SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
For the fiscal year ended March 29, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from
__________ to __________
Commission file number: 0-22594
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
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 383-4900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment of this Form 10-K. [ ]
The aggregate market value of Registrant's Common Stock held by
non-affiliates of Registrant as of June 20, 1997 was $193,471,512 based on the
closing sale price of such stock on the Nasdaq National Market.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed under Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court.
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Yes X No
--- ---
As of June 20, 1997, there were 39,049,197 shares of Registrant's Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive Proxy Statement for its 1997 Annual
Meeting of Stockholders (the "Proxy Statement") to be filed pursuant to
Regulation 14A of the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended, which is anticipated to be filed within 120
days after the end of Registrant's fiscal year ended March 29, 1997, are
incorporated by reference into Part III hereof.
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When used in this Report, the words "expects," anticipates," "believes,"
"estimates" and similar expressions are intended to identify forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Such forward-looking statements, which include statements concerning the timing
of new product introductions; the functionality and availability of products
under development; trends in the personal computer, networking,
telecommunications and instrumentation markets, in particular as they may affect
demand for or pricing of the Company's products; the percentage of export sales
and sales to strategic customers; the percentage of revenue by product line; and
the availability and cost of products from the Company's suppliers; are subject
to risks and uncertainties, including those set forth in Item 1 of Part I and in
Item 7 of Part II hereof entitled "Factors That May Affect Future Results" and
elsewhere in this Report, that could cause actual results to differ materially
from those projected in the forward-looking statements. 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 statements contained herein to reflect any
change in the Company's expectations with regard thereto or to reflect any
change in events, conditions or circumstances on which any such forward-looking
statement is based, in whole or in part.
PART I
ITEM 1. BUSINESS
Overview
Alliance Semiconductor Corporation was incorporated in California on
February 4, 1985 and reincorporated in Delaware on October 26, 1993. Unless the
context indicates otherwise, the terms "Alliance" and the "Company" refer to
Alliance Semiconductor Corporation, a Delaware corporation, and its
subsidiaries. The Company designs, develops and markets high performance memory
and memory intensive products to the personal computer, networking,
telecommunications and instrumentation industries. Market trends such as the
proliferation of high-end personal computers and workstations and an increased
emphasis on high-throughput applications, including networking, graphics,
multimedia and telecommunications products, have created opportunities for high
performance memory products. The Company addresses this opportunity with its
families of static random access memories (SRAMs) and dynamic random access
memories (DRAMs), with both types of memory products characterized by high
storage capacity (density), fast access times and low power consumption. To
complement its high speed DRAMs, the Company also offers multimedia user
interface (MMUI) accelerator products that combine 2D and 3D graphics and motion
video acceleration capabilities. The Company has also recently developed and
expects limited production of a 4-megabit ("Mbit") flash memory product by
September 1997, and is in the process of developing a line of 5 volt-only and 3
volt-only flash memory products ranging from 1-Mbit to 8-Mbit in both 8-bit and
16-bit architectures.
The semiconductor industry is highly cyclical and has been subject to
significant downturns at various times that have been characterized by
diminished product demand, production overcapacity, and accelerated erosion of
selling prices. During much of fiscal 1997, the market for certain SRAM devices
continued to experience excess supply relative to demand which resulted in a
downward trend in average selling prices. The prices for DRAM products
experienced significant volatility throughout fiscal 1997.
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Although the Company is unable to predict future trends in average selling
prices, historically the semiconductor industry has experienced significant
annual declines in average selling prices.
The average selling price that the Company is able to command for its
products is highly dependent on industry-wide production capacity and demand,
and as a consequence the Company could experience rapid erosion in product
pricing which is not within the control of the Company and which could have an
adverse material effect on the Company's operating results.
Throughout this Report, the Company often has indicated its fiscal years as
ending on March 31, whereas the Company's fiscal year ends on the Saturday
nearest the end of March. The fiscal years ended March 31, 1997, March 31, 1996
and March 31, 1995 each contained 52 weeks.
Industry Background
SRAMs and DRAMs are the most commonly-used memory circuits for the storage
and retrieval of data during a computer system's operation. SRAMs are roughly
four times as complex as DRAMs (four transistors per bit of memory compared to
one transistor) but also are generally four times as fast. SRAMs are also
substantially more expensive than DRAMs per unit of storage. Computer
architectures have evolved to make efficient use of both SRAMs and DRAMs, taking
into account their cost and performance characteristics. DRAMs are used in a
computer's main memory to temporarily store the large amounts of data retrieved
from low cost external mass memory, such as hard disk drives. SRAMs are
principally used as caches and buffers between the computer's microprocessor and
its DRAM-based main memory.
Traditionally, the markets for SRAMs and DRAMs have been dominated by large
manufacturing companies, such as Toshiba, NEC, Hitachi, Texas Instruments and
Samsung. The majority of the memory products from these manufacturers has
consisted of commodity products, which have relatively predictable, multi-year
product life cycles and thus require more focus on process technology and
production cost and less on design. Recently, however, certain technology trends
have dramatically increased the performance requirements for SRAMs and DRAMs,
creating new design challenges and market opportunities for emerging
semiconductor companies.
The proliferation of more powerful personal computers and workstations in
recent years and the increasing emphasis on high-throughput networking,
graphics, multimedia and telecommunications products have created mass market
opportunities for high speed SRAMs and high speed DRAMs. Microprocessors have
been doubling in throughput performance approximately every 18 to 24 months. As
microprocessors run at higher clock speeds and levels of performance, they
require data to be fed more rapidly from the main memory in order to function
optimally. The speed of DRAM-based main memories has not kept pace with
microprocessor clock speeds, thus causing a substantial speed mismatch between
the data rate required by microprocessors and that which main memory subsystems
can support. The disparity between microprocessor clock rates and main memory
subsystem performance has been exacerbated by the introduction of higher
throughput microprocessors, such as the Intel Pentium and Pentium Pro
microprocessors. Fast SRAMs, those with access speeds of 20 nanoseconds ("ns")
or less, are utilized to "cache" the most frequently used portions of main
memory contents, increasing the speed with which data can be fed to
microprocessors.
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The fast SRAM market has experienced rapid growth due to the advent of more
powerful microprocessors. Fast SRAMs, which were used as cache memory in
approximately 25% of the systems based on the Intel 386 microprocessor and in
more than 80% of the systems based on the Intel 486 microprocessor, are now used
in virtually all of the systems based on the Intel Pentium and Pentium Pro
families of microprocessor architectures. Recent trends in the PC industry
toward lower voltage microprocessors, such as the Intel P54C (3.3 volt Pentium),
created a substantial need for 3.3 volt products. The Company believes that
opportunities may develop for synchronous burst SRAMs that provide even higher
cache memory access speeds to keep pace with increasing microprocessor
performance. In addition, peripheral networking and telecommunications products
require fast SRAMs to cache data to match the speed of the system controller
with the speeds of its peripherals.
The emergence of graphical user interface ("GUI") environments (such as
Microsoft(R) Windows(TM)) and multimedia applications for personal computers has
placed an additional burden on microprocessors to manipulate windows, icons,
video and other complex graphical objects. This burden on microprocessors and
the resulting decrease in the speed with which software applications are
executed have created a need for a companion processor (a "GUI accelerator")
that off-loads from the main processor the management of GUI tasks. GUI
acceleration has become a fundamental requirement for high performance personal
computers. The emergence of multimedia applications has driven the need for
higher performance multimedia user interface accelerators that can provide
acceleration of 2D/3D graphics and video. Both GUI and MMUI (multi-media user
interface) accelerations require fast DRAMs (with access speeds of 50ns or less
for a 4-Mbit DRAM); higher performance, more expensive VRAMs (video random
access memories) or SGRAMS (synchronous graphic random access memories) to store
screen content that is used frequently to refresh the display.
Technology
The Company has focused on using innovative design techniques to develop
high performance SRAMs and DRAMs that can be manufactured using a simple CMOS
manufacturing process. The Company combines both SRAM and DRAM design approaches
in creating its products, and believes that merging these techniques enables it
to design SRAMs that feature some of the density attributes of DRAMs and to
design DRAMs that feature some of the speed attributes of SRAMs. Since its
inception in 1985, the Company has accumulated substantial experience in
designing SRAM and DRAM products.
The Company believes that the die sizes (the physical sizes of its
complete, unpackaged, memory circuits) of many of its products are smaller than
those of competing products, providing the Company with a key competitive
advantage. Because yields increase significantly as die size decreases, the
Company believes that its small die sizes have been a major contributor to its
generally high manufacturing yields. Small die sizes also generally result in
additional benefits, such as lower die cost, increased speed, greater
reliability and lower power consumption.
In addition to having small die sizes, many of the Company's products are
designed to be manufactured using a CMOS process with fewer steps than required
for competitive memory products. The Company's competitors typically require a
greater number of mask steps and/or more complex manufacturing processes to
achieve similar performance of such products. Because yields typically decline
as manufacturing complexity and the number of process steps increase, the
simpler manufacturing process utilized by the Company has contributed to its
generally high manufacturing yields. The
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Company also believes that a simpler manufacturing process leads to faster time
to market and shorter manufacturing cycle times.
The Company's development strategy is to leverage its proprietary design
modules, which have been created using its design philosophies. These modules,
which are scaleable in size, can be used by the Company as building blocks for
new products, resulting in shorter design cycles. The Company believes that this
design strategy also enables it to maximize the performance, yield and cost
advantages of its basic designs and sustain them over time in successive
generations of higher performance and higher density products. The Company
believes that its SRAM and DRAM design approach may also be used for
non-volatile memories such as flash.
Products
High Speed CMOS SRAMs
Sales of the Company's SRAM products accounted for substantially all of the
Company's net revenues from April 1, 1992 through the early part of fiscal 1997.
During fiscal 1997, SRAM products, including cache memory modules, contributed
approximately 41% to the Company's net revenues. The Company currently offers
SRAM products in several different packages and speed grades ranging from
64-Kbit densities with 8ns access times to 4-Mbit densities with 15ns access
times. The Company expects limited production of 16-Mbit densities to begin in
1998. Currently, substantially all of the Company's volume SRAM products are
manufactured using 0.4 micron technology, with a transition to 0.35 micron
technology underway.
SRAM Cache Memory Modules
The Company currently sells SRAM cache memory modules to customers in the
personal computer, networking and telecommunications industries. Cache memory
modules are complete cache memory subsystems consisting of SRAMs and logic
components that allow users to install or increase the cache memory of systems
by plugging a module directly into a single socket on the system board. The
majority of the demand for cache memory modules is driven by large computer
companies worldwide.
High Speed CMOS DRAMs
During early fiscal 1997, the Company commenced volume production, in a 0.5
micron geometry, of 4-Mbit DRAMs in a 1-Mbitx4 configuration with access time as
fast as 60ns. Subsequently, the Company introduced to production its 4-Mbit
DRAMs in a 256Kbitx16 configuration which is targeted at the graphics and
multimedia accelerator market and 16-Mbit DRAMs in a 1-Mbitx16 configuration,
which is targeted at main memory applications.. Sales of the Company's family of
DRAM products experienced significant growth during the fiscal year,
contributing approximately 47% of the fiscal year's net revenues.
MMUI Accelerators
During fiscal 1997, the Company introduced the Promotion(R)-AT3D 128-bit
MMUI accelerator to its family of graphics and video accelerators. This product
features high performance 2D graphics acceleration with enhanced motion video
scaling quality and Alliance's unique hardware gamma
<PAGE>
correction and chroma correction. It also adds a Direct 3D(R)-optimized, 3D
rendering engine to accelerate 3D rendered animation. Sales of MMUI accelerator
products accounted for approximately 11% of the Company's net revenues during
fiscal 1997.
High Speed CMOS Flash Memories
During fiscal 1997, the Company produced commercial quantities of a 2-Mbit
flash product and expects limited production of a 4-Mbit flash product by
September 1997. The Company's flash products use a single power supply and
require only 5.0 volts for read and programming functions. The Company is also
in the process of developing an 8-Mbit product it expects to introduce by
September 1997. To date, the Company has not derived significant revenue from
flash products.
<PAGE>
Product Development
Timely development and introduction of new products are essential to
maintaining the Company's competitive position. The Company currently develops
all of its products in-house and had on staff 74 development personnel as of
March 29, 1997. The Company uses a workstation-based computer-aided-design
environment to design and prototype new products. The Company's design process
uses network computing, high-level design methodologies, simulators, circuit
synthesizers and other related tools. During fiscal 1997, fiscal 1996 and fiscal
1995, the Company spent approximately $15.0 million, $14.7 million and $8.4
million, respectively, on product development activities. The Company plans to
continue to invest substantial amounts in development to design additional SRAM,
DRAM, graphics and flash memory products.
The markets for the Company's products are characterized by rapid
technological change, evolving industry standards and product obsolescence. The
Company's future success will be highly dependent upon the timely completion and
introduction of new products at competitive performance levels. The success of
new products depends on a variety of factors, including product selection,
successful and timely completion of product development, the Company's ability
to secure sufficient foundry capacity for volume manufacturing of wafers,
achievement of acceptable wafer fabrication yields (the proportion of good die
on a silicon wafer) by the Company's independent foundries and the Company's
ability to offer products at competitive prices. There can be no assurance that
the Company will be able to identify new product opportunities successfully and
develop and bring to market such new products or that the Company will be able
to respond effectively to new technological changes or new product announcements
by others. There also can be no assurance that the Company can secure adequate
foundry capacity for the production of such products, or obtain acceptable
manufacturing yields necessary to enable the Company to offer products at
competitive prices. Such inabilities could materially and adversely affect the
Company's operating results.
The Company has recently introduced and continues to develop products with
which the Company has only limited experience, such as high performance DRAMs,
MMUI accelerators and flash memory products. Certain of these new products will
be targeted at market segments in which the Company has not previously
participated. There can be no assurance that such products will be completed and
introduced in a timely and cost-effective manner or that such products, if
introduced, will gain market acceptance. Should the Company experience delays,
difficulty in procuring adequate foundry capacity for the manufacture of such
products or other difficulties in achieving volume production of these products,
the Company's operating results could be materially and adversely affected. The
markets for SRAMs, DRAMs, MMUI accelerators and flash memory products are
volatile and subject to rapid technological and price change. Any inventory of
products for those markets may be subject to obsolescence, which could
materially and adversely affect the Company's operating results. During fiscal
1997, the Company incurred pre-tax charges of approximately $17 million related
to reserves for inventory, primarily as a result of declines in average selling
prices of certain SRAM products.
Customers
The Company's primary customers are major domestic and international
suppliers and manufacturers of personal computers and personal computer system
boards including Acer, Apricot (acquired by Mitsubishi), Dell, Diamond
Multimedia, Hewlett Packard, IBM, Jabil, NEC, SCI
<PAGE>
Manufacturing and Solectron. The market for SRAMs used in personal computers is
characterized by price volatility and has experienced significant fluctuations
and downturns in product demand. Moreover, Intel recently introduced the Pentium
II card containing a microprocessor and cache memory (SRAM) on the card. The
Company has not to date been selected as a supplier of SRAM memory to Intel for
the Pentium II card. There can be no assurance that the Company will be selected
by Intel to supply SRAM memory for the Pentium II card in the future. If Intel
continues to assemble cache memory onto the Pentium II Card or its successors
prior to sale to customers, then failure by the Company to be chosen to supply
SRAM to Intel for the Pentium II card or its successors would likely materially
adversely affect the Company's sales of SRAMs to the personal computer market.
While the Company's strategy is to increase its penetration into the
networking, telecommunications and instrumentation markets with its existing
SRAM products and to develop new products complementary to its existing
products, such as DRAMs, MMUI accelerators and flash memory products, the
Company may not be successful in executing such strategy. A decline in demand in
the personal computer industry or lack of success in developing new markets or
new products could have a material adverse effect on the Company's operating
results.
Because a large percentage of the worldwide supply of personal computers
and personal computer system boards is manufactured by suppliers located in
Asia, a substantial percentage of the Company's net revenues are derived from
Asian companies. During the fiscal years ended March 31, 1997 and 1996, sales to
customers in Asia accounted for approximately 28% and 25% of the Company's net
revenues, respectively.
The Company is also selling SRAMs to networking, telecommunications and
instrumentation customers including 3Com, Motorola and Megahertz (a division of
U.S. Robotics). The Company believes that if its sales penetration into these
markets increases, its customer base will diversify not only by product
application but also geographically. There can be no assurance that such sales
penetration into these markets will in fact increase.
Sales to the Company's customers are typically made pursuant to specific
purchase orders, which may be canceled by the customer without enforceable
penalties. For the fiscal year ended March 31, 1997, no customer accounted for
10% or more of the Company's net revenues. For the fiscal year ended March 31,
1996, one customer accounted for 18% of the Company's net revenues. See Note 1
of Notes to Consolidated Financial Statements.
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Sales and Marketing
The Company markets and distributes its products in North America through a
direct sales organization supported by manufacturers' representatives and
distributors. The Company uses manufacturers' representatives and/or
distributors to make sales in Asia and the rest of the world. One of the
Company's manufacturers' representatives in Taiwan, Asian Specific Technologies
Ltd. ("ASTL"), was a subsidiary of the Company for a portion of fiscal year
1997.
The Company uses manufacturers' representatives and distributors who are
not subject to minimum purchase requirements and who can discontinue marketing
the Company's products at any time. Many of the Company's distributors are
permitted to return to the Company a portion of the products purchased by them.
The loss of one or more manufacturers' representatives or distributors could
have a material adverse effect on the Company's operating results. The Company
believes that its relations with its manufacturers' representatives and
distributors are good.
The Company believes that customer service and technical support are
important competitive factors in selling to major customers. The Company
provides technical support to its customers worldwide. Distributors and
manufacturers' representatives supplement the Company's efforts by providing
additional customer service at a local level. The Company also works closely
with its customers in qualification of its products and providing the needed
quality and reliability data. The Company believes that close contact with its
customers not only improves the customers' level of satisfaction but also
provides important insights into future market directions.
International revenues accounted for 36%, 43% and 55% of net revenues in
fiscal 1997, fiscal 1996 and fiscal 1995, respectively. The majority of the
Company's international revenues in fiscal years 1995 through 1997 were derived
from Asian manufacturers of personal computers and personal computer system
boards, because a large percentage of the worldwide supply of these products has
been and continues to be manufactured by suppliers located in Asia. The Company
expects that international sales will continue to represent a significant
portion of net revenues. In addition, the Company's products are manufactured,
assembled and tested by independent third parties primarily located in Asia, and
the Company has in the past and intends in the future to make investments in
certain foundries in Asia in order to secure production capacity. Due to its
international sales and independent third party manufacturing, assembly and
testing operations, the Company is subject to the risks of conducting business
internationally. These risks include unexpected changes in regulatory
requirements, delay resulting from difficulty in obtaining export licenses of
certain technology, tariffs and other barriers and restrictions, and the burdens
of complying with a variety of foreign laws. The Company is also subject to
general geopolitical risks in connection with its international operations, such
as political and economic instability and changes in diplomatic and trade
relationships. In addition, because the Company's international sales are
denominated in U.S. dollars, fluctuations in the U.S. dollar could increase the
price in local currencies of the Company's products in foreign markets and make
the Company's products relatively more expensive than competitors' products that
are denominated in local currencies. Further, the Company's investments in
foundries are denominated in local currencies. Although the Company to date has
not experienced any material adverse effect on its operations as a result of
such regulatory, geopolitical and other factors, there can be no assurance that
such factors will not adversely impact the Company's operations in the future or
require the Company to modify its current business practices. See Note 1 of
Notes to Consolidated Financial Statements. As set forth in Item 3 - Legal
Proceedings below,
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anti-dumping proceedings have been commenced which could result in the
imposition of an antidumping duty on the Company's imports of SRAMs manufactured
in Taiwan. Imposition of such a duty could materially adversely affect the
Company's ability to sell such products in the United States.
Manufacturing
The Company subcontracts its manufacturing to independent foundries, which
allows the Company to avoid the significant capital investment required for
wafer fabrication facilities. The Company, however, has entered into agreements
providing for the investment of significant sums for the formation of companies
to build and operate manufacturing facilities or to obtain guaranteed capacity,
as described below. As a result, the Company focuses its resources on product
design and development, quality assurance, marketing and sales, and customer
support. The Company designs its products using proprietary circuit modules and
standard fabrication processes in order to operate within the process parameters
of its contract manufacturers.
The Company's major foundries are United Microelectronics Corporation
("UMC") in Taiwan, United Semiconductor Corporation ("USC") in Taiwan, Chartered
Semiconductor Manufacturing Ltd. ("Chartered") in Singapore and Rohm Co., Ltd
("Rohm") in Japan. The Company has entered into foundry production agreements
with all of its major foundries. Although the Company believes it currently has
adequate capacity to address market requirements there can be no assurance that
in the future the Company's current foundries, together with any additional
sources, would be willing or able to satisfy all of the Company's requirements
on a timely basis in the future. The Company has encountered delays in the
qualification process and production ramp-up in the past, and qualification of
or production ramp-up at any additional foundries could take longer than
anticipated. The Company has entered into equity arrangements in order to obtain
an adequate supply of wafers, especially wafers manufactured using advanced
process technologies. The Company will continue to consider various possible
transactions, including but not limited to equity investments in independent
wafer manufacturers in exchange for guaranteed production; the formation with
others of new companies to own and operate foundries; the usage of "take or pay"
contracts that commit the Company to purchase specified quantities of wafers
over extended periods; and the licensing of certain of the Company's designs, in
order to obtain an adequate supply of wafers using advanced process
technologies. There can be no assurance, however, that the Company would be able
to consummate any such transaction in a timely manner, or at all, or on terms
commercially acceptable to the Company.
In February 1995, the Company agreed to purchase shares of Chartered for
approximately US$10 million and entered into a manufacturing agreement under
which Chartered will provide a minimum number of wafers from its new 8-inch
wafer fabrication facility. In April 1995, the Company agreed to purchase
additional shares in Chartered, bringing the total agreed investment in
Chartered to approximately US$51.6 million and Chartered agreed to provide an
increased minimum number of wafers to be provided by Chartered from its new
8-inch wafer fabrication facility. The Company has paid all installments to
Chartered. Chartered is a private company based in Singapore that is controlled
by entities affiliated with the Singapore government. The Company believes its
investment in Chartered approximates fair market value. The Company does not own
a material percentage of the equity of Chartered. Chartered has also received
investments of approximately US$10 million to US$20 million from a number of
United States companies, including Actel Corporation, Brooktree Corporation, LSI
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Logic Corporation and Rockwell International Corporation, in return for
guaranteed minimum numbers of wafers from its 8-inch wafer fabrication facility.
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
Taiwan. The facility is now in full production utilizing advanced submicron
semiconductor manufacturing processes. Alliance's contribution is in the form of
an equity investment, representing an equity ownership of up to approximately
19%. Alliance's investment will be up to approximately US$70 million and will be
paid in cash in up to three installments. The first installment of approximately
50% was made in September 1995, the second installment of approximately 25% was
made in July 1996 and the Company has the option to pay a third installment of
approximately 25% payable in July 1997, plus interest at a rate of 8.5% on such
amount from and after July 4, 1996. If this option is exercised, the Company
will have an equity ownership of approximately 19% and will have the right to
purchase up to approximately 25% of the manufacturing capacity in this facility.
A portion of UMC's equity contribution was paid through the grant by UMC to USC
of royalty-free licenses to certain UMC sub-micron process technologies. To the
extent USC experiences operating income or losses, the Company will recognize
its proportionate share of such income or losses. The Company believes that a
number of manufacturers are expanding or planning to expand their fabrication
capacity over the next several years, which could lead to overcapacity in the
market and resulting decreases in costs of finished wafers. If the wafers
produced by USC cannot be produced at competitive prices, USC could sustain
operating losses. There can be no assurance that such operating losses will not
have a material adverse effect on the Company's consolidated results of
operations.
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 an 8-inch semiconductor manufacturing facility
in Taiwan. The facility is expected to commence production in early 1998. It is
presently contemplated that the manufacturing facility will, over time, require
$1 billion to complete its construction and finance operations, although there
can be no assurances that production will commence on schedule. The
contributions of Alliance and other parties shall be in the form of equity
investments, representing an initial ownership interest of approximately 5% for
each US$30 million invested. The Alliance investment will be approximately US$30
million and will be paid in cash in up to three installments. Alliance had
originally committed to an investment of approximately US$60 million or 10%
ownership interest but recently requested that its level of participation be
reduced by 50%. The first installment of approximately 50% of the revised
investment was made in January 1996, and the Company has the option to pay a
second installment of approximately 25% of the revised investment payable in
December 1997, plus interest at a rate of 8.5% on such amount from and after
July 7, 1997, and the final installment of approximately 25% of the revised
investment is called for on or before fab production ramp-up. UMC, its
affiliates and members of the Taiwanese financial community are expected to
provide, over time, the remainder of the capitalization of the new entity, in
the form of debt and equity. A portion of UMC's equity contribution is expected
to be paid through the grant by UMC to the new entity of royalty-free licenses
to UMC's CMOS 0.35 micron and below process technologies under development to be
used in the manufacturing facility. If the Company exercises its option and
further pays the third installment, the Company will have an equity ownership of
approximately 5% and have the right to purchase up to approximately 6.25% of the
manufacturing capacity in this facility.
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There can be no assurance that the Company's current foundries, together
with any additional sources, will be able or willing to satisfy all of the
Company's requirements on a timely basis. The Company has encountered delays in
qualification and production ramp-up in the past, and the production ramp-up at
any additional foundries could take longer than anticipated. In the event that
the Company's foundries are unable or unwilling to satisfy the Company's
requirements in a timely manner, the Company's operating results could be
materially adversely affected. In addition, UMC, USC and USI all are located in
the Science-Based Industrial Park in Hsin Chu City, Taiwan. The Company
currently expects these three foundries to supply the substantial portion of the
Company's products in fiscal 1998. Disruption of operations at the Company's
foundries for any reason, including work stoppages, fire, earthquakes or other
natural disasters, would cause delays in shipments of the Company's products,
and could have a material adverse effect on the Company's results of operations.
In addition, as a result of the rapid growth of the semiconductor industry based
in the Science-Based Industrial Park, severe constraints have been placed on the
water and electricity supply in that region. Any shortages of water or
electricity could adversely affect the Company's foundries' ability to supply
the Company's products, which could have a material adverse effect on the
Company's results of operations.
The Company is using multiple sources for certain of its products, which
may require the Company's customers to perform separate product qualifications.
The Company has not, however, developed alternate sources of supply for certain
other products, and its newly introduced products are typically produced
initially by a single foundry until alternate sources can be qualified. The
requirement that a customer perform separate product qualifications or a
customer's inability to obtain a sufficient supply of products from the Company
may cause that customer to satisfy its product requirements from the Company's
competitors, which would adversely affect the Company's results of operations.
The Company also purchases products: from UMC under a foundry production
agreement that expires December 1997, which agreement may be terminated by
either party upon six months' notice; from Chartered under a foundry production
agreement that expires August 1999, which agreement may be terminated by either
party upon six months' notice; and from Rohm under a foundry production
agreement that expires August 1998. The Company believes that its relationship
with each of these foundries is good. However, UMC and Rohm manufacture products
in the same facilities used to manufacture the Company's products, which
products UMC and Rohm, respectively, sell in competition with the Company's
products. Moreover, the Company is party to an agreement with UMC pursuant to
which the Company has rights to purchase certain capacity from UMC and its
affiliates and to receive certain payments from UMC, related to certain DRAM
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
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. There can be no assurance that problems affecting
manufacturing yields of the Company's products will not occur in the future.
The Company uses domestic and offshore subcontractors for die assembly and
testing. In the assembly process, the silicon wafers are separated into
individual dies that are then assembled into
<PAGE>
packages and tested in accordance with procedures developed by the Company.
Following assembly, the packaged devices are further tested and inspected
pursuant to the Company's quality assurance program before shipment to
customers. While the timeliness, yield and quality of product deliveries from
the Company's suppliers of assembly and test services have been acceptable to
date, there can be no assurance that problems will not occur in the future. Any
significant disruption in adequate supplies from 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 revenue, and other adverse effects on the
Company's operating results. Most of the Company's wafer foundries, assembly and
testing facilities comply with the requirements of ISO 9000 or U.S. Military
Specification MIL-M-3851.
The Company also is subject to the risks of shortages and increases in the
cost of raw materials used in the manufacture or assembly of the Company's
products. Shortages of raw materials or disruptions in the provision of services
by the Company's assembly or testing houses or other circumstances that would
require the Company to seek alternative sources of supply, assembly or testing
could lead to constraints or delays in timely delivery of the Company's
products. Such constraints or delays may result in the loss of customers,
limitations or reductions in the Company's revenue or other adverse effects on
the Company's operating results. The Company's reliance on outside foundries and
independent assembly and testing houses involves several other risks, including
reduced control over delivery schedules, quality assurance and costs.
Interruptions in supply at the Company's foundries or assembly or testing houses
may cause delays in delivery of the Company's products. The occurrence of any
supply or other problem resulting from the risks described above could have a
material adverse effect on the Company's operating results.
Competition
The semiconductor industry is intensely competitive and is characterized by
price erosion, rapid technological change, product obsolescence and heightened
international competition in many markets. Many of the Company's customers may
be purchasing products from both the Company and the Company's competitors. The
Company's principal competitors include Cirrus Logic, Cypress Semiconductor,
Integrated Device Technology, Micron Technology, Motorola, Samsung, S3, Toshiba
and other Japanese and Taiwanese manufacturers. Certain of the Company's
competitors and potential competitors have substantially greater financial,
technical, marketing, distribution and other resources, broader product lines
and longer-standing relationships with customers than the Company. Due to the
recent downturn in the SRAM and DRAM markets, companies that have broader
product lines and longer-standing customer relationships may be in a stronger
competitive position than the Company. In addition, as the Company enters new
markets, the Company may face additional competition. The Company has recently
entered into the DRAM and flash memory markets. These markets are dominated by
very large companies and subject to intense price competition. The Company's
future success will be highly dependent upon the successful development and
timely introduction of new products that meet the needs of the market at a
competitive price. There can be no assurance that the Company will be able to
develop or market any such products successfully. The Company believes that its
ability to compete successfully depends on a number of factors both within and
outside of its control, including price, product quality, performance, success
in developing new products, adequate foundry capacity and sources of raw
materials, efficiency of production, timing of new product introductions by
competitors, protection of Company products by effective utilization of
intellectual property laws and general market and
<PAGE>
economic conditions. There can be no assurance that the Company will be able to
compete successfully in the future.
Licenses, Patents and Maskwork Protection
The Company seeks to protect its proprietary technology by filing patent
applications in the United States and registering its circuit designs pursuant
to the Semiconductor Chip Protection Act of 1984. The Company holds twenty-seven
United States patents covering certain aspects of its product designs that
expire between 2009 and 2015 and has thirty-three pending United States patent
applications, six of which have been allowed and are expected to be issued as
patents. There can be no assurance that any additional patents will be issued to
the Company or that the Company's patents will provide meaningful protection
from competition or will not be invalidated or challenged in the future.
Copyrights, maskwork protection, trade secrets and confidential technological
know-how are also key elements in the conduct of the Company's business.
As previously reported, in December 1996, Alliance Semiconductor
International Corporation ("ASIC"), a wholly-owned subsidiary of the Company,
was served with a complaint alleging that ASIC has infringed two patents (the
"AMD Patents") owned by Advanced Micro Devices, Inc. ("AMD"), and seeking
injunctive relief and damages. In March 1997, the Company was added as a
defendant. See Item 3 - Legal Proceedings, below. The semiconductor industry is
characterized by frequent claims and litigation regarding patent and other
intellectual property rights. The Company has from time to time received, and
believes that it likely will receive in the future, 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. The ultimate
conclusion with respect to any alleged infringement must be determined by a
court or other administrative agency in the event of litigation, and there can
be no assurance that a court or other administrative agency would determine that
the Company's products do not infringe the patents in question. Patent
litigation is inherently uncertain and the Company cannot predict the result of
any such litigation or the level of damages that could be imposed if it were
determined that certain of the Company's products or processes infringe any of
the patents in question.
There can be no assurance that other third parties will not assert claims
against the Company with respect to existing or future products or that, in the
case of the existing or potential allegations described above or any new
dispute, licenses to disputed third-party technology will be available on
reasonable commercial terms, if at all. In the event of litigation to determine
the validity of any third-party claims (or claims of indemnification resulting
from such third-party claims), including the claims and potential claims
referred to in the preceding paragraph, such litigation, whether or not
determined in favor of the Company, could result in significant expense to the
Company and divert the efforts of the Company's technical and management
personnel from other matters. In the event of an adverse ruling in such
litigation, the Company might be required to cease the manufacture, use and sale
of infringing products, discontinue the use of certain processes, expend
significant resources to develop non-infringing technology or obtain licenses to
the infringing technology. In addition, depending upon the number of infringing
products and the extent of sales of such products, the Company could suffer
significant monetary damages. In the event of a successful claim against the
Company and the Company's failure to develop or license a substitute technology,
the Company's operating results could be materially adversely affected. In
addition, the laws of certain territories in which the Company's products are or
may be
<PAGE>
developed, manufactured or sold, including Asia, Europe or Latin America, may
not protect the Company's products and intellectual property rights to the same
extent as the laws of the United States.
