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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-15012
CHIPS AND TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0047943
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2950 ZANKER ROAD, SAN JOSE CALIFORNIA 95134
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 434-0600
Securities registered pursuant to Section 12(B) of the Act: NONE
Securities registered pursuant to Section 12(G) of the Act:
COMMON STOCK, $.01 PAR VALUE
COMMON STOCK PURCHASE RIGHTS
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(D) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter 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
--- ---
Indicate by check mark if disclosure of delinquent Filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
The aggregate market value of the voting stock held by nonaffiliates of the
registrant was approximately $211,368,274 as of July 31, 1996.
On July 31, 1996, there were 20,621,295 shares of Common Stock of the Company
outstanding.
The Index to Exhibits is listed on pages 28 and 29 of this Annual Report on Form
10-K.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Proxy Statement for Registrant's Annual Meeting of Stockholders to be held
on November 7, 1996, (the "Proxy Statement")
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PART I
ITEM 1. BUSINESS
This report includes a number of forward-looking statements which reflect the
Company's current views with respect to future events and financial performance.
These forward-looking statements are subject to certain risks and uncertainties,
including in particular those discussed below and in Item 7 of this report for
the year ended June 30, 1996, which could cause actual results to differ
materially from historical results or those anticipated. In this report, the
words "expect," "anticipate" and similar expressions identify forward-looking
statements. These forward-looking statements speak only as of the date hereof,
and should not be given undue reliance.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
GENERAL
Chips and Technologies, Inc. ("CHIPS" or the "Company") is a leading supplier of
highly integrated semiconductor and software solutions to personal computer
manufacturers. The Company's solutions provide enhanced graphics, video and
other advanced display capabilities for both portable and desktop computers.
CHIPS is currently the world's leading supplier of graphics and video
controllers for portable computers. Some of the Company's customers are ACER,
Apple Computer, DEC, Hewlett Packard, IBM, NEC and Toshiba.
INDUSTRY OVERVIEW
The emergence of graphical user interfaces (GUIs) such as Microsoft Windows
spawned a major change in the role of the semiconductor chips that control
computer displays. Before the widespread use of GUIs, the primary function of
video chips was to display simple characters such as letters and numbers. The
advent of graphics-based interfaces placed a substantial new burden on video
chips, requiring them to perform far more complex functions in order to display
detailed graphics images in a multitude of colors. As full-motion video and
other even more challenging graphics functions have become standard features in
personal computers, the graphics controller chip has become a key component,
requiring ever more innovation and sophistication in its design and
functionality.
In the last several years, the portable computer market has grown at a faster
rate than the desktop computer market and has become a very significant segment
of the personal computer industry. As the portability and popularity of notebook
computers have grown, so have users' expectations for performance and features
comparable to those of desktop computers. This poses a substantial challenge for
designers of graphics controller chips. Not only must they provide
desktop-quality performance and features such as video playback acceleration,
they must also help solve portable computer manufacturers' unique development
challenges. These include limited physical space, the need for low power
consumption, support for numerous types of flat panel displays from different
manufacturers, and constrained ability to control electrical emissions for FCC
certification. In addition, graphics controllers for portable computers must
also support traditional CRT monitors as well as built in flat panel displays
and must be able to display images on both simultaneously.
In this very challenging environment, CHIPS has become a leading player in the
portable computer market, capturing over 45% of the market for portable computer
graphics display controllers in the last two years.
DISPLAY AND GRAPHICS TECHNOLOGY IN PORTABLE COMPUTERS
Graphics technology for portable computers has evolved around two key factors,
display size and color resolution. The main display on a portable computer is
the flat panel integrated in the computer. This display is generally based on
liquid crystal display ("LCD") technology. Portable computer display technology
has advanced from the 7" to 9", low resolution monochrome displays of a few
years ago to 12" or larger, 16.7 million simultaneous color, 1024x768 pixel
displays. Increased demand for portable computers and the availability of
additional manufacturing capacity have led to a rapid decline in LCD display
costs. The prospect of further cost declines creates new applications for flat
panel displays.
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Economical production of large LCD displays, comparable in size to current
mainstream desktop CRT displays, is quickly becoming viable. LCDs have
significant benefits over traditional CRTs for desktop use, namely size and
power consumption. In addition, LCDs can display an image over their entire
display surface, unlike most CRTs; thus a 12" LCD displays a 12" image, whereas
a 13"-14" CRT display may produce only a 12" image. From an end user standpoint,
LCDs also have perceived quality advantages over CRTs due to their perfectly
flat screen and rapid pixel response.
Flat panel graphics controllers must rapidly bring mainstream display
advancements to the portable arena. New features such as 3D graphics
acceleration will be needed to support a new generation of interactive
entertainment via the Internet, more realistic games and new business
applications for training and presentations. Complementary MPEG-2 support will
be required for higher quality video and audio content made possible by digital
video disc (DVD) players. Graphics controller suppliers will also need to
support industry standard initiatives such as the Accelerated Graphics Port
(AGP) recently announced by Intel, which offers a new graphics architecture to
enable higher performance 3D graphics capabilities.
COMPANY STRATEGY
Extend Leadership Position in Portable Graphics Controllers
The Company maintains a leading position of at least 45% market share as a
supplier of graphics and video controllers to portable computer manufacturers.
The Company's strategy is to leverage its core expertise and market leadership
to rapidly bring advanced display controller technologies to portable computers.
During fiscal 1996, the Company announced and shortly thereafter began shipping
its HiQVideo(TM) family of video display controllers. This product family
perpetuates the Company's successful hardware- and software-compatible product
strategy, which allows PC manufacturers to build on their developed base of
software and board designs while bringing new features and higher performance to
their products. Future enhancements to the HiQVideo product family will include
support for new memory technologies such as SDRAM, as well as unique proprietary
technologies for improving graphics display quality and performance.
Meet Customer Needs With Innovative and Comprehensive Solutions
The Company maintains very close relationships with leading PC manufacturers
such as Toshiba, Apple Computer and NEC. The Company assists them in solving
their design and product challenges by bringing innovative solutions to their
products. During fiscal 1996, the Company was a founding member of the Zoomed
Video standard initiative. Zoomed Video solves the unique portable design
challenge of providing a pathway through the PCMCIA port into the PC for full
motion video sources, such as cameras used for video conferencing. During fiscal
1996, the Company introduced and began shipping its PanelLink(TM) (1) line of
products. PanelLink technology, which the Company licenses from Silicon Image,
Inc., introduces a new standard interface system for transmitting high frequency
data between the computer and the flat panel display screen. As flat panel
displays become larger and support higher color resolutions, they increase the
amount and speed of data transferred between the display and the computer
motherboard. This causes increased electromagnetic interference (EMI), which is
regulated by the FCC. The PanelLink interface standard reduces EMI and
simplifies the engineering of the notebook PC. The PanelLink solution currently
consists of two chips; the Company intends to integrate this technology into its
future graphics controller products in order to provide customers a single chip
solution.
Develop Advanced Technologies for Current and New Market Opportunities
In May 1996, CHIPS and Lockheed Martin's Real 3D company entered into a
strategic product development partnership. The first product from this
partnership will be a 2D/3D graphics controller for desktop computers which will
support the new AGP bus standard. The first customer for this product will be
Intel Corporation, which intends to utilize it on a new generation of Pentium
Pro and AGP desktop motherboards in the second half of 1997. CHIPS also expects
to offer to the mainstream PC market 2D/3D graphics controllers embodying the
technology developed from its partnership. The Company believes the ability to
provide real-time, workstation quality 2D/3D graphics rendering and acceleration
to be a critical component of future desktop and portable PCs as well as
Internet applications.
(1) PanelLink is a trademark of Silicon Image, Inc.
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PRODUCTS AND MARKETS
The Company is the leading supplier of flat panel graphics and video controllers
to portable computer manufacturers. During fiscal 1996 approximately 84% of the
Company's revenue was derived from flat panel graphics controllers.
Flat Panel Graphics Controller Products
6554X Family:
All of the Company's flat panel graphics controllers for portable computers are
highly integrated and incorporate a graphics accelerator engine, true color
RAMDAC and a PLL clock synthesizer in a single chip. The 6554X family of
products is based on a 32 bit display graphics engine and supports a variety of
flat panel LCD displays.
HiQVideo Family:
The Company's HiQVideo family was introduced and began volume shipment during
fiscal 1996. The HiQVideo family, while maintaining the same high level of
integration of its predecessors, is based on a new 64 bit display graphics
engine architecture, including Zoomed Video support and video playback
acceleration features such as X/Y scaling and color conversion for high quality
full motion, full screen video. The HiQVideo family also provides support for
much higher resolutions and color depths. The HiQV32 product is pin and software
compatible with products in the 6554X family, while the HiQV64 provides a 64 bit
interface to display memory for maximum performance. The HiQVideo family
supports low power and low voltage operation as well as advanced small form
factor chip packaging. Future enhancements to the HiQVideo family will include
integration of PanelLink EMI reduction technology, new unique proprietary
features for improved display quality, and support for new memory architectures
such as SDRAM and SGRAM.
Apple Family:
The Company is the exclusive supplier of custom graphics controllers used in all
Apple Computer Powerbook portable computers. These products support the PowerPC
and 680X0 microprocessor family platform and integrate RAMDAC and PLL clock
synthesizer.
PanelLink Family:
During fiscal 1996, the Company introduced and began shipment of its family of
products incorporating PanelLink technology. The Company manufactures and sells
the PanelLink product to portable computer manufacturers and LCD display
manufacturers. The PanelLink solution consists of two chips, one which resides
in the computer and the other on the LCD display itself. The PanelLink solution
makes possible the use of longer cabling between a computer and the LCD display,
which will enable the use of LCD displays as desktop CRT replacements. The
Company intends to integrate the transmitter portion of the PanelLink solution
into its future graphics controller products, thereby providing a one chip
solution.
Desktop Products
The Company markets a desktop product line which includes various solutions for
the major subsystems of the desktop PC motherboard. Focused on integration and
performance, the product line consists of I/O solutions, core logic and an
innovative single chip computer product called PC/CHIP. These products target a
wide range of industrial and embedded control applications utilizing 386 and 486
microprocessor technologies.
SALES, MARKETING AND DISTRIBUTION
CHIPS markets and distributes its products through a combination of a direct
sales organization, regional distributors and independent representatives. In
North America, the Company maintains direct sales offices in Georgia and
Illinois, and at its corporate headquarters in San Jose, California. Additional
regional technical support staff operate in Massachusetts and Texas.
International sales offices are maintained in Taiwan and the United Kingdom. In
Asia, the Company sells the vast majority of its products through distributors.
These distributors provide inventory stocking for end customers and supplement
the Company's technical support.
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Sales to the Company's customers are usually made pursuant to specific purchase
orders, which are cancelable or reschedulable within certain time frames without
significant penalty. The Company recognizes sales to all customers except
domestic distributors upon shipment of the product. For the Company's domestic
distributors, revenue is recognized upon the distributor resale. The Company's
distributors are generally allowed to return to the Company a portion of the
products purchased by them. The Company maintains reserves for such potential
returns.
To assist the customer in the implementation of the Company's products, the
Company provides application engineering hardware and software development
support during the evaluation, design and production stages of the customer's
product cycle. The Company works very closely with its customers. Due to the
Company's market leadership in flat panel display controllers, the Company
receives in-depth feedback from its customers concerning new product plans and
features. This feedback helps refine the Company's product strategies and
greatly enhances new product acceptance.
The Company's products are utilized by a number of leading personal computer
manufacturers, including Acer, Apple Computer, DEC, Hewlett Packard and Toshiba.
Many of these PC OEMs subcontract manufacturing of their computer products to
other companies, while ordinarily retaining control over the selection and
specification of the semiconductor components. In fiscal 1996, sales to Inno
Micro, a distributor in Japan, comprised 37% of total sales, including sales to
Toshiba which represent approximately 26% of the Company's total sales. Sales to
Apple Computer comprised 16% of the Company's revenue in fiscal 1996. Sales to
Gain Tune/World Peace, a distributor in Taiwan, comprised 10% of the Company's
revenue for fiscal 1996. In fiscal 1995, Inno Micro accounted for approximately
23%, including sales to Toshiba accounting for 13% of the Company's revenue. In
fiscal 1995, Apple Computer comprised approximately 13% of the Company's
revenue. Also in fiscal 1995, Gain Tune/World Peace comprised 10% of the
Company's revenue. No customer contributed more than 10% of the Company's
revenues in fiscal 1994. The Company expects a significant portion of its future
sales to remain concentrated with a limited number of strategic customers. There
can be no assurance that the Company will be able to retain its strategic
customers or that such customers purchases will not decline or fluctuate
significantly or that such customers will cancel or reschedule orders. Any of
these occurrences and others related to its customers, as noted in "Factors
Affecting Future Operating Results," could have a material adverse effect on the
company's business.
