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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-Q
(Mark One)
| X | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1994
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OR
|__| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-15012
CHIPS AND TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 77-0047943
- -------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employee Identification No.)
incorporation or organization)
2950 Zanker Road, San Jose, California 95134
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(Address of principal executive offices)(Zip code)
Registrant's telephone number, including area code: (408)434-0600
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Former name, former address and former fiscal year.
If changed since last report.
Indicate by check whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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At December 31, 1994, the registrant had 17,293,836 shares of common stock
outstanding.
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<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Unaudited Condensed Consolidated Financial Statements 3
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings Not applicable
Item 2. Changes in Securities Not applicable
Item 3. Defaults upon Senior Securities Not applicable
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information Not applicable
Item 6. Exhibits and Reports on Form 8-K 15
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHIPS AND TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share amounts) DEC. 31, 1994 JUNE 30, 1994
------------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $15,082 $17,372
Short-term investments 6,682 5,171
Accounts receivable, net of allowance for doubtful
accounts of $985 and $1,269, respectively 10,788 8,437*
Inventory 9,491 5,845
Prepaid and other assets 2,514 3,100
------- -------
Total current assets 44,557 39,925
Property and equipment, net 10,388 10,325
Other assets 649 1,050
------- -------
$55,594 $51,300
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $6,267 $7,081
Current portion of capitalized lease obligations 563 571
Other accrued liabilities 7,850 6,850*
Accrued restructuring costs -- 1,542
------- -------
Total current liabilities 14,680 16,044
Long-term capitalized lease obligations,
less current portion 728 100
Noncurrent notes payable 889 919
Convertible debentures 7,910 7,910
------- -------
Total liabilities 24,207 24,973
------- -------
Stockholders' equity:
Convertible preferred stock, 69,000 and 123,000
shares issued and outstanding 1 1
Common stock, 17,294,000 and 16,881,000 shares
issued and outstanding 172 169
Capital in excess of par value 60,754 59,222
Notes receivable from officer (102) --
Retained deficit (29,438) (33,065)
------- -------
Total stockholders' equity 31,387 26,327
------- -------
$55,594 $51,300
======= =======
* Accounts have been reclassified for comparative purposes (see Note 4)
See notes to Unaudited Condensed Consolidated Financial Statements
<PAGE>
CHIPS AND TECHNOLOGIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
(In thousands except
per share amounts) 1994 1993 1994 1993
------- ------- ------- -------
Net sales $23,277 $22,438 $43,650 $43,609
Cost of sales and other
manufacturing expenses 14,418 14,060 27,153 27,173
------- ------- ------- -------
Gross margin 8,859 8,378 16,497 16,436
Operating expenses
Research and development 3,286 3,349 6,294 6,607
Marketing and selling 2,930 2,914 5,735 6,031
General and administrative 1,200 1,324 2,197 2,995
Restructuring recovery (1,057) -- (1,429) --
------- ------- ------- -------
Total operating expenses 6,359 7,587 12,797 15,633
Income from operations 2,500 791 3,700 803
Interest income and other, net 134 11 244 35
------- ------- ------- -------
Income before taxes 2,634 802 3,944 1,158
Provision for income taxes (263) (82) (317) (116)
------- ------- ------- -------
Net Income $2,371 $720 $3,627 $1,042
======= ======= ======= =======
Net income per share
Primary $0.13 $0.04 $0.21 $0.06
======= ======= ======= =======
Fully diluted $0.13 $0.04 $0.20 $0.06
======= ======= ======= =======
Shares used in per share
calculation
Primary 18,206 17,250 17,069 16,698
======= ======= ======= =======
Fully diluted 19,967 17,252 18,537 16,699
======= ======= ======= =======
See notes to Unaudited Condensed Consolidated Financial Statements
<PAGE>
CHIPS AND TECHNOLOGIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
DECEMBER 31,
(In thousands) 1994 1993
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $3,627 $1,042
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 1,326 1,901
Provision for losses on accounts receivable 150 451
Provision for losses on inventory 839 409
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable (2,501) (2,605)
Inventory (4,485) (2,209)
Accounts payable (814) 87
Other assets and liabilities 1,105 (263)
Accrued restructuring costs (498) (9,774)
------- -------
NET CASH USED IN OPERATING ACTIVITIES ($1,251) ($10,961)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,545) (1,003)
Sale (purchase) of short-term investments (1,511) 6,436
Proceed from sale of fixed assets 168 1,064
------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (2,888) 6,497
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to capital lease obligations, net
of principle payment 620 (2,068)
Proceeds from (repayment of) note payable principle (30) 1,952
Proceeds from issuance of stock 1,359 939
Repayments of (Issued to) officer loans (100) 35
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,849 858
------- -------
Net decrease in cash and cash equivalents (2,290) (3,606)
------- -------
Cash and cash equivalents at beginning of period 17,372 20,742
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $15,082 $17,136
======= =======
Supplemental disclosure cash flow information:
Cash paid during the period for:
Interest $474 $220
Income taxes 170 27
Supplemental noncash financing activities:
Additions under capital lease obligations 1,229 --
Conversion of preferred stock to common stock 54 --
See notes to Unaudited Condensed Consolidated Financial Statements
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The unaudited Condensed Consolidated Financial Statements have been prepared by
the Company, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the financial statements reflect all
adjustments, consisting only of normal recurring accruals, necessary for a fair
statement of the financial position, operating results and cash flows for those
periods presented. These consolidated condensed financial statements should be
read in conjunction with the consolidated financial statements, and notes
thereto for the year ended June 30, 1994, included in the Company's 1994 Annual
Report on Form 10-K.
