U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------- -------
Commission file number 0-22594
ALLIANCE SEMICONDUCTOR CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 77-0057842
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
3099 North First Street
San Jose, California 95134-2006
(Address of principal executive offices) (Zip code)
(408) 383-4900
(Registrant's telephone number, including area code)
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 past 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 whether the Registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No .
--- ---
The number of shares outstanding of the Registrant's Common Stock on
November 6, 1996 was 38,754,637 shares.
Page 1 of 28, including exhibits
The Exhibit Index is located on page 15.
<PAGE>
ALLIANCE SEMICONDUCTOR CORPORATION
FORM 10-Q
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
September 30, 1996 and March 31, 1996 3
Condensed Consolidated Statements of Operations
Three months and six months ended
September 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows
Six months ended September 30, 1996 and 1995 5
Notes to Unaudited Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities Not Applicable
Item 3. Defaults upon Senior Securities Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
2
<PAGE>
Part I. Financial Information
Item I. Consolidated Financial Statements
ALLIANCE SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
September 30, March 31,
1996 1996
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 26,897 $ 80,566
Accounts receivable, net 6,448 4,724
Inventory 31,364 30,152
Deferred taxes 30,760 25,578
Other current assets 3,316 9,065
-------- --------
Total current assets 98,785 150,085
Property and equipment, net 11,523 11,231
Investment in Chartered Semiconductor 51,596 51,596
Investment in United Semiconductor Corp. 52,829 36,438
Investment in United Silicon, Inc. 13,701 13,888
-------- --------
$228,434 $263,238
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,940 $ 32,358
Accrued liabilities 8,386 11,499
-------- --------
Total current liabilities 21,326 43,857
-------- --------
Stockholders' equity
Preferred stock -- --
Common stock 385 383
Additional paid-in capital 178,270 178,052
Retained earnings 28,453 40,946
-------- --------
Total stockholders' equity 207,108 219,381
-------- --------
$228,434 $263,238
======== ========
See accompanying notes to unaudited condensed
consolidated financial statements.
3
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ALLIANCE SEMICONDUCTOR CORPORATION
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
---------------------------------- ----------------------------------
1996 1995 1996 1995
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net revenue $ 13,135 $ 77,007 $ 27,243 $134,042
Cost of revenue 11,029 35,894 35,360 62,717
-------- -------- -------- --------
Gross profit (loss) 2,106 41,113 (8,117) 71,325
-------- -------- -------- --------
Operating expenses:
Research and development 3,639 4,553 7,078 8,260
Selling, general and administrative 2,703 5,605 5,195 9,578
-------- -------- -------- --------
Total operating expenses 6,342 10,158 12,273 17,838
-------- -------- -------- --------
Income (loss) from operations (4,236) 30,955 (20,390) 53,487
Other income, net 459 1,905 1,172 3,828
-------- -------- -------- --------
Income (loss) before income taxes (3,777) 32,860 (19,218) 57,315
Provision (benefit) for income taxes (1,322) 12,815 (6,725) 22,352
-------- -------- -------- --------
Net income (loss) ($ 2,455) $ 20,045 ($12,493) $ 34,963
======== ======== ======== ========
Net income (loss) per share ($ 0.06) $ 0.48 ($ 0.32) $ 0.84
======== ======== ======== ========
Weighted average common shares
and equivalents 38,483 41,526 38,450 41,506
======== ======== ======== ========
<FN>
See accompanying notes to unaudited condensed
consolidated financial statements.
</FN>
</TABLE>
4
<PAGE>
ALLIANCE SEMICONDUCTOR CORPORATION
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<CAPTION>
Six Months Ended
September 30,
---------------------------------------------------
1996 1995
--------------------- ---------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($ 12,493) $ 34,963
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,447 924
Changes in assets and liabilities:
Accounts receivable (1,724) (25,682)
Inventory (1,212) (8,956)
Other assets 5,749 (797)
Accounts payable (19,418) 7,784
Accrued liabilities (3,113) 3,333
Income taxes including
deferred income taxes (5,182) (4,442)
--------- ---------
Net cash provided by (used in) operating activities (35,946) 7,127
--------- ---------
Cash used in investing activities:
Acquisition of equipment (1,739) (2,243)
Investment in Chartered Semiconductor -- (28,153)
Investment in United Semiconductor (16,391) (37,000)
Investment in United Silicon, Inc. 187 --
--------- ---------
Net cash used in investing activities (17,943) (67,396)
--------- ---------
Cash flows from financing activities:
Net proceeds from issuance of common stock 220 96,569
Repayment of loan - UMC -- 10,000
--------- ---------
Net cash provided by financing activities 220 106,569
--------- ---------
Net increase (decrease) in cash and cash equivalents (53,669) 46,300
Cash and cash equivalents at beginning of the period 80,566 75,557
--------- ---------
Cash and cash equivalents at end of the period $ 26,897 $ 121,857
========= =========
Supplemental disclosures:
Income taxes paid (refunded) -- $ 24,840
========= =========
<FN>
See accompanying notes to unaudited condensed
consolidated financial statements.
</FN>
</TABLE>
5
<PAGE>
ALLIANCE SEMICONDUCTOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared by Alliance Semiconductor Corporation (the "Company") in
accordance with the rules and regulations of the Securities and Exchange
Commission (the "Commission"). Certain information and footnote disclosure,
normally included in financial statements prepared in accordance with generally
accepted accounting principles, have been condensed or omitted in accordance
with such rules and regulations. In the opinion of management, the accompanying
unaudited condensed consolidated financial statements reflect all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
consolidated financial position of the Company and its subsidiaries, and their
consolidated results of operations and cash flows. These financial statements
should be read in conjunction with the audited consolidated financial statements
and notes thereto for the fiscal year ended March 31, 1996 included in the
Company's Annual Report on Form 10-K filed with the Commission on June 28, 1996.
For purposes of presentation, the Company has indicated the first six
months of fiscal 1997 and 1996 as ending on September 30, respectively; whereas,
in fact the Company's fiscal quarters end on the Saturday nearest the end of the
calendar quarter.
The results of operations for the three and six months ended September 30,
1996 are not necessarily indicative of the results that may be expected for the
year ending March 31, 1997, and the Company makes no representations related
thereto.
Note 2. Balance Sheet Components
September 30, March 31,
1996 1996
------------- ---------
Inventory: (in thousands)
Work in process $18,853 $10,823
Finished goods 12,511 19,329
------- -------
$31,364 $30,152
======= =======
Note 3. Inventory Charge
During the first quarter of fiscal 1997, the Company continued to
experience a significant deterioration in the average selling prices and a
slowing in demand for certain of its SRAM products. As a result of this
deterioration, during the first quarter of fiscal 1997 the Company recorded a
pre-tax charge of approximately $16.0 million primarily to reflect a further
decline in market value of the Company's inventory. The Company is unable to
predict when or if such decline in prices will stabilize. A continued decline in
average selling prices for SRAM products could result in additional material
inventory valuation adjustments and corresponding charges to operations.
6
<PAGE>
Note 4. Commitments
At September 30, 1996, the Company had approximately $16.3 million of
noncancelable purchase commitments with suppliers. The Company expects to sell
all products which it has committed to purchase from suppliers. During the first
quarter of fiscal 1997, the average selling prices of the Company's SRAM
products deteriorated significantly. As a result of this deterioration, in the
first quarter of fiscal 1997 the Company recorded a pre-tax charge of
approximately $2.3 million for adverse purchase commitments related to these
SRAM products, which is included in the $16.0 million charge recorded in the
first quarter of fiscal 1997 (see Note 3).