Backlog
Sales of the Company's products are made pursuant to standard purchase
orders. Purchase orders are subject to changes in quantities of products and
delivery schedules in order to reflect changes in the customers' requirements
and to price renegotiations. In addition, orders typically may be canceled at
the discretion of the buyer without penalty. The Company's business, in line
with that of much of the semiconductor industry, is characterized by short lead
time orders and quick delivery schedules. Also, the Company's actual shipments
depend on the manufacturing capacity of the Company's foundries. Finally,
capacity constraints or unexpected manufacturing delays may prevent the Company
from meeting the demand for certain of its products, therefore backlog is not
necessarily indicative of future sales.
Employees
As of March 29, 1997, the Company had 144 full-time employees, consisting
of 74 in research and development, 32 in marketing and sales and 38 in finance,
administration and operations. Of the 74 research and development employees, 24
have advanced degrees. The Company believes that its future success will depend,
in part, on its ability to continue to attract and retain qualified technical
and management personnel, particularly highly-skilled design engineers involved
in new product development, for whom competition is intense. The Company's
employees are not represented by any collective bargaining unit, and the Company
has never experienced a work stoppage. The Company believes that its employee
relations are good.
The Company has recently experienced and may continue to experience growth
in the number of its employees and the scope of its operating and financial
systems, resulting in increased responsibilities for the Company's management.
To manage 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. During fiscal
1997, the Company initiated the conversion of its business information systems
to Oracle(R) and its manufacturing tracking systems to FASTech(R) which will be
further integrated with the Oracle(R) application in a three-way implementation
partnership. The full conversion is scheduled to be completed in early 1998,
however, there can be no assurance that the conversion will not suffer delays or
not experience other problems which may have a materially adverse impact on the
business operations of the Company. Additionally there can be no assurance that
the Company will be able effectively to manage future growth, and the failure to
do so could have a material adverse effect on the Company's operating results.
The Company will depend to a large extent on the continued contributions of
its founders, N. Damodar Reddy, Chairman of the Board, Chief Executive Officer
and President of the Company, and his brother C.N. Reddy, Senior Vice
President-Engineering and Operations of the Company (collectively referred to as
the "Reddys"), as well as other officers and key design personnel, many of whom
would be difficult to replace. During fiscal 1997, a number of officers and
design personnel left Alliance to pursue various other opportunities. The future
success of the Company will depend on its ability to attract and retain
qualified technical and management personnel, particularly highly-skilled design
engineers involved in new product development, for whom competition is intense.
The loss of either of the Reddys or key design personnel could delay product
development cycles or otherwise have a material adverse
<PAGE>
effect on the Company's business. The Company is not insured against the loss of
any of its key employees, nor can the Company assure the successful recruitment
of new and replacement personnel.
ITEM 2. FACILITIES
The Company's executive offices and its principal marketing, sales and
product development operations are located in a 41,400 square foot leased
facility in San Jose, California under a lease which expires in 1999. The
Company also leases office space in Hsin Chu, Taiwan to manage the logistics of
the wafer fabrication, assembly and testing of the Company's products in Taiwan.
Additionally, the Company leases sales offices in Wellesley, Massachusetts;
Plano, Texas; Tapei, Taiwan; and Derby, England.
ITEM 3. LEGAL PROCEEDINGS
As previously reported, in March 1996, a putative class action lawsuit was
filed against the Company and certain of its officers and directors and others
in the United States District Court for the Northern District of California,
alleging violations of Section 10(b) of the Securities Exchange Act of 1934 (the
"Exchange Act") and Rule 10b-5 promulgated thereunder. (The complaint alleged
that the Company, N.D. Reddy and C.N. Reddy also had liability under Section
20(a) of the Exchange Act.) The complaint, brought by an individual who claimed
to have purchased 100 shares of the Company's common stock on November 2, 1995,
was putatively brought on behalf of a class of persons who purchased the
Company's common stock between July 11, 1995 and December 29, 1995. In April
1997, the Court dismissed the complaint, with leave to file an amended
complaint. In June 1997, plaintiff filed an amended complaint against the
Company and certain of its officers and directors alleging violations of
Sections 10(b) and 20(a) of the Exchange Act. The Company intends to continue to
defend vigorously against any claims asserted against it, and believes it has
meritorious defenses against the asserted claims. Due to the inherent
uncertainty of litigation, the Company is not able to reasonably estimate the
potential losses, if any, that may be incurred in relation to this litigation.
As previously reported, in December 1996, ASIC was served with a complaint
alleging that ASIC has infringed AMD Patents owned by AMD, and seeking
injunctive relief and damages. In March 1997, the Company was added as a
defendant. Each defendant has denied the allegations of the complaint and
asserted a counterclaim for declaration that each of the AMD Patents is invalid
and not infringed by such defendant. The Company believes that the resolution of
this matter will not have a material adverse effect on the financial condition
of the Company.
In February 1997, Micron Technology, Inc. filed an anti-dumping petition
(the "Petition") with the United States International Trade Commission ("ITC")
(Investigation Nos. 731-TA-761-762) and United States Department of Commerce
("DOC") (Investigations No. A-583-827), alleging that static random access
memories ("SRAMs") produced in Korea and Taiwan are being sold in the United
States at less than fair value, and that the United States industry producing
SRAMs is materially injured or threatened with material injury by reason of
imports of SRAMs manufactured in Korea and Taiwan. The Petition requests the
United States government to impose antidumping margins on imports into the
United States of SRAMs manufactured in Korea and Taiwan. A material portion of
the SRAMs designed and sold by the Company are manufactured in Taiwan. The
Company received preliminary producer and importer questionnaires from the ITC,
and submitted responses to such questionnaires in March 1997. In April 1997, the
ITC preliminarily determined that there is a reasonable indication that the
imports of the products under investigation are injuring the United States
industry. In April 1997, the Company received a questionnaire from the DOC. In
accordance with the deadlines established by the DOC, responses to the
<PAGE>
questionnaire were filed in May 1997 and June 1997, respectively. The Company
anticipates that in the third calendar quarter of 1997, the DOC will make a
preliminary determination as to the estimated antidumping duty, if any, that
should be imposed upon imports of the Company's SRAM products fabricated in
Taiwan, and that a final determination as to such duty, if any, would be made by
DOC in the fourth quarter of calendar 1997 or the first quarter of calendar
1998. The Company anticipates that the ITC, in the fourth quarter of calendar
1997 or the first quarter of calendar 1998, will make a final determination as
to whether the United States industry producing SRAMs is materially injured or
threatened with material injury by reason of imports of SRAMs manufactured in
Korea and Taiwan. The Company vigorously is seeking, and intends to continue
vigorously to seek, to ensure that dumping duties are not imposed on imports of
its SRAM products manufactured in Taiwan. There can be no assurance, however,
that the government will not impose duties on the Company's imports of SRAM
products into the United States, which duties could materially adversely affect
the Company's ability to sell such products in the United States.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning executive officers of the Company is set forth
below:
Name Age Position
- ---- --- --------
N. Damodar Reddy........... 58 President and Chief Executive Officer
C.N. Reddy................. 41 Senior Vice President-Engineering and
Operations
Charles Alvarez............ 47 Vice President-Finance and Administration
and Chief Financial Officer
Gregory Barton............. 35 Vice President-Corporate and Legal Affairs,
General Counsel
Laurence Jordan............ 53 Vice President-Operations
Phil Richards.............. 49 Vice President-Sales
N. Damodar Reddy is the co-founder of the Company and has served as the
Company's Chairman of the Board, Chief Executive Officer and President from its
inception in February 1985. From September 1983 to February 1985, he served as
President and Chief Executive Officer of Modular Semiconductor, Inc., and from
1980 to 1983, he served as manager of Advanced CMOS Technology Development at
Synertek, Inc., a subsidiary of Honeywell, Inc. Prior to that time, Mr. Reddy
held various research and development and management positions at Four Phase
Systems, a subsidiary of Motorola, Inc., Fairchild Semiconductor and RCA
Technology Center. He holds a M.S. degree in Electrical Engineering from North
Dakota State University and a M.B.A. from Santa Clara University. N. Damodar
Reddy is the brother of C.N. Reddy.
C.N. Reddy is the co-founder of the Company and has served as the Company's
Vice President-Engineering and Secretary and director since its inception in
February 1985. In May 1993, he was appointed Senior Vice-President-Engineering
and Operations of the Company. From 1984 to 1985, he served as Director of
Memory Products of Modular Semiconductor, Inc., and from 1983 to 1984, Mr. Reddy
served as a SRAM product line manager for Cypress Semiconductor Corporation.
From 1980 to 1983, Mr. Reddy served as a DRAM development manager for Texas
Instruments, Inc. and, before that, he was a design engineer with National
Semiconductor Corporation for two years. Mr. Reddy holds a M.S. degree in
Electrical Engineering from Utah State University. C.N. Reddy is named inventor
of over 15 patents related to SRAM and DRAM designs. C.N. Reddy is the brother
of N. Damodar Reddy.
Charles Alvarez joined the Company in 1997 as Vice President-Finance and
Administration, and Chief Financial Officer. Prior to joining Alliance, Mr.
Alvarez served more than seven years at LSI Logic Corp., most recently as
Director, Finance and Operations of the LSI Product Group. In this role, he was
responsible for the controllership of all five semiconductor product divisions,
execution of pricing strategies, and management of the finance operations of
these divisions. Prior to that, he served as Director, Finance and Operations of
the LSI Logic Microprocessor Group. Mr. Alvarez has also held various positions
at General Electric, where he served for more than twelve years. He holds a B.A.
and a M.A. degree in Business and Economics from San Francisco State University.
Gregory Barton joined the Company in 1995 as General Counsel and was
appointed Vice President-Corporate and Legal Affairs in 1996. From 1986 to 1993,
he was an associate in the New York office of the law firm Gibson, Dunn &
Crutcher. Mr. Barton received a J.D. degree magna cum laude from Harvard Law
School, and a B.A. degree summa cum laude from Claremont McKenna College.
Laurence Jordan joined the Company in June 1997 as Vice President -
Operations. From 1994 to 1996, he served as Director of Operations at Tseng
Labs, Inc., a graphics accelerator company, and from 1992 to 1993, he served as
Engineering Manager at Allegro Microsystems. Prior to that, Mr. Jordan has held
various positions at Zilog, California Devices, Mitel Semiconducteur, and Texas
Instruments. He holds a B.S. in Physics and B.A. in Mathematics from the
University of Texas.
Phil Richards joined the Company in June 1995 as Vice President-Sales. From
April 1989 through May 1995, Mr. Richards was President of Competitive
Technology, Inc., a manufacturers representative. From May 1988 through April
1989, he served as President of Motion Phone Technology, Inc., a company formed
to distribute a video telephone then under development. From July 1983 through
May 1988, he was President of Phase II Technology, Inc., a manufacturers
representative. Prior to 1983, he served in various sales and sales management
positions with Bager Electronics, Intel Corporation, American Microsystems and
Siliconix. He holds a B.S. degree in Electrical Engineering from San Jose State
University.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market and
quoted on the Nasdaq National Market under the symbol ALSC. The Company
completed its initial public offering on December 1, 1993. The following table
sets forth, for the periods indicated, the high and low sale prices for the
Company's Common Stock, as adjusted to reflect the three-for-two stock split
effected in January 1995 and the three-for-two stock split effected in July
1995. Such prices represent prices between dealers, do not include retail
mark-ups, mark-downs or commissions and may not represent actual transactions.
High Low
1995 ---- ---
- ----
1st Quarter ............................ $ 34.00 $ 12.89
2nd Quarter ............................ 35.33 25.00
3rd Quarter ............................ 48.25 32.33
4th Quarter ............................ 39.00 10.50
1996
- ----
1st Quarter ............................. $ 13.00 $ 8.00
2nd Quarter ............................. 12.00 7.75
3rd Quarter ............................. 9.00 5.13
4th Quarter ............................. 10.00 6.00
1997
- ----
1st Quarter .............................. $ 9.50 $ 6.31
As of June 20, 1997, there were approximately 219 holders of record of the
Company's Common Stock.
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain future earnings, if any, for
development of its business and, therefore, does not anticipate that it will
declare or pay cash dividends on its capital stock in the foreseeable future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table summarizes selected consolidated financial information
for each of the five fiscal years ended March 31, 1997 and should be read in
conjunction with the consolidated financial statements and notes relating
thereto. See Note 1 of Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(in thousands, except per share data)
Consolidated Statement of Operations
Data:
Net revenues ...................................... $ 82,572 $201,098 $119,327 $ 54,574 $ 22,238
Cost of revenues .................................. 84,630 158,159 65,035 33,414 16,694
-------- -------- -------- -------- --------
Gross profit (loss) ............................ (2,058) 42,939 54,292 21,160 5,544
Operating expenses:
Research and development ....................... 15,012 14,664 8,374 3,661 1,670
Selling, general and administrative ............ 10,344 17,202 9,600 3,953 2,152
-------- -------- -------- -------- --------
Income (loss) from operations ..................... (27,414) 11,073 36,318 13,546 1,722
Other income, net ................................. 1,753 6,498 2,035 343 1,331
-------- -------- -------- -------- --------
Income (loss) before income taxes ................. (25,661) 17,571 38,353 13,889 3,053
Provision for income taxes ........................ (8,990) 6,852 14,462 5,213 1,076
-------- -------- -------- -------- --------
Net income (loss) ................................. $(16,671) $ 10,719 $ 23,891 $ 8,676 $ 1,977
======== ======== ======== ======== ========
Net income (loss) per share ....................... $ (0.43) $ 0.26 $ 0.69 $ 0.32 $ 0.08
======== ======== ======== ======== ========
Weighted average number of common shares and
equivalents.................................... 38,653 40,633 34,559 26,906 24,459
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
March 31,
-------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(in thousands)
Consolidated Balance Sheet Data:
Working capital (deficit) ......................... $ 78,000 $106,171 $ 86,845 $ 26,550 $ (2,193)
Total assets ...................................... 232,569 263,238 126,866 40,192 8,538
Stockholders' equity (deficit) .................... 204,677 219,381 107,803 28,998 (1,572)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------------------------------------------------------
1997 1996
------------------------------------------------------------------------------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Summary: (in thousands, except per share data)
Net revenues .......................... $ 30,105 $ 25,224 $ 13,135 $ 14,108 $ 20,684 $ 46,372 $ 77,007 $ 57,035
Cost of revenues ...................... 27,437 21,833 11,029 24,331 59,498 35,944 35,894 26,823
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit (loss) ................ 2,668 3,391 2,106 (10,223) (38,814) 10,428 41,113 30,212
Operating expenses:
Research and development ........... 4,261 3,673 3,639 3,439 2,891 3,513 4,553 3,707
Selling, general and
administrative ................. 3,003 2,146 2,703 2,492 2,650 4,973 5,605 3,974
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from operations ......... (4,596) (2,428) (4,236) (16,154) (44,355) 1,942 30,955 22,531
Other income, net ..................... 209 369 459 716 1,070 1,600 1,905 1,923
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes .............................. (4,387) (2,059) (3,777) (15,438) (43,285) 3,542 32,860 24,454
Provision (benefit) for income
taxes .............................. (1,544) (721) (1,322) (5,403) (16,881) 1,381 12,815 9,537
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) ..................... $ (2,843) $ (1,338) $ (2,455) $(10,035) $(26,404) $ 2,161 $ 20,045 $ 14,917
======== ======== ======== ======== ======== ======== ======== ========
Net income (loss) per share ........... $ (0.07) $ (0.03) $ (0.06) $ (0.26) $ (0.69) $ 0.05 $ 0.48 $ 0.36
======== ======== ======== ======== ======== ======== ======== ========
Weighted average number of
common shares and equivalents.......... 38,896 38,513 38,483 38,416 38,274 41,246 41,526 41,485
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
During the third and fourth quarters of fiscal 1996 and through most of
fiscal 1997, the Company experienced significant deterioration in the average
selling prices for its SRAM products. Primarily as a result of this
deterioration and certain manufacturing issues in fiscal 1996, the Company
recorded pre-tax charges in the third and fourth quarters of fiscal 1996 of
approximately $10 million and $45 million, respectively, and charges in the
first and fourth quarters of fiscal 1997 of approximately $16 million and $1
million, respectively. The Company is unable to predict when or if such decline
in prices will stabilize. A continued decline in average selling prices of any
of the Company's products could result in an additional material valuation
adjustment and corresponding charge to operations which could have a material
adverse effect on the Company's operating results
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The Company was founded in February 1985 to focus on the design and
development of high performance semiconductor memory products. In March 1991 the
Company filed a voluntary petition for relief under Chapter 11 of the United
States Bankruptcy Code (the "Reorganization"). All of the Company's obligations
set forth in the Plan of Reorganization, as modified, have been satisfied, and,
in August 1994, the Company received a final decree from the Bankruptcy Court.
<PAGE>
Since 1991, the Company's business strategy has been to be a supplier of
high performance memory products and memory intensive logic products, operating
on a fabless basis by utilizing independent manufacturing facilities and, more
recently, joint venture facilities as well. Due to favorable market acceptance
of SRAM products introduced by the Company, annual revenues grew rapidly through
fiscal 1996. In addition, from September 1992 through September 1995, gross
profit increased primarily due to reductions in average unit product costs,
higher average selling prices, a shift to higher margin products and an increase
in manufacturing capacity to address the increased demand for SRAM products. As
a result, operating income also experienced substantial growth during that same
period. From October 1995 through most of fiscal 1997 gross profit decreased
primarily due to a decline in average selling prices and to pre-tax inventory
related charges. The Company recorded pre-tax charges in fiscal 1996 and fiscal
1997 of approximately $55 million and $17 million, respectively, to reserve for
certain manufacturing issues and to reflect declines in market value for certain
of the Company's products.
From April 1, 1992 through the early part of fiscal 1997, substantially all
of the Company's net revenues were derived primarily from the sale of SRAM
products. During fiscal 1997, the Company commenced volume production in 0.5
micron geometry, 4-Mbit DRAMs in a 1-Mbitx4 configuration with access time as
fast as 60ns. The Company also introduced to production its 4-Mbit DRAMs in a
256-Kbitx16 configuration and 16-Mbit DRAMs in a 1-Mbitx16 configuration. This
family of DRAMs contributed a steadily increasing stream of revenue during
fiscal 1997, accounting for approximately 47% of the Company's total net
revenues. The Company also enhanced its MMUI accelerator family with the
introduction of the Promotion(R)-AT3D 128-bit 2D/3D graphics and video
accelerator. This product family contributed approximately 11% of the Company's
total net revenues in fiscal 1997. Finally, the Company put into volume
production a 2Mbit flash product and introduced a 4-Mbit flash design. Flash
products did not contribute significant revenue in fiscal 1997. A substantial
portion of the Company's net revenues is derived from a relatively small number
of customers in the personal computer industry, although the Company did
diversify its customer base during fiscal 1997, with no one customer
representing more than 10% of the Company's net revenues in fiscal 1997.
The market for memory products used in personal computers is characterized
by price volatility and has experienced significant fluctuations and cyclical
downturns in product demand. While the Company's strategy is to increase its
penetration into the networking, telecommunications and instrumentation markets
with its existing SRAM products and to develop and sell in volume quantities of
new products complementary to its existing products, such as DRAMs, MMUI
accelerators and flash memory products, the Company may not be successful in
executing such strategy. A decline in demand in the personal computer industry
or lack of success in developing new markets or new products could have a
material adverse effect on the Company's operating results.
<PAGE>
Results of Operations
The percentage of net revenues represented by certain line items in the
Company's consolidated statements of operations for the years indicated, are set
forth in the table below.
Percentage of Net Revenues
Year Ended March 31,
----------------------------
1997 1996 1995
----- ----- -----
Net revenues 100.0% 100.0% 100.0%
Cost of revenues 102.5 78.7 54.5
----- ----- -----
Gross profit (loss) (2.5) 21.3 45.5
Operating expenses:
Research and development 18.2 7.3 7.0
Selling, general and administrative 12.5 8.5 8.1
----- ----- -----
Income (loss) from operations (33.2) 5.5 30.4
Other income, net 2.1 3.2 1.7
----- ----- -----
Income (loss) before income taxes (31.1) 8.7 32.1
Provision (benefit) for income taxes (10.9) 3.4 12.1
----- ----- -----
Net income (loss) (20.2)% 5.3% 20.0%
----- ===== =====
Net Revenues. The Company's net revenues decreased to approximately $82.6
million in fiscal 1997, from approximately $201.1 million of net revenues in
fiscal 1996. The decrease in net revenues in fiscal 1997 was due primarily to
lower unit demand and lower average selling prices for SRAM products as compared
to the prior year. During the first half of fiscal 1996, the Company benefited
from supply and demand relationships that caused the unit demand and average
selling prices for the Company's SRAM products to increase. Since that time, the
Company has experienced significant deterioration in the average selling prices
and lower demand for its SRAM products. The Company believes that the decrease
in selling prices was due to a number of factors, including increased supply of
SRAMs from foreign and domestic competitors and weakening unit demand for SRAM
products. Such factors created an oversupply situation in the SRAM markets in
which the Company participates, with such oversupply condition continuing
throughout fiscal 1997. The Company is unable to predict when or if such price
declines will stabilize. A continued decline in average selling prices of SRAMs
could have a material adverse effect on the Company's operating results.
During fiscal 1997, the Company introduced the 4-Mbit and 16-Mbit DRAM
products and commenced volume production of 4-Mbit DRAM in a 1-MbitX4
configuration. Revenues from the Company's DRAM product family grew steadily
throughout the year and contributed approximately 47% of the Company's net
revenues in fiscal 1997. The DRAM market is characterized by volatile supply and
demand conditions, fluctuating pricing and rapid technology changes to higher
density products. During fiscal 1997, the average selling prices for the
Company's DRAMs declined. The Company is unable to predict when or if such price
declines will stabilize. A continued decline in average selling prices of DRAMs
could have a material adverse effect on the Company's operating results.
The Company introduced the latest enhancement to its MMUI product family
during fiscal 1997, the Promotion(R)-AT3D, 128-bit 2D/3D graphics and video
accelerator. Sales of the Company's MMUI product line contributed approximately
11% to the Company's net revenues during fiscal 1997. The
<PAGE>
MMUI graphics and video accelerator market is characterized by a large and
growing number of competitors providing a steady stream of new products with
enhanced features.
A significant decline in average selling prices due to competitive
conditions, including overall supply and demand in the market, could have a
material adverse effect on the Company's operating results. The Company's flash
memory products did not contribute significant revenue during fiscal 1997 and
prior years.
The Company's net revenues increased to approximately $201.1 million in
fiscal 1996, or approximately 69% increase over approximately $119.3 million of
net revenues in fiscal 1995. During fiscal 1996, one customer accounted for 18%
of net revenues. The increase in net revenues in fiscal 1996 was due to a number
of factors, including increased unit shipments of SRAM products, changes in
product mix and higher average selling prices as compared to the prior year.
During the first half of fiscal 1996, the Company benefited from supply and
demand relationships that caused average selling prices for the Company's SRAM
products to increase. Since that time, the Company has experienced significant
deterioration in the average selling prices for its SRAM products. The Company
believes that the decrease in selling prices was due to a number of factors,
including increased supply of SRAMs from foreign and domestic competitors and
weakening unit demand for SRAM products.
Generally, the markets for the Company's products are characterized by
volatile supply and demand condition, numerous competitors, 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 has introduced new SRAM, DRAM,
MMUI accelerators and flash products. These changes involve several risks,
including, among others, constraints or delays in timely deliveries of products
from the Company's suppliers; lower than anticipated wafer manufacturing yields;
and lower than expected throughput from assembly and test suppliers; and less
than anticipated demand and selling prices. The occurrence of any problems
resulting from these risks could have a material adverse effect on the Company's
operating results.
Gross Profit (Loss). The Company's gross loss for fiscal 1997 was
approximately $2.1 million or approximately (2.5)% of net revenues compared to a
gross profit of approximately $42.9 million or approximately 21.3% of net
revenues for the same period in fiscal 1996. The decrease in gross profits
resulted primarily from reduced unit demand and lower average selling prices for
the Company's SRAM products. Gross profits associated with sales from the
Company's DRAM and MMUI product families contributed partially to offset the
declines attributable to the SRAM products.
The Company's gross profit for fiscal 1996 was approximately $42.9 million
or approximately 21.3% of net revenues compared to approximately $54.3 million
or approximately 45.5% of net revenues for the same period in fiscal 1995. The
decrease in gross profit resulted primarily from pre-tax inventory and purchase
commitment related charges of approximately $55 million to reflect declines in
market value for certain of the Company's products offset by a favorable supply
and demand relationships during the first half of fiscal 1996 that caused
average selling prices for the Company's SRAM products to generally increase on
a quarterly basis through that period.
As a result of the significant deterioration in unit demand and the average
selling prices for its SRAM products, the Company's gross margin declined
significantly during the last half of fiscal 1996
<PAGE>
and throughout fiscal 1997. The Company is unable to predict when or if such
decline in prices will stabilize. A continued decline in average selling prices
of any of the Company's products could result in a material decline of the
Company's gross profits unless the Company is able to reduce its cost per unit
to offset such declines. There can be no assurance that the Company will be able
to reduce its cost per unit at a level to offset a decline in average selling
prices.
The Company is subject to a number of factors that may have an adverse
impact on gross profits, including the availability and cost of products from
the Company's suppliers; increased competition and related decreases in unit
average selling prices; changes in the mix of product 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 the
commencement of such manufacturing will not have an adverse effect on the
Company's gross profits in future periods.
Research and Development. Research and development expenses were
approximately $15.0 million or approximately 18.2% of net revenues for fiscal
1997, approximately $14.7 million or approximately 7.3% of net revenues for
fiscal 1996 and approximately $8.4 million or approximately 7.0% of net revenues
for fiscal 1995. These dollar increases in research and development expenses
were primarily due to the addition of new personnel for development of new
products and the enhancement of existing products and expenditures for materials
related to such development activities. During fiscal 1997, the Company's
development efforts focused on advanced process and design technology, SRAMs,
DRAMs, flash memory and MMUI accelerator products. Research and development
expenses are expected to continue to increase in absolute dollars, although such
expenses may fluctuate as a percentage of net revenues.
Selling, General and Administrative. Selling, general and administrative
expenses in fiscal 1997 were approximately $10.3 million or approximately 12.5%
of net revenues compared to approximately $17.2 million or approximately 8.5% of
net revenues for fiscal 1996, and approximately $9.6 million or approximately
8.1% of net revenues for fiscal 1995. The decrease in selling, general and
administrative expenses in fiscal 1997 was principally the result of lower sales
commissions associated with the decline in revenue and decreased bad debt
reserve requirements. Selling, general and administrative expenses are expected
to increase in absolute dollars, although such expenses may fluctuate as a
percentage of net revenues.
Other Income, Net. Net other income was approximately $1.8 million for
fiscal 1997, approximately $6.5 million for fiscal 1996 and approximately $2.0
million for fiscal 1995. Net other income primarily represents interest and
dividend income from investments.
Provision for Income Taxes. The Company's effective tax rate was 35% for
fiscal 1997, 39.0% for fiscal 1996 and 37.7% for fiscal 1995. The effective tax
rate for fiscal 1997 represented tax benefits accrued at applicable statutory
rates. The effective tax rate for fiscal 1996 and 1995 represented taxes accrued
at applicable statutory rates partially offset by the effect of research and
development tax credits.
Factors That May Affect Future Results
<PAGE>
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 general economic conditions, changes in
pricing policies by the Company, its competitors or its suppliers, anticipated
and unanticipated decreases in unit average selling prices of the Company's
products, 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 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 and the timing of
significant orders. Operating results could also 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.
Additionally, because the Company is continuing to increase its operating
expenses for personnel and new product development to be able to support
increased sales levels, the Company's operating results will be adversely
affected if such increased sales levels are not achieved.
The markets for the Company's products are characterized by rapid
technological change, evolving industry standards, product obsolescence and
significant price competition and, as a result, are subject to decreases in
average selling price. The Company has experienced significant deterioration in
the average selling prices for its SRAM and DRAM products. The Company is unable
to predict when or if such decline in prices will stabilize. Historically,
average selling prices for semiconductor memory products have declined and the
Company expects that average selling prices will decline in the future.
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 will also adversely affect the Company's gross margins
unless the Company is able to reduce its cost per unit to offset the declines in
average selling prices. There can be no assurance that the Company will be able
to increase unit sales volumes of existing products, develop, introduce and sell
new products or reduce its cost per unit.
The cyclical nature of the semiconductor industry periodically results in
shortages of advanced process wafer fabrication capacity such as the Company
experiences 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 products 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 change. 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. To the extent the Company
produces excess or insufficient inventories of particular products, the
Company's operating results could be adversely affected, as they were in fiscal
1996 and fiscal 1997, when the Company recorded pre-tax charges totalling
approximately $55 million and $17 million,
<PAGE>
respectively, primarily to reflect a decline in market value of certain
inventory and certain manufacturing issues.
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 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. During the third quarter of fiscal
1996, manufacturing yields of one of the Company's products were materially
adversely affected by manufacturing problems at one of the Company's foundry
suppliers. There can be no assurance that other problems affecting manufacturing
yields of the Company's products will not occur in the future.
The Company conducts a significant portion of its business internationally
and is subject to a number of risks resulting from such operations. Such risks
include 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. Although the Company to date has
not experienced any material adverse effect on its operations as a result of
such factors, there can be no assurance that such factors will not adversely
impact the Company's operations in the future or require the Company to modify
its current business practice.
The Company's corporate headquarters are located near major earthquake
faults. As a result, in the event of a major earthquake, the Company could
suffer damages which could materially and adversely affect the operating results
of the Company.
Current pending litigation, administrative proceedings and claims are set
forth in Item 3 - Legal Proceedings and in Item 1 - Licenses, Patents and
Maskwork Protection, above. The Company intends to vigorously defend itself in
the litigation and claims and, subject to the inherent uncertainties of
litigation and based upon discovery completed to date, management believes that
the resolution of these matters will not have a material adverse effect on the
Company's financial position or operating results. However, should the outcome
of any of these actions be unfavorable, the Company may be required to pay
damages and other expenses, which could have a material adverse effect on the
Company's financial position or operating results. Moreover, there can be no
assurance that anti-dumping duties will not be imposed on Alliance's import of
SRAM products manufactured in Taiwan, which duties could materially adversely
affect Alliance's ability to sell such products in the United States.
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 technological 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
<PAGE>
The Company's operating activities used cash of approximately $44.6 million
in fiscal 1997, versus providing approximately $1.8 million in fiscal 1996 and
$21.9 million in fiscal 1995. Cash utilized by operations in fiscal 1997 was the
result of a net loss plus increases in working capital, while cash generated
from operations in fiscal years 1996 and 1995 was primarily the result of net
income generated during the periods, partially offset by increases in working
capital. The decrease in inventory in fiscal 1997 is due to a reduction of older
SRAM products partially offset by increased inventory of new products as
compared to the same period of the previous year. The increase in receivables
during the same period is the result of higher sales in the fourth quarter of
fiscal 1997 as compared to the same period of the previous fiscal year.
Net cash used in investing activities was approximately $19.3 million in
fiscal 1997 and approximately $104.1 million in fiscal 1996. Net cash used in
significant investing activities in fiscal 1997 reflect equipment purchases of
approximately $3.1 million and an investment in USC of approximately $16.4
million while investing activities in fiscal 1996 reflect equipment purchases of
approximately $9.5 million and investments in Chartered of approximately $44.6
million, in USC of approximately $36.4 million and in USI of approximately $13.9
million.
Net cash provided by financing activities of approximately $5.8 million in
fiscal 1997 resulted from proceeds of a approximately $3.8 million secured loan
and approximately $2.0 million through issuance of stock upon exercise of
options and purchases under the Company's Employee Stock Purchase Plan. Net cash
provided by financing activities was approximately $107.3 million in fiscal 1996
and approximately $49.2 million in fiscal 1995. Net cash provided by financing
activities in fiscal 1996 reflects primarily net proceeds of approximately $97.3
million from sales of Common Stock in connection with the Company's public
offering in April 1995 and exercises of stock options and a receipt of UMC loan
payment of approximately $10 million. Net cash provided by financing activities
in fiscal 1995 reflects primarily net proceeds of approximately $53.7 million
from sales of Common Stock in connection with the Company's public offering in
October 1994 and exercises of stock options and a decrease in restricted cash of
approximately $5.1 million, partially offset by an installment loan made to UMC
of approximately $10 million.
At March 29, 1997, the Company had approximately $22.5 million in cash, a
decrease of approximately $58.1 million from March 31, 1996, and working capital
of approximately $78.0 million, a decrease of approximately $28.2 million from
March 31, 1996. The Company believes that its existing levels of cash, together
with an expected income tax refund will be sufficient to meet its projected
working capital and other cash requirements through the end of fiscal 1998.
In order to obtain an adequate supply of wafers, especially wafers
manufactured using advanced process technologies, the Company has entered into
and will continue to consider various possible transactions, including equity
investments in or loans to foundries in exchange for guaranteed production
capacity, 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 equity or debt 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
<PAGE>
the licensing of its integrated circuit designs in exchange for royalties, fees
or guarantees of manufacturing capacity.
In February 1995, the Company agreed to purchase shares of Chartered for
approximately $10 million and entered into a manufacturing agreement under which
Chartered will provide a minimum number of wafers from its new wafer fabrication
facility currently under construction. In April 1995, the Company entered into a
supplemental subscription agreement whereby the Company agreed to purchase
additional shares in Chartered, bringing the total agreed investment in
Chartered to approximately $51.6 million. Chartered agreed to increase the
minimum number of wafers to be provided to the Company from its new wafer
fabrication facility. The Company had paid all installments as of March 31,
1996. The Company is accounting for this investment on the cost basis of
accounting and believes its investment in Chartered approximates fair market
value at March 29, 1997. The Company does not own a material percentage of the
equity in Chartered.
