "Use of Proceeds."
These arrangements generally require the Company to make long-term purchase
commitments which would require the Company to pay the foundry for minimum
amounts of products, whether or not purchased. The Company may also be required
to enter into additional arrangements in the future. There can be no assurance
that the Company will consummate any such transactions, or if it does, that the
Company will be able to obtain production capacity to meet its demands. Any such
arrangements could require the Company to commit substantial capital and grant
licenses to its technology. The need to commit substantial capital may require
the Company to obtain additional debt or equity financing, which could result in
dilution to the Company's stockholders. There can be no assurance that such
additional financing, if required, will be available when needed or, if
available, will be obtained on terms acceptable to the Company. To the extent
the Company makes substantial commitments of capital to its foundry suppliers,
the Company incurs the cost of such capital and those financial resources become
unavailable to the Company for its working capital or other needs. In addition,
the Company faces additional financial risks in the event the Company does not
ultimately need or
6
<PAGE> 8
obtain the promised production capacity, whether because a foundry supplier
becomes insolvent or otherwise fails to perform, because of a shortfall in
demand for the Company's products relative to the committed production capacity,
or otherwise. Moreover, if added capacity or changing market conditions end the
current foundry capacity constraint, semiconductor suppliers with relatively
lower capital or other long-term commitments to foundry suppliers may have a
competitive advantage over the Company with respect to the price and other terms
on which they can obtain products. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
Dependence on New Product Development; Rapid Technological Change. The
personal computer component industry is subject to extreme price competition,
rapid technological change and evolving standards, resulting in short product
life cycles and continuous erosion of average selling prices. The Company's
success and operating results depend to a significant extent on its ability to
continue to successfully introduce new products on a timely basis at competitive
price and performance levels and to reduce costs of existing products. Because
of the complexity of its products, the Company has experienced delays from time
to time in completing development and introduction of new products. There can be
no assurance that products will be successfully developed, will achieve market
acceptance or that delays will not be encountered in the development and
introduction of future products, including the Company's Unified ArchitectureTM
products under development and other products currently expected to be announced
over the next year. See "Business -- Strategy." The failure of any products,
including the Company's products currently under development, to be successfully
introduced and achieve market acceptance could have a material adverse effect on
the Company's business, financial condition and results of operations. The
success of new product introductions is dependent on several factors, including
proper new product definition, product cost, timely completion and introduction
of new product designs, securing sufficient manufacturing capacity and achieving
acceptable yields, quality of new products, differentiation of new products from
those of the Company's competitors and market acceptance of the Company's and
its customers' products. In order to succeed in having the Company's products
incorporated into new products being designed by desktop and portable computer
manufacturers, the Company must anticipate market trends and performance and
functionality requirements of such manufacturers and must successfully develop
and manufacture products that meet these requirements. In addition, the Company
must meet the timing and price requirements of such manufacturers and must make
such products available in sufficient quantities. Accordingly, in selling to
such manufacturers, the Company can often incur significant expenditures prior
to volume sales of new products, if any. The Company expects significant
expenditures for research and development to be required in the future. There
can be no assurance that the Company will successfully identify new product
opportunities and develop and bring new products to market in a timely manner,
that products or technologies developed by others will not render the Company's
products or technologies obsolete or noncompetitive, or that the Company's
products will be selected for design into the products of its targeted
customers. The failure of any of the Company's new product development efforts
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company's products under development are complex semiconductor devices
that require extensive design and testing before prototypes can be manufactured.
The integration of a number of functions in a single chip or in a chipset
requires the use of advanced semiconductor manufacturing techniques. This can
result in chip redesigns if the initial design does not permit acceptable
manufacturing yields. The Company's portable graphics accelerator products are
designed for customers who in many instances have not yet fully defined their
computer systems products. Design delays or redesigns by these customers could
in turn delay completion or require redesign of the semiconductor devices needed
for the final hardware product. Redesigns or design delays often are required
for both the portable computer manufacturer's products and the Company's
semiconductor products as design specifications are determined. Any resulting
delay in the production of the Company's products could have a material adverse
effect on the Company's business, financial condition and results of operations.
Dependence on Single Product Line. In fiscal 1994 and 1995, revenues from
sales of the Company's family of portable graphics products represented 47% and
65%, respectively, of the Company's revenues. In the fiscal quarter ended
September 30, 1995, sales of portable graphics accelerator products increased to
7
<PAGE> 9
represent approximately 80% of the Company's net sales. The Company expects that
revenues from these products as a percentage of net sales may increase and will
continue to account for a significant majority of the Company's revenues for the
foreseeable future. Declines in the demand for the Company's portable graphics
accelerators, whether because of a reduction in demand for portable computers in
general, increased competition, or otherwise, would have a material adverse
effect on the Company's business, financial condition and results of operations.
Concentration of Customers; Factors Within Customers' Control. A limited
number of customers account for a substantial portion of the Company's net
sales. In fiscal 1995, Apple Computer, Inc. ("Apple") accounted for
approximately 13% of net sales. Gain Tune/World Peace, one of the Company's
distributors accounted for 10% of net sales and Inno Micro/Itochu ("Inno"), also
one of the Company's distributors, accounted for approximately 23% of net sales,
including 13% accounted for by Toshiba which purchases through Inno. In
addition, the Company's top ten customers, including five distributors,
accounted for approximately 73% of net sales. In the first quarter of fiscal
1996, Apple accounted for 26% of net sales, Inno accounted for 25% of net sales,
including 14% of net sales accounted for by Toshiba, and the Company's top ten
customers, including four distributors, accounted for 81% of net sales. The
Company expects that sales to a limited number of customers will continue to
account for a substantial portion of its net sales for the foreseeable future.
The Company relies on obtaining and maintaining design wins for its products
with leading personal computer manufacturers. Many factors affect and could
adversely impact design wins, including internal scheduling delays, choices of
features, aggressive competition and intangible factors affecting customer
relationships. To the extent that the Company is unable to retain existing
design wins or to acquire new design wins and the associated revenues generated
from them for the Company's existing and future products, there could be a
material adverse effect on the Company's business, financial condition and
results of operations.
Customer demand for the Company's products fluctuates, sometimes
dramatically, based on customers' buildup of internal inventory and product
transitions, among other things. While the Company makes an effort to be
informed of customers' expected demand for its products, customers from time to
time make unexpected changes in product purchasing forecasts and in existing
orders. The Company does not have long-term sale agreements with any of its
customers. The reduction, delay or cancellation of orders from one or more major
customers for any reason or the loss of one or more of such major customers
could materially and adversely affect the Company's business, financial
condition and results of operations. 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 not be canceled or will continue at the levels
of previous periods or that the Company will be able to obtain orders from new
customers. The Company currently places noncancelable orders to purchase its
products from independent foundries on an approximately three month rolling
basis, while its customers generally place purchase orders with the Company
fewer than four weeks prior to delivery which may be canceled without
significant penalty. Consequently, if anticipated sales and shipments in any
quarter are canceled or do not occur as quickly as expected, expense and
inventory levels could be disproportionately high and the Company's business,
financial condition and results of operations could be materially adversely
affected.
Competition. The markets in which the Company competes are intensely
competitive and are characterized by rapid technological change and price
erosion. Many of the Company's competitors have substantially greater financial
and other resources than the Company with which to pursue engineering,
manufacturing, marketing and distribution of their products. In the portable
graphics accelerator market, the Company's principal competitors are Cirrus
Logic, Inc. and Western Digital Corporation. In the core logic products market,
principal competitors are Intel Corporation, Opti and VLSI. The Company may in
the future also face increased competition from new entrants into its markets.
In particular, as the markets for the Company's products develop, competition
from large semiconductor manufacturing companies and from other fabless
semiconductor companies may increase significantly. The Company believes that
its ability to compete successfully in the rapidly evolving markets for graphics
accelerators depends on factors both within and outside of its control,
including, among others, the price, quality and performance of the Company's and
its competitors' products, the timing and success of new product introductions
by the Company, its customers and its competitors, the emergence of new
standards, the development of new technology, the ability to obtain
8
<PAGE> 10
adequate foundry capacity and sources of raw materials, the efficiency of
production, the number and nature of the Company's competitors in a given market
and the assertion of intellectual property rights. There is no assurance that
the Company will be able to compete successfully in the future. In addition, in
recent periods there has been a favorable pricing environment for PC components,
including the Company's graphics products; however, the PC semiconductor market
is characterized by price erosion and there can be no assurance that the Company
will not experience increased price competition, 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." The Company's competitors may aggressively price
alternative solutions to attempt to gain or maintain market position. To the
extent that the Company must reduce prices to meet competition, maintain market
share or meet customer requirements, gross margin percentages achieved in recent
periods may not be sustainable.
Dependence on Portable Computer Industry. Most of the Company's products
are sold for incorporation into portable and desktop computers. Therefore, the
Company is heavily dependent on the continued growth of the market for PCs.
While the market for PCs in general and portable computers in particular
has recently experienced substantial growth, the overall industry has
historically been cyclical and seasonal, and there can be no assurance that
growth will continue in future periods. A decline in demand for personal
computers, particularly portable computers, would result in a corresponding
decline in demand for the Company's products or acceleration of erosion of
average selling prices, which would have a material adverse effect on the
Company's business, financial condition and results of operations.
Future Capital Needs. The Company may have substantial ongoing capital
requirements to obtain wafer manufacturing capacity. See "Potential Capacity
Constraints; Capital Commitments to Obtain Capacity." In addition, in order to
remain competitive, the Company must continue to make significant investments in
research and development. The Company anticipates that its existing capital
resources, including bank borrowings, cash flow from operations and the net
proceeds of this offering, will be adequate to satisfy the Company's capital and
operating requirements for at least the next twelve months. The Company's future
capital requirements will depend on many factors, including, among others, the
extent to which the Company pursues additional wafer fabrication capacity from
existing or new foundry suppliers, product development, expansion of facilities
and acquisitions of complementary businesses, products or technologies. To the
extent that the funds generated by this offering, together with existing
resources and future earnings, are insufficient to fund the Company's
activities, the Company may need to raise additional funds through public or
private debt or equity financings. If additional funds are raised through the
issuance of equity securities, the percentage ownership of current stockholders
will be reduced, and such equity securities may have rights, preferences or
privileges senior to those of the holders of the Company's Common Stock. No
assurance can be given that additional financing will be available or that, if
available, it can be obtained on terms favorable to the Company and its
stockholders. If adequate funds are not available, the Company may be required
to delay, limit or eliminate some or all of its proposed operations. The failure
to obtain financing would also hinder the Company's ability to make continued
investments in capital equipment and gain access to wafer fabrication capacity,
which could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Manufacturing Yield Risks. The manufacture of semiconductors is a highly
complex and precise process. Minute levels of contaminants in the manufacturing
environment, defects in the masks used to print circuits on a wafer,
difficulties in the fabrication process or other factors can cause a substantial
percentage of wafers to be rejected or a significant number of die on each wafer
to be nonfunctional. Many of these problems are difficult to diagnose and time
consuming or expensive to remedy. The Company's products are particularly
complex and difficult to manufacture. There can be no assurance that the
Company's foundry suppliers will not experience irregularities or adverse yield
fluctuations in their manufacturing processes. Any yield or other production
problems or shortages of supply experienced by the Company or its foundry
suppliers could have a material adverse effect on the Company's business,
financial condition and results of operations.
Intellectual Property Protection and Disputes. The Company attempts to
protect its technology through a combination of patents, copyright and trade
secret laws, confidentiality procedures and licensing arrangements. To that end,
the Company has obtained certain patents and intends to continue to seek patents
on its
9
<PAGE> 11
technology when appropriate. There can be no assurance that patents will issue
from any of the Company's pending or future applications, or that any claims
allowed from existing, pending or future patents will be sufficiently broad or
strong to protect the Company's technology. While the Company intends to protect
its intellectual property rights vigorously, there can be no assurance that any
patents held by the Company will not be challenged, invalidated or circumvented,
or that the rights granted thereunder will provide competitive advantages to the
Company. In addition, the laws of certain countries in which the Company's
products are or may be developed, manufactured or sold, including various
countries in Asia, may not protect the Company's products and intellectual
property rights to the same extent as the laws of the United States and thus
make the possibility of piracy of the Company's technology and products more
likely. There can be no assurance that the steps taken by the Company to protect
its proprietary information will be adequate to prevent misappropriation of its
technology or that the Company's competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's
technology.
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights or positions, which has resulted in
significant and often protracted and expensive litigation. There is no pending
intellectual property litigation against the Company. However, the Company and
its customers have from time to time received notice of claims that the Company
or its customers have allegedly infringed patents or other intellectual property
rights owned by others. The Company may seek licenses under such patents or
other intellectual property rights. However, there can be no assurance that
licenses will be offered or that the terms of any offered licenses will be
acceptable to the Company. The failure to obtain a license from a third party
for technology used by the Company could cause the Company to incur substantial
liabilities and suspend the manufacture of products or could cause the Company's
customers to change suppliers. Furthermore, the Company may initiate claims or
litigation against third parties for infringement of the Company's proprietary
rights or to establish the validity of the Company's proprietary rights.
Litigation by or against the Company could result in significant expense to the
Company and divert the efforts of the Company's technical and management
personnel, whether or not such litigation results in a favorable determination
for the Company. In the event of any adverse result in any such litigation, the
Company could be required to pay substantial damages, cease the manufacture, use
and sale of infringing products, expend significant resources to develop
non-infringing technology, discontinue the use of certain processes or obtain
licenses for the infringing technology. There can be no assurance that the
Company would be successful in such development or that such licenses would be
available on reasonable terms, or at all, and any such development or license
could require expenditures by the Company of substantial time and other
resources. Although patent disputes in the semiconductor industry have often
been settled through cross-licensing arrangements, there can be no assurance
that, in the event that any third party makes a successful claim against the
Company or its customers, a cross-licensing arrangement could be reached. If a
license is not made available to the Company on commercially reasonable terms,
the Company's business, financial condition and results of operations could be
materially adversely affected.
International Operations. During fiscal 1993, 1994 and 1995 and the first
quarter of fiscal 1996, export sales, primarily to customers in Asia and Europe,
accounted for approximately 48%, 56%, 47% and 44% of the Company's net sales,
respectively. The export sale percentage would be higher in recent periods if
sales to customers in the United States who act as purchasing agents for Asian
manufacturers are included. The Company anticipates that sales to international
customers will continue to account for a substantial percentage of sales. In
addition, the foundries and third party vendors that manufacture, assemble and
test the Company's products are primarily located in Asia. Due to this
concentration of international sales and manufacturing capacity in Asia, the
Company is subject to the risks of conducting business internationally,
including unexpected changes in regulatory requirements, delays resulting from
difficulty in obtaining export licenses for certain technology, tariffs, quotas
and other trade barriers and restrictions, longer payment cycles, greater
difficulty in accounts receivable collection, potentially adverse taxes, the
burdens of complying with a variety of foreign laws and other factors beyond the
Company's control. The Company is also subject to general geopolitical risks in
connection with its international trade relationships. Although the Company has
not to date experienced any material adverse effect on its business, financial
condition or results of operations as a result of such regulatory, geopolitical
and other factors, there can be no assurance that such factors will not have a
material adverse effect on the Company's business, financial condition and
results of operations in the
10
<PAGE> 12
future or require the Company to modify its current business practices.
Currently, substantially all of the Company's product sales and all of its
arrangements with foundries and assembly and test vendors provide for pricing
and payment in U.S. dollars. Although currency fluctuations have been
insignificant to date, there can be no assurance that fluctuations in currency
exchange rates will not have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, to date
the Company has not engaged in any currency hedging activities, although the
Company may do so in the future. Further, there can be no assurance that one or
more of the foregoing factors will not have a material adverse effect on the
Company's business, financial condition and results of operations or require the
Company to modify its current business practices.
Semiconductor Industry. The semiconductor industry has historically been
characterized by rapid technological change, cyclical and seasonal market
patterns, significant price erosion, periods of over-capacity and production
shortages, variations in manufacturing costs and yields and significant
expenditures for capital equipment and product development. In addition, the
industry has experienced significant economic downturns at various times,
characterized by diminished product demand and accelerated erosion of product
prices. Although the semiconductor industry in recent periods has experienced
increased demand, it is uncertain how long these conditions will continue. The
Company may experience substantial period-to-period fluctuations in operating
results due to general semiconductor industry conditions.
