July 10, 1997
VIA EDGAR
Securities and Exchange Commission
Division of Corporate Finance
450 Fifth Street, N.W.
Washington, D.C. 20549
Quality Semiconductor, Inc. - Registration Statement (No. 333-30189)
Ladies and Gentlemen:
Quality Semiconductor, Inc., a California corporation is hereby enclosing
for filing pursuant to Rule 424(b)(4) promulgated under the Securities Act of
1933, as amended (the "Act"), the final form of the Prospectus to be distributed
in connection with the sale of shares of Common Stock registered pursuant to a
Registration Statement on Form S-3, No. 333-30189 (the "Registration
Statement"). The Registration Statement was declared effective on July 9, 1997.
Sincerely,
QUALITY SEMICONDUCTOR, INC.
/s/ John P. Goldsberry
Vice President, Finance and
Chief Financial Officer
<PAGE>
As filed with the Securities and Exchange Commission on July 11, 1997
Registration No. 333-30189
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
QUALITY SEMICONDUCTOR, INC.
(Exact Name of Registrant as specified in its charter)
California 77-0199189
(State of incorporation) (I.R.S. Employer Identification No.)
851 Martin Avenue
Santa Clara, California 95050
(408) 450-8000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
John P. Goldsberry
Vice President, Finance and Chief Financial Officer
Quality Semiconductor, Inc.
851 Martin Avenue
Santa Clara, California 95050
(408) 450-8000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Tae Hea Nahm
Venture Law Group
A Professional Corporation
2800 Sand Hill Road
Menlo Park, California 94025
(415) 854-4488
Approximate date of commencement of proposed sale tothe public:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box. | |
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. | |
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. | |
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
<TABLE>
CALCULATION OF REGISTRATION FEE
- --------------------------- --------------------- ----------------------- ----------------------- ---------------------
<S> <C> <C> <C> <C>
Amount Proposed maximum Proposed maximum
Title of each class of to be offering price aggregate Amount of
securities to be registered per share(1) offering price(1) registration fee
registered
- --------------------------- --------------------- ----------------------- ----------------------- ---------------------
- --------------------------- --------------------- ----------------------- ----------------------- ---------------------
Common Stock, 1,188,000 $10.75 $12,771,000.00 $3,870.00
$.001 par value shares
- --------------------------- --------------------- ----------------------- ----------------------- ---------------------
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee, based on the average of the high and low prices for the Company's
Common Stock as reported on The Nasdaq National Market on June 23, 1997 in
accordance with Rule 457 under the Securities Act of 1933.
(2) The registration fee was previously paid.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
<PAGE>
1,188,000 SHARES
QUALITY SEMICONDUCTOR, INC.
COMMON STOCK
--------------------------------------
This Prospectus covers 1,188,000 shares of Common Stock, no par value
(the "Common Stock" or the "Shares"), of Quality Semiconductor, Inc. ("QSI" or
the "Company"), which may be offered from time to time by one or all of the
selling shareholders named herein (the "Selling Shareholders"). The Company will
receive no part of the proceeds of such sales.
The Shares were issued to the Selling Shareholders in connection with
the private placement of 108,000 Units (the "Units"), each unit consisting of
ten (10) shares of Common Stock and a warrant (the "Warrant") to purchase one
(1) share of Common Stock of the Company on May 28, 1997 (the "Private
Placement"). For additional information concerning the Private Placement, see
"Issuance of Common Stock to Selling Shareholders." The Selling Shareholders
intend to sell the shares offered hereby from time to time in the
over-the-counter market at prices prevailing therein, in individually negotiated
transactions at such prices as may be agreed upon or a combination of such
methods of sale, during the period following the effective date of this
Prospectus. The Company will bear all expenses with respect to the offering of
the Common Stock, except any underwriting discounts, selling commissions, stock
transfer taxes, and fees and disbursements of counsel for the Selling
Shareholders. To the extent required, the specific shares of Common Stock to be
sold, the names of the Selling Shareholders, the public offering price, the
names of any agent dealer or underwriter and any applicable commission or
discount with respect to any particular offer is set forth herein or will be set
forth in an accompanying Prospectus Supplement. See "Selling Shareholders" and
"Plan of Distribution."
The Company's Common Stock is traded on The Nasdaq National Market
under the symbol "QUAL". The last reported sales price of the Common Stock on
The Nasdaq National Market on July 10, 1997 was $14.00 per share.