The results of operations for the interim periods are not necessarily indicative
of the results that may be expected for the entire year.
NOTE 2. PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of the
Company and its subsidiaries. All material intercompany accounts and
transactions have been eliminated.
NOTE 3. SHORT-TERM INVESTMENTS
Effective July 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and
Equity Securities." The effects of implementing SFAS 115 were not significant.
NOTE 4. REVENUE RESERVES
Beginning in the first quarter of fiscal 1995, the Company reclassified certain
distributor revenue reserves to conform with general industry practice.
Previously classified as current liabilities, these reserves are now classified
as reductions to accounts receivable and prior periods have been reclassified
for comparative purposes.
<PAGE>
NOTE 5. NET INCOME PER SHARE
Shares used in the computation of primary net income per share are based on the
weighted average number of common shares outstanding plus dilutive common stock
equivalents. The fully diluted computation also includes other dilutive
convertible securities. Primary and fully diluted income per shares have been
determined as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
(In thousands except per share amounts) 1994 1993 1994 1993
------ ------ ------ ------
PRIMARY EARNINGS PER SHARE:
Net income $2,371 $720 $3,627 $1,042
Interest saving on convertible debenture -- 16 -- 16
------ ------ ------ ------
Adjusted income for calculation of
earnings per share $2,371 $736 $3,627 $1,058
====== ====== ====== ======
Average number of common and common
equivalent shares:
Weighted average common shares
outstanding 17,102 16,386 17,000 16,266
Dilutive common stock equivalents:
Common stock options and warrant,
using treasury stock method 1,035 741 * 309
Convertible preferred stock 69 123 69 123
------ ------ ------ ------
Common and common equivalent shares
used in the calculation of net income
per share: 18,206 17,250 17,069 16,698
====== ====== ====== ======
Primary earnings per share: $0.13 $0.04 $0.21 $0.06
====== ====== ====== ======
FULLY DILUTED EARNINGS PER SHARE:
Net income $2,371 $720 $3,627 $1,042
Interest saving on convertible
debenture 151 -- -- --
------ ------ ------ ------
Adjusted income for calculation
of earnings per share $2,522 $720 $3,627 $1,042
====== ====== ====== ======
Average number of common and
common equivalent shares:
Weighted average common shares
outstanding 17,102 16,386 17,000 16,266
Dilutive common stock equivalents:
Common stock options and warrant,
using treasury stock method 1,408 743 1,468 310
Convertible preferred stock 69 123 69 123
Convertible debentures 1,388 * * *
------ ------ ------ ------
Common and common equivalent shares
used in the calculation of net
income per share: 19,967 17,252 18,537 16,699
====== ====== ====== ======
Fully diluted earnings per share: $0.13 $0.04 $0.20 $0.06
====== ====== ====== ======
* Antidilutive
<PAGE>
NOTE 6. ACCRUED RESTRUCTURING COSTS
During the second quarter of fiscal 1995, the restructuring plans which were
undertaken in prior years were substantially completed. The Company took charges
against the reserve relating primarily to consolidations of operations
activities, which consisted of the closure of certain foreign sales offices and
estimated litigation costs. As a result of completion of the restructuring, the
Company recorded the reserve balance of $0.2 million as income in the second
quarter of 1995. The following table summarizes the status of the restructuring
reserves at December 31,1994:
(In thousands) Consolidations of Reduction of
Operations & other Workforce Total
------------------ ------------ ------
Balance at 6/30/94 $1,442 $100 $1,542
Charges against reserves (143) (53) (196)
------ ---- ------
Balance at 9/30/94 1,299 47 1,346
Charges against reserves (1,115) (47) (1,162)
Reversal of provision (184) -- (184)
------- ---- ------
Balance at 12/31/94 $ -- $ $ --
======= ==== ======
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
Net Revenues and Gross Margins for the second quarter of fiscal 1995 are
substantially the same compared to the prior quarter and the same quarter a year
ago. Revenues from graphics controllers continue to represent the majority of
the Company's revenues. Operating expenses in the second quarter of fiscal 1995
have decreased compared to the same quarter a year ago largely as a result of
the Company's restructuring programs.
NET REVENUE
Net revenues for the second quarter of fiscal 1995 were $23.3 million, an
increase of 4% from $22.4 million reported for the second quarter of fiscal
1994. Net sales for the first half of fiscal 1995 were $43.7 million,
substantially the same as the $43.6 million reported for the same period of
fiscal 1994. Sales of systems logic chipsets have declined from a year ago; the
decline was offset by the increase in sales of graphic controller products.
Sales of older discrete system logic peripheral products have declined as the
Company continues to transition its core logic product strategy towards higher
integration solutions. Graphics products revenues grew due to increases in unit
volumes of portable graphics controllers. Revenue from graphics products
comprised 68% of sales for the first half of fiscal 1995 compared to 56% of
sales in the first half fiscal of 1994.
GROSS MARGIN
The gross margin was 38% in the second quarter of fiscal 1995, compared to 37%
for the second quarter of fiscal 1994. For the first half of both fiscal 1995
and 1994, the gross margin was 37%. The gross margin percentage is substantially
the same compared to the same periods a year ago. The Company expects the gross
margin percentage will remain at approximately the same level during the next
two quarters.
RESEARCH AND DEVELOPMENT EXPENSES
R&D expenses were $3.3 million in the second quarter of both fiscal 1994 and
fiscal 1995. R & D expenses were $6.3 million for the first half of fiscal 1995
compared to $6.6 million in the same period of fiscal 1994. R&D spending may
fluctuate from quarter to quarter due to the timing of spending on prototype
fabrication. The Company intends to continue investing in new product
development and its modular high level design methodology and expects these
expenditures to increase in absolute amounts for the second half of fiscal 1995.