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
Taiwan. The facility is now in full production utilizing advanced submicron
semiconductor manufacturing processes. Alliance's contribution is in the form of
an equity investment, representing an equity ownership of up to approximately
19%. Alliance's investment will be up to approximately US$70 million and will be
paid in cash in up to three installments. The first installment of approximately
50% was made in September 1995, the second installment of approximately 25% was
made in July 1996 and the Company has the option to pay a third installment of
approximately 25% payable in July 1997, plus interest at a rate of 8.5% on such
amount from and after July 4, 1996. If this option is exercised, the Company
will have an equity ownership of approximately 19% and will have the right to
purchase up to approximately 25% of the manufacturing capacity in this facility.
A portion of UMC's equity contribution was paid through the grant by UMC to USC
of royalty-free licenses to certain UMC sub-micron process technologies. To the
extent USC experiences operating income or losses, the Company will recognize
its proportionate share of such income or losses. The Company believes that a
number of manufacturers are expanding or planning to expand their fabrication
capacity over the next several years, which could lead to overcapacity in the
market and resulting decreases in costs of finished wafers. If the wafers
produced by USC cannot be produced at competitive prices, USC could sustain
operating losses. There can be no assurance that such operating losses will not
have a material adverse effect on the Company's consolidated results of
operations.
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 an 8-inch semiconductor manufacturing facility
in Taiwan. The facility is expected to commence production in early 1998. It is
presently contemplated that the manufacturing facility will, over time, require
$1 billion to complete its construction and finance operations, although there
can be no assurances that production will commence on schedule. The
contributions of Alliance and other parties shall be in the form of equity
investments, representing an initial ownership interest of approximately 5% for
each US$30 million invested. The Alliance investment will be approximately US$30
million and will be paid in cash in up to three installments. Alliance had
originally committed to an investment of approximately US$60 million or 10%
ownership interest but recently requested that its level of participation be
reduced by 50%. The first installment of approximately 50% of the revised
investment was made in January 1996, and the
<PAGE>
Company has the option to pay a second installment of approximately 25% of the
revised investment payable in December 1997, plus interest at a rate of 8.5% on
such amount from and after July 7, 1997, and the final installment of
approximately 25% of the revised investment is called for on or before fab
production ramp-up. UMC, its affiliates and members of the Taiwanese financial
community are expected to provide, over time, the remainder of the
capitalization of the new entity, in the form of debt and equity. A portion of
UMC's equity contribution is expected to be paid through the grant by UMC to the
new entity of royalty-free licenses to UMC's CMOS 0.35 micron and below process
technologies under development to be used in the manufacturing facility. If the
Company exercises its option and further pays the third installment, the Company
will have an equity ownership of approximately 5% and have the right to purchase
up to approximately 6.25% of the manufacturing capacity in this facility.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
The index to the Company's Consolidated Financial Statements and Schedules,
and the report of the independent accountants appear in Part III of this Form
10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
"Proposal No. 1. Election of Directors, Board of Directors' Meetings and
Committees and Directors' Compensation" and disclosures pursuant to Item 405 of
Regulation S-B contained in the Proxy Statement is incorporated by reference.
Information required by Item 10 concerning executive officers of the Company is
set forth in Part I of this Form 10-K after Item 4.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
section captioned "Proposal No. 1 - Election of Directors" contained in the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
section captioned "Proposal No. 1. - Election of Directors" contained in the
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
section captioned "Proposal No. 1 Election of Directors - Certain Transactions"
contained in the Proxy Statement.
<PAGE>
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following financial statements of the Registrant are filed as part of
this report:
Report of Independent Accountants
Consolidated Balance Sheets as of March 31, 1997 and 1996
Consolidated Statements of Operations for the years ended March 31, 1997, 1996
and 1995
Consolidated Statements of Stockholders' Equity for the years ended March 31,
1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended March 31, 1997, 1996
and 1995
Notes to Consolidated Financial Statements
(a)(2)(i) Financial Statement Schedules
The following consolidated financial statement schedule is filed as part of
this report and should be read in conjunction with the consolidated
financial statements:
Schedule II - Valuation and Qualifying Accounts
(a)(2)(ii) Financial Statements of United Semiconductor
Corporation, a Taiwanese Company
The following financial statements are filed as part of this report:
Financial Statements of United Semiconductor Corporation
<PAGE>
<TABLE>
(a) (3) Exhibits
INDEX TO EXHIBITS
-----------------
<CAPTION>
Exhibit
Number Documentation Description Page
- ------- ------------------------- ----
<S> <C> <C>
3.01 Registrant's Certificate of Incorporation (A)
3.02 Registrant's Certificate of Elimination of Series A Preferred Stock (A)
3.03 Registrant's Certificate of Amendment of Certificate of Incorporation (F)
3.04 Registrant's Bylaws (A)
4.01 Specimen of Common Stock Certificate of Registrant (A)
10.01+ Registrant's 1992 Stock Option Plan adopted by Registrant on April 7, 1992 and
amended through September 19, 1996, and related documents (K)
10.02+ Registrant's Directors Stock Option Plan adopted by Registrant on October 1, 1993
and related documents (A)
10.03+ Form of Indemnity Agreement used between Registrant and certain of its officers and
directors (A)
10.04+ Form of Indemnity Agreement used between the Registrant and certain of its officers (K)
10.05* Foundry Production Agreement dated December 11, 1992, between United
Microelectronics Corporation and Asian Specific Technology Ltd., as amended (A)
10.06 Sales Representative, Distributor and Intermediary Agreement dated December 11,
1992, between Registrant and Asian Specific Technology Ltd. (A)
10.07 Sublease Agreement dated February 1994 between Registrant and Fujitsu America, Inc. (B)
10.08 Net Lease Agreement dated February 1, 1994 between Registrant and Realtec Properties
I L.P. (B)
10.09* Subscription Agreement dated February 17, 1995, by and among Registrant, Singapore
Technology Pte. Ltd. and Chartered Semiconductor Manufacturing Pte. Ltd. (C)
10.10* Manufacturing Agreement dated February 17, 1995, between Registrant and Chartered
Semiconductor Manufacturing Pte. Ltd. (C)
<PAGE>
10.11 Supplemental Subscription Agreement dated March 15, 1995, by and among Registrant,
Singapore Technology Pte. Ltd. and Chartered Semiconductor Manufacturing Pte. Ltd.
(D)
10.12* Supplemental Manufacturing Agreement dated March 15, 1995, between Registrant and
Chartered Semiconductor Manufacturing Pte. Ltd.
(D)
10.13* Foundry Venture Agreement dated July 8, 1995, by and among Registrant, S3
Incorporated and United Microelectronics Corporation (E)
10.14* Foundry Capacity Agreement dated July 8, 1995, by and among Registrant, Fabco, S3
Incorporated and United Microelectronics Corporation (E)
10.15* Foundry Venture Agreement dated September 29, 1995, between Registrant and United
Microelectronics Corporation (F)
10.16* Foundry Capacity Agreement dated September 29, 1995, by and among Registrant, FabVen
and United Microelectronics Corporation (F)
10.17* Written Assurances Re: Foundry Venture Agreement dated September 29, 1995 by and
among Registrant, FabVen and United Microelectronics Corporation
(F)
10.18** Letter Agreement dated June 26, 1996 by and among Registrant, S3 Incorporated and (G)
United Microelectronics Corporation
10.19 Stock Purchase Agreement dated as of June 30, 1996 by and among Registrant, S3 (H)
Incorporated, United Microelectronics Corporation and United Semiconductor
Corporation
10.20** Amendment to FabCo Foundry Capacity Agreement dated as of July 3, 1996 by and among (H)
Registrant, S3 Incorporated, United Microelectronics Corporation and United
Semiconductor Corporation
10.21 Side Letter dated July 11, 1996 by and among Registrant, S3 Incorporated, United (H)
Microelectronics Corporation and United Semiconductor Corporation
10.22+ 1996 Employee Stock Purchase Plan (I)
10.23 Letter Agreement dated December 23, 1996 by and among Registrant, S3 Incorporated, (J)
United Microelectronics Corporation and United Semiconductor Corporation
<PAGE>
10.24 Trademark License Agreement dated as of October 17, 1996 between Registrant and
Alliance Semiconductor International Corporation, a Delaware corporation, as amended
through May 31, 1997 (K)
10.25 Restated Amendment to FabCo Foundry Venture Agreement dated as of February 28, 1997
by and among Registrant, S3 Incorporated, United Microelectronics Corporation and
United Semiconductor Corporation (K)
10.26 Letter Agreement dated April 25, 1997 by and among Registrant, S3 Incorporated,
United Microelectronics Corporation and United Semiconductor Corporation (K)
10.27** Restated DRAM Agreement dated as of February 28, 1996 between Registrant and United
Microelectronics Corporation (K)
10.28** First Amendment to Restated DRAM Agreement dated as of March 26, 1996 between
Registrant and United Microelectronics Corporation (K)
10.29** Second Amendment to Restated DRAM Agreement dated as of July 10, 1996 between
Registrant and United Microelectronics Corporation (K)
10.30 Promissory Note and Security Agreement dated March 28, 1997 between Registrant and
Matrix Funding Corporation (K)
10.31 Letter Agreement dated June 23, 1997 between Registrant and United Microelectronics
Corporation (K)
11.01 Statement re: Computation of Earnings Per Share (K)
21.01 Subsidiaries of Registrant (K)
23.01 Consent of Price Waterhouse LLP (K)
27.01 Financial Data Schedule (K)
<FN>
-------------------
+ Management contract or compensatory plan or arrangement required to be
filed as an Exhibit to this Form 10-K.
* Confidential treatment has been granted with respect to certain
portions of this document.
** Confidential treatment has been requested with respect to certain
portions of this document.
(A) The document referred to is hereby incorporated by reference from
Registrant'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
Registrant's Annual Report on Form 10-KSB filed with the Commission on
June 29, 1994.
(C) The document referred to is hereby incorporated by reference from
Registrant's Registration Statement on Form SB-2 (File No. 33-90346-LA)
declared effective by the Commission on March 28, 1995.
<PAGE>
(D) The document referred to is hereby incorporated by reference from
Registrant's Annual Report on Form 10-KSB filed with the Commission on
June 30, 1995.
(E) The document referred to is hereby incorporated by reference from
Registrant's Quarterly Report on Form 10-Q filed with the Commission on
August 14, 1995.
(F) The document referred to is hereby incorporated by reference from
Registrant's Quarterly Report on Form 10-Q (File No. 0-22594) filed
with the Commission on November 14, 1995.
(G) The document referred to is hereby incorporated by reference from
Registrant's Quarterly Report on Form 10-Q (File No. 0-22594) filed
with the Commission on August 13, 1996.
(H) The document referred to is hereby incorporated by reference from
Registrant's Quarterly Report on Form 10-Q (File No. 0-22594) filed
with the Commission on November 12, 1996.
(I) The document referred to is hereby incorporated by reference from
Registrant's Registration Statement on Form S-8 (File No. 333-13461)
filed with the Commission on October 4, 1996.
(J) The document referred to is hereby incorporated by reference from
Registrant's Quarterly Report on Form 10-Q (File No. 0-22594) filed
with the Commission on February 11, 1997.
(K) The document referred to is filed herewith.
</FN>
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed by Registrant during the last quarter of
the period covered by this report.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ALLIANCE SEMICONDUCTOR CORPORATION
By: /s/ N. DAMODAR REDDY Date: June 27, 1997
-------------------------------
N. Damodar Reddy, Chairman
of the Board, Chief Executive
Officer and President
<PAGE>
<TABLE>
Pursuant to requirements of the Securities Exchange Act of 1934, this report has
been signed below on behalf of the Registrant and in the capacities and on the
dates indicated.
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
Principal Executive Officer:
/s/ N. DAMODAR REDDY Chairman of the Board, Chief June 27, 1997
- -------------------- Executive Officer and President
N. Damodar Reddy
Principal Financial Officer and
Principal Accounting Officer:
/s/ CHARLES ALVAREZ Vice President-Finance and June 27, 1997
- ---------------------- Administration and Chief Financial Officer
Charles Alvarez
Directors:
/s/ SANFORD L. KANE Director June 27, 1997
- ----------------------
Sanford L. Kane
/s/ JON B. MINNIS Director June 27, 1997
- ----------------------
Jon B. Minnis
/s/ C.N. REDDY Director June 27, 1997
- ----------------------
C. N. Reddy
/s/ N.DAMODAR REDDY Director June 27, 1997
- ----------------------
N. Damodar Reddy
</TABLE>
<PAGE>
Report of Independent Accountants
The Board of Directors and Stockholders of
Alliance Semiconductor Corporation:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Alliance Semiconductor Corporation and its subsidiaries at March 31, 1997 and
1996, and the results of their operations and their cash flows for each of the
three years in the period ended March 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
San Jose, California
April 23, 1997
<PAGE>
<TABLE>
ALLIANCE SEMICONDUCTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<CAPTION>
March 31,
----------------------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................... $ 22,489 $ 80,566
Accounts receivable, net .................................................... 16,827 4,724
Inventory ................................................................... 29,535 30,152
Deferred taxes .............................................................. 17,851 25,578
Income tax receivable ....................................................... 14,633 6,404
Other current assets ........................................................ 1,636 2,604
-------- --------
Total current assets .................................................... 102,971 150,028
Property and equipment, net .................................................... 11,352 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
Other assets ................................................................... 120 57
-------- --------
$232,569 $263,238
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................................................. $18,766 $32,358
Accrued liabilities ........................................................... 4,584 11,499
-------
Current portion of long term obligations ...................................... 1,621 --
------- -------
Total current liabilities ................................................. 24,971 43,857
Long term obligations (Note 6) ................................................... 2,219 --
Deferred tax liability ........................................................... 702 --
------- -------
Total liabilities ......................................................... 27,892 43,857
------- -------
Commitments and contingencies (Notes 4,5,6 and 10)
Stockholders' equity:
Preferred Stock, $0.01 par value; 5,000 shares
authorized; none issued and outstanding ........................................... -- --
Common Stock, $0.01 par value; 100,000 shares authorized;
38,985 and 38,390 shares issued and outstanding .................................... 390 383
Paid-in capital ........................................................................ 180,012 178,052
Retained earnings ...................................................................... 24,275 40,946
-------- --------
Total stockholders' equity ........................................................... 204,677 219,381
-------- --------
$232,569 $263,238
======== ========
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANCE SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year Ended March 31,
---------------------------------
1997 1996 1995
-------- -------- --------
Net revenues .............................. $ 82,572 $201,098 $119,327
Cost of revenues .......................... 84,630 158,159 65,035
-------- -------- --------
Gross profit (loss) .................... (2,058) 42,939 54,292
-------- -------- --------
Operating expenses:
Research and development ............... 15,012 14,664 8,374
Selling, general and administrative .... 10,344 17,202 9,600
-------- -------- --------
Income (loss) from operations ............. (27,414) 11,073 36,318
Other income, net ......................... 1,753 6,498 2,035
-------- -------- --------
Income (loss) before income taxes ......... (25,661) 17,571 38,353
Provision (benefit) for income taxes ...... (8,990) 6,852 14,462
-------- -------- --------
Net income (loss) ......................... $(16,671) $ 10,719 $ 23,891
======== ======== ========
Net income (loss) per share ............... $ (0.43) $ 0.26 $ 0.69
======== ======== ========
Weighted average common shares
and equivalents (Note 1) ............... 38,653 40,633 34,559
======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
<TABLE>
ALLIANCE SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
<CAPTION>
Common Stock Additional Total
--------------------------- Paid In Retained Stockholders'
Shares Amount Capital Earnings Equity
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balances at March 31, 1994 ................. 27,730,325 $ 45 $ 22,617 $ 6,336 $ 28,998
Issuance of common stock under
employee stock plans .................... 935,781 5 699 -- 704
Proceeds from public offering,
net of issuance costs ................... 5,568,750 24 53,020 -- 53,044
Stock dividend effect ...................... -- 75 (75) -- --
Tax benefit on exercise of
stock options ........................... -- -- 1,166 -- 1,166
Net income ................................. -- -- -- 23,891 23,891
---------- ---------- ---------- ---------- ----------
Balances at March 31, 1995 ................. 34,234,856 149 77,427 30,227 107,803
Issuance of common stock under
employee stock plans .................... 855,454 89 1,053 -- 1,142
Proceeds from public offering,
net of issuance costs ................... 3,300,000 22 96,142 -- 96,164
Stock dividend effect ...................... -- 123 (123) -- --
Tax benefit on exercise of
stock options ........................... -- -- 3,553 -- 3,553
Net income ................................. -- -- -- 10,719 10,719
---------- ---------- ---------- ---------- ----------
Balances at March 31, 1996 ................. 38,390,310 383 178,052 40,946 219,381
Issuance of common stock under
employee stock plans .................... 594,591 7 1,694 -- 1,701
Tax benefit on exercise of
stock options ........................... -- -- 266 -- 266
Net loss ................................... -- -- -- (16,671) (16,671)
---------- ---------- ---------- ---------- ----------
Balances at March 31, 1997 ................. 38,984,901 $ 390 $ 180,012 $ 24,275 $ 204,677
========== ========== ========== ========== ==========
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
ALLIANCE SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
Year Ended March 31,
-----------------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ...................................................... $ (16,671) $ 10,719 $ 23,891
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ........................................ 2,929 1,792 778
Other ................................................................ -- 72 --
Changes in assets and liabilities:
Accounts receivable ................................................ (12,103) 14,721 (10,038)
Inventory .......................................................... 617 (23,082) 26
Other assets ....................................................... 905 (664) (421)
Accounts payable ................................................... (13,592) 21,851 3,367
Accrued liabilities ................................................ (6,915) 7,385 3,125
Income taxes (including deferred income taxes
and tax receivable) ...................................... 200 (30,997) 1,169
--------- --------- ---------
Net cash provided by (used in) operating
activities ..................................................... (44,630) 1,797 21,897
--------- --------- ---------
Cash used in investing activities:
Acquisition of equipment ............................................... (3,050) (9,459) (3,066)
Investment in Chartered Semiconductor Pte Ltd. ......................... -- (44,584) (7,012)
Investment in United Semiconductor Corporation ......................... (16,391) (36,438) --
Investment in United Silicon Inc. ...................................... 187 (13,888) --
Proceeds from sales of equipment ....................................... -- 275 --
--------- --------- ---------
Net cash used in investing activities ............................ (19,254) (104,094) (10,078)
--------- --------- ---------
Cash flows from financing activities:
Net proceeds from the issuance of common stock ......................... 1,967 97,306 53,748
Borrowings on long term obligation ..................................... 3,840 -- --
Issuance of notes to UMC ............................................... -- 10,000 (10,000)
Cash -- restricted ..................................................... -- -- 5,133
Payment of reorganization settlement and other ......................... -- -- 367
--------- --------- ---------
Net cash provided by financing activities ........................ 5,807 107,306 49,248
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents ...................... (58,077) 5,009 61,067
Cash and cash equivalents at beginning of the period ...................... 80,566 75,557 14,490
--------- --------- ---------
Cash and cash equivalents at end of the period ............................ $ 22,489 $ 80,566 $ 75,557
========= ========= =========
Supplemental disclosures:
Cash paid (refunded) during the period for income
taxes .................................................................. $ (9,648) $ 37,873 $ 13,311
========= ========= =========
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANCE SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The Company and its significant accounting policies
Alliance Semiconductor Corporation (the "Company" or "Alliance"), a
Delaware corporation, designs, develops and markets high performance memory
products and memory intensive logic products. The Company sells its products to
the desktop and portable computing, networking, telecommunications and
instrumentation markets.
The semiconductor industry is highly cyclical and has been subject to
significant downturns at various times that have been characterized by
diminished product demand, production overcapacity, and accelerated erosion of
selling prices. During the second half of fiscal 1996, the market for certain
SRAM devices experienced an excess supply relative to demand which resulted in a
significant downward trend in average selling price. This situation has
continued through fiscal 1997. In addition, the average selling price for the
Company's DRAM products has experienced volatility during fiscal 1997. The
Company is unable to predict when or if average selling prices will stabilize.
The average selling price that the Company is able to command for its
products is highly dependent on industry-wide production capacity and demand,
and as a consequence the Company could experience rapid erosion in product
pricing which is not within the control of the Company and which could have an
adverse material effect on the Company's operating results.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated. These financial statements have been prepared on the
accrual basis of accounting in accordance with generally accepted accounting
principles. This requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates.
Fiscal Year
For purposes of presentation, the Company has indicated its fiscal years as
ending on March 31; whereas the Company's fiscal year ends on the Saturday
nearest the end of March. The fiscal years ended March 31, 1997, March 31, 1996
and March 31, 1995 each contained 52 weeks.
Revenue recognition
Revenue from product sales is recognized upon shipment, net of accruals for
estimated sales returns and allowances.
<PAGE>
Cash equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. The Company accounts
for its short-term investments in accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS 115").
The Company's investments are primarily money market funds and
muni-preferreds (state and municipal obligations) and the Company's intent is to
hold investments to maturity.
Inventories
Inventory is stated at the lower of cost, determined on the first-in,
first-out basis, or market. Market is based on estimated net realizable value.
During the third and fourth quarters of fiscal 1996 and continuing throughout
much of fiscal 1997, the Company experienced significant deterioration in the
average selling prices for its SRAM products. Primarily as a result of this
deterioration and certain manufacturing issues in fiscal 1996, the Company
recorded pre-tax charges in fiscal 1997 and fiscal 1996 of approximately $17
million and $55 million, respectively. 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 an additional material valuation
adjustment and corresponding charge to operations.
Property and equipment
Property and equipment are stated at cost and depreciated on a
straight-line basis over the estimated economic useful lives of the assets (five
years).
Concentration of risks
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents and
accounts receivable.
Alliance invests primarily in money market accounts and state and municipal
obligations. The Company further limits its exposure to these investments by
placing such investments with various financial institutions. The Company
performs periodic evaluations of these financial institutions.
The Company sells its products to original equipment manufacturers and
distributors throughout the world. The Company performs ongoing credit
evaluations of its customers and, generally, requires no collateral from its
customers. No customer accounted for more than 10% of net revenues for the year
ended March 31, 1997. The Company had sales of approximately $37 million, or
approximately 18% of net revenues, to one customer for the year ended March 31,
1996, and sales of approximately $14.7 million, or approximately 12% of product
sales, to one customer for the year ended March 31, 1995. At March 31, 1997, no
customer accounted for more than 10% of accounts receivable. At March 31, 1996,
one customer's account receivable represented 19% of accounts receivable.
The Company conducts the majority of its business in U.S. dollars and
foreign currency translation gains and losses have not been material in any one
year. International sales accounted for approximately
<PAGE>
$29.7 million, $85.7 million and $66.1 million of net revenues for the years
ended March 31, 1997, March 31, 1996 and March 31, 1995, respectively.
Stock-based compensation
The Company accounts for its stock-based awards using the intrinsic value
method in accordance with Accounting Principles Board No. 25, "Accounting for
Stock Issued to Employees", and related Interpretations. The Company's policy is
to grant options with an exercise price equal to the quoted market price of the
Company's stock on the date of grant. Accordingly, no compensation expense has
been recognized in the Company's statements of operations. The Company provides
additional pro forma disclosures as required under Statement of Financial
Standard No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation." See
Note 8.
Stock splits
Share information for all periods has been retroactively adjusted to
reflect a 3 for 2 stock split of the Common Stock in January 1995, issued in the
form of a stock dividend, and a 3 for 2 stock split of the Common Stock in July
1995, issued in the form of a stock dividend.
Net income (loss) per share
Net income (loss) per share is computed using the weighted average number
of common and common equivalent shares outstanding during the period. Common
equivalent shares consist primarily of stock options (using the treasury stock
method). Common equivalent shares are excluded from the computation if their
effect is antidilutive.
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings
Per Share (EPS)", was issued in February 1997. Under SFAS 128, the Company will
be required to disclose basic EPS and diluted EPS, for all periods for which an
income statement is presented, which will replace the disclosure currently being
made for primary EPS and fully-diluted EPS. SFAS 128 requires adoption for
fiscal periods ending after December 31, 1997. Pro forma disclosure of basic EPS
and diluted EPS for the current reporting and comparable period in the prior
year is as follows:
Year ended
March 31,
----------------------------------
Earnings (loss) per share: 1997 1996 1995
---- ---- ----
Basic $(0.43) $0.28 $0.78
Diluted (0.43) 0.26 $0.69
<PAGE>
Note 2. Balance sheet components
March 31,
---------------------
1997 1996
-------- --------
(in thousands)
Accounts receivable:
Trade receivables ................................. $ 17,477 $ 7,826
Less allowance for doubtful accounts .............. (650) (3,102)
-------- --------
$ 16,827 $ 4,724
======== ========
Inventory:
Work in process ................................... $ 18,319 $ 10,823
Finished goods .................................... 11,216 19,329
-------- --------
$ 29,535 $ 30,152
======== ========
Property and equipment:
Engineering and test equipment .................... $ 11,526 $ 9,961
Computers and software ............................ 4,496 3,110
Furniture and office equipment .................... 935 836
-------- --------
16,957 13,907
Less: accumulated depreciation and amortization ..... (5,605) (2,676)
-------- --------
$ 11,352 $ 11,231
======== ========
Note 3. Investment in Chartered Semiconductor Manufacturing Ltd. ("Chartered")
In February 1995, the Company agreed to purchase shares of Chartered for
$10 million and entered into a manufacturing agreement under which Chartered
will provide a minimum number of wafers from its new 8-inch wafer fabrication
facility. In April 1995, the Company agreed to purchase additional shares in
Chartered, bringing the total agreed investment in Chartered to $51.6 million
and Chartered agreed to provide an increased minimum number of wafers to be
provided by Chartered from its new 8-inch wafer fabrication facility. The
Company has paid all installments to Chartered. Chartered is a private company
based in Singapore that is controlled by entities affiliated with the Singapore
government. The Company is accounting for this investment using the cost method
of accounting and believes its investment in Chartered approximates fair market
value. The Company does not own a material percentage of the equity of
Chartered.
<PAGE>
Note 4. Investment in United Semiconductor Corporation
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 ("USC"), for the
purpose of building and managing an 8-inch semiconductor manufacturing facility
in Taiwan. The facility is now in full production utilizing advanced submicron
semiconductor manufacturing processes. Alliance's contribution is in the form of
an equity investment, representing an equity ownership of up to approximately
19%. Alliance's investment will be up to approximately US$70 million and will be
paid in cash in up to three installments. The first installment of approximately
50% was made in September 1995, the second installment of approximately 25% was
made in July 1996 and the Company has the option to pay a third installment of
approximately 25% payable in July 1997, plus interest at a rate of 8.5% on such
amount from and after July 4, 1996. If this option is exercised, the Company
will have an equity ownership of approximately 19% and will have the right to
purchase up to approximately 25% of the manufacturing capacity in this facility.
A portion of UMC's equity contribution was paid through the grant by UMC to USC
of royalty-free licenses to certain UMC sub-micron process technologies.
The Company is accounting for this investment using the equity method of
accounting with a ninety day lag in recording the Company's share of results for
the entity. The Company has not recorded its share of USC's net income for the
two-year period ended December 31, 1996, as it was immaterial.
Operations through December 31, 1995 consisted primarily of construction
and, therefore, USC's results of operations for this year are immaterial and not
presented below. Summarized financial information, using the respective year-end
exchange rate for the financial position and an average exchange rate for the
respective year for results of operations, for the entity at December 31, 1996
and 1995, is as follows (in thousands):
December 31
-----------
Financial position 1996 1995
------------------ ---- ----
Current assets ........................... US$224,845 US$144,031
Noncurrent assets ........................ 387,866 46,564
Current liabilities ...................... 89,327 5,414
Noncurrent liabilities ................... 157,557 485
Stockholders' equity ..................... 365,827 187,696
Results of operations
Sales .................................... US$60,878
Gross Profit ............................. 1,654
Net income ............................... 563
Note 5. Investment in United Silicon, Inc.
In October 1995, the Company entered into an agreement with UMC and other
parties to form a separate Taiwanese company, United Silicon Inc. ("USI"), for
the purpose of building and managing an 8-inch
<PAGE>
semiconductor manufacturing facility in Taiwan. The facility is expected to
commence production in early 1998. It is presently contemplated that the
manufacturing facility will, over time, require $1 billion to complete its
construction and finance operations, although there can be no assurances that
production will commence on schedule. The contributions of Alliance and other
parties shall be in the form of equity investments, representing an initial
ownership interest of approximately 5% for each US$30 million invested. The
Alliance investment will be approximately US$30 million and will be paid in cash
in up to three installments. Alliance had originally committed to an investment
of approximately US$60 million or 10% ownership interest but recently requested
that its level of participation be reduced by 50%. The first installment of
approximately 50% of the revised investment was made in January 1996, and the
Company has the option to pay a second installment of approximately 25% of the
revised investment payable in December 1997, plus interest at a rate of 8.5% on
such amount from and after July 7, 1997, and the final installment of
approximately 25% of the revised investment is called for on or before fab
production ramp-up. UMC, its affiliates and members of the Taiwanese financial
community are expected to provide, over time, the remainder of the
capitalization of the new entity, in the form of debt and equity. A portion of
UMC's equity contribution is expected to be paid through the grant by UMC to the
new entity of royalty-free licenses to UMC's CMOS 0.35 micron and below process
technologies under development to be used in the manufacturing facility. If the
Company exercises its option and further pays the third installment, the Company
will have an equity ownership of approximately 5% and have the right to purchase
up to approximately 6.25% of the manufacturing capacity in this facility.
Note 6. Long Term Obligations, Leases and Commitments
Operating Leases
The Company leases its headquarters facility under an operating lease which
expires in 1999. The Company has an option to extend the lease for five years
upon expiration. Under the terms of the lease, the Company is required to pay
property taxes, insurance and maintenance costs. In addition, the Company also
leases two sales offices and one administration office under operating leases
which expire in early 1998 and two sales offices on month-to-month leases.
Future minimum rental payments under this lease are as follows:
Fiscal Year (in thousands)
----------- --------------
1998................................... $ 416
1999................................... 372
2000................................... 186
Total payments............................ $ 974
=====
Rent expense for fiscal 1997, fiscal 1996 and fiscal 1995 was $437,000,
$360,000 and $323,000, respectively.
Long Term Obligations
The Company obtained secured financing of $3.8 million at the end of March
1997. This borrowing is collateralized by equipment with a total acquisition
cost of $4.8 million, and bears interest at a fixed rate of 11.26%. No financial
covenants are required to be met under the security agreement related to such
financing.
<PAGE>
Principal and interest are payable in thirty-six consecutive monthly
installments commencing April 1, 1997.
Purchase Commitments
At March 31, 1997, the Company had approximately $18.0 million in
noncancelable purchase commitments with suppliers. The Company expects to sell
all products which it has committed to purchase from suppliers. During the
fourth quarter of fiscal 1996, the average selling prices of the Company's SRAM
products deteriorated significantly. As a result of this deterioration, the
Company recorded a charge of approximately $7.2 million for adverse purchase
commitments related to these SRAM products, which was included in the $45
million charge recorded in the fourth quarter of fiscal 1996 (see Note 1).
Letters of Credit
At March 31, 1997, $5.1 million of unsecured standby letters of credit were
outstanding and expire through June 30, 1997.
Note 7. Provision (benefit) for income taxes
The provision (benefit) for income taxes is comprised of the following:
March 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(in thousands)
Current:
Federal ............................... ($17,419) $ 26,007 $ 13,757
State ................................. -- 4,549 2,104
-------- -------- --------
($17,419) 30,556 15,861
Deferred:
Federal ............................... 8,529 (21,328) (1,307)
State ................................. (100) (2,376) (92)
-------- -------- --------
Total provision (benefit) .... ($ 8,990) $ 6,852 $ 14,462
======== ======== ========
Deferred tax assets (liabilities) comprise the following:
March 31,
---------------------------------
1997 1996 1995
-------- -------- --------
(in thousands)
Inventory reserves ........................ $ 16,212 $ 19,286 $ 352
Accrued expenses and reserves ............. 407 4,520 763
State taxes ............................... -- 1,548 696
NOL carry forward ......................... 1,096 -- --
Inventory capitalization adjustment ....... 136 182 62
-------- -------- --------
17,851 25,536 1,873
Depreciation expense ...................... (702) 42 1
-------- -------- --------
Total net deferred tax assets ............ $ 17,149 $ 25,578 $ 1,874
======== ======== ========
The provision (benefit) for income taxes differs from the amount obtained
by applying the U.S. federal statutory rate to income before income taxes as
follows:
<PAGE>
Year Ended March 31,
----------------------------------
1997 1996 1995
-------- -------- --------
(in thousands, except percentages)
Federal statutory rate ................. 35% 35% 35%
Tax at federal statutory rate ........... $ (8,981) $ 6,149 $ 13,423
State taxes, net of federal benefit ..... (291) 500 1,316
Research and development tax credits .... -- (197) (455)
Other, net .............................. 282 400 178
-------- -------- --------
Total ................................... $ (8,990) $ 6,852 $ 14,462
======== ======== ========
Note 8. Stock Option Plans
1992 Stock Option Plan
In April 1992, the Company adopted the 1992 Stock Option Plan (the "Plan")
and reserved 5,625,000 shares of Common Stock for issuance to employees and
consultants of the Company. The Board of Directors may terminate the Plan at any
time at its discretion. On September 30, 1993, the number of shares of Common
Stock reserved for issuance under the Plan was increased to 7,875,000 and on
September 14, 1995, the number of shares reserved for issuance under the Plan
was increased to 9,000,000. The Option Plan, which has a term of ten years,
provides for incentive as well as nonqualified stock options.