In July 1995, the Company entered into an agreement with United
Microelectronics Corporation ("UMC") and S3 Incorporated ("S3") to form a
separate Taiwanese company, United Semiconductor Corporation, for the purpose of
building and managing a semiconductor manufacturing facility in Taiwan.
Alliance's investment, which is payable in New Taiwan Dollars ("NTD"), will be
up to approximately US$70 million cash for an equity ownership of up to
approximately 19%. Alliance paid approximately NTD 1 billion (approximately
US$36.4 million) in September 1995 and approximately NTD 450 million
(approximately US$16.4 million) in July 1996, and has the option to pay, on or
before December 31, 1996, an additional NTD 450 million, plus interest at a rate
of 8.5% on such amount from and after July 4, 1996. If the option is exercised,
Alliance will have an equity ownership of approximately 19% and will receive 25%
of the manufacturing capacity in this facility.
In October 1995, the Company entered into an agreement with UMC and other
parties to form a separate Taiwanese company, United Silicon Inc., for the
purpose of building and managing a semiconductor manufacturing facility in
Taiwan. Alliance's investment, which is payable in New Taiwan Dollars, will be
approximately US$60 million cash payable in three installments, representing an
equity ownership of approximately 10%. The first installment of US$13.9 million
was made in January 1996, the second installment of US$30 million is due on or
before the start of clean room construction and the final installment of US$15
million is due on or before fab production ramp-up. In return for their
investment, Alliance and the other parties will receive a significant portion of
the manufacturing capacity in this facility.
As of September 30, 1996, $3.5 million of standby letters of credit were
outstanding and expire through December 1996.
Note 5. Net Income Per Share
Net income per share is based on the weighted average number of common and
dilutive common equivalent shares outstanding during the period. Common
equivalent shares include common stock options using the treasury stock method.
Note 6. Subsequent Events.
The Company and its president were served in February 1994 with a complaint
filed in the Superior Court of the State of California in and for the County of
Santa Clara by two individuals, James A. Kennedy and Robert S. Reid, alleging,
among other things, that, as a result of services allegedly rendered to the
Company, such individuals each were orally promised 750,000 shares (pre-split)
of Common Stock of the Company (the equivalent of 1,687,500 shares as a result
of the 3-for-2 stock splits effected in January 1995 and in July 1995,
respectively). In October 1996, the parties (together with PRO Associates, Inc.,
a California corporation ("PRO")) executed a Settlement Agreement and Release
(the "Settlement Agreement"). Pursuant to the Settlement Agreement, the Company
issued 75,862 shares of Common Stock of the Company to each of Messrs. Reid and
Kennedy under the exemption provided by Section 3(a)(10) of the Securities Act
of 1933, as amended (the "Securities Act"), and plaintiffs dismissed the
Complaint. The Settlement Agreement contains releases by plaintiffs and by PRO
of defendants, and by defendants of plaintiffs and of PRO, of all claims, known
or unknown including but not limited to all claims related to any fact or
allegation contained in the Complaint. The aggregate dollar value of the shares
issued pursuant to the Settlement Agreement did not exceed the reserve that had
been historically recorded for this matter.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Except for historical information contained herein, the following
discussion constitutes forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act'). Actual results could differ materially
from those projected in the forward looking statements as a result of the
factors set forth in this Report, particularly in the section below entitled,
"Factors That May Affect Future Results" and the factors set forth in the
Company's Annual Report on Form 10-K for the fiscal year ended March 30, 1996
filed with the Commission on June 28, 1996, particularly in Item 7 thereof
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations". These forward-looking statements speak only as of the
date of this Report. The Company expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statement contained in this Report to reflect any change in the Company's
expectations with regard thereto or any change in events, conditions or
circumstances upon which any such statement is based, in whole or in part.
<TABLE>
Results of Operations
The following table sets forth, for the periods indicated, certain
operating data as a percentage of net revenue:
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
---------------------- ---------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net revenue 100.0% 100.0% 100.0% 100.0%
Cost of revenue 84.0 46.6 (129.8) 46.8
------ ----- ------ ----
Gross profit (loss) 16.0 53.4 (29.8) 53.2
------ ----- ------- ----
Operating expenses:
Research and development 27.7 5.9 26.0 6.2
Selling, general and administrative 20.6 7.3 19.1 7.1
------ ------ ------ -----
Total operating expenses 48.3 13.2 45.1 13.3
------ ----- ------ ----
Income (loss) from operations (32.3) 40.2 (74.9) 39.9
Other income, net 3.5 2.5 4.3 2.9
------ ------ ------ -----
Income (loss) before income taxes (28.8) 42.7 (70.6) 42.8
Provision (benefit) for income taxes (10.1) 16.7 (24.7) 16.7
------ ----- ------ -----
Net income (loss) (18.7)% 26.0% (45.9)% 26.1%
====== ===== ====== =====
</TABLE>
Net Revenue
During the periods presented above, the Company's net revenue was
principally derived from the sale of SRAM products and to a lesser extent the
sale of DRAM and other products. Net revenue for the second quarter of fiscal
1997 was $13.1 million, or 83% lower than the $77.0 million of revenue for the
second quarter of fiscal 1996. Net revenue for the first sixth months of fiscal
1997 was $27.2 million, or 80% lower than the $134.0 million of net revenue for
the first sixth months of fiscal 1996. During the first six months of fiscal
1997, no customer accounted for more than 10% of net revenue. During the first
six months of fiscal 1996, one customer accounted for 15% of net revenue. The
decrease in net revenue for the three and six months ended September 30, 1996,
was due to a number of factors, including continued decreases in the average
selling prices for the Company's SRAM products and a decrease in demand for
certain of the Company's SRAM products. The Company believes the decreases in
average selling prices and unit demand resulted from an oversupply situation
8
<PAGE>
which began in the latter half of fiscal 1996 due to an increased supply from
foreign and domestic competitors and weakening unit demand for SRAM products.
The Company is unable to predict when or if such price and demand declines will
stabilize. A continued decline in average selling prices or unit demand could
have a continuing material adverse effect on the Company's operating results.
The markets for the Company's products are characterized by rapid
technological change and product obsolescence, conditions which could require
the Company to make significant shifts in its product mix in a relatively short
period of time. To diversify its product offerings, the Company began to
manufacture volume quantities of 4 megabit DRAM products in June 1996 and has
continued volume production through the second quarter of fiscal 1997. Revenues
from the sale of DRAM products contributed approximately 34% of net revenues for
the second quarter and 21% of net revenues for the first sixth months of fiscal
1997. Average selling prices for 4 megabit DRAM products are subject to
significant volatility and have experienced significant declines in the last six
months. The Company is unable to predict when or if such price declines will
stabilize. A continued decline in average selling prices could have a material
adverse effect on the Company's operating results.
In addition, the Company has also recently introduced and manufactured
volume quantities of new MMUI accelerators and flash products. The introduction
and volume manufacture of new products involve several risks, including, among
others, failure of the new products to obtain acceptance in the market,
constraints or delays in timely deliveries of products from the Company's
suppliers, lower than anticipated yields and lower than expected throughput from
assembly and test suppliers. The occurrence of any problems resulting from these
risks could have a material adverse effect on the Company's operating results.