SALES AND MARKETING EXPENSES
Sales and marketing expenses were $2.9 million in the second quarter of both
fiscal 1995 and fiscal 1994. Sales and marketing expenses were $5.7 million in
the first half of 1995 compared to $6.0 million in the same period of fiscal
1994. The Company expects that sales and marketing expenses will increase in
absolute amounts due to higher sales commissions as the result of higher
revenues for the second half of fiscal 1995.
GENERAL AND ADMINISTRATIVE EXPENSES
G&A expenses were $1.2 million in the second quarter of fiscal 1995 compared to
$1.3 million in the second quarter of fiscal 1994. G & A expenses were $2.2
million in the first half of fiscal 1995 compared to $3.0 million in the same
period of fiscal 1994. The reduced expense level was attributable to lower labor
costs arising from reductions in headcount associated with the Company's
restructuring programs, decreases in depreciation costs and reductions in bad
debt provisions. The Company expects that G & A expenses will increase in
absolute dollars during the second half of fiscal 1995.
<PAGE>
RESTRUCTURING COSTS
During the second quarter of fiscal 1995, the Company received the final
principal payment of $0.9 million against a note receivable recorded in respect
of the sale of certain of the Company's product lines which were discontinued
and fully reserved in fiscal 1993. The Company records income as cash is
collected on the note. Together with the $0.4 million payment received in the
first quarter, $1.3 million was recognized as income in the first half of fiscal
1995.
During the second quarter of fiscal 1995, the restructuring plans which were
reserved for in prior years were substantially completed. During the first half
of fiscal 1995, the restructuring reserve was reduced primarily in respect of
the Company's completion of consolidation of operations activities, consisting
of the closure of certain foreign sales offices. As a result, the Company
recorded the reserve balance of $0.2 million to income during the second quarter
of fiscal 1995. Part of these charges consisted of cash payments made for office
closures and professional service fees.
OTHER INCOME (EXPENSE)
Other income for the first half of fiscal 1995 was $0.2 million compared to $0.4
million for the same period of fiscal 1994. Other income was lower in fiscal
1995 because the prior year included the receipt of $0.4 million related to a
settlement and technology license. The decrease was partially offset by the
increase of interest income in fiscal 1995.
INCOME TAXES
The Company provides for income taxes during interim reporting periods based
upon an estimate of the annual effective tax rate. The Company utilizes the net
operating loss carryforward to offset a significant portion of the Company's
income taxes. The estimated tax rate reflects certain alternative minimum tax
and state tax obligations.
LIQUIDITY AND CAPITAL RESOURCES
Due to the completion of most of the Company's restructuring during fiscal 1994,
usage of cash for restructuring programs was not significant for the first half
of fiscal 1995. The Company funds payments for its restructuring programs
through existing working capital resources.
During the first half of fiscal 1995, accounts receivable increased $2.4
million, inventory increased $3.7 million and current liabilities decreased $1.3
million. Accounts receivable increased because of higher sales during the
quarter. Inventories have increased to support higher sales of the Company's
portable graphics controller products. The decrease in current liabilities is
mainly due to the completion of the Company's restructuring programs during the
quarter. Long term debt increased $0.6 million during the second quarter of
fiscal 1995 mainly due to additional capitalized lease obligations in respect of
the financing of certain capital equipment expenditures. The Company has $1.1
million in standby letters of credit outstanding to secure the lease financing
arrangement.
The Company has two revolving line of credit agreements allowing borrowings of
up to $13.0 million at the banks' reference rates. There were no borrowings
outstanding against these lines at December 31, 1994 and both agreements expire
in October 1995. Based on the current levels of working capital and available
borrowing capacity, the Company believes that its present capital resources are
sufficient to meet its needs for the remainder of the fiscal year.
FACTORS AFFECTING FUTURE OPERATING RESULTS
The Company anticipates its revenues will increase in the third quarter over the
second quarter. The largest portion of the Company's recent sales are comprised
of portable graphics controllers and the Company expects that the majority of
its revenues over the next two quarters will be made up of portable graphics
controllers. However, the Company's revenues are directly affected by customer
demand for its products. Customer demand fluctuates, sometimes dramatically,
based on the customers' buildup of internal inventory, seasonal factors, and
product transitions, among other things. While the Company makes every effort to
be consistently informed of customers' expected demand for its products,
customers from time to time make unexpected changes in product purchasing
forecasts and in existing orders. Customer rescheduling, reduction in quantities
and cancellations of orders could have a material adverse impact on the
Company's revenues and results of operations. The Company also relies on
obtaining and maintaining design wins for its products with leading personal
computer manufacturers. 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 results of operations.
<PAGE>
The Company believes it currently maintains a leadership position in the
portable graphics market and anticipates its competition 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 margins achieved during the first
half of fiscal 1995 may not be sustainable. The Company expects gross margin
percentages for the next two quarters to remain close to the level of those
achieved in the first half of fiscal 1995. The Company anticipates its future
operating expenses, including research and development expenses, will increase
in absolute dollar amounts over the next two quarters. However, the Company
believes that operating expenses from ongoing operations will decline as a
percentage of sales over the next two quarters.