Incentive stock options may not be granted at less than 100 percent of the
estimated fair value, as determined by the Board of Directors, of the Company's
Common Stock at the date of grant and the option term may not exceed 10 years.
For holders of 10 percent or more of the total combined voting power of all
classes of the Company's stock, options may not be granted at less than 110
percent of the estimated fair value of the Common Stock at the date of grant and
the option term may not exceed five years.
<TABLE>
The following table summarizes grant and stock option activity under the
Plan for fiscal year 1997, 1996 and 1995.
<CAPTION>
Options Outstanding
Options ------------------------------------
Available for Weighted
Grant Shares Average Prices
---------- ---------- ---------------
<S> <C> <C> <C>
Balance at March 31, 1994 ................................. 2,200,178 5,275,033 $ 1.37
Options granted ........................................... (639,675) 639,675 14.70
Options canceled .......................................... 520,425 (520,425) 3.18
Options exercised ......................................... -- (935,788) 0.81
---------- ----------
Balance at March 31, 1995 ................................. 2,080,928 4,458,495 $ 2.95
Additional shares authorized .............................. 1,125,000 --
Options granted ........................................... (1,477,102) 1,477,102 17.80
Options canceled .......................................... 941,319 (941,319) 22.65
Options exercised ......................................... -- (855,454) 0.89
---------- ----------
Balance at March 31, 1996 ................................. 2,670,145 4,138,824 $ 4.06
Options granted ........................................... (1,846,738) 1,846,738 7.25
<PAGE>
Options canceled .......................................... 1,387,389 (1,387,389) 9.79
Options exercised ......................................... -- (406,884) 0.98
---------- ----------
Balance at March 31, 1997 ................................. 2,210,796 4,191,289 $ 3.87
========== ==========
</TABLE>
In November 1996, all outstanding options with a share price ranging from
$7.00 per share to $11.00 per share were canceled and repriced with new options
having an exercise price of $6.88 per share, the fair market value as of the
date of the repricing. A total of 952,738 shares were repriced.
As of March 31, 1997, options to purchase approximately 1,729,482 shares of
Common stock were exercisable. Options granted vest over a period of four to
five years.
<TABLE>
The weighted average estimated fair value at the date of grant, as defined
by SFAS 123, for options granted in fiscal 1997 and 1996 was $2.44 and $8.90 per
option, respectively. The estimated grant date fair value disclosed above was
calculated using the Black-Scholes model. This model, as well as other currently
accepted option valuation models, was developed to estimate the fair value of
freely tradable, fully transferable options without vesting restrictions, which
significantly differ from the Company's stock option awards. These models also
require subjective assumptions, including future stock price volatility and
expected time to exercise, which greatly affect the calculated values.
Significant option groups outstanding at March 31, 1997, and related weighted
average exercise price and contractual life information are as follows (share
information in thousands):
Outstanding and Exercisable by Price Range
<CAPTION>
Weighted
Average Weighted Weighted
Number Remaining Average Number Vested Average
Range of Exercise Prices Outstanding Contractual Life Exercise Price and Exercisable Exercise Price
- ------------------------ ----------- ---------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
$0.0445- $1.3333 288,433 1.11 $1.3009 138,807 $ 1.2660
$1.4667- $2.2222 1,911,500 1.12 $1.4917 1,377,750 $ 1.4819
$2.8889- $4.6667 296,585 1.73 $3.5299 178,737 $ 3.4637
$5.1111- $6.7500 248,250 4.84 $6.0178 23,400 $ 5.1693
$6.8750- $7.1250 1,024,146 3.79 $6.8808 1,163 $ 6.8750
$7.2500- $8.0000 240,750 5.66 $7.6625 0 $ 0.0000
$8.4060-$10.6250 181,625 5.80 $8.6043 9,625 $10.5828
--------- ---------
$0.0445-$10.6250 4,191,289 2.50 $3.8685 1,729,482 $ 1.7736
========= =========
</TABLE>
The Company's calculations were made using the following weighted average
assumptions:
March 31,
---------
1997 1996
---- ----
Expected life 5.25 years 5.25 years
Risk-free interest rate 6.3% 6%
Volatility 58% 58%
Dividend yield 0% 0%
Employee Stock Purchase Plan
<PAGE>
In September 1996, the Company and shareholders approved an Employee Stock
Purchase Plan ("ESPP"), which allows eligible employees of the Company and its
subsidiaries to purchase shares of common stock through payroll deductions. The
ESPP consists of a series of 12-month offering periods composed of two
consecutive 6-month purchase periods. The purchase price per share is 85% of the
fair market value of the common stock at the date of commencement of the
offering period or at the last day of each 6-month purchase period. Purchases
are limited to 10% of an eligible employee's compensation, subject to a maximum
annual employee contribution limited to a $25,000 fair market value. Of the
750,000 shares authorized under the ESPP, 35,983 shares were issued during
fiscal 1997.
Compensation costs (included in pro forma net income and net income per
share amounts) for the grant date fair value, as defined by SFAS 123, of the
purchase rights granted under the ESPP were calculated using the Black-Scholes
model. The following weighted average assumptions are included in the estimated
grant date fair value calculations for rights to purchase stock under the ESPP:
March 31, 1997
--------------
Expected life 6 months
Risk-free interest rate 5.45%
Volatility 58%
Dividend yield 0%
The weighted average estimated grant date fair value, as defined by SFAS
123, or rights to purchase stock under the ESPP granted in fiscal 1997 was $7.99
per share.
Pro Forma Net Income (Loss) and Net Income (Loss) Per Share
Had the Company recorded compensation expense based on the estimated grant
date fair value, as defined by SFAS 123, for awards granted under its 1992 Stock
Option Plan and its Employee Stock Purchase Plan, the Company's pro forma net
income (loss) and net income (loss) per share for the years ended March 31, 1997
and 1996, would have been as follows (in thousands, except per share data):
March 31,
-----------------
1997 1996
---- ----
Pro forma net income (loss): $(18,795) $9,736
Pro forma net income (loss) per share: (0.49) 0.24
The pro forma effect on net income (loss) and net income (loss) per share
for fiscal 1997 and 1996 is not representative of the pro forma effect on net
income in the future years because it does not take in to consideration pro
forma compensation expense related to grants prior to fiscal 1995.
Directors' Stock Option Plan
On September 30, 1993, the Company adopted its 1993 Directors' Stock Option
Plan (the "Directors' Plan"), under which 900,000 shares of Common Stock have
been reserved for issuance. The Directors' Plan provides for the automatic grant
to each non-employee director of the Company of an option to purchase 22,500
shares of Common Stock on the date of such director's election to the Company's
Board of Directors. Thereafter, such director will receive an automatic annual
grant of an
<PAGE>
option to purchase 11,250 shares of Common Stock on the date of each annual
meeting of the Company's stockholders at which such director is re-elected. The
maximum number of shares that may be issued to any one director under this plan
is 90,000. Such options will vest ratably over four years from their respective
dates of grant. As of March 31, 1997, no options had been granted under the
Directors' Plan.
Note 9. 401(k) Salary Savings Plan
Effective May 1992, the Company adopted the Salary Savings Plan ("the
Savings Plan") pursuant to Section 401(k) of the Internal Revenue Code (the
"Code"), whereby eligible employees may contribute up to 15% of their earnings,
not to exceed amounts allowed under the Code. Under the terms of the Savings
Plan, the Company may make contributions at the discretion of the Board of
Directors. No contributions have been made to the Savings Plan by the Company.
Note 10. Legal Matters
In March 1996, a putative class action lawsuit was filed against the
Company and certain of its officers and directors and others in the United
States District Court for the Northern District of California, alleging
violations of Section 10(b) of the Securities Exchange Act of 1934 (the
"Exchange Act") and Rule 10b-5 promulgated thereunder. (The complaint alleged
that the Company, N.D. Reddy and C.N. Reddy also had liability under Section
20(a) of the Exchange Act.) The complaint, brought by an individual who claimed
to have purchased 100 shares of the Company's common stock on November 2, 1995,
was putatively brought on behalf of a class of persons who purchased the
Company's common stock between July 11, 1995 and December 29, 1995. In April
1997, the Court dismissed the complaint, with leave to file an amended
complaint. In June 1997, plaintiff filed an amended complaint against the
Company and certain of its officers and directors alleging violations of
Sections 10(b) and 20(a) of the Exchange Act. The Company intends to continue to
defend vigorously against any claims asserted against it, and believes it has
meritorious defenses against the asserted claims. Due to the inherent
uncertainty of litigation, the Company is not able to reasonably estimate the
potential losses, if any, that may be incurred in relation to this litigation.
In December 1996, Alliance Semiconductor International Corporation
("ASIC"), a wholly-owned subsidiary of the Company, was served with a complaint
alleging that ASIC has infringed two patents (the "AMD Patents") owned by
Advanced Micro Devices, Inc. ("AMD"), and seeking injunctive relief and damages.
In March 1997, the Company was added as a defendant. Each defendant has denied
the allegations of the complaint and asserted a counterclaim for declaration
that each of the AMD Patents is invalid and not infringed by such defendant. The
Company believes that the resolution of this matter will not have a material
adverse effect on the financial condition of the Company.
In February 1997, Micron Technology, Inc. filed an anti-dumping petition
(the "Petition") with the United States International Trade Commission ("ITC")
and United States Department of Commerce ("DOC"), alleging that static random
access memories ("SRAMs") produced in the Korea and in Taiwan are being, and are
likely to be, sold in the United States at less than fair value, and that the
United States industry producing SRAMs is materially injured and is threatened
with material injury by reason of imports of SRAMs manufactured in Korea and
Taiwan. The Petition requests the United States government to impose dumping
margins on the importation into the United States of SRAMs manufactured in Korea
and Taiwan. A material portion of the SRAMs designed and sold by the Company are
manufactured in Taiwan. The Company received preliminary producer and importer
questionnaires from the ITC, and submitted responses to such
<PAGE>
questionnaires in March 1997. In April 1997, the ITC preliminarily determined
that there is a reasonable indication that the imports of the products under
investigation are injuring the United States industry. In April 1997, the
Company received a questionnaire from the DOC. In accordance with the deadlines
established by the DOC, responses to portions of the questionnaire were filed in
May 1997 and June 1997, respectively. The Company anticipates that in the third
or fourth calendar quarter of 1997, the DOC will make a preliminary
determination as to the margin, if any, that should be imposed upon the
importation of the Company's SRAM products fabricated in Taiwan, and that a
final determination as to such margin, if any, would be made by DOC in the
fourth quarter of calendar 1997 or the first quarter of calendar 1998. The
Company anticipates that the ITC, in the fourth quarter of calendar 1997 or the
first quarter of calendar 1998, will make a final determination as to whether
the United States industry producing SRAMs is materially injured and is
threatened with material injury by reason of imports of SRAMs manufactured in
Korea and Taiwan. The Company intends to vigorously seek to ensure that dumping
margins are not imposed on the importation of its SRAM products manufactured in
Taiwan. There can be no assurance, however, that the government will not impose
margins on Alliance's importation of SRAM products into the United States, which
margins could materially adversely affect Alliance's ability to sell such
products in the United States.
The semiconductor industry is characterized by frequent litigation
regarding patent and other intellectual property rights. The Company has from
time to time received and believes that it is likely that it will receive in the
future, notices from parties alleging that certain of the Company's products
infringe their patents. Although the ultimate outcome of these matters and the
matters discussed above is not presently determinable, management believes that
the resolution of these matters will not have a material adverse impact on the
Company's financial position.
<PAGE>
Report of Independent Accountants
Financial Statement Schedule
To the Board of Directors and
Stockholders of Alliance Semiconductor Corporation:
Our audits of the consolidated financial statements referred to in our report
dated April 23, 1997, appearing in this Annual Report on Form 10-K also included
an audit of the Financial Statement Schedule listed in Item 14(a)(2)(i) of this
Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in
all material respects, the information set forth therein when read in conjuction
with the related consolidated financial statements.
/s/ PRICE WATERHOUSE LLP
San Jose, California
April 23, 1997
<PAGE>
<TABLE>
ALLIANCE SEMICONDUCTOR CORPORATION
Schedule II
Valuation and Qualifying Accounts
<CAPTION>
Description Balance at Charged to Charged to
beginning of costs and other Balance at
period expenses accounts Deductions end of period
--------------- --------------- --------------- --------------- ---------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1997
Allowance for doubtful accounts and
sales-related reserves............ $ 3,102 $ 5,803 $ -- $ (8,255) $ 650
======== ======== ======== ======== ========
Inventory related reserves for
excess and obsolescence; and
lower of cost or market issues.... $ 53,555 $16,918 $ -- $(29,741) $40,732
======== ======== ======== ======== ========
Year ended March 31, 1996
Allowance for doubtful accounts and
sales-related reserves............ $ 1,450 $21,874 $ -- $(20,222) $ 3,102
======== ======== ======== ======== ========
Inventory related reserves for
excess and obsolescence; and
lower of cost or market issues.... $ 907 $52,937 $ -- $ (289) $53,555
======== ======== ======== ======== ========
Year ended March 31, 1995
Allowance for doubtful accounts and
sales-related reserves............ $ 190 $ 2,208 $ -- $ (948) $ 1,450
======== ======== ======== ======== ========
Inventory related reserves for
excess and obsolescence; and
lower of cost or market issues.... $ 157 $ 870 $ -- $ (120) $ 907
======== ======== ======== ======== ========
</TABLE>
<PAGE>
UNITED SEMICONDUCTOR CORPORATION
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
<PAGE>
[Price Waterhouse Letterhead]
January 24, 1997
(97) R. L36P1006
To the Board of Directors, Supervisors and
Shareholders of United Semiconductor Corporation
We have examined the accompanying balance sheet of United Semiconductor
Corporation as of December 31, 1996 and 1995, and the related statements of
income, of changes in stockholders' equity and of cash flows for the year ended
December 31, 1996 and the period from October 6, 1995 (date of incorporation) to
December 31, 1995. Our examinations were made in accordance with the "Rules
Governing the Certification of Financial Statements by Certified Public
Accountants" and generally accepted auditing standards and accordingly included
such tests of the accounting records and such other auditing procedures as we
considered necessary in the circumstances.
In our opinion, the accompanying financial statements examined by us present
fairly the financial position of United Semiconductor Corporation at December
31, 1996 and 1995, and the results of its operations and its cash flows for the
year ended December 31, 1996 and the period from October 6, 1995 (date of
incorporation) to December 31, 1995 in conformity with generally accepted
accounting principles consistently applied.
/s/ Price Waterhouse
<PAGE>
<TABLE>
UNITED SEMICONDUCTOR CORPORATION
BALANCE SHEET
DECEMBER 31
(EXPRESSED IN NEW TAIWAN DOLLARS)
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
ASSET
- -------
Current Assets
- --------------
Cash and cash equivalents (Notes 2 and 3(1)) $ 4,542,328,113 $ 3,860,063,715
Marketable securities (Notes 2 and 3(2)) 202,819,527 --
Notes receivable (Note 4)
-related parties 196,616,300 --
Accounts receivable (Notes 3(3) and 4)
-third parties 286,639,035 --
-related parties 368,064,677 --
Other receivable 64,888,273 42,564,139
Inventories (Notes 2 and 3(4)) 485,685,707 --
Prepaid expenses 13,996,178 25,453,434
Other current assets 21,952,269 2,952,269
--------------- -------------
6,180,990,079 3,931,033,557
Property, Plant and Equipment
- -----------------------------
(Notes 2 and 3(5))
Cost
Machinery and equipment 8,611,439,301 --
Transportation equipment 2,563,248 --
Furniture and fixtures 87,660,551 --
Leasehold improvements 8,076,092 --
Other equipment 7,995,047 3,476,190
--------------- -------------
8,717,734,239 3,476,190
Accumulated depreciation (354,607,442) --
Construction in progress and prepayments 662,006,881 484,873,525
--------------- -------------
9,025,133,678 488,349,715
--------------- -------------
Intangible Assets
- -----------------
Deferred pension cost (Note 3(8)) 1,755,914 --
Other intangible asset 1,337,500,000 750,000,000
--------------- -------------
1,339,255,914 750,000,000
--------------- -------------
Other Assets
- ------------
Deposit out 30,063,850 30,000,000
Deferred expense (Note 2) 48,216,648 2,835,311
Deferred income tax assets (Note 2 and 3(11)) 219,785,909 --
--------------- -------------
298,066,407 32,835,311
--------------- -------------
TOTAL ASSETS $16,843,446,078 $ 5,202,218,583
=============== =============
1996 1995
--------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Short-term loans (Note 3(6)) $ 161,520,003 $ 77,031,640
Notes payable (Note 4)
-third parties 106,997,012 25,895,159
-related parties 44,046,462 --
Account payable 295,274,202
Accrued expenses 240,238,934 3,637,821
Accrued payable for equipment 1,551,722,242 41,249,401
Other payable-related parties (Note 4) 55,806,843 --
--------------- ---------------
2,455,605,698 147,814,021
--------------- ---------------
Long-term Liabilities
- ---------------------
Long-term loans (Note 3(7)) 4,329,497,879 --
--------------- ---------------
Other Liabilities
- -----------------
Accrued pension liabilities
(Notes 2 and 3(8)) 1,755,914 --
Deferred income tax liabilities (Notes
2 and 3(11)) -- 13,242,727
--------------- ---------------
1,755,914 13,242,727
--------------- ---------------
Total Liabilities 6,786,859,491 161,056,748
--------------- ---------------
Stockholders' Equity
- --------------------
Common stock (Note 3(9)) 10,000,000,000 5,000,000,000
Retained earnings (Note 3(10)) 56,586,587 41,161,835
--------------- ---------------
Total stockholders' equity 10,056,586,587 5,041,161,835
--------------- ---------------
Commitments and Contingent Liabilities
- --------------------------------------
(Note 6)
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $16,843,446,078 $ 5,202,218,583
--------------- ---------------
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
-2-
<PAGE>
UNITED SEMICONDUCTOR CORPORATION
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
AND THE PERIOD FROM OCTOBER 6, 1995
(DATE OF INCORPORATION) TO DECEMBER 31, 1995
(EXPRESSED IN NEW TAIWAN DOLLARS)
1996 1995
--------------- ---------------
Operating Revenues
Sales revenue (Note 4) $ 1,663,009,609 $ --
Sales returns (7,292,072) --
Sales allowance (40,652,876) --
--------------- ---------------
Net sales 1,615,064,661 --
Other operating revenues 52,372,916 --
--------------- ---------------
Net operating revenues 1,667,437,577 --
--------------- ---------------
Operating Cost
Cost of goods sold (1,182,274,246) --
Other operating cost (32,094,971) --
--------------- ---------------
(1,214,369,217) --
--------------- ---------------
Gross Profit 453,068,360 --
--------------- ---------------
Operating Expenses
Selling expenses (8,665,745) --
Administrative expenses (574,100,548) (10,137,282)
Research and development expenses (221,406,219) (16,649)
--------------- ---------------
(804,172,512) (10,153,931)
--------------- ---------------
Non-operating Income
Interest income 232,942,091 74,342,373
Exchange gain 70,169,615 --
Other income 5,005,518 --
--------------- ---------------
308,117,224 74,342,373
--------------- ---------------
Non-operating Expenses
Interest expense (118,223,706) --
Exchange loss -- (12,730,557)
Provision for loss on obsolescence
of inventories (50,000,000) --
Other loss (23,983,884) (5,592)
--------------- ---------------
(192,207,590) (12,736,149)
--------------- ---------------
(Loss) income before income tax (235,194,518) 51,452,293
Income tax benefit (expense)
(Notes 2 and 3(11)) 250,619,270 (10,290,458)
--------------- ---------------
Net income $ 15,424,752 $ 41,161,835
=============== ===============
The accompanying notes are an integral part of
these financial statements.
-3-
<PAGE>
<TABLE>
UNITED SEMICONDUCTOR CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
AND THE PERIOD FROM OCTOBER 6, 1995
(DATE OF INCORPORATION) TO DECEMBER 31, 1995
(EXPRESSED IN NEW TAIWAN DOLLARS)
<CAPTION>
Retained Total Stockholders'
1995 Common Stock Earnings Equity
---- ------------ -------- ------
<S> <C> <C> <C>
Issued common stock $ 5,000,000,000 $ - $ 5,000,000,000
Net income for 1995 - 41,161,835 41,161,835
--------------- ------------ -------------------
Balance at December 31,
1995 $ 5,000,000,000 $ 41,161,835 $ 5,041,161,835
=============== ============ ===================
1996
- ---------------------------
Balance at January 1, 1996 $ 5,000,000,000 $ 41,161,835 $ 5,041,161,835
Issued common stock 5,000,000,000 - 5,000,000,000
Net income for 1996 - 15,424,752 15,424,752
--------------- ------------ -------------------
Balance at December 31,
1996 $10,000,000,000 $ 56,586,587 $10,056,586,587
=============== ============ ===================
<FN>
The accompanying notes are an integral part of
these financial statements.
</FN>
</TABLE>
-4-
<PAGE>
UNITED SEMICONDUCTOR CORPORATION
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
AND THE PERIOD FROM OCTOBER 6, 1995
(DATE OF INCORPORATION) TO DECEMBER 31, 1995
(EXPRESSED IN NEW TAIWAN DOLLARS)
1996 1995
--------------- ---------------
Operating activities:
Net income $ 15,424,752 $ 41,161,835
Adjustments to reconcile net
income to net cash
provided by (used in)
operating activities
Provision for loss on obsolescence
of inventories 50,000,000 --
Depreciation 354,607,442 --
Amortization Changes in assets and
liabilities account: 166,740,344 --
Increase in notes receivable (196,616,300) --
Increase in accounts receivable (654,703,712) --
Increase in inventories (535,685,707) --
Decrease (Increase) in prepaid expenses 13,457,256 (25,453,434)
Increase in other receivables (22,324,134) (42,564,139)
Increase in other current assets (19,000,000) (2,952,269)
Increase in deferred income tax assets (219,785,909) --
Increase in accounts payable 295,274,202 --
Increase in notes payable 125,148,315 25,895,159
Increase in accrued expenses 292,407,956 3,637,821
(Decrease) increase in deferred income
tax liabilities (13,242,727) 13,242,727
--------------- ---------------
Net cash provided by (used in) operating
activities (348,298,222) 12,967,700
--------------- ---------------
Investing activities:
Acquisition of fixed assets (7,380,918,564) (447,100,314)
Increase in marketable securities (202,819,527) --
Increase in deferred expense (49,621,681) (2,835,311)
Increase in deposits-out (63,850) (30,000,000)
--------------- ---------------
Net cash used in investing activities (7,633,423,622) (479,935,625)
--------------- ---------------
Financing activities:
Increase in short-term loans 84,488,363 77,031,640
Proceeds from long-term loans 4,329,497,879 --
Issued common stock 4,250,000,000 4,250,000,000
--------------- ---------------
Net cash provided by financing activities 8,663,986,242 4,327,031,640
--------------- ---------------
Net increase in cash and cash equivalents 682,264,398 3,860,063,715
Cash and cash equivalents at the beginning
of period 3,860,063,715 --
--------------- ---------------
Cash and cash equivalents at the end of $ 4,542,328,113 $ 3,860,063,715
period ================ ================
-5-
<PAGE>
UNITED SEMICONDUCTOR CORPORATION
STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE PERIOD FROM OCTOBER 6, 1995 (DATE OF INCORPORATION)
TO DECEMBER 31, 1995
(EXPRESSED IN NEW TAIWAN DOLLARS)
1996 1995
--------------- ---------------
Supplemental disclosures of cash flow
information
Cash paid for interest (excluding
interest capitalized) $ 107,332,898 $ --
=============== ===============
Cash paid for income tax $ 1,409,366 $ --
=============== ===============
Investing activities partially paid by
cash
Acquisition of fixed assets $ 8,891,391,405 $ 488,349,715
Add:payable at the beginning of period 41,249,401 --
Less:payable at the end of period (1,551,722,242) (41,249,401)
--------------- ---------------
Cash paid $ 7,380,918,564 $ 447,100,314
=============== ===============
Financing activities partially provided
by cash
Issued common stock $ 5,000,000,000 $ 5,000,000,000
Less:Common stock issued for the
technology knowhow (750,000,000) (750,000,000)
--------------- ---------------
Cash received $ 4,250,000,000 $ 4,250,000,000
=============== ===============
The accompanying notes are an integral part of these
financial statements.
-6-
<PAGE>
UNITED SEMICONDUCTOR CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(EXPRESSED IN NEW TAIWAN DOLLARS)
1. HISTORY AND ORGANIZATION
United Semiconductor Corporation was incorporated as a company limited by
shares on October 6, 1995 and commenced its operations in June, 1996. As of
December 31, 1996, the paid-in capital is $10,000,000,000. The company's
major business activities are as follows:
a. Semiconductor and semiconductor device foundry.
b. Providing the mask tooling, package, burn-in and testing services for
the above-mentioned products.
c. Research and development for the technology of wafer fabrication.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Translation of foreign currency transactions
The accounts of the Company are maintained in New Taiwan dollars.
Transactions denominated in foreign currencies are translated into New
Taiwan dollars at the rates of exchange prevailing on the transaction
dates. Receivables, other monetary assets and liabilities denominated in
foreign currencies are translated into New Taiwan dollars at the rates of
exchange prevailing at the balance sheet date. Exchange gains or losses are
included in the current year's results.
Cash equivalents
Cash equivalents are short-term, highly liquid investments which are:
A. Convertible to known amounts of cash at any time.
B. So near their maturity that they present insignificant risk of changes
in value because of changes in interest rates.
Marketable securities
Marketable securities are recorded at cost when acquired. The carrying
amount of the marketable securities portfolio is stated at the lower of its
aggregate cost or market value at the balance sheet date. The market value
for listed equity securities or close-ended funds are determined by the
average closing prices occurred during the last month of the fiscal year.
The market value for open-ended funds are determined by their equity per
unit at balance sheet date.
Allowance for doubtful accounts
The allowance for doubtful accounts is provided based on the collectibility
and aging analysis of notes and accounts receivable.
-7-
<PAGE>
Inventories
Inventories, except raw materials, are stated at standard cost which is
adjusted to actual cost based on weighted average method at month end.
Inventories are valued at the lower of cost or market value at the year
end. An allowance for loss on obsolescence and decline in market value is
provided when necessary.
Fixed assets
A. Fixed assets are stated at cost. Interest incurred on loans used to
finance the construction of property and plant is capitalized and
depreciated accordingly.
B. Depreciation is provided on the straight-line method using the assets'
economic service lives. When the economic service lives are completed,
fixed assets which are still in use are depreciated based on the
residual value. The service lives of the fixed assets are five years.
C. Maintenance and repairs are charged to expenses as incurred.
Significant renewals and improvements are treated as capital
expenditure and are depreciated accordingly.
Intangible assets
The intangible asset represents the technology knowhow provided by a major
shareholder as a part of paid-in capital. Those assets are amortized over
five years by straight-line method.
Deferred charges
Deferred charges are stated at cost and amortized on a straight-line basis
over the following years: software-3 years; organization expense-5 years.
Retirement plan
The Company has a retirement plan covering all its regular employees. This
plan is separately funded. Starting from 1996, the net pension cost is
computed by actuaries based on FASB No. 18 of the R.O.C., which requires to
consider the cost components such as service cost, interest cost, expected
return on plan assets and amortization of net obligation at transition. The
unrecognized net asset or obligation at transition is amortized equally
over 15 years. Because the Company is newly set-up, the effect on above new
accounting treatment applied is immaterial compared with those used in the
original method in 1996.
Income tax
Income tax is provided based on accounting income after adjusting for
permanent differences. The provision for income tax includes deferred tax
resulting from items reported in different periods for tax and financial
reporting purposes. A valuation allowance is provided for deferred tax
asset to the extent that it is more likely than not that the tax benefits
will not be realized. Over or under provision of prior year income tax
liabilities are included in the current year income tax expense.
Revenue and expenses
Revenue is recognized when the products are delivered or services are
completed. Expenses are recognized as incurred.
-8-
<PAGE>
3. CONTENTS OF SIGNIFICANT ACCOUNTS
(1) CASH AND CASH EQUIVALENTS
December 31
----------------------------------
1996 1995
-------------- --------------
Cash:
Cash on hand $ 1,056,246 $ 507,860
Demand accounts 2,599,717 47,077,353
Checking accounts 11,870,751 2,908,665
Time deposits 4,526,801,399 3,799,569,837
-------------- --------------
4,542,328,113 3,850,063,715
Cash equivalents:
Bonds with repurchase agreement -- 10,000,000
-------------- --------------
$4,542,328,113 $3,860,063,715
============== ==============
(2) MARKETABLE SECURITIES
December 31
----------------------------------
1996 1995
-------------- --------------
Mutual funds $ 150,248,974 $ -
Listed equity securities stocks 52,570,553 -
-------------- --------------
$ 202,819,527 $ -
============== ==============
(3) ACCOUNTS RECEIVABLE
December 31
----------------------------------
1996 1995
-------------- --------------
Accounts receivable $ 292,546,536 $ -
Less:Allowance for doubtful accounts (5,907,501) -
-------------- --------------
$ 286,639,035 $ -
============== ==============
-9-
<PAGE>
(4) INVENTORIES
December 31
-----------------------------
1996 1995
------------- -----------
Raw materials $ 132,883,532 $ --
Supplies 46,495,089 --
Spare parts 30,734,412 --
Work in process 247,877,444 --
Finished goods 30,200,567 --
Inventory in-transit 47,494,663 --
------------- -----------
535,685,707 --
Less:Allowance for loss on obsolescence (50,000,000) --
------------- -----------
$ 485,685,707 $ --
============= ===========
(5) PROPERTY, PLANT AND EQUIPMENT
December 31, 1996
-----------------------------------------------------
Accumulated
Cost Depreciation Book Value
--------------- --------------- ---------------
Machinery and equipment $ 8,611,439,301 $ (346,433,518) $ 8,265,005,783
Transportation equipment 2,563,248 (142,404) 2,420,844
Furniture and fixtures 87,660,551 (6,481,739) 81,178,812
Leasehold improvements 8,076,092 (959,643) 7,116,449
Other equipment 7,995,047 (590,138) 7,404,909
Construction in progress
and prepayments 662,006,881 -- 662,006,881
--------------- --------------- ---------------
$ 9,379,741,120 $ (354,607,442) $ 9,025,133,678
=============== =============== ===============
December 31, 1995
--------------------------------------------
Accumulated
Cost Depreciation Book Value
------------ ------------ ------------
Leasehold improvements $ 3,476,190 $ -- $ 3,476,190
Construction in progress
and prepayments 484,873,525 -- 484,873,525
------------ ------------ ------------
$488,349,715 $ -- $488,349,715
============ ============ ============
A. Interest expense amounting to $40,880,916 was capitalized in 1996.
B. Please refer to note 5 for assets pledged as collateral.
-10-
<PAGE>
(6) SHORT-TERM LOANS
December 31
-----------------------------------
1996 1995
---------------- -----------
Unsecured loans $ 161,520,003 $77,031,640
================ ===========
Annual interest rates 1.34%-6.81% 1.28%-7.03%
================ ===========
(7) LONG-TERM LOANS
A. Long-term loans are summarized as follows:
December 31
---------------------------------------
1996 1995
-------------- ----------------
Long-term loans $4,329,497,879 $ --
Current portion -- --
-------------- ----------------
$4,329,497,879 $ --
============== ================
B. Interest rates for long-term loans were floating rates. The average
interest rate were 1.31% - 6.44% in 1996.
C. Please refer to note 5 for assets pledged as collateral.
(8) RETIREMENT FUND
A. All of the regular employees of the company are covered by the
pension plan. Under the plan, the company contributes an amount
equal to 2% of total wages on a monthly basis to the pension fund
deposited with the Central Trust of China. Pension benefits are
generally based on service years (two points per year for service
years under 15 years and one point per year for service years over
15 years). Each employee is limited up to 45 points. Retirement
benefits are paid from fund previously provided.
During 1996, the Company has recognized the pension cost amounting
$2,934,402 and contribution to the Company's employees' retirement
fund was $2,494,858.
-11-
<PAGE>
B. Based on actuarial assumptions for the year of 1996, the discount
rate and expected rate of return on plan asset are both 7% and the
rate of compensation increase is 8%. As of December 31, 1996 the
funded status of pension plan is listed as follows:
Vested Benefit Obligation $ --
Non-vested Benefit Obligation (2,346,481)
------------
Accumulated Benefit Obligation (2,346,481)
Effect on projected salary increase (12,681,151)
------------
Projected Benefit Obligation (15,027,632)
Market-related Value of Plan Assets 2,494,858
Projected Benefit Obligation exceeds Plan Asset (12,532,774)
Unrecognized Net Obligation at Transition 302,934
Unrecognized Pension Benefit 13,985,754
The Supplemental Accrued Pension Liability (1,755,914)
------------
Accrued Pension Liability $ --
============
Based on the actuarial report, the net pension cost should be
$738,944 for 1996, however, the Company has contributed to the
retirement fund amounting to $2,494,858, thus, the overprovision of
$1,755,914 was reclassified as deferred pension cost.
(9) COMMON STOCK
The Company increased its capital by issuing 500,000,000 shares of
common stock for cash at the par value of $10 per share which was
approved through a resolution of directors' meeting held on June 21,
1996. The Company has completed the amendment procedures for
registration. After the capitalization, issued and outstanding shares
of common stocks is 1,000,000,000 shares.