Gross Profit (Loss)
Gross profit was $2.1 million for the second quarter of fiscal 1997, or 16%
of net revenue compared to gross profit of $41.1 million, or 53.4% of net
revenue for the same period of fiscal 1996. The Company experienced a gross loss
of $8.1 million for the first six months of fiscal 1997, or (29.8)% of net
revenue compared to gross profit of $71.3 million, or 53.2% of net revenue for
the same period of fiscal 1996. The decrease in gross profit for the second
quarter of fiscal 1997 compared to the same period of fiscal 1996 resulted
primarily from decreases in the average selling prices for the Company's
products and decreases in demand for certain of the Company's SRAM products. The
loss and decrease in gross profit for the first six months of fiscal 1997
compared to the same period of fiscal 1996 resulted primarily from product price
declines and pre-tax inventory and purchase commitment related charges of
approximately $16.0 million recorded in the first quarter of fiscal 1997 to
reflect declines in the market value for certain of the Company's products. As a
result of the significant deterioration in the average selling prices for its
SRAM products, the Company's gross margin declined significantly and became a
significant gross loss during the first quarter of fiscal 1997. The average
selling prices for the Company's SRAM and DRAM products continued to decline
during the second quarter of fiscal 1997. The Company is unable to predict when
or if such price declines will stabilize. A continued decline in average selling
prices could result in further adverse impacts on the Company's gross margins.
The Company is subject to a number of factors which may have an adverse
impact on gross margins, including increased competition and related decreases
in average unit selling prices, the availability and cost of products from the
Company's suppliers, changes in the mix of products sold and the timing of new
product introductions and volume shipments. In addition, the Company may seek to
add additional foundry suppliers and transfer existing and newly developed
products to more advanced manufacturing processes. The commencement of
manufacturing at a new foundry is often characterized by lower yields as the
manufacturing process is refined. There can be no assurance that one or more of
the factors set forth in this paragraph will not have a material adverse effect
on the Company's gross margins in future periods.
9
<PAGE>
Research and Development
Research and development expenses were $3.6 million, or 27.7% of net
revenue in the second quarter of fiscal 1997 compared to $4.6 million, or 5.9%
of net revenue for the same period of fiscal 1996. Research and development
expenses were $7.1 million, or 26.0% of net revenue in the first six months of
fiscal 1997 compared to $8.3 million, or 6.2% of net revenue in the same period
of the prior year. The decrease in research and development expenses for the
first three and six months of fiscal 1997 was due to decreased expenditures for
materials utilized in the Company's development activities which are dependent
on the timing of new product development and introduction, decreased expenses
related to reserves recorded in the first quarter of fiscal 1996, offset in part
by increases in personnel related costs. Research and development expenses are
expected to increase in absolute dollars and may also increase as a percentage
of net revenue.
Selling, General and Administrative
Selling, general and administrative expenses were $2.7 million, or 20.6% of
net revenue in the second quarter of fiscal 1997 compared to $5.6 million, or
7.3% of net revenue for the same period of fiscal 1996. Selling, general and
administrative expenses were $5.2 million, or 19.1% of net revenue in the first
six months of fiscal 1997 compared to $9.6 million, or 7.1% of net revenue for
the same period of fiscal 1996. The decrease in selling, general and
administrative expenses was primarily the result of decreased sales commissions
due to decreased revenue, utilization of reserves for legal fees in connection
with certain legal proceedings which reserves were provided for during the first
six months of fiscal 1996 and bad debt reserves provided during the first sixth
months of fiscal 1996, offset in part by higher personnel-related costs.
Selling, general and administrative expenses are expected to increase in
absolute dollars and may also increase as a percentage of net revenue.
Other Income, Net
Net other income was $0.5 million for the second quarter of fiscal 1997
compared to $1.2 million for the same period of fiscal 1996. Net other income
was $1.2 million for the first six months of fiscal 1997 compared to $3.8
million for the same period of fiscal 1996. Net other income for the first three
and sixth months of fiscal 1997 primarily represents interest and dividend
income from investments.
Provision (Benefit) for Income Taxes
The Company's effective tax rate was 35.0% for the first and second
quarters of fiscal 1997 and 39.0% for the first and second quarters of fiscal
1996. The effective tax rate for the first and second quarters of fiscal 1997
represents amounts which may be carried back to offset taxes paid in prior
years, resulting in a tax refund to the Company. The effective tax rate for the
first and second quarters of fiscal 1996 represents taxes accrued at applicable
statutory rates, partially offset by the effect of research and development tax
credits.
Factors That May Affect Future Results
The Company's quarterly and annual operating results have historically
been, and will continue to be, subject to quarterly and other fluctuations due
to a variety of factors, including anticipated and unanticipated decreases in
average selling prices of the Company's products, changes in pricing policies by
the Company, its competitors or its suppliers, fluctuations in manufacturing
yields, availability and cost of products from the Company's suppliers, the
timing of new product announcements and introductions by the Company or its
competitors, changes in the product mix of products sold, the cyclical nature of
the semiconductor industry, the gain or loss of significant customers, increased
research and development expenses associated with new product introductions,
market acceptance of new or enhanced versions of the Company's products,
seasonal customer demand, the timing of significant orders and general economic
10
<PAGE>
conditions. Operating results could be adversely affected by economic conditions
generally or in various geographic areas, other conditions affecting the timing
of customer orders and capital spending, a downturn in the market for personal
computers, or order cancellations or rescheduling.
The markets for the Company's products are characterized by rapid
technological change, evolving industry standards, rapid product obsolescence
and significant price competition and, as a result, are subject to decreases in
average selling prices. The Company has recently experienced, and expects it
will continue to experience, significant deterioration in average selling prices
for its SRAM products. In addition, the Company began to manufacture volume
quantities of 4 megabit DRAM products in June 1996 and has continued volume
production through the second quarter of fiscal 1997. Revenues from the sale of
DRAM products contributed approximately 34% of net revenues for the second
quarter and 21% of net revenues for the first sixth months of fiscal 1997.
Average selling prices for 4 megabit DRAM products are subject to significant
volatility and have experienced significant declines in the last six months.
Accordingly, the Company's ability to maintain or increase revenues will be
highly dependent on its ability to increase unit sales volume of existing
products and to successfully develop, introduce and sell new products. Declining
average selling prices could also adversely affect the Company's gross margins
unless the Company is able to reduce its cost per unit in an amount sufficient
to offset the declines in average selling prices. There can be no assurance the
Company will be able to increase unit sales volumes of existing products,
develop, introduce and sell new products or sufficiently reduce its cost per
unit to offset declines in average selling prices. There also can be no
assurance that even if the Company were to increase unit sales volumes and
sufficiently reduce its cost per unit, the Company would be able to maintain or
increase revenues or gross margins.
The Company has recently introduced and manufactured volume quantities of
new DRAM, MMUI accelerators and flash products. The introduction and volume
manufacture of new products involves several risks, including, among others,
failure of the new products to obtain acceptance in the market, constraints or
delays in timely deliveries of products from the Company's suppliers, lower than
anticipated yields and lower than expected throughput from assembly and test
suppliers. The occurrence of any problems resulting from these risks could have
material adverse effect on the Company's operating results.
The cyclical nature of the semiconductor industry periodically results in
shortages of advanced process wafer fabrication capacity such as the Company has
experienced from time to time. The Company's ability to maintain adequate levels
of inventory is primarily dependent upon the Company obtaining sufficient supply
of products to meet future demand, and any inability of the Company to maintain
adequate inventory levels may adversely affect its relations with its customers.