Because the Company uses subcontract vendors for the manufacture of its
products, the Company must place orders with its suppliers far in advance of
shipment to its end customers. The reliance on subcontract vendors presents
risks including the lack of guaranteed production capacity, delays in delivery,
susceptibility to disruption in supply and reduced control over product costs
and manufacturing yields. Long production lead times and limited control over
the manufacturing process could adversely affect the Company to the extent it is
not able to anticipate its inventory supply requirements and as a result
generates excess or insufficient product inventories. The Company intends to
implement certain of its future product designs in 0.6u semiconductor
fabrication geometries to achieve lower production costs and greater product
availability. Inability to obtain sufficient supply or restrictions on access to
0.6u semiconductor fabrication technology could have a materially adverse effect
on the Company's operating results.
The personal computer industry is subject to certain seasonal fluctuations. It
is acknowledged within both the computer and semiconductor industries that sales
and purchases may vary significantly within a particular period. The Company
attempts to anticipate the impact of seasonal variations on its business.
However, if unexpected seasonal fluctuations occur, they may cause volatility in
customer order patterns and have a material effect on future operating results.
The market price of the Company's common stock has been volatile in the past,
and may be volatile in the future. Factors affecting volatility include
variations in the Company's quarterly operating results, announcements by the
Company or its competitors concerning products and/or design wins, financial
market perceptions of conditions in the personal computer marketplace, and
actual conditions in the personal computer marketplace. The market price of the
Company's stock may also be affected by factors influencing the stock market in
general or the market for stocks of high technology companies. Any of these
factors could cause the price of the Company's stock to fluctuate substantially.
The statements included in this section do not contain all the conditions which
may affect the Company's future operating results. For simplicity of
presentation the Company has not repeated in its Quarterly Report all factors
affecting future operating results that were contained in its Annual Report on
Form 10-K. Therefore, the Company's Quarterly Report on Form 10-Q should be read
in combination with the Company's Annual Report on Form 10-K for fiscal year
1994.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings Not applicable
Item 2. Changes in Securities Not applicable
Item 3. Defaults upon Senior Securities Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of the Stockholders of Chips and
Technologies, Inc. was held on November 10, 1994 in
Milpitas, California. Of the total of 17,023,738 shares
outstanding as of the record date, 15,582,513 shares
were present or represented by proxies at the meeting.
The matters voted upon at the meeting and the results
of those votes were as follows:
1. Bernard V. Vonderschmitt was elected as a Class II
Director. Mr. Vonderschmitt received 14,823,775
affirmative votes and 758,738 were withheld.
2. Proposal to amend and restate the 1985 Stock Option
Plan. The proposal received 11,676,253 affirmative votes,
2,224,875 negative votes and 158,006 abstentions. The
brokers' non-vote totaled 1,523,379.
3. Appointment of Price Waterhouse LLP as the
independent auditors of the Company. The proposal
received 15,328,322 affirmative votes, 104,491
negative votes and 149,700 abstentions.
Item 5. Other Information Not applicable
Item 6. Exhibits 15
Reports on Form 8-K Not applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CHIPS AND TECHNOLOGIES, INC.
(Registrant)
/s/ James F. Stafford
------------------------------------
James F. Stafford
President & Chief Executive Officer
/s/ Timothy R. Christoffersen
------------------------------------
Timothy R. Christoffersen
Vice President of Finance
Chief Financial Officer and
Principal Accounting Officer
Date: January 31, 1995
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description Page
- --------- ----------- ----
4.1 (1) Stockholders' Rights Agreement dated August 23, 1989.
4.2 (7) Registration Rights Agreement dated October 10, 1985 and
amendment thereto dated January 24, 1986.
10.1 (4) Lease Termination Agreement and related exhibit between the
Company and The Equitable Life Assurance Society dated
September 10, 1993.
10.2 (6)* First Amended 1988 Nonqualified Stock Option Plan for
Outside Directors dated October 1, 1993.
10.3 (4)* Promissory Note to the Company from Marc E. Jones dated
February 3, 1993.
10.4 (2) Form of Indemnity Agreement between the Company and each of
its directors and executive officers.
10.5 (4)* Confidential Termination Agreement and General Release of
Claims between the Company and Nancy S. Dusseau, dated
September 1, 1993.
10.6 (4)* Confidential Termination Agreement and General Release of
Claims between the Company and Jeffrey H. Grammer, dated
September 2, 1993.
10.7 (4)* Confidential Termination Agreement and General Release of
Claims between the Company and Gary P. Martin, dated
April 19, 1993.
10.8 (4)* Confidential Resignation and Consulting Agreement and General
Release of Claims between the Company and Gordon A. Campbell
dated September 30,1993.
10.9 (4) Convertible Promissory Notes and Preferred Stock Purchase
Agreement dated as July 16, 1992.
10.10 (4) Amendment to Convertible Promissory Notes and Preferred
Stock Purchase Agreement.
10.11 (4) Form of Convertible Subordinated Debentures Due June 30, 2002.
10.12 (4) Amendment to 8 1/2% Convertible Subordinated Debentures Due,
June 30, 2002.
10.13 (5) Agreement for Sale and Purchase of Assets between Techfarm,
Inc. and Chips and Technologies, Inc., dated September 24, 1993.
10.14 (8) Restated Secured Promissory Note, Secured Continuing Guarantee,
and Restated Loan and Security Agreement between Techfarm,
Inc. and Chips and Technologies, Inc. dated March 31, 1994.
10.15 (8)* Promissory note to the Company from Keith Angelo dated
August 1, 1994.
<PAGE>
Exhibit
Number Description Page
- --------- ----------- ----
10.16 (8)* Independent Contractor Services Agreement between the
Company and Henri Jarrat dated August 11, 1994.
10.17 Amended and restated 1994 stock option plan dated
November 10, 1994 17
10.18 Key employee bonus plan dated November 8, 1994 25
27.0 Financial Data Schedule for the quarter ended
December 31, 1994 28
(1) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 1989.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 1990.