Possible Volatility of Stock Price. Future announcements concerning the
Company, its competitors or principal customers, including quarterly operating
results, changes in earnings estimates by analysts, announcements of
technological innovations or new industry standards, the introduction of new
products or changes in product pricing policies by the Company, its competitors
or customers, governmental regulations, or proprietary rights or other
product-related litigation could cause the market price of the Company's Common
Stock to fluctuate substantially. Further, in recent years the stock market has
experienced extreme price and volume fluctuations that have particularly
affected the market prices of equity securities of many high technology
companies and that often have been unrelated or disproportionate to the
operating performance of such companies. These fluctuations, as well as general
economic, political and market conditions, may materially and adversely affect
the market price of the Common Stock.
NexGen Stock Holdings. At September 30, 1995, the Company had short-term
investments valued at $26.5 million, of which $13.0 million is attributable to
NexGen, Inc. common stock (see the Company's Annual Report on Form 10-K for the
year ended June 30, 1995, Note 1 -- Cash Equivalents and Short-term
Investments). The market price of such stock is subject to fluctuation, and the
Company is subject to a lockup agreement restricting the sale of the stock prior
to November 22, 1995. As a result, there can be no assurance that the Company
will be able to sell such stock at the value presently reflected in the
financial statements.
Dependence on Key Personnel. The Company's future success depends in part
on the continued service of its key engineering, sales, marketing and executive
personnel, many of whom would be difficult to replace, and on its ability to
identify and hire additional personnel. Competition for such personnel is
intense and there can be no assurance that the Company can retain existing
personnel or identify or hire additional personnel. See "Management."
Effect of Certain Charter, Bylaw and Other Provisions. Certain provisions
of the Company's Certificate of Incorporation and Bylaws and certain other
contractual provisions could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from attempting to
acquire, control of the Company. Such provisions could limit the price that
certain investors might be willing to pay in the future for shares of the
Company's Common Stock. Certain of these provisions allow the Company to issue
Preferred Stock with rights senior to those of the Common Stock without any
further vote or action by the stockholders, provide for a classified board of
directors, eliminate the right of stockholders to act by written consent and
impose various procedural and other requirements which could make it more
difficult for stockholders to effect certain corporate actions. The Company is
also subject to the anti-takeover provisions of Section 203 of the Delaware
General Corporation Law, which prohibits the Company from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person first becomes an
"interested stockholder," unless the business combination is approved in a
prescribed manner. In addition, the Company has adopted a common stock rights
plan. The application of Section 203 and the provisions of this plan could also
have the effect of delaying or preventing a change in control of the Company.
11
<PAGE> 13
THE COMPANY
Chips and Technologies, Inc. was incorporated as a California corporation
in December 1984. The Company was subsequently reincorporated as a Delaware
corporation in September 1986. The Company's initial public offering occurred in
October 1986. The Company's principal executive offices are located at 2950
Zanker Road, San Jose, California 95134 and its telephone number is (408)
434-0600. As used in this Prospectus, the "Company" and "Chips and Technologies"
refer to Chips and Technologies, Inc., a Delaware corporation.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock being offered by the Company hereby are estimated to be
approximately $32.7 million ($38.2 million if the Underwriters' over-allotment
option is exercised in full), assuming a public offering price of $11.625 per
share.
The Company is currently negotiating agreements with two foundries to
secure additional wafer fabrication capacity and expects that such agreements,
if concluded, will require the Company to make advances, deposits or loans in an
aggregate amount of approximately $63 million, including up to $40 million
during the next twelve months. The Company expects to use substantially all of
the proceeds of this offering in making those advances, deposits or loans. The
Company is also considering transactions with other semiconductor manufacturers.
Such transactions may include equity investments, advances, deposits, loans and
participations in joint ventures by the Company, any of which could require
additional capital commitments. There can be no assurance that the Company will
consummate any such transactions currently being negotiated or under
consideration or, if it does, that the Company will be able to obtain production
capacity to meet its demands. The Company intends to use any remaining net
proceeds for working capital and general corporate purposes. Pending such uses,
the Company intends to invest the net proceeds in short-term investment-grade,
interest-bearing securities. The Company believes that the net proceeds from the
offering, existing cash balances, its bank lines of credit and funds generated
from operations will be sufficient to meet the Company's capital and operating
requirements for at least the next twelve months. See "Risk
Factors -- Dependence on Third Party Wafer Suppliers and Subcontractors" and
" -- Potential Capacity Constraints; Capital Commitments to Obtain Capacity,"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The Company will not receive any proceeds from the sale of the Common Stock
by the Selling Stockholder. See "Principal and Selling Stockholders."
12
<PAGE> 14
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol CHPS. The following table sets forth high and low closing sale prices
for the Common Stock as reported by National Quotation Bureau, Inc.
<TABLE>
<CAPTION>
COMMON STOCK
PRICE
-----------------
FISCAL YEAR HIGH LOW
---------------------------------------------------------- ------ ------
<S> <C> <C>
1994
1st Quarter............................................. $ 6.00 $ 3.75
2nd Quarter............................................. 6.95 4.88
3rd Quarter............................................. 7.38 5.00
4th Quarter............................................. 5.75 3.75
1995
1st Quarter............................................. 5.38 3.63
2nd Quarter............................................. 7.50 4.95
3rd Quarter............................................. 8.63 6.25
4th Quarter............................................. 14.00 7.50
1996
1st Quarter............................................. 15.63 12.56
2nd Quarter (through October 11, 1995).................. 13.50 11.50
</TABLE>
On October 11, 1995, the last reported sale price for the Company's Common
Stock was $11.625 per share. At September 30, 1995 there were 20,279,928 shares
of Common Stock outstanding, held by approximately 1,000 stockholders of record.
See "Risk Factors -- Possible Volatility of Stock Price."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain its future earnings, if any, to
fund the development and growth of its business and, therefore, does not
anticipate paying any cash dividends in the foreseeable future. The Company's
bank lines of credit prohibit dividend payments without the banks' consents.
13
<PAGE> 15
CAPITALIZATION
The following table sets forth the Company's actual unaudited
capitalization as of September 30, 1995 and its as adjusted unaudited
capitalization to give effect to the application of the estimated net proceeds
from the sale by the Company of the 3,000,000 shares of Common Stock offered by
the Company hereby at an assumed public offering price of $11.625 per share.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
----------------------
ACTUAL AS ADJUSTED
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Long-term capital lease obligations, less current portion............ $ 1,121 $ 1,121
Notes payable........................................................ 856 856
-------- --------
Total long-term obligations.......................................... 1,977 1,977
Stockholders' equity:
Preferred Stock, $.01 par value; 5,000,000 shares authorized and no
shares outstanding.............................................. -- --
Common Stock; $.01 par value; 100,000,000 shares authorized,
20,279,928 shares outstanding, actual and 23,279,928 shares
outstanding, as
adjusted (1).................................................... 203 233
Capital in excess of par value....................................... 76,141 108,793
Note receivable from officer......................................... (108) (108)
Unrealized gain on investments....................................... 13,018 13,018
Retained deficit..................................................... (19,249) (19,249)
-------- --------
Total stockholders' equity........................................... 70,005 102,687
-------- --------
Total capitalization................................................. $ 71,982 $104,664
======== ========
</TABLE>
- ---------------
(1) Excludes an aggregate of 4,062,963 shares of Common Stock issuable upon
exercise of options and warrants outstanding as of September 30, 1995.
14
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements, notes
thereto and other financial information included in the documents incorporated
by reference herein. The selected consolidated financial data with respect to
the Company's consolidated statements of operations for each of the three years
in the period ended June 30, 1995 and with respect to the Company's consolidated
balance sheets at June 30, 1994 and 1995 are derived from the consolidated
financial statements of the Company which have been audited by Price Waterhouse
LLP, which financial statements are incorporated herein by reference. The
selected consolidated balance sheet data as of June 30, 1993 have been derived
from audited consolidated financial statements of the Company which are not
incorporated by reference herein. The data presented as of September 30, 1995
and for the quarters ended September 30, 1994 and 1995 are derived from
unaudited financial statements of the Company which are also incorporated by
reference herein and include, in the opinion of management, all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the data for such date and periods. See "Incorporation of Certain Documents by
Reference." The results for the three-month period ended September 30, 1995 are
not necessarily indicative of the results to be expected for the full fiscal
year. See "Risk Factors -- Potential Fluctuations in Operating Results; History
of Losses."
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
--------------------------------- --------------------
1993 1994 1995 1994 1995
-------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales........................................ $ 97,874 $ 73,444 $ 104,731 $ 20,373 $ 37,219
Cost of sales.................................... 73,149 46,964 64,875 12,735 22,858
------- ------- -------- ------- -------
Gross margin..................................... 24,725 26,480 39,856 7,638 14,361
------- ------- -------- ------- -------
Operating expenses:
Research and development...................... 22,633 11,793 13,344 3,008 4,905
Selling, general and administrative........... 31,475 16,136 18,193 3,802 4,904
Restructuring costs (recovery)................ 23,271 (372) (1,429) (372) --
------- ------- -------- ------- -------
Total operating expenses......................... 77,379 27,557 30,108 6,438 9,809
------- ------- -------- ------- -------
Income (loss) from operations.................... (52,654) (1,077) 9,748 1,200 4,552
Interest income and other, net................... 3,599 1,735 597 110 368
------- ------- -------- ------- -------
Income (loss) before taxes....................... (49,055) 658 10,345 1,310 4,920
Benefit (provision) for income taxes............. -- 2,056 (957) (54) (492)
------- ------- -------- ------- -------
Net income (loss)(1)............................. $(49,055) $ 2,714 $ 9,388 $ 1,256 $ 4,428
======= ======= ======== ======= =======
Net income (loss) per share(1)................... $ (3.13) $ 0.16 $ 0.47 $ 0.07 $ 0.20
======= ======= ======== ======= =======
Shares used in per share calculation............. 15,650 16,623 20,182 17,020 22,168
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------- SEPTEMBER 30,
1993 1994 1995 1995
-------- -------- --------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 20,742 $ 17,372 $ 22,385 $ 27,789
Short-term investments........................... 8,436 5,171 23,644 26,483
Working capital.................................. 13,900 23,881 56,595 60,821
Total assets..................................... 64,806 51,300 85,767 88,273
Current liabilities.............................. 36,210 16,044 18,346 16,291
Convertible debentures........................... 7,910 7,910 -- --
Total stockholders' equity....................... 19,677 26,327 65,696 70,005
</TABLE>
- ---------------
(1) Net income (loss) for the year ended June 30, 1993 included charges of $23.3
million associated with restructuring the Company's operations. Net income
(loss) for the years ended June 30, 1994 and 1995 included credits of
$372,000 and $1.4 million, respectively, and net income (loss) for the
quarter ended September 30, 1994 included a credit of $372,000 all
associated with completion of and recoveries from the fiscal 1993
restructuring activities. In addition, net income (loss) for the year ended
June 30, 1994 included a $2.2 million income tax benefit reflecting the
reversal of previously established reserves as a result of resolving a
number of the Company's tax issues. Excluding these charges and credits, net
income (loss) and net income (loss) per share would have been approximately
$(25.8) million, $142,000 and $8.0 million, and $(1.65), $0.01 and $0.39 per
share for each of the years ended June 30, 1993, 1994 and 1995,
respectively, and $884,000 and $4.4 million and $0.05 and $0.20 per share
for the quarters ended September 30, 1994 and 1995, respectively.
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Chips and Technologies was founded in 1984 to design, develop and market
integrated circuits used to increase the performance and reduce the cost of
personal computers. The Company began volume shipment of its first system logic
chip sets in November 1985 and since that time has continued to develop and
market semiconductor and related software solutions for the personal computer
industry.
In fiscal 1993, the Company restructured its operations to focus on the
development and marketing of graphics accelerator products for portable
computers and, to a lesser extent, graphics accelerator products and core logic
products for desktop computers. Beginning in fiscal 1995, portable computer
graphics accelerators represented a majority of the Company's net sales, and
sales of those products have increased in recent quarters to represent
approximately 80% of the Company's net sales in the quarter ended September 30,
1995. See "Risk Factors -- Dependence on Single Product Line" and "-- Dependence
on Portable Computer Industry."
During the quarter ended June 30, 1995, all $7.9 million of the Company's
outstanding convertible debentures were converted into 1,387,712 shares of the
Company's Common Stock.
RESULTS OF OPERATIONS
Reference is made to Management's Discussion and Analysis of Financial
Condition and Results of Operations in the Company's Annual Report on Form 10-K
incorporated herein by reference for a comparative discussion of the Company's
results of operations for fiscal 1993, 1994 and 1995. Reference is made to
Management's Discussion and Analysis of Financial Condition and Results of
Operations in the Company's quarterly Report on Form 10-Q for the quarter ended
September 30, 1995 incorporated herein by reference for a comparative discussion
of the Company's results of operations for the quarters ended September 30, 1994
and September 30, 1995. See "Incorporation of Certain Documents by Reference."
The Company's quarterly and annual operating results have been and will
continue to be affected by a wide variety of factors that could have a material
adverse effect on revenues and profitability during any particular period,
including the level of orders that are received and can be shipped in a quarter,
the rescheduling or cancellation of orders by its customers, gain or loss of any
strategic relationships or customers, availability and cost of foundry capacity
and raw materials, the Company's ability to predict product demand and manage
its inventory levels, fluctuations in manufacturing yields, the timing of
qualification of new foundries or foundry production lines, new product
introductions by the Company's competitors, the Company's ability and timing in
introducing new products and technologies, market acceptance of products of both
the Company and its customers, supply constraints and price or other
fluctuations for other components incorporated into its customers' products,
such as portable display screens and memory devices, competitive pressures on
selling prices, changes in product or customer mix, and the level of
expenditures for research and development and for selling, general and
administrative functions. In addition, the Company's operating results are
subject to fluctuations in the markets for its customers' products, which have
been extremely volatile in the past. A significant portion of the Company's
expenses is relatively fixed, and the timing of increases in expenses is based
in large part on the Company's forecast of future revenues. As a result, if
revenues do not meet the Company's expectations, it may be unable to reduce
expenses quickly, which could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company has
experienced losses and the need for significant business restructurings in the
past and there can be no assurance that the Company will not experience losses
in the future.
QUARTERLY RESULTS OF OPERATIONS
The following tables present unaudited quarterly statement of operations
data for fiscal 1995 and the first quarter of fiscal 1996. In the opinion of the
Company's management, this unaudited information has been
16
<PAGE> 18
prepared on the same basis as the audited financial statements incorporated
herein by reference and includes all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the information set forth
therein. The operating results for any quarter are not necessarily indicative of
results that may be expected for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1994 1994 1995 1995 1995
--------- -------- --------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales........................................ $ 20,373 $ 23,277 $27,231 $ 33,850 $ 37,219
Cost of sales.................................... 12,735 14,418 16,866 20,856 22,858
------- ------- ------- ------- -------
Gross margin..................................... 7,638 8,859 10,365 12,994 14,361
------- ------- ------- ------- -------
Operating expenses:
Research and development....................... 3,008 3,286 3,216 3,834 4,905
Selling, general and administrative............ 3,802 4,130 4,866 5,395 4,904
Restructuring costs (recovery)................. (372) (1,057) -- -- --
------- ------- ------- ------- -------
Total operating expenses......................... 6,438 6,359 8,082 9,229 9,809
------- ------- ------- ------- -------
Income from operations........................... 1,200 2,500 2,283 3,765 4,552
Interest income and other, net................... 110 134 60 293 368
------- ------- ------- ------- -------
Income before taxes.............................. 1,310 2,634 2,343 4,058 4,920
Provision for income taxes....................... (54) (263) (234) (406) (492)
------- ------- ------- ------- -------
Net income....................................... $ 1,256 $ 2,371 $ 2,109 $ 3,652 $ 4,428
======= ======= ======= ======= =======
Net income per share............................. $ 0.07 $ 0.13 $ 0.11 $ 0.18 $ 0.20
======= ======= ======= ======= =======
Shares used in per share calculation............. 17,020 19,967 20,290 20,614 22,168
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET SALES
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales........................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Sales.................................... 62.5 61.9 61.9 61.6 61.4
----- ----- ----- ----- -----
Gross margin..................................... 37.5 38.1 38.1 38.4 38.6
----- ----- ----- ----- -----
Operating expenses:
Research and development....................... 14.8 14.1 11.8 11.4 13.2
Selling, general and administrative............ 18.7 17.7 17.9 15.9 13.2
Restructuring costs (recovery)................. (1.9) (4.5) -- -- --
----- ----- ----- ----- -----
Total operating expenses......................... 31.6 27.3 29.7 27.3 26.4
----- ----- ----- ----- -----
Income from operations........................... 5.9 10.7 8.4 11.1 12.2
Interest income and other, net................... 0.5 0.6 0.2 0.9 1.0
----- ----- ----- ----- -----
Income before taxes.............................. 6.4 11.3 8.6 12.0 13.2
Provision for income taxes....................... (0.2) (1.1) (0.9) (1.2) (1.3)
----- ----- ----- ----- -----
Net income....................................... 6.2% 10.2% 7.7% 10.8% 11.9%
===== ===== ===== ===== =====
</TABLE>
Net Sales. Net sales increased each quarter over the past five quarters
from $20.4 million in the first quarter of fiscal 1995 to $37.2 million in the
first quarter of fiscal 1996. The increase in net sales was mainly due to
significant increases in unit shipments of portable computer graphics
accelerators which comprised 52% of the Company's net sales in the first quarter
of fiscal 1995 and have grown steadily to 80% of net sales in the first quarter
of fiscal 1996. While prices in the PC component industry are generally subject
to significant erosion, the average selling prices of the Company's products
have remained relatively stable over the five quarters ended September 30, 1995,
due primarily to changes in product mix and a favorable pricing environment for
PC components, including the Company's graphics products.