Export sales were 67%, 47% and 56% of net sales for fiscal years 1996,1995 and
1994, respectively. The Company's export sales are currently denominated in U.S.
dollars. The proportion of export sales also reflects the strategy of certain PC
system companies to manufacture or subcontract manufacture of their products in
foreign countries as well as the strategy of certain distributors to maintain
domestic billing locations for their foreign operations.
MANUFACTURING
The majority of the Company's current products are manufactured using 0.6 and
0.5 micron triple layer metal CMOS process technologies. The Company expects
most of its new products to utilize 0.5 micron and 0.35 micron process
geometries in order to achieve higher performance and lower production costs.
The Company subcontracts to independent suppliers the manufacture of its
products. This strategy enables the Company to avoid the large capital
investment and overhead expense associated with a captive semiconductor
fabrication facility. Accordingly, the Company can focus on its core strengths:
the design and marketing of its products.
Some of the Company's vendors deliver fully assembled and tested products. In
this case, CHIPS purchases finished goods meeting its predetermined
specifications. Other vendors provide only the silicon wafers, after which the
Company manages the process of assembly and testing through other independent
vendors. CHIPS maintains specific quality assurance programs for all vendors and
supplies its vendors with detailed semiconductor test programs to verify its
products during manufacture. The Company also requires its vendors to
manufacture to a detailed set of specifications and parameters prior to
accepting delivery of any products from its suppliers. The Company believes it
maintains good relationships with its vendors. The Company generally
manufactures its product at one supplier during its prototyping and initial
production, and as the product ramps up the Company qualifies another supplier
to manufacture the product in high volume. Due to its strategy of utilizing
subcontract manufacturers, the Company is subject to certain risks including
those noted in "Factors Affecting Future Operating Results".
During fiscal 1996, the Company entered into two long term wafer capacity
agreements with Taiwan Semiconductor Manufacturing Company ("TSMC") and
Chartered Semiconductor Manufacturing PTE LTD ("CSM"), (See Note 3 -
Commitments, Long-term capacity agreements). Both agreements were entered to
secure additional guaranteed wafer supplies through the year 2000 in order to
support the expected growth in the Company's manufacturing requirements.
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The Company believes it has secured appropriate manufacturing capacity given its
current expectations. However, the conditions of these agreements present risks,
including those indicated in "Factors Affecting Future Operating Results".
RESEARCH & DEVELOPMENT
Timely development and introduction of new products is essential to maintaining
the Company's position as a market leader in flat panel graphics controllers and
is critical to its ability to expand its market opportunities. Research and
development efforts focus on the design of new products for manufacturers of
portable computers by leveraging the Company's proprietary intellectual property
design modules. The Company also has expanded its new product development
capabilities through the licensing of technologies such as PanelLink. The
Company intends to expend significant resources on the completion of its
strategic product development partnership with Lockheed Martin's Real 3D
company. In addition, the Company plans to increase its investments in the
development of high performance software drivers that will support new hardware
chip capabilities as well as new software standards such as Microsoft Direct 3D.
At June 30, 1996, the Company had approximately 109 employees engaged in
research and development, engineering and supporting functions. Spending for
research and development during fiscal 1996, 1995 and 1994 was $19.8 million,
$13.3 million and $11.8 million, respectively.
COMPETITION
The markets for the Company's products are highly competitive and the Company
expects the level of competition to increase. Competitive factors in the
Company's markets include product features, product performance, price,
timeliness of new product introductions, quality, software support and customer
support. For a large period of fiscal 1996, the semiconductor industry was
impacted by limited manufacturing capacity. The capacity shortage has been
greatly relieved during the latter part of fiscal 1996. Price competition in the
semiconductor industry is intense and the Company believes that price
competition will increase particularly due to the alleviation of production
capacity shortages. Technical and other advances by the competition could have a
material adverse effect on the Company's results of operations.
The Company's competitors consist primarily of domestic companies. Some of these
companies own or have an equity interest in semiconductor fabrication, assembly
and test facilities, while others subcontract manufacturing in a manner similar
to CHIPS. Some competitors have significantly greater financial, technical,
marketing, manufacturing, distribution and human resources than the Company. To
the extent these competitors are able to utilize these resources effectively in
competing against the Company, there could be an impact on the future operating
results of the Company.
LICENSES, PATENTS AND TRADEMARKS
The Company attempts to protect its proprietary technology through the filing of
patent applications and by the use of copyright, maskwork and trade secret
protection and trademarks. The Company has been granted 67 U.S. and foreign
patents covering various technical innovations. The Company also has 9 pending
patent applications and numerous applications being prepared by counsel. The
Company intends to continue to build and protect its intellectual property
portfolio.
The semiconductor industry is characterized by frequent litigation regarding
patents and other intellectual property rights. There can be no assurance that
third parties will not assert claims against the Company related to current and
future products. In the event of such litigation, significant financial expense
and diversion of key technical and management personnel resources could occur.
Should there be an adverse result in any litigation proceeding, the Company
could be required to expend significant resources to develop non-infringing
technology, obtain licenses or provide financial compensation. The unfavorable
outcome of litigation against the Company could have a materially adverse impact
on the Company's results of operations.
BACKLOG
The Company participates in an industry that is subject to short order and
shipment lead times. As is common within the industry, customers may change or
cancel orders and shipment schedules within certain periods with minimal
penalties. In
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light of these factors, the Company does not consider backlog to be a reliable
or meaningful indicator of the Company's operating results.
EMPLOYEES
As of June 30, 1996, the Company had 209 employees, of whom 109 were engaged in
research and development, engineering and supporting functions, 50 in marketing
and sales, 31 in manufacturing and 19 in administration and finance. The
Company's future success will depend, in part, on its ability to attract and
retain highly qualified personnel. None of the Company's employees is
represented by collective bargaining agreements and the Company has never
experienced a work stoppage. The Company believes its employee relations are
good.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located at 2950 Zanker Road in San
Jose, California. The Company owns the land and the 69,700 square foot building
on the site. During fiscal 1996 the Company sold two adjacent undeveloped lots.
During fiscal 1996, the Company entered into a lease on a 22,500 square foot
facility located in San Jose, California and moved its logistics and warehousing
operations out of its headquarters into this leased space. The Company leases
office space for its regional direct sales offices domestically in Georgia and
Illinois and internationally in Taiwan and the United Kingdom. The Company
believes its facilities to be fully utilized and adequate for the Company's
current operations. However, future growth in the Company's operations and
staffing levels may affect the adequacy of the current facilities and require
the assumption of additional facilities.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company and their ages are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
James F. Stafford 52 President and Chief Executive Officer
Keith A. Angelo 40 Vice President, Marketing
Lee J. Barker 51 Vice President, Operations
Timothy R. Christoffersen 54 Vice President, Finance and Chief Financial Officer
Richard E. Christopher 50 Vice President, Sales
Morris E. Jones, Jr. 44 Senior Vice President and Chief Technical Officer
Lawrence A. Roffelsen 51 Vice President, Engineering
Jeffery Anne Tatum 46 Secretary, Vice President and General Counsel
</TABLE>
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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 Secretary, Vice President and General Counsel since July
1994. She previously served as Secretary and General Counsel from August, 1993
to July 1994, and as Assistant General Counsel from February 1992 to 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 through 1989.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY & RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the NASDAQ National Market System 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>
Fiscal 1996 Fiscal 1995
High Low High Low
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $15.625 $12.57 $ 5.375 $3.625
Second Quarter 13.25 8.25 7.50 4.95
Third Quarter 9.875 8.25 8.625 6.25
Fourth Quarter 12.00 8.75 14.00 7.50
- ---------------------------------------------------------
</TABLE>
The Company's present policy is to reinvest earnings in future operations. The
Company has not paid and does not anticipate paying cash dividends in the
foreseeable future. At July 31, 1996 there were 20,621,295 shares of Common
Stock outstanding, held by approximately 960 stockholders of record.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(In thousands, except per share amounts) Year ended June 30,
------------------------------------------------------------------
1996 1995 1994 1993 1992
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $150,788 $104,731 $73,444 $ 97,874 $141,106
Gross margin 60,936 39,856 26,480 24,725 16,961
Restructuring costs (recovery) -- (1,429) (372) 23,271 9,131
Income (loss) from operations 19,495 9,748 (1,077) (52,654) (84,676)
Net income (loss) 25,750 9,388 2,714 (49,055) (63,873)
Net income (loss) per share 1.18 0.47 0.16 (3.13) (4.46)
Total assets 108,071 85,767 51,300 62,454 115,301
Long-term capital lease and notes payable 796 1,725 1,019 1,009 3,835
Convertible debentures -- -- 7,910 7,910
Stockholders' equity 83,389 65,696 26,327 19,677 65,327
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report includes a number of forward-looking statements which reflect the
Company's current views with respect to future events and financial performance.
These forward-looking statements are subject to certain risks and uncertainties,
including in particular those discussed below and in Item 1 of this report, that
could cause actual results to differ materially from historical results or those
anticipated. In this report, the words "expect," "anticipate" and similar
expressions identify forward-looking statements. These forward-looking
statements speak only as of the date hereof, and should not be given undue
reliance.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
<TABLE>
<CAPTION>
NET REVENUES Fiscal year % change Fiscal year % change Fiscal year
1996 from prior year 1995 from prior year 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Revenues
(in millions) $150.8 44% $104.7 43% $73.4
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The increases in revenue in fiscal 1996 and 1995 were primarily attributable to
increases in unit volume shipments of portable graphics controllers. The
majority of the Company's sales are derived from portable graphics controller
products which comprised 84%, 65% and 47% of the Company's sales in fiscal 1996,
1995 and 1994, respectively.
Export sales are sales made to foreign customers and to the overseas
manufacturing facilities of domestic customers. Export sales were 67%, 47% and
56% of net sales for fiscal years 1996, 1995 and 1994, respectively. Sales to
foreign customers are denominated in US dollars. Three customers accounted for
37%, 16% and 10%, respectively, of the Company's net sales in fiscal 1996. Three
customers accounted for 23%, 13% and 10%, respectively, of the Company's net
sales in fiscal 1995. No customer accounted for more than 10% of the Company's
net sales for fiscal 1994.
<TABLE>
<CAPTION>
GROSS MARGIN Fiscal year % change Fiscal year % change Fiscal year
1996 from prior year 1995 from prior year 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Margin
(in millions) $60.9 53% $39.9 51% $26.5
Percentage of net revenues 40% 38% 36%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The increase in gross margin as a percentage of net revenues was primarily due
to an improved mix of products including higher margin portable graphics
accelerators.
<TABLE>
<CAPTION>
OPERATING EXPENSE Fiscal year % change Fiscal year % change Fiscal year
1996 from prior year 1995 from prior year 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(in millions)
Research & Development $19.8 49% $13.3 13% $11.8
Percentage of net revenues 13% 13% 16%
Selling, General & Administrative $21.6 19% $18.2 13% $16.1
Percentage of net revenues 14% 17% 22%
Restructuring Recovery $ -- $(1.4) $(0.4)
Percentage of net revenues 1% 1%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
RESEARCH AND DEVELOPMENT EXPENSES Research and Development expenses increased in
absolute dollars in both fiscal 1996 and 1995 mainly due to increases in
engineering staffing levels, product prototyping and outside service costs. The
Page 10
<PAGE> 11
Company expects these expenses to increase in absolute dollars as it invests in
new hardware and software product development including 3D graphics and MPEG II
technology.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, General and Administrative
expenses increased in absolute dollars in both fiscal 1996 and fiscal 1995.
However, Selling, General and Administrative expenses as a percentage of net
revenues decreased from year to year as sales grew at a faster rate than
spending. The increase in absolute dollars was primarily due to higher
commissions paid to sales representatives as the result of higher revenues.
RESTRUCTURING RECOVERY The Company received $1.2 million in fiscal 1995 and $0.4
million in fiscal 1994 as principal payments against a note receivable recorded
in respect of the sale of certain of the Company's product lines which were
discontinued and fully reserved as restructuring charges in fiscal 1993. The
note was paid in full in November, 1994. Because the restructuring plans that
were reserved for in prior years were substantially completed, the Company also
recorded the remaining reserve balance of $0.2 million as income in fiscal 1995.
INTEREST INCOME AND OTHER, NET
Other income was $9.1 million in fiscal 1996, compared to $0.6 million in fiscal
1995 and $1.7 million in fiscal 1994. Other income in fiscal 1996 included a
$0.9 million gain related to the sale of land and a $6.2 million gain from the
sale of AMD stock (see Notes to Consolidated Financial Statements # 2 -
Short-term investments). Other income in fiscal 1994 included proceeds from the
sale of an equity investment.