(3) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 1992.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 1993.
(5) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the period ended September 30, 1993.
(6) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the period ended March 31, 1994.
(7) Incorporated by reference to Registration Statement No. 33-8005
effective October 8, 1986.
(8) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 1994.
* Denotes management contracts or compensatory plans or arrangements covering
executive officers or directors of Chips and Technologies, Inc.
EXHIBIT 10.17
AMENDED AND RESTATED
CHIPS AND TECHNOLOGIES, INC.
1994 STOCK OPTION PLAN
1. Establishment and Purpose.
(a) Establishment. The Chips and Technologies, Inc. 1985 Stock
Option Plan was adopted on January 11, 1985 and was amended and restated on
January 8, 1987 (the "Initial Plan"). The Initial Plan is amended and restated
in its entirety and renamed the Amended and Restated Chips and Technologies,
Inc. 1994 Stock Option Plan (the "Plan") effective upon approval by the
stockholders of Chips and Technologies, Inc.
(b) Purpose. The Plan is established to create additional
incentive for key employees, directors and consultants or advisors of Chips and
Technologies, Inc. and any successor corporation thereto (collectively referred
to as the "Company"), and any present or future parent and/or subsidiary
corporations of such corporation (all of whom along with the Company being
individually referred to as a "Participating Company" and collectively referred
to as the "Participating Company Group"), to promote the financial success and
progress of the Participating Company Group. For purposes of the Plan, a parent
corporation and a subsidiary corporation shall be as defined in sections 424(e)
and 424(f) of the Internal Revenue Code of 1986, as amended (the "Code").
2. Administration.
(a) Administration by Board and/or Compensation Committee. The
Plan shall be administered by the Board of Directors of the Company (the
"Board") and/or by a duly appointed committee of the Board having such powers as
shall be specified by the Board. Any subsequent references herein to the Board
shall also mean the committee if such committee has been appointed and, unless
the powers of the committee have been specifically limited, the committee shall
have all of the powers of the Board granted herein, including, without
limitation, the power to terminate or amend the Plan at any time, subject to the
terms of the Plan and any applicable limitations imposed by law. All questions
of interpretation of the Plan or of any options granted under the Plan (an
"Option") shall be determined by the Board, and such determinations shall be
final and binding upon all persons having an interest in the Plan and/or any
Option.
(b) Disinterested Administration. With respect to the
participation in the Plan of employees who are also officers or directors of the
Company subject to Section 16 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the Plan shall be administered by the Board in compliance
with the "disinterested administration" requirement of Rule 16b-3, as
promulgated under the Exchange Act and amended from time to time or any
successor rule or regulation ("Rule 16b-3").
<PAGE>
(c) Compliance with Section 162(m) of the Code. In the event a
Participating Company is a "publicly held corporation" as defined in paragraph
(2) of section 162(m) of the Code, as amended by the Revenue Reconciliation Act
of 1993 (P.L. 103-66), and the regulations promulgated thereunder ("Section
162(m)"), the Company may establish a committee of outside directors meeting the
requirements of Section 162(m) to approve the grant of Options which might
reasonably be anticipated to result in the payment of employee remuneration that
would otherwise exceed the limit on employee remuneration deductible for income
tax purposes pursuant to Section 162(m).
(d) Options Authorized. Options may be either incentive stock
options as defined in section 422(a) of the Code ("Incentive Stock Options") or
options not intended to qualify as Incentive Stock Options ("Nonqualified Stock
Options").
(e) Authority of Officers. Any officer of a Participating
Company shall have the authority to act on behalf of the Company with respect to
any matter, right, obligation, or election which is the responsibility of or
which is allocated to the Company herein, provided the officer has apparent
authority with respect to such matter, right, obligation, or election.
3. Eligibility. The Options may be granted only to employees (including
officers) and directors of the Participating Company Group or to individuals who
are rendering services as consultants, advisors, or other independent
contractors to the Participating Company Group. The Board shall, in the Board's
sole discretion, determine which persons shall be granted Options (an
"Optionee"). A director of the Company shall be eligible to be granted only a
Nonqualified Stock Option unless the director is also an employee of the
Company. For purposes of the foregoing sentence, "employees" shall include
prospective employees to whom Options are granted in connection with written
offers of employment with Participating Company Group and "consultants" or
"advisors" shall include prospective consultants or advisors to whom Options are
granted in connection with written consulting or advising offers with the
Participating Company Group. An individual who is rendering services as a
consultant, advisor, or other independent contractor shall be eligible to be
granted only a Nonqualified Stock Option. An Optionee may, if otherwise
eligible, be granted additional Options.
4. Shares Subject to Option. Options shall be options for the purchase
of the authorized but unissued Common Stock of the Company (the "Stock"),
subject to adjustment as provided in paragraph 9 below. The maximum number of
shares of Stock which may be issued under the Plan (including the Initial Plan)
shall be seventeen million two hundred thousand (17,200,000) shares. Subject to
adjustment as provided in paragraph 9 below, at any such time as a Participating
Company is a "publicly held corporation" as defined in Section 162(m), no person
shall be granted within any fiscal year of the Company Options which in the
aggregate cover more than five hundred thousand (500,000) shares (the "Per
Person Limit"). In the event that any outstanding Option under the Plan
(including the Initial Plan) for any reason expires or is terminated or canceled
and/or shares of Stock subject to repurchase are repurchased by the Company, the
shares allocable to the unexercised portion of such Option, or such repurchased
shares, may again be subject to an Option grant. Notwithstanding the foregoing,
any such shares shall be made subject to a new Option only if the grant of such
new Option and the issuance of such shares pursuant to such new Option would not
cause the plan or any Option granted under the Plan to contravene Rule 16b-3.