--------------------------------------
See "Risk Factors," beginning on page 5,
for information that should be considered by prospective nvestors.
--------------------------------------
The Selling Shareholders and any broker executing selling orders on behalf
of the Selling Shareholders may be deemed to be an "underwriter" within the
meaning of the Securities Act of 1933, as amended (the "Securities Act").
Commissions received by any such broker may be deemed to be underwriting
commissions under the Securities Act. See "Plan of Distribution" for information
relating to indemnification of the Selling Shareholders.
--------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMIS-
SION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------------
- --------------------------------------------------------------------------------
Underwriting Proceeds to
Price toPublic Discounts and Commission(1) Selling Stockholders(1)
- --------------------------------------------------------------------------------
Per Share
Total See Text Above See Text Above See Text Above
- --------------------------------------------------------------------------------
(1) All expenses of registration of the Shares, estimated to be approximately
$27,780.00 shall be borne by the Company. Selling commissions, brokerage fees,
any applicable stock transfer taxes and any fees and disbursements of counsel to
the selling shareholders are payable individually by the Selling Shareholders.
The date of this Prospectus is July 11, 1997
<PAGE>
No person is authorized in connection with any offering made hereby to
give any information or to make any representation not contained in this
Prospectus, and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company or the Selling
Shareholders. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the shares of Common
Stock offered hereby, nor does it constitute an offer to sell or a solicitation
of an offer to buy any of the shares offered hereby to any person in any
jurisdiction in which it is unlawful to make such an offer or solicitation.
Neither the delivery of this Prospectus nor any sale made hereunder shall under
any circumstances create any implication that the information contained herein
is correct as of any time subsequent to the date hereof.
ADDITIONAL INFORMATION
This Prospectus constitutes a part of a Registration Statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Securities and Exchange
Commission (the "Commission") under the Securities Act. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the shares
of Common Stock offered hereby, reference is hereby made to the Registration
Statement. Statements contained herein concerning the provisions of any document
are not necessarily complete, and each such statement is qualified in its
entirety by reference to the copy of such document filed with the Commission.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy and information statements and other
information with the Commission. Such reports, proxy and information statements
and other information may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, NW, Washington,
D.C. 20549, and at the following Regional Offices of the Commission: New York
Regional Office, Seven World Trade Center, New York, New York 10048, and Chicago
Regional Office, Northwest Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, NW, Washington, D.C.
20549 upon payment of the prescribed fees. The Common Stock of the Company is
quoted on The Nasdaq National Market. Reports, proxy and information statements
and other information concerning the Company may be inspected at The Nasdaq
Stock Market at 1735 K Street, NW, Washington, D.C. 20006. In addition, the
Commission maintains a World Wide Web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
hereby incorporated by reference in this Prospectus:
(1) The Company's Current Report on Form 8-K filed December 11, 1996;
(2) The Company's Annual Report on Form 10-K for the year ended September
30, 1996, as filed on December 24, 1996 ("1996 10-K");
(3) The Company's definitive Proxy Statement for its 1997 Annual Meeting of
Shareholders, as filed on January 27, 1997.
(4) Amendment No. 1 on Form 10-K/A to 1996 10-K, as filed on February 3,
1997;
(5) The Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996, as filed on February 11, 1997;
(6) The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1997, as filed on May 14, 1997;
(7) The Company's Current Report on Form 8-K filed on June 12, 1997; and
(8) The description of the Company's capital stock contained in its
Registration Statement on Form 8-A as filed with the Commission on December 22,
1993 including any amendment thereto or report filed for the purpose of updating
such description.
All reports and other documents subsequently filed by the Company pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of this offering shall be deemed to be
incorporated by reference herein, to the extent required, and to be a part
hereof from the date of filing of such reports and documents. Any statement
incorporated herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, upon written or oral request of such person, a copy of any or all of
the foregoing documents incorporated herein by reference (other than exhibits to
such documents, unless such exhibits are specifically incorporated by reference
into such documents). Requests for such documents should be submitted in writing
to John P. Goldsberry, Vice President of Finance and Chief Financial Officer,
Quality Semiconductor, Inc., 851 Martin Avenue, Santa Clara, California
95050-2903 or by telephone at (408) 450-8000.