INCOME TAXES
The Company recorded $2.9 million and $1.0 million of income tax provisions
reflecting annual effective tax rates of 10% and 9% in fiscal 1996 and 1995,
respectively. The rates are substantially lower than the statutory income tax
rate as a result of utilization of the Company's net operating loss
carryforwards. The provisions for fiscal 1996 and 1995 reflect certain federal
alternative minimum tax and state tax obligations. The Company recorded $2.1
million in tax benefits in fiscal 1994. The Company resolved a number of tax
issues in fiscal 1994 and, as a result, recorded a tax benefit of $2.2 million
related to taxes which were previously provided for these issues. The Company
has provided a valuation allowance for all the deferred tax assets on the basis
that realization is not reasonably assured.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments were $59.3 million on June 30,
1996, an increase of $13.3 million compared to $46.0 million on June 30, 1995.
This increase was primarily attributable to cash generated from operating
activities of $28.7 million during fiscal 1996 and proceeds from the sale of
land for $2.8 million in December, 1995. The increase was partially offset by
usage of cash for deposits to two foundries to obtain commitments for the supply
of additional wafers. Short-term investments as of June 30, 1996 included $3.5
million of AMD common stock which was converted from Nexgen common stock as a
result of the merger of the two companies. The Company sold 299,000 shares of
such stock for $6.2 million during the third quarter of fiscal 1996. The Company
plans to sell the remaining stock at appropriate valuations.
During fiscal 1996, other assets increased $12.3 million from $0.3 million on
June 30, 1995. The increase was primarily attributable to the payment of cash
deposits relating to foundry capacity agreements with Taiwan Semiconductor
Manufacturing Company ('TSMC') and Chartered Semiconductor Manufacturing PTE LTD
('CSM') which were entered into during the second quarter of fiscal 1996. These
agreements require deposits totaling $23.5 million and $20.0 million,
respectively, to be paid by the Company. During fiscal 1996, the Company made
deposits totaling $13.9 million under these agreements. The Company is required
to make another two deposits in an aggregated amount of $17.6 million during the
second half of calendar year 1996. The deposit under the agreement with TSMC
will be fully paid by the end of calendar year 1996. The Company will pay the
remaining balance of $12.0 million under the agreement with CSM in the amount of
$6.0 million in each of calendar years 1997 and 1998. The Company expects to
finance the remaining deposits from existing cash balances and funds generated
from operations. Under the TSMC agreement, some of the deposit will be recovered
over the term of the contract as credits against wafer purchases. The remainder
of the TSMC deposit and all of the CSM deposit will be recovered at the
expiration of the agreements.
Page 11
<PAGE> 12
The Company's capital requirements consist primarily of financing working
capital items and funding operational activities. The Company has agreements
with three banking institutions for a combined total of $21.0 million in
unsecured lines of credit. These line of credit agreements will expire at
various times from August 1997 through October 1998. There was no borrowing
against these lines of credit as of June 30, 1996. These agreements 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 expects that its existing cash, cash equivalents, short-term
investments, 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 coming fiscal year.
FACTORS AFFECTING FUTURE OPERATING RESULTS
The Company expects its revenues will increase in the next quarter and its gross
margins will remain at approximately the level achieved in the most recent
quarter. In order to maintain its present market position and to expand the
markets in which the Company can participate, the Company expects to increase
its investment in hardware and software engineering, particularly in the areas
of 3D graphics, new memory technologies such as SDRAM, and MPEG II technology.
The Company's revenues, gross margin and other operating results have been and
will continue to be affected by a wide variety of factors that could have a
material adverse effect on the Company's operations and business during any
particular period. These factors include: the level of orders that are received
and can be shipped in a quarter, the rescheduling or cancellation of orders by
the Company's customers, gain or loss of any strategic relationships or design
wins with customers, the Company's ability to predict product demand and manage
its inventory, fluctuations in manufacturing yields, the timing of qualification
by its customers of the Company's products from different foundry suppliers, new
product introductions by the Company's competitors, the Company's ability and
timing in introducing new products and technologies, market acceptance of the
Company's and its customers' products, supply constraints and price or other
fluctuations for other components (such as portable display screens and memory
devices) incorporated into its customers' products, competitive pressures on
selling prices, changes in product or customer mix, and the amount and timing of
expenditures for research and development and for selling, general and
administrative functions.
The Company does not own or operate a wafer fabrication facility, and all of its
semiconductor device requirements are supplied by third party foundries. All of
the Company's semiconductor products are currently assembled and tested by third
party vendors. 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. 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, reductions in the Company's revenues or other material
adverse effects on the Company's business, financial condition and operating
results.
The Company's manufacturing and assembly subcontractors are primarily in Asia.
Many of the Company's customers also manufacture in Asia or subcontract their
manufacturing to Asian companies. The concentration of the Company's
manufacturing and selling activities in Asia poses risks that could adversely
affect demand for and supply of the Company's products including foreign
currency fluctuations and economic and trade policies which could affect the
relative competitiveness of customers' end products.
The Company expects to obtain access to and qualify new foundries or new
production lines at established foundries which employ advanced manufacturing
and process technologies. The majority of the Company's new products will
utilize advanced process geometries, particularly 0.5u and 0.35u, in order to
achieve high performance and lower production costs. The Company generally
qualifies its product in a single foundry during the initial production phase
and attempts to qualify a second foundry during production ramp-up. The Company
has in the past experienced delays in connection with the qualification of new
products and new foundries. Failure to qualify and obtain adequate production
volumes of its products on a timely basis would delay product introduction and
delivery to the Company's customers. Delays, as well as cost increases or
quality and yield problems, could have a material adverse effect on the
Company's business, financial condition and results of operations.
During the Company's customers' initial or pre-production phase of
manufacturing, the customer performs its own manufacturing validation and
testing which qualify the Company's products for production use. The Company's
products are extremely complex semiconductor devices. The Company establishes
and implements test specifications and imposes quality standards upon its
suppliers and also performs separate application-based compatibility and system
testing for its products. However, its customers may discover defects in the
Company's products related to their particular application.
Page 12
<PAGE> 13
To the extent that the Company is unable to remedy defects or provide product
that meets its customers' manufacturing qualification processes, the Company may
experience lower revenues and excess inventories which could have an adverse
effect on the Company's results of operations.
A number of factors have recently resulted in reduced average order lead times
from customers. These factors include customers' perception that product is more
readily available to them because foundry capacity is more readily available to
semiconductor suppliers than it was in the recent past, and customers'
reluctance to place long range orders due to their diminishing ability to
predict their customers' demand. The Company is currently receiving orders for
delivery of product primarily during the next ninety (90) days, whereas in the
past, a higher proportion of orders were for delivery as many as one hundred
eighty (180) days in the future. This shortened lead time makes forecasting by
the Company of product requirements more difficult. The Company must place
non-cancelable orders to purchase its products from its foundries on a
three-month rolling basis. Accordingly, the Company could experience an
unexpected shortfall in product availability or unexpected excess product
inventory. In addition, the reduced order lead time from customers makes it more
difficult for the Company to predict future revenues and operating results. If
sales and shipments in any quarter do not occur as expected, revenue could be
reduced and expense and inventory levels could be disproportionately high, and
the Company's business, financial condition and results of operations could be
materially adversely affected.
A limited number of customers account for a substantial portion of the Company's
net sales. The Company expects that sales to relatively few customers will
continue to account for a substantial portion of its revenues for the
foreseeable future. Some companies providing products to the desktop PC market
have recently experienced or expect to experience lower results of operations
due to various issues affecting the desktop PC market. As a result, many
companies are reevaluating product strategies and expected unit volumes. In
addition, certain companies have reportedly accumulated large amounts of
inventory and are pursuing aggressive pricing strategies to reduce inventories.
The Company's business is primarily in the portable computer segment of the
market which has not been affected to the same extent. However, in the event
that one or more of the Company's major customers were to cancel and/or
substantially reschedule orders for significant quantities of product, the
Company's results of operations could be materially adversely affected.
The Company relies on obtaining and maintaining design wins for its products
with leading personal computer manufacturers. In the event that the Company's
competitors have or introduce product features and/or performance which are
perceived as valuable by the market but are not in the Company's products, the
Company could lose current design wins or not acquire new design wins. In
addition, other factors such as internal product development delays, aggressive
competition and intangible factors affecting customer relationships could also
adversely impact design wins. To the extent that the Company is unable to retain
existing design wins or to acquire new design wins and the associated revenues
for the Company's existing and future products, there could be a material
adverse impact on the Company's business, financial condition and results of
operations.
During calendar 1995, the semiconductor industry experienced constraints on
available production. The Company, like many fabless semiconductor companies,
entered into long-term deposit agreements with wafer foundry suppliers to ensure
guaranteed access to capacity. Although production capacity for advanced
processes such as 0.35u appears to be limited, production capacity for more
mature processes now appears to be less constrained. The Company's capacity
commitment contracts contain provisions that obligate the Company to purchase
minimum quantities of wafers from these suppliers. To the extent that the
Company must utilize production capacity at certain foundries to fulfill its
long term commitments, the Company may pay a higher price for product than that
available from other suppliers, and this could have an adverse impact on the
Company's gross margins and results of operations.
The PC semiconductor market is generally characterized by price declines over
time as new competitors enter and as new semiconductor process technologies
enable lower cost manufacturing. In addition, rapid price declines may occur
when current supply exceeds demand. 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. The Company expects its competitors to aggressively price
alternative solutions to attempt to gain or maintain market share. Certain of
the Company's competitors have reportedly pursued aggressive pricing strategies
to reduce accumulated inventories of product for the desktop PC market. Although
it appears that supply to the portable computer market has not been impacted by
an accumulation of inventory, to the extent that the Company must reduce prices
to meet competition, maintain market share or meet customer requirements, the
gross margin percentages achieved in recent periods may not be sustainable.
The largest portion of the Company's sales is comprised of portable graphics
accelerators. The Company expects that the majority of its revenues will
continue to be from sales of those products during fiscal 1997. While the market
Page 13
<PAGE> 14
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 rates experienced in prior
periods will continue in the future.
Page 14
<PAGE> 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants 16
Consolidated Statements of Operations for the three years period ended June 30, 1996 17
Consolidated Balance Sheets at June 30, 1996 and 1995 18
Consolidated Statements of Cash Flows for the three year period ended June 30, 1996 19
Consolidated Statements of Stockholders' Equity for the three year period ended June 30, 1996 20
Notes to Consolidated Financial Statements 21-25
</TABLE>
SUPPLEMENTARY DATA
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
--------------------------------------------------
(In thousands, except per share amounts) June 30, March 31, Dec. 31, Sept. 30,
1996 1996 1995 1995
--------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $38,796 $36,514 $38,259 $37,219
Gross margin 17,160 14,457 14,958 14,361
Income from operations 5,964 4,046 4,933 4,552
Net income 5,929 9,786* 5,607 4,428
Net income per share 0.27 0.45* 0.26 0.20
</TABLE>
<TABLE>
<CAPTION>
Three months ended
--------------------------------------------------
June 30, March 31, Dec. 31, Sept. 30,
1995 1995 1994 1994
--------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $33,850 $27,231 $23,277 $20,373
Gross margin 12,994 10,365 8,859 7,638
Income from operations 3,765 2,283 2,500 1,200
Net income 3,652 2,109 2,371 1,256
Net income per share 0.18 0.11 0.13 0.07
</TABLE>
* Net income and net income per share in the third quarter of fiscal 1996
included a gain of $5.6 million or $0.26 per share (net of income tax)
from the sale of AMD stock (see Note# 2 of Notes to Consolidated Financial
Statements). Exclusive of this gain, net income would have been $4.2
million and net income per share would have been $0.19.