(10)RETAINED EARNINGS
A. According to the Company's Articles of Incorporation, current
year's earnings, if any, shall be distributed in the following
order:
(1) paying all taxes and dues;
(2) covering prior years' operating losses, if any;
(3) setting aside 10% of the remaining amount, after deducting (1) and
(2), as legal reserve;
(4) allocating not over 10% of par value of common stocks as interest
of capital to common stockholders.
(5) allocating 1% of the remaining amount, after deducting (1), (2),
(3) and (4) above from the current year's earnings, as directors'
and supervisors' fees;
(6) allocating not below 10% of the remaining amount, after deducting
(1), (2), (3) and (4) above from the current year's earnings, as
employees' bonus;
(7) distributing the remaining amount in accordance with the
resolution of director's meeting and stockholder's meeting.
-12-
<PAGE>
(11) DEFERRED TAXATION
A. As of December 31, 1996, the balance of deferred tax liabilities and
assets are as follows:
1. Deferred tax assets $806,347,640
============
2. Deferred tax liabilities $178,109,462
============
3. Allowance for valuation on deferred tax assets $386,500,000
============
4. The amount of temporary timing differences generated
tax effect $179,176,450
============
5. The amount of investment tax credit generated tax
effect $592,402,888
============
B. The caption in the balance sheet is as follows:
Deferred income tax assets - current $ 21,952,269
Allowance for valuation on deferred income tax
assets- current --
-------------
$ 21,952,269
Deferred income tax assets - noncurrent $ 784,395,371
Allowance for valuation on deferred income tax asset
-noncurrent (386,500,000)
-------------
397,895,371
Deferred income tax liabilities - noncurrent (178,109,462)
-------------
$ 219,785,909
=============
C. Income tax for 1996 is computed as follows:
Current income tax for short-term negotiable income $ 1,409,366
Increase in deferred tax assets (416,895,371)
Increase in deferred tax liabilities 164,866,735
Income tax benefit $(250,619,270)
-13-
<PAGE>
(12)THE INCOME AND EXPENSE FOR THE PERIOD OF DEVELOPMENT STAGE (FOR THE
PERIOD FROM OCTOBER 6, 1995 TO JUNE 10, 1996)
From January 1, 1996 From October 6, 1995
to June 10, 1996 to June 10, 1996
-------------------- --------------------
Operating expenses
Administrative expenses $(430,756,912) $(440,894,194)
Research and development expenses (3,896,276) (3,912,925)
------------- -------------
Operating loss (434,653,188) (444,807,119)
Non-operating income
Interest income 79,816,472 154,158,845
Other income 421,164 421,164
------------- -------------
80,237,636 154,580,009
Non-operating expenses
Exchange loss (17,460,052) (30,190,609)
Other loss (16,986,279) (16,991,871)
------------- -------------
(34,446,331) (47,182,480)
------------- -------------
Net loss for the period of
development stage $(388,861,883) $(337,409,590)
============= =============
4. RELATED PARTY TRANSACTION
(1) Names and Relationships of Related Parties
Name of the related parties The relationship with the Company
--------------------------- ---------------------------------
United Microelectronics Co., Ltd. The major investor of the Company.
United Integrated Circuit Co., Ltd. Common board chairman.
<TABLE>
(2) Significant Related Party Transactions
a. Sales
<CAPTION>
1996 1995
---------------------------- --------------------------
Percentage of Percentage
Amount net sales Amount of net sales
------ --------- ------ ------------
<S> <C> <C> <C> <C>
United Microelectronics
Co., Ltd. $1,073,178,318 64 % $-- --
United Integrated
Circuit Co., Ltd. 1,889,646 -- -- --
-------------- ------- ------ ----
$1,075,067,964 64 % $-- --
============== ======= ====== ====
</TABLE>
-14-
<PAGE>
The above sales are dealt with certain discount in the ordinary course of
business similar to those from other companies. The actual collection period
is appoximately two months.
<TABLE>
b.Purchase
<CAPTION>
1996 1995
-------------------------------------- ----------------------------
Percentage of net Percentage of
Amount Purchase Amount net Purchase
----------- ------------------ ------- --------------
<S> <C> <C> <C> <C>
United Microelectronics
Co., Ltd. $63,089,241 12 % $ - -
=========== ============= ======= ========
</TABLE>
The above purchase are dealt with in the ordinary course of business similar
to those from other companies, and are paid by checks which will become due
after two months from purchase date.
<TABLE>
c. Notes receivable
<CAPTION>
1996 1995
-------------------------------------- ----------------------------
Percentage of Percentage of
Amount notes receivable Amount notes receivable
----------- ------------------ ------- ----------------
<S> <C> <C> <C> <C>
United Microelectronics
Co., Ltd. $196,616,300 100 % $ - -
============ =============== ====== =========
</TABLE>
d. Accounts Receivale
December 31
------------------------------------------------
1996 1995
-------------------------- ------------------
Percentage of Percentage of
accounts accounts
Amount receivable Amount receivable
------------ ------------ ------ -----------
United Microelectronics
Co., Ltd. $367,624,317 56 % $ --
United Integrated
Circuit Co., Ltd. 440,360 -- -- --
------------ ------------ ---- -----------
$368,064,677 56 % $-- --
============ ============ ==== ===========
-15-
<PAGE>
<TABLE>
e. Notes payable
<CAPTION>
December 31
---------------------------------------------------------------------------
1996 1995
--------------------------------- --------------------------------
Percentage of Percentage of
Amount notes payable Amount notes payable
----------- ------------- ---------- --------------
<S> <C> <C> <C> <C>
United Microelectronics
Co., Ltd. $44,046,462 29 % $ - -
=========== ============= ========== ==============
</TABLE>
<TABLE>
f. Other payable
<CAPTION>
December 31
--------------------------------------------------------------------
1996 1995
---------------------------------- --------------------------
Percentage of Percentage of
Amount other payable Amount other payable
----------- --------------- --------- --------------
<S> <C> <C> <C> <C>
United Microelectronics
Co., Ltd. $55,806,843 59 % $ - -
=========== ============= ======= ========
</TABLE>
g. Other transaction
The other transactions with United Microelectronics Co., Ltd. in 1996:
Items Amount
- ---------------------------------- ----------------
Rental expense $153,128,033
============
Factory administration expense $ 24,553,535
============
Electric and water expense $ 75,601,599
============
<TABLE>
5. ASSETS PLEDGED AS COLLATERAL
<CAPTION>
December 31
------------------------------------
Assets 1996 1995 Subject of collateral
- ----------------------- --------------- -------- ---------------------
<S> <C> <C> <C>
Machinery and equipment $ 2,418,834,243 $ - Long-term loan
=============== ========
</TABLE>
6. COMMITMENTS AND CONTINGENT
a. The Company's unused letters of credit for import machinery was
approximately $1,425,746 at December 31, 1996.
b. The Company has signed several contracts for purchase of the equipment
amounting to $5,739,246,000. As of December 31, 1996, the amount of
outstanding obligations for these contracts is $ 1,548,596,000.
c. Certain rightor of patent will want to claim the Company for the
compensation resulting from using its patent in the production.
However, up to December 31, 1996, the above issue is still uncertain.
Thus the amount of compensation can not be estimated.
7. COMPARATIVE FIGURES RECLASSIFICATION
Certain accounts in the 1995 financial statements have been reclassified to
conform with the presentation adopted for the 1996 financial statements.
-16-
ALLIANCE SEMICONDUCTOR CORPORATION
1992 Stock Option Plan
As Adopted April 7, 1992
and amended through September 19, 1996
1. Purpose. This 1992 Stock Option Plan ("Plan") is established as a
compensatory plan to attract, retain and provide equity incentives to selected
persons to promote the financial success of Alliance Semiconductor Corporation,
a Delaware corporation, (the "Company"). Capitalized terms not previously
defined herein are defined in Section 17 of this Plan.
2. Types of Options and Shares. Options granted under this Plan (the
"Options") may be either (a) incentive stock options ("ISOs") within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Revenue
Code"), or (b) nonqualified stock options ("NQSOs"), as designated at the time
of grant. The shares of stock that may be purchased upon exercise of Options
granted under this Plan (the "Shares") are shares of the common stock $.01 par
value per share, of the Company.
3. Number of Shares. The aggregate number of Shares that may be issued
pursuant to Options granted under this Plan is 9,000,000 Shares (as adjusted to
reflect all stock splits, stock dividends or similar transactions as of August
1, 1995), subject to adjustment as provided in this Plan. "Named Executive
Officers" (as that term is defined in Item 402(a)(3) of Regulation S-K
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) shall each be eligible to receive an aggregate of up to a maximum of
2,250,000 Shares at any time during the term of this Plan pursuant to the grant
of Options hereunder, not to exceed 1,125,000 Shares (such numbers have been
adjusted to reflect all stock splits, stock dividends or similar transactions as
of August 1, 1995) during any twelve (12) month period, subject to adjustment as
provided in this Plan. If any Option expires or is terminated without being
exercised in whole or in part, the unexercised or released Shares from such
Options shall be available for future grant and purchase under this Plan. At all
times during the term of this Plan, the Company shall reserve and keep available
such number of Shares as shall be required to satisfy the requirements of
outstanding Options under this Plan.
4. Eligibility. Options may be granted to employees, officers,
directors, consultants, independent contractors and advisers (provided such
consultants, contractors and advisers render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction) of the Company or any Parent, Subsidiary or Affiliate of the
Company. ISOs may be granted only to employees (including officers and directors
who are also employees) of the Company or a Parent or Subsidiary of the Company.
The Committee (as defined in Section 14) in its sole discretion shall select the
recipients of Options ("Optionees"). An Optionee may be granted more than one
Option under this Plan. The Company may also, from time to time, substitute or
assume outstanding options granted by another company, whether in connection
with an acquisition of such other company or otherwise, by either (a) granting
an Option under this Plan in replacement of the option assumed by the Company,
or (b) treating the assumed option as if it had been granted under this Plan if
the terms of such assumed option could be
1
<PAGE>
applied to an Option granted under this Plan. Such substitution or assumption
shall be permissible if the holder of the substituted or assumed option would
have been eligible to be granted an Option hereunder if the other company had
applied the rules of this Plan to such grant.
5. Terms and Conditions of Options. The Committee shall determine
whether each Option is to be an ISO or an NQSO, the number of Shares subject to
the Option, the exercise price of the Option, the period during which the Option
may be exercised, and all other terms and conditions of the Option, subject to
the following:
5.1 Form of Option Grant. Each Option granted under this Plan
shall be evidenced by a written Stock Option Grant (the "Grant") in such form
(which need not be the same for each Optionee) as the Committee shall from time
to time approve, which Grant shall comply with and be subject to the terms and
conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option shall be the
date on which the Committee makes the determination to grant such Option unless
otherwise specified by the Committee. The Grant representing the Option will be
delivered to Optionee with a copy of this Plan within a reasonable time after
the granting of the Option.
5.3 Exercise Price. The exercise price of an Option shall be
determined by the Committee when the Option is granted and may be less than Fair
Market Value (but not less than the par value of the Shares) if permitted by the
Exchange Act; provided, however, that the exercise price of an ISO shall be not
less than 100% of the Fair Market Value of the Shares on the date the Option is
granted. The exercise price of any ISO granted to a person owning more than 10%
of the total combined voting power of all classes of stock of the Company or any
Parent or Subsidiary of the Company ("Ten Percent Stockholder") shall not be
less than 110% of the Fair Market Value of the Shares on the date the Option is
granted.
5.4 Exercise Period. Options shall be exercisable within the
times or upon the events determined by the Committee as set forth in the Grant,
provided, however, that no Option shall be exercisable after the expiration of
ten (10) years from the date the Option is granted, and provided further that no
ISO granted to a Ten Percent Stockholder shall be exercisable after the
expiration of five (5) years from the date the Option is granted.
5.5 Limitations on ISOs. The aggregate Fair Market Value
(determined as of the time an Option is granted) of stock with respect to which
ISOs are exercisable for the first time by an Optionee during any calendar year
(under this Plan or under any other incentive stock option plan of the Company
or any Affiliate, Parent or Subsidiary of the Company) shall not exceed
$100,000. If the Fair Market Value of Shares with respect to which ISOs are
exercisable for the first time by an Optionee during any calendar year exceeds
$100,000, the Options for the first $100,000 worth of Shares to become
exercisable; in such year shall be ISOs and the Options for the amount in excess
of $100,000 that become exercisable in that year shall be NQSOs. In the event
that the Revenue Code or the regulations promulgated thereunder are amended
after the effective date of this Plan to provide for a different limit on the
Fair Market Value of Shares permitted to be subject to ISOs, such different
limit shall be incorporated herein and shall apply to any Options granted after
the effective date of such amendment.
2
<PAGE>
5.6 Options Non-Transferable. Options granted under this Plan
and any interest therein, shall not be transferable or assignable by Optionee,
and may not be made subject to execution, attachment or similar process,
otherwise than by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of Optionee only by Optionee; provided, however,
that NQSOs held by an Optionee who is not an officer or director of the Company
or other person (in each case, an "Insider") whose transactions in the Company's
common stock are subject to Section 16(b) of the Exchange Act, may be
transferred to such family members, trusts and charitable institutions as the
Committee, in its sole discretion, shall approve at the time of the grant of
such Option.
5.7 Assumed Options. In the event the Company assumes an
option granted by another company, the terms and conditions of such option shall
remain unchanged (except the exercise price and the number and nature of shares
issuable upon exercise, which will be adjusted appropriately pursuant to Section
424(c) of the Revenue Code). In the event the Company elects to grant a new
option rather than assuming an existing option (as specified in Section 4), such
new option need not be granted at Fair Market Value on the date of grant and may
instead be granted with a similarly adjusted exercise price.
6. Exercise of Options.
6.1 Notice. Options may be exercised only by delivery to the
Company of a written stock option exercise agreement (the "Exercise Agreement")
in a form approved by the Committee (which need not be the same for each
Optionee), stating the number of Shares being purchased, the restrictions
imposed on the Shares, if any, and such representations and agreements regarding
Optionee's investment intent and access to information, if any, as may be
required by the Company to comply with applicable securities laws, together with
payment in full of the exercise price for the number of Shares being purchased.
6.2 Payment. Payment for the Shares may be made in cash (by
check) or, where permitted by law: (a) by cancellation of indebtedness of the
Company to the Optionee; (b) where approved by the Committee in its sole
discretion at the time of grant, by surrender of shares of common stock of the
Company having a Fair Market Value equal to the applicable exercise price of the
Options, that have been owned by Optionee for more than six (6) months (and
which have been paid for within the meaning of the Securities and Exchange
Commission ("SEC") Rule 144 and, if such Shares were purchased from the Company
by use of a promissory note, such note has been fully paid with respect to such
shares), or were obtained by Optionee in the open public market; and are clear
of all liens, claims, encumbrances and security interests (c) by waiver of
compensation due or accrued to Optionee for services rendered; (d) provided that
a public market for the Company's stock exists, through a "same day sale"
commitment from Optionee and a broker-dealer that is a member of the National
Association of Securities Dealers (an "NASD Dealer") whereby Optionee
irrevocably elects to exercise the Option and to sell a portion of the Shares so
purchased to pay for the exercise price and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward the exercise price directly to
the Company; (e) provided that a public market for the Company's stock exists,
through a "margin" commitment from Optionee and an NASD Dealer whereby Optionee
irrevocably elects to
3
<PAGE>
exercise the Option and to pledge the Shares so purchased to the NASD Dealer in
a margin account as security for a loan from the NASD Dealer in the amount of
the exercise price, and whereby the NASD Dealer irrevocably commits upon receipt
of such Shares to forward the exercise price directly to the Company; or (f) by
any' combination of the foregoing.
6.3 Withholding Taxes. At the discretion of the Committee,
Optionees may satisfy withholding obligations as provided in this paragraph.
When an Optionee incurs tax liability in connection with an Option which tax
liability is subject to tax withholding under applicable tax laws, and the
Optionee is obligated to pay the Company an amount required to be withheld under
applicable tax laws, the Optionee may satisfy the withholding tax obligation by
one or some combination of the following methods: (a) by cash payment, or (b)
out of Optionee's current compensation, (c) if permitted by the Committee, in
its discretion, by surrendering to the Company Shares that (i) in the case of
Shares previously acquired from the Company, have been owned by the Optionee for
more than six months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to or less than Optionee's marginal tax rate
times the ordinary income recognized, or (d) by electing to have the Company
withhold from the Shares to be issued upon exercise of the Option that number of
Shares having a Fair Market Value equal to the amount required to be withheld.
For this purpose, the Fair Market Value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be determined
(the "Tax Date").
Any surrender by an Insider of previously owned
Shares to satisfy tax withholding obligations arising upon exercise of this
Option must comply with the applicable provisions of Rule 16b-3 and shall be
subject to such additional conditions or restrictions as may be required
thereunder to qualify for the maximum exemption from Section 16 of the Exchange
Act with respect to Plan transactions.
All elections by an Optionee to have Shares withheld
to satisfy tax withholding obligations shall be made in writing in a form
acceptable to the Committee and shall be subject to the following restrictions:
(a) the election must be made on or prior to the
applicable Tax Date;
(b) all elections shall be subject to the consent or
disapproval of the Committee.
In the event the election to have Shares withheld is
made by an Optionee and the Tax Date is deferred under Section 83 of the Code
because no election is filed under Section 83(b) of the Code, the Optionee shall
receive the full number of Shares with respect to which the Option is exercised
but such Optionee shall be unconditionally obligated to tender back to the
Company the proper number of Shares on the Tax Date.
6.4 Limitations on Exercise Notwithstanding the exercise
periods set forth in the Grant, exercise of an Option shall always be subject to
the following:
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6.4.1 If Optionee ceases to be employed by the
Company or any Parent, Subsidiary or Affiliate of the Company for any reason
except death or disability, Optionee may exercise such Optionee's Options to the
extent (and only to the extent) that they would have been exercisable upon the
date of termination, within ninety (90) days after the date of termination (or
such shorter time period as may be specified in the Grant);
6.4.2 If Optionee's employment with the Company or
any Parent, Subsidiary or Affiliate of the Company is terminated because of the
death of Optionee or disability of Optionee within the meaning of Section
22(e)(3) of the Revenue Code, Optionee's Options may be exercised to the extent
(and only to the extent) that they would have been exercisable by Optionee on
the date of termination by Optionee (or Optionee's legal representative) within
twelve (12) months after the date of termination (or such shorter time period as
may be specified in the Grant), but in any event no later than the expiration
date of the Options.
6.4.3 If Optionee is an Insider, the Company is
subject to Section 16(b) of the Exchange Act, and Optionee ceases to be employed
by the Company for any reason, Optionee's Option will remain exercisable, as to
the extent (and only to the extent) that it was exercisable on the date of
termination, until the later of (i) the last date such option would be
exercisable under Section 6.4.1 or 6.4.2, as applicable, or (ii) the end of the
thirty (30) day period commencing on the date six months after the grant of such
Option, with any extension beyond ninety (90) days after termination of
employment deemed to be as an NQSO, and provided further that in no event may an
Option be exercisable later than the expiration date of the Option;
6.4.4 The Committee shall have discretion to
determine whether Optionee has ceased to be employed by the Company or any
Parent, Subsidiary, or Affiliate of the Company and the effective date on which
such employment terminated.
6.4.5 In the case of an Optionee who is a director,
independent consultant, contractor or adviser, the Committee will have the
discretion to determine whether Optionee is "employed by the Company or any
Parent, Subsidiary, or Affiliate of the Company" pursuant to the foregoing
Sections.
6.4.6 The Committee may specify a reasonable minimum
number of Shares that may be purchased on any exercise of an Option, provided
that such minimum number will not prevent Optionee from exercising the full
number of Shares as to which the Option is then exercisable.
6.4.7 An Option shall not be exercisable unless such
exercise is in compliance with all applicable federal and state securities laws,
rules and regulations of any governmental body and the requirements of any stock
exchange or national market system upon which the Shares may then be listed, as
they are in effect on the date of exercise. The Company shall be under no
obligation to register the Shares with the SEC or to effect compliance with the
registration. qualification or listing requirements of any state securities
laws, stock exchange or national market system and the Company shall have no
liability for any inability or failure to do so.
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7. Restrictions on Shares. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Grant (a) a right of
first refusal to purchase all Shares that an Optionee (or a subsequent
transferee) may propose to transfer to a third party and/or (b) a right to
repurchase a portion of or all Shares held by an Optionee upon Optionee's
termination of employment or service with the Company or a Parent, Subsidiary or
Affiliate of the Company, for any reason within a specified time as determined
by the Committee at the time of grant at (i) Optionee's original purchase price,
(ii) the Fair Market Value of such Shares or (iii) a price determined by a
formula or other provision set forth in the Grant.
8. Modification, Extension and Renewal of Options. The Committee shall
have the power to modify, extend or renew outstanding Options and to authorize
the grant of new Options in substitution therefor, provided that any such action
may not, without the written consent of Optionee, impair any of the Optionee's
rights under any Option previously granted. Any outstanding ISO that is
modified, extended, renewed or otherwise altered shall be treated in accordance
with Section 424(h) of the Revenue Code. The Committee shall have the power to
reduce the exercise price of outstanding Options without the consent of
Optionees by a written notice to the Optionees affected; provided, however, that
the exercise price per Share may not be reduced below the minimum exercise price
that would be permitted under Section 5.3 of this Plan for Options granted on
the date the action is taken to reduce the exercise price; and provided further,
that the Exercise Price shall not be reduced below the par value of the Shares.
9. Privileges of Stock Ownership. No Optionee shall have any of the
rights of a stockholder with respect to any Shares subject to an Option until
such Option is properly exercised. No adjustment shall be made for dividends or
distributions or other rights for which the record date is prior to such date,
except as provided in this Plan. However, the Company shall provide to each
Optionee, annually, during the period for which such Optionee has one or more
Options outstanding, financial statements of the Company, consisting of, at
minimum, a balance sheet and an income statement. The Company shall not be
required to provide such financial statements to key employees whose duties in
connection with the Company assure them access to equivalent information.
10. No Obligation to Employ. Nothing in this Plan or any Option granted
under this Plan shall confer on any Optionee any right to continue in the employ
of, or other relationship with, the Company or any Parent, Subsidiary or
Affiliate of the Company or limit in any way the right of the Company or any
Parent, Subsidiary or Affiliate of the Company to terminate Optionee's
employment or other relationship at any time, with or without cause.
11. Adjustment of Option Shares. In the event that the number of
outstanding shares of common stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration, or
if a substantial portion of the assets of the Company are distributed, without
consideration in a spin-off or similar transaction, to the stockholders of the
Company, the number of Shares available under this Plan, the number of Shares
subject to outstanding Options, the exercise price per Share of such Options and
the maximum number of Shares for which Options may be granted to Named Executive
Officers of the Company shall be
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proportionately adjusted, subject to any required action by the Board of
Directors (the "Board") or stockholders of the Company and compliance with
applicable securities laws; provided, however, that a fractional share shall not
be issued upon exercise of any Option and any fractions of a Share that would
have resulted shall either be cashed out at Fair Market Value or the number of
Shares issuable under the Option shall be rounded up to the nearest whole
number, as determined by the Committee; and provided further that the exercise
price may not be decreased to below the par value, if any, for the Shares.
12. Assumption of Options by Successors.
12.1 Assumption or Substitution. In the event of (a) a merger
or consolidation in which the Company is not the surviving corporation (other
than a merger or consolidation with a wholly owned subsidiary, a
reincorporation, or other transaction in which there is no substantial change in
the stockholders of the corporation and the Options granted under this Plan are
assumed or replaced by the successor corporation, which assumption shall be
binding on all Optionees), (b) a dissolution or liquidation of the Company, (c)
the sale of substantially all of the assets of the Company, or (d) any other
transaction which qualifies as a "corporate transaction" under Section 424(a) of
the Revenue Code wherein the stockholders of the Company give up all of their
equity interest in the Company (except for the acquisition, sale or transfer of
all or substantially all of the outstanding shares of the Company), any or all
outstanding Options may be assumed or replaced by the successor corporation,
which assumption shall be binding on all Optionees. In the alternative, the
successor corporation may substitute an equivalent option or provide
substantially similar consideration to Optionees as was provided to stockholders
(after taking into account the existing provisions of Optionee's options, such
as the exercise price and the vesting schedule). The successor corporation may
also issue, in place of outstanding shares of the Company held by Optionee as a
result of the exercise of an Option that is subject to repurchase, substantially
similar shares or other property subject to similar repurchase restrictions no
less favorable to Optionee.
12.2 Expiration. In the event such successor corporation, if
any, refuses to assume or substitute Options, as provided above, pursuant to a
transaction described in Section 12.1 above, or there is no successor
corporation, and if the Company is ceasing to exist as a separate corporate
entity, the Options shall, notwithstanding any contrary terms in the Grant,
expire on (and, in the case of a merger or consolidation under Section 12.1 (a)
above, if the Company has reserved to itself a right to repurchase Shares issued
on exercise of Options at the original purchase price of such Shares, such right
shall terminate on), a date at least 20 days after the Board gives written
notice to Optionees specifying the terms and conditions of such termination.
12.3 Additional Provisions. Subject to the foregoing
provisions of this Section 12, in the event of the occurrence of any transaction
described in Section 12.1, any outstanding Option shall be treated as provided
in the applicable agreement or plan of merger, consolidation, dissolution,
liquidation, sale of assets or other "corporate transaction".
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13. Adoption and Stockholder Approval. This Plan shall become effective
on the date that it is adopted by the Board of the Company. This Plan shall be
approved by the stockholders of the Company, in any manner permitted by
applicable corporate law, within twelve months before or after the date this
Plan is adopted by the Board. Upon the effective date of the Plan, the Board may
grant Options pursuant to this Plan; provided that, in the event that
stockholder approval is not obtained within the time period provided herein, all
Options granted hereunder shall terminate. No Option that is issued as a result
of any increase in the number of shares authorized to be issued under this Plan
shall be exercised prior to the time such increase has been approved by the
stockholders of the Company and all such Options granted pursuant to such
increase shall similarly terminate if such stockholder approval is not obtained.
After the Company becomes subject to Section 16(b) of the Exchange Act and
Section 162(m) of the Revenue Code, the Company will comply with the
requirements of Rule 16b-3 with respect to stockholder approval.
14. Administration. This Plan may be administered by the Board or a
committee appointed by the Board (the "Committee"). As used in this Plan,
references to the "Committee" shall mean either the committee appointed by the
Board to administer this Plan or the Board if no committee has been established
14.1 Composition of the Committee. The Committee shall be
comprised of at least two members of the Board of Directors, all of whom are
Outside Directors and Disinterested Persons. The Company will take appropriate
steps to comply with the disinterested administration requirements of Section
16(b) of the Exchange Act, which shall consist of the appointment by the Board
of a Committee consisting of not less than two members of the Board, each of
whom is a Disinterested Person and with the requirements of Section 162(m) of
the Revenue Code with respect to Option grants to the Named Executive Officers
of the Company.
14.2 Committee Authority. The Committee shall have the
authority, without limitation, to:
(a) construe and interpret the Plan, any Grant and
any other agreement or document executed pursuant to the Plan;
(b) prescribe, amend and rescind rules and
regulations relating to the Plan;
(c) select persons to receive Options;
(d) determine the form and terms of Options;
(e) determine the number of Shares subject to
Options;
(f) grant waivers of Plan or Option conditions;
(g) determine the vesting and exercisability of
Options:
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(h) correct any defect, supply any omission, or
reconcile any inconsistency in the Plan, any Grant or any other agreement or
document executed pursuant to the Plan;
(i) make all other determinations necessary or
advisable for the administration of the Plan.
14.3 Committee Interpretation Binding. Any interpretation or
determination made by the Committee with respect to any of the provisions of
this Plan or any Option granted under this Plan shall be made in its sole
discretion and shall be final and binding upon the Company and all persons
having an interest in any Option or any Shares purchased pursuant to an Option.
15. Term or Plan. Options may be granted pursuant to this Plan from
time to time within a period of ten (10) years after the date on which this Plan
is adopted by the Board.
l6. Amendment or Termination of' Plan. The Committee may at any time
terminate or amend this Plan in any respect including (but not limited to)
amendment of any form of grant, exercise agreement or instrument to be executed
pursuant to this Plan; provided, however, that the Committee shall not, without
the approval of the stockholders of the Company, amend this Plan in any manner
that requires such stockholder approval pursuant to the Revenue Code or the
regulations promulgated thereunder or pursuant to the Exchange Act or Rule 16b-3
(or its successor) promulgated thereunder.
17. Certain Definitions. As used in this Plan, the following terms
shall have the following meanings:
17.1 "Affiliate" means any corporation that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, another corporation, where "control" (including
the terms "controlled by" and "under common control with") means the possession,
direct or indirect, of the power to cause the direction of the management and
policies of the corporation, whether through the ownership of voting securities,
by contract or otherwise.
17.2 "Disinterested Person" shall have the meaning set forth
in Rule 16b-(c)(2)(l) as promulgated by the SEC under Section 16(b) of the
Exchange Act, as such rule is amended from time to time and as interpreted by
the SEC.
17.3 "Fair Market Value" shall mean the fair market value of
the Shares as determined by the Committee from time to time in good faith. If a
public market exists for the Shares, the Fair Market Value shall be the average
of the last reported bid and asked prices for common stock of the Company on the
last trading day prior to the date of determination (or the average closing
price over the number of consecutive working days preceding the date of
determination as the Committee shall deem appropriate) or, in the event the
common stock of the Company is listed on a stock exchange or on the NASDAQ
National Market System. the Fair Market Value shall be the closing price on such
exchange or quotation system on the last trading
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<PAGE>
day prior to the date of determination (or the average closing price over the
number of consecutive working days preceding the date of determination as the
Committee shall deem appropriate).
17.4 "Outside Director" shall mean any director who is not (i)
a current employee of the Company or any Parent, Subsidiary or Affiliate of the
Company, (ii) a former employee of the Company or any Parent, Subsidiary or
Affiliate of the Company who is receiving compensation for prior services (other
than benefits under a tax-qualified pension plan), (iii) a current or former
officer of the Company or any Parent, Subsidiary or Affiliate of the Company or
(iv) currently receiving compensation for personal services in any capacity,
other than as a director, from the Company or any Parent, Subsidiary or
Affiliate of the Company; provided. however, that at such time as the term
"Outside Director", as used in Section 162(m) is defined in regulations
promulgated under Section 162(m) of the Revenue Code, "Outside Director" shall
have the meaning set forth in such regulations, as amended from time to time and
as interpreted by the Internal Revenue Service.
17.5 "Parent" means any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company if, at the time of
the granting of the Option, each of such corporations other than the Company
owns stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
17.6 "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if, at
the time of granting of the Option. each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
10
ALLIANCE SEMICONDUCTOR CORPORATION
FORM OF INDEMNITY AGREEMENT
This Indemnity Agreement, dated as of ______________________,
199__, is made by and between Alliance Semiconductor Corporation, a Delaware
corporation with executive offices at 3099 North First Street, San Jose,
California 95134-2006 (the "Company") and __________________________________
("Indemnitee").
RECITALS
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors or officers of corporations unless
they are protected by comprehensive liability insurance or indemnification, due
to increased exposure to litigation costs and risks resulting from their service
to such corporations, and due to the fact that the exposure frequently bears no
reasonable relationship to the compensation of such directors and officers;
B. Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
talented and experience individuals to serve as officers and directors of the
Company and its subsidiaries and to encourage such individuals to take the
business risks necessary for the success of the Company and its subsidiaries, it
is necessary for the Company to contractually indemnify its officers and
directors and the officers and directors of its subsidiaries, and to assume for
itself maximum liability for expenses and damages in connection with claims
against such officers and directors in connection with their service to the
Company and its subsidiaries;
C. Section 145 of the General Corporation Law of Delaware, under which
the Company is organized (collectively with any successor statute thereto that
may be enacted, "Section 145"), empowers the Company to indemnify by agreement
its officers, directors, employees and agents, and persons who serve, at the
request of the Company, as directors, officers, employees or agents of other
corporations or enterprises (including, without limitation, the Company's
subsidiaries), and expressly provides that the indemnification provided by
Section 145 is not exclusive; and
D. The Company desires and has requested Indemnitee to serve or
continue to serve as a director or officer of the Company and/or one or more
subsidiaries of the Company free from undue concern for claims for damages
arising out of or related to such services to the Company and/or one or more the
subsidiaries of the Company.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
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1. Definitions.
1.1 Agent. For the purposes of this Agreement, "agent of the
Company" means any person who is or was a director, officer or employee of the
Company or of a subsidiary of the Company; or is or was serving at the request
of, for the convenience of, or to represent the interests of the Company or a
subsidiary of the Company as a director, officer or employee of another foreign
or domestic corporation, partnership, joint venture, trust or other enterprise
or an affiliate of the Company; or was a director, officer or employee of a
foreign or domestic corporation which was a predecessor corporation of the
Company or a subsidiary of the Company, or was a director, officer or employee
of another enterprise or affiliate of the Company at the request of, for the
convenience of, or to represent the interests of such predecessor corporation.
The term "enterprise" includes, without limitation, any employee benefit plan of
the Company, its subsidiaries, affiliates and predecessor corporations.
1.2 Company. For purposes of this Agreement, references to the
"Company" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents, so that if Indemnitee is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of, for the
convenience of, or to represent the interests of such constituent corporation as
a director, officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise, Indemnitee
shall stand in the same position under the provisions of this Agreement with
respect to the resulting or surviving corporation as Indemnitee would have with
respect to such constituent corporation if its separate existence had continued.