17
<PAGE> 19
Gross Margin. Gross margin percentage has remained relatively constant over
the past five quarters, improving slightly from 37.5% to 38.6% due primarily to
increased absorption of manufacturing costs from higher unit sales. The PC
component market is generally characterized by price erosion, and the Company
anticipates that it will need to decrease manufacturing costs, carefully manage
product inventories, and introduce new products in a timely manner in order to
maintain margins at current levels. See "Risk Factors -- Dependence on New
Product Development; Rapid Technological Change" and "-- Competition."
Research and Development Expenses. Research and development expenses
generally increased over the past five quarters from $3.0 million in the first
quarter of fiscal 1995 to $4.9 million in the first quarter of fiscal 1996. The
increase in research and development expenses through the four quarters of
fiscal 1995 was mainly due to increases in hiring and product protyping costs.
Research and development expenses as a percentage of net sales declined from
14.8% to 11.3% during fiscal 1995 as sales increased faster than spending.
Research and development expenses increased to 13.2% in the first quarter of
fiscal 1996 mainly due to increases in hiring, product prototyping and outside
service costs. The Company's research and development expenses generally are
subject to quarterly fluctuations due to the timing of spending on prototype
fabrication. The Company expects future research and development expenses to
increase in absolute dollars primarily as a result of the Company's continued
investment in engineering headcount and product prototyping costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $3.8 million in the first quarter of
fiscal 1995 to $4.9 million in the first quarter of fiscal 1996, primarily due
to higher commissions paid to sales representatives as a result of higher sales.
In addition, during the quarter ended June 30, 1995, selling, general and
administrative expenses increased primarily due to the payment of discretionary
year-end performance bonuses.
Restructuring Costs (Recovery). The Company recognized as income $372,000
and $1.1 million in the quarters ended September 30 and December 31, 1994,
respectively, recoveries from previously completed restructuring activities due
primarily to the collection of a note receivable that had been fully reserved in
fiscal 1993.
Income Taxes. The Company's income tax provision for fiscal 1995 and the
first quarter of fiscal 1996 reflects an estimated annual effective tax rate of
approximately 10%. This rate is substantially below the statutory rate because
the Company utilized net operating loss carryforwards to offset a significant
portion of its income taxes. The estimated tax rate reflects alternative minimum
taxes and other state tax obligations.
As of September 30, 1995, the Company had net operating loss carryforwards
of approximately $49 million for federal and $39 million for state purposes
expiring through fiscal 2010. No benefit for the loss carryforwards has been
recognized in the financial statements. Under the Tax Reform Act of 1986, the
amount of the benefit from net operating loss carryforwards may be impaired or
limited in certain circumstances, including a cumulative stock ownership change
greater than 50% over a three-year period. Management does not believe that
consummation of this offering will result in such a change.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments were $54.3 million on
September 30, 1995, an increase of $8.2 million over June 30, 1995. This
increase was primarily atrributable to cash generated from operating activities.
Short-term investments as of September 30, 1995 include $13.0 million which is
attributable to NexGen common stock (see the Company's Annual Report on Form
10-K for the year ended June 30, 1995, Note 1 -- Cash Equivalents and Short-term
Investments). The NexGen stock is valued at fair market value as of September
30, 1995; however, the market price of such stock is subject to fluctuation and
the Company is subject to a lockup agreement restricting the sale of the stock
prior to November 22, 1995. As a result, there can be no assurance that the
Company will be able to sell such stock at the value presently reflected in the
financial statements.
18
<PAGE> 20
The Company is currently negotiating agreements with two foundries to
secure additional wafer fabrication capacity and expects that such agreements,
if concluded, will require the Company to make advances, deposits or loans in an
aggregate amount of approximately $63 million, including up to $40 million
during the next twelve months. The Company is also considering transactions with
other semiconductor manufacturers. Such transactions may include equity
investments, advances, deposits, loans, and participation in joint ventures by
the Company, any of which could require additional capital commitments. See
"Risk Factors -- Dependence on Third Party Wafer Suppliers and Subcontractors"
and "-- Potential Capacity Constraints; Capital Commitments to Obtain Capacity,"
and "Use of Proceeds." The Company may consider investments in, or the
acquisition of, complementary businesses, products or technologies. Currently,
however, the Company has no present understandings, commitments or agreements
with respect to any material investment or acquisition.
The Company's other capital requirements consist primarily of financing
working capital items and funding operational activities. The Company has
commitments from three banking institutions for a combined total of $21 million
in unsecured lines of credit. The lines of credit will expire at various times
from August 1996 through August 1997. There was no borrowing against lines of
credit as of September 30, 1995. The Company's line of credit commitments
contain certain covenants related to financial performance and condition, and
the ability to borrow under such lines is subject to compliance with such
covenants. The Company believes that the net proceeds from the offering,
existing cash balances, its bank lines of credit and funds generated from
operations will be sufficient to meet the Company's capital and operating
requirements for at least the next twelve months.
19
<PAGE> 21
BUSINESS
Chips and Technologies is a fabless supplier of highly integrated
semiconductor and software solutions which provide graphics, video and other
capabilities to portable and desktop personal computers. The Company has
achieved a leadership position in graphics accelerators for portable computers
by developing products that allow manufacturers to rapidly design graphics
subsystems which combine increased performance and high levels of functionality.
The Company provides graphics accelerators to most of the industry's leading
manufacturers of portable computers. The Company also provides a family of
semiconductor and related software solutions for desktop computers, including
core logic, I/O controllers and graphics accelerators. In addition, the Company
offers a single chip computer product for embedded and industrial control
applications. The Company's customers include Acer, Apple, Fujitsu, Gateway
2000, Hewlett-Packard, IBM, NEC, Siemens and Toshiba.
INDUSTRY BACKGROUND
Advances in semiconductor technologies have enabled manufacturers both to
expand significantly the features and functionality of personal computers
("PCs") and to reduce prices. Operating system software with advanced graphical
user interfaces ("GUIs") which take increasing advantage of the power of these
advanced computers has become widespread. The availability of interactive
entertainment, educational and business software applications that require high
quality graphics, video and sound has also increased dramatically. These trends
have resulted in the widespread proliferation of desktop computers for business,
education and the home. International Data Corporation ("IDC") estimates that
sales of desktop computers will grow 20% to 47 million units in 1995. In
addition, increased dependence on PCs for everyday business and personal use and
the ability to remotely access office networks and on-line services have created
a demand for portable computers that can be used when traveling or at home.
According to IDC, shipments of portable computers are growing at a faster rate
than shipments of desktop computers, and are expected to increase 29% to
approximately 10 million units in 1995.
Increased use of PCs by consumers, who are typically more price sensitive
than business users, has driven manufacturers to focus increasingly on reducing
PC costs. At the same time, consumers are demanding increased functionality,
including multimedia functions such as MPEG playback and 3D graphics
acceleration, and support for new operating systems which can require as much as
16 or 32 megabytes of RAM. PC manufacturers seek opportunities to increase
functionality and reduce component costs through greater integration of
semiconductor components and more efficient use of memory.
Users of portable computers expect the same performance and features as are
available in desktop computers. In particular, it is important that portable
computers run the same graphics-intensive operating systems and software
applications as desktop computers. While portable computer display technology
has traditionally been one of the greatest challenges in providing desktop
performance in portables, it has improved significantly in recent years. In
contrast to a few years ago, when the majority of portable computers came with
monochrome displays, a significant majority of portable computers today have
full color displays. Active matrix displays, which offer significant display
quality and performance advantages over commonly used passive matrix displays,
have undergone significant price reductions and are now featured in many
portable computer models. Portable computer displays generally are increasing in
size and are currently moving from 640 x 480 resolution to 800 x 600 and higher
resolution. In addition, photorealistic graphics and full motion video
applications are requiring portable computer displays to move from 8-bit color
depth to 16-and 24-bit color depth.
These trends in portable computer graphics have created new requirements
for advanced graphics accelerators, which are the semiconductor devices and
related software that perform the central logic functions of a PC's graphics
subsystem. Due to the rapid advances in graphics technology, PC manufacturers
increasingly rely on independent suppliers to provide graphics accelerators. In
addition, portable computer manufacturers must address design challenges not
present for desktop computers, including the integration of flat panel displays,
the need to reduce form factors and the requirement for power management.
Portable computers must be designed to support standard CRT monitors which can
be used instead of, or in conjunction with, the built-in display. These design
challenges typically lead to longer development and
20
<PAGE> 22
product life cycles for portable computers. As a result, suppliers of portable
graphics accelerators are typically faced with more complex design-in processes.
Due to the complexity of portable computer designs, manufacturers seek
families of graphics accelerator products that can be used across different
portable computer models. This requires that graphics accelerators support a
variety of display types, voltages and bus designs. In addition, graphics
accelerators must include device driver software that supports the major
operating systems. The quality of the device driver software can have a
significant impact on system performance, ease of use and the manufacturer's
time to market. Manufacturers require suppliers of portable graphics accelerator
products to become actively involved in the design process and to provide
complete software and hardware solutions that support a wide range of
technologies.
STRATEGY
Chips and Technologies' objective is to be a leading supplier to the PC
industry of innovative, highly integrated semiconductor and software solutions
that leverage the Company's technology expertise in graphics, video and logic.
Key elements in its strategy to achieve this objective include:
Maintain and Extend Leadership in Portable Graphics Accelerators
The Company has achieved a leadership position in portable graphics
accelerators by developing highly integrated products that allow manufacturers
to rapidly design portable graphics subsystems which combine increased
performance and high levels of functionality. The Company provides portable
graphics accelerators to, and has established close relationships with, most of
the industry's leading suppliers of portable computers including Toshiba, Apple
and NEC Technologies. The Company's next family of portable graphics
accelerators is being designed to bring desktop levels of graphics performance
and video capabilities to portable computers. The new family of products will be
introduced in fiscal year 1996, will be based on a 64-bit graphics accelerator
engine which provides full-motion video and MPEG playback capabilities.
Introduce Unified ArchitectureTM Product Family for the Desktop
The Company has drawn upon its broad range of experience in providing
integrated core logic, I/O controller and system level products to develop a
proprietary system architecture called Unified Architecture. The Company is
developing Unified Architecture products to integrate graphics and video with
core logic and I/O functions in a single product while eliminating the need for
the separate graphics memory utilized in existing system architectures. The
Company believes that these products will provide desired levels of features and
functionality while allowing PC manufacturers to significantly reduce systems
costs and therefore will be well suited for the high volume desktop computer
market. The Company intends to introduce its first Unified Architecture product
for the desktop market in calendar 1996. In the longer term, the Company
believes the Unified Architecture methodology will have application in the
portable computer market.
Provide Comprehensive Hardware and Software Solutions
The Company provides complete hardware and software solutions, including
BIOS and device driver software. The Company seeks to reduce PC manufacturers'
time to market by maintaining software compatibility for each successive
generation of its products. The Company's software products enhance hardware
performance and support various applications and major operating systems such as
Windows 95, Windows 3.1, Windows NT, OS/2, and Mac OS. The Company provides
ongoing technical applications support throughout the customer's design and
manufacturing process, as well as demonstration and development system boards.
The Company believes that its comprehensive hardware and software solutions
allow PC manufacturers to protect their investment in software development and
achieve faster time to market.
Leverage TechBlockTM Design Library
The Company believes that it is able to shorten its product development
cycles and offer a broader variety of products through the use of its modular
product design methodology. This methodology uses the
21
<PAGE> 23
Company's TechBlock design library, which captures designs at the functional
software level rather than at the hardware circuit level. These design modules
enable the Company to rapidly design and introduce new products. The ability to
re-use design modules allows the Company to quickly and easily modify products
to meet specific customer and market needs.
Pursue a Fabless Strategy
The Company relies on third party manufacturers for all of its wafer
fabrication needs. This fabless strategy enables the Company to focus on its
design strengths, minimize fixed costs and capital expenditures, and access
advanced manufacturing facilities without bearing the full cost of factory
obsolescence. The Company has built long-term relationships with leading foundry
partners such as TSMC and Samsung. The Company works closely with its foundry
partners to optimize process technologies.
The Company is currently negotiating agreements with two foundries to
secure additional foundry capacity in the future for advanced process
technologies. The agreements, if concluded, will require the Company to make
advances, deposits or loans to the foundries. See "Use of Proceeds." The Company
is also considering transactions with other semiconductor manufacturers. Such
transactions may include equity investments in, advances, deposits or loans to,
and participation in joint ventures with, third party wafer foundries or
technology partnerships with other semiconductor manufacturers.
22
<PAGE> 24
PRODUCTS AND CUSTOMERS
Chips and Technologies develops graphics accelerators and core logic
devices for portable and desktop personal computers. The following table
provides information regarding the Company's products and applications and
representative manufacturers that have designed-in or are selling products that
incorporate the Company's products:
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------
SELECTED PRODUCTS
TARGET MARKET AND DESCRIPTION REPRESENTATIVE MANUFACTURERS
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
PORTABLE GRAPHICS ACCELERATORS
- ----------------------------------------------------------------------------------------------
Portable Graphics Graphics accelerators for Acer, Compal, DEC, Fujitsu, Gateway
Windows/DOS portable 2000, Hewlett-Packard, IBM, Mitac,
computers. NEC, Quanta, Siemens, Toshiba, Zenith
----------------------------------------------------------------------
Graphics accelerators for the Apple
Apple PowerBook.
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
DESKTOP PRODUCTS
- ----------------------------------------------------------------------------------------------
Desktop Graphics Graphics accelerators for Apple, Bull Honeywell
Windows/DOS and Apple desktop
computers.
- ----------------------------------------------------------------------------------------------
Desktop Logic Core logic chipsets for Apple, AST Research
Windows/DOS desktop computers
and add-in cards for Apple
desktop computers.
- ----------------------------------------------------------------------------------------------
Desktop I/O controllers for desktop AT&T, Bull Honeywell, Matsushita
Communications communications with serial,
parallel, floppy disk and
hard disk products.
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
EMBEDDED CONTROL PRODUCTS
- ----------------------------------------------------------------------------------------------
Embedded Control Core logic and I/O controllers AT&T, Fujitsu, Hewlett-Packard, IBM
for Windows/DOS-based
embedded platforms.
- ----------------------------------------------------------------------------------------------
Industrial Control Single chip DOS-compatible Interro, Siemens, Telxon
computer-on-a-chip (PC/Chip)
for broad range of industrial
control applications.
- ----------------------------------------------------------------------------------------------
</TABLE>
Portable Graphics Accelerators
The Company markets a broad family of portable graphics accelerators that
meet various performance and feature requirements for both the Microsoft
Windows/DOS and Macintosh graphics environments. Designed to be both hardware
and software upgradeable, the portable graphics accelerator family provides high
levels of performance and integration while achieving low power consumption. For
the Windows/DOS environments, the product family integrates a VGA graphics
engine with an enhanced acceleration engine that provides bit block transfers
("BITBLT"), line drawing, hardware cursor and other functions used in GUIs such
as Microsoft Windows. To achieve high levels of performance and integration, the
product integrates a true color random access memory digital-to-analog converter
("RAMDAC"), and dual phase locked loop ("PLL") clock synthesizers, and supports
a wide variety of active and passive matrix display panels. The Company's most
recent portable product employs the Company's proprietary Video CacheTM
technology
23
<PAGE> 25
which increases the display performance and reduces the graphics subsystem power
consumption. The Company's portable graphics accelerator product family provides
a variety of programmable features which, when coupled with the Company's
advanced device driver software technology, deliver high performance and quality
display.