Page 15
<PAGE> 16
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Chips and Technologies, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Chips and
Technologies, Inc. and its subsidiaries at June 30, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
- ------------------------
Price Waterhouse LLP
San Jose, California
July 15, 1996
Page 16
<PAGE> 17
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended June 30,
(In thousands, except per share amounts) 1996 1995 1994
- ---------------------------------------- -------- -------- -------
<S> <C> <C> <C>
Net sales $150,788 $104,731 $73,444
Cost of sales 89,852 64,875 46,964
-------- -------- -------
Gross margin 60,936 39,856 26,480
-------- -------- -------
Operating expenses
Research and development 19,837 13,344 11,793
Selling, general and administrative 21,604 18,193 16,136
Restructuring recovery -- (1,429) (372)
-------- -------- -------
Total operating expenses 41,441 30,108 27,557
-------- -------- -------
Income from operations 19,495 9,748 (1,077)
Interest income and other, net 9,116 597 1,735
-------- -------- -------
Income before taxes 28,611 10,345 658
Benefit (provision) for income taxes (2,861) (957) 2,056
-------- -------- -------
Net Income $ 25,750 $ 9,388 $ 2,714
======== ======== =======
Net income per share $ 1.18 $ 0.47 $ 0.16
======== ======== =======
Shares used in per share calculation 21,791 20,182 16,623
======== ======== =======
</TABLE>
See notes to Consolidated Financial Statements
Page 17
<PAGE> 18
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands, except share amounts) JUNE 30, 1996 JUNE 30, 1995
- ------------------------------------------------------------ ------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 23,989 $ 22,385
Short-term investments 35,356 23,644
Accounts receivable, net of allowance for
doubtful accounts of $1,203 and $1,032, respectively 12,189 14,696
Inventory 10,197 11,667
Prepaid and other assets 2,574 2,549
-------- --------
Total current assets 84,305 74,941
Property and equipment, net 11,223 10,550
Other assets 12,543 276
-------- --------
TOTAL ASSETS $108,071 $ 85,767
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,820 $ 8,072
Current capital lease obligations 1,630 689
Accrued compensation 3,398 2,847
Other accrued liabilities 6,038 6,738
-------- --------
Total current liabilities 23,886 18,346
Long-term capital lease obligations 796 849
Notes payable -- 876
-------- --------
Total liabilities 24,682 20,071
-------- --------
Commitments (Note 3)
Stockholders' equity:
Convertible preferred stock, $.01 par value; 5,000,000 shares
authorized; none issued and outstanding -- --
Common stock, $.01 par value; 100,000,000 shares authorized;
20,620,000 and 19,744,000 shares issued and outstanding 206 197
Capital in excess of par value 77,769 73,016
Note receivable from officer (80) (107)
Unrealized gain on investments 3,421 16,267
Retained earnings (deficit) 2,073 (23,677)
-------- --------
Total stockholders' equity 83,389 65,696
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $108,071 $ 85,767
======== ========
</TABLE>
See notes to Consolidated Financial Statements
Page 18
<PAGE> 19
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended June 30,
In thousands 1996 1995 1994
- ------------------------------------------------------------------ ---------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 25,750 $ 9,388 $ 2,714
Adjustments to reconcile net income to cash provided by (used for)
operating activities:
Depreciation and amortization 2,651 2,672 3,414
Provision for losses on accounts receivable 300 300 676
Gain on sale of capital assets (949) (40) --
Gain on sale of stock and equity investments (6,204) -- (956)
Changes in operating assets and liabilities:
Accounts receivable 2,207 (6,559) (1,583)
Inventory 1,470 (5,822) (1,506)
Accounts payable 4,748 991 139
Other assets and liabilities (1,252) 3,214 (517)
Accrued restructuring costs -- (890) (10,750)
---------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 28,721 $ 3,254 $(8,369)
---------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,324) (3,419) (1,672)
Deposits paid for capacity agreements (13,880) -- --
Sale (purchase) of short-term investments (18,354) (2,206) 3,265
Proceeds from sale of capital assets and equity investments 2,759 631 3,473
---------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (32,799) (4,994) 5,066
---------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to capital lease obligations, net of principal payment 888 867 (3,748)
Proceeds from issuance of stock 4,762 5,986 3,646
Repayment (issuance) of officers' loans 32 (100) 35
---------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 5,682 6,753 (67)
---------------------------------------
Net increase (decrease) in cash and cash equivalents 1,604 5,013 (3,370)
Cash and cash equivalents at beginning of year 22,385 17,372 20,742
---------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 23,989 $22,385 $ 17,372
=======================================
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 232 $ 903 $ 1,002
Income taxes 683 240 39
Additions under capital lease obligations 2,099 1,806 --
</TABLE>
See notes to Consolidated Financial Statements
Page 19
<PAGE> 20
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible
Preferred Common
Stock Stock Capital In
------------------------- ----------------------- Excess of
In thousands Shares Par Value Shares Par Value Par Value
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1993 123 $ 1 16,074 $ 160 $ 55,329
Common stock issued for:
stock options 701 7 3,426
employee stock purchase plan 56 1 211
building lease settlement 50 1 256
Repayment of loans from officers
Net income
---------------------------------------------------------------------
Balance at June 30, 1994 123 1 16,881 169 59,222
Common stock issued for:
stock options 1,291 12 5,735
employee stock purchase plan 61 1 237
Conversion of series A preferred stock into
common stock (123) (1) 123 1
Conversion of convertible
subordinated
debentures into common stock at 1,388 14 7,645
$5.70 per share
Note receivable from officer
Compensation expenses 177
Unrealized gain on investments
Net income
---------------------------------------------------------------------
Balance at June 30, 1995 -- -- 19,744 197 73,016
Common stock issued for:
stock options 821 8 4,477
employee stock purchase plan 55 1 276
Repayment of loan from officer
Change in unrealized gain on
investments
Net income
---------------------------------------------------------------------
Balance at June 30, 1996 -- $ -- 20,620 $ 206 $ 77,769
=====================================================================
<CAPTION>
Notes
Receivable Unrealized Retained
From Gain on Earnings
In thousands Officers Investments (Deficit) Total
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at June 30, 1993 $ (34) $ -- $(35,779) $ 19,677
Common stock issued for:
stock options -- 3,433
employee stock purchase plan 212
building lease settlement 257
Repayment of loans from officers 34 34
Net income 2,714 2,714
---------------------------------------------------------
Balance at June 30, 1994 -- -- (33,065) 26,327
Common stock issued for:
stock options 5,747
employee stock purchase plan 238
Conversion of series A preferred stock into
common stock
Conversion of convertible
subordinated
debentures into common stock at 7,659
$5.70 per share
Note receivable from officer (107) (107)
Compensation expenses 177
Unrealized gain on investments 16,267 16,267
Net income 9,388 9,388
----------------------------------------------------------
Balance at June 30, 1995 (107) 16,267 (23,677) 65,696
Common stock issued for:
stock options 4,485
employee stock purchase plan 277
Repayment of loan from officer 27 27
Change in unrealized gain on (12,846) (12,846)
investments
Net income 25,750 25,750
----------------------------------------------------------
Balance at June 30, 1996 $ (80) $ 3,421 $ 2,073 $ 83,389
==========================================================
</TABLE>
See notes to consolidated financial statements
Page 20
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS Chips and Technologies, Inc. (the "Company") develops
and markets highly integrated semiconductor and software solutions for the
personal computer industry. The Company was incorporated in California in
December 1984 and was reincorporated in Delaware in August 1986. The Company's
principal operations are conducted in the United States.
Export sales, principally to Asia, are sales made to foreign customers and to
the overseas manufacturing facilities of domestic customers. Export sales, which
are generally conducted in U.S. dollars, were 67%, 47% and 56% of net sales for
fiscal years 1996, 1995 and 1994, respectively. Foreign currency transaction
gains and losses are included in results of operations and were not significant
in the periods presented. During fiscal 1996, three customers accounted for 37%,
16% and 10% of the Company's net sales, respectively. Three customers accounted
for 23%, 13% and 10%, respectively, of the Company's net sales in fiscal 1995.
No customer accounted for more than 10% of the Company's net sales for fiscal
1994.
ESTIMATES The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of the Company and its subsidiaries. All material intercompany accounts
and transactions have been eliminated.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS The Company considers all highly
liquid debt instruments with original maturities of three or fewer months at the
time of purchase to be cash equivalents. Cash equivalents and short-term
investments consist primarily of commercial paper and government obligations.
The Company's financial instruments are with high quality institutions. The
diversification of risk is consistent with Company policy to maintain liquidity
and ensure the safety of principle. The Company classified all its short-term
investments as available-for-sale. Such investments are adjusted to fair market
value as of the balance sheet date and any unrealized gains are recorded as a
separate component of stockholders' equity.
INVENTORY Inventory is stated at the lower of cost or market. Cost is determined
based on acquisition cost utilizing the first-in, first-out method. Appropriate
adjustments of the value are provided for slow moving and discontinued products
based on expected sales rates and committed inventory purchases.
PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation
is computed using the straight-line method with an estimated useful life of
three to five years for furniture and equipment, and five to thirty years for
building and improvements. Equipment under capitalized leases is amortized over
its useful life.
REVENUE RECOGNITION Revenue from product sales to customers other than domestic
distributors is recognized upon shipment and reserves are provided for estimated
returns. Sales to distributors are generally subject to agreements allowing
certain rights of return and price protection with respect to unsold merchandise
held by the distributor. The Company defers recognition of revenue and related
gross margin on sales to domestic distributors until the product is sold by
these distributors. The Company records revenue under its development contracts
under the completed contract method.
NET INCOME PER SHARE Net income per share is based on the weighted average
common shares outstanding and dilutive common equivalent shares (using the
treasury stock method). Common equivalent shares include stock options, warrants
and convertible preferred stock when appropriate. The fully diluted computation
also includes other dilutive convertible securities, which consisted of
convertible subordinated debentures in prior periods. Dual presentation of
primary and fully diluted income per share is not shown on the face of the
statements of operations as the differences are insignificant.
Page 21
<PAGE> 22
CONCENTRATION OF CREDIT RISK The Company believes that the concentration of
credit risk in its trade receivables is substantially mitigated by the Company's
credit evaluation process, relatively short collection period, distributor
agreements, and the geographical dispersion of sales. Additionally, the Company
believes that adequate reserves have been provided for uncollectable accounts.
The Company wrote off $129,000, $537,000 and $870,000 of accounts receivable
during fiscal 1996, 1995 and 1994, respectively.
NOTE 2 BALANCE SHEET COMPONENTS
SHORT-TERM INVESTMENTS The Company classified all investments as
available-for-sale at both of the reporting periods in fiscal 1996 and 1995. The
fair market value and the amortized cost of the investments are presented in the
tables below. The Company's corporate and U.S. Government obligations included
$3.9 million of securities with maturities beyond 12 months at June 30, 1996.
In February 1996, the Company's Nexgen stock holding was converted into
553,333 shares of Advanced Micro Devices, Inc. ("AMD") common stock due to the
merger of the two companies. Subsequently, the Company sold 299,000 shares of
such stock and realized a gain of $6.2 million.
<TABLE>
<CAPTION>
June 30, 1996
----------------------------------------------------------
Unrealized Unrealized
Amortized Holding Holding Fair
(In thousands) Cost Gain Losses Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AMD Common Stock $ -- $3,465 $ -- $ 3,465
Corporate and U.S. Government Obligations 31,935 44 31,891
- ---------------------------------------------------------------------------------------------------------------
Total $31,935 $3,465 $44 $35,356
===============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
June 30, 1995
----------------------------------------------------------
Unrealized Unrealized
Amortized Holding Holding Fair
(In thousands) Cost Gain Losses Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nexgen, Inc. Common Stock $ -- $16,340 $ -- $16,340
Corporate and U.S. Government Obligations 7,377 73 7,304
- ---------------------------------------------------------------------------------------------------------------
Total $7,377 $16,340 $73 $23,644
===============================================================================================================
</TABLE>
INVENTORY
<TABLE>
<CAPTION>
June 30,
(In thousands) 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Work-in-process $ 7,693 $ 5,471
Finished goods 2,504 6,196
- -----------------------------------------------------------------------------
Total $10,197 $11,667
=============================================================================
</TABLE>
PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
June 30,
(In thousands) 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Furniture, office equipment and computer software $ 29,232 $ 26,605
Building and improvements 5,147 5,102
Land 2,609 2,609
- ---------------------------------------------------------------------------------------
36,988 34,316
Accumulated depreciation and amortization (25,765) (23,766)
- ---------------------------------------------------------------------------------------
Property and equipment, net $ 11,223 $ 10,550
=======================================================================================
</TABLE>
Page 22
<PAGE> 23
At June 30, 1996 and June 30, 1995 assets under capitalized leases (Note 3) had
aggregated values of $3.9 million and $2.3 million, respectively, less
accumulated amortization of $1.6 million and $0.9 million, respectively.
Amortization of equipment under capitalized leases is included as part of
depreciation and amortization expense.
NOTE 3 COMMITMENTS
LEASES In June 1996, the Company entered into a lease for a 22,500 square foot
facility near the Company's headquarters to house its distribution and logistics
operations. The Company also leases property and equipment under capital leases
and non-cancelable operating leases. The Company owes minimum future payments of
$2.7 million through 1999 under capital leases and $0.8 million through 2001
under operating leases. The present aggregate value of the capital lease
obligations is $2.4 million of which $1.6 million is due within 12 months. Rent
expense for operating leases totaled $0.2 million, $0.3 million and $0.5 million
for the fiscal years 1996, 1995 and 1994, respectively.