THE COMPANY
The Company designs, develops and markets high-performance logic
products, logic-intensive specialty memory products and advanced networking
semiconductor products. The Company targets systems manufacturers principally in
the networking, personal computer and workstation, and telecommunications
markets. QSI's logic products include the 3.3-volt and 5-volt QSFCT family and
3.3-volt LCX family, high-speed, low-noise interface logic devices that
interconnect various elements in a microprocessor-based system, and the
QuickSwitch family of high-speed, low resistance bus switches, which can be used
for many applications, such as facilitating the use of mixed voltages in a
microprocessor-based system. QSI's specialty memory products include a family of
dual port RAMs, and some of the fastest FIFO (First-In, First-Out) devices
currently available. QSI networking products include an ATM
<PAGE>
multiplexer/demultiplex and 10/100 Base TX Fast Ethernet transceivers for symbol
and MII interface.
QSI was incorporated in 1984 under the laws of California. The
Company's principal executive offices are located at 851 Martin Avenue, Santa
Clara, California 95050-2903 and its telephone number is (408) 450-8000. As used
in this Prospectus, the "Company" and "QSI" refer to QSI Semiconductor, Inc., a
California corporation, and Quality Semiconductor Australia Pty. Ltd., its
wholly owned subsidiary.
<PAGE>
RISK FACTORS
This Prospectus (including the documents incorporated by reference
herein) contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including, without limitation, statements regarding the Company's
expectations, beliefs, intentions or future strategies. All forward looking
statements included in this document are based on information available to the
Company on the date hereof, and the Company assumes no obligation to update any
such forward looking statements. Actual results could differ materially from
those projected in the forward-looking statements as a result of the risk
factors set forth below and in the documents incorporated by reference herein.
In evaluating the Company's business, prospective investors should carefully
consider the following risk factors in addition to the other information set
forth herein or incorporated herein by reference.
Potential Declines in Operating Results
The Company's quarterly and annual operating results are affected by a
wide variety of factors that could materially and adversely affect revenues and
profitability, including, among others, factors pertaining to (i) competition,
such as competitive pressures on average selling prices of the Company's
products and the introduction of new products by competitors; (ii) the current
and anticipated future dependence on the Company's existing product lines; (iii)
new product development, such as increased research, development and marketing
expenses associated with new product introductions, the Company's ability to
introduce new products and technologies on a timely basis and the amount and
timing of recognition of non-recurring development revenue; (iv) manufacturing
and operations, such as fluctuations in manufacturing yields, inventory
management, raw materials, and production and assembly capacity; (v) the Company
operates a wafer fabrication facility which involves significant risks typically
inherent in any manufacturing endeavor, as well as additional risks associated
with production yields, technical difficulties with process control, expenses
associated with responding to increases in environmental pollution regulation or
disposal of environmentally hazardous waste and events limiting production, such
as fires or other damage, and the inability to keep production at a high level;
(vi) expenses that may be incurred in obtaining, enforcing and defending claims
with respect to intellectual property rights; (vii) sales and marketing, such as
loss of significant distributor, concentration of customers, and volume
discounts that may be granted to significant customers; (viii) customer demand,
such as market acceptance of products, the timing, cancellation or delay of
customer orders and general economic conditions in the semiconductor and
electronic systems industries, as well as other factors, such as risks
associated with doing business abroad, retention of key personnel and management
of growth and volatility in the Company's revenues and stock price.
The semiconductor industry is intensely competitive and is
characterized by price erosion, declining gross margins, rapid technological
change, product obsolescence and heightened international competition in many
markets. The Company's competitors include large semiconductor companies that
have substantially greater financial, technical, marketing, distribution and
other resources, broader product lines and longer standing relationships with
customers than the Company, as well as emerging companies attempting to sell
products to specialized markets such as those addressed by the Company. As a
result, average selling prices "ASPs" in the semiconductor industry generally,
and for the Company's products in particular, have decreased significantly over
the life of each product. The Company expects that ASPs for its existing
products will continue to decline over time and that ASPs for each new product
will decline significantly over the life of the product. Declines in ASPs in the
Company's products, if not offset by reductions in the cost of producing those
products or by sales of new products with higher gross margins, would decrease
the Company's overall gross margins, could cause a negative adjustment to the
valuation of the Company's inventories and could materially and adversely affect
the Company's operating results.