1.3 Expenses. For purposes of this Agreement, "expenses"
includes, without limitation, all and indirect costs of any type or nature
whatsoever (including, without limitation, all attorneys' fees and related
disbursements and other out-of-pocket costs) actually and reasonably incurred by
Indemnitee in connection with either the investigation, defense or appeal of a
proceeding or establishing or enforcing a right to indemnification under this
Agreement, Section 145 or otherwise; provided, however, that expenses shall not
include any judgments, fines, ERISA excise taxes or penalties or amounts paid in
settlement of a proceeding.
1.4 Proceeding. For the purposes of this Agreement,
"proceeding" means any threatened, pending, or completed action, suit,
arbitration or other proceeding, whether civil, criminal, administrative,
investigative or any other type whatsoever.
1.5 Subsidiary. For purposes of this Agreement, "subsidiary"
means any corporation of which more than 50% of the outstanding voting
securities is owned directly or indirectly by the Company, by the Company and
one or more other subsidiaries, or by one or more other subsidiaries.
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<PAGE>
1.6 Certain Other Terms. For the purposes of this Agreement,
"fines" shall include any excise taxes assessed on Indemnitee with respect to an
employee benefit plan, and references to "serving at the request of the Company"
shall include any service as a director, officer, employee or agent of the
Company which imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and if Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in the interests of the participants
and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to
have acted in a manner "not opposed to the best interests of the Company" as
referred to in this Agreement.
2. Agreement to Serve. Indemnitee agrees to serve and/or continue to
serve as an agent of the Company, at the will of the Company (or under separate
agreement, if such agreement exists), in the capacity Indemnitee currently
serves as an agent of the Company, faithfully and to the best of his ability so
long as he is duly appointed or elected and qualified in accordance with the
applicable provisions of the Bylaws or charter documents of the Company or any
subsidiary of the Company; provided, however, that Indemnitee may at any time
and for any reason resign from such position (subject to any contractual
obligation that Indemnitee may have assumed apart from this Agreement) and that
the Company or any subsidiary shall have no obligation under this Agreement to
continue Indemnitee's employment in any such position.
3. Maintenance of Liability Insurance. Whether or not the Company has
the power to indemnify Indemnitee against expenses or liability, the Company
hereby, covenants and agrees that, so long as Indemnitee shall continue to serve
as an agent of the Company and thereafter so long as Indemnitee shall be subject
to any possible proceeding by reason of the fact that Indemnitee was an agent of
the Company, the Company, subject to Section 3(b) hereof, shall use reasonable
efforts to obtain and maintain in full force and effect directors' and officers'
liability insurance ("D&O Insurance") in reasonable amounts from established and
reputable insurers. In all policies of D&O Insurance, Indemnitee shall be named
as an insured in such a manner as to provide Indemnitee the same rights and
benefits as are accorded to the most favorably insured of the Company's
directors, if Indemnitee is a director; or of the Company's officers, if
Indemnitee is not a director of the Company but is an officer of the Company; or
of the Company's key employees, if Indemnitee is not an officer or director of
the Company but is a key employee of the Company. Notwithstanding the foregoing,
the Company shall have no obligation to obtain or maintain D&O Insurance if the
Company determines in good faith that such insurance is not reasonably
available, the premium costs for such insurance are disproportionate to the
amount of coverage provided, the coverage provided by such insurance is limited
by exclusions so as to provide an insufficient benefit, or Indemnitee is covered
by similar insurance maintained by a subsidiary of the Company.
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<PAGE>
4. Mandatory Indemnification.
4.1 Third Party Actions. The Company shall indemnify
Indemnitee if Indemnitee is a person who was or is a party or who is threatened
to be made a party to any proceeding (other than an action by or in the right of
the Company or of any subsidiary of the Company) by reason of the fact that he
is or was an agent of the Company or of any subsidiary of the Company, or by
reason of anything done or not done by him in any such capacity, against any and
all expenses and against any and all liabilities of any type whatsoever
(including, but not limited to, judgments, fines, ERISA excise taxes or
penalties, and amounts paid in settlement) actually and reasonably incurred by
him in connection with such proceeding (including, without limitation, the
investigation, defense, settlement or appeal of such proceeding) if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company or its subsidiaries, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that Indemnitee did not:
act in good faith, act in a manner which Indemnitee reasonably believed to be in
or not opposed to the best interests of the Company or its subsidiaries, or have
reasonable cause to believe his conduct was unlawful.
4.2 Derivative Actions. The Company shall indemnify Indemnitee
if Indemnitee is a person who was or is a party or who is threatened to be made
a party to any proceeding by or in the right of the Company or of any subsidiary
of the Company to procure a judgment in its favor by reason of the fact that he
is or was an agent of the Company or of any subsidiary of the Company, or by
reason of anything done or not done by him in any such capacity, to the fullest
extent permitted by law, against any amounts paid in settlement of any such
proceeding and all expenses actually and reasonably incurred by him in
connection with such proceeding (including, without limitation, the
investigation, defense, settlement, or appeal of such proceeding) if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company or its subsidiaries; except that no
indemnification under this subsection shall be in respect of any claim, issue or
matter as to which such person shall have been finally adjudged to be liable to
the Company or its subsidiaries by a court of competent jurisdiction due to
willful misconduct of a culpable nature in the performance of his duty to the
Company unless and only to the extent that the Court of Chancery or the court in
which such proceeding was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such amounts
which the Court of Chancery or such other court shall deem proper.
4.3 Exception for Amounts Covered by Insurance.
Notwithstanding the foregoing, the Company shall not be obligated to indemnify
Indemnitee for expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines
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ERISA excise taxes or penalties, and amounts paid in settlement) which have been
paid directly to Indemnitee by D&O Insurance.
5. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts
paid in settlement) incurred by him in connection with a proceeding (including,
without limitation, the investigation, defense, settlement or appeal of a
proceeding) but not entitled, however, to indemnification for all of the total
amount thereof, the Company shall nevertheless indemnify Indemnitee for such
total amount except as to the portion thereof to which Indemnitee is not
entitled.
6. Mandatory Advancement of Expenses. To the fullest extent permitted
by law, the Company shall advance all expenses incurred by Indemnitee in
connection with a proceeding (including, without limitation, the investigation,
defense, settlement or appeal of a proceeding) to which Indemnitee is a party or
is threatened to be made a party by reason of the fact that Indemnitee is or was
an agent of the Company or any of its subsidiaries or by reason of anything done
or not done by him in any such capacity. Indemnitee hereby undertakes to repay
such amounts advanced only if, and to the extent that, it shall ultimately be
determined that Indemnitee is not entitled to be indemnified by the Company
under the provisions of this Agreement, the Bylaws or charter documents of the
Company, the General Corporation Law of Delaware or otherwise. The advances to
be made hereunder shall be paid by the Company to Indemnitee in accordance with
Section 7.4 hereof. Notwithstanding the foregoing provisions of this Section 6,
unless otherwise determined pursuant to Section 8, no advance shall be made by
the Company if a determination is reasonably and promptly made by the Board by a
majority vote of a quorum consisting of directors who are not parties to the
proceeding (or, if no such quorum exists, by independent legal counsel in a
written opinion) that the facts known to the decision making party at the time
such determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in the
best interests of the Company and its stockholders.
7. Notice and Other Indemnification Procedures.
7.1 Notice. Promptly after receipt by Indemnitee of notice of
the commencement of or the threat of commencement of any proceeding, Indemnitee
shall, if Indemnitee believes that indemnification with respect thereto may be
sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.
7.2 Insurance. If, at the time of the receipt of a notice of
the commencement of a proceeding pursuant to Section 7.1 hereof, the Company has
D&O Insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause
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<PAGE>
such insurers to pay, on behalf of Indemnitee, all amounts payable as a result
of such proceeding in accordance with the terms of such policies.
7.3 Procedure. In the event the Company shall be obligated to
advance the expenses for any proceeding against Indemnitee, the Company, if
appropriate, shall be entitled to assume the defense of such proceeding. with
counsel approved by Indemnitee, upon the delivery to Indemnitee of written
notice of its election so to do. After delivery of such notice, approval of such
counsel by Indemnitee and the retention of such counsel by the Company, the
Company will not be liable to Indemnitee under this Agreement for any fees of
counsel subsequently incurred by Indemnitee with respect to the same proceeding,
provided that (a) Indemnitee shall have the right to employ his counsel in any
such proceeding at Indemnitee's expense; (b) Indemnitee shall have the right to
employ his counsel in connection with any such proceeding, at the expense of the
Company, if such counsel serves in a review, observer, advice and counseling
capacity and does not otherwise materially control or participate in the defense
of such proceeding; and (c) if (i) the employment of counsel by Indemnitee has
been previously authorized by the Company, (ii) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense or (iii) the Company shall not, in
fact, have employed counsel to assume the defense of such proceeding, then the
fees and expenses of Indemnitee's counsel shall be at the expense of the
Company. In addition, Indemnitee shall give the Company such information and
cooperation as the Company may reasonably require in connection with such
proceeding and as shall be within Indemnitee's power.
7.4 Payment of Indemnification and Advances. Any
indemnification and advances provided for in Sections 4 and 6 shall be made no
later than forty-five (45) days after delivery of the written request of
Indemnitee. If a claim under this Agreement, under any statute, or under any
provision of the Company's charter documents of Bylaws providing for
indemnification, is not paid in full by the Company within forty-five (45) days
after a written request for payment thereof has first been delivered to the
Company, Indemnitee may, but need not, at any time thereafter bring an action
against the Company to recover the unpaid amount of the claim and, subject to
Section 8.5 of this Agreement, Indemnitee shall also be entitled to be paid for
the expenses (including attorneys' fees) of bringing such action. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in connection with any action, suit or proceeding in advance
of its final disposition) that Indemnitee has not met the standards of conduct
which make it permissible under applicable law for the Company to indemnify
Indemnitee for the amount claimed, but the burden of proving such defense shall
be on the Company and Indemnitee shall be entitled to receive interim payments
of expenses pursuant to Section 6 unless and until such defense may be finally
adjudicated by court order or judgment from which no further right of appeal
exists. It is the parties' intention that if the Company contests Indemnitee's
right to indemnification, the question of Indemnitee's right to indemnification
shall be for the court to decide, and neither the failure of the Company
(including, without limitation, the Board, any committee or subgroup of the
Board, independent legal counsel, or the Company's stockholders) to
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have made a determination that indemnification of Indemnitee is proper in the
circumstances because Indemnitee has met the applicable standard of conduct
required by applicable law, nor an actual determination by the Company
(including, without limitation, the Board, any committee or subgroup of the
Board, independent legal counsel, or the Company's stockholders) that Indemnitee
has not met such applicable standard of conduct, shall create a presumption that
Indemnitee has or has not met the applicable standard of conduct.
8. Determination of Right to Indemnification.
8.1 Success on the Merits. To the extent Indemnitee has been
successful on the merits or otherwise in defense of any proceeding referred to
in Section 4.1 or 4.2 of this Agreement or in the defense of any claim, issue or
matter described therein, the Company shall indemnify Indemnitee against
expenses and liabilities actually and reasonably incurred by him in connection
with such proceeding (including, without limitation, the investigation, defense
or appeal of such proceeding).
8.2 Standard of Conduct. In the event that Section 8.1 is
inapplicable, the Company nonetheless shall indemnify Indemnitee, to the fullest
extent permitted by law, unless the Company shall prove by clear and convincing
evidence that Indemnitee has not met the applicable standard of conduct required
to entitle Indemnitee to such indemnification. Such determination shall be made
(a) by a majority vote of the directors who are not parties to such action, suit
or proceeding, even though less than a quorum, or (b) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (c) by the stockholders of the Company. To the extent
permitted by law, Indemnitee shall be entitled to select the forum in which
Indemnitee's entitlement to indemnification will be determined.
8.3 Claim. As soon as practicable. and in no event later than
thirty (30) days after written notice of Indemnitee's choice of forum pursuant
to Section 8.2 above, the Company shall, at its own expense, submit to the
selected forum in such manner as Indemnitee or Indemnitee's counsel may
reasonably request, its claim that Indemnitee is not entitled to
indemnification; and the Company shall act in the utmost good faith to assure
Indemnitee a complete opportunity to defend against such claim.
8.4 Determination. If the forum listed in Section 8.2 hereof
selected by Indemnitee determines that Indemnitee is entitled to indemnification
with respect to a specific proceeding, such determination shall be final and
binding on the Company. If the forum listed in Section 8.2 hereof selected by
Indemnitee determines that Indemnitee is not entitled to indemnification with
respect to a specific proceeding, Indemnitee shall have the right to apply to
the Court of Chancery of Delaware, the court in which that proceeding is or was
pending or any other court of competent jurisdiction, for the purpose of
enforcing Indemnitee's right to indemnification pursuant to the Agreement.
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8.5 Expenses of Hearing. Notwithstanding any other provision
in this Agreement to the contrary, the Company shall indemnify Indemnitee
against all expenses incurred by Indemnitee in connection with any hearing or
proceeding under this Section 8 involving Indemnitee and against all expenses
incurred by Indemnitee in connection with any other proceeding between the
Company and Indemnitee involving the interpretation or enforcement of the rights
of Indemnitee under this Agreement, unless a court of competent jurisdiction
finds that each of the material claims and/or defenses of Indemnitee in any such
proceeding was frivolous or not made in good faith.
9. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
9.1 Claims Initiated by Indemnitee. To indemnify or advance
expenses to Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense, except with respect
to proceedings specifically authorized by the Board or brought to establish or
enforce a right to indemnification under this Agreement, the Bylaws or charter
documents of the Company or any subsidiary of the Company, or any statute or law
or otherwise as required under Section 145, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board finds it to be appropriate; or
9.2 Lack of Good Faith. To indemnify Indemnitee for any
expenses incurred by Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by Indemnitee
in such proceeding was not made in good faith or was frivolous; or
9.3 Unauthorized Settlements. To indemnify Indemnitee
hereunder for any amounts paid in settlement of a proceeding unless the Company
consents in advance in writing to such settlement, which approval shall not
unreasonably be denied; or
9.4 Claims by the Company for Willful Misconduct. To indemnify
or advance expenses to Indemnitee under this Agreement for any expenses incurred
by Indemnitee with respect to any proceeding or claim brought by the Company
against Indemnitee for willful misconduct, unless a court of competent
jurisdiction determines that Indemnitee is fairly and reasonably entitled to
indemnification or advancement under the circumstances.
9.5 Securities Law Actions. To indemnify Indemnitee on account
of any suit in which judgment is rendered against Indemnitee for an accounting
of profits made from the purchase or sale by Indemnitee of securities of the
Company pursuant to the provisions of Section 16(b) of the Securities and
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state or local statutory law or in any situation which is contrary to
any undertaking given by the Company to the Securities and Exchange Commission;
or
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9.6 Willful Misconduct. To indemnify Indemnitee on account of
Indemnitee's conduct which is finally adjudged by a court of competent
jurisdiction to have been knowingly fraudulent or deliberately dishonest, or to
constitute willful misconduct or a knowing violation of the law; or
9.7 Improper Personal Benefit. To indemnify Indemnitee on
account of Indemnitee's conduct from which Indemnitee derived an improper
personal benefit; or
9.8 Breach of Duty of Loyalty. To indemnify Indemnitee on
account of conduct that constituted a breach of Indemnitee's duty of loyalty to
the Company or its stockholders; or
9.9 Unlawful Indemnification. To indemnify Indemnitee if a
final decision by a court having jurisdiction in the matter shall determine that
such indemnification is not lawful. Both the Company and Indemnitee acknowledge
that in certain instances, federal law or public policy may override applicable
state law and prohibit the Company from indemnifying its agents under this
Agreement or otherwise. In this respect, the Company and Indemnitee have been
advised that the Securities and Exchange Commission has taken the position that
indemnification for liabilities arising under the federal securities law is
against public policy, and federal legislation prohibits indemnification for
certain ERISA violations. Indemnitee understands and acknowledges that the
Company has undertaken or may be required in the future to undertake with the
Securities and Exchange Commission to submit the question of indemnification to
a court in certain circumstances for a determination of the Company's right or
ability under public policy to indemnify Indemnitee.
10. Non-Exclusivity. The provisions for indemnification and advancement
of expenses set forth in this Agreement shall not be deemed exclusive of any
other rights which Indemnitee may have under any provision of law, the Company's
Bylaws or charter documents, or by the vote of the Company's stockholders or
disinterested directors, other agreements, or otherwise, both as to action in
his official capacity and to action in another capacity while occupying his
position as an agent of the Company or one or more of its subsidiaries, and
Indemnitee's rights hereunder shall continue as to Indemnitee for any action
taken or not taken while serving in an indemnified capacity after Indemnitee has
ceased acting as an agent of the Company or one or more of its subsidiaries and
shall inure to the benefit of the heirs, executors and administrators of
Indemnitee.
11. General Provisions.
11.1 Interpretation of Agreement. It is understood that the
parties hereto intend this Agreement to be interpreted and enforced so as to
provide indemnification to Indemnitee to the fullest extent now or hereafter
permitted by law.
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11.2 Severability. Nothing in this Agreement is intended to
require or shall be construed as requiring the Company to do or fail to do any
act in violation of applicable law. The Company's inability, pursuant to order
of a court of competent jurisdiction or as limited by applicable law, to perform
its obligations under this Agreement shall not constitute a breach of this
Agreement. If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever, (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including, without limitation, all portions of any paragraph of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby, and (b) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, all portions of any
paragraphs of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable and to give effect to
Sections 4 and 6 hereof.
11.3 Amendment, Modification and Waiver. No supplement,
modification or amendment of this Agreement shall be binding unless executed in
writing by both of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
11.4 Subrogation. In the event of payment under this
Agreement, the Company shall be subrogated to the extent of such payment to all
of the rights of recovery of Indemnitee, who shall execute all documents
required and shall do all acts that may be necessary or desirable to secure such
rights and to enable the Company effectively to bring suit to enforce such
rights.
11.5 Counterparts. This Agreement may be executed in one or
more counterparts, which shall together constitute one agreement.
11.6 Successors and Assigns. The terms of this Agreement shall
bind, and shall inure to the benefit of, the successors and assigns of the
parties hereto.
11.7 Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed duly
given (a) if delivered by hand and receipted for by the party addressee or (b)
if mailed by certified or registered mail with postage prepaid, on the third
business day after the mailing date. Addresses for notice to either party are as
shown on the signature page of this Agreement, or as subsequently modified by
written notice.
11.8 Governing Law. This Agreement shall be governed
exclusively by and construed according to the laws of the State of Delaware, as
applied to contracts
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between Delaware residents entered into and to be performed entirely within
Delaware, and without reference to principles of conflicts of law or choice of
law.
11.9 Consent to Jurisdiction. The Company and Indemnitee each
hereby irrevocably consent to the jurisdiction of the Court of Chancery of the
State of Delaware for all purposes in connection with any action or proceeding
which arises out of or relates to this Agreement.
11.10 Scope. Notwithstanding any other provision of this
Agreement, the Company hereby agrees to indemnify Indemnitee to the fullest
extent permitted by law, notwithstanding that such indemnification is not
specifically authorized by the other provisions of this Agreement, the Company's
charter documents or Bylaws, or by statute. In the event of any change, after
the date of this Agreement, in any applicable law, statute, or rule which
expands the right of a Delaware corporation to indemnify a member of its board
of directors or an officer, employee or agent, such changes shall be deemed to
be within the purview of Indemnitee's rights and the Company's obligations under
this Agreement. In the event of any change in any applicable law, statute or
rule which narrows the right of a Delaware corporation to indemnify a member of
its board of directors or an officer, employee or agent, such changes, to the
extent not otherwise required by such law, statute or rule to be applied to this
Agreement, shall have no effect on this Agreement or the parties' rights and
obligations hereunder.
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11.11 Headings; Gender. Headings. The Article and Section
headings used herein are for convenience only and do not define, limit or
construe the content of such sections. The use of the masculine term shall
include the feminine, as appropriate, and use of singular or plural term shall
include the plural and the singular, respectively, as may be required in order
to give the rights of Indemnitee herein the greatest possible scope.
The parties hereto have entered into this Agreement effective as of the
date first above written.
ALLIANCE SEMICONDUCTOR CORPORATION
By: ____________________________________________
N. Damodar Reddy, President
Address: 3099 North First Street
San Jose, California 95134-2006
INDEMNITEE:
________________________________________________
Printed Name: _________________________________
Address: ______________________________________
________________________________________________
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CONFIDENTIAL
TRADEMARK LICENSE AGREEMENT
This Trademark License Agreement (the "Agreement") is made and
entered into this 17th day of October, 1996 (the "Effective Date") by and
between Alliance Semiconductor Corporation, a Delaware corporation with
executive offices at 3099 North First Street, San Jose, California 95134-2006
("Alliance") and Alliance Semiconductor International Corporation, a Delaware
corporation with executive offices at 3099 North First Street, San Jose,
California 95134-2006 ("ASIC").
WHEREAS, Alliance desires to license to ASIC certain valuable
trademarks and/or service marks of Alliance on the terms and conditions set
forth below; and
WHEREAS, ASIC desires to utilize the trademarks and/or service
marks of Alliance on the terms and conditions set forth below; and
WHEREAS, as of the Effective Date, ASIC is a wholly-owned
subsidiary of Alliance;
NOW, THEREFORE, in consideration of the mutual promises set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by both parties, the parties hereby
agree as follows:
1. DEFINITIONS.
1.1 "Marks" shall mean the trademarks and/or any service marks set forth on
Exhibit A attached hereto. Exhibit A may be amended from time to time
by the parties in writing.
1.2 "Logo" shall mean the Alliance Semiconductor Logo set forth in Exhibit
B.
1.3 "Products" shall mean the integrated circuits, software products,
and/or any services associated with the Marks that are set forth in
Exhibit A attached hereto. Exhibit A may be amended from time to time
by the parties in writing.
2. GRANT OF LICENSE.
2.1 Alliance hereby grants to ASIC as a related company, and ASIC hereby
accepts, subject to the terms and conditions of this Agreement, a
worldwide, royalty-free, nonexclusive, nontransferable, and
nonassignable license, without right to sublicense, to use the Marks
solely in connection with the manufacture, sale and distribution of the
Products. ASIC shall use the Marks with the Products as designated in
Exhibit A. No damaged or otherwise defective Products bearing
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CONFIDENTIAL
any of the Marks may be sold by ASIC without the prior written approval
of Alliance.
2.2 Nothing in this Agreement shall be construed to prevent Alliance from
granting any other licenses with respect to the Marks, or from
utilizing the Marks in any manner whatsoever. Without limiting the
foregoing, Alliance shall be free to compete with ASIC, or to grant to
licenses to the Marks to competitors of ASIC.
3. USE BY ASIC.
3.1 ASIC agrees that all use of the Marks shall be in accordance with the
usage guide set forth in Exhibit B, attached hereto. Exhibit B may be
amended from time to time by the parties in writing. ASIC agrees to not
modify, deface, or otherwise alter in any manner, the Marks as they
appear with the Products as provided by Alliance to ASIC, without the
prior written approval of Alliance.
3.2 ASIC will submit any advertising copy, label, sticker, packaging or
other use of the Marks, prepared by or for it, to Alliance for written
approval prior to use.
3.3 ASIC shall not use of any of the Marks in combination with any other
trademarks, service marks, names or symbols without the prior written
approval of Alliance.
4. OWNERSHIP, VALIDITY.
4.1 ASIC acknowledges the substantial value of the goodwill associated with
the Marks, and agrees not to challenge, during the term of this
Agreement or any time thereafter, the validity, registration, or
ownership of the Marks, or any of Alliance's rights in and to the
Marks. ASIC agrees that it is a "related company" of Alliance for the
purposes of Section 5 of the Lanham Act.
5. PROTECTION OF MARKS
5.1 ASIC agrees to assist Alliance in the protection of the Marks, and
Alliance may, at its sole discretion, commence and/or prosecute any
claim related to the Marks, in its own name or in the name of ASIC, or
join ASIC as a party thereto. ASIC agrees to notify Alliance of the
infringement or threatened or potential infringement of any of the
Marks which may come to ASIC's attention. Alliance shall have the sole
right to determine whether or not any action shall be taken in the
event of such infringement or threatened or potential infringement.
ASIC agrees to not institute any action in the event of such
infringement or threatened or potential infringement without the prior
written consent of Alliance.
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CONFIDENTIAL
6. REMEDIES.
6.1 ASIC agrees that the improper use of the marks, or failure to cease use
of the Marks upon termination of this Agreement, (i) will substantially
diminish the good will associated with the Marks that are the subject
of this Agreement; (ii) render Alliance's remedy at law for such
unauthorized use inadequate; and (iii) cause irreparable injury in a
short period of time. Accordingly, ASIC agrees that in the event of
such a breach of the Agreement, Alliance, in addition to any other
remedies available to it, shall be entitled to equitable relief,
including, but not limited to, preliminary and permanent injunctive
relief, without a prior showing of inadequacy of remedy at law.
7. TERM AND TERMINATION.
7.1 Term. This Agreement shall be effective as of the Effective Date, and
shall remain in full force for one (1) year. On each anniversary of the
Effective Date, this Agreement shall automatically be renewed for a
further period of one (1) year, unless terminated by a party pursuant
to this Article 7.
7.2 Termination on Six Months' Notice. This Agreement may be terminated by
either party on three (3) month's written notice to the other party.
7.3 Termination for Insolvency. Either party may immediately terminate this
Agreement upon written notice to the other party (the "Other Party)
upon the occurrence of any of the following events (collectively, an
"Insolvency"):
(a) the Other Party files a voluntary petition in bankruptcy or
otherwise seeks protection under any law for the protection of
debtors;
(b) a court having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Other Party in an
involuntary case under Title 11 of the United States Code
entitled "Bankruptcy" or any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, which is not
dismissed within sixty (60) days;
(c) the Other Party makes an assignment for the benefit of
creditors;
(d) a petition should is filed against the Other Party under any
other law for the relief of debtors, or other law similar, the
effect of which is to cause such Other Party to have its
business effectively discontinued;
(e) the other party admits in writing its inability to pay its
debts as they become due;
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CONFIDENTIAL
(f) the other party ceases or suspends business; or
(g) the continued performance of this Agreement by the other party
would result in a violation of the United States export law or
regulations in force at the relevant time.
The occurrence of an Insolvency also shall be deemed a material default
under this Agreement by the party subject to such Insolvency.
7.4 Termination on Occurrence of Prohibited Transaction. Either party may
immediately terminate this Agreement upon written notice to the other
(without prior advance notice) upon the occurrence of any of the
following events (collectively, a "Prohibited Transaction"):
(a) a transfer of a majority interest in the equity or assets of
any other party to a competitor of the terminating party; or
(b) an assignment by the other party of any of its rights and/or
obligations under this Agreement in violation of Section 12.2.
The occurrence of a Prohibited Transaction also shall be deemed a
material default under this Agreement by the party committing the
Prohibited Transaction.
7.5 Termination for Material Breach. Either party may terminate this
Agreement if the other party (the "Defaulting Party") defaults in the
performance of any material obligation hereunder, by given written
notice to the Defaulting Party describing such default (the "Default
Notice"). The termination shall become effective forty-five (45) days
after giving the Default Notice unless
(a) the default described in the Default Notice has been cured
within the forty-five (45) day period;
(b) the default described in the Default Notice reasonably
requires more than forty-five (45) days to correct (any
failure to pay moneys are excluded from this provision), and
the Defaulting Party has used its best efforts to correct the
default within the forty-five (45) day period; in such event,
termination of this Agreement shall not be effective unless
sixty (60) days have expired from the date the Default Notice
was given without corrective action being completed and the
default remedied.
The Default Notice shall describe the default with reasonable
particularity, and the party giving the Default Notice shall promptly
provide the Defaulting Party with such information as the Defaulting
Party reasonably may request in order to remedy the default. The
Defaulting Party shall pay the other for any reasonable costs
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CONFIDENTIAL
associated with providing information to the Defaulting Party pursuant
to the preceding sentence.
7.6 Other Remedies. The remedies stated in this Article 7 (Term and
Termination) shall be in addition to and not in lieu of any other
remedies, including damages, to which a party may be entitled.
7.7 Surviving Terms. The following Articles and Sections shall survive the
termination or expiration of this Agreement: Articles 1, 4, 6, 8-12,
and Sections 2.2 and 7.7. Moreover, termination shall not relieve
either party of obligations incurred prior to the termination.
8. LIMITATION OF LIABILITY.
8.1 NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, AND
REGARDLESS OF WHETHER ANY REMEDY FAILS OF ITS ESSENTIAL PURPOSE, IN NO
EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR TO ANY OTHER
PERSON, CORPORATION OR OTHER ENTITY FOR ANY LOST PROFITS, LOSS OF USE,
COST OF OBTAINING SUBSTITUTE GOODS OR SERVICES, OR ANY INCIDENTAL,
CONSEQUENTIAL, SPECIAL, INDIRECT, EXEMPLARY OR PUNITIVE DAMAGES ARISING
UNDER OR IN ANY WAY RELATING TO THIS AGREEMENT, EVEN IF THAT PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSS OR DAMAGE.
8.2 The provisions of this Article 8 (Limitation of Liability) allocate the
risks between the parties under this Agreement, and the parties'
agreement as to price and other terms of this Agreement reflect the
allocation of risk and limitation of liability set forth above.
9. CONFIDENTIAL INFORMATION.
9.1 The term "Confidential Information" shall mean any and all information,
technical data or know-how related to any aspect of either party's
business or technology including, without limitation, data, know-how,
formulae, processes, designs, photographs, drawings, specifications,
software programs and samples and any other material bearing or
incorporating any such information which is disclosed by one party (the
"Disclosing Party") to the other (the "Receiving Party"), which
information, data or know-how is marked or stipulated as being
"Proprietary", "Confidential," "Strictly Private" or otherwise, using
words of similar significance. Such disclosure may be made either
directly or indirectly, in writing, orally or by drawings, plans or
inspection of products, materials, parts or equipment. In the event the
Disclosing Party of such Confidential Information orally discloses the
information to the Receiving Party, the Disclosing Party
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CONFIDENTIAL
agrees to promptly notify the Receiving Party of the confidentiality of
such oral disclosure and reduce to writing such Confidential
Information and submit the same to the Receiving Party within sixty
(60) days of such oral disclosure, failing which the Receiving Party
shall not be bound by the confidentiality obligations as herein
provided as regards the said information disclosed orally.
9.2 The terms "Disclosing Party" and "Receiving Party" include the
respective party and any person or entity that has the following
relationship to the party at any time after the Effective Date hereof
(collectively, an "Agent"): affiliate, parent, subsidiary, director,
officer, employee, agent or representative. The Receiving Party shall
be liable in accordance with this Agreement for any breaches of this
Article 9committed by a person or entity which, at the time of breach,
was not an Agent of the Receiving Party, but which obtained the
Confidential Information during the time that such person or entity was
an Agent of the Receiving Party.
9.3 Obligations of the Receiving Party with Respect to Confidential
Information. For a period of two (2) years from disclosure of
Confidential Information:
(a) The Receiving Party shall treat as confidential all
Confidential Information of the Disclosing Party, shall not
use such Confidential Information except as set forth herein.
Without limiting the foregoing, the Receiving Party shall use
at least the same degree of care which it uses to prevent the
disclosure of its own confidential information of like
importance to prevent the disclosure of Confidential
Information disclosed to it by the Disclosing Party under this
Agreement. Each party shall promptly notify the other party of
any actual or suspected misuse or unauthorized disclosure of
the other party's Confidential Information.
(b) The Receiving Party shall not use the Confidential Information
for any purpose except as expressly authorized in writing by
the Disclosing Party or to carry out this Agreement. The
Receiving Party agrees that in no event shall it use the
Confidential Information in violation of any applicable law,
including without limitation United States state and federal
securities laws.
(c) The Receiving Party shall not disclose Confidential
Information to its own Agents, except those having a valid
need to know in order for the Receiving Party to carry out
this Agreement, and only if such Agent has a signed agreement
with the Receiving Party restricting the use and disclosure by
the Agent of the Confidential Information, which restrictions
must be at least as stringent as those set forth herein.
(d) The Receiving Party shall not disclose such Confidential
Information to any third party, except as expressly authorized
in writing by the Disclosing
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CONFIDENTIAL
Party, and only if such third party has a signed agreement
signed agreement with the Receiving Party restricting the use
and disclosure by the third of the Confidential Information,
which restrictions must be at least as stringent as those set
forth herein.
9.4 Exceptions. Notwithstanding the above, neither party shall have
liability to the other with regard to any Confidential Information of
the other which the Receiving Party can demonstrate:
(a) was in the public domain at the time it was disclosed or has
entered the public domain through no fault of the Receiving
Party;
(b) was known to the Receiving Party and at its free disposal at
the time of disclosure, as demonstrated by documents in
existence at the time of disclosure;
(c) is disclosed with the prior written approval of the Disclosing
Party;
(d) was independently developed by the Receiving Party without any
use of the Confidential Information, as demonstrated by
documents created at the time of such independent development;
(e) became known to the Receiving Party, without restriction, from
a source other than the Disclosing Party without breach of
this Agreement by the Receiving Party and otherwise not in
violation of the Disclosing Party's rights;
(f) is disclosed generally to third parties by the Disclosing
Party without restrictions similar to those contained in this
Agreement; or
(g) is disclosed pursuant to operation of law or by order or of a
court, administrative agency or other governmental body;
provided, however, that the Receiving Party shall provide
prompt written notice to the Disclosing Party describing the
intended disclosure and the reasons therefor, to enable the
Disclosing Party to take such actions (included but not
limited to requesting a protective order) to prevent or
restrict such disclosure.
9.5 Return of Confidential Information. In the event of termination of this
Agreement, the Receiving Party shall return to the Disclosing Party all
Confidential Information, including all copies, recordings and tangible
manifestations thereof, and the Receiving Party shall immediately cease
any further use of the Confidential Information.