LINES OF CREDIT The Company has agreements with three banks for a combined total
of $21.0 million in unsecured lines of credit. These agreements will expire at
various times between August 1997 and October 1998. There were no borrowings
against lines of credit at June 30, 1996. The Company's ability to borrow under
these lines is subject to compliance with covenants related to financial
performance and condition. At June 30, 1996, the Company had an outstanding
standby letter of credit of $1.3 million securing capital financing
arrangements.
LONG-TERM CAPACITY AGREEMENTS During the second quarter of fiscal 1996, the
Company entered into wafer capacity agreements with Taiwan Semiconductor
Manufacturing Company ('TSMC') and Chartered Semiconductor Manufacturing PTE LTD
('CSM'). Both agreements were entered into to secure additional guaranteed wafer
supplies through the year 2000 and both require the payment of cash deposits and
the purchase by the Company of certain quantities of wafers. Under the agreement
with TSMC, the Company will deposit $23.5 million during calendar 1996. The
deposit is to be applied against the price of wafers purchased under the
agreement, and is not refundable except under certain circumstances. The
agreement with CSM requires the Company to make deposits totaling $20 million.
The deposits will be refunded to the Company at the end of the agreement term
subject to certain conditions, including purchase by the Company of the required
quantity of wafers. During fiscal 1996, the Company made $13.9 million of
deposits under these agreements which were recorded as part of other assets on
June 30, 1996.
NOTE 4 STOCKHOLDERS' EQUITY
WARRANTS In conjunction with the issuance of 8.5% Convertible Promissory Notes
in July 1992, which were converted into common stock in June, 1995, the Company
issued to the placement agent warrants for the purchase of 25,000 shares of
common stock at $7.28 per share and issued to a bank warrants for the purchase
of 16,216 shares of common stock at $4.64 per share. The warrants expire on July
16, 1997. The Company has reserved 41,216 shares of common stock for issuance
upon exercise of the warrants.
STOCK OPTION PLANS In November 1994, the Company amended and restated its 1985
Stock Option Plan (the "85/94 Plan") which provides for the granting of
incentive stock options and non-qualified stock options to employees (including
officers), directors and consultants of the Company. Stock options are granted
at an exercise price not less than fair market value at the date of grant. In
November 1995, the plan was amended to increase the share reserve by 1,000,000
shares. Since inception, the cumulative number of shares of common stock that
have been reserved for issuance pursuant to the 85/94 Plan is 18,200,000.
Options generally vest over four years. Option terms may not exceed ten years
from the date of grant and unexercised options granted under the amended plan
expire thirty days following termination of employment.
Page 23
<PAGE> 24
The 85/94 Plan activity for the three years ended June 30, 1996 is summarized
below:
<TABLE>
<CAPTION>
Shares Options Outstanding
available ---------------------------------------
for grant Shares Price per share
----------------------------------------------------------
<S> <C> <C> <C>
Balance at June 30, 1993 2,137,874 5,288,900 $3.125 - $ 9.75
Options granted (1,577,350) 1,577,350 $4.00 - $ 6.250
Options canceled 1,325,149 (1,325,149) $3.125 - $ 8.250
Options exercised (700,679) $3.125 - $ 5.50
----------------------------------------------------------
Balance at June 30, 1994 1,885,673 4,840,422 $3.125 - $ 9.75
Options granted (803,350) 803,350 $3.875 - $13.063
Options canceled 596,897 (596,897) $3.50 - $ 6.250
Options exercised (1,291,803) $4.00 - $14.50
----------------------------------------------------------
Balance at June 30, 1995 1,679,220 3,755,072 $3.125 - $13.063
Share reserve increased 1,000,000
Options granted (1,794,450) 1,794,450 $8.625 - $14.500
Options canceled 284,013 (284,013) $4.00 - $14.500
Options exercised (801,863) $8.560 - $15.750
----------------------------------------------------------
Balance at June 30, 1996 1,168,783 4,463,646 $3.125 - $14.500
==========================================================
</TABLE>
In March 1988, the Company adopted the 1988 Non-qualified Stock Option Plan for
Outside Directors (the "Directors' Plan"), which provides for the granting of
non-qualified stock options to directors of the Company who are not employees of
the Company. The plan was amended in November 1993 to increase the share
reserve, extend option grant terms and modify grant provisions. Options must
have an exercise price equal to the fair market value of the common stock on the
date of grant, vest over a four year period and expire ten years after the date
of grant. In November 1995, the plan was amended to increase the share reserve.
The number of shares of common stock reserved for issuance pursuant to the
exercise of options is 550,000 shares. At June 30, 1996, total shares available
for grant were 319,896; total shares subject to options outstanding were
185,000, with an exercise price per share ranging from $4.125 to $14.375.
STOCKHOLDER RIGHTS PLAN On August 1, 1989, the Company adopted a Stockholder
Rights Plan that provides for the issuance of rights to holders of the Company's
common stock, and which will entitle the holders of such rights to purchase
stock of the Company or of an acquiring entity at a discounted price in the
event of certain efforts to acquire control of the Company that have not been
approved by the Company's Board of Directors.
EMPLOYEE STOCK PURCHASE PLAN The Company has reserved 1,500,000 shares of common
stock for issuance pursuant to an Employee Stock Purchase Plan adopted in 1986
and amended in 1996 (the "Purchase Plan"). The 1996 amendment permits the
granting of options under the Purchase Plan. The Purchase Plan allows qualified
employees to purchase shares of Common Stock at a price equal to the lower of
the fair market value at the beginning or ending of each 6 month purchase period
for each two year offering period. Purchases are limited to 10% of an employee's
annual compensation and may not exceed 500 shares per purchase period. Through
June 30, 1996, 1,141,145 shares had been issued under the Purchase Plan.
RECENTLY ISSUED ACCOUNTING STANDARDS In October 1995, the Financial Accounting
Standards Board (FASB) released SFAS 123, "Accounting for Stock-Based
Compensation." The Company is required to adopt its statement for the fiscal
year ending June 30, 1997. The new standard defines a fair value method of
accounting for stock options and other equity instruments, such as the Purchase
Plan. The new standard permits companies to continue to account for equity
transactions with employees under existing accounting rules, but requires
disclosure in a note to the financial statements of pro forma net income and
earnings per share as if the Company had applied the new method of accounting.
The Company intends to follow these disclosure requirements for its employee
stock plans. As a result, adoption of the new standard will not impact reported
earnings or earnings per share.
Page 24
<PAGE> 25
NOTE 5 INCOME TAXES
The Company recorded $2.9 million and $1.0 million of income tax provisions in
fiscal 1996 and 1995, respectively. Fiscal 1996 tax provisions included $2.0
million of federal alternative minimum taxes, $830,000 current state taxes and
$31,000 current foreign taxes. Fiscal 1995 tax provisions included $521,000 of
federal alternative minimum taxes, $395,000 current state taxes and $41,000
current foreign taxes. During fiscal 1994, the Company recorded a tax benefit of
$2.1 million which included $2.2 million recorded upon reversal of previously
established reserves as the result of resolving a number of the Company's tax
issues.
The following is a reconciliation of the income tax provisions (benefits) for
fiscal 1996, 1995 and 1994:
<TABLE>
<CAPTION>
Year ended June 30,
(In thousands) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax $10,014 $ 3,517 $ 224
State income taxes, net of federal tax benefits 540 271 --
Utilization of net operating losses carryforward, (8,058) (2,858) --
net of alternative minimum tax effect
Reduction of taxes provided in prior period -- -- (2,194)
Other 365 27 (86)
- ----------------------------------------------------------------------------------------------------
Recorded provision (benefit) $ 2,861 $ 957 $(2,056)
===================================================================================================
</TABLE>
The significant components of deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
June 30,
(In thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net operating loss carryforwards $11,552 $22,565 $20,759
Non-deductible reserves and allowances 5,699 3,512 4,235
Depreciation -- -- 1,540
Capitalized research and development expenses and other 2,014 2,536 2,968
- ------------------------------------------------------------------------------------------------------
Gross deferred tax asset 19,265 28,613 29,502
Valuation allowance (16,109) (26,146) (29,252)
- ------------------------------------------------------------------------------------------------------
Net deferred tax asset 3,156 2,467 250
- ------------------------------------------------------------------------------------------------------
Depreciation (2,769) (2,192) --
Other (387) (275) (250)
- ------------------------------------------------------------------------------------------------------
Gross deferred tax liability (3,156) (2,467) (250)
- ------------------------------------------------------------------------------------------------------
$ -- $ -- $ --
======================================================================================================
</TABLE>
During fiscal years 1996 and 1995, the valuation allowance decreased by $10
million and $3.1 million, respectively. The decrease in fiscal 1996 is primarily
attributable to the decrease in gross deferred tax assets from the utilization
of net operating loss carryforwards. The decrease in fiscal 1995 is mainly due
to the decline in deferred tax assets. The Company has established valuation
allowances as the realizability of net deferred tax assets is uncertain.
At June 30, 1996, the Company had net loss carryforwards of approximately $29
million and $26 million for federal and state purposes, respectively. These net
operating loss carryforwards expire in varying amounts from fiscal 1997 through
fiscal 2010. The net operating loss carryforward includes approximately $5.8
million resulting from employee exercises of non-incentive stock options, the
tax benefit of which when realized, will be accounted for as an addition to
common stock and capital in excess of par value rather than as a reduction of
the provision for income taxes.
Page 25
<PAGE> 26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT AUDITORS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is incorporated by reference from the section
entitled "Nomination and Election of Directors" and "Compliance with Section
16(a) of the Securities Exchange Act of 1934" of the Proxy Statement.
Information regarding executive officers of the Company is presented in Part I
of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference from the section
entitled "Executive Compensation and Other Matters" of the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated by reference from the section
entitled "Security Ownership of Certain Beneficial Owners and Management" of the
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated by reference from the section
entitled "Certain Transactions and Other Relationships" of the Proxy Statement.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
a) 1. Financial Statements
The consolidated financial statements and notes thereto listed in the
index on page 15 are filed as part of this Annual Report on Form 10-K.
2. Financial Statement Schedules
All financial statement schedules have been omitted since the required
information is not present or not present in material amounts to
require submission of the schedule or because the information required
is included in the consolidated financial statements or notes thereto.
b) Reports on Form 8K
None
c) Exhibits
The exhibits listed in the Index to Exhibits on pages 28 and 29 of this
report are filed as part of this Annual Report on Form 10K.
Page 26
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By /s/ JAMES F. STAFFORD
------------------------------------------
James F. Stafford
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------------------------- ------------------------------------- ---------------
<S> <C> <C>
/s/ JAMES F. STAFFORD President and Chief Executive Officer August 20, 1996
- ---------------------------------------- and Director
James F. Stafford
/s/ TIMOTHY R. CHRISTOFFERSEN Vice President and Chief Financial Officer August 20, 1996
- ---------------------------------------- (Principal Financial & Accounting Officer)
Timothy R. Christoffersen
/s/ GENE P. CARTER Director August 20, 1966
- ----------------------------------------
Gene P. Carter
/s/ BERNARD V. VONDERSCHMITT Director August 20, 1996
- ------------------------------
Bernard V. Vonderschmitt
/s/ HENRI A. JARRAT Director August 20, 1996
- ----------------------------------------
Henri A. Jarrat
</TABLE>
Page 27
<PAGE> 28
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- ------------
<S> <C> <C>
3.1 (1) Amended Certificate of Incorporation of Chips and
Technologies, Inc.
3.2 (2) Restated By-laws of Chips and Technologies, Inc.
4.1 (3) Stockholders' Rights Agreement dated August 23, 1989.
10.1 (6)* First Amended 1988 Nonqualified Stock Option Plan for
Outside Directors dated October 1, 1993 (as amended through
November 9, 1995).
10.2 (1)* Form of Indemnity Agreement between the Company and each of
its directors and executive officers.
10.3 (4)* Promissory note to the Company from Keith Angelo dated
August 1, 1994.
10.4 (4)* Independent Contractor Services Agreement between the
Company and Henri Jarrat dated August 11, 1994.
10.5 (6)* Amended and Restated 1994 Stock Option Plan dated November
10, 1994 (as amended through November 9, 1995).
10.6 (5)* Executive Bonus Plan dated September 21, 1995.
10.7 (6) Option Agreement between the Company and Taiwan
Semiconductor Manufacturing Company dated November 6, 1995.
(**)
10.8 (6) Deposit Agreement between the Company and Chartered
Semiconductor Manufacturing PTE LTD dated November 16,
1995.(**)
10.9 Amended and Restated Employee Stock Purchase Plan dated
April 18, 1996.