Dependence on QSFCT and QuickSwitch Product Lines
A substantial majority of the Company's revenues are derived from sales
of interface logic devices and, in particular, products in the Company's QSFCT
and QuickSwitch logic family, and during fiscal 1997, the Company commenced
shipments of its CMOS Fast Ethernet products. The Company anticipates that sales
of these products will continue to comprise a significant portion of the
Company's revenues for the foreseeable future. The demand for such products may
<PAGE>
be sharply reduced by competition and by microprocessors or other system devices
that increasingly include interface logic. Because of the Company's dependence
on sales of these products, declines in gross margins for these products
resulting from declines in ASPs or otherwise could have a material adverse
effect on the Company's operating results.
Dependence on Networking Product Line
During fiscal 1997, the Company commenced shipping its advanced CMOS
Fast Ethernet transceiver chips that provide high integration solutions for the
adapter, repeater, switch and card bus markets, and ATM mux/demux for the ATM
multiplexer and switch markets. These products are in the early stages of
production and test results may vary more than for products in later stages of
production. There can be no assurance that production yields will meet
management projections or that the performance of these products will meet
actual specifications. Additionally, demand for such products may not meet the
Company's expectations. In addition the demand for such products may decline as
competition and availability increase, and more advanced products are
introduced.
Dependence on New Products
The Company's future success is highly dependent upon the timely
completion and introduction of new products at competitive price/performance
levels. The failure of the Company to timely complete and introduce new products
at competitive price/performance levels could materially and adversely affect
the Company's operating results. New products are generally incorporated into a
customer's product or system at the design stage. However, design wins, which
can often require significant expenditures by the Company, may precede the
generation of volume sales, if any, by a year or more. No assurance can be given
that the Company will achieve design wins or that any design win will result in
significant future revenues.
Risks Associated with Operating Australian Fabrication Facility
In February 1996, the Company purchased a fully functional wafer
fabrication facility and product design center located in Australia. The Company
receives a significant amount of its wafer requirements for its logic and memory
products from this facility. Any disruption of the Company's wafer fab facility
or the Company's inability to keep the production of wafers at a high level due
to technical factors or lack of customer demand could have a materially adverse
impact on the Company's operations.
The process technology for the fabrication of the Company's wafers at
this facility is highly complex and sensitive to dust and other contaminants.
Although the fabrication process is highly controlled, the equipment may not
perform flawlessly. Minute impurities, difficulties in the production process or
defects in the masks can cause a substantial percentage of the wafers to be
rejected or individual die on each wafer to be nonfunctional. Accordingly, any
failure by the Company to achieve acceptable product yields, could have a
material and adverse effect on the Company's operating results.
Raw materials essential to the Company's wafer fabrication business are
generally available from multiple sources and the Company has thus far not
experienced production problems or delays due to shortages in materials or
components. There can be no assurance, however, that future shortages will not
occur, any such shortages could have a material adverse effect on the Company's
business, financial condition or results of operations.
Government regulations impose various environmental controls on the
storage, use and disposal of chemicals and gases used in semiconductor
processing. Although the Company strives to conform the activities of its
manufacturing facilities to applicable environmental regulations, there can be
no assurance that the Company will not incur unanticipated future costs based on
inadvertent violations of such regulations or on the implementation of more
stringent regulations in the future.
<PAGE>
Dependence on Fabrication, Assembly and Test Subcontractors
Additionally, a substantial amount of the wafers for the Company's
semiconductor products are fabricated by Seiko Instruments Inc. ("Seiko"), Ricoh
Corporation ("Ricoh"), and Taiwan Semiconductor Manufacturing Company Ltd.
("TSMC"). The Company's reliance on its suppliers to fabricate its wafers at
their production facilities in Japan and Taiwan involves significant risks,
including reduced control over delivery schedules, potential lack of adequate
capacity, technical difficulties and events limiting production, such as fires
or other damage to production facilities. The Company has from time to time
experienced significant delays in receiving fabricated wafers from these
suppliers, and there can be no assurance that the Company will not experience
similar or more severe delays from its suppliers in the future. Any inability or
unwillingness of the Company's fabrication providers to provide adequate
quantities of finished wafers to meet the Company's needs could delay shipments
and have a material adverse effect on the Company's operating results. The
Company's reliance on third-party wafer fabrication suppliers also increases the
length of the development cycle for the Company's products, which may provide
time to market advantages to competitors that have in-house fabrication
capacity. The Company also depends upon its fabrication suppliers to participate
in process improvement efforts, such as the transition to finer geometries, and
any inability or unwillingness of such suppliers to do so could adversely affect
the Company's development and introduction of new products. Competitors having
their own wafer fabrication facilities, or access to suppliers having such
facilities, using superior process technologies at the same geometries or
manufacturing products at smaller geometries, could manufacture and sell
competitive, higher performance products at a lower price. The introduction of
such products by competitors could materially and adversely affect the Company's
operating results.