<PAGE>
5. Time for Granting Options. All Options shall be granted, if at all,
on or before August 11, 2004.
6. Terms, Conditions and Form of Options. Subject to the provisions of
the Plan, the Board shall determine for each Option (which need not be
identical) the number of shares of Stock for which the Option shall be granted,
the option price of the Option, the exercisability of the Option, whether the
Option is to be treated as an Incentive Stock Option or as a Nonqualified Stock
Option and all other terms and conditions of the Option not inconsistent with
the Plan. Options granted pursuant to the Plan shall be evidenced by written
agreements specifying the number of shares of Stockcovered thereby, in such form
as the Board shall from time to time establish, and shall comply with and be
subject to the following terms and conditions:
(a) Option Price. The option price for each Option shall be
established in the sole discretion of the Board; provided, however, that (i) the
option price per share for an Option shall be not less than the fair market
value, as determined by the Board, of a share of Stock on the date of the
granting of the Option, and (ii) no Incentive Stock Option granted to an
Optionee who at the time the Option is granted owns stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
a Participating Company within the meaning of section 422(b)(6) of the Code
and/or ten percent (10%) of the total combined value of all classes of stock of
a Participating Company (a "Ten Percent Owner Optionee") shall have an option
price per share less than one hundred ten percent (110%) of the fair market
value of a share of Stock on the date the Option is granted.
(b) Exercise Period of Options. The Board shall have the power
to set the time or times within which each Option shall be exercisable or the
event or events upon the occurrence of which all or a portion of each Option
shall be exercisable and the term of each Option; provided, however, that (i) no
Incentive Stock Option shall be exercisable after the expiration of ten (10)
years after the date such Option is granted and (ii) no Incentive Stock Option
granted to a Ten Percent Owner Optionee shall be exercisable after the
expiration of five (5) years after the date such Option is granted.
(c) Payment of Option Price. Payment of the option price for
the number of shares of Stock being purchased pursuant to any Option shall be
made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company of
shares of the Company's stock owned by the Optionee having a value, as
determined by the Board (but without regard to any restrictions on
transferability applicable to such stock by reason of federal or state
securities laws or agreements with an underwriter for the Company), not less
than the option price, (iii) if specifically permitted by the Board and set
forth in the Optionee's Option Agreement, by the Optionee's recourse promissory
note, (iv) by the assignment of the proceeds of a sale of some or all of the
shares being acquired upon the exercise of an Option (including, without
limitation, through an exercise complying with the provisions of Regulation T as
promulgated from time to time by the Board of Governors of the Federal Reserve
System), (v) by such other consideration and method of payment as the Board, in
its sole discretion, may allow, or (vi) by any combination thereof.
<PAGE>
The Board may at any time or from time to time, by adoption of or by
amendment to the form of Standard Option Agreement described in paragraph 7
below, or by other means, grant Options which do not permit all of the foregoing
forms of consideration to be used in payment of the option price and/or which
otherwise restrict one (1) or more forms of consideration. Notwithstanding the
foregoing, an Option may not be exercised by tender to the Company of shares of
the Company's stock to the extent such tender of stock would constitute a
violation of the provisions of any law, regulation and/or agreement restricting
the redemption of the Company's stock. Furthermore, no promissory note shall be
permitted if an exercise using a promissory note would be a violation of any
law. Any permitted promissory note shall be due and payable not more than five
(5) years after the Option is exercised, and interest shall be payable at least
annually and be at least equal to the minimum interest rate necessary to avoid
imputed interest pursuant to all applicable sections of the Code. The Board
shall have the authority to permit or require the Optionee to secure any
promissory note used to exercise an Option with the shares of Stock acquired on
exercise of the Option and/or with other collateral acceptable to the Company.
(x) Unless otherwise provided by the Board, an Option may not
be exercised by tender to the Company of shares of the Company's stock pursuant
to clause (ii) of this paragraph 6(c) unless such shares of the Company's stock
either have been owned by the Optionee for more than six (6) months or were not
acquired, directly or indirectly, from the Company.
(y) Unless otherwise provided by the Board, in the event the
Company at any time becomes subject to the regulations promulgated by the Board
of Governors of the Federal Reserve System or any other governmental entity
affecting the extension of credit in connection with the Company's securities,
any promissory note shall comply with such applicable regulations, and the
Optionee shall pay the unpaid principal and accrued interest, if any, to the
extent necessary to comply with such applicable regulations.
(z) The Company reserves, at any and all times, the right, in
the Company's sole and absolute discretion, to establish, decline to approve
and/or terminate any program and/or procedures for the exercise of Options by
means of an assignment of the proceeds of a sale of some or all of the shares of
Stock to be acquired upon such exercise pursuant to clause (iv) of this
paragraph 6(c).
7. Standard Forms of Stock Option Agreement.
(a) Incentive Stock Options. Unless otherwise provided for by
the Board at the time an Option is granted, an Option designated as an
"Incentive Stock Option" shall comply with and be subject to the terms and
conditions set forth in the form of incentive stock option agreement attached
hereto as Exhibit A and incorporated herein by reference.
<PAGE>
(b) Nonqualified Stock Options. Unless otherwise provided for
by the Board at the time an Option is granted, an Option designated as a
"Nonqualified Stock Option" shall comply with and be subject to the terms and
conditions set forth in the form of nonqualified stock option agreement attached
hereto as Exhibit B and incorporated herein by reference.
(c) Standard Term for Options. Unless otherwise provided for
by the Board in the grant of an Option, any Option granted hereunder shall be
exercisable for a term of ten (10) years.