In addition, because the Company must order products and build inventory
substantially in advance of product shipments, there is a risk that the Company
will forecast incorrectly and produce excess or insufficient inventories of
particular products because demand for the Company's products is volatile and
subject to rapid technology and price changes. This inventory risk is heightened
because certain of the Company's key customers place orders with short lead
times. The Company's customers' ability to reschedule or cancel orders without
significant penalty could adversely affect the Company's liquidity, as the
Company may be unable to adjust its purchases from its independent foundries to
match such customer changes and cancellations. The Company has in the past
produced excess quantities of certain products which has had a material adverse
effect on the Company's operating results. There can be no assurance that the
Company in the future will not produce excess quantities of any of its products.
To the extent the Company produces excess or insufficient inventories of
particular products, the Company's operating results could be materially
adversely affected, as was the case during the last half of fiscal 1996 and the
first quarter of fiscal 1997, during which periods the Company took significant
pre-tax charges largely to reflect a decline in the value of inventory.
The Company currently relies on outside foundries to manufacture all of the
Company's products. Reliance on these foundries involves several risks,
including constraints or delays in timely delivery of the Company's products,
reduced control over delivery schedules, quality assurance, costs and loss of
production due to seismic activity, weather conditions and other factors.
Although the Company continuously evaluates sources of supply and may seek to
add additional foundry capacity, there can be no assurance that such additional
capacity can be
11
<PAGE>
obtained at acceptable prices, if at all. The occurrence of any supply or other
problem resulting from these risks could have a material adverse effect on the
Company's operating results, as was the case during the third quarter of fiscal
1996, during which period manufacturing yields of one of the Company's products
were materially adversely affected by manufacturing problems at one of the
Company's foundry suppliers.
Additionally, other factors may materially adversely affect the Company's
operating results. The Company conducts a significant portion of its business
internationally and is subject to a number of risks resulting from such
operations, including political and economic instability and changes in
diplomatic and trade relationships, foreign currency fluctuations, unexpected
changes in regulatory requirements, delays resulting from difficulty in
obtaining export licenses for certain technology, tariffs and other barriers and
restrictions, and the burdens of complying with a variety of foreign laws. The
Company relies on domestic and offshore subcontractors for die assembly and
testing of products, and is subject to risks of disruption in adequate supply of
such services and quality problems with such services. The Company is party to
certain legal proceedings, and is subject to the risk of adverse developments in
such proceedings. The semiconductor industry is characterized by frequent claims
and litigation regarding patent and other intellectual property rights, and
although the Company has not to date been involved in patent or other
intellectual property rights litigation, the Company has from time to time
received, and believes that it likely will in the future receive, notices
alleging that the Company's products, or the processes used to manufacture the
Company's products, infringe the intellectual property rights of third parties;
and the Company is subject to the risk that it may become party to litigation
involving such claims. The Company is subject to the risks of shortages of goods
or services and increases in the cost of raw materials used in the manufacture
or assembly of the Company's products. The Company faces intense competition,
and many of its principal competitors and potential competitors have
substantially greater financial, technical, marketing, distribution and other
resources, broader product lines and longer-standing relationships with
customers than does the Company, any of which factors may place such competitors
and potential competitors in a stronger competitive position than the Company.
The Company's corporate headquarters are located near major earthquake faults,
and the Company is subject to the risk of damage or disruption in the event of
seismic activity. There can be no assurance that any of the foregoing factors
will not materially adversely affect the Company's operating results.
As a result of the foregoing factors, as well as other factors affecting
the Company's operating results, past performance should not be considered to be
a reliable indicator of future performance and investors should not use
historical trends to anticipate results or trends in future periods. In
addition, stock prices for many technology companies are subject to significant
volatility, particularly on a quarterly basis. If revenues or earnings fail to
meet expectations of the investment community, there could be an immediate and
significant impact on the market price of the Company's common stock.
Liquidity and Capital Resources
The Company's operating activities used cash of $35.9 million in the first
six months of fiscal 1997 and generated cash of $7.1 million in the first six
months of fiscal 1996. Cash used in operations in the first six months of fiscal
1997 was the result of net loss generated during the period and payment of a
significant portion of the Company's liabilities. Cash generated from operations
in the first six months of fiscal 1996 was primarily a result of net income
generated during the period partially offset by a net increase in certain
working capital components.
Net cash used in investing activities was $17.9 million for the first six
months of fiscal 1997 and $67.4 million in the first six months of fiscal 1996.
Net cash used in investing activities in the first six months of fiscal 1997
reflects an investment of $16.4 million in United Semiconductor Corporation
("USC"), equipment purchases of $1.7 million, partially offset by reimbursement
of an overpayment with respect to the investment in United Silicon, Inc. ("USI")
of $0.2 million. Net cash used in investing activities in the first six months
of fiscal 1996 reflects equipment purchases of $2.2 million, an investment in
USC of $37.0 million, and investments in Chartered Semiconductor Manufacturing
Ptd. Ltd. ("Chartered") of $28.2 million.
12
<PAGE>
Net cash provided by financing activities was $0.2 million in the first six
months of fiscal 1997 and $106.6 million in the first six months of fiscal 1996.
Net cash provided by financing activities in the first six months of fiscal 1997
reflects net proceeds from the sales of common stock in connection with the
exercise of stock options. Net cash provided by financing activities in the
first six months of fiscal 1996 reflects net proceeds from the sales of common
stock in connection with the Company's public offering completed in April 1995,
repayment of a $10.0 million loan extended to United Microelectronics
Corporation ("UMC") and the exercise of stock options.
At September 30, 1996, the Company had $26.9 million in cash and cash
equivalents, a decrease of $53.7 million from March 31, 1996 and working capital
of $77.4 million, a decrease of $28.8 million from March 31, 1996. The Company
believes that these sources of liquidity, together with anticipated equipment
financings, will be sufficient to meet its projected working capital and other
cash requirements for the foreseeable future.
In order to obtain an adequate supply of wafers, especially wafers
manufactured using advanced process technologies, the Company has considered and
will continue to consider various possible transactions, including equity
investments in or loans to foundries in exchange for guaranteed production, the
formation of joint ventures to own and operate foundries, or the usage of "take
or pay" contracts that commit the Company to purchase specified quantities of
wafers over extended periods. Manufacturing arrangements such as these may
require substantial capital investments, which may require the Company to seek
additional debt or equity financing. There can be no assurance that such
additional financing, if required, will be available when needed or, if
available, will be on satisfactory terms. Additionally, the Company has entered
into and will continue to enter into various transactions, including the
licensing of its integrated circuit designs in exchange for royalties, fees or
guarantees of manufacturing capacity.
In July 1995, the Company entered into an agreement with UMC and S3
Incorporated ("S3") to form a separate Taiwanese company, USC, for the purpose
of building and managing an 8-inch semiconductor manufacturing facility in the
Science Based Industrial Park in Hsin Chu City, Taiwan, Republic of China. The
facility commenced volume production utilizing advanced submicron semiconductor
processes in the second quarter of fiscal 1997. Alliance's investment, which is
payable in New Taiwan Dollars ("NTD"), will be up to approximately US$70 million
cash for an equity ownership of up to approximately 19%. Alliance paid
approximately NTD 1 billion (approximately US$36.4 million) in September 1995
and approximately NTD 450 million (approximately US$16.4 million) in July 1996,
and has the option to pay, on or before December 31, 1996, an additional NTD 450
million, plus interest at a rate of 8.5% on such amount from and after July 4,
1996. If the option is exercised, Alliance will have an equity ownership of
approximately 19% and will receive 25% of the manufacturing capacity in this
facility.