The Company relies on overseas subcontractors for the assembly and
testing of its finished products. Any significant disruption in adequate
supplies from, or degradation in the quality of components or services supplied
by, these subcontractors, or any other circumstance that would require the
Company to qualify alternative sources of supply, could delay shipment and
result in the loss of customers, limitations or reductions in the Company's
revenues, and other adverse effects on the Company's operating results.
Risks of International Sales
The Company purchases a significant amount of its semiconductor wafers
and substantially all of its assembly services from foreign suppliers. In
addition, sales outside of North America accounted for approximately 44% of the
Company's net revenues in the second quarter of fiscal 1997 as compared to 36%
in the second quarter of fiscal 1996. Sales outside of North America for the
first six months of fiscal 1997 were 44% of net revenues as compared to 36% for
the first six months of fiscal 1996. As a result, the Company's business is
subject to the risks generally associated with doing business abroad, such as
foreign governmental regulations, reduced protection for intellectual property
rights, political unrest, disruptions or delays and shipments and changes in
economic conditions in countries in which the Company's manufacturing and test
assembly sources are located. The Company's purchases of wafers from Seiko
Instruments Inc. are denominated in Japanese yen. Although the Company has from
time to time engaged in hedging activities to mitigate exchange rate risks,
there can be no assurance that the Company will not be materially adversely
affected by a decline in exchange rate.
Patents and Proprietary Rights
The semiconductor industry is characterized by substantial litigation
regarding patent and other intellectual property rights. There can be no
assurance that third parties will not assert claims against the Company that
result in litigation. Any such litigation could result in significant expense
and divert the Company's attention from other matters. If any of the Company's
products were found to infringe any third party patent, and such patent were
determined to be valid, the third party would be entitled to injunctive relief,
which would prevent the Company from selling any such infringing products. In
addition, the Company could suffer significant monetary damages, which could
include treble damages for any infringement that is determined to be willful.
<PAGE>
Dependence on Key Personnel
The Company's future success will depend to a large extent on the
continued contributions of key employees, who would be difficult to replace, and
its ability to attract and retain qualified marketing, technical and management
personnel, particularly highly skilled design, process and test engineers, for
whom competition is intense. The loss of or failure to attract and retain any
such persons could have a material adverse effect on the Company's business. To
manage recent and potential future growth effectively, the Company will need to
continue to implement and improve its operational, financial and management
information systems and to hire, train, motivate and manage its employees. There
can be no assurance that the Company will be able effectively to achieve growth
or manage any such growth, and failure to do so could have a material adverse
effect on the Company's operating results.
Customer Concentration
A relatively small number of customers have accounted for a significant
portion of the Company's revenue in the past. Loss of one or more of the
Company's current customers could materially and adversely affect the Company's
business, operating results and financial condition. In addition, the Company
has experienced and may continue to experience lower margins on sales to
significant customers as a result of volume pricing arrangements.
Dependence on Manufacturer Representatives and Distributors
The Company markets and distributes its products primarily through
manufacturers' representatives and independent distributors. Domestic
distributors accounted for approximately 23% of the Company's net revenues
during the second quarter of fiscal 1997 and 34% in the second quarter of fiscal
1996. Domestic distributors accounted for approximately 21% of the Company's net
revenues during the first six months of fiscal 1997 and 28% of net revenues
during the first six months of fiscal 1996. The Company's distributors typically
offer competing products. The distribution channels have been characterized by
rapid change, including consolidations and financial difficulties. The loss of
one or more manufacturers' representatives or distributors, or the decision by
one or more distributors to reduce the number of the Company's products offered
by such distributor or to carry the product lines of the Company's competitors,
could have a material adverse effect on the Company's operating results.
Cyclically of Semiconductor Industry
The semiconductor industry has historically been cyclical and subject
to significant economic downturns at various times and has been characterized by
diminished product demand, accelerated erosion of ASPs and over capacity. In
addition, the end-markets for systems that incorporate the Company's products
are characterized by rapidly changing technology and evolving industry
standards. The Company may experience substantial period-to-period fluctuations
in future operating results due to general semiconductor industry conditions,
overall economic conditions or other factors.