In addition, the Company provides a custom accelerator family for Apple
PowerBook computers. This family of products integrates support for the 680X0
and PowerPC family of microprocessors as well as full motion video.
Desktop Products
The Company markets a desktop product line which includes various solutions
for the major systems of desktop motherboards. Focused on integration and
performance, the product line consists of hardware and software solutions for
core logic, I/O controllers and graphics accelerators. Designed to be fully
Windows/DOS compatible, the core logic product family supports a wide range of
Intel compatible microprocessors. The core logic family integrates high
performance memory controllers, desktop power management support, DMA
controllers, interrupt controllers, timers and a real time clock. To complement
the core logic products, the Company provides highly integrated, single chip I/O
solutions. The I/O controller products contain functions such as enhanced serial
ports, advanced parallel port protocols and the floppy disk and hard disk drive
support required in all Windows/DOS-compatible desktop computers. The Company's
desktop graphics family of products incorporates the Company's Video Cache
technology, which significantly increases graphics performance. These highly
integrated desktop graphics accelerators include a fully compatible VGA graphics
engine, BITBLT engine, line drawing, hardware cursor, true color RAMDAC and PLL
clock synthesizers and support the Plug-and-Play initiative.
Embedded Control Products
The Company markets an innovative single chip computer product which
accommodates a wide range of embedded and industrial control designs. Based on
the Company's 8086 compatible microprocessor core, the product integrates the
microprocessor, core logic, graphics accelerator, serial port and the Company's
advanced SuperState(R) power management technology into a single chip. The
product is designed for low power consumption and is DOS compatible. In
addition, the Company markets its standard core logic, I/O controller and
graphics accelerator products to the Windows/DOS-based embedded control market
segment for applications that include point-of-sale terminals and advanced word
processing systems.
24
<PAGE> 26
MANAGEMENT
The executive officers and directors of the Company and their ages as of
September 30, 1995 are as follows:
<TABLE>
<S> <C> <C>
James F. Stafford.............. 51 President, Chief Executive Officer and Director
Keith A. Angelo................ 39 Vice President, Marketing
Lee J. Barker.................. 50 Vice President, Operations
Timothy R. Christoffersen...... 53 Vice President, Finance and Chief Financial
Officer
Richard E. Christopher......... 49 Vice President, Sales
Morris E. Jones, Jr............ 43 Senior Vice President and Chief Technical
Officer
Lawrence A. Roffelsen.......... 50 Vice President, Engineering
Jeffery Anne Tatum............. 45 Vice President and General Counsel
Gordon A. Campbell............. 51 Chairman of the Board
Gene P. Carter................. 61 Director
Henri A. Jarrat................ 57 Director
Bernard V. Vonderschmitt....... 71 Director
</TABLE>
Mr. Stafford was named President and Chief Executive Officer in July 1993
and was elected a director in August 1993. Mr. Stafford has been employed by the
Company since its inception and has served in a variety of positions including
Acting Chief Financial Officer from April 1993 until December 31, 1993, Senior
Vice President and Chief Operating Officer from January 1992 to July 1993 and
Senior Vice President, Product Line Operations from February 1990 to January
1992.
Mr. Angelo was promoted to Vice President, Marketing in November, 1992.
Previously, Mr. Angelo had served as General Manager, Media Group, from April
1992 to November 1992, as Director of Marketing from January 1991 to April 1992,
as Marketing Manager from January 1989 to January 1991 and as Product Manager in
the Graphics Group from October 1987 to January 1989. Prior to joining the
Company, Mr. Angelo spent four years at Intel Corporation in various marketing
positions in the Peripheral Component Group.
Mr. Barker has served as Vice President, Operations since July 1992. Prior
to joining the Company, he was self employed for twelve years as a manufacturer
of electronic scoreboards and a supplier of raw materials to the sign industry.
Mr. Christoffersen has served as Chief Financial Officer since January
1994. Prior to joining the Company, Mr. Christoffersen spent two years with
Resonex Inc., as Executive Vice President, Director, Chief Financial Officer,
and later Chief Operating Officer. Prior to joining Resonex, he spent 9 years
with several subsidiaries of Ford Motor Company in various managerial and
financial positions.
Mr. Christopher has served as Vice President, Sales, since July, 1992.
Prior to joining the Company, Mr. Christopher spent twelve years at Fujitsu
Microelectronics where he became Senior Vice President and General Manager.
Mr. Jones, Jr. is a founder of the Company and has served as Senior Vice
President and Chief Technical Officer since February 1990. Prior to that time,
he served in a variety of senior level management positions since the Company's
inception.
Mr. Roffelsen has served as Vice President, Engineering since November
1992. Prior to joining the Company, he spent seven years at Fujitsu
Microelectronics, Inc., where he served most recently as Vice President, ASIC
Operations.
Ms. Tatum has served as Vice President and General Counsel since July,
1994. She previously served as General Counsel from August, 1993 to July 1994
and as Assistant General Counsel from February 1992 to
25
<PAGE> 27
August 1993. Prior to joining the Company, she was a partner of the law firms of
Seyfarth, Shaw, Fairweather and Geraldson from 1990 to 1992, and of Adams, Duque
and Hazeltine from 1985 to 1989.
Mr. Campbell is a founder of the Company and has served as a director and
Chairman of the Board since December 1984, and as President and Chief Executive
Officer from January 1985 through July 1993. He is also a founder and since 1993
has been President and Chairman of the Board of Techfarm, Inc., a company formed
to launch technology based start-up companies. Mr. Campbell also serves as a
director of 3Com Corporation and Bell Microproducts, Inc. Mr. Campbell is also
President, Chief Executive Officer and Chairman of the Board of 3D/fx
Interactive, Inc. Mr. Campbell will retire as chairman and director effective at
the time of the Company's annual meeting in November 1995.
Mr. Carter has served as a director of the Company since March 1988. From
August 1977 to September 1984, Mr. Carter served as Vice President of Sales for
Apple Computer, Inc. He has been self-employed as a private investor since 1984.
Mr. Carter also serves as a director on the board of directors of Adobe Systems,
Inc.
Mr. Jarrat was appointed to the Board of Directors in August 1994. He is
currently President of Jarrat Global Enterprises, Inc. From 1983 to 1987, he
served as President and Chief Operating Officer of VLSI Technology, Inc., and
for seven years prior to 1983, he served at Motorola, Inc. as a Corporate Vice
President and General Manager.
Mr. Vonderschmitt has served as a director of the Company since August
1992. He is a co-founder of Xilinx, Inc. and has served as its Chief Executive
Officer since February 1984. Prior to founding Xilinx, he spent two and one-half
years at Zilog, Inc., then a subsidiary of Exxon, as Vice President and General
Manager of the Microprocessor Division. Prior to joining Zilog, he was with RCA
for more than twenty years in mostly technical management positions. During his
last seven years at RCA, Mr. Vonderschmitt served as Vice President and General
Manager of the Solid State Division. Mr. Vonderschmitt also serves as a director
on the boards of Xilinx, Inc., IMP, Inc., Sanmina, Inc. and Credence Systems
Corporation.
26
<PAGE> 28
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of September 30, 1995, and as
adjusted to reflect the sale of the shares offered by the Company and the
Selling Stockholder pursuant to this Prospectus, by (i) each of the Company's
directors, the Company's Chief Executive Officer and each of the Company's four
other most highly compensated executive officers in fiscal 1995, (ii) all
directors and executive officers as a group, (iii) each person who is known by
the Company to own beneficially more than 5% of the Company's Common Stock, and
(iv) the Selling Stockholder (who is also a director of the Company).
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BENEFICIALLY
OFFERING(1) NUMBER OF OWNED AFTER OFFERING
----------------------- SHARES -----------------------
NAME NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
- ----------------------------------- -------- ---------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
FMR Corporation(2)................. 2,222,800 10.96% -- 2,222,800 9.55%
Gordon A. Campbell(3).............. 660,725 3.25 350,000 310,725 1.33
Gene P. Carter(4).................. 115,179 * -- 115,179 *
Henri A. Jarrat(5)................. 155,000 * -- 155,000 *
James F. Stafford(6)............... 402,077 1.94 -- 402,077 1.70
Bernard V. Vonderschmitt(7)........ 51,300 * -- 51,300 *
Keith A. Angelo(8)................. 190,503 * -- 190,503 *
Richard E. Christopher(9).......... 145,000 * -- 145,000 *
Morris E. Jones, Jr.(10)........... 480,637 2.34 -- 480,637 2.04
Lawrence A. Roffelsen(11).......... 180,000 * -- 180,000 *
All directors and executive
officers as a group (12
persons)(12)..................... 2,759,020 12.45% 350,000 2,409,020 9.57
</TABLE>
- ---------------
* Less than 1%.
(1) Unless otherwise indicated below, the persons and entities named in the
above table have sole voting and sole investment power with respect to all
shares beneficially owned, subject to community property laws where
applicable.
(2) The address of FMR Corporation is 82 Devonshire Street, Boston,
Massachusetts 02109. The information provided is derived from a Schedule
13G filed by FMR Corporation with the Commission in June 1995.
(3) Includes 55,000 shares subject to immediately exercisable options. Includes
38,231 unvested shares.
(4) Includes 75,000 shares subject to immediately exercisable options. Includes
30,212 unvested shares.
(5) All shares are subject to an immediately exercisable option. Includes
96,616 unvested shares.
(6) Includes 400,000 shares subject to immediately exercisable options.
Includes 210,938 unvested shares.
(7) Includes 50,000 shares subject to immediately exercisable options. Includes
21,462 unvested shares.
(8) Includes 189,500 shares subject to immediately exercisable options.
Includes 79,586 unvested shares.
(9) All shares are subject to an immediately exercisable option. Includes
63,959 unvested shares.
(10) Includes 260,000 shares subject to immediately exercisable options.
Includes 53,543 unvested shares.
(11) All shares are subject to an immediately exercisable option. Includes
72,918 unvested shares.
(12) Includes 1,887,500 shares subject to immediately exercisable options.
Includes 911,740 unvested shares.
27
<PAGE> 29
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Hambrecht & Quist LLC,
Donaldson, Lufkin & Jenrette Securities Corporation and Salomon Brothers Inc,
have severally agreed to purchase from the Company and the Selling Stockholder
the following respective number of shares of Common Stock.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Hambrecht & Quist LLC.....................................................
Donaldson, Lufkin & Jenrette Securities Corporation.......................
Salomon Brothers Inc .....................................................
---------
Total........................................................... 3,350,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel and
independent auditors and the Selling Stockholder. The nature of the
Underwriters' obligation is such that they are committed to purchase all shares
of Common Stock offered hereby if any such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the offering price set forth on the cover of this Prospectus and
to certain dealers at such price less a concession not in excess of $
per share. The Underwriters may allow and such dealers may reallow a concession
not in excess of $ per share to certain other dealers. After the public
offering of the shares, the offering price and other selling terms may be
changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable for a
period of 30 days after the date of this Prospectus, to purchase up to 502,500
additional shares of Common Stock at the public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus. To the
extent that the Underwriters exercise this option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of Common Stock to be purchased by it shown in the
above table bears to the total number of shares of Common Stock offered hereby.
The Company will be obligated, pursuant to the option, to sell such shares to
the Underwriters to the extent the option is exercised. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of the shares of Common Stock offered hereby.
The offering of the shares 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.
28
<PAGE> 30
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
The Company's executive officers and directors, who will own in the
aggregate 2,409,020 shares of Common Stock after the offering, including shares
of Common Stock issuable upon exercise of outstanding options, have agreed that
they will not, without the prior written consent of Hambrecht & Quist LLC,
offer, sell, or otherwise dispose of any shares during the period beginning at
the time this Registration Statement is filed with the Commission and ending 90
days following the date of this Prospectus. The Company has agreed that it will
not, without the prior written consent of Hambrecht & Quist LLC, offer, sell or
otherwise dispose of any shares of Common Stock, options or warrants to acquire
shares of Common Stock or securities exchangeable for or convertible into shares
of Common Stock during the period beginning at the time this Registration
Statement is filed with the Commission and ending 90 days following the date of
this Prospectus, except that the Company may issue shares upon the exercise of
options granted prior to the date hereof, may grant additional options under its
stock option plans, and may issue shares pursuant to the Company's stock
purchase plan.
In general, the rules of the Commission will prohibit the underwriters from
making a market in the Company's Common Stock during the "cooling off" period
immediately preceding the commencement of sales in the offering. The Commission
has, however, adopted exemptions from these rules that permit passive market
making under certain conditions. These rules permit an underwriter to continue
to make a market subject to the conditions, among others, that its bid not
exceed the highest bid by a market maker not connected with the offering and
that its net purchases on any one trading day not exceed prescribed limits.
Pursuant to these exemptions, certain Underwriters, selling group members (if
any) or their respective affiliates intend to engage in passive market making in
the Company's Common Stock during the cooling off period.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company and the Selling Stockholder by Gray Cary Ware & Freidenrich, a
Professional Corporation, Palo Alto, California. Certain legal matters relating
to the offering will be passed upon for the Underwriters by Fenwick & West, Palo
Alto, California.
EXPERTS
The consolidated financial statements of Chips and Technologies, Inc.
incorporated in this Prospectus by reference to the Company's Annual Report on
Form 10-K for the year ended June 30, 1995, have been so incorporated in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
29
<PAGE> 31
- ------------------------------------------------------------
------------------------------------------------------------
- ------------------------------------------------------------
------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR,
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................... 2
Incorporation of Certain Documents by
Reference................................ 2
Prospectus Summary......................... 3
Risk Factors............................... 5
The Company................................ 12
Use of Proceeds............................ 12
Price Range of Common Stock................ 13
Dividend Policy............................ 13
Capitalization............................. 14
Selected Consolidated Financial Data....... 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 16
Business................................... 20
Management................................. 25
Principal and Selling Stockholders......... 27
Underwriting............................... 28
Legal Matters.............................. 29
Experts.................................... 29
</TABLE>
3,350,000 SHARES
LOGO
COMMON STOCK
--------------------
PROSPECTUS
--------------------
HAMBRECHT & QUIST
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
NOVEMBER , 1995
- ------------------------------------------------------------
------------------------------------------------------------
- ------------------------------------------------------------
------------------------------------------------------------
<PAGE> 32
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All amounts shown are estimates except
the Securities and Exchange Commission registration fee, the NASD filing fee and
the Nasdaq additional listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee....................... $ 15,859
NASD filing fee........................................................... 5,099
Nasdaq additional listing fee............................................. 17,500
Accounting fees and expenses.............................................. 45,000
Printing and engraving expenses........................................... 55,000
Transfer agent and registrar fees......................................... 5,000
Blue Sky fees and expenses................................................ 10,000
Legal fees and expenses................................................... 115,000
Miscellaneous expenses.................................................... $ 6,542
------
Total........................................................... $275,000
======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("Delaware Law")
permits indemnification of officers, directors, and other corporate agents under
certain circumstances and subject to certain limitations. The Registrant's
Certificate of Incorporation and Bylaws provide that the Registrant shall
indemnify its directors, officers, employees and agents to the full extent
permitted by Delaware Law, including in circumstances in which indemnification
is otherwise discretionary under Delaware Law. In addition, the Registrant has
entered into separate indemnification agreements with its directors and officers
which would require the Registrant, among other things, to indemnify them
against certain liabilities which may arise by reason of their status or service
(other than liabilities arising from willful misconduct of a culpable nature)
and to maintain directors' and officers' liability insurance, if available on
reasonable terms. The Registrant has directors' and officers' liability
insurance with $5.0 million in coverage per occurrence.
These indemnification provisions may be sufficiently broad to permit
indemnification of the Registrant's officers and directors for liabilities
(including reimbursement of expenses incurred) arising under the Securities Act
of 1933, as amended (the "Securities Act").
The Underwriting Agreement 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 16. EXHIBITS.
The following exhibits are filed with this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ---------- ----------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
5.1 Opinion and Consent of Gray Cary Ware & Freidenrich, A Professional Corporation,
with respect to the Common Stock being registered.
23.1 Consent of Independent Accountants (included in Exhibit 23.1).
23.2 Consent of Gray Cary Ware & Freidenrich, A Professional Corporation (included in
Exhibit 5.1).
24.1 Power of Attorney (included on the signature page of this Registration Statement).
</TABLE>
II-1
<PAGE> 33
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, 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 undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities 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 Securities
Act of 1933, 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-2
<PAGE> 34
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Jose, State of California, on October 12, 1995.
CHIPS AND TECHNOLOGIES, INC.
By: /s/ JAMES F. STAFFORD
James F. Stafford
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints James F. Stafford and Timothy R.