7
<PAGE>
CONFIDENTIAL
9.6 Remedy for Breach of Article 9. Each party recognizes that the damages
which would be incurred by a violation of any of the provisions of this
Article 9 may be of such a nature as not to be susceptible to
calculation, and that monetary damages may therefore be an inadequate
remedy. Each party agrees that if it breaches this Article 9, or
threatens to do so, the Disclosing Party, in addition to all other
remedies to which the Disclosing Party might be entitled, shall be
entitled to injunctions (or extensions of injunctions) without showing
or proving any actual damage to the Disclosing Party or the inadequacy
of a remedy at law.
10. BOOKS AND RECORDS.
10.1 ASIC agrees to keep accurate books of account and records related to
all transactions related to the license granted pursuant to this
Agreement. ASIC agrees to permit Alliance and its duly authorized
agents to examine, at all reasonable hours of the day, such books of
account and records, and all other documents and materials in the
possession or under the control of ASIC related to the subject matter
of this Agreement. ASIC shall keep all such books of account, records
and all other documents and materials for at least six (6) years from
the date of creation thereof.
11. NO ACTIVITY BY ASIC FOR COMPETITORS OF ALLIANCE.
11.1 ASIC shall not, without the advance written consent of Alliance, engage
in any activity on behalf of a competitor of Alliance, including but
not limited to the sale or promotion of integrated circuit products
other than the Products.
12. GENERAL PROVISIONS.
12.1 Force Majeure. In the event that any party hereto shall be rendered
wholly or partly unable to carry out its obligations under this
Agreement by reasons of causes beyond its reasonable control, including
but not limited to fire, flood, explosion, action of the elements, acts
of God, accidents, epidemics, inability to obtain equipment or material
or insurrection, riots or other civil commotion, war, enemy action,
acts, demands or requirements of the government in any state, or by
other cause which it could not reasonably be expected to avoid, then
the performance of the obligations of each party or the parties as they
are affected by such causes shall be excused during the continuance of
any inability so caused but such inability shall as far as possible be
remedied with all reasonable dispatch.
12.2 Assignment. No party to this Agreement may assign this Agreement or any
rights under this Agreement without the express written permission of
the other parties, and any attempt to do so shall be null and void.
Subject to the foregoing, this Agreement shall be binding upon and
shall inure to the benefit of the respective permitted successors and
assigns of the parties. Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties
8
<PAGE>
CONFIDENTIAL
hereto or their respective permitted successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
12.3 Language. This Agreement shall be executed in the English language
which shall be the original and shall control in the event of any
difference between the English text of this Agreement and any
translation hereof which may be made.
12.4 Publicity. The parties agree that the existence of details connected
with this Agreement shall not be published or disclosed to any third
party, except as required at law, securities disclosure regulation or
by auditors, without each other party's written permission.
12.5 Arbitration. All disputes, controversies, or differences which may
arise between the parties, out of or in relation to or in connection
with this Agreement or the breach thereof or with any of the
transactions contemplated hereunder (each an "Arbitrable Claim"), which
cannot be resolved between the parties shall be settled by arbitration
in accordance with the Commercial Arbitration Rules of the American
Arbitration Association ("CAR"), by a panel of three (3) neutral
arbitrators appointed pursuant to the CAR. The arbitrators shall decide
whether a dispute, controversy or difference is an Arbitrable Claim.
Each such arbitrator shall have technical and legal expertise pertinent
to the issues in dispute. No arbitrator shall be paid for more than ten
(10) days of service on this matter at the agreed-upon daily rate, and
the final arbitration award must be rendered not less than fourteen
(14) days following the completion of the arbitration proceeding. Such
arbitration shall be conducted in the English language and shall be
held in San Jose, California, unless the parties agree in writing to
another location. The award shall be final, binding and nonappealable.
The judgment upon the award rendered by the arbitrators may be entered
by any court having jurisdiction thereof, and shall be governed in the
United States by the United States Arbitration Act, 9 U.S.C.
ss.ss.1-16. This Section 12.5 (Arbitration) does not apply to breaches
or threatened breaches of any obligation of Article 9 (Confidential
Information); each party may seek relief from the courts (including
injunctive and other equitable relief) in connection with any such
breach or threatened breach.
12.6 Governing Law; Jurisdiction. This Agreement is made under, and shall be
governed by and construed under the laws of the State of California,
without giving effect to its laws, rules and principles concerning
choice of law or conflicts of law, and excluding the United Nations
Convention on Contracts for the International Sale of Goods. The
federal and state courts of the State of California for the County of
Santa Clara shall have exclusive jurisdiction to adjudicate any dispute
arising out of or in relation to or in connection with this Agreement
or the breach thereof or with any of the transactions contemplated
hereunder; provided that this paragraph does not alter the parties'
agreement to arbitrate disputes as set forth
9
<PAGE>
CONFIDENTIAL
in Section 12.5 (Arbitration) herein. The parties hereby expressly
consent to (i) the personal jurisdiction of the courts of California
and (ii) service of process being effected upon them in the manner set
forth in Section 12.11 (Notices) below.
12.7 Joint Venture. Performance by the parties under this Agreement shall be
as independent contractors. Nothing contained herein or done under the
terms of this Agreement shall constitute the parties entering into a
joint venture or partnership, or shall constitute any party the agent
of any other party for any purpose.
12.8 Compliance with Laws and Regulations. The parties shall comply with all
applicable governmental laws, ordinances and regulations. Each party
will be solely responsible for its own individual violations of any
such laws, ordinances, and regulations. Without limiting the foregoing,
(a) in conformity with the United States Foreign Corrupt Practices
Act, ASIC and its employees and agents shall not directly or
indirectly make or authorize a payment, or offer or promise to
pay, or give or offer or promise to give, or authorize the
giving of anything of value for the purpose of influencing an
act or decision of an official of any government outside the
United States or the United States Government (including a
decision not to act) or inducing such a person to use his
influence to affect any such governmental act or decision in
order to assist Alliance in obtaining, retaining or directing
any such business; and
(b) Alliance shall not violate any laws regulating or restricting
the sale, re-export, delivery, or transfer of goods, services
and/or technology, directly or indirectly, to any entity
engaged in the design, development, production, stockpiling or
use of chemical, biological or nuclear weapons or missiles, or
otherwise in violation of applicable United States export law
or regulation.
12.9 Amendments and Written Consents. No part of this Agreement may be
amended, altered or otherwise changed unless in writing duly executed
by each of the parties hereto; in the case of Alliance, no such writing
shall be effective unless executed by the President of Alliance. Any
written consent required of Alliance must be signed by the President of
Alliance to be effective.
12.10 Entire Agreement. This Agreement, together with any exhibits hereto
(which exhibits are an integral part hereof), constitutes the entire
agreement between the parties with respect to the subject matter
hereof, and supersedes all prior agreements, understandings,
negotiations, representations and proposals, written or oral, with
respect to such subject matter.
10
<PAGE>
CONFIDENTIAL
12.11 Notices. Any notice or communication required or permitted to be given
under this Agreement shall be given in writing in the English language,
and deemed delivered if sent by: (i) personal delivery, with proof of
delivery; (ii) expedited delivery service (e.g.; Federal Express, DHL),
with proof of delivery; (iii) registered or certified U.S. mail, return
receipt requested; or (iv) facsimile or telex transmission, provided
each transmission is confirmed. Each such notice shall be deemed
delivered if addressed as provided below (or to such different
addresses or to the attention of such other persons as may be
designated from time to time by such party by written notice to the
other parties in accordance with this Section). Any such notice or
communication shall be deemed to have been delivered: (a) immediately
if personally served; (b) three (3) days after deposit, delivery charge
pre-paid, with an expedited delivery service; (c) upon receipt of a
transmission confirmation if sent by facsimile or telex; or (d) in the
case of U.S. mail, five (5) days after deposit, postage pre-paid, in
the mails of the U.S.
If to Alliance: If to ASIC:
Alliance Semiconductor Corporation Alliance Semiconductor
3099 North First Street International Corporation
San Jose, California 95134-2006 3099 North First Street
U.S.A. San Jose, California 95134-2006
Attn: N.D. Reddy U.S.A.
fax: (408) 383-4999 Attn: N.D. Reddy
tel: (408) 383-4900 fax: (408) 383-4999
tel: (408) 383-4900
12.12 Severability. If any provision of this Agreement is held invalid,
illegal or unenforceable in any respect (an "Impaired Provision"), (a)
such Impaired Provision shall be interpreted in such a manner as to
preserve, to the maximum extent possible, the intent of the parties,
(b) the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby, and
(c) such decision shall not affect the validity, legality or
enforceability of such Impaired Provision under other circumstances.
The parties agree to negotiate in good faith and agree upon a provision
to substitute for the Impaired Provision in the circumstances in which
the Impaired Provision is invalid, illegal or unenforceable.
12.13 Attorney's Fees. In the event of any arbitration or litigation between
the parties arising under this Agreement, the substantially prevailing
party (the "Prevailing Party") will be entitled to receive from the
other party the Prevailing Party's reasonable attorneys' fees and
costs, including, without limitation, the cost at the hourly charges
routinely charged therefor by the persons providing the services,
reasonable fees and/or allocated costs of staff counsel, and fees and
expenses of experts retained by counsel in connection with such
arbitration or litigation and
11
<PAGE>
CONFIDENTIAL
with any and all appeals or petitions therefrom, in addition to any
other relief to which the Prevailing Party may be entitled.
12.14 Waiver/Exercise of Rights. The failure of any party hereto to enforce,
or the delay by any party in enforcing, any of its rights under this
Agreement shall not be deemed a waiver or a continuing waiver of such
rights or a modification of this Agreement, and such party may, within
the time provided by applicable law, commence appropriate legal
proceedings to enforce any or all such rights. No waiver of a
particular breach or default of this Agreement shall be deemed a waiver
of any other breach or default of this Agreement. All rights and
remedies, whether conferred by this Agreement, by any other instrument
or by law, shall be cumulative, and may be exercised singularly or
concurrently.
12.15 Counterparts. This Agreement may be executed in counterparts, and when
each party has signed and delivered at least one such counterpart, each
counterpart shall be deemed an original, and, when taken together with
other signed counterparts, shall constitute one Agreement, which shall
be binding upon and effective as to all parties.
12.16 Headings. The Article and Section headings used herein are for
convenience only and do not define, limit or construe the content of
such sections.
12.17 Freedom and Authority to Enter Into Agreement. Each party hereby
expressly represents and warrants that it is free to enter into this
Agreement and that such party has not made and will not hereafter make
any agreement or commitment in conflict with the provisions hereof, or
which interferes or might interfere with the full and complete
performance of such party's obligations hereunder. Each party further
represents and warrants that this Agreement, the instruments and
documents contemplated hereby, the performance of the respective
obligations of the parties hereto, and the consummation of the
transactions provided herein have been duly authorized and approved by
all necessary action, and all necessary consents or permits have been
obtained, and neither the execution of this Agreement nor the
performance of the parties' respective obligations hereunder will
violate any term or provision of any valid contract or agreement to
which such party is subject or by which such party is bound. No further
actions or consents are necessary to make this Agreement a valid
binding contract,
12
<PAGE>
CONFIDENTIAL
enforceable against the respective parties in accordance with the terms
hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by duly authorized officers or representatives as of the
date first above written.
ALLIANCE SEMICONDUCTOR ALLIANCE SEMICONDUCTOR
CORPORATION INTERNATIONAL CORPORATION
By: /s/ N. D. Reddy By: /s/ N. D. Reddy
________________________ _________________________
N. D. Reddy, President N. D. Reddy, President
13
<PAGE>
CONFIDENTIAL
EXHIBIT A
TRADEMARKS AND PRODUCTS
- --------------------------------------------------------------------------------
PRODUCTS ASSOCIATED MARKS
- --------------------------------------------------------------------------------
Alliance Semiconductor SRAMs Alliance Logo*
- --------------------------------------------------------------------------------
Alliance Semiconductor DRAMs Alliance Logo*
- --------------------------------------------------------------------------------
Alliance Semiconductor Flash EPROMs Alliance Logo*
- --------------------------------------------------------------------------------
Alliance Semiconductor Graphics Alliance Logo*; ProMotion*;
Accelerators No-cost motion video; BetterHalf;
vWindow; DitherFill
- --------------------------------------------------------------------------------
*Indicates a U.S. Federally Registered Trademark requiring an accompanying (R)
14
<PAGE>
CONFIDENTIAL
EXHIBIT B
TRADEMARK USAGE GUIDE
1. U.S. Federally Registered Marks
a. Alliance Semiconductor Logo
[GRAPHIC OMITTED](R)
b. Word Trademark PROMOTION
ProMotion(R)
or
PROMOTION(R)
2. Other Marks
a. No-Cost Motion Video(TM)
b. BetterHalf (TM)
c. DitherFill(TM)
d. vWindow(TM)
15
<PAGE>
CONFIDENTIAL
AMENDED EXHIBIT A
- --------------------------------------------------------------------------------
PRODUCTS ASSOCIATED MARKS
- --------------------------------------------------------------------------------
Alliance Semiconductor SRAMs Alliance Logo*
- --------------------------------------------------------------------------------
Alliance Semiconductor DRAMs Alliance Logo*
- --------------------------------------------------------------------------------
Alliance Semiconductor Flash EPROMs Alliance Logo*
- --------------------------------------------------------------------------------
Alliance Semiconductor Graphics Alliance Logo*; ProMotion*;
Accelerators ProMotion Logo; No-cost motion
video; BetterHalf;
vWindow; DitherFill;
ProMotion-AT3D; ProMotion-AT24;
ProMotion-3210; ProMotion-6410;
ProMotion-6422; ProMotion
Director's Chair; ProMotion
Director's Tools; PUMA; PISA
- --------------------------------------------------------------------------------
*Indicates a U.S. Federally Registered Trademark requiring an accompanying (R)
This Amended Exhibit A to the Trademark License Agreement dated as of October
17, 1996 between Alliance Semiconductor Corporation and Alliance Semiconductor
International Corporation, a Delaware corporation, is executed as of May 31,
1997.
ALLIANCE SEMICONDUCTOR ALLIANCE SEMICONDUCTOR
CORPORATION INTERNATIONAL CORPORATION
By: /s/ N. D. Reddy By: /s/ N. D. Reddy
____________________________ ___________________________
N. D. Reddy, President N. D. Reddy, President
16
<PAGE>
CONFIDENTIAL
AMENDED EXHIBIT B
TRADEMARK USAGE GUIDE
A. U.S. Federally Registered Marks
1. Alliance Semiconductor Logo
[GRAPHIC OMITTED](R)
2. Word Trademark PROMOTION
ProMotion(R)
or
PROMOTION(R)
B. Other Marks
1. No-Cost Motion Video(TM)
2. BetterHalf (TM)
3. DitherFill(TM)
4. vWindow(TM)
5. ProMotion Logo:
6. ProMotion-AT3D
7. ProMotion-AT24
8. ProMotion-3210
9. ProMotion-6410
10. ProMotion-6422
17
<PAGE>
CONFIDENTIAL
11. ProMotion Director's Chair
12. ProMotion Director's Tools
13. PUMA
14. PISA
This Amended Exhibit B to the Trademark License Agreement dated as of October
17, 1996 between Alliance Semiconductor Corporation and Alliance Semiconductor
International Corporation, a Delaware corporation, is executed as of May 31,
1997.
ALLIANCE SEMICONDUCTOR ALLIANCE SEMICONDUCTOR
CORPORATION INTERNATIONAL CORPORATION
By: /s/ N. D. Reddy By: /s/ N. D. Reddy
____________________________ ____________________________
N. D. Reddy, President N. D. Reddy, President
18
RESTATED AMENDMENT TO FABCO FOUNDRY VENTURE AGREEMENT
This Restated Amendment to Foundry Venture Agreement and
Foundry Capacity Agreement ("Amendment") is entered into as of February 28, 1997
("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 ("S3") and
Alliance Semiconductor Corporation, a Delaware corporation ("Alliance"). By this
Amendment, S3, Alliance, UMC and USC agree to increase the percentage of shares
which UMC may transfer to employees of USC and to employees of UMC in order to
provide further incentives to those employees in connection with their efforts
to contribute to USC, and to allow S3 and Alliance the right to tranfer certain
shares they hold in USC to employees of S3 and Alliance in connection with their
efforts to contribute to USC. Except as expressly amended below, the terms of
the Foundry Venture Agreement (as amended) remains in full force and effect.
1. DEFINITIONS
1.1 "Technology Transfer and License Agreement," "Foundry Venture Agreement,"
"Foundry Capacity Agreement" and "Foundry Venture Memorandum of Understanding"
shall mean the agreements having those titles as entered by and between UMC, S3
and Alliance in connection with the business of FabCo.
1.2 "FabCo" is the name which was given to the entity now known as USC under the
Foundry Venture Agreement, the Foundry Capacity Agreement, and the Technology
Transfer and License Agreement.
1.3 All definitions of the Foundry Capacity Agreement and Foundry Venture
Agreement are incorporated by reference.
2. AMENDMENT OF FOUNDRY VENTURE AGREEMENT
2.1 The Venturers and USC agree to amend the Foundry Venture Agreement to
provide (i) that UMC may transfer up to 9.75% USC standard shares to employees
for incentives, and (ii) that each Venturer other than UMC may transfer up to
9.75% of that respective Venturer's USC standard shares to employees of that
Venturer for incentives.
1
<PAGE>
2.2 Accordingly, the notes accompanying the table of Paragraph 4.1(b) of the
Foundry Venture Agreement are amended to state as follows:
*For purposes of this Foundry Venture 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 FabCo pursuant to
rights granted to UMC Affiliates under this Foundry Venture Agreement without
the prior written consent of the Venturer involved. In addition: (a) UMC may
transfer up to 9.75% 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, and (b) Each Venturer other than UMC may also transfer up to
9.75% of the USC standard shares which that Venturer committed to purchase under
the Foundry Venture Agreement (as amended) to employees of that Venturer for
purposes of providing additional incentives in connection with USC business
without necessity for any prior written consent from USC or from any Venturer,
provided that such shares shall be subject to any voting trust obligations of
the Venturer under the parties respective agreements. **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.
ACCORDINGLY, each Party to this Amendment represents and warrants that the
representatives signing on their respective behalf is authorized to enter into
this Amendment and to bind that Party to its terms.
ALLIANCE SEMICONDUCTOR S3 INCORPORATED
CORPORATION
/s/ N. D. Reddy /s/ Dale R. Lindly
______________________________ _________________________________
N. D. Reddy Dale R. Lindly
President Acting Chief Financial
Officer
UNITED MICROELECTRONICS UNITED SEMICONDUCTOR CORPORATION
CORPORATION (formerly known as "FabCo")
/s/ Ingdar Liu /s/ Peter Chang
______________________________ _________________________________
2
N. DAMODAR REDDY
April 25, 1997
Mr. Robert H. C. Tsao
Chairman, United Microelectronics Corporation
No. 13, Innovation Rd. 1
Science-Based Industrial Park
Hsin-Chu City, Taiwan, R.O.C.
Mr. Gary Johnson
President, S3 Incorporated
2770 San Thomas Expressway
Santa Clara, California 95051
U.S.A.
Mr. Peter Chang
President, United Semiconductor Corporation
No. 3, Li-Hsin Rd.
Science-Based Industrial Park
Hsin-Chu City, Taiwan, R.O.C.
Dear Bob, Gary and Peter:
Alliance Semiconductor Corporation ("Alliance") again
appreciates your agreement to extend the time by which Alliance may exercise the
option to purchase from United Microelectronics Corporation ("UMC") up to 45
million shares of United Semiconductor Corporation ("USC"), as set forth below.
UMC, S3 Incorporated ("S3") and USC agree to extend Alliance
an option to purchase from UMC up to 45 million shares of USC as follows:
(i) The purchase price under these options will be at a per
share price, with the price per share being equal to NTD 10 plus
interest calculated at a cumulative rate of 8.5% per annum (with
interest accruing from July 4, 1996 to the closing date of the purchase
of the shares subject to the options). Alliance shall pay the purchase
price in U.S. dollars, with the exchange rate calculated as of the day
of payment.
(ii) Alliance may exercise these options with at least fifteen
days advance written notice to UMC and S3 given on or before July 15,
1997, but all unexercised options will expire if not fully exercised
(including full payment to UMC for the shares involved) on or before
midnight July 31, 1997 (Taiwan, R.O.C. time).
(iii) Subject to the terms of this letter agreement (the
"Agreement"), Alliance can exercise its option all at once, or in
installments, and thus, with at least
<PAGE>
fifteen days' advance written notice to UMC and S3, can select its
closing date(s) at times it finds convenient, so long as the last such
date occurs on or before July 31, 1997.
UMC, S3 and USC also agree that through at least July 31,
1997, Alliance may retain its production capacity percentage of 25%.
UMC, S3 and USC further agree that (a) this Agreement may be
executed in counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument; and (b) the terms
of Article 9 of the Foundry Venture Agreement dated as of July 8, 1995 by and
among Alliance, UMC and S3 are incorporated by reference as if set forth fully
herein, in each case with this Agreement deemed to be one of the Venture
Agreements.
We remain pleased with the history of cooperation in these
matters shown by the parties, and request that each of you confirm the above
agreement in the space provided below.
Very truly yours,
/s/ N. D. Reddy
N. Damodar Reddy
President
Agreed on behalf of United Microelectronics Agreed on behalf of S3
Corporation Incorporated
/s/ R. Tsao
__________________________________ ____________________________
Robert H. C. Tsao, Chairman Gary Johnson, President
Agreed on behalf of United Semiconductor
Corporation
/s/ Peter Chang
__________________________________
Peter Chang, President
[*] Denotes information for which confidential treatment has been requested.
Confidential portions ommited have been filed separately with the Commission.
RESTATED DRAM LICENSE AND COOPERATION AGREEMENT
This Restated DRAM License and Cooperation Agreement ("Agreement") is
entered into as of February 28, 1996, by and between Alliance Semiconductor
Corporation, a Delaware corporation with its principal offices at 3099 North
First Street, San Jose, California, tel. (408) 383-4900; fax (408) 383-4990
(collectively, Alliance Semiconductor Corporation and its Taiwan subsidiar(ies)
will be referred to as "Alliance"), and United Microelectronics Corporation, a
Taiwan Corporation with its principal place of business at No. 3 Innovation
Road, Science Based Industrial Park Hsin-Chu City, Taiwan, R.O.C., tel. (035)
782-258; fax (035) 774-767 ("UMC").
WHEREAS Alliance is in the business of designing and selling Dynamic Random
Access Memory ("DRAM") integrated circuits and wishes to arrange the manufacture
of such integrated circuits with UMC and/or UMC Affiliates (as defined below) at
Hsin-Chu, Taiwan; and
WHEREAS UMC is in the business of manufacturing and selling integrated circuits,
and wishes to manufacture Alliance DRAM integrated circuits and to sell them to
Alliance and to others;
WHEREAS UMC and Alliance have entered into Foundry Production, Foundry Venture
and Foundry Capacity Agreements in connection with integrated circuit
fabrication facilities located at No. 13 Innovation Road I, and No. 3 Li Hsin
Road, Science-Based Industrial Park, Hsin Chu City, R.O.C.;
WHEREAS UMC and Alliance wish to amend and restate their DRAM License and Wafer
Sharing Agreement entered into as of September 30, 1995 (as supplemented by the
Memorandum of Understanding concerning a meeting between Alliance and UMC held
November 17, 1995) as follows; and
WHEREAS UMC and Alliance wish to cooperate in the sales and marketing of DRAM
integrated circuits, and to participate in certain of the resulting profits as
follows.
UMC AND ALLIANCE AGREE:
1. DEFINITIONS
1.1 "Alliance DRAM" means [*] on behalf of Alliance and [*] at any time during
the term of this Agreement.
1.2 "Capacity and Production Agreements" means current commitments from and/or
concerning any wafer manufacuring facility owned and/or controlled by UMC
Affiliates, including without limitation, the Foundry Capacity Agreement
concerning the entity known as United Semiconductor Corporation (aka in that
Foundry Capacity Agreement as FabCo), the Foundry Capacity Agreement concerning
the entity known as United Silicon Inc. (aka
-1-
<PAGE>
[*] Denotes information for which confidential treatment has been requested.
Confidential portions ommited have been filed separately with the Commission.
in that Foundry Capacity Agreement as FabVen), the Foundry Production Agreement
between Asian Specific Technology Ltd. ("ASTL") and UMC, as amended, and the
Restatement of Capacity Agreement between UMC and Alliance.
1.3 "Derivative DRAM Technology" shall mean [*] under this Agreement. For
purposes of this Agreement, unless expressly stated otherwise, the phrase
"Derivative DRAM Technology" shall not include [*] Notwithstanding anything to
the contrary, nothing in this Agreement shall limit or restrict the rights of a
party to use and/or exploit confidential information belonging to that party,
[*]
1.4 "Intellectual Property" shall mean all designs, patents, copyrights, mask
work rights, and proprietary information of any sort, and in any form,
conceived, reduced to practice and/or developed during the term of this
Agreement.
1.5 "Licensed DRAM" shall mean [*] without limiting the foregoing, Licensed DRAM
shall include [*] and provided further that, [*], nor shall [*] be considered
Licensed DRAM.
1.6 "Excluded DRAM" shall mean [*] during the term of this Agreement.
1.7 "UMC Affiliate" shall mean UMC, United Semiconductor Corporation, United
Silicon Inc., United Integrated Circuits Corporation, and any other fabrication
facility or joint venture majority owned and/or controlled (directly or
indirectly) by UMC during the term of this Agreement.
1.8 "DRAM Capacity" means [*] during the term of this Agreement. The parties
understand that (i) subject to the terms of those agreements, [*], and (ii) [*]
1.9 "[*]
1.10 "[*] Alliance DRAM Production" shall mean [*] production at [*] in full
compliance with the agreed-upon specifications for such product, and in
conformance with commercially acceptable criteria for such product, including,
without limitation, quality, yield, reliability, unit cost, and other
characteristics. [*] Without limiting the foregoing, [*] Alliance DRAM
Production will be [*]
1.11 "UMC [*] DRAM" shall mean [*] during the term of this Agreement, provided
however that a product shall not be considered UMC [*] DRAM [*]. UMC [*] DRAM
does not include DRAM [*]
1.12 "[*] DRAM" shall mean [*]
1.13 "[*] DRAM Rule Capacities" shall mean [*]
-2-
<PAGE>
[*] Denotes information for which confidential treatment has been requested.
Confidential portions ommited have been filed separately with the Commission.
1.14 "[*] Alliance DRAM Production" shall mean [*] including, without
limitation, [*]
2. LICENSE & GRANT OF RIGHTS
2.1 Alliance and UMC will, during the term of this Agreement, [*] with respect
to DRAM Capacity as follows:
(a) During the term of this Agreement, Alliance and UMC [*] such DRAM.
(b) UMC and Alliance shall [*] during the period from the date of this
Agreement until [*], pursuant to [*]:
(i) the [*] Alliance;
(ii) all [*]:
(aa) [*] or
(bb) [*];
provided however that [*]; and
(iii) [*].
(iv) Notwithstanding anything to the contrary, to the extent [*].
(c) For periods subsequent to [*] and during the term of this
Agreement, UMC and Alliance will [*] The parties understand that [*] and during
the term of this Agreement.
(d) While this [*] pursuant to paragraph 4.2 below.
2.2 Without limiting the foregoing, [*]
2.3 Notwithstanding anything to the contrary, [*] and Alliance: (i) Alliance
will [*], (ii) UMC will [*], (iii) all such [*] under this Agreement, and (v)
the [*]. At the request of Alliance, UMC will [*] Specifically, but without
limitation, upon request by Alliance, UMC [*] If, for any reason, such [*], then
UMC will [*]. To this end, UMC shall [*]. UMC hereby [*]
2.4 Each party will own exclusively all Intellectual Property obtained and/or
derived by it prior to the date of this Agreement, as well as all Intellectual
Property developed and/or derived by it thereafter, provided however, that the
parties [*] Without limiting the foregoing and subject only to the specific
licenses granted in this Section 2 of this Agreement:
-3-
<PAGE>
[*] Denotes information for which confidential treatment has been requested.
Confidential portions ommited have been filed separately with the Commission.
(a) Alliance will retain and own exclusively throughout the world, all
rights, title, and interest in designs, patents, copyrights, mask work rights,
and proprietary information in Alliance DRAM;
(b) Alliance will retain and own exclusively throughout the world, all
rights, title, and interest in designs, patents, copyrights, mask work rights,
and proprietary information in components, circuits, portions and/or subparts of
Licensed DRAM to the extent these components, circuits, portions and subparts,
as incorporated into integrated circuits other than those originating with
Alliance, do not incorporate protectable subject matter created, developed
and/or derived by persons other than Alliance;
(c) UMC will retain and own throughout the world all rights, title and
interest in Intellectual Property relating to and/or embodied in processes and
recipes for DRAM integrated circuits.
2.5 Subject to obligations to others under the law and/or agreements with other
parties, and, without limiting any and subject to the other terms of this
Agreement, [*] during the term of this Agreement; provided however that the have
[*] involved.
2.6 Subject to obligations to others under the law and/or agreements with other
parties, and without limiting any and subject to the other terms of this
Agreement, [*] during the term of this Agreement:
(a) For periods during the term of this Agreement after the signing of
this Agreement and prior to [*].
(b) For periods during the term of this Agreement following [*]
involved).
(c) The parties will [*] Notwithstanding anything to the contrary, the
[*] practicable.
(d) Notwithstanding anything to the contrary, [*] during the term of
this Agreement pursuant to the [*] of this paragraph 2.6 shall not be subject to
[*] above, nor shall [*] above.
3. IMPLEMENTATION
3.1 UMC will [*]. UMC and Alliance [*].
3.2 Without altering any obligations of either party under existing written
agreements other than under their prior DRAM License and Wafer Sharing
Agreement:
(a) UMC will [*].
-4-
<PAGE>
[*] Denotes information for which confidential treatment has been requested.
Confidential portions ommited have been filed separately with the Commission.
(b) Within [*] after execution of this Agreement, and thereafter [*],
each party will [*], for all Alliance DRAM, Licensed DRAM, and for all
Derivative DRAM Technology, as well as all [*]. Without limiting the foregoing,
the parties contemplate that they [*] throughout the term of this Agreement,
and, for the term of this Agreement, they will not [*] as required. Without
expanding the scope of the above licenses, the parties shall have the [*]
contemplated under this Agreement. Notwithstanding anything to the contrary,
Alliance [*]
3.3 The commercial terms of sale (including representations, warranties, and
indemnification provisions) of DRAM [*] during the term of this Agreement will
be [*]; provided however
(a) the parties shall not [*] pursuant to the terms of this Agreement;
and
(b) In the event of a [*]
3.4 In addition, UMC and Alliance will [*] in order to enable them to exercise
their rights under this Agreement. Without limiting the foregoing, during the
term of this Agreement:
<TABLE>
(a) UMC shall provide Alliance on a monthly basis with rolling six
month forecasts of UMC's good faith estimates of what, if any, capacity UMC
expects to be available for Licensed DRAM in the next six months. Each such
estimate will include a designation of the fabrication facility where such
capacity is expected to be available. UMC's six month estimates shall also
include [*] Notwithstanding anything to the contrary and subject to the other
terms of this Agreement (I) as a general matter, [*] and (ii) UMC shall [*], and
(iii) the first five months of such forecasts will be an offer to Alliance for
the applicable percentage(s) of [*]:
<CAPTION>
- ------------------- ------------------ ----------------- ------------------ ------------------ ----------------- ------------------
Month 1 2 3 4 5 6
- ------------------- ------------------ ----------------- ------------------ ------------------ ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
[*] [*] [*] [*] [*] [*] [*]
- ------------------- ------------------ ----------------- ------------------ ------------------ ----------------- ------------------
</TABLE>
(b) Alliance will promptly respond to such six month forecasts,
indicating [*] for the six month period involved, and, within five days of
receipt of UMC's six month forecast, Alliance may send [*] a written order for
the [*] pursuant to this Agreement for each of the [*]. All such orders for [*]
according to the terms of this Agreement and the other terms of the applicable
Capacity and Production Agreement. Notwithstanding anything to the contrary, to
the extent Alliance does not [*] pursuant to the terms of this Agreement at
least [*], then (i) all such [*] under the terms above, (ii) subject to
paragraph 3.3(b), [*] (provided that this subparagraph 3.4(b)(ii) does not [*]
under paragraph 2.1), and (iii) [*]
(c) The parties will cooperate in good faith during the term of this
Agreement with respect to [*] as a result.
(d) Within the first ten business days of each month, UMC and Alliance
will notify one another in writing of [*] involved.
-5-
<PAGE>
[*] Denotes information for which confidential treatment has been requested.
Confidential portions ommited have been filed separately with the Commission.
3.5 Each party agrees to inform the other of any applicable restrictions and/or
limitations imposed under the law and/or with respect to the export of
technology involved in Alliance DRAM, Licensed DRAM, and/or Derivative DRAM
Technology, and to comply with such applicable laws.
3.6 Alliance and UMC agree that all information will be subject to the terms of
the Non-Disclosure and Confidential Information Agreements entered into between
them in their current foundry relationships. The parties shall [*] only.
3.7 Subject to the other terms of this Agreement, UMC and Alliance [*] as soon
as possible:
(a) In the [*], UMC and Alliance will [*] as soon as practicable.
Without limiting the foregoing, the [*].
(b) In the [*], UMC and Alliance will each [*].