Volatility of Company's Stock Price
The Company's earnings and stock price have been, and may be subject to
significant volatility, particularly on a quarterly basis. Any shortfall in
revenue, gross margins or earnings from expected levels could have an immediate
and significant adverse effect on the trading price of the Company's stock in
any given period. The Company may not learn of, or be able to confirm revenue,
gross margin or earnings shortfalls until late in the quarter, or following the
end of the quarter, because a significant portion of the Company's revenue in a
quarter typically is shipped in the last few weeks of that quarter. In addition,
future announcements concerning the Company or its competitors, including
technological innovations, new product introductions, governmental regulations,
litigation, or changes in earnings estimates by analysts, may cause the market
price of the Company's stock to fluctuate substantially. Stock prices for many
technology companies fluctuate widely for reasons that may be unrelated to
operating results, such as general economic, political and market conditions.
The Company's stock price is also subject to potentially large volatility due to
the very low trading volumes of the Company's stock on most days since the
initial public offering of the Company's stock on November 17, 1994. In
addition, this low trading volume may continue and could affect the ability of
shareholders to sell their shares.
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of June
23, 1997 by each Selling Shareholder. No Selling Shareholder has had any
material relationship with the Company or any of its predecessors or affiliates
within the last three years.
<TABLE>
<S> <C> <C> <C> <C> <C>
Shares beneficially owned Shares beneficially owned
prior to the offering(1) Shares after the offering(2)
Selling Shareholders Shares Percent (3) Offered Shares Percent (3)
- --------------------- ------ ------- ------- ------ -------
WPG Growth Fund 45,683 * 45,683 0 *
WPG Tudor Fund 84,117 1.17 84,117 0 *
CG Asian-American Fund, L.P. 96,800 1.34 96,800 0 *
Citi Growth Fund II Offshore, 96,800 1.34 96,800 0 *
L.P.
Galleon International Fund, Ltd. 476,300 6.62 476,300 0 *
Arthur D. Little Employee 38,500 * 38,500 0 *
Investment Plan(4)
Norwalk Employees' Pension 14,300 * 14,300 0 *
Plan(4)
Public Employee Retirement 116,600 1.62 116,600 0 *
System of Idaho(4)
Stamford Firemen's Pension 14,300 * 14,300 0 *
Board(4)
Oregon Public Employee 193,600 2.69 193,600 0 *
Retirement Fund(4)
TAB Products Co. Pension Plan(4) 11,000 * 11,000 0 *
Total 1,188,000 16.50 1,188,000 0 *
</TABLE>
* Less than one percent of the Company's outstanding Common Stock.
(1) Includes up to 108,000 shares of Common Stock issuable upon exercise of the
Warrants purchased by Selling Shareholders in the Private Placement.
(2) Assumes that each Selling Shareholder will sell all of the Shares set forth
above under "Shares Offered," including Shares issuable upon exercise of
the Warrants. There can be no assurance that the Selling Shareholders will
sell all or any of the Shares offered hereunder.
(3) Based on 7,199,089 shares of Common Stock outstanding at June 23, 1997 and
108,000 shares issuable upon exercise of the Warrants at $8.50 per share
issued to the Selling Shareholders.
(4) Zesiger Capital Group LLC has limited power of attorney to administer or
effect the sale of the Shares offered by the Selling Shareholder.
<PAGE>
ISSUANCE OF COMMON STOCK TO SELLING SHAREHOLDERS
On May 28, 1997, the Company closed the private placement (the "Private
Placement") of 108,000 Units, each Unit consisting of ten (10) shares of the
Company's Common Stock and a one-year warrant to purchase one (1) additional
share of the Company's Common Stock. The units were priced at $85.00 per unit
for a total of $9.2 million in cash. Needham & Company, Inc. received a
placement fee of $60,000 for services rendered in connection with the Private
Placement. The Company relied on Rule 506 of Regulation D under the Securities
Act of 1933, as amended (the "Securities Act"), which, among other things,
provides an exemption from the registration requirements of the Securities Act
for sales to accredited investors (as defined by Rule 501(a) of Regulation D
under the Securities Act). Under the terms of the Private Placement, the Company
agreed to file a Registration Statement on Form S-3 within thirty days of the
closing of the transaction, to cover the shares of the Company's Common Stock
that were delivered to the investors at the closing and that are issuable upon
exercise of the warrants.