Christoffersen, and each of them, their true and lawful attorneys and agents,
with full power of substitution, each with power to act alone, to sign and
execute on behalf of the undersigned any amendment or amendments to this
Registration Statement on Form S-3 and to perform any acts necessary in order to
file such amendments, and each of the undersigned does hereby ratify and confirm
all that said attorneys and agents, or their or his substitutes, shall do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on October 12, 1995 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
/s/ GORDON A. CAMPBELL Chairman of the Board of Directors
Gordon A. Campbell
/s/ JAMES F. STAFFORD President, Chief Executive Officer, and
James F. Stafford Director
(Principal Executive Officer)
/s/ TIMOTHY R. CHRISTOFFERSEN Chief Financial Officer (Principal Accounting
Timothy R. Christoffersen and Financial Officer)
/s/ GENE P. CARTER Director
Gene P. Carter
/s/ HENRI A. JARRAT Director
Henri A. Jarrat
Director
------------------------------
Bernard V. Vonderschmitt
</TABLE>
II-3
<PAGE> 1
Exhibit 1.1
CHIPS AND TECHNOLOGIES, INC.
3,350,000 SHARES
COMMON STOCK
($0.01 PAR VALUE)
UNDERWRITING AGREEMENT
November __, 1995
HAMBRECHT & QUIST LLC
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
As Representatives of the Several
Underwriters Named on Schedule I hereto
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, CA 94104
Ladies and Gentlemen:
Chips & Technologies, Inc., a Delaware corporation (herein called the
Company), proposes to issue and sell 3,000,000 shares of its authorized but
unissued Common Stock, $0.01 par value (herein called the Common Stock) and the
stockholder of the Company named in Schedule II hereto (herein called the
Selling Securityholder) proposes to sell an aggregate of 350,000 shares of the
Common Stock of the Company (said 3,350,000 shares of Common Stock being herein
called the Underwritten Stock). The Company proposes to grant to the
Underwriters (as hereinafter defined) an option to purchase up to 502,500
additional shares of Common Stock (herein called the Option Stock and with the
Underwritten Stock herein collectively called the Stock). The Common Stock is
more fully described by incorporation by reference in the Registration
Statement and the Prospectus hereinafter mentioned.
The Company and the Selling Securityholder hereby confirm the
agreements made with respect to the purchase of the Stock by the several
underwriters, for whom you are acting, named in Schedule I hereto (herein
collectively called the Underwriters, which term shall also include any
underwriter purchasing Stock pursuant to Section 3(b) hereof). You represent
and warrant that you have been authorized by each of the other Underwriters to
enter into this Agreement on its behalf and to act for it in the manner herein
provided.
1. REGISTRATION STATEMENT. The Company has filed with the
Securities and Exchange Commission (herein called the Commission) a
registration statement on Form S-3 (No. 33-_____), including the related
preliminary prospectus, for the registration under the Securities Act of 1933,
as amended (herein called the Securities Act) of the Stock. Copies of such
<PAGE> 2
registration statement and of each amendment thereto, if any, including the
related preliminary prospectus (meeting the requirements of Rule 430A of the
rules and regulations of the Commission) heretofore filed by the Company with
the Commission have been delivered to you.
The term Registration Statement as used in this agreement shall mean
such registration statement, including all documents incorporated by reference
therein, all exhibits and financial statements, all information omitted
therefrom in reliance upon Rule 430A and contained in the Prospectus referred
to below, in the form in which it became effective, and any registration
statement filed pursuant to Rule 462(b) of the rules and regulations of the
Commission with respect to the Stock (herein called a Rule 462(b) registration
statement), and, in the event of any amendment thereto after the effective date
of such registration statement (herein called the Effective Date), shall also
mean (from and after the effectiveness of such amendment) such registration
statement as so amended (including any Rule 462(b) registration statement).
The term Prospectus as used in this Agreement shall mean the prospectus,
including the documents incorporated by reference therein, relating to the
Stock first filed with the Commission pursuant to Rule 424(b) and Rule 430A (or
if no such filing is required, as included in the Registration Statement) and,
in the event of any supplement or amendment to such prospectus after the
Effective Date, shall also mean (from and after the filing with the Commission
of such supplement or the effectiveness of such amendment) such prospectus as
so supplemented or amended. The term Preliminary Prospectus as used in this
Agreement shall mean each preliminary prospectus, including the documents
incorporated by reference therein, included in such registration statement
prior to the time it becomes effective.
The Registration Statement has been declared effective under the
Securities Act, and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement. The Company has caused to be
delivered to you copies of each Preliminary Prospectus and has consented to the
use of such copies for the purposes permitted by the Securities Act.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SECURITYHOLDER.
(a) The Company hereby represents and warrants as follows:
(i) Each of the Company and its subsidiaries has
been duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, has full
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement and the Prospectus and as
being conducted, and is duly qualified as a foreign corporation and in good
standing in all jurisdictions in which the character of the property owned or
leased or the nature of the business transacted by it makes qualification
necessary (except where the failure to be so qualified would not have a
material adverse effect on the business, properties, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole).
The only subsidiaries of the Company are (i) Chips and Technologies ASIC, Inc.,
(ii) Chips and Technologies Taiwan Inc. (the "Taiwan Subsidiary"), (iii) Chips
and Technologies GmbH and (iv) Chips and Technologies Japan KK, all of which
are wholly owned, and the assets, liabilities and revenue, net income or losses
of such subsidiaries, individually and jointly, are not material to the
Company, each such
<PAGE> 3
subsidiary is not a significant subsidiary "as defined in Regulation S-X
promulgated under the Securities Act and only the Taiwan Subsidiary has any
employees.
(ii) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus, there
has not been any materially adverse change in the business, properties,
financial condition, results of operations or prospects of the Company and its
subsidiaries, taken as a whole, whether or not arising from transactions in the
ordinary course of business, other than as set forth in the Registration
Statement and the Prospectus, and since such dates, except in the ordinary
course of business, neither the Company nor any of its subsidiaries has entered
into any material transaction not referred to in the Registration Statement and
the Prospectus.
(iii) The Registration Statement and the Prospectus
comply, and on the Closing Date (as hereinafter defined) and any later date on
which Option Stock is to be purchased, the Prospectus will comply, in all
material respects, with the provisions of the Securities Act and the Securities
Exchange Act of 1934, as amended (herein called the Exchange Act) and the rules
and regulations of the Commission thereunder; on the Effective Date, the
Registration Statement, including the Prospectus, did not contain any untrue
statement of a material fact and did not omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading; and, on the Closing Date and any later date on which
Option Stock is to be purchased, the Prospectus will not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that none of the
representations and warranties in this subparagraph (iii) shall apply to
statements in, or omissions from, the Registration Statement or the Prospectus
made in reliance upon and in conformity with information herein or otherwise
furnished in writing to the Company by or on behalf of the Underwriters for use
in the Registration Statement or the Prospectus.
(iv) The Company's outstanding capital stock has
been duly authorized, validly issued, fully paid and nonassessable, was issued
in compliance with the registration and qualification provisions of applicable
federal and state securities laws, or exemptions therefrom and was issued free
of any preemptive right, right of first refusal or similar right. The Stock is
duly authorized, is (or, in the case of shares of the Stock to be sold by the
Company, will be, when issued and sold to the Underwriters as provided herein)
validly issued, fully paid and nonassessable and conforms to the description
thereof incorporated into the Prospectus. No further approval or authority of
the stockholders or the Board of Directors of the Company will be required for
the transfer and sale of the Stock to be sold by the Selling Securityholder or
the issuance and sale of the Stock to be sold by the Company as contemplated
herein. No preemptive right, or right of first refusal in favor of
stockholders, exists with respect to the Stock, or the issue and sale thereof,
pursuant to the Certificate of Incorporation or Bylaws of the Company, and
there is no contractual preemptive right, right of first refusal, right of
co-sale or similar right which exists and has not been waived with respect to
the Stock being sold by the Selling Securityholder or the issue and sale of the
Stock to be sold by the Company.
(v) The Registration Statement has become
effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement or suspending or preventing the use
of the Prospectus is in effect and, to the Company's knowledge
3
<PAGE> 4
after telephonic inquiry to the Commission, no proceeding for that purpose has
been instituted or is contemplated by the Commission.
(vi) This Agreement has been duly authorized,
executed and delivered by the Company and, assuming due authorization,
execution and delivery by the Representatives, constitutes a valid and binding
obligation of the Company enforceable in accordance with its terms, except as
(A) enforcement (i) may be limited by the effect of bankruptcy, insolvency,
reorganization, moratorium and other similar laws effecting the rights of
creditors generally (ii) is subject to general principles of equity, including
the possible unavailability of specific performance, injunctive relief or other
equitable remedies, and (B) rights to indemnity or contribution may be limited
by federal or state securities laws.
(vii) The execution and delivery by the Company of,
and the performance by the Company of its obligations under, this Agreement,
and the issue and sale by the Company of the shares of Stock to be sold by the
Company as provided herein will not conflict with, or result in a breach of,
the Certificate of Incorporation or Bylaws of the Company or any material
agreement or instrument to which the Company is a party or any applicable law
or regulation, or any judgment, order, writ, injunction or decree, of any
jurisdiction, court or governmental instrumentality, which conflict or breach
would have a material adverse effect on the Company.
(viii) All holders of securities of the Company
having rights to the registration of shares of Common Stock, or other
securities, because of the filing of the Registration Statement by the Company
have waived such rights or such rights have expired by reason of lapse of time
following notification of the Company's intent to file the Registration
Statement.
(ix) No consent, approval, authorization or order
of any court or governmental agency or body is required for the consummation of
the transactions contemplated herein, except such as have been (or will before
the Closing Date have been) obtained under the Securities Act, the Exchange
Act, or the rules and regulations of the National Association of Securities
Dealers, Inc. (the NASD) and such as may be required under state securities or
blue sky laws in connection with the purchase and distribution of the Stock by
the Underwriters.
(x) Each of the Company and its subsidiaries is
not infringing or otherwise violating any patent, copyright, trade secret,
trademark, service mark, trade name, technology, know-how or other proprietary
information or material of others, which could result in any material adverse
effect on the business, properties, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole. The Company
and its subsidiaries have not received any notice of infringement or conflict
with (and the Company knows of no conflict or infringement with) asserted
rights of others with respect to any patents, copyrights, trademarks, service
marks, trade names, technology or know-how, which could result in any material
adverse effect on the business, properties, financial condition, results of
operations or prospects of the Company and its subsidiaries, taken as a whole.
(xi) Each of the Company and its subsidiaries owns
or possesses sufficient licenses or other rights to use all patents,
copyrights, trade secrets, trademarks, service marks, trade names, technology,
know-how or other proprietary information or materials
4
<PAGE> 5
necessary to conduct the business now being conducted by the Company and its
subsidiaries as described in the Prospectus.
(xii) There is no legal or governmental proceeding
pending or, to the Company's knowledge, threatened to which the Company is a
party or to which any of the properties of the Company is subject that is
required to be described in the Registration Statement or the Prospectus and is
not so described, nor is there any statute, regulation, contract or other
document that is required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement that is
not described or filed.
(xiii) The Company has all necessary consents,
authorizations, approvals, orders, certificates and permits of and from, and
has made all declarations and filings with, all governmental authorities, to
own, lease, license and use its properties and assets and to conduct its
business in the manner described in the Prospectus, except to the extent that
the failure to obtain or file such would not have a material adverse effect on
the business, properties, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole.
(xiv) The Company is familiar with the Investment
Company Act of 1940, as amended (the 1940 Act), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to
continue to conduct, its affairs in such a manner as to ensure that it will not
become an "investment company" within the meaning of the 1940 Act and such
rules and regulations.
(xv) The Stock has been approved for listing on
the Nasdaq National Market.
(xvi) The Company has not distributed and will not
distribute prior to the Closing Date any offering material in connection with
the offering and sale of the Stock other than the Preliminary Prospectus, the
Prospectus, the Registration Statement and the other materials permitted by the
Securities Act.
(xvii) Each of the Company and its subsidiaries
maintains insurance of the types and in the amounts the Company reasonably
believes to be adequate for its business, including, but not limited to,
insurance covering real and personal property owned or leased by the Company
and its subsidiaries against theft, damage, destruction, acts of vandalism and
all other risks customarily insured against, all of which insurance is in full
force and effect. The Company has not been refused any insurance coverage
sought or applied for; and the Company has no reason to believe that it will
not be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not materially and adversely
affect the condition (financial or otherwise), operations or business of the
Company and its subsidiaries taken as a whole.
(xviii) Neither the Company nor any of its
subsidiaries has at any time during the last five (5) years in any jurisdiction
(A) made any unlawful contribution to any candidate for office, or failed to
disclose fully any contribution in violation of law, or (B) made any payment to
any governmental officer or official, or other person charged with similar
public or quasi-public duties other than payments required or permitted by the
laws of the United States.
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(xix) Neither the Company nor any of its
subsidiaries or to the Company's knowledge, affiliates does business with the
government of Cuba or with any person or affiliate located in Cuba.
(xx) Each of the Company and its subsidiaries
maintains a system of internal accounting controls sufficient to provide
reasonable assurances that (A) transactions are executed in accordance with
management's general or specific authorization; (B) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain accountability for
assets; (C) access to its assets is permitted only in accordance with
management's general or specific authorization; and (D) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to differences.
(b) The Selling Securityholder hereby represents and
warrants as follows:
(i) The Selling Securityholder has good and
marketable title to all the shares of Stock to be sold by the Selling
Securityholder hereunder, free and clear of all liens, encumbrances, equities,
security interests and claims whatsoever, with full right and authority to
deliver the same hereunder, subject to the rights of _________________, as
Custodian (herein called the Custodian), and that upon the delivery of and
payment for such shares of the Stock hereunder, the several Underwriters will
receive good and marketable title thereto, free and clear of all liens,
encumbrances, equities, security interests and claims whatsoever.
(ii) Certificates in negotiable form for the
shares of the Stock to be sold by the Selling Securityholder have been placed
in custody under a Custody Agreement for delivery under this Agreement with the
Custodian; the Selling Securityholder specifically agrees that the shares of
the Stock represented by the certificates so held in custody for the Selling
Securityholder are subject to the interests of the several Underwriters and the
Company, that the arrangements made by the Selling Securityholder for such
custody, including the Power of Attorney provided for in such Custody
Agreement, are to that extent irrevocable, and that the obligations of the
Selling Securityholder shall not be terminated by any act of the Selling
Securityholder or by operation of law, whether by the death or incapacity of
the Selling Securityholder or the occurrence of any other event; if any such
death, incapacity, dissolution, liquidation or other such event should occur
before the delivery of such shares of the Stock hereunder, certificates for
such shares of the Stock shall be delivered by the Custodian in accordance with
the terms and conditions of this Agreement as if such death, incapacity,
dissolution, liquidation or other event had not occurred, regardless of whether
the Custodian shall have received notice of such death, incapacity,
dissolution, liquidation or other event.
(iii) The Selling Securityholder has reviewed the
Registration Statement and Prospectus and, although the Selling Securityholder
has not independently verified the accuracy or completeness of all the
information contained therein, nothing has come to the attention of the Selling
Securityholder that would lead the Selling Securityholder to believe that on
the Effective Date, the Registration Statement contained any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading;
and, on the Effective Date the Prospectus contained and, on the Closing Date
and any later date on which Option Stock is to be purchased, contains any
untrue statement of a material fact or omitted or omits to state any material
fact necessary in
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<PAGE> 7
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(iv) All information furnished in writing by or on
behalf of the Selling Securityholder for use in the Registration Statement and
Prospectus is, and on the Closing Date will be, true, correct, and complete,
and does not, and on the Closing Date will not, contain any untrue statement of
a material fact or omit to state any material fact necessary to make such
information not misleading.
(v) The Selling Securityholder has no reason to
believe that any representation or warranty of the Company set forth in Section
2(a) above is untrue or inaccurate in any material respect.
(vi) The sale of the Stock by the Selling
Securityholder pursuant hereto is not prompted by any adverse information
concerning the Company which is not set forth in the Registration Statement and
Prospectus.