11.1 Statement re: Calculation of Earnings per Share. 30
22.1 Proxy Statement for the Registrant's Annual Meeting of
Stockholders to be held on November 7, 1996.
23.1 Consent of Independent Accountants 31
27.0 Financial Data Schedule for the year ended June 30, 1996. 32
(1) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 1990.
(2) Incorporated by reference to Registration Statement No. 33-8005
effective October 8, 1986.
(3) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 1989.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K
for the period ended June 30, 1994.
(5) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the period ended September 30, 1995.
</TABLE>
Page 28
<PAGE> 29
(6) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the period ended December 31, 1995.
* Denotes management contracts or compensatory plans or arrangements
covering executive officers or directors of Chips and Technologies,
Inc.
** Confidential treatment has been granted for a portion of this document.
Page 29
<PAGE> 1
EXHIBIT 10.9
AMENDED AND RESTATED
CHIPS AND TECHNOLOGIES, INC.
EMPLOYEE STOCK PURCHASE PLAN
(AS AMENDED APRIL 18, 1996)
1. Establishment.
1.1 Purpose. The Chips and Technologies, Inc. Employee Stock Purchase
Plan was initially adopted in September 1986 and was amended and restated in its
entirety effective September 15, 1992 (the "Initial Plan"). The Initial Plan is
hereby amended and restated in its entirety effective April 18, 1996 (the
"Plan"). The Plan is established to provide Eligible Employees of the
Participating Company Group with an opportunity to acquire a proprietary
interest in the Company by the purchase of Stock. It is intended that the Plan
shall qualify as an "employee stock purchase plan" under section 423 of the Code
(including any future amendments or replacements of such section), and the Plan
shall be so construed. Any term not expressly defined in the Plan but defined
for purposes of section 423 of the Code shall have the same definition herein.
1.2 Plan Term. This Plan shall continue until terminated by the Board
or until all of the shares of Stock reserved for issuance under the Plan have
been issued, whichever shall first occur.
2. Definitions.
2.1 "Board" means the Board of Directors of the Company.
2.2 "Code" means the Internal Revenue Code of 1986, as amended, and any
applicable regulations promulgated thereunder.
2.3 "Company" means Chips and Technologies, Inc., a Delaware
corporation, or any successor corporation thereto.
2.4 "Compensation" means all amounts paid in cash and includable as
"wages" subject to tax under section 3101(a) of the Code without applying the
dollar limitation of section 3121(a) of the Code. Accordingly, Compensation
shall include, without limitation, salaries, commissions, bonuses, and overtime.
Compensation shall not include reimbursements of expenses, allowances, or any
amount deemed received without the actual transfer of cash or any amounts
directly or indirectly paid pursuant to the Plan or any other stock purchase or
stock option plan.
2.5 "Eligible Employee" means an employee who meets the requirements
set forth in Section 5 for eligibility to participate in the Plan.
1
<PAGE> 2
2.6 "Offering" means an offering of Stock as provided in Section 6.
2.7 "Offering Date" means, for any Offering Period, the first day of
such Offering Period.
2.8 "Offering Period" means a period determined in accordance with
Section 6.1(a).
2.9 "Option" means a right to purchase Stock pursuant to the terms and
conditions of the Plan, as described in Section 7.
2.10 "Option Agreement" means a written agreement between the Company
and an Optionee setting forth the terms, conditions and restrictions of the
Option granted to the Optionee and any shares acquired upon the exercise
thereof.
2.11 "Optionee" means an Eligible Employee who has been granted one or
more Options.
2.12 "Parent Corporation" means any present or future "parent
corporation" of the Company, as defined in section 424(e) of the Code.
2.13 "Participant" means an Eligible Employee participating in the
Plan.
2.14 "Participating Company" means the Company or any Parent
Corporation or Subsidiary Corporation.
2.15 "Participating Company Group" means, at any point in time, the
Company and all other corporations collectively which are then Participating
Companies.
2.16 "Purchase Date" means, for any Purchase Period, the last day of
such period.
2.17 "Purchase Period" means a period determined in accordance with
Section 6.1(b).
2.18 "Purchase Price" means the price at which a share of Stock may be
purchased pursuant to the exercise of a Purchase Right, as determined in
accordance with Section 6.4.
2.19 "Purchase Right" means an option pursuant to the Plan to purchase
such shares of Stock as provided in Section 6.3 which may or may not be
exercised during an Offering Period. Such option arises from the right of a
Participant to withdraw such Participant's accumulated payroll deductions not
previously applied to the purchase of Stock under the Plan (if any) and
terminate participation in the Plan or any Offering therein at any time during
an Offering Period.
2
<PAGE> 3
2.20 "Stock" means the common stock of the Company, as adjusted from
time to time in accordance with Section 4.2.
2.21 "Subsidiary Corporation" means any present or future "subsidiary
corporation" of the Company, as defined in section 424(f) of the Code.
3. Administration. The Plan shall be administered by the Board, including a duly
appointed committee of the Board having such powers as shall be specified by the
Board. Any subsequent references to the Board shall also mean the committee if
it has been appointed. All questions of interpretation of the Plan or of any
Option or Purchase Right shall be determined by the Board and shall be final and
binding upon all persons having an interest in the Plan and/or any Option or
Purchase Right. Subject to the provisions of the Plan, the Board shall determine
all of the relevant terms and conditions of Options and Purchase Rights granted
pursuant to the Plan; provided, however, that all Participants granted Options
or Purchase Rights pursuant to the Plan shall have the same rights and
privileges within the meaning of section 423(b)(5) of the Code. All expenses
incurred in connection with the administration of the Plan shall be paid by the
Company.
4. Shares Subject to Plan.
4.1 Share Reserve. Subject to adjustment as provided in Section 4.2,
the maximum aggregate number of shares of Stock that may be issued under the
Plan shall be one million five hundred thousand (1,500,000) and shall consist of
authorized but unissued shares of Stock. If an outstanding Option or Purchase
Right for any reason expires or is terminated or canceled, or any shares of
Stock subject to repurchase are repurchased, the shares of Stock allocable to
the unexercised portion of such Option or Purchase Right, or such repurchased
shares, shall again be available for issuance under the Plan.
4.2 Capital Changes. In the event of changes in the capital structure
of the Company due to a stock split, reverse stock split, stock dividend,
combination, reclassification, or like change in the Company's capitalization,
or in the event of any merger, sale, or any other reorganization, appropriate
adjustments shall be made by the Company in the Plan's share reserve, the number
of shares subject to outstanding Options and Purchase Rights, the limits on the
number of shares which may be purchased in any Offering Period or Purchase
Period and in the purchase price per share of outstanding Options and Purchase
Rights.
5. Eligibility. Any employee of a Participating Company is eligible to
participate in the Plan and/or receive Options except the following:
5.1 Employees who are customarily employed by a Participating Company
for less than twenty (20) hours a week;
3
<PAGE> 4
5.2 Employees who have not completed three months of continuous
employment with a Participating Company as of the commencement of an Offering
Period or date on which Options are granted;
5.3 Employees whose customary employment with the Participating
Company Group is for not more than five (5) months in any calendar year; and
5.4 Employees who own or hold options to purchase or who, as a result
of participation in this Plan, would own or hold options to purchase, stock of a
Participating Company possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Participating Company
within the meaning of section 423(b)(3) of the Code.
6. Purchase Rights.
6.1 Offering Dates.
(a) Offering Periods. Except as otherwise set forth below, the
Plan shall be implemented by Offerings of approximately two (2) years duration
(an "Offering Period"). An Offering Period shall commence on the first day of
January and July of each year. Notwithstanding the foregoing, the Board may
establish a different term for one (1) or more Offerings and/or different
commencing dates and/or ending dates for such Offerings and/or additional
Offerings. An employee who becomes eligible to participate in the Plan after an
Offering Period has commenced shall not be eligible to participate in such
Offering but may participate in any subsequent Offering provided such employee
is still eligible to participate in the Plan as of the commencement of any such
subsequent Offering. The Company shall have the authority to designate the
maximum number of Offerings in which an Eligible Employee may participate at any
one time. In the event the first and/or last day of an Offering Period is not a
business day, the Company shall specify the business day that will be deemed the
first or last day, as the case may be, of the Offering Period.
(b) Purchase Periods. Each Offering Period shall consist of
four (4) consecutive purchase periods of approximately six (6) months duration
(a "Purchase Period"). Notwithstanding the foregoing, the Board may establish a
different term for one (1) or more Purchase Periods and/or different commencing
dates and/or Purchase Dates for such Purchase Periods. In the event the first
and/or last day of a Purchase Period is not a business day, the Company shall
specify the business day that will be deemed the first or last day, as the case
may be, of the Purchase Period.
(c) Governmental Approval; Stockholder Approval.
Notwithstanding any other provision of the Plan to the contrary, any Purchase
Right granted pursuant to the Plan shall be subject to (i) obtaining all
necessary governmental approvals and/or qualifications of the sale and/or
issuance of the Purchase Rights and/or the shares of Stock, and (ii) obtaining
any necessary stockholder approval of the Plan.
4
<PAGE> 5
6.2 Participation in the Plan.
(a) Initial Participation. An Eligible Employee shall become a
Participant on the first Offering Date after satisfying the eligibility
requirements and delivering to the Company's payroll office at such time prior
to such Offering Date as may be established from time to time by the Company
(the "Enrollment Date") a subscription agreement indicating the employee's
election to participate and authorizing payroll deductions. An Eligible Employee
who does not deliver a subscription agreement to the Company's payroll office
prior to the applicable Enrollment Date for the first Offering Period after
becoming eligible to participate in the Plan shall not participate in the Plan
for that Offering Period or for any subsequent Offering Period unless such
employee subsequently enrolls in the Plan by filing a subscription agreement
with the Company prior to the applicable Enrollment Date for such subsequent
Offering Period.
(b) Continued Participation. A Participant shall automatically
participate in each succeeding Offering Period until such time as such
Participant withdraws from the Plan pursuant to Section 6.6 below or terminates
employment as provided in Section 6.7 below. If a Participant is automatically
withdrawn from an Offering at the end of a Purchase Period of such Offering
pursuant to Section 6.6(d) below, then the Participant shall automatically
participate in the Offering Period commencing on the next business day. A
Participant is not required to file any additional subscription agreements for
subsequent Offering Periods in order to continue participation in the Plan.
However, a Participant may file a subscription agreement with respect to such
subsequent Offering Period if the Participant desires to change any of the
Participant's elections contained in the Participant's then effective
subscription agreement.
6.3 Right to Purchase Shares. Except as set forth below,
during each Offering Period, each Participant shall have a Purchase Right
consisting of the right to purchase that number of whole shares of Stock arrived
at by dividing (a) forty percent (40%) of the Participant's Compensation during
the three months immediately preceding the Offering Date, by (b) one hundred
percent (100%) of the fair market value of a share of Stock on the Offering Date
of such Offering Period; provided, however, that such number shall not exceed
two thousand (2,000) shares.
6.4 Purchase Price. The Purchase Price at which each share of
Stock may be acquired in an Offering pursuant to the exercise of all or any
portion of a Purchase Right granted under the Plan shall be one hundred percent
(100%) of the lesser of (a) the fair market value of a share of Stock on the
Offering Date of such Offering Period or (b) the fair market value of a share of
Stock at the time of exercise of all or any portion of the Purchase Right.
6.5 Payment of Purchase Price. Shares of Stock which are
acquired pursuant to the exercise of all or any portion of a Purchase Right may
be paid for only by means of payroll deductions accumulated during the Offering
Period. Except as set forth below, the amount of Compensation to be withheld
from a Participant's Compensation during each pay period shall be determined by
the Participant's subscription agreement.
5
<PAGE> 6
(a) Election to Decrease Payroll Deductions. During an
Offering Period, a Participant may elect to decrease the amount withheld from
his or her Compensation by filing an amended subscription agreement with the
Company on or before the "Change Notice Date." The "Change Notice Date" shall
initially be the seventh (7th) day prior to the end of the first pay period for
which such election is to be effective; however, the Company may change such
Change Notice Date from time to time.
(b) Limitation on Payroll Deductions. The amount of payroll
withholding with respect to the Plan for any Participant during any pay period
shall not exceed ten percent (10%) of the Participant's Compensation for such
pay period.
(c) Commencement of Payroll Deductions. Payroll deductions
shall commence on the first payday following the Offering Date and shall
continue to the end of the Offering Period unless sooner altered or terminated
as provided in the Plan.
(d) Participant Accounts. Individual accounts shall be
maintained for each Participant. All payroll deductions from a Participant's
Compensation shall be credited to such account and shall be deposited with the
general funds of the Company. All payroll deductions received or held by the
Company may be used by the Company for any corporate purpose.