PLAN OF DISTRIBUTION
Shares of Common Stock covered hereby may be offered and sold from time
to time by the Selling Shareholders. The Selling Shareholders will act
independently of the Company in making decisions with respect to the timing,
manner and size of each sale. The Selling Shareholders may sell the Shares being
offered hereby: (i) on the Nasdaq National Market, or otherwise at prices and at
terms then prevailing or at prices related to the then current market price; or
(ii) in private sales at negotiated prices directly or through a broker or
brokers, who may act as agent or as principal or by a combination of such
methods of sale. The Selling Shareholders and any underwriter, dealer or agent
who participates in the distribution of such shares may be deemed to be
"underwriters" under the Securities Act, and any discount, commission or
concession received by such persons might be deemed to be an underwriting
discount or commission under the Securities Act. The Company has agreed to
indemnify the Selling Shareholders against certain liabilities arising under the
Securities Act.
Any broker-dealer participating in such transactions as agent may
receive commissions from the Selling Shareholders (and, if acting as agent for
the purchaser of such shares, from such purchaser). Usual and customary
brokerage fees will be paid by the Selling Shareholders. Broker-dealers may
agree with the Selling Shareholders to sell a specified number of shares at a
stipulated price per share, and, to the extent such a broker-dealer is unable to
do so acting as agent for the Selling Shareholders, to purchase as principal any
unsold shares at the price required to fulfill the broker-dealer commitment to
the Selling Shareholders. Broker-dealers who acquire shares as principal may
thereafter resell such shares from time to time in transactions (which may
involve crosses and block transactions and which may involve sales to and
through other broker-dealers, including transactions of the nature described
above) in the over-the-counter market, in negotiated transactions or by a
combination of such methods of sale or otherwise at market prices prevailing at
the time of sale or at negotiated prices, and in connection with such resales
may pay to or receive from the purchasers of such shares commissions computed as
described above.
The Company has advised the Selling Shareholders that the
anti-manipulation Regulation M under the Exchange Act may apply to sales of
Shares in the market and to the activities of the Selling Shareholders and their
affiliates. In addition, the Company will make copies of this Prospectus
available to Selling Shareholders and has informed the Selling Shareholders of
the need for delivery of copies of this Prospectus to purchasers on or prior to
the sale of the Shares offered hereby. The Selling Shareholders have advised the
Company that during such time as the Selling Shareholders may be engaged in the
attempt to sell shares registered hereunder, they will: (i) not engage in any
stabilization activity in connection with any of the Company's securities; (ii)
cause to be furnished to each person to whom Shares included herein may be
offered, and to each broker-dealer, if any, through whom Shares are offered,
such copies of this Prospectus, as supplemented or amended, as may be required
by such person; (iii) not bid for or purchase any of the Company's securities or
any rights to acquire the Company's securities, or attempt to induce any person
to purchase any of the Company's securities or rights to acquire the Company's
securities other than as permitted under the Exchange Act; and (iv) not effect
any sale or distribution of the Shares until after the Prospectus shall have
been appropriately amended or supplemented, if required, to set forth the terms
thereof; and (v) notify the Company of its intent to sell any Shares at least
two (2) full business days prior to such sale.
<PAGE>
The Selling Shareholders may indemnify any broker-dealer that
participates in transactions involving the sale of the shares against certain
liabilities, including liabilities arising under the Securities Act. Any
commissions paid or any discounts or concessions allowed to any such
broker-dealers, and any profits received on the resale of such shares, may be
deemed to be underwriting discounts and commissions under the Securities Act if
any such broker-dealers purchase shares as principal.
In order to comply with the securities laws of certain states, if
applicable, the Common Stock will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states, the
Common Stock may not be sold unless such shares have been registered or
qualified for sale in the applicable state or an exemption from the registration
or qualification requirement is available and is complied with.
The Company has agreed to use its best efforts to maintain the
effectiveness of this Registration Statement until the earlier of (A) May 28,
1999, (B) such date as all of the Registrable Securities have been resold or (C)
such time as all of the Registerable Securities held by the Purchasers can be
sold within a given three-month period without compliance with the registration
requirements of the Securities Act pursuant to Rule 144 promulgated thereunder
("Rule 144"), after which time the Company intends to deregister any registered
Shares which have not been sold. No sales may be made pursuant to this
Prospectus after such date unless the Company amends or supplements this
Prospectus to indicate that it has agreed to extend such period of
effectiveness. There can be no assurance that the Selling Shareholders will sell
all or any of the shares of Common Stock offered hereunder.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be
passed upon by Venture Law Group, A Professional Corporation, Menlo Park,
California, counsel to the Company.