(vii) The execution and delivery by the Selling
Securityholder of, and the performance by the Selling Securityholder of its
obligations under, this Agreement, the custody agreement signed by the Selling
Securityholder and the Custodian, relating to the deposit of the Stock to be
sold by the Selling Securityholder (the Custody Agreement) and the power of
attorney appointing certain individuals as the Selling Securityholder's
attorneys-in-fact to the extent set forth therein, relating to the transactions
contemplated hereby and by the Registration Statement will not contravene any
provision of applicable law or any agreement or other instrument binding upon
the Selling Securityholder or any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Selling Securityholder, and
no consent, approval, authorization or order of or qualification with any court
or governmental body or agency is required for the performance by the Selling
Securityholder of his obligations under this Agreement, the Custody Agreement
or the Power of Attorney of the Selling Securityholder, except such as may be
required under the Securities Act, by the NASD, or by the securities or Blue
Sky laws of various states in connection with the offer and sale of the Stock
by the Underwriters.
(viii) The Selling Securityholder has, and on the
Closing Date will have, the legal right and power, and all authorization and
approval required by law, to enter into this Agreement, the Custody Agreement
and the Power of Attorney and to sell, transfer and deliver in the manner
provided in this Agreement the shares of Stock to be sold by the Selling
Securityholder.
(ix) Each of this Agreement, the Custody Agreement
and the Power of Attorney has been duly authorized, executed and delivered by
or on behalf of the Selling Securityholder and, assuming due authorization,
execution and delivery by the other parties thereto, constitutes a valid and
binding obligation of the Selling Securityholder enforceable in accordance with
its terms, except as (A) enforcement (i) may be limited by the effect of
bankruptcy, insolvency, reorganization, moratorium and other similar laws
effecting the rights of creditors generally (ii) is subject to general
principles of equity, including the possible unavailability of specific
performance, injunctive relief or other equitable remedies, and (B) rights to
indemnity or contribution may be limited by federal or state securities laws.
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<PAGE> 8
3. PURCHASE OF THE STOCK BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties
and subject to the terms and conditions herein set forth, the Company agrees to
issue and sell 3,000,000 shares of the Underwritten Stock to the several
Underwriters , the Selling Securityholder agrees to sell to the several
Underwriters 350,000 shares of the Underwritten Stock, and each of the
Underwriters agrees to purchase from the Company and the Selling Securityholder
the respective aggregate number of shares of Underwritten Stock set forth
opposite its name in Schedule I. The price at which such shares of
Underwritten Stock shall be sold by the Company and the Selling Securityholder
and purchased by the several Underwriters shall be $___ per share. In making
this Agreement, each Underwriter is contracting severally and not jointly;
except as provided in paragraphs (b) and (c) of this Section 3, the agreement
of each Underwriter is to purchase only the respective number of shares of the
Underwritten Stock specified in Schedule I.
(b) If for any reason one or more of the Underwriters
shall fail or refuse (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Sections 8 and 9 hereof)
to purchase and pay for the number of shares of the Stock agreed to be
purchased by such Underwriter or Underwriters, the Company and the Selling
Securityholder shall immediately give notice thereof to you, and the
non-defaulting Underwriters shall have the right within 24 hours after the
receipt by you of such notice to purchase, or procure one or more other
Underwriters to purchase, in such proportions as may be agreed upon between you
and such purchasing Underwriter or Underwriters and upon the terms herein set
forth, all or any part of the shares of the Stock which such defaulting
Underwriter or Underwriters agreed to purchase. If the non-defaulting
Underwriters fail so to make such arrangements with respect to all such shares
and portion, the number of shares of the Stock which each non- defaulting
Underwriter is otherwise obligated to purchase under this Agreement shall be
automatically increased on a pro rata basis to absorb the remaining shares and
portion which the defaulting Underwriter or Underwriters agreed to purchase;
provided, however, that the non-defaulting Underwriters shall not be obligated
to purchase the shares and portion which the defaulting Underwriter or
Underwriters agreed to purchase if the aggregate number of such shares of the
Stock exceeds 10% of the total number of shares of the Stock which all
Underwriters agreed to purchase hereunder. If the total number of shares of
the Stock which the defaulting Underwriter or Underwriters agreed to purchase
shall not be purchased or absorbed in accordance with the two preceding
sentences, the Company and the Selling Securityholder shall have the right,
within 24 hours next succeeding the 24-hour period above referred to, to make
arrangements with other underwriters or purchasers satisfactory to you for
purchase of such shares and portion on the terms herein set forth. In any such
case, either you or the Company and the Selling Securityholder shall have the
right to postpone the Closing Date determined as provided in Section 5 hereof
for not more than seven business days after the date originally fixed as the
Closing Date pursuant to said Section 5 in order that any necessary changes in
the Registration Statement, the Prospectus or any other documents or
arrangements may be made. If neither the non-defaulting Underwriters nor the
Company and the Selling Securityholder shall make arrangements within the
24-hour periods stated above for the purchase of all the shares of the Stock
which the defaulting Underwriter or Underwriters agreed to purchase hereunder,
this Agreement shall be terminated without further act or deed and without any
liability on the part of the Company or the Selling Securityholder to any
non-defaulting Underwriter and without any liability on the part of any
non-defaulting Underwriter to the Company or the Selling Securityholder.
Nothing in this paragraph (b), and no action taken hereunder, shall relieve any
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<PAGE> 9
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
(c) On the basis of the representations, warranties and
covenants herein contained, and subject to the terms and conditions herein set
forth, the Company grants an option to the several Underwriters to purchase,
severally and not jointly, up to 502,500 shares in the aggregate of the Option
Stock from the Company at the same price per share as the Underwriters shall
pay for the Underwritten Stock. Said option may be exercised only to cover
over-allotments in the sale of the Underwritten Stock by the Underwriters and
may be exercised in whole or in part at any time (but not more than once) on or
before the thirtieth day after the date of this Agreement upon written or
telegraphic notice by you to the Company setting forth the aggregate number of
shares of the Option Stock as to which the several Underwriters are exercising
the option. Delivery of certificates for the shares of Option Stock, and
payment therefor, shall be made as provided in Section 5 hereof. The number of
shares of the Option Stock to be purchased by each Underwriter shall be the
same percentage of the total number of shares of the Option Stock to be
purchased by the several Underwriters as such Underwriter is purchasing of the
Underwritten Stock, as adjusted by you in such manner as you deem advisable to
avoid fractional shares.
4. OFFERING BY UNDERWRITERS.
(a) The terms of the public offering by the Underwriters
of the Stock to be purchased by them shall be as set forth in the Prospectus.
The Underwriters may from time to time change the public offering price after
the closing of the public offering and increase or decrease the concessions and
discounts to dealers as they may determine.
(b) The information set forth in the last paragraph on
the front cover page and under "Underwriting" in the Registration Statement,
any Preliminary Prospectus and the Prospectus relating to the Stock filed by
the Company (insofar as such information relates to the Underwriters)
constitutes the only information furnished by the Underwriters to the Company
for inclusion in the Registration Statement, any Preliminary Prospectus, and
the Prospectus, and you on behalf of the respective Underwriters represent and
warrant to the Company that the statements made therein are correct.
5. DELIVERY OF AND PAYMENT FOR THE STOCK.
(a) Delivery of certificates for the shares of the
Underwritten Stock and the Option Stock (if the option granted by Section 3(c)
hereof shall have been exercised not later than 7:00 A.M., San Francisco time,
on the date two business days preceding the Closing Date), and payment
therefor, shall be made at the office of Gray Cary Ware & Freidenrich, A
Professional Corporation, 400 Hamilton Avenue, Palo Alto, California 94301, at
7:00 a.m., San Francisco time, on the fourth business day after the date of
this Agreement, or at such time on such other day, not later than seven full
business days after such fourth business day, as shall be agreed upon in
writing by the Company, the Selling Securityholder and you. The date and hour
of such delivery and payment (which may be postponed as provided in Section
3(b) hereof) are herein called the Closing Date.
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<PAGE> 10
(b) If the option granted by Section 3(c) hereof shall be
exercised after 7:00 a.m., San Francisco time, on the date two business days
preceding the Closing Date, delivery of certificates for the shares of Option
Stock, and payment therefor, shall be made at the office of Gray Cary Ware &
Freidenrich, A Professional Corporation, 400 Hamilton Avenue, Palo Alto,
California 94301, at 7:00 a.m., San Francisco time, on the third business day
after the exercise of such option.
(c) Payment for the Stock purchased from the Company
shall be made to the Company or its order , and payment for the Stock purchased
from the Selling Securityholder shall be made to the Custodian for the account
of the Selling Securityholder, in each case by one or more certified or
official bank check or checks in next day funds (and the Company and the
Selling Securityholder agree not to deposit any such check in the bank on which
drawn until the day following the date of its delivery to the Company or the
Custodian, as the case may be). Such payment shall be made upon delivery of
certificates for the Stock to you for the respective accounts of the several
Underwriters against receipt therefor signed by you. Certificates for the
Stock to be delivered to you shall be registered in such name or names and
shall be in such denominations as you may request at least one business day
before the Closing Date, in the case of Underwritten Stock, and at least one
business day prior to the purchase thereof, in the case of the Option Stock.
Such certificates will be made available to the Underwriters for inspection,
checking and packaging at the offices of Lewco Securities Corporation, 2
Broadway, New York, New York 10004 on the business day prior to the Closing
Date or, in the case of the Option Stock, by 3:00 p.m., New York time, on the
business day preceding the date of purchase.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
and the Selling Securityholder for shares to be purchased by any Underwriter
whose check shall not have been received by you on the Closing Date or any
later date on which Option Stock is purchased for the account of such
Underwriter. Any such payment by you shall not relieve such Underwriter from
any of its obligations hereunder.
6. FURTHER AGREEMENTS OF THE COMPANY AND THE SELLING
SECURITYHOLDER.
(a) The Company covenants and agrees as follows:
(i) The Company will (i) prepare and timely file
with the Commission under Rule 424(b) a Prospectus containing information
previously omitted at the time of effectiveness of the Registration Statement
in reliance on Rule 430A and (ii) not file any amendment to the Registration
Statement or supplement to the Prospectus of which you shall not previously
have been advised and furnished with a copy or to which you shall have
reasonably objected in writing or which is not in compliance with the
Securities Act or the rules and regulations of the Commission.
(ii) The Company will promptly notify each
Underwriter in the event of (i) the request by the Commission for amendment of
the Registration Statement or for supplement to the Prospectus or for any
additional information, (ii) the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement, (iii) the
institution or notice of intended institution of any action or proceeding for
that purpose, (iv) the receipt by the Company of any notification with respect
to the suspension of the
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qualification of the Stock for sale in any jurisdiction, or (v) the receipt by
it of notice of the initiation or threatening of any proceeding for such
purpose. The Company will make every reasonable effort to prevent the issuance
of such a stop order and, if such an order shall at any time be issued, to
obtain the withdrawal thereof at the earliest possible moment.
(iii) The Company will (i) on or before the Closing
Date, deliver to you a signed copy of the Registration Statement as originally
filed and of each amendment thereto filed prior to the time the Registration
Statement becomes effective and, promptly upon the filing thereof, a signed
copy of each post-effective amendment, if any, to the Registration Statement
(together with, in each case, all exhibits thereto unless previously furnished
to you) and will also deliver to you, for distribution to the Underwriters, a
sufficient number of additional conformed copies of each of the foregoing (but
without exhibits) so that one copy of each may be distributed to each
Underwriter, (ii) as promptly as possible deliver to you and send to the
several Underwriters, at such office or offices as you may designate, as many
copies of the Prospectus as you may reasonably request, and (iii) thereafter
from time to time during the period in which a prospectus is required by law to
be delivered by an Underwriter or dealer, likewise send to the Underwriters as
many additional copies of the Prospectus and as many copies of any supplement
to the Prospectus and of any amended prospectus, filed by the Company with the
Commission, as you may reasonably request for the purposes contemplated by the
Securities Act.
(iv) If at any time during the period in which a
prospectus is required by law to be delivered by an Underwriter or dealer any
event relating to or affecting the Company, or of which the Company shall be
advised in writing by you, shall occur as a result of which it is necessary, in
the opinion of counsel for the Company or of counsel for the Underwriters, to
supplement or amend the Prospectus in order to make the Prospectus not
misleading in the light of the circumstances existing at the time it is
delivered to a purchaser of the Stock, the Company will forthwith prepare and
file with the Commission a supplement to the Prospectus or an amended
prospectus so that the Prospectus as so supplemented or amended will not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances existing at the time such Prospectus is delivered to such
purchaser, not misleading. If, after the public offering of the Stock by the
Underwriters and during such period, the Underwriters shall propose to vary the
terms of offering thereof by reason of changes in general market conditions or
otherwise, you will advise the Company in writing of the proposed variation,
and, if in the opinion either of counsel for the Company or of counsel for the
Underwriters such proposed variation requires that the Prospectus be
supplemented or amended, the Company will forthwith prepare and file with the
Commission a supplement to the Prospectus or an amended prospectus setting
forth such variation. The Company authorizes the Underwriters and all dealers
to whom any of the Stock may be sold by the several Underwriters to use the
Prospectus, as from time to time amended or supplemented, in connection with
the sale of the Stock in accordance with the applicable provisions of the
Securities Act and the applicable rules and regulations thereunder for such
period.
(v) Prior to the filing thereof with the
Commission, the Company will submit to you, for your information, a copy of any
post-effective amendment to the Registration Statement and any supplement to
the Prospectus or any amended prospectus proposed to be filed.
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(vi) The Company will cooperate, when and as
requested by you, in the qualification of the Stock for offer and sale under
the securities or blue sky laws of such jurisdictions as you may designate and,
during the period in which a prospectus is required by law to be delivered by
an Underwriter or dealer, in keeping such qualifications in good standing under
said securities or blue sky laws; provided, however, that the Company shall not
be obligated to file any general consent to service of process or to qualify as
a foreign corporation in any jurisdiction in which it is not so qualified. The
Company will, from time to time, prepare and file such statements, reports, and
other documents as are or may be required to continue such qualifications in
effect for so long a period as you may reasonably request for distribution of
the Stock.
(vii) During a period of five years commencing with
the date hereof, the Company will furnish to you, and to each Underwriter who
may so request in writing, copies of all periodic and special reports furnished
to stockholders of the Company and all reports filed by the Company with the
Commission.
(viii) Not later than the 45th day following the end
of the fiscal quarter first occurring after the first anniversary of the
Effective Date, the Company will make generally available to its security
holders an earnings statement in accordance with Section 11(a) of the
Securities Act and Rule 158 thereunder.
(ix) The Company agrees to pay all costs and
expenses incident to the performance of its and the Selling Securityholder's
obligations under this Agreement, including all costs and expenses incident to
(i) the preparation, printing and filing with the Commission and the National
Association of Securities Dealers, Inc. of the Registration Statement, any
Preliminary Prospectus and the Prospectus, (ii) the furnishing to the
Underwriters of copies of any Preliminary Prospectus and of the several
documents required by paragraph (a)(iii) of this Section 6 to be so furnished,
(iii) the printing of this Agreement and related documents delivered to the
Underwriters, (iv) the preparation, printing and filing of all supplements and
amendments to the Prospectus referred to in paragraph (a)(iv) of this Section
6, (v) the furnishing to you and the Underwriters of the reports and
information referred to in paragraph (a)(vii) of this Section 6 and (vi) the
printing and issuance of stock certificates, including the transfer agent's
fees.
(x) The Company agrees to reimburse you, for the
account of the several Underwriters, for blue sky fees and related
disbursements (including counsel fees and disbursements and cost of printing
memoranda for the Underwriters) paid by or for the account of the Underwriters
or their counsel in qualifying the Stock under state securities or blue sky
laws and in the review of the offering by the NASD.
(xi) The Company hereby agrees that, without the
prior written consent of Hambrecht & Quist LLC on behalf of the Underwriters,
the Company will not, for a period beginning at the time the Company files the
Registration Statement with the Commission and ending 90 days following the
commencement of the public offering of the Stock by the Underwriters, directly
or indirectly, (i) sell, offer, contract to sell, transfer the economic risk of
ownership in, make any short sale, pledge, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of any shares of Common
Stock or any securities convertible into or exchangeable or exercisable for or
any rights to purchase or acquire Common Stock or (ii) enter into any swap or
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<PAGE> 13
other agreement that transfers, in whole or in part, any of the economic
consequences or ownership of Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise. The foregoing sentence
shall not apply to (A) the Stock to be sold to the Underwriters pursuant to
this Agreement, (B) shares of Common Stock issued by the Company upon the
exercise of options granted under the stock option plans of the Company (the
Option Plans) or upon the exercise of warrants outstanding as of the date
hereof, all as described in footnote (1) to the table under the caption
"Capitalization" in the Preliminary Prospectus, and (C) options to purchase
Common Stock granted under the Option Plans after the date of the Preliminary
Prospectus and shares of Common Stock issued by the Company upon the exercise
of such options.