In October 1995, the Company entered into an agreement with UMC and other
parties to form a separate Taiwanese company, USI, for the purpose of building
and managing an 8-inch semiconductor manufacturing facility in the Science Based
Industrial Park in Hsin Chu City, Taiwan, Republic of China. The facility is
expected to commence production utilizing advanced submicron semiconductor
manufacturing processes in late 1997, although there can be no assurance that
production will begin on schedule. The contributions of Alliance and other
parties shall be in the form of equity investments, representing an initial
ownership interest of approximately 10% for each US$60 million invested. The
Alliance investment, which is payable in NTD, will be approximately US$60
million cash payable in three installments. The first installment of US$13.9
million was made in January 1996, the second installment of approximately US$30
million is due on or before the start of clean room construction and the final
installment of approximately US$15 million is due on or before fab production
ramp-up. In return for their investment, Alliance and the other parties will
receive a significant portion of the manufacturing capacity in this facility.
In addition, the Company believes that success in its industry requires
substantial capital in order to maintain the flexibility to take advantage of
opportunities as they may arise. Accordingly, the Company may, from time to
time, as market and business conditions warrant, invest in or acquire
complementary businesses, products or
13
<PAGE>
technologies. The Company may seek additional equity or debt financings to fund
such activities or to otherwise take advantage of favorable financing
opportunities. The sale of additional equity or convertible debt securities
could result in additional dilution to the Company's stockholders. There can be
no assurance that such additional financing, if required, can be obtained on
terms acceptable to the Company, if at all.
Part II. Other Information
Item 1. Legal Proceedings
As previously reported, the Company and its president were served in
February 1994 with a complaint filed in the Superior Court of the State of
California in and for the County of Santa Clara by two individuals, James A.
Kennedy and Robert S. Reid, alleging, among other things, that, as a result of
services allegedly rendered to the Company, such individuals each were orally
promised 750,000 shares (pre-split) of Common Stock of the Company (the
equivalent of 1,687,500 shares as a result of the 3-for-2 stock splits effected
in January 1995 and in July 1995, respectively). The Company reported in its
Quarterly Report on Form 10-Q for the fiscal quarter ended June 29, 1996 that
the court, on July 30, 1996, granted in part and denied in part defendants'
motion for summary adjudication. In October 1996, the parties (together with PRO
Associates, Inc., a California corporation ("PRO")) executed a Settlement
Agreement and Release (the "Settlement Agreement"). Pursuant to the Settlement
Agreement, the Company issued 75,862 shares of Common Stock of the Company to
each of Messrs. Reid and Kennedy under the exemption provided by Section
3(a)(10) of the Securities Act, and plaintiffs dismissed the Complaint. The
Settlement Agreement contains releases by plaintiffs and by PRO of defendants,
and by defendants of plaintiffs and of PRO, of all claims, known or unknown,
including but not limited to all claims related to any fact or allegation
contained in the Complaint. The aggregate dollar value of the shares issued
pursuant to the Settlement Agreement did not exceed the reserve that had been
historically recorded for this matter.
Item 4. Submission of Matters to a Vote of Security Holders
On September 19, 1996, at the annual meeting of the stockholders of the
Company, the stockholders voted to: (1) elect as directors, until the 1997
annual meeting of the stockholders or until their respective successors are
elected and qualified, N. Damodar Reddy (32,575,782 votes in favor and 330,843
votes withheld), C.N. Reddy (32,575,782 votes in favor and 330,843 votes
withheld), Sanford L. Kane (32,575,782 votes in favor and 330,843 votes
withheld) and Jon B. Minnis (32,575,782 votes in favor and 330,843 votes
withheld); (2) approve the adoption of the Company's 1996 Employee Stock
Purchase Plan ("ESPP") and the reservation for issuance thereunder of an
aggregate of 750,000 shares of the Company's Common Stock (28,750,266 votes in
favor, 4,012,324 votes against, 92,285 votes abstained and 51,750 broker
non-votes); and (3) ratify and approve the appointment of Price Waterhouse LLP
as the Company's independent accountants for the current fiscal year (32,803,667
votes in favor, 47,253 votes against and 55,705 votes abstained).
Item 5. Other Information
In September 1996, Ronald K. Shelton resigned as Vice President - Finance
and Administration, and Chief Financial Officer, and N. Damodar Reddy was
appointed Chief Financial Officer pending the hiring of a successor for that
office.
14
<PAGE>
<TABLE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
<CAPTION>
Number Title Filing Status
------ ----- -------------
<S> <C> <C>
3.01 Company's Certificate of Incorporation (A)
3.02 Company's Bylaws (A)
3.03 Company's Certificate of Elimination of Series A Preferred Stock (A)
3.04 Company's Certificate of Amendment of Certificate of (B)
Incorporation
4.01 Specimen of Common Stock Certificate of Company (A)
10.34 1996 Employee Stock Purchase Plan (C)
10.35 Stock Purchase Agreement dated as of June 30, 1996 by and
among the Company, S3 Incorporated ("S3"), United
Microelectronics Corporation ("UMC") and United Semiconductor
Corporation
("USC")
10.36* Amendment to FabCo Foundry Capacity Agreement dated as of July
3, 1996 by and among the Company, S3, UMC and USC.
10.37 Side letter dated July 11, 1996 by and among the Company, S3,
UMC and USC.
11.01 Statement re: Computation of Net Income (Loss) Per Share and
Common Equivalent Shares
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
- -----------------------
* Confidential treatment has been requested with respect to certain
portions of this document.
(A) The document referred to is hereby incorporated by reference from the
Company's Registration Statement on Form SB-2 (File No. 33-69956-LA)
declared effective by the Commission on November 30, 1993.
(B) The document referred to is hereby incorporated by reference from the
Company's Quarterly Report on Form 10-Q (File No. 0-22594) filed with the
Commission on November 14, 1995.
(C) The document referred to is hereby incorporated by reference from the
Company's Registration Statement on Form S-8 (File No. 333-13461) filed
with the Commission on October 4, 1996.
</TABLE>
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Alliance Semiconductor Corporation
(Company)
Date: November 12, 1996 /s/ N. D. Reddy
-------------------------
N. Damodar Reddy
President and Principal Executive Officer
Date: November 12, 1996 /s/ N. D. Reddy
-------------------------
N. Damodar Reddy
Chief Financial Officer
(Principal Financial and Accounting Officer)
16
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is made as of June 30, 1996, pursuant to the
Foundry Venture Agreement which was entered into as of July 8, 1995 and the
Amendment to Foundry Venture Agreement and Foundry Capacity Agreement which was
entered into as of October 31, 1995, and the letter agreement dated June 26,
1996, all by and among the Venturers defined therein and described herebelow, by
and between the Venturers, referring to Alliance Semiconductor Corporation, a
Delaware corporation ("Alliance"), S3 Incorporated, a Delaware corporation
("S3"), and United Microelectronics Corporation, a corporation organized under
the laws of the Republic of China ("UMC"), and United Semiconductor Corporation
("USC"), the corporation contemplated under and referred to as FabCo in the said
Foundry Venture Agreement.