(e) No Interest Paid. Interest shall not be paid on sums
withheld from a Participant's Compensation.
(f) Exercise of Purchase Right. On each Purchase Date of an
Offering Period, each Participant who has not withdrawn from the Offering or
whose participation in the Offering has not terminated on or before such date
shall automatically acquire pursuant to the exercise of the Participant's
Purchase Right the number of whole shares of Stock arrived at by dividing the
total amount of the Participant's accumulated payroll deductions for the
Purchase Period by the Purchase Price. However, no Participant shall be entitled
to purchase more than five hundred (500) shares of Stock on any Purchase Date,
and in no event shall the number of shares purchased by the Participant during
an Offering Period exceed the number of shares subject to the Participant's
Purchase Right.
(g) Return of Cash Balance. Any cash balance remaining in the
Participant's account shall be refunded to the Participant as soon as
practicable after the Purchase Date. In the event the cash to be returned to a
Participant pursuant to the preceding sentence is an amount less than the amount
necessary to purchase a whole share of Stock, the Company may establish
procedures whereby such cash is maintained in the Participant's account and
applied toward the purchase of shares in the subsequent Purchase Period or
Offering Period.
(h) Company Established Procedures. The Company may, from time
to time, establish (i) a minimum required withholding amount for participation
in any Offering, (ii) limitations on the frequency and/or number of changes in
the
6
<PAGE> 7
amount withheld during an Offering, (iii) an exchange ratio applicable to
amounts withheld in a currency other than U.S. dollars, (iv) payroll withholding
in excess of or less than the amount designated by a Participant in order to
adjust for delays or mistakes in the Company's processing of subscription
agreements, (v) the date(s) and manner by which the fair market value of a share
of Stock is determined for purposes of the administration of the Plan, and/or
(vi) such other limitations or procedures as deemed advisable by the Company in
the Company's sole discretion which are consistent with the Plan.
(i) Expiration of Purchase Right. Any portion of a
Participant's Purchase Right remaining unexercised after the end of the Offering
Period to which such Purchase Right relates shall expire immediately upon the
end of such Offering Period.
6.6 Withdrawal.
(a) Withdrawal From an Offering. A Participant may withdraw
from an Offering by signing a written notice of withdrawal on a form provided by
the Company for such purpose and delivering such notice to the Company's payroll
office at any time prior to the end of an Offering Period; however, if a
Participant withdraws after the Purchase Date for a Purchase Period of an
Offering, the withdrawal shall not affect shares acquired by the Participant in
such Purchase Period. Unless otherwise indicated, withdrawal from an Offering
shall not result in a withdrawal from the Plan or any succeeding Offering
therein. By withdrawing from an Offering on a Purchase Date, a Participant may
have shares purchased on such Purchase Date and immediately commence
participation in the Offering commencing immediately after such Purchase Date. A
Participant is prohibited from again participating in an Offering upon
withdrawal from such Offering at any time. The Company may, from time to time,
impose a requirement that the notice of withdrawal be on file with the Company
for a reasonable period prior to the effectiveness of the Participant's
withdrawal from an Offering.
(b) Return of Payroll Deductions. Upon withdrawal from an
Offering, the withdrawn Participant's accumulated payroll deductions shall be
returned as soon as practical after the withdrawal, without the payment of any
interest, to the Participant and the Participant's interest in the Offering
shall terminate. Such accumulated payroll deductions may not be applied to any
other Offering under the Plan.
(c) Withdrawal from the Plan. A Participant may withdraw from
the Plan by signing a written notice of withdrawal on a form provided by the
Company for such purpose and delivering such notice to the Company's payroll
office. Withdrawals made after a Purchase Date of an Offering Period shall not
affect shares acquired by the Participant on such Purchase Date. In the event a
Participant voluntarily elects to withdraw from the Plan, the Participant may
not resume participation in the Plan during the same Offering Period, but may
participate in any subsequent Offering under the Plan by filing a new
subscription agreement in the
7
<PAGE> 8
same manner as set forth above for initial participation in the Plan. The
Company may impose, from time to time, a requirement that the notice of
withdrawal be on file with the Company for a reasonable period prior to the
effectiveness of the Participant's withdrawal from the Plan.
(d) Automatic Withdrawal From an Offering. If the fair market
value of a share of Stock on a Purchase Date of an Offering (other than the
final Purchase Date of such Offering) is less than the fair market value of a
share of Stock on the Offering Date for such Offering, then every Participant
shall automatically (i) be withdrawn from the Offering at the close of the
Purchase Date and after the acquisition of shares for such Purchase Period, and
(ii) be enrolled in the Offering commencing on the first business day subsequent
to such Purchase Period. A Participant may elect not to be automatically
withdrawn from an Offering pursuant to this Section 6.6(d) by delivering to the
Company not later than the close of business on the last business day before the
date seven (7) days prior to the Purchase Date a written notice indicating such
election; provided, however, that the Company may change the date such notice is
required to be delivered to the Company from time to time.
6.7 Termination of Employment. Termination of a Participant's
employment with the Company for any reason, including retirement or death or the
failure of a Participant to remain an Eligible Employee, shall terminate the
Participant's participation in the Plan immediately. In such event, the payroll
deductions credited to the Participant's account shall, as soon as practicable,
be returned to the Participant or, in the case of the Participant's death, to
the Participant's legal representative and all Purchase Rights under the Plan
shall terminate. Interest shall not be paid on sums returned to a Participant
pursuant to this Section 6.7. A Participant whose participation has been so
terminated may again become eligible to participate in the Plan by again
satisfying the requirements of Sections 5 and 6.2.
6.8 Repayment of Payroll Deductions. In the event a Participant's
interest in the Plan or any Offering therein is terminated, the Company shall
deliver as soon as practicable to the Participant any payroll deductions
credited to the Participant's account with respect to the Plan or any such
Offering. Interest shall not be paid on sums returned to a Participant pursuant
to this Section 6.8.
6.9 Reports. Each Participant who exercised all or part of the
Participant's Purchase Right for a Purchase Period shall receive as soon as
practicable after the Purchase Date of such Purchase Period a report of such
Participant's Plan account setting forth the total payroll deductions
accumulated, the number of shares of Stock purchased and the remaining cash
balance to be refunded or retained in the Participant's account pursuant to
Section 6.5(g), if any.
7. Options. The Board, in its sole discretion, may determine the time or times
at which Options shall be granted (a "Grant Date") and the number of shares of
Stock to be subject to each Option. Options shall be evidenced by Option
Agreements
8
<PAGE> 9
specifying the number of shares of Stock covered thereby, in such form as the
Board shall from time to time establish. Option Agreements may incorporate all
or any of the terms of the Plan by reference and shall comply with and be
subject to the following terms and conditions:
7.1 Equal Rights and Privileges. On each Grant Date, the Board shall
specify the number of shares of Stock subject to each Option, and each Eligible
Employee shall be granted an Option for an equal number of shares of Stock, as
specified by the Board; provided, however, that the Board may specify that the
number of shares of Stock subject to each Option shall be based on each
Optionee's Compensation. Subject to the provisions of the foregoing sentence,
each Option Agreement evidencing an Option granted on a particular Grant Date
shall be identical, and shall provide for equal rights and privileges for each
Optionee, including, without limitation, the same exercise price, exercise
period and permissible forms of consideration.
7.2 Right to Decline Option. Notwithstanding the foregoing, any
Eligible Employee may elect not to receive an Option pursuant to this Section 7
by delivering written notice of such election to the Company no later than the
day prior to the Grant Date.
7.3 Exercise Price. The exercise price for each Option shall be
established in the sole discretion of the Board; provided, however, that the
exercise price per share for each Option shall be not less than one hundred
percent (100%) of the fair market value of a share of Stock on the Grant Date.
7.4 Exercise Period. Options shall be exercisable at such time or
times, or upon such event or events, and subject to such terms, conditions, and
restrictions as shall be determined by the Board and set forth in the Option
Agreement evidencing such Option; provided, however, that no Option shall be
exercisable after the expiration of twenty-seven (27) months after the Grant
Date.
7.5 Payment of Exercise Price.
(a) Forms of Consideration Authorized. Except as otherwise
provided below, payment of the exercise 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 the assignment of the proceeds of a sale or loan with
respect to some or all of the shares being acquired upon the exercise of the
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) (a "Cashless Exercise"), (iii) by such
other consideration as may be approved by the Board from time to time to the
extent permitted by applicable law, or (iv) by any combination thereof. The
Board may at any time or from time to time, by adoption of or by amendment to
the standard form of Option Agreement described in Section 7.6, or by other
means, grant Options which do not permit all of the foregoing forms of
consideration to be used in payment of the
9
<PAGE> 10
exercise price or which otherwise restrict one or more forms of
consideration. The Company reserves, at any and all times, the right, in the
Company's sole and absolute discretion, to establish, decline to approve or
terminate any program or procedures for the exercise of Options by means of a
Cashless Exercise.
7.6 Standard Form of Option Agreement.
(a) General. Unless otherwise provided by the Board at the
time the Option is granted, an Option shall comply with and be subject to the
terms and conditions set forth in the form of Immediately Exercisable Stock
Option Agreement adopted by the Board concurrently with its adoption of the Plan
and as amended from time to time.
(b) Authority to Vary Terms. Subject to the requirements of
Section 7.1, the Board shall have the authority from time to time to vary the
terms of the standard form of Option Agreement described in this Section 7.6
either in connection with the grant or amendment of an Option or in connection
with the authorization of a new standard form or forms; provided, however, that
the terms and conditions of any such new, revised or amended standard form or
forms of Option Agreement shall be in accordance with the terms of the Plan.
8. Tax Withholding. The Company shall have the right to require the Optionee or
Participant, through payroll withholding, cash payment or otherwise, to make
adequate provision for any federal, state, foreign or local tax withholding
obligations of the Participating Company Group arising in connection with the
Option or Purchase Right or the shares acquired upon the exercise thereof.
9. Limitations on Purchase of Shares; Rights as a Stockholder.
9.1 Fair Market Value Limitation. Notwithstanding any other provision
of the Plan, no Eligible Employee shall be entitled to purchase shares of Stock
pursuant to the exercise of an Option or a Purchase Right granted under the Plan
(or any other employee stock purchase plan which is intended to meet the
requirements of section 423 of the Code sponsored by a Participating Company) at
a rate which exceeds $25,000 in fair market value, determined as of the Grant
Date or the Offering Date for each Offering Period (or such other limit as may
be imposed by the Code), for each calendar year in which the Eligible Employee
participates in the Plan.
9.2 Pro Rata Allocation. In the event the number of shares of Stock
which might be purchased by all Optionees and Participants exceeds the number of
shares of Stock available in the Plan, the Company shall make a pro rata
allocation of the remaining shares in as uniform a manner as shall be
practicable and as the Company shall determine to be equitable.
9.3 Rights as a Stockholder and Employee. An Optionee or a Participant
shall have no rights as a stockholder by virtue of the grant of an Option or the
Participant's participation in the Plan until the date of the issuance of a
stock
10
<PAGE> 11
certificate(s) for the shares of Stock being purchased pursuant to the
exercise of the Option or Purchase Right. No adjustment shall be made for
dividends or distributions or other rights for which the record date is prior to
the date such stock certificate(s) are issued. Nothing herein shall confer upon
an Optionee or a Participant any right to continue in the employ of the
Participating Company Group or interfere in any way with any right of the
Participating Company Group to terminate the Optionee's or the Participant's
employment at any time.
10. Non-Transferability. An Option or Purchase Right may not be transferred in
any manner otherwise than by will or the laws of descent and distribution and
shall be exercisable during the lifetime of the Optionee or the Participant only
by the Optionee or Participant.
11. Amendment or Termination of the Plan. The Board may at any time amend or
terminate the Plan, except that such termination cannot affect Options or
Purchase Rights previously granted under the Plan, nor may any amendment make
any change in an Option or Purchase Right previously granted under the Plan
which would adversely affect the right of any Participant (except as may be
necessary to qualify the Plan as an employee stock purchase plan pursuant to
section 423 of the Code), nor may any amendment be made without approval of the
stockholders of the Company within twelve (12) months of the adoption of such
amendment if such amendment would authorize the sale of more shares of Stock
than are authorized for issuance under the Plan or would change the designation
of corporations whose employees may be offered Options under the Plan.
12. Continuation of Initial Plan. Notwithstanding any other provision of the
Plan to the contrary, the terms of the Initial Plan shall remain in effect and
apply to all Offerings which commenced prior to the effective date of the Plan.