8. Authority to Vary Terms. The Board shall have the authority from
time to time to vary the terms of the standard forms of stock option agreement
either in connection with the grant of an individual Option or in connection
with the authorization of a new standard form or forms; provided, however, that
the terms and conditions of such revised or amended standard form or forms of
stock option agreement shall be in accordance with the terms of the Plan.
9. Effect of Change in Stock Subject to Plan. Appropriate adjustments
shall be made in the number and class of shares of Stock subject to the Plan, to
the Per Person Limit set forth in paragraph 4 above, and to any outstanding
Options and in the option price of any outstanding Options in the event of a
stock dividend, stock split, reverse stock split, combination, reclassification,
or like change in the capital structure of the Company.
10. Transfer of Control. A "Transfer of Control" shall be deemed to
have occurred in the event any of the following occurs with respect to the
Control Company. For purposes of applying this Paragraph 10, the "Control
Company" shall mean the corporation whose stock is subject to the Option.
(a) the direct or indirect sale or exchange by the
stockholders of the Control Company of all or substantially all of the stock of
the Control Company where the stockholders of the Control Company before such
sale or exchange do not retain, directly or indirectly, at least a majority of
the beneficial interest in the voting stock of the Control Company;
(b) a merger in which the stockholders of the Control Company
before such merger do not retain, directly or indirectly, at least a majority of
the beneficial interest in the voting stock of the Control Company; or
(c) the sale, exchange, or transfer of all or substantially
all of the Control Company's assets (other than a sale, exchange, or transfer to
one or more corporations where the stockholders of the Control Company before
such sale, exchange or transfer retain, directly or indirectly, at least a
majority of the beneficial interest in the voting stock of the corporation(s) to
which the assets were transferred).
<PAGE>
In the event of a Transfer of Control, any unexercisable and/or
unvested portion of the outstanding Options shall be immediately exercisable and
vested as of the date thirty (30) days prior to the date of the Transfer of
Control unless the Board provides for the surviving, continuing, successor, or
purchasing corporation or parent corporation thereof, as the case may be (the
"Acquiring Corporation"), to either assume the Control Company's rights and
obligations under outstanding Options or substitute options for the Acquiring
Corporation's stock for such outstanding Options. The exercise and/or vesting of
any Option that was permissible solely by reason of this paragraph 10 shall be
conditioned upon the consummation of the Transfer of Control. Any Options which
are neither assumed or substituted for by the Acquiring Corporation in
connection with the Transfer of Control nor exercised as of the date of the
Transfer of Control shall terminate and cease to be outstanding effective as of
the date of the Transfer of Control.
11. Provision of Information. Each Optionee shall be given access to
information concerning the Company equivalent to that information generally made
available to the Company's common stockholders.
12. Options Non-Transferable. Unless otherwise provided by the Board,
during the lifetime of the Optionee, the Option shall be exercisable only by the
Optionee and no Option shall be assignable or transferable by the Optionee,
except by will or by the laws of descent and distribution.
13. Termination or Amendment of Plan and Options. The Board, including
any duly appointed committee of the Board, may terminate or amend the Plan
and/or any Option at any time; provided, however, that without the approval of
the Company's stockholders, there shall be (a) no increase in the total number
of shares of Stock covered by the Plan (except by operation of the provisions of
paragraph 9 above), (b) no change in the class of persons eligible to receive
Incentive Stock Options, and (c) no expansion in the class of persons eligible
to receive Nonqualified Stock Options. In addition to the foregoing, the
approval of the Company's stockholders shall be sought for any amendment to the
Plan or an Option for which the Board deems stockholder approval necessary in
order to comply with Rule 16b-3. In any event, no amendment may adversely affect
any then outstanding Option or any unexercised portion thereof, without the
consent of the Optionee, unless such amendment is required to enable an Option
designated as an Incentive Stock Option to qualify as an Incentive Stock Option.
14. Continuation of Initial Plan as to Outstanding Options.
Notwithstanding any other provision to the contrary, the terms of the Initial
Plan shall remain in effect and apply to Options granted pursuant to the Initial
Plan.
<PAGE>
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing Amended and Restated Chips and Technologies, Inc. 1994 Stock
Option Plan was duly adopted by the Board of Directors of the Company on the
11th day of August, 1994.
<PAGE>
AMENDED AND RESTATED
CHIPS AND TECHNOLOGIES, INC.
1994 STOCK OPTION PLAN
PLAN HISTORY
August 11, 1994 Board of Directors adopts the Plan with a share reserve of
17,200,000 shares.
[November 10, 1994 Stockholders approve the adoption of the Plan.]
EXHIBIT 10.18
CHIPS AND TECHNOLOGIES, INC.
KEY EMPLOYEE BONUS PLAN
I. PURPOSE
The Chips and Technologies, Inc. Key Employee Bonus Plan (the "Plan")
is created to provide an incentive to key employees of Chips and Technologies,
Inc. (the "Company") and any parent and/or subsidiary corporations of the
Company (all of whom along with the Company being referred to individually as a
"Participating Company" and collectively as a "Participating Company Group") to
achieve designated objectives and to reward the key employees for achieving
desired results by aligning their compensation with targeted Company
performance.
II. PLAN
1. Eligibility.
1.1 Eligible Plan Participants ("Participant") shall include such
officers (including officers who are also Members of the Company's Board of
Directors) of the Company, employees of the Company with the position of
directors and key employees as may be designated by the Compensation Committee
as eligible Participants in the Plan for the Plan Year. Eligibility for the Plan
Bonus may be specified on an individual by individual basis or for designated
categories of Participants (e.g., executive officers), as the Compensation
Committee may, in its sole discretion, determine.