(xii) If at any time during the 25-day period after
the Registration Statement becomes effective any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price for the Stock has been or is likely to be materially
affected (regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, and
requesting action pursuant to this subparagraph (o), forthwith prepare, consult
with you concerning the substance of, and disseminate a press release or other
public statement, reasonably satisfactory to you, responding to or commenting
on such rumor, publication or event.
(xiii) The Company is familiar with the Investment
Company Act of 1940, as amended, and has in the past conducted its affairs, and
will in the future conduct its affairs, in such a manner to ensure that the
Company was not and will not be an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, and the rules and regulations thereunder.
(b) The Selling Securityholder covenants and agrees as
follows:
(i) The Selling Securityholder will pay any
transfer taxes incident to the transfer to the Underwriters of the shares of
Stock being sold by the Selling Securityholder.
(ii) The Selling Securityholder hereby agrees
that, without your prior written consent, the Selling Securityholder will not,
for a period beginning at the time the Company files the Registration Statement
with the Commission and ending 90 days following the commencement of the public
offering of the Stock by the Underwriters, directly or indirectly, (i) sell,
offer, contract to sell, transfer the economic risk of ownership in, make any
short sale, pledge, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of any shares of Common Stock or any securities
convertible into or exchangeable or exercisable for or any rights to purchase
or acquire Common Stock or (ii) enter into any swap or other agreement that
transfers, in whole or in part, any of the economic consequences or ownership
of Common Stock, whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise.
(c) The Company and the Selling Securityholder agree that
the provisions of paragraphs (a)(ix) and (a)(x) of this Section are intended to
relieve the Underwriters from the payment of the expenses and costs which the
Company hereby agrees to pay and shall not affect
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any agreement which the Company and the Selling Securityholder may make, or may
have made, for the sharing of any such expenses and costs.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the provisions of paragraph (f) of this
Section 7, the Company and the Selling Securityholder jointly and severally
agree to indemnify and hold harmless each Underwriter and each person
(including each partner or officer thereof) who controls any Underwriter within
the meaning of Section 15 of the Securities Act from and against any and all
losses, claims, damages or liabilities, joint or several, to which such
indemnified parties or any of them may become subject under the Securities Act,
the Exchange Act, or the common law or otherwise, and the Company and the
Selling Securityholder jointly and severally agree to reimburse each such
Underwriter and controlling person for any legal or other expenses (including,
except as otherwise hereinafter provided, reasonable fees and disbursements of
counsel) incurred by the respective indemnified parties in connection with
defending against any such losses, claims, damages or liabilities or in
connection with any investigation or inquiry of, or other proceeding which may
be brought against, the respective indemnified parties, in each case to the
extent that such losses, claims, damages or liabilities arise out of or are
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (including the Prospectus as part
thereof and any Rule 462(b) registration statement) or any post-effective
amendment thereto (including any Rule 462(b) registration statement), or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(ii) any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus or the Prospectus (as amended or as
supplemented if the Company shall have filed with the Commission any amendment
thereof or supplement thereto) or the omission or alleged omission to state
therein a material fact necessary in order to make the statements therein not
misleading; provided, however, that (1) the indemnity agreements of the Company
and the Selling Securityholder contained in this paragraph (a) shall not apply
to any such losses, claims, damages, liabilities or expenses if such statement
or omission was made in reliance upon and in conformity with information
furnished as herein stated or otherwise furnished in writing to the Company by
or on behalf of any Underwriter for use in any Preliminary Prospectus or the
Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto and (2) the indemnity agreement contained in this paragraph
(a) with respect to any Preliminary Prospectus shall not inure to the benefit
of any Underwriter from whom the person asserting any such losses, claims,
damages, liabilities or expenses purchased the Stock which is the subject
thereof (or to the benefit of any person controlling such Underwriter) if at or
prior to the written confirmation of the sale of such Stock a copy of the
Prospectus (or the Prospectus as amended or supplemented) was not sent or
delivered to such person as required by the Securities Act and the untrue
statement or omission of a material fact contained in such Preliminary
Prospectus was corrected in the Prospectus (or the Prospectus as amended or
supplemented) unless the failure is the result of noncompliance by the Company
with paragraph (a)(iii) of Section 6 hereof. The indemnity agreements of the
Company and the Selling Securityholder contained in this paragraph (a) and the
representations and warranties of the Company and the Selling Securityholder
contained in Section 2 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any indemnified
party and shall survive the delivery of and payment for the Stock.
14
<PAGE> 15
(b) Each Underwriter severally agrees to indemnify and
hold harmless the Company, each of its officers who signs the Registration
Statement on his own behalf or pursuant to a power of attorney, each of its
directors, each other Underwriter and each person (including each partner or
officer thereof) who controls the Company or any such other Underwriter within
the meaning of Section 15 of the Securities Act, and the Selling Securityholder
from and against any and all losses, claims, damages or liabilities, joint or
several, to which such indemnified parties or any of them may become subject
under the Securities Act, the Exchange Act, or the common law or otherwise and
to reimburse each of them for any legal or other expenses (including, except as
otherwise hereinafter provided, reasonable fees and disbursements of counsel)
incurred by the respective indemnified parties in connection with defending
against any such losses, claims, damages or liabilities or in connection with
any investigation or inquiry of, or other proceeding which may be brought
against, the respective indemnified parties, in each case arising out of or
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (including the Prospectus as part
thereof and any Rule 462(b) registration statement) or any post-effective
amendment thereto (including any Rule 462(b) registration statement) or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading or
(ii) any untrue statement or alleged untrue statement of a material fact
contained in the Prospectus (as amended or as supplemented if the Company shall
have filed with the Commission any amendment thereof or supplement thereto) or
the omission or alleged omission to state therein a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, if such statement or omission was made in
reliance upon and in conformity with information furnished as herein stated or
otherwise furnished in writing to the Company by or on behalf of such
indemnifying Underwriter for use in the Registration Statement or the
Prospectus or any such amendment thereof or supplement thereto. The indemnity
agreement of each Underwriter contained in this paragraph (b) shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any indemnified party and shall survive the delivery of and
payment for the Stock.
(c) Each party indemnified under the provision of
paragraphs (a) and (b) of this Section 7 agrees that, upon the service of a
summons or other initial legal process upon it in any action or suit instituted
against it or upon its receipt of written notification of the commencement of
any investigation or inquiry of, or proceeding against, it in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (herein called the Notice) of
such service or notification to the party or parties from whom indemnification
may be sought hereunder. No indemnification provided for in such paragraphs
shall be available to any party who shall fail so to give the Notice if the
party to whom such Notice was not given was unaware of the action, suit,
investigation, inquiry or proceeding to which the Notice would have related and
was prejudiced by the failure to give the Notice, but the omission so to notify
such indemnifying party or parties of any such service or notification shall
not relieve such indemnifying party or parties from any liability which it or
they may have to the indemnified party for contribution or otherwise than on
account of such indemnity agreement. Any indemnifying party shall be entitled
at its own expense to participate in the defense of any action, suit or
proceeding against, or investigation or inquiry of, an indemnified party. Any
indemnifying party shall be entitled, if it so elects within a reasonable time
after receipt of the Notice by giving written notice (herein called the Notice
of Defense) to the indemnified party, to assume (alone or in conjunction with
any other
15
<PAGE> 16
indemnifying party or parties) the entire defense of such action, suit,
investigation, inquiry or proceeding, in which event such defense shall be
conducted, at the expense of the indemnifying party or parties, by counsel
chosen by such indemnifying party or parties and reasonably satisfactory to the
indemnified party or parties; provided, however, that (i) if the indemnified
party or parties reasonably determine that there may be a conflict between the
positions of the indemnifying party or parties and of the indemnified party or
parties in conducting the defense of such action, suit, investigation, inquiry
or proceeding or that there may be legal defenses available to such indemnified
party or parties different from or in addition to those available to the
indemnifying party or parties, then counsel for the indemnified party or
parties shall be entitled to conduct the defense to the extent reasonably
determined by such counsel to be necessary to protect the interests of the
indemnified party or parties and (ii) in any event, the indemnified party or
parties shall be entitled to have counsel chosen by such indemnified party or
parties participate in, but not conduct, the defense. If, within a reasonable
time after receipt of the Notice, an indemnifying party gives a Notice of
Defense and the counsel chosen by the indemnifying party or parties is
reasonably satisfactory to the indemnified party or parties, the indemnifying
party or parties will not be liable under paragraphs (a) through (c) of this
Section 7 for any legal or other expenses subsequently incurred by the
indemnified party or parties in connection with the defense of the action,
suit, investigation, inquiry or proceeding, except that (A) the indemnifying
party or parties shall bear the legal and other expenses incurred in connection
with the conduct of the defense as referred to in clause (i) of the proviso to
the preceding sentence and (B) the indemnifying party or parties shall bear
such other expenses as it or they have authorized to be incurred by the
indemnified party or parties. If, within a reasonable time after receipt of the
Notice, no Notice of Defense has been given, the indemnifying party or parties
shall be responsible for any legal or other expenses incurred by the
indemnified party or parties in connection with the defense of the action,
suit, investigation, inquiry or proceeding.
(d) If the indemnification provided for in this Section 7
is unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 7, then each indemnifying party, in lieu
of indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraph (a) or (b) of this Section 7 (i) in such
proportion as is appropriate to reflect the relative benefits received by each
indemnifying party from the offering of the Stock or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each indemnifying party
in connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, or actions in respect thereof, as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Selling Securityholder on the one hand and the Underwriters on
the other shall be deemed to be in the same respective proportions as the total
net proceeds from the offering of the Stock received by the Company and the
Selling Securityholder and the total underwriting discount received by the
Underwriters, as set forth in the table on the cover page of the Prospectus,
bear to the aggregate public offering price of the Stock. Relative fault shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by each indemnifying
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission.
16
<PAGE> 17
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this paragraph
(d). The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities, or actions in respect thereof, referred to in the first
sentence of this paragraph (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigation, preparing to defend or defending against any action or claim
which is the subject of this paragraph (d). Notwithstanding the provisions of
this paragraph (d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discount applicable to the Stock purchased by such
Underwriter. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this paragraph (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 7).
(e) Neither the Company nor the Selling Securityholder will,
without the prior written consent of each Underwriter, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim, action,
suit or proceeding in respect of which indemnification may be sought hereunder
(whether or not such Underwriter or any person who controls such Underwriter
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act is a party to such claim, action, suit or proceeding) unless such
settlement, compromise or consent includes an unconditional release of such
Underwriter and each such controlling person from all liability arising out of
such claim, action, suit or proceeding.
(f) The liability of the Selling Securityholder under the
Selling Securityholder's representations and warranties contained in Section 2
hereof and under the indemnity and reimbursement agreements contained in the
provisions of this Section 7 and Section 11 hereof shall be limited to an amount
equal to the public offering price of the Stock sold by the Selling
Securityholder to the Underwriters, less any commission paid to the
Underwriters. The Company and the Selling Securityholder may agree, as among
themselves and without limiting the rights of the Underwriters under this
Agreement, as to the respective amounts of such liability for which they each
shall be responsible.
8. TERMINATION. This Agreement may be terminated by you at any time
prior to the Closing Date by giving written notice to the Company and the
Selling Securityholder if after the date of this Agreement trading in the Common
Stock shall have been suspended, or if there shall have occurred (i) the
engagement in hostilities or an escalation of major hostilities by the United
States or the declaration of war or a national emergency by the United States on
or after the date hereof, (ii) any outbreak of hostilities or other national or
international calamity or crisis or change in economic or political conditions
if the effect of such outbreak, calamity, crisis or
17
<PAGE> 18
change in economic or political conditions in the financial markets of the
United States would, in the Underwriters' reasonable judgment, make the offering
or delivery of the Stock impracticable, (iii) suspension of trading in
securities generally or a material adverse decline in value of securities
generally on the New York Stock Exchange, the American Stock Exchange, The
Nasdaq Stock Market, or limitations on prices (other than limitations on hours
or numbers of days of trading) for securities on either such exchange or system,
(iv) the enactment, publication, decree or other promulgation of any federal or
state statute, regulation, rule or order of, or commencement of any proceeding
or investigation by, any court, legislative body, agency or other governmental
authority which in the Underwriters' reasonable opinion materially and adversely
affects or will materially or adversely affect the business or operations of the
Company, (v) declaration of a banking moratorium by either federal or New York
State authorities or (vi) the taking of any action by any federal, state or
local government or agency in respect of its monetary or fiscal affairs which in
the Underwriters' reasonable opinion has a material adverse effect on the
securities markets in the United States. If this Agreement shall be terminated
pursuant to this Section 8, there shall be no liability of the Company and the
Selling Securityholder to the Underwriters and no liability of the Underwriters
to the Company or the Selling Securityholder; provided, however, that in the
event of any such termination the Company and the Selling Securityholder agree
to indemnify and hold harmless the Underwriters from all costs or expenses
incident to the performance of the obligations of the Company and the Selling
Securityholder under this Agreement, including all costs and expenses referred
to in paragraphs (a)(ix) and (a)(x) of Section 6 hereof.
9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Stock shall be subject to the
performance by the Company and the Selling Securityholder of all of their
respective obligations to be performed hereunder at or prior to the Closing Date
or any later date on which Option Stock is to be purchased, as the case may be,
and to the following further conditions:
(a) The Registration Statement shall have become effective;
and no stop order suspending the effectiveness thereof shall have been issued
and no proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the Stock
hereunder and the validity and form of the certificates representing the Stock,
all corporate proceedings and other legal matters incident to the foregoing, and
the form of the Registration Statement and of the Prospectus (except as to the
financial statements contained therein), shall have been approved at or prior to
the Closing Date by Fenwick & West, counsel for the Underwriters.
(c) You shall have received from (i) Gray Cary Ware &
Freidenrich, A Professional Corporation, counsel for the Company and (ii)
General Counsel Associates, Counsel for the Selling Securityholder, opinions,
addressed to the Underwriters and dated the Closing Date, covering the matters
set forth in Annex A and B hereto, respectively, and if Option Stock is
purchased at any date after the Closing Date, an additional opinion from such
counsel, addressed to the Underwriters and dated such later date, confirming
that the statements expressed as of the Closing Date in such opinion remain
valid as of such later date.
18
<PAGE> 19
(d) You shall be satisfied that (i) as of the Effective Date,
the statements made in the Registration Statement and the Prospectus were true
and correct and neither the Registration Statement nor the Prospectus omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein, respectively, not misleading, (ii) since the
Effective Date, no event has occurred which should have been set forth in a
supplement or amendment to the Prospectus which has not been set forth in such a
supplement or amendment, (iii) since the respective dates as of which
information is given in the Registration Statement in the form in which it
originally became effective and the Prospectus contained therein, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the business, properties, financial
condition or results of operations of the Company, whether or not arising from
transactions in the ordinary course of business, and, since such dates, except
in the ordinary course of business, the Company has not entered into any
material transaction not referred to in the Registration Statement in the form
in which it originally became effective and the Prospectus contained therein,
(iv) the Company does not have any material contingent obligations which are not
disclosed in the Registration Statement and the Prospectus, (v) there are not
any pending or known threatened legal proceedings to which the Company is a
party or of which property of the Company or any of its subsidiaries is the
subject which are material and which are not disclosed in the Registration
Statement and the Prospectus, (vi) there are not any franchises, contracts,
leases or other documents which are required to be filed as exhibits to the
Registration Statement which have not been filed as required, (vii) the
representations and warranties of the Company herein are true and correct in all
material respects as of the Closing Date or any later date on which Option Stock
is to be purchased, as the case may be, and (viii) there has not been any
material change in the market for securities in general or in political,
financial or economic conditions from those reasonably foreseeable as to render
it impracticable in your reasonable judgment to make a public offering of the
Stock, or a material adverse change in market levels for securities in general
(or those of companies in particular) or financial or economic conditions which
render it inadvisable to proceed.
(e) You shall have received on the Closing Date and on any
later date on which Option Stock is purchased a certificate, dated the Closing
Date or such later date, as the case may be, and signed on behalf of the Company
by its President and the Chief Financial Officer of the Company, stating that
the respective signers of said certificate have carefully examined the
Registration Statement in the form in which it originally became effective and
the Prospectus contained therein and any supplements or amendments thereto, and
that the statements included in clauses (i) through (vii) of paragraph (d) of
this Section 9 are true and correct.