Venturers and USC agree:
1. PURCHASE AND SALE OF STOCK
1.1 Venturers hereby agree to purchase from USC and USC hereby agrees to
issue and sell to Venturers its stocks at par value New Taiwan Dollars Ten (NT$
10) each share. All stocks issued and sold by USC pursuant to this Stock
Purchase Agreement shall be common stocks.
<TABLE>
1.2 Pursuant to the Foundry Venture Agreement, the total number of common
stock USC issues and sells under the laws of the Republic of China is One
Billion (1,000,000,000) shares. Each Venturer shall purchase the number of
shares according to the following table (assuming full exercise of the option to
purchase under Paragraph 5. 1 (b)):
<CAPTION>
$ investment represented
Share % paid in cash by standard shares
("Standard Shares") (NTD Billions) Technical share %
------------------- -------------- -----------------
<S> <C> <C> <C>
Alliance 18.99% $1.9 B 0%
S3 23.75% $2.4 B 0%
UMC & UMC Affiliates* 39.76% $3.95B 15%
USC & UMC employees** 2.5%** $0.25B 0%
Total shareholding 85% $8.5 B 15%
<FN>
* For purposes of this Stock Purchase Agreement, "UMC Affiliates" shall mean
those entities: (i) nominated by UMC and approved by the Venturers in writing,
(ii) which UMC directly and/or indirectly controls, and/or (iii) in which UMC
directly or indirectly owns a majority interest; provided that no UMC Affiliate
which is a competitor of S3 and/or Alliance may hold shares in USC pursuant to
rights granted to UMC Affiliates under this Stock Purchase Agreement without the
prior written consent of the Venturer involved. In addition, UMC may transfer up
to 5% of USC's standard shares to UMC employees and/or to employees of USC for
purposes of providing additional incentives in connection with USC business
without necessity for any prior written consent from USC or from any Venturer.
* * UMC employees who intend to become (and who later become) regular employees
of USC will be among the USC shareholders pursuant to this table. The UMC
employees and the eligible USC employees shall be required to pay in cash upon
issuance the value shown in this table for their standard shares.
</FN>
</TABLE>
17
<PAGE>
<TABLE>
1.3 The Venturers shall pay in cash for their standard shares in two equal
funding installments, and each Venturer represents to the other Venturers that
the amount indicated in the column titled "First Installment" has been paid and
USC acknowledges receipt of such amounts:
<CAPTION>
First Installment Second Installment -due in full
(paid as shown) on or before July 4, 1996
(NTD billions) (NTD billions)
-------------- --------------
<S> <C> <C>
Alliance $1 B $0.45B
S3 $1 B $0.7 B
UMC & UMC Affiliates $2.25B $2.85B
USC employees & UMC employees $0 B $0.25B
Total payment for standard shares $4.25B $4.25B
</TABLE>
1.4 Within fifteen days of receiving a signature version of such a voting
agreement, S3 will execute a voting agreement concerning 5% ownership of USC in
the form as signed by China Trust Group and the other Taiwan institutions
approved by S3 and Alliance for participation in USC.
1.5 The technical shares shall be issued in accordance with the Foundry
Venture Agreement.
2. REPRESENTATIONS OF USC
2.1 USC represents and warrants, which representations and warranties shall
survive the purchase date, that:
(i) USC has been duly formed and is in existence and has operated in
conformity with all laws and regulations applicable to its operation;
(ii) The issuance of the shares of common stock contemplated herein is
in conformance with all laws and regulations applicable to the issuance of the
shares;
(iii) Attached hereto is the true copy of USC's Articles of
Incorporation; and
(iv) USC has duly authorized the sale and issuance of the shares to
the Venturers.
18
<PAGE>
3. BOARD OF DIRECTORS AND SUPERVISORS
3.1 USC will have at least seven (7) directors on its board of directors,
of which at least five (5) directors shall be designated by UMC and/or UMC
Affiliates, and each of Alliance and S3 shall designate one (1) director.
3.2 USC will have at least two (2) supervisors, of which at least one (1)
supervisor shall be designated by Alliance and S3.
3.3 Notwithstanding anything to the contrary, (i) all such directors
and/or supervisors shall be subject to the requirements of applicable law, and
(ii) the rights to designate directors and/or supervisors will expire if (for
reasons other than a failure of conditions precedent to such payment) the
Venturer fails to make timely payment of its second installment of the funding
outlined in Paragraph 1.3 above.
3.4 The following decisions shall be made only by resolutions of the board
of directors requiring an attendance of all the directors and an unanimous vote
of all of the directors, and are not within the authority of the chairman. These
decisions are as follows:
(i) All actions directly deciding strategic technical issues
(including without limitation, the type of process technology, such as that used
in the manufacture of logic, SRAM, DRAM, EPROM, EEPROM, and/or FLASH) to be
developed, implemented and/or offered by USC;
(ii) All actions directly making material changes to the technology
road map as approved by the board and/or authorizing liquidation, merger, sale
of all or substantially all of USC or USC's assets, and/or the offer of any
equity (except pursuant to a public offering of USC's shares on a recognized
securities exchange); and
3.5 The Venturers each commit to vote their shares in a manner so as to
implement this Paragraph 3.
3.6 This Paragraph 3 shall expire and have no further effect upon the
successful completion of a public offering of USC's shares on a recognized
securities exchange.
3.7 The Venturers and USC have held a shareholders' meeting and thereby
amended the articles of incorporation of USC to reflect the provisions of this
Paragraph 3.
4. DELIVERY OF FINANCIAL STATEMENTS; AUDIT RIGHTS
4.1 USC shall deliver to each Venturer:
(i) as soon as practicable, but in any event within 60 days after the
end of each fiscal year of USC, (A) a statement of operations and statement of
cash flows of USC for such year, and a balance sheet of USC as of the end of
such year, such year-end financial reports to be in reasonable detail, prepared
in accordance with generally accepted accounting principles ("GAAP") of the
Republic of China ("ROC"), accompanied by a reconciliation of such financial
statements to United States ("US") GAAP, and audited and certified by
independent public accountants of internationally recognized standing selected
by USC, and (B) a management discussion and analysis, certified by the President
or Chief Financial Officer of USC, explaining material variations in such
financial statements from USC's business plan;
(ii) within 15 days after the end of each Venturer's fiscal year
(March 31 for Alliance, December 31 for S3), an unaudited statement of
operations and balance sheet for and as of USC's most recent fiscal year (or
interim period thereof), together with such other financial information as shall
be reasonably requested by such Venturer in connection with the preparation of
such Venturer's annual earnings release, including a statement of USC's
independent public accounting firm indicating that on the basis of a review of
such financial statements nothing
19
<PAGE>
has come to the attention of such accountants that such financial statements
have not been prepared in accordance with ROC GAAP on a basis substantially
consistent with USC's audited financial statements or that any material
modifications should be made to the unaudited statement of operations for them
to be stated on a basis substantially consistent with USC's audited financial
statements;
(iii) within 30 days after the end of each fiscal quarter, an
unaudited statement of operations, statement of cash flows and balance sheet for
and as of the end of such quarter, in reasonable detail; such quarterly
statements shall also contain the foregoing information on a year-to-date basis,
be prepared in accordance with ROC GAAP, and include a reconciliation of such
financial statement to US GAAP;
(iv) within 10 days after the end of each fiscal quarter, an unaudited
statement of operations and balance sheet for and as of the end of such quarter,
in reasonable detail, together with such other financial information, as shall
be reasonably requested by such Venturer in connection with the preparation of
such Venturer's quarterly earnings release, such quarterly statements shall also
contain the foregoing information on a year-to-date basis, be prepared in
accordance with ROC GAAP, and include a reconciliation of such financial
statements to US GAAP;
(v) within 30 days after the end of each month, an unaudited statement
of operations, statement of cash flows and balance sheet for and as of the end
of such month, in reasonable detail, such monthly statements shall also contain
the foregoing information on a year-to-date basis, shall also compare actual
performance to budget, and be prepared in accordance with ROC GAAP;
(vi) within 60 days prior to the close of each fiscal year, a
comprehensive operating budget for the next fiscal year forecast USC's revenues,
expenses and cash position, prepared on a monthly basis, including balance
sheets and sources and applications of funds statements for such months and, as
soon as prepared, any other budgets or revised budgets prepared by USC; and
(vii) such other financial information relating to USC as such
Venturer may from time to time reasonably request, provided, however, that USC
shall not be obligated to provide information pursuant to this Paragraph 4. 1
(vii) which it deems in good faith to be proprietary.