1.2 Employees hired after the first day of the Plan Year, but while
the achievement of the Target Objectives is still substantially in doubt, may,
with the approval of the Compensation Committee, become Participants in the Plan
for such Plan Year.
1.3 In order to receive a bonus under this Plan, a Participant must
be an active, full-time employee of the Participating Company Group on the last
day of the Plan Year for which the Plan Bonus is payable or have died or become
totally disabled during such Plan Year.
2. Plan Year and Plan Effective Date. The Key Employee Bonus Plan
Year shall be the same as the Company's Fiscal Year which is currently from
July 1 to June 30. The first Plan Year shall be the Company's Fiscal Year
beginning July 1, 1994 and ending on June 30, 1995.
<PAGE>
3. Target Objectives and Plan Bonus.
3.1 With respect to each Plan Year, the Compensation Committee shall
establish the following Target Objectives for the Plan Year:
(a) Target Objective for annual revenue growth; and
(b) Target Objective for operating income.
3.2 With respect to each Plan Year, the Compensation Committee shall
approve amount of Plan Bonus ("Plan Bonus"), expressed as a percentage of each
Participant's Salary, which may be earned by achieving the Target Objectives.
(a) A Participant's Plan Bonus shall be the sum of the amount
earned for the achievement of each of the Target Objectives established for the
year, but not to exceed the maximum Plan Bonus set forth below in Section 4.
(b) Except as otherwise provided in Section 3.3, below, the
maximum Plan Bonus in any Plan Year as a percentage of Salary is:
- For the President: 65%
- For all other Participants: 60%
(c) For purposes of this Plan, a Participant's Salary shall
include the Participant's base Salary before deduction for any contributions to
any plan maintained by a Participating Company and described in Section 401(k)
or Section 125 of the Internal Revenue Code of 1986, as amended, and
commissions. A Participant's Salary shall not include bonuses, annual awards,
long term disability, workers' compensation or any other payments not
specifically referenced in the preceding sentence.
3.3 The maximum bonus of any Participant who joins the Plan after the
first day of the Plan Year or who dies or becomes totally disabled during the
Plan Year, shall be pro rated based on the total number of days of employment
while a Participant in the Plan over the total number of days in the Plan Year.
4. Limitations on Maximum Bonus Amount.
4.1 Notwithstanding any other provision in this Plan to the contrary,
the maximum amount of Plan Bonuses which may be paid to all Participants under
this Plan in any Plan Year shall not exceed ten percent (10%) of the Company's
operating profit for the Plan Year, as reflected in the Company's audited
financial statements for such year. In the event that the total amount available
for payment under the Plan is less than would otherwise be payable under Section
3, above, then all of the Participants' Plan Bonuses as determined under Section
3, above, shall be reduced proportionately.
4.2 Notwithstanding any other provision herein to the contrary, the
Compensation Committee may reduce the amount of Plan Bonus paid to any
Participant if, in the sole discretion of the Compensation Committee, such
reduction is appropriate. In no event, however, shall the Compensation Committee
have the discretion or authority to increase the amount of bonus paid to a
Participant above the amount otherwise determined under the terms of this Plan.
<PAGE>
5. Payment.
5.1 Bonuses earned under this Plan shall be paid by check, as soon as
it is administratively feasible to do after the Company's Fiscal Year audited
financial results are available and the achievement of the Target Objectives has
been certified, in writing, by the Compensation Committee.
5.2 Bonuses payable under this Plan shall be payable only to the
Participants eligible to receive them as provided in this Plan and may not be
transferred or assigned in any manner otherwise than by Will and the laws of
descent and distribution.
5.3 All taxes will be deducted and withheld from the Plan Bonus
payments, as may be required by applicable law.
6. No Employment Contract. Nothing in this Plan shall confer upon a
Participant any right to continue in the employ of the Company or interfere in
any way with the right of the Company to terminate the Participant's employment
at any time. This Plan will not be deemed to constitute a contract of employment
with any Participant.
7. Administration. The Compensation Committee shall have full power
and authority to interpret and administer the Plan and to establish the Plan
Bonuses and Target Objectives as provided herein. The Compensation Committee's
determination of all matters relating to this Plan shall be final and
conclusive.
8. Amendment and Termination. This Plan shall continue until
terminated by the Company's Board of Directors. The Company's Board of Directors
may amend or terminate this Plan by action, in writing, provided, however, that
no amendment shall eliminate or reduce any bonuses which have accrued hereunder.
THIS KEY EMPLOYEE BONUS PLAN is adopted effective as of the 1st day of
July, 1994.
CHIPS AND TECHNOLOGIES, INC.
By: ___________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from Q295 10Q
financial statements and is qualified in its entirely by reference to such
financial statements.
</LEGEND>
<S> <C>
<CURRENCY> US-DOLLAR
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 15082
<SECURITIES> 6682
<RECEIVABLES> 11773
<ALLOWANCES> 985
<INVENTORY> 9491
<CURRENT-ASSETS> 44557
<PP&E> 33556
<DEPRECIATION> 23168
<TOTAL-ASSETS> 55594
<CURRENT-LIABILITIES> 14680
<BONDS> 0
<COMMON> 60926
1
0
<OTHER-SE> (29540)
<TOTAL-LIABILITY-AND-EQUITY> 55594
<SALES> 23277
<TOTAL-REVENUES> 23277
<CGS> 14418
<TOTAL-COSTS> 14418
<OTHER-EXPENSES> 3286
<LOSS-PROVISION> 75
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2634
<INCOME-TAX> 263
<INCOME-CONTINUING> 2371
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2371
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