IN WITNESS WHEREOF, the undersigned Secretary of Chips and
Technologies, Inc. certifies that the foregoing is the Amended and Restated
Employee Stock Purchase Plan as amended through April 18, 1996.
/s/ Jeffery Anne Tatum
------------------------------
11
<PAGE> 12
EXHIBIT B
IMMEDIATELY EXERCISABLE
STOCK OPTION AGREEMENT
<PAGE> 13
IMMEDIATELY EXERCISABLE
STOCK OPTION AGREEMENT
Between
CHIPS AND TECHNOLOGIES, INC.
and
___________________________
You have been granted an option under the Amended and Restated Chips
and Technologies, Inc. Employee Stock Purchase Plan (the "Plan"). This Agreement
describes the terms and conditions of your option (the "Agreement").
Number of Shares Your option is for ______ shares of the common stock of
Chips and Technologies, Inc., a Delaware corporation
("Chips").
Option Price You may purchase your option shares for $_______ per
share, which was the closing price of the common stock of
Chips on the Grant Date.
Type of Option This option is intended to be qualified under section 423
of the Internal Revenue Code of 1986, as amended (the
"Code"), but Chips does not warrant that it qualifies as
such. You should consult with your own tax advisor
regarding the tax effects of this option and the
requirements necessary to obtain favorable income tax
treatment under section 423 of the Code.
Grant Date The "Grant Date" of your option is _________, 19__. This
is the date the Board of Directors of Chips approved your
option grant.
Initial Vesting Date The "Initial Vesting Date" of your option is ________,
19__. This is the date your option begins to vest.
Exercisability You may exercise your option immediately in its entirety
after the Grant Date. However, if you buy unvested option
shares, they may not be sold or otherwise transferred
until they become vested (see Right of Repurchase below).
Term Your option will expire on __________, 19__, unless your
employment with Chips (or a parent corporation or
subsidiary corporation of Chips as defined in section 424
of the Code) is terminated as explained below, or unless
Chips is involved in a "transfer of control" transaction
as explained below.
Vesting of Option On the Initial Vesting Date, _______ of the option shares
will be vested. Thereafter, _____ of the option shares
will vest for each full month of your continuous
employment with Chips (or a parent or subsidiary
corporation of Chips) from the Initial
1
<PAGE> 14
Vesting Date. Your option stops vesting when your
employment with Chips (or a parent corporation or
subsidiary corporation of Chips) terminates. Vesting
during an approved leave of absence is governed by the
applicable Leave of Absence Policy in effect at the time
you go on leave.
Right of Repurchase You can buy shares that have not yet vested. The number
of shares you buy over and above your vested shares are
"unvested shares." They may not be sold or otherwise
transferred until they become vested.
If your employment with Chips (or a parent corporation
or subsidiary corporation of Chips) terminates for any
reason, with or without cause while you are holding
unvested shares, or if you or your legal representative
attempts to sell, exchange, transfer, pledge, or
otherwise dispose of any unvested shares (other than
pursuant to an "ownership change" as defined below),
Chips may buy those unvested shares back from you at the
option price you originally paid. If Chips wishes to
exercise its right to repurchase the unvested shares,
it must give you notice within 60 days after (i) the
termination of your employment, or exercise of the
option, if later, or (ii) Chips has received notice of
the attempted disposition. Chips must exercise its right
to repurchase the unvested shares, if at all, for all of
the unvested shares, except as Chips and you otherwise
agree. However, Chips will not repurchase your unvested
shares if you transfer your unvested shares to your
ancestors, descendants, or spouse or to a trustee for
their benefit, provided that the transferee agrees in
writing to take the shares subject to Chips' right of
repurchase. In the event Chips is unable to exercise the
right of repurchase under the provisions of Section 160
of the Delaware General Corporation Law, or the
corresponding provisions of other applicable law, Chips
has the right to assign the right of repurchase to one
or more persons as may be selected by Chips' Board of
Directors.
To ensure that the unvested shares will be available for
repurchase, you may be required to deposit the
certificate for the shares with an escrow agent
designated by Chips under the terms and conditions of an
escrow agreement approved by Chips.
If Chips exercises its right to repurchase your unvested
shares, payment by Chips to the escrow agent on behalf
of you or your legal representative will be made in cash
within 60 days after the date of the mailing of the
written notice. For purposes of this payment,
cancellation of any outstanding promissory note that you
have previously delivered to Chips will be treated at
2
<PAGE> 15
payment in cash to the extent of the unpaid principal
and any accrued interest canceled. Within 30 days after
payment by Chips, the escrow agent will give the shares
which Chips has purchased to Chips and give the payment
received from Chips to you.
The certificates for unvested shares have stamped on
them a special legend referring to Chips' right of
repurchase. As your vesting percentage increases, you
may request, at reasonable intervals, that Chips
exchange those legended shares which have vested for
shares that are freely transferable.
Transfer of Control The following events constitute an "ownership change" of
Chips: (1) the direct or indirect sale or exchange by
Chips' stockholders of all or substantially all of
Chips' stock; (2) a merger in which Chips is a party; or
(3) the sale, exchange, or transfer of all or
substantially all of Chips' assets (other than a sale,
exchange, or transfer to one or more corporations where
Chips' stockholders 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).
A "transfer of control" of Chips means an ownership
change in which Chips' stockholders before such
ownership change do not retain, directly or indirectly,
at least a majority of the beneficial interest in Chips'
voting stock.
In the event of a transfer of control, the Chips' Board
of Directors may arrange with the surviving, continuing,
successor, or purchasing corporation, as the case may
be, for such corporation to assume Chips' rights and
obligations under this Agreement or substitute its own
option for your Chips' option. Your option will
terminate effective as of the date of the transfer of
control to the extent that your option is neither
exercised as of the date of the transfer of control nor
assumed by the surviving, continuing, successor, or
purchasing corporation, as the case may be.
Termination of If your employment with Chips (or a parent corporation
Employment or subsidiary corporation of Chips) terminates for any
reason, with or without cause, your option, to the
extent unexercised, may be exercised (to purchase vested
shares only) within 30 days after the date of your
termination.
Restrictions on You may not sell shares that you acquire by exercising
Resale: General your option at any time you are in possession of
material inside information concerning Chips. In
addition, sales of shares that
3
<PAGE> 16
you acquire by exercising your option will be
governed by Chips' employee trading policy, as in
effect at the time of the proposed sale.
Restrictions on If you are an officer of Chips, shares that you
Resale: Officers acquire by exercising your option may only be sold
during the officers' trading restriction period. This
period commences on the third business day following
the release of quarterly financial results and ends
twenty-one days thereafter, unless extended by Chips'
President or Chief Financial Officer.
Notice of Exercise When you wish to exercise your option, you must send
an executed Notice of Exercise to:
Chips and Technologies, Inc.
2950 Zanker Road
San Jose, California 95134
Attn: Financial Services 1-7
Your notice must specify how many whole shares you
wish to purchase, and must contain such
representations and agreements as to your investment
intent with respect to the shares as may be required
by Chips. Your notice must be delivered in person or
by certified mail to Chips' Stock Administrator prior
to the expiration date of the term of the option,
accompanied by an executed copy of the then current
form of escrow instructions, if you are exercising
your option for unvested shares, and full payment of
the option price for the number of shares being
purchased. The Notice of Exercise is effective when
it is received by Chips. Chips will not be required
to issue fractional shares upon the exercise of your
option.
Form of Payment When you submit your Notice of Exercise, you must
include payment of the option price for the number of
shares you are purchasing. Payment may be made in one
(or a combination of two or more) of the following
forms:
+ Your personal check, a cashier's check, or a
money order;
+ Irrevocable directions to a securities broker
approved by Chips to sell your option shares and
to deliver all or a portion of the sale proceeds
to Chips in payment of the option price. (The
balance of the sales proceeds, if any, will be
delivered to you.) The directions must be given
by signing a form provided by Chips.
4
<PAGE> 17
Withholding Taxes In order to exercise your option, you must make
arrangements to pay any federal, state, foreign or
local withholding taxes that may be due as a result of
the option exercise. In the future, at any time
requested by Chips, you must make arrangements to pay
any federal, state, foreign or local withholding taxes
that may be due as a result of any transfer of any
shares acquired on exercise of your option, the
operation of any federal or state law providing for
the imputation of interest, or the lapse of any
restriction with respect to any shares acquired on
exercise of your option.
Certificate Registration The certificate or certificates issued upon the
exercise of your option will be registered in your
name.
Restriction on Grant The grant of your option and the issuance of shares
of Option and Issuance upon the exercise of the option are subject to
Shares compliance with all of applicable requirements of
federal or state law with respect to such securities.
Your option may not be exercised if the issuance of
shares upon such exercise would constitute a violation
of any applicable federal or state securities law or
other law or regulations. As a condition to the
exercise of your option, Chips may require you to make
any representation or warranty to Chips as may be
necessary or appropriate to evidence compliance with
any applicable law or regulation. Chips may place
legends on the certificates for your option shares
referring to any applicable federal or state
securities law restrictions.
Transfer of Option Prior to your death, only you may exercise your
option, and you cannot transfer or assign your option.
However, you may dispose of your option in your will.
Regardless of any marital property settlement
agreement, Chips is not obligated to honor a Notice of
Exercise from your former spouse, nor is Chips
obligated to recognize your former spouse's interest
in your option in any other way.
Changes in Stock Appropriate adjustments shall be made in the number,
Subject to the Option exercise price and class of shares of stock subject
to the option in the event of a stock dividend, stock
split, reverse stock split, combination,
reclassification or like change in the capital
structure of Chips.
In the event of any such change in the capital
structure of Chips, any and all new substituted or
additional securities to which you are entitled by
reason of your ownership of the shares acquired upon
exercise of your option will be immediately subject to
Chips' right of repurchase with the same force and
effect as the
5
<PAGE> 18
shares subject to the right of repurchase immediately
before such event (see Right of Repurchase above).
Employee Rights Your option or this Agreement do not give you the
right to be retained as an employee by Chips (or a
parent corporation or subsidiary corporation of
Chips). Chips reserves the right to terminate your
employment at any time, with or without cause.
Stockholder Rights You, or your estate or heirs, have no rights as a
stockholder of Chips until a certificate for your
option shares has been issued. No adjustments are
made for dividends or other rights if the applicable
record date occurs prior to the date your stock
certificate is issued, except in the event of a
change in the stock subject to the option as
described above.
Applicable Law This Agreement will be interpreted and enforced under
the laws of the State of California.
Other Agreements The text of the Plan is incorporated in this
Agreement by reference. This Agreement and the Plan
constitute the entire understanding between you and
Chips regarding your option. Any prior agreements,
understandings, commitments, or negotiations
concerning your option are superseded.
Binding Effect This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective
heirs, executors, administrators, successors and
assigns.
Amendment Chips may at any time amend or terminate the Plan
and/or your option. However, no amendment or
termination may adversely affect your option without
your consent, unless such amendment is necessary in
order to enable the option to qualify as an incentive
stock option.
Time of Expiration Whenever there is a reference in this Agreement to a
date when your option expires, the option will expire
on that date at 5:00 p.m. local time in San Jose,
California.
6
<PAGE> 19
By signing this Agreement, you agree to all of the terms and conditions
described above and in the Plan, including Chips' right to repurchase unvested
shares.
CHIPS AND TECHNOLOGIES, INC.
By:
-----------------------------------
OPTIONEE
--------------------------------------
7
<PAGE> 1
EXHIBIT 11.1 STATEMENT RE: CALCULATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year ended June 30,
(In thousands, except per share amounts) 1996 1995 1994
-------------- ------------ -------------
<S> <C> <C> <C>
Net income for calculation of earnings per share $25,750 $ 9,388 $ 2,714
======= ======= =======
Average number of common and common equivalent shares:
Weighted average common shares outstanding 20,338 17,419 16,500
Dilutive common stock equivalents:
Common stock options and warrant, using treasury stock method 1,453 2,763 *
Convertible preferred stock -- -- 123
Convertible debentures * * *
Common and common equivalent shares used in the
------- ------- -------
calculation of net income per share: 21,791 20,182 16,623
======= ======= =======
Earnings per share: $ 1.18 $ 0.47 $ 0.16
======= ======= =======
</TABLE>
* Antidilutive
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-19715, No. 33- 25064, No. 33-25856, No. 33-33960,
No. 33-38750, No. 33-38751, No. 33-45009, No. 33-60584, No. 33-60586, and No.
33-72652) of Chips and Technologies, Inc. of our report dated July 15, 1996
appearing on page 16 of this Form 10-K.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
San Jose, California
August 14, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FISCAL 1996
10K FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000767965
<NAME> CHIPS AND TECHNOLOGIES, INC.
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<S> <C>
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0
0
<COMMON> 77,975
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