(f) You shall have received from Price Waterhouse LLP, a
letter or letters, addressed to the Underwriters and dated the Closing Date and
any later date on which Option Stock is purchased, confirming that they are
independent public accountants with respect to the Company within the meaning of
the Securities Act and the applicable published rules and regulations thereunder
and based upon the procedures described in their letter delivered to you
concurrently with the execution of this Agreement (herein called the Original
Letter), but carried out to a date not more than three business days prior to
the Closing Date or such later date on which Option Stock is purchased (i)
confirming, to the extent true, that the statements and conclusions set forth in
the Original Letter are accurate as of the Closing Date or such later date, as
the case may be, and (ii) setting forth any revisions and additions to the
statements and
19
<PAGE> 20
conclusions set forth in the Original Letter which are necessary to reflect any
changes in the facts described in the Original Letter since the date of the
Original Letter or to reflect the availability of more recent financial
statements, data or information. The letters shall not disclose any change, or
any development involving a prospective change, in or affecting the business or
properties of the Company which, in your sole judgment, makes it impractical or
inadvisable to proceed with the public offering of the Stock or the purchase of
the Option Stock as contemplated by the Prospectus.
(g) You shall have received from Price Waterhouse LLP a copy
of a letter delivered to you stating that their review of the Company's system
of internal accounting controls, to the extent they deemed necessary in
establishing the scope of their examination of the Company's financial
statements at June 30, 1995, did not disclose any weakness in internal
controls that they considered to be material weaknesses.
(h) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several jurisdictions,
or other evidence satisfactory to you, of the qualification referred to in
paragraph (a)(vi) of Section 6 hereof.
(i) Prior to the Closing Date, the Stock to be issued and sold
by the Company shall have been duly authorized for listing by the Nasdaq
National Market upon official notice of issuance.
(j) On or prior to the Closing Date, you shall have received
from all directors and officers stockholders agreements, in form reasonably
satisfactory to Hambrecht & Quist LLC, stating that without the prior written
consent of Hambrecht & Quist LLC on behalf of the Underwriters, such person or
entity will not, for a period beginning at the time the Company files the
Registration Statement with the Commission and ending 90 days following the
commencement of the public offering of the Stock by the Underwriters, directly
or indirectly, (i) sell, offer, contract to sell, make any short sale, transfer
the economic risk of ownership in, pledge, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of any shares of Common
Stock or any securities convertible into or exchangeable or exercisable for or
any rights to purchase or acquire Common Stock or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences or ownership of Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise.
All the agreements, opinions, certificates and letters mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Fenwick & West, counsel for the Underwriters, shall be
satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company and the Selling Securityholder. Any such termination shall be without
liability of the Company or the Selling Securityholder to the Underwriters and
without liability of the Underwriters to the Company or the Selling
Securityholder; provided, however, that (i) in the event of such termination,
the Company and the Selling Securityholder jointly and severally agree to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the
20
<PAGE> 21
obligations of the Company and the Selling Securityholder under this Agreement,
including all costs and expenses referred to in paragraphs (a)(ix) and (a)(x) of
Section 6 hereof, and (ii) if this Agreement is terminated by you because of any
refusal, inability or failure on the part of the Company or the Selling
Securityholder to perform any agreement herein, to fulfill any of the conditions
herein, or to comply with any provision hereof other than by reason of a default
by any of the Underwriters, the Company will reimburse the Underwriters
severally upon demand for all out-of-pocket expenses (including reasonable fees
and disbursements of counsel) that shall have been incurred by them in
connection with the transactions contemplated hereby.
10. CONDITIONS OF THE OBLIGATION OF THE COMPANY AND THE SELLING
SECURITYHOLDER. The obligation of the Company and the Selling Securityholder to
deliver the Stock shall be subject to the conditions that (a) the Registration
Statement shall have become effective and (b) no stop order suspending the
effectiveness thereof shall be in effect and no proceedings therefor shall be
pending or threatened by the Commission.
In case either of the conditions specified in this Section 10 shall not
be fulfilled, this Agreement may be terminated by the Company and the Selling
Securityholder by giving notice to you. Any such termination shall be without
liability of the Company and the Selling Securityholder to the Underwriters and
without liability of the Underwriters to the Company or the Selling
Securityholder; provided, however, that in the event of any such termination the
Company agrees to indemnify and hold harmless the Underwriters from all costs or
expenses incident to the performance of the obligations of the Company and the
Selling Securityholder under this Agreement, including all costs and expenses
referred to in paragraphs (a)(ix) and (a)(x) of Section 6 hereof.
11. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to their other
obligations under Section 7 of this Agreement (and subject, in the case of the
Selling Securityholder, to the provisions of paragraph (f) of Section 7), the
Company and the Selling Securityholder hereby agree jointly and severally to
reimburse on a quarterly basis the Underwriters for all reasonable legal and
other expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 7 of this Agreement, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
under this Section 11 and the possibility that such payments might later be held
to be improper; provided, however, that (i) to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when and
if due.
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall
inure to the benefit of the Company, the Selling Securityholder and the several
Underwriters and, with respect to the provisions of Section 7 hereof, the
several parties (in addition to the Company, the Selling Securityholder and the
several Underwriters) indemnified under the provisions of said Section 7, and
their respective personal representatives, successors and assigns. Nothing in
this Agreement is intended or shall be construed to give to any other person,
firm or corporation any legal or equitable remedy or claim under or in respect
of this Agreement or any provision herein contained. The term "successors and
assigns" as herein used shall not include any purchaser, as such purchaser, of
any of the Stock from any of the several Underwriters.
21
<PAGE> 22
13. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to Hambrecht & Quist LLC, One Bush Street,
San Francisco, California 94104, Attention: Dan Case (with a copy to the General
Counsel); if to the Company and shall be mailed, telegraphed or delivered to it
at its office, 2950 Zanker Road, San Jose, California 95134, Attention:
President; and if to the Selling Securityholder, shall be mailed, telegraphed or
delivered to him at _____________________. All notices given by telegraph shall
be promptly confirmed by letter.
14. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or the Selling Securityholder or their respective directors or
officers, and (c) delivery and payment for the Stock under this Agreement;
provided, however, that if this Agreement is terminated prior to the Closing
Date, the provisions of paragraph (c) of Section 6 hereof shall be of no further
force or effect.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of California.
Please sign and return to the Company and to the Selling Securityholder
in the care of the Company the enclosed duplicates of this letter, whereupon
this letter will become a binding
22
<PAGE> 23
agreement between the Company, the Selling Securityholder and the several
Underwriters in accordance with its terms.
Very truly yours,
CHIPS AND TECHNOLOGIES, INC.
By:__________________________
Jim Stafford
President and Chief Executive Officer
SELLING SECURITYHOLDER
____________________________
Gordon A. Campbell
The foregoing Agreement is hereby confirmed
and accepted as of the date first above written.
HAMBRECHT & QUIST LLC
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
By Hambrecht & Quist LLC
By: __________________________
Managing Director
Acting on behalf of the several Underwriters,
including themselves, named in Schedule I hereto.
23
<PAGE> 24
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES TO BE PURCHASED
- ------------ ----------------------
<S> <C>
Hambrecht & Quist LLC.........................................................
Donaldson Lufkin & Jenrette Securities Corporation............................
Salomon Brothers Inc..........................................................
---------
Total............................................................... 3,350,000
=========
</TABLE>
24
<PAGE> 25
SCHEDULE II
SELLING SECURITYHOLDERS
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
OF UNDERWRITTEN OF OPTION STOCK
NAME OF SELLING SECURITYHOLDER STOCK TO BE SOLD TO BE SOLD
- ------------------------------ ---------------- ----------
<S> <C> <C>
Gordon A. Campbell................................. 350,000 0
------- -------
Total..................................... 350,000 0
======= ==
</TABLE>
25
<PAGE> 26
ANNEX A
MATTERS TO BE COVERED IN THE OPINION OF GRAY CARY WARE & FREIDENRICH,
A PROFESSIONAL CORPORATION, COUNSEL FOR THE COMPANY
(i) Each of the Company and Chips and Technologies Taiwan, Inc (the
"Subsidiary") has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, is duly qualified as a foreign corporation and in good standing
in each state of the United States of America in which its ownership or leasing
of property requires such qualification, and has full corporate power and
authority to own or lease its properties and conduct its business as described
in the Registration Statement; all the issued and outstanding capital stock of
the Subsidiary has been duly authorized and validly issued and is fully paid and
nonassessable, and is owned by the Company free and clear of all liens,
encumbrances and security interests, and to such counsel's knowledge, no
options, warrants or other rights to purchase, agreements or other obligations
to issue or other rights to convert any obligations into shares of capital stock
or ownership interests in such subsidiaries are outstanding;
(ii) the authorized capital stock of the Company consists of (x)
100,000,000 shares of Common Stock, $0.01 par value, of which there are
outstanding _________ shares (including the Underwritten Stock plus the number
of shares of Option Stock issued on the date hereof) and such additional number
of shares, if any, as may have been issued after _______ and prior to the
Closing Date, pursuant to the exercise of outstanding options any (y) 5,000,000
shares of Preferred Stock of which there are no outstanding shares; proper
corporate proceedings have been taken validly to authorize such authorized
capital stock; all of the outstanding shares of such capital stock (including
the Underwritten Stock and the shares of Option Stock issued, if any) have been
duly and validly issued and are fully paid and nonassessable; any Option Stock
purchased after the Closing Date, when issued and delivered to and paid for by
the Underwriters as provided in the Underwriting Agreement, will have been duly
and validly issued and be fully paid and nonassessable; and no preemptive rights
of, or to the knowledge of such counsel rights of refusal in favor of,
stockholders exist with respect to the Stock, or the issue and sale thereof,
pursuant to the Certificate of Incorporation or Bylaws of the Company and, to
the knowledge of such counsel, there are no contractual preemptive rights of
first refusal or rights of co-sale that have not been waived which exist with
respect to the issue and sale of the Stock;
(iii) the Registration Statement has become effective under the
Securities Act and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement or suspending or
preventing the use of the Prospectus is in effect and no proceedings for that
purpose have been instituted or are pending or contemplated by the Commission;
(iv) the Registration Statement and the Prospectus (except as to the
financial statements and schedules and other financial or statistical data
contained therein, as to which such counsel need express no opinion) comply as
to form in all material respects with the requirements of the Securities Act,
the Exchange Act and with the rules and regulations of the Commission
thereunder;
<PAGE> 27
(v) the information required to be set forth in the Registration
Statement in answer to Items 9 and 10 (insofar as it relates to such counsel) of
Form S-3 is to such counsel's knowledge accurately and adequately set forth
therein or incorporated by reference in all material respects or no response is
required with respect to such Items;
(vi) to such counsel's knowledge, there are no agreements, contracts,
leases, or documents to which the Company is a party, or legal proceedings
pending or threatened, of a character required to be described in the
Registration Statement or Prospectus or to be filed as an exhibit to the
Registration Statement which are not described therein or filed as required.
(vii) the Underwriting Agreement has been duly authorized, executed and
delivered by the Company;
(viii) the issue and sale by the Company of the shares of Stock sold by
the Company as contemplated by the Underwriting Agreement will not conflict
with, or result in a breach of, the Certificate of Incorporation or Bylaws of
the Company or any of its subsidiaries or any agreement or instrument known to
such counsel to which the Company or any of its subsidiaries is a party or any
applicable law or regulation, or so far as is known to such counsel, any order,
writ, injunction or decree, of any jurisdiction, court or governmental
instrumentality;
(ix) to such counsel's knowledge, all holders of securities of the
Company having rights to the registration of shares of Common Stock, or other
securities, because of the filing of the Registration Statement by the Company
have waived such rights or such rights have expired by reason of lapse of time
following notification of the Company's intent to file the Registration
Statement;
(x) no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the transactions
contemplated in the Underwriting Agreement, except such as have been obtained
under the Securities Act and such as may be required under state securities or
blue sky laws in connection with the purchase and distribution of the Stock by
the Underwriters; and
(xi) the Stock issued and sold by the Company will been duly
authorized for listing by the Nasdaq National Market upon official notice of
issuance.
In addition, such counsel shall state that it has participated
in conferences with officials and other representatives of the Company, the
Representatives, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they are not passing upon and do not assume any responsibility for, nor
have they independently verified the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectus, nothing
has come to such counsel's attention which leads them to believe that, at the
time the Registration Statement became effective and at all times subsequent
thereto up to and on the Closing Date, the Registration Statement and any
amendment or supplement thereto (other than the financial statements including
supporting schedules and other financial and statistical information contained
there, as to which such counsel need express no comment) contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein
<PAGE> 28
not misleading, or at the Closing Date, the Registration Statement, the
Prospectus and any amendment or supplement thereto (except as aforesaid)
contained any untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
------------------------------------
Counsel rendering the foregoing opinion may rely as to questions of law
not involving the laws of the United States or of the State of California, upon
opinions of local counsel satisfactory in form and scope to counsel for the
Underwriters. Copies of any opinions so relied upon shall be delivered to the
Representatives and to counsel for the Underwriters and the foregoing opinion
shall also state that counsel knows of no reason the Underwriters are not
entitled to rely upon the opinions of such local counsel.
<PAGE> 29
ANNEX B
MATTERS TO BE COVERED IN THE OPINION OF GENERAL COUNSEL ASSOCIATES,
COUNSEL FOR THE SELLING SECURITYHOLDER
(i) (A) The Underwriting Agreement has been duly executed and delivered
by or on behalf of the Selling Securityholder; (B) the Custody Agreement between
the Selling Securityholder and ______________________, as Custodian, and the
Power of Attorney referred to in such Custody Agreement have been duly executed
and delivered by the Selling Securityholder; (C) the Custody Agreement entered
into by, and the Power of Attorney given by, the Selling Securityholder is valid
and binding on the Selling Securityholder; and (D) the Selling Securityholder
has full legal right and authority to enter into the Underwriting Agreement and
to sell, transfer and deliver in the manner provided in the Underwriting
Agreement the shares of Stock sold by the Selling Securityholder hereunder;
(ii) good and marketable title to the shares of Stock sold by the
Selling Securityholder under the Underwriting Agreement, free and clear of all
liens, encumbrances, equities, security interests and claims (other than any
liens, encumbrances, equities, security interests and claims that result from
actions taken against the Underwriters), has been transferred to the
Underwriters who have severally purchased such shares of Stock under the
Underwriting Agreement, assuming for the purpose of this opinion that the
Underwriters purchased the same in good faith without notice of any adverse
claims; and
(iii) no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the transactions
contemplated in the Underwriting Agreement, except such as have been obtained
under the Securities Act and such as may be required under state securities or
blue sky laws in connection with the purchase and distribution of the Stock by
the Underwriters; and
<PAGE> 1
EXHIBIT 5.1
October 12, 1995
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Chips and Technologies, Inc.
Registration Statement on Form S-3
Ladies & Gentlemen:
As counsel to Chips and Technologies, Inc., a Delaware corporation (the
"Company"), we are rendering this opinion in connection with a proposed issuance
and sale by the Company of up to 3,502,500 shares of its common stock, par value
$.01 ("Common Stock") and the sale by one of the Company's stockholders of
350,000 shares of the Company's Common Stock pursuant to the Company's
Registration Statement on Form S-3 filed with the Securities and Exchange
Commission on or about October 13, 1995 (the "Registration Statement").
We have examined all instruments, documents, and records which we deemed
relevant and necessary for the basis of our opinion hereinafter expressed. In
such examination, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals and the conformity to
the originals of all documents submitted to us as copies.
Based on such examination, we are of the opinion that the 3,502,500 shares
of Common Stock to be issued and sold by the Company (of which up to 502,500
shares are to be issued to cover over-allotments, if any) are duly authorized
shares of Common Stock and, when issued against payment of the purchase price
therefor, will be validly issued, fully paid and nonassessable. We are also of
the opinion that the 350,000 shares of Common Stock to be sold by the selling
stockholder identified in the Registration Statement are, as of the date hereof,
duly authorized, validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name wherever it appears in the
Registration Statement, including the Prospectus constituting a part thereof, as
originally filed or as subsequently amended.
Respectfully submitted,
GRAY CARY WARE & FREIDENRICH
A Professional Corporation
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
July 20, 1995 appearing on page 15 of Chips and Technologies, Inc.'s Annual
Report on Form 10-K for the year ended June 30, 1995. We also consent to the
incorporation by reference of our report on the Financial Statement Schedule,
which appears on page 27 of such Annual Report on Form 10-K. We also consent to
references to us under the headings "Experts" and "Selected Consolidated
Financial Data" in such Prospectus. However, it should be noted that Price
Waterhouse LLP has not prepared or certified such "Selected Consolidated
Financial Data".
Price Waterhouse LLP
San Jose, California
October 11, 1995