4.2 With respect to the financial statements called for in subsections
(ii), (iii), (iv) and (v) of Paragraph 4.1, an instrument executed by the
President or Chief Financial Officer of USC and certifying that such financial
statements were prepared in accordance with internally consistent accounting
methods consistently applied with prior practice for earlier periods and fairly
present the financial condition of USC and its results of operation for the
period specified, subject to year-end audit adjustment.
4.3 Upon the written request of a Venturer, USC shall permit such
Venturer's independent certified public accounting firm, at such Venturer's
expense, to have access during normal business hours of USC to such of the
records of USC and of USC's independent public accounting firm as may be
reasonably necessary to audit USC's financial statements and records in
connection with the preparation of such Venturer's audited financial statements.
5. SHARE TRANSFER
5.1 Notwithstanding anything to the contrary,
(a) the shares of UMC and UMC Affiliates shall be transferable amongst UMC
and UMC Affiliates without the necessity of USC's, Alliance's and/or S3's prior
written consent.
(b) Notwithstanding anything to the contrary, and without any need for any
further consents from any Venturer or from USC, under the terms stated in this
Paragraph 5. I (b), S3 will have the option to purchase from
20
<PAGE>
UMC up to 70 Million standard shares of USC, and Alliance will have the option
to purchase from UMC up to 45 Million standard shares of USC as follows:
(i) The purchase price under these options will be at NTD 10 per
share, plus interest on the total purchase amount. This interest will be
calculated at a cumulative rate of 8.5%, with interest accruing as of July 4,
1996.
(ii) Each of S3 and Alliance may exercise these options with at least
fifteen days advance written notice to the other Venturers given prior to the
end of calendar year 1996, but all unexercised options will expire if not fully
exercised (including full payment to UMC for the shares involved) on or before
midnight December 31, 1996 (Taiwan, R.O.C. time).
(iii) Subject to the terms of this Agreement, each of Alliance and S3
can exercise its respective options all at once, or in installments, and thus,
with at least fifteen days advance written notice to the other Venturers can
select its closing dates (so long as they occur on or before the end of December
31, 1996) at times it finds convenient.
5.2 Except as allowed under Paragraph 5.1, until USC completes a successful
offering of shares on a recognized securities exchange, the shares of the
Venturers (and of UMC Affiliates holding such shares) in USC will not be
transferable in any manner whatsoever except with the written consent of the
Venturers, provided however that any Venturer may transfer its entire right,
title and interest in USC (including its proportionate right of first refusal
for foundry capacity, the "Foundry Rights") and other rights under the Foundry
Venture Agreement and/or Venture Agreements (as defined in the Foundry Venture
Agreement):
(i) once but only to the extent and only as part of a transfer of all
or substantially all of the assets, business and/or ownership of that Venturer
to a transferee subject, with respect to the Foundry Rights, to the terms of
Paragraph 5.2 (iv) below;
(ii) as provided in Paragraphs 6.3 and/or 6.4 of the said Foundry
Venture Agreement, and/or
(iii) once to or between itself and any of its subsidiaries in which,
at the time of such transfer, the transferring Venturer owns at least 50%.
Notwithstanding anything to the contrary:
(iv)the Foundry Rights when and if transferred pursuant to Paragraph
5.2 (i) above shall only be exercisable with respect to the manufacture of
products which the transferring Venturer at the time of such transfer was
selling, was designing (as reflected in contemporaneous documents) or was
contemplating designing and selling (as demonstrated in its then written
business plan(s)), and all future versions and logical extensions of such types
of products (including without limitation, more highly integrated versions
thereof).
(v) if (a) prior to the completion of a public offering of USC
securities on a recognized securities exchange, any Venturer (or UMC Affiliate
holding such shares) wishes and/or attempts to transfer its shares in USC (other
than as allowed by Paragraphs 5.1, 5.2 (i), 5.2 (ii) and/or 5.2 (iii)) pursuant
to any Court or other order or law, or as a result of any nonconsensual action
by any authority with jurisdiction, and/or (b) a Venturer's rights are properly
terminated pursuant to Section 6.1 of the Foundry Venture Agreement, the shares
involved will be subject to a right of first refusal as follows:
(aa) the other Venturers (the "eligible other Venturers") will
have the right to purchase the shares involved at their then fair market value
as determined by a mutually agreeable independent appraiser;
21
<PAGE>
(bb) each such eligible other Venturer will have the right to
purchase such shares on a pro rata basis as determined by the ratio of their
respective shareholding percentages (which, absent any previously permitted
transfers, would be as shown in the table in Paragraph 1.2 above);
(cc) if any such eligible other Venturer elects not to exercise
any portion or all of such right of first refusal within 30 days of the
independent appraisal, such portion of such right of first refusal will be
subject to exercise by the other eligible other Venturer, and the shares
involved will be subject to a right of such other eligible other Venturer to
purchase on the same terms as outlined above; and
(dd) if the other eligible other Venturer does not commit to
purchase such shares within 60 days of the independent appraisal, all rights
under this Paragraph 5.2 (v) will expire as to such unpurchased shares.
5.3 Subject to the requirements of and to the extent permissible under
R.O.C. law, to the extent that USC wishes to offer any (equity beyond the NT$8.5
Billion referred to in Paragraph 1.2 (a) above, each Venturer shall have the
right of first refusal to participate in such offering in proportion to its then
current respective shareholding.
6. MISCELLANEOUS
6.1 Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the Republic of China.
6.2 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.3 Paragraphs 7, 8, 9.1, 9.2, 9.3, 9.4, 9.5, 9.7, 9.8, 9.10, 9.11, 9.13,
and 9.14 of the Foundry Venture Agreement are incorporated by reference as if
set forth fully herein, in each case with this Stock Purchase Agreement deemed
to be one of the Venture Agreement.
22
<PAGE>
IN WITNESS WHEREOF, the Venturers and USC have caused this Stock Purchase
Agreement to be signed below by their respective duly authorized officers.