EXPERTS
The consolidated financial statements and schedule of the Company
appearing in the Company's Annual Report (Form 10-K) for the year ended
September 30, 1996, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such consolidated financial statements and schedule are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The Registrant will bear no expenses in connection with any sale or
other distribution by the Selling Shareholders of the shares being registered
other than the expenses of preparation and distribution of this Registration
Statement and the Prospectus included in this Registration Statement. Such
expenses are set forth in the following table. All of the amounts shown are
estimates except the Securities and Exchange Commission ("SEC") registration
fee.
SEC registration fee $ 3,780
Nasdaq Listing fee 17,500
Legal fees and expenses 25,000
Accounting fees and expenses 10,000
Transfer Agent Fee 5,000
Miscellaneous expenses 2,000
--------
Total $ 63,280
========
Item 15. Indemnification of Directors and Officers.
Section 317 of the California Corporations Code allows for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Securities Act"). Article IV of the
Registrant's Articles of Incorporation and Article VI of the Registrant's Bylaws
provides for indemnification of the Registrant's directors, officers, employees
and other agents to the extent and under the circumstances permitted by the
California Corporations Code. The Registrant has also entered into agreements
with its directors and officers that will require the Registrant, among other
things, to indemnify them against certain liabilities that may arise by reason
of their status or service as directors to the fullest extent not prohibited by
law.
In addition, the Registrant carries director and officer liability
insurance in the amount of $7 million.
In connection with this offering, the Selling Shareholders have agreed
to indemnify the Registrant, its directors and officers and each such person who
controls the Registrant, against any and all liability arising from inaccurate
information provided to the Registrant by the Selling Shareholders and contained
herein.
<PAGE>
Item 16. Exhibits.
Exhibits.
4.1(1) Form of Unit Purchase Agreement (including Warrant), dated May 22,
1997 between Quality Semiconductor, Inc. and the Purchasers (as defined
therein).*
5.1 Opinion of Venture Law Group, A Professional Corporation.*
23.1 Consent of Ernst & Young LLP, Independent Auditors (included in
Exhibit 23.1).*
23.3 Consent of Counsel (included in Exhibit 5.1).*
24.1 Power of Attorney (see page II-3).*
- ----------------
(1) Incorporated by reference to the identically numbered exhibit filed
with the Registrant's Form 8-K, filed on June 12, 1997. * Filed as an exhibit to
the Registrant's Registration Statement (File No. 333-30189) filed with the
Securities and Exchange Commission on June 27, 1997.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement to include any material information with respect to
the plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment shall be deemed
to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of this offering.
(4) That, for purposes of determining any liability under the
Securities Act, each filing of the Registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Exchange Act
that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, QSI
Semiconductor, Inc. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Santa Clara, State of California, on July 10,
1997.
QUALITY SEMICONDUCTOR, INC.
By: /s/ John P. Goldsberry
John P. Goldsberry
Vice President, Finance and
Chief Financial Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Chun Chiu* Chairman of the Board of Directors July 10, 1997
Chun Chiu
/s/ R. Paul Gupta* President, and Chief Executive July 10, 1997
R. Paul Gupta Officer and Principal Executive
Officer
/s/ John P. Goldsberry* Vice President, Finance and Chief July 10, 1997
John P. Goldsberry Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
/s/ Masaharu Shinya* Director July 10, 1997
Masahaaru Shinya
/s/ Andrew Kang* Director July 10, 1997
Andrew Kang
/s/ Robert Puette* Director July 10, 1997
Robert Puette
/s/ David Tsang* Director July 10, 1997
David Tsang
By: /s/ John P. Goldsberry July 10, 1997
John P. Goldsberry
Attorney-in-fact
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Description
23.1 Consent of Ernst & Young LLP, Independent Auditors
(included in Exhibit 23.1)
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333-30189) and related Prospectus of
Quality Semiconductor, Inc. for the registration of 1,188,000 shares of its
common stock and to the incorporation by reference therein of our report dated
October 18, 1996 (except as to Note 10, as to which the date is December 12,
1996), with respect to the consolidated financial statements and schedule of
Quality Semiconductor, Inc. included in its Annual Report (Form 10-K) for the
year ended September 30, 1996, filed with the Securities and Exchange
Commission.
ERNST & YOUNG LLP
/s/ Ernst & Young LLP
San Jose, California
July 7, 1997