Alliance Semiconductor Corporation
/s/ N. D. Reddy
- -----------------------------
N. D. Reddy, President
S3 Incorporated
/s/ Terry Holdt
- -----------------------------
Terry Holdt, President
United Microelectronics Corporation
/s/ John Hsuan
- -----------------------------
John Hsuan, President
United Semiconductor Corporation
/s/ Ing Dar Liu
- -----------------------------
Ing Dar Liu, President
23
Confidential Treatment Requested
AMENDMENT TO FABCO FOUNDRY CAPACITY AGREEMENT
This Amendment to Foundry Capacity Agreement ("Amendment II") is entered
into as of July 3, 1996 (the "Effective Date") by and amongst United
Semiconductor Corporation, a Taiwan corporation having its principal place of
business at No. 3 Li-Hsin Road, Science-Based Industrial Park, Hsin Chu City,
Taiwan, R.O.C. ("USC"), United Microelectronics Corporation, a Taiwan
corporation having its principal place of business at No. 13, Innovation Road 1,
Science-Based Industrial Park, Hsin Chu City, Taiwan, R.O.C. ("UMC"), S3
Incorporated, a Delaware corporation having a place of business at 2770 San
Tomas Expressway, Santa Clara, California, 95052, U.S.A. ("S3") and Alliance
Semiconductor Corporation, a Delaware corporation having a place of business at
3099 North First Street, San Jose, California, 95134, U.S.A. ("Alliance").
By this Amendment II, S3, Alliance, UMC and USC agree to amend the
minimum investment percentages that S3 and/or Alliance must maintain to retain
its respective rights to first refusal for FabCo Production Capacity pursuant to
the Foundry Capacity Agreement. Except as expressly amended below, the terms of
the Foundry Capacity Agreement remain in full force and effect.
1. Definitions.
1.1 "Foundry Capacity Agreement" means the agreement having such title
as entered into by and between UMC, S3 and Alliance in connection with the
business of FabCo, dated July 8, 1995 as amended by the parties as of October
31, 1995.
1.2 "FabCo" is the name which was given to the entity now known as USC
under the Foundry Capacity Agreement.
1.3 All definitions of the Foundry Capacity Agreement are hereby
incorporated by reference.
2. Amendment.
2.1 Alliance, S3, UMC (the "Venturers") and USC agree to amend the
Foundry Capacity Agreement to modify the minimum investment percentages that S3
and/or Alliance must maintain to retain its respective rights to first refusal
for FabCo Production Capacity pursuant to the Foundry Capacity Agreement.
2.2 Accordingly, Paragraph 2.1 of the Foundry Capacity Agreement is
amended to state as follows:
"2.1 Subject to the terms of this Foundry Capacity Agreement, and upon payment
of the Second Installment under Paragraph 1.3 of the Stock Purchase Agreement,
and, in the case of S3, for so long as S3 holds a minimum [CONFIDENTIAL MATERIAL
DELETED*] ownership of FabCo, and in the case of Alliance, for so long as
Alliance holds a minimum of [CONFIDENTIAL MATERIAL DELETED*] ownership of FabCo,
such Venturer will have the right of first refusal for FabCo Production Capacity
in an amount up to the maximum respective percentages shown in the table below
(each a "Production Capacity Percentage"):
Venturer Production Capacity Percentage
-------- ------------------------------
Alliance 25%
S3 31.25%
- ------------------
*Confidential treatment requested for deleted material. All such deleted
material has been filed separately with the Commission pursuant to Rule 24b-2
promulgated under the Exchange Act.
24
<PAGE>
Provided, however, that during any period when S3's total FabCo shareholding
falls below [CONFIDENTIAL MATERIAL DELETED*] of the total outstanding FabCo
Shares and/or Alliance's total FabCo shareholding falls below [CONFIDENTIAL
MATERIAL DELETED*] of the total outstanding FabCo Shares, such Venturer's
Production Capacity Percentage shall instead be equal to [CONFIDENTIAL MATERIAL
DELETED*] multiplied by the percentage of the then total outstanding shares of
FabCo then held by such Venturer."
ACCORDINGLY, each party to this Amendment II represents and warrants
that the representatives signing on their respective behalf is authorized to
enter into this Amendment II and to bind that party to its terms.
ALLIANCE SEMICONDUCTOR S3 INCORPORATED
CORPORATION
/s/ N. D. Reddy /s/ Terry Holdt
- --------------- ---------------
UNITED MICROELECTRONICS UNITED SEMICONDUCTOR
CORPORATION CORPORATION (formerly, "FabCo")
/s/ John Hsuan /s/ Ing Dar Liu
- -------------- ---------------
* Confidential treatment requested for deleted material. All such deleted
material has been filed separately with the Commission pursuant to Rule 24b-2
promulgated under the Exchange Act.
25
July 11, 1996
To the Venturers and USC:
This letter agreement clarifies the Stock Purchase Agreement ("SPA") among us
dated July 11, 1996 as follows:
- The purchase price per share under the SPA is New Taiwan
Dollars Ten (NT$10) per share, as stated in Paragraph 1.1.
- The option exercise price under Paragraph 5.1(b) is NT$10 per
share plus interest, as set forth in that Paragraph.
- The "Share %" column in the table in Paragraph 1.2 reflects
the correct share ownership of each party, assuming full
exercise by both S3 and Alliance of their options to purchase
under Paragraph 5.1(b).
- The amount to be paid by a party for its shares is the number
of shares purchased times the applicable purchase price per
share (NT$10 for new purchases and NT$10 plus interest for
option exercises).
- Discrepancies between the foregoing and the payment amounts in
the tables in Paragraphs 1.2 and 1.3 are the result of using
rounded-off amounts in the tables and are not intended to be
substantive.
CONFIRMED AND AGREED:
Alliance Semiconductor Corporation
/s/ N. D. Reddy
- ---------------
N.D. Reddy, President
S3 Incorporated
/s/ Terry Holdt
- ---------------
Terry Holdt, President
United Microelectronics Corporation
/s/ John Hsuan
- --------------
John Hsuan, President
United Semiconductor Corporation
/s/ Ing Dar Liu
- ---------------
Ing Dar Liu, President
26
<TABLE>
ALLIANCE SEMICONDUCTOR CORPORATION
COMPUTATION OF NET INCOME (LOSS) PER SHARE
AND COMMON EQUIVALENT SHARES
(in thousands, except per share data)
(unaudited)
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income (loss) $ (2,455) $ 20,045 ($12,490) $ 34,963
======== ======== ======== ========
Weighted average number of common shares
outstanding during the period 38,483 37,752 38,450 37,658
Weighted-average common stock equivalents
(calculated using the "treasury stock"
method) representing shares issuable
upon exercise of employee stock options -- 3,774 -- 3,848
-------- -------- -------- --------
Weighted-average common shares and equivalents
38,483 41,526 38,450 41,506
======== ======== ======== ========
Net income (loss) per share ($ 0.06) $ 0.48 ($ 0.32) $ 0.84
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENT FOR THE QUARTR ENDED SEPTEMBER
28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-29-1997
<PERIOD-START> MAR-31-1996
<PERIOD-END> SEP-28-1996
<CASH> 26,897
<SECURITIES> 0
<RECEIVABLES> 6,448
<ALLOWANCES> 0
<INVENTORY> 31,364
<CURRENT-ASSETS> 98,785
<PP&E> 15,589
<DEPRECIATION> 4,066
<TOTAL-ASSETS> 228,434
<CURRENT-LIABILITIES> 21,326
<BONDS> 0
<COMMON> 385
0
0
<OTHER-SE> 206,723
<TOTAL-LIABILITY-AND-EQUITY> 228,434
<SALES> 13,135
<TOTAL-REVENUES> 13,135
<CGS> 11,029
<TOTAL-COSTS> 11,029
<OTHER-EXPENSES> 3,639
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,777)
<INCOME-TAX> (1,322)
<INCOME-CONTINUING> (2,455)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,455)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