(c) Beginning with the [*], and continuing throughout the term of this
Agreement, UMC and Alliance will [*]. Without limiting the foregoing, [*].
(d) In [*], UMC and Alliance will [*]. These [*].
(e) During the term of this Agreement, UMC and Alliance will [*]
Accordingly, during the term of this Agreement and subject to its terms and
those of any applicable non-disclosure agreements, UMC and Alliance will [*]
3.8 During [the development phase of each Licensed DRAM developed during] the
term of this Agreement:
(a) Alliance will [*] to UMC,
(b) UMC will [*] to Alliance, and
(c) UMC will [*] provided however that Alliance will reimburse [*].
3.9 Notwithstanding anything to the contrary, [*] during the term of this
Agreement [*], provided however that if [*]
3.10 Notwithstanding anything to the contrary, during the term of this
Agreement, and conditioned upon [*] UMC will [*]
3.11 During the term of this Agreement, subject to their standard non-disclosure
agreements, and under reasonable terms and conditions (including those relating
to safety and fab operation), [*] will be [*] to the extent reasonably necessary
[*] with this Agreement.
-6-
<PAGE>
[*] Denotes information for which confidential treatment has been requested.
Confidential portions ommited have been filed separately with the Commission.
4. MISCELLANEOUS
4.1 This Agreement is the entire agreement between the parties with respect to
its subject matter; it supersedes all prior understandings and agreements with
respect to these matters, and there are no prior representations, warranties or
other agreements relating thereto. This Agreement may not be modified, except in
writing signed by duly authorized officer of each party.
4.2 This Agreement shall be governed by the laws of California, U.S.A. without
regard to the conflicts of laws provisions thereof and without regard to the
United Nations Convention on Contracts for International Sales of Goods. Any
controversy or claims arising out of and/or relating to this Agreement shall be
resolved exclusively by arbitration in the State of Hawaii, U.S.A., in
accordance with the rules of the Asia Pacific Arbitration Center, before a panel
of three neutral arbitrators, one chosen by UMC, one chosen by Alliance and the
third chosen by those two. Notwithstanding anything to the contrary, either
party may seek injunctive relief from any court with jurisdiction over such
matters and the parties involved to the extent necessary and/or appropriate to
protect Intellectual Property from irreparable harm arising out of any actual or
threatened breach of this Agreement.
4.3 Neither party may assign (including assignments by law, mergers,
acquisitions or any other change of control) any rights or obligations under
this Agreement without the other party's prior written consent; any prior
assignment made without the requisite consent shall be null and void; provided
that UMC may fully or partially assign without Alliance's consent, to any other,
UMC's rights to receive any cash payment for product shipped, by sending
Alliance notice of assignment.
4.4 No party shall be liable to any other party for any delay or omission of the
performance for the obligations under this Agreement, other than the obligation
to pay moneys, where the delay or omission is due to any cause or condition
beyond the reasonable control of the other party obliged to perform, including,
but not limited to strikes or other labor difficulty, acts of god and/or of
government (in particular with respect to the refusal to issue necessary import
or export licenses), war, riots embargoes, or inability to obtain supplies.
4.5 Notwithstanding anything to the contrary, neither party shall be liable (on
any theory, contract, tort, statutory, or otherwise) for any special,
incidental,and/or consequential damages, for loss of use, profits, opportunity,
potential and/or reputation or for costs of substitutes.
4.6 This Agreement and its terms shall remain in effect for a period ending [*]
and thereafter will expire unless otherwise agreed upon in writing, provided
however that:
(a) if the parties have [*]; and
(b) in the event of any termination or expiration of this Agreement,
the parties will [*] pursuant to the terms of this Agreement.
-7-
<PAGE>
[*] Denotes information for which confidential treatment has been requested.
Confidential portions ommited have been filed separately with the Commission.
The parties have duly authorized their respective undersigned
representatives to execute this Agreement and bind them to its terms as of the
date set forth above.
ALLIANCE SEMICONDUCTOR CORP. UNITED MICROELECTRONICS CORP.
/s/ N. D. Reddy /s/ M. K. Tsai
- ---------------------------- ----------------------------------
Authorized Signature Authorized Signature
-8-
[*] Denotes information for which confidential treatment has been requested.
Confidential portions ommited have been filed separately with the Commission.
FIRST AMENDMENT TO RESTATED DRAM LICENSE AND COOPERATION AGREEMENT
This First Amendment to Restated DRAM License and Cooperation Agreement
("Amendment") is entered into as of March 26, 1996, by and between Alliance
Semiconductor Corporation, a Delaware Corporation with its principal offices at
3099 North First Street, San Jose, California, tel. (408) 383-4900; fax (408)
383-4990 (collectively, Alliance Semiconductor Corporation and its Taiwan
subsidiar(ies) will be referred to as "Alliance"), and United Microelectronics
Corporation, a Taiwan Corporation with its principal place of business at No. 3
Innovation Road, Science Based Industrial Park Hsin-Chu City, Taiwan, R.O.C.,
tel. (035) 782-258; fax (035) 774-767 ("UMC").
WHEREAS Alliance and UMC wish to amend the Restated DRAM License and Cooperation
Agreement dated as of February 28, 1996 ("Restated DRAM Agreement") to state the
terms and conditions upon which [*] pursuant to the Restated DRAM Agreement;
ACCORDINGLY, the Restated DRAM Agreement is amended to add new paragraph 2.7 as
follows:
"2.7 Subject to the terms and conditions and during the term of this
Agreement, UMC shall [*]:
(a) [*];
(b) [*]; and
(c) [*];
provided however that except as [*]. Notwithstanding anything to the contrary,
UMC shall [*]."
The parties have duly authorized their respective undersigned
representatives to execute this Amendment and bind them to its terms as of the
date set forth above.
ALLIANCE SEMICONDUCTOR CORP. UNITED MICROELECTRONICS CORP.
/s/ N. D. Reddy /s/ M. K. Tsai
- ----------------------------- ----------------------------
Authorized Signature Authorized Signature
[*] Denotes information for which confidential treatment has been requested.
Confidential portions ommited have been filed separately with the Commission.
SECOND AMENDMENT TO RESTATED DRAM LICENSE AND COOPERATION AGREEMENT
This Second Amendment to Restated DRAM License and Cooperation
Agreement ("Second Amendment") is entered into as of July 10, 1996, by and
between Alliance Semiconductor Corporation, a Delaware Corporation with its
principal offices at 3099 North First Street, San Jose, California, tel. (408)
383-4900; fax (408) 383-4990 (collectively, Alliance Semiconductor Corporation
and its Taiwan subsidiar(ies) will be referred to as "Alliance"), and United
Microelectronics Corporation, a Taiwan Corporation with its principal place of
business at No. 3 Innovation Road, Science Based Industrial Park Hsin-Chu City,
Taiwan, R.O.C., tel. (035) 782-258; fax (035) 774-767 ("UMC").
WHEREAS Alliance and UMC are parties to the Restated DRAM License and
Cooperation Agreement dated as of February 28, 1996, as amended by the Amendment
to Restated DRAM License and Cooperation Agreement (entered into as of March 26,
1996) (collectively "Restated DRAM Agreement"), and
WHEREAS Alliance and UMC [*], and
WHEREAS Alliance and UMC agree to again amend their Restated DRAM Agreement to
state the terms and conditions upon which [*] pursuant to the Restated DRAM
Agreement;
ACCORDINGLY, the Restated DRAM Agreement is amended as follows:
Paragraph 2.1(b) is amended to read in its entirety as follows:
"(b) UMC and Alliance shall [*] during the period from the date of
this Agreement until [*], pursuant to [*]:
(i) the [*];
(ii) [*]:
(aa) [*]; or
(bb) [*];
provided however that [*]; and
(iii) [*]:
<TABLE>
<CAPTION>
- --------------------------------- -------------------------------- --------------------------------- -------------------------------
[*] [*] [*] [*]
- --------------------------------- -------------------------------- --------------------------------- -------------------------------
<S> <C> <C> <C>
[*] [*] [*] [*]
- --------------------------------- -------------------------------- --------------------------------- -------------------------------
</TABLE>
<PAGE>
[*] Denotes information for which confidential treatment has been requested.
Confidential portions ommited have been filed separately with the Commission.
Notwithstanding anything to the contrary, for purposes of this Agreement, [*]
provided however that [*]; and provided further that in the event that [*].
Notwithstanding anything to the contrary, UMC shall [*] as required under
paragraph 3.2(b) of the Restated DRAM Agreement (as amended).
(iv) Notwithstanding anything to the contrary, to the extent [*]
For purposes of this paragraph 2.1(b)(iv), [*] as referred to in subpart
(b)(iv)(aa) of this paragraph 2.1.
Paragraph 2.6(d) is amended to read in its entirety as follows:
"(d) Notwithstanding anything to the contrary, [*] during the term
of this Agreement pursuant to the [*] of this paragraph 2.6 shall not be subject
to [*] above."
Paragraph 3.2(b) is amended to read in its entirety as follows:
(b) Within [*] after execution of this Agreement, and thereafter
[*], each party will [*], for all Alliance DRAM, Licensed DRAM, and for all
Derivative DRAM Technology, as well as all [*]. Without limiting the foregoing,
the parties contemplate that they will [*] throughout the term of this
Agreement, and, for the term of this Agreement, they will not [*] unless they
have [*] as required. Without expanding the scope of the above licenses, the
parties shall have the [*] contemplated under this Agreement. Notwithstanding
anything to the contrary, Alliance shall [*]
Paragraph 3.9 is amended to read in its entirety as follows:
"Notwithstanding anything to the contrary, [*] during the term of this
Agreement [*], provided however that if [*]."
The parties have duly authorized their respective undersigned
representatives to execute this Amendment and bind them to its terms as of the
date set forth above.
ALLIANCE UNITED MICROELECTRONICS
CORP.
/s/ N. D. Reddy /s/ Ingdar Liu
- ------------------------ ------------------------
Authorized Signature Authorized Signature
Loan No.:______________
PROMISSORY NOTE
$3,840,000.00 March 28, 1997
FOR VALUE RECEIVED, Alliance Semiconductor Corporation, a Delaware
corporation ("Maker"), promises to pay to the order of Matrix Funding
Corporation, a Utah corporation (together with any holder of this Note,
"Payee"), at its office located at 6925 Union Park Center, Suite 250, Midvale,
UT 84047 or at such other place as Payee may from time to time designate, the
principal sum of Three Million Eight Hundred Forty Thousand and 00/100 Dollars
$3,840,000.00, together with interest thereon at a fixed rate equal to eleven
and 26/100 percent (11.26%) per annum. Principal and interest shall be payable
in thirty-six (36) consecutive monthly installments commencing April 1, 1997,
and continuing on the same day of each consecutive calendar month thereafter
until this Note is fully paid, the first eighteen of which such monthly
installments of principal and interest shall be each in the amount of one
hundred sixty one thousand one hundred ninety seven and 50/100 Dollars
($161,197.50); and the next eighteen of which such monthly installments of
additional principal and interest shall be each in the amount of eighty two
thousand three hundred four dollars and 01/100 ($82,304.01) provided, however,
that in any and all events the final installment payment hereunder shall be in
the amount of the entire then outstanding principal balance hereunder, plus all
accrued and unpaid interest, charges and other amounts owing hereunder or under
the Security Agreement (defined below). All payments shall be applied first to
interest and then to principal. Interest shall be computed on the basis of a 365
day year comprised of 30-day months. Maker shall make an interest only initial
payment on April 1, 1997 of accrued interest from the loan disbursement date
through March 31,1997. Maker's deposit with Payee in the amount of twenty five
thousand and 00/100 ($25,000.00) shall be applied to Maker's initial payment
obligation hereunder.
Notwithstanding the foregoing, if at any time implementation of any
provision hereof shall cause the interest contracted for or charged herein or
collectable hereunder to exceed the applicable lawful maximum rate, then the
interest shall be limited to such applicable lawful maximum.
This Note is secured by the collateral described in the Security
Agreement dated March 28, 1997, between Maker and Payee (the "Security
Agreement;" and together with all related documents and instruments, the "Loan
Documents")to which reference is made for a statement of the nature and extent
of protection and security afforded, certain rights of Payee and certain rights
and obligations of Maker, including Maker's rights, if any, to prepay the
principal balance hereof; provided, however, Maker shall not have the right to
prepay this Promissory Note prior to March 28, 1998. Thereafter, in addition to
any other sum payable hereunder, under the Security Agreement or any of the
other Loan Documents, including but not limited to any installment payment due
hereunder on or before the date of any permitted prepayment, Maker may, at its
sole discretion, terminate its obligation under this Promissory Note at any time
by paying to Payee an amount equal to the greater of (a) the present value of
the all remaining installments of principal and interest due hereunder
("Prepayment") discounted at a rate equal to the yield to maturity as of two
business days prior to the date of the Prepayment of United States Treasury
Securities with a final maturity equal to the remaining term hereof, as
published in the Wall Street Journal, plus three hundred (300) basis points, or
(b) the remaining Balance as of the date of the prepayment as set forth on
Exhibit A hereto.
Time is of the essence hereof. If payment of any installment or any
other sum due under this Note or the Loan Documents is not paid within five (5)
days of the date such payment is due but only twice in any twelve (12) month
period, Maker agrees to pay a late charge equal to the lesser of (i) five cents
(5(cent) ) per dollar on, and in addition to, the amount of each such payment,
or (ii) the maximum amount Payee is permitted to charge by law. In the event of
the occurrence of an Event of Default (as defined in the Security Agreement),
then the entire unpaid principal balance hereof with accrued and unpaid interest
thereon, together with all other sums payable under this Note or the Loan
Documents, shall, at the option of Payee and with notice or demand, become
immediately due and payable ("Accelerated Due Date"), such accelerated balance
bearing interest until paid at the rate of three percent (3%) per annum above
the fixed rate set forth in the first paragraph of this Note from and after the
Accelerated Due Date.
Maker and all endorsers, guarantors or any others who may at any time
become liable for the payment hereof hereby consent to any and all extensions of
time, renewals, waivers and modifications of, and substitutions or release of
security or of any party primarily or secondarily liable on, or with respect to,
this Note or any of the Loan Documents or any of the terms and provisions
thereof that may be made, granted or consented to by Payee, and agree that suit
may
<PAGE>
be brought and maintained against any one or more of them, at the election of
Payee, without joinder of the others as parties thereto, and that Payee shall
not be required to first foreclose, proceed against, or exhaust any security
herefor, in order to enforce payment of this Note by and one or more of them.
Maker and all endorsers, guarantors or any others who may at any time become
liable for the payment hereof hereby severally waive presentment, demand for
payment, notice of nonpayment, protest, notice of protest, notice of dishonor,
and all other notices in connection with this Note, filing of suit and diligence
in collecting this Note or enforcing any of the security herefor, and without,
limiting any provision of any of the Loan Documents, agree to pay, if permitted
by law, all expenses incurred in collection, including reasonable attorneys'
fees, and hereby waive all benefits of valuation, appraisement and exemption
laws.
If there be more than one Maker, all the obligations, promises,
agreements and covenants of Maker under this Note are joint and several.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. AT PAYEE'S ELECTION AND WITHOUT LIMITING PAYEE'S
RIGHT TO COMMENCE AN ACTION IN AND OTHER JURISDICTION, MAKER HEREBY SUBMITS TO
THE EXCLUSIVE JURISDICTION AND VENUE OF ANY COURT (FEDERAL, STATE OR LOCAL)
HAVING SITUS WITHIN THE STATE OF ILLINOIS, COOK COUNTY, EXPRESSLY WAIVES
PERSONAL SERVICE OF PROCESS AND CONSENTS TO SERVICE BY CERTIFIED MAIL, POSTAGE
PREPAID, DIRECTED TO THE LAST KNOWN ADDRESS OF MAKE, WHICH SERVICE SHALL BE
DEEMED COMPLETED WITHIN TEN (10) DAYS AFTER THE DATE OF MAILING THEREOF.
MAKER HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS NOTE. THIS WAIVER IS INFORMED AND
FREELY MADE. MAKER ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT PAYEE HAS ALREADY RELIED ON THE WAIVER
IN MAKING THE LOAN EVIDENCED BY THIS NOTE, AND THAT PAYEE WILL CONTINUE TO RELY
ON THE WAIVER IN ITS RELATED FUTURE DEALINGS. MAKER FURTHER WARRANTS AND
REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
Witness/Attest: Alliance Semiconductor Corporation a
Delaware corporation
/s/ Charles Alvarez By: /s/ N.D Reddy
Name: N. D. Reddy
Title: President
-2-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
TO PROMISSORY NOTE
DATED MARCH 28, 1997 03/27/1997 Page 1
- ------------------------------------------------------------------------------------------------------------
Alliance 4
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Compound Period ........... : Monthly
Nominal Annual Rate........ : 9.530 %
Effective Annual Rate ..... : 9.957 %
Periodic Rate ............. : 0.7942 %
Daily Rate ................ : 0.02611%
</TABLE>
<TABLE>
CASH FLOW DATA
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Event Start Date Amount Number Period End Date
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Loan 03/31/1997 3,916,461.30 1
2 Payment 04/01/1997 161,197.50 18 Monthly 09/01/1998
3 Payment 10/01/1998 82,304.01 18 Monthly 03/01/2000
</TABLE>
<TABLE>
AMORTIZATION SCHEDULE - Normal Amortization
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Date Payment Interest Principal Balance
Loan 03/31/1997 3,916,461.30
1997 Totals 0.00 0.00 0.00
1 04/01/1997 161,197.50 1,022.57 160,174.93 3,756,286.37
2 05/01/1997 161,197.50 29,831.17 131,366.33 3,624,920.04
3 06/01/1997 161,197.50 28,787.91 132,409.59 3,492,510.45
4 07/01/1997 161,197.50 27,736.35 133,461.15 3,359,049.30
5 08/01/1997 161,197.50 26,676.45 134,521.05 3,224,528.25
6 09/01/1997 161,197.50 25,608.13 135,589.37 3,088,938.88
7 10/01/1997 161,197.50 24,531.32 136,666.18 2,952,272.70
8 11/01/1997 161,197.50 23,445.97 137,751.53 2,814,521.17
9 12/01/1997 161,197.50 22,351.99 138,845.51 2,675,675.66
10 01/01/1998 161,197.50 21,249.32 139,948.18 2,535,727.48
11 02/01/1998 161,197.50 20,137.90 141,059.60 2,394,667.88
12 03/01/1998 161,197.50 19,017.65 142,179.85 2,252,488.03
1998 Totals 1,934,370.00 270,396.73 1,663,973.27
13 04/01/1998 161,197.50 17,888.51 143,308.99 2,109,179.04
14 05/01/1998 161,197.50 16,750.40 144,447.10 1,964,731.94
15 06/01/1998 161,197.50 15,603.25 145,594.25 1,819,137.69
16 07/01/1998 161,197.50 14,446.99 146,750.51 1,672,387.18
17 08/01/1998 161,197.50 13,281.54 147,915.96 1,524,471.22
18 09/01/1998 161,197.50 12,106.84 149,090.66 1,375,380.56
19 10/01/1998 82,304.01 10,992.81 71,381.20 1,303,999.36
20 11/01/1998 82,304.01 10,355.93 71,948.08 1,232,051.28
21 12/01/1998 82,304.01 9,784.54 72,519.47 1,159,531.81
22 01/01/1999 82,304.01 9,208.62 73,095.39 1,086,436.42
23 02/01/1999 82,304.01 8,628.12 73,675.89 1,012,760.53
24 03/01/1999 82,304.01 8,043.01 74,261.00 938,499.53
1999 Totals 1,461,009.06 147,020.56 1,313,988.50
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
03/27/1997 Page 2
- ------------------------------------------------------------------------------------------------------------
Alliance 4
- ------------------------------------------------------------------------------------------------------------
Date Payment Interest Principal Balance
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
25 04/01/1999 82,304.01 7,453.25 74,850.76 863,648.77
26 05/01/1999 82,304.01 6,858.81 75,445.20 788,203.57
27 06/01/1999 82,304.01 6,259.65 76,044.36 712,159.21
28 07/01/1999 82,304.01 5,655.73 76,648.28 635,510.93
29 08/01/1999 82,304.01 5,047.02 77,256.99 558,253.94
30 09/01/1999 82,304.01 4,433.47 77,870.54 480,383.40
31 10/01/1999 82,304.01 3,815.04 78,488.97 401,894.43
32 11/01/1999 82,304.01 3,191.71 79,112.30 322,782.13
33 12/01/1999 82,304.01 2,563.43 79,740.58 243,041.55
34 01/01/2000 82,304.01 1,930.15 80,373.86 162,667.69
35 02/01/2000 82,304.01 1,291.85 81,012.16 81,655.53
36 03/01/2000 82,304.01 648.48 81,655.53 0.00
2000 Totals 987,648.12 49,148.59 938,499.53
Grand Totals 4,383,027.18 466,565.88 3,916,461.30
</TABLE>
Maker:
/s/ NDR (initials)
Payee:
______ (initials)
<PAGE>
Loan No.: _______________
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is made this 28th day of March, 1997,
("The Effective Date") by and between Alliance Semiconductor Corporation a(n)
Delaware corporation ("Debtor"), whose business address is 3099 North First
Street, San Jose, CA 95134 and Matrix Funding Corporation a Utah corporation
("Secured Party"), whose address is 3625 Union Park Center, Suite 250, Midvale,
UT 84047.
WITNESSETH:
1. Secure Payment. To secure payment of indebtedness in the principal sum of up
to Three Million Eight Hundred Forty Thousand and 00/ 100 Dollars
($3,840,000.00), as evidenced by a note or notes executed and delivered by
Debtor to Secured Party (the "Notes") and any obligations arising under this
Agreement, and also to secure any other indebtedness or liability of Debtor to
Secured Party, direct or indirect, absolute or contingent, due or to become due,
now existing or hereafter arising and no matter how acquired by Secured Party,
including all future advances or loans which may be made at the option of
Secured Party (all the foregoing hereinafter called the "Indebtedness"), Debtor
hereby grants and conveys to Secured Party a first priority continuing lien and
security interest in the property described on the Schedule(s) attached hereto
(the "Schedules"), all products and proceeds (including insurance proceeds)
thereof, if any, and all substitutions, replacements, attachments, additions,
and accessions thereto, all or any of the foregoing hereinafter called the
"Collateral" provided, however, that "Collateral", shall include software that
is part of or incorporated into such property only to the extent that Debtor has
the right to pledge such software to Secured Party. The Schedules may be
supplemented from time to time to evidence the Collateral subject to this
Agreement.
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<PAGE>
2. Warranties, Representations and Covenants. Debtor warrants, represents,
covenants and agrees as follows:
(a) Perform Obligations. Debtor shall pay as and when due all of the
Indebtedness secured by this Agreement and perform all of the obligations
contained in this Agreement according to its terms. Debtor shall use the loan
proceeds exclusively for business uses and not for personal, family, household,
or agricultural uses.
(b) Perfection. This Agreement creates a valid and first priority
continuing lien and security interest in the Collateral, securing the payment
and performance of the Indebtedness, and all actions necessary to perfect and
protect such security interest have been duly taken.
(c) Collateral Free and Clear. Except as may be set forth on the
Schedules, Debtor shall keep the Collateral free and clear of all liens, claims,
charges, encumbrances and other security interests of any kind (other than the
security interest granted hereby). Debtor shall defend the title to the
Collateral against all persons and against all claims and demands whatsoever. At
the reasonable request of Secured Party, Debtor shall furnish further assurance
of title, execute any written agreement and do any other acts reasonably
necessary to effectuate the purposes and provisions of this Agreement, including
in order to perfect, continue, or terminate the security interest of Secured
Party in the Collateral, and pay all costs in connection therewith.
(d) Possession and Operating Order of the Collateral. Subject to
Secured Party's rights and remedies upon the occurrence of an Event of Default
(defined below), Debtor shall retain possession of the Collateral at all times
and shall not sell, exchange, assign, loan, deliver, lease, mortgage, or
otherwise dispose of the Collateral or any part thereof without prior written
consent of Secured Party. Debtor shall at all times keep the Collateral at the
locations(s) specified on the Schedules (except for removals thereof in the
usual course of business for temporary periods). At Debtor's sole cost and
expense, Debtor shall also keep the Collateral in good repair and condition and
shall not misuse, abuse, waste or otherwise allow it to deteriorate, except for
normal wear and tear. Secured Party may verify any Collateral in any reasonable
manner which Secured Party may consider appropriate, and Debtor shall furnish
all reasonable assistance and information and perform any acts which Secured
Party may reasonably request in connection therewith.
(e) Insurance. Debtor shall insure the Collateral against loss by fire
(including extended coverage), theft and other hazards, for its full insurable
value including replacement costs, with a deductible not to exceed Fifty
Thousand and 00/100 Dollars ($50,000.00) per occurrence and without
co-insurance. In addition, Debtor shall obtain liability insurance covering
liability for bodily injury, including death and property damage, in an amount
of at least Five Million and 00/100 Dollars ($5,000,000.00) per occurrence or
such greater amount as may comply with general industry standards, or in such
other amounts as Secured Party may otherwise reasonably require. All policies of
insurance required hereunder shall be in such form, amounts, and with such
companies as Secured Party reasonably may approve; shall provide at least thirty
(30) days prior written notice to Secured Party prior to any modification or
cancellation thereof; shall name Secured Party as loss payee or additional
insured, as applicable, and shall be payable to Debtor and Secured Party as
their interests may appear; shall waive any claim for premium against Secured
Party; and shall provide that no breach of warranty or representation or act or
omission of Debtor shall terminate, limit or affect the insurers' liability to
Secured Party. Certificates of insurance or policies evidencing the insurance
required hereunder along with satisfactory proof of the payment of the premiums
therefor shall be delivered to Secured Party who is authorized, but under no
duty, to obtain such insurance upon failure of Debtor to do so. Debtor shall
give immediate written notice to Secured Party and to insurers of loss of damage
to the Collateral and shall promptly file proofs of loss with insurers. Provided
an Event of Default has occurred and is continuing, Debtor hereby irrevocably
appoints Secured Party as Debtor's attorney-in-fact, coupled with an interest,
for the purpose of obtaining, adjusting and canceling any such insurance and
endorsing settlement drafts. Debtor hereby assigns to Secured Party, as
additional security for the Indebtedness, all sums which may become payable
under such insurance.
(f) If Collateral Attaches to Real Estate. If the Collateral or any
part thereof has been attached to or is to be attached to real estate, an
accurate description of the real estate and the name and address of the record
owner is set forth on the Schedules. Debtor shall, on demand of Secured Party,
furnish Secured Party with a disclaimer or waiver of any interest in any such
Collateral satisfactory to Secured Party and signed by all persons having an
interest in the real estate. Notwithstanding the foregoing, the Collateral shall
remain personal property and shall not be affixed to realty without the prior
written consent of Secured Party.
(g) Financial Statements. Debtor shall furnish to Secured Party, as
soon as practicable, and in any event
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<PAGE>
within sixty (60) days after the end of each of the first three fiscal quarters
of Debtor and each guarantor of all or any part of the Indebtedness (each, a
"Guarantor"), respectively, Debtor's and each Guarantor's unaudited financial
statements as set forth in Debtor's and each Guarantor's respective Forms 10Q as
filed with the Securities and Exchange Commission ("SEC") for such fiscal
quarter Debtor shall also furnish to Secured Party, as soon as practicable, and
in any event within ninety (90) days after the end of each fiscal year of Debtor
and each Guarantor, respectively, Debtor's and each Guarantor's annual audited
financial statements, including balance sheets, income statements and statements
of cash flow for the fiscal year then ended, as set forth in Debtor's and each
Guarantor's respective Forms 10K as filed with the SEC for such fiscal year.
(h) Authorization. Debtor is now, and will at all times remain, duly
licensed, qualified to do business and in good standing in every jurisdiction
where failure to be so licensed or qualified and in good standing would have a
material adverse effect on its business, properties or assets taken as a whole.
Debtor has the power to authorize, execute and deliver this Agreement, the Notes
and any other documents and instruments relating thereto (the Agreement, Notes
and other documents and instruments, all as amended from time to time, are
hereafter collectively referred to as the "Loan Documents"), to incur and
perform obligations hereunder and thereunder, and to grant the security
interests created hereby. As of the time of delivery thereof to Secured Party,
the Loan Documents will have been duly authorized, executed, and delivered by or
on behalf of Debtor, and will constitute the legal, valid, and binding
obligations of Debtor, enforceable against Debtor in accordance with their
respective terms. Debtor shall preserve and maintain its existence and shall not
wind up its affairs or otherwise dissolve. Debtor shall not, without thirty (30)
days prior written notice to Secured Party, (1) change its name or so change its
structure such that any financing statement or other record notice becomes
misleading or (2) change its principal place of business or chief executive or
accounting offices from the address stated herein.
(i) Litigation. Except as disclosed by Debtor in its filings with the
SEC, there are no material actions, suits, proceedings, or investigations
("Litigations") pending or, to the knowledge of Debtor, threatened against
Debtor which could materially adversely affect the Collateral. Debtor shall
promptly notify Secured Party in writing of Litigation against it if: (1) the
outcome of such Litigation may materially adversely affect the finances or
operations of Debtor (for purposes of this provision, Five Hundred Thousand and
00/100 Dollars ($500,000.00) shall be deemed material) or (2) such Litigation
questions the validity of any Loan Document or any action taken or to be taken
pursuant thereto; Debtor shall promptly furnish to Secured Party such
non-confidential and non-privileged information regarding any such Litigation as
Secured Party shall reasonably request. Information that Debtor discloses in its
filings with the SEC shall be deemed promptly disclosed to Secured Party if
delivered to Secured Party within two (2) business days of such filing.
(j) No Conflicts. Debtor is not in violation of any material term or
provision of its by-laws, or of any material agreement or instrument, or of any
judgment, decree, order, or any statue, rule, or governmental regulation
applicable to it. The execution, delivery, and performance of the Loan Documents
do not and will not violate, constitute a default under, or otherwise conflict
with any such term or provision or result in the creation of any security
interest, lien, charge, or encumbrance upon any of the properties or assets of
Debtor, that would have a material adverse effect on the Company's properties or
assets taken as a whole except for the security interest herein created.
(k) Compliance with Laws. Debtor shall use and maintain the Collateral
in a lawful manner in accordance with all applicable laws, regulations,
ordinances, and codes and shall otherwise comply in all material respects with
all applicable laws, rules, and regulations and duly observe all valid
requirements of all governmental authorities, and all statutes, rules and
regulations relating to its business, including (I) the Internal Revenue Code of
1986, as amended from time to time, (ii) all federal, state, and local laws,
rules, regulations, orders, and decrees relating to health, safety, hazardous
substances, and environmental matters, including the Resource Recovery and
Reclamation Act of 1976, the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, the Toxic Substances Control Act, the Clean Water Act
of 1977, and the Clean Air Act, all as amended from time to time (collectively,
"Environmental Laws"), (iii) the Employees Retirement Income Security Act of
1974, as amended from time to time, and (iv) the Fair Labor Standards Act, as
amended from time to time.
(l) Taxes. Debtor has timely filed all tax returns (federal, state,
local, and foreign) required to be filed by it and has paid or established
reserves for all taxes, assessments, fees, and other governmental charges in
respect of its properties, assets, income and franchises. Debtor shall promptly
pay and discharge all taxes, assessments, license fees (related to the
Collateral) and other governmental charges prior to the date on which penalties
are attached thereto, establish adequate reserves for the payments of such
taxes, assessments, and other governmental charges and make all
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<PAGE>
required withholding and other tax deposits, and, upon reasonable request,
provide Secured Party with receipts or other proof that any or all of such
taxes, assessments, license fees or governmental charges have been paid in a
timely fashion; provided, however, that nothing contained herein shall require
the payment of any tax, assessment, or other governmental charge so long as its
validity is being diligently contested in good faith and by appropriate
proceedings diligently conducted and Debtor has established cash reserves
therefor in accordance with GAAP. Should any stamp, excise, or other tax,
including mortgage, conveyance, deed, intangible, or recording taxes becomes
payable in connection with or respect of any of the Loan Documents, Debtor shall
pay the same (including interest and penalties, if any) and shall hold Secured
Party harmless with respect thereto.
(m) Environmental Laws. Except as disclosed by Debtor (or Debtor's
representative or agent) in writing to Secured Party's counsel (including
internal counsel) on or prior to the date hereof, Debtor has (1) not received
any summons, complaint, order, or other notice that it is not in compliance
with, or that any public authority is investigating its compliance with, any
Environmental Laws and (2) no knowledge of any material violation of any
Environmental Laws on or about its assets or property. Debtor shall notify
Secured Party, promptly following receipt by Debtor, of any correspondence,
notice, complaint, order, or other document that it receives asserting or
alleging a circumstance or condition which requires or may require a material
cleanup, material removal, material remedial action or other response by or on
the part of Debtor under any Environmental Laws, or which seeks material damages
or civil, criminal or punitive penalties from Debtor for an alleged violation of
any Environmental Laws. Information that Debtor discloses in its filings with
the SEC shall be deemed promptly disclosed to Secured Party if delivered to
Secured Party within two (2) business days of such filing.
(n) Regulations. No proceeds of the loans or any other financial
accommodation hereunder will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin security, as that term is defined in
Regulations G, T, U, X of the Board of Governors of the Federal Reserve System.
(o) Books and Records. Debtor shall maintain, at all times, true and
complete books and records in accordance with GAAP and consistent with those
applied in the preparation of Debtor's financial statements. At all reasonable
times, upon reasonable notice, and during normal business hours, Debtor shall
permit Secured Party or its agents to audit, examine and make extracts from or
copies of any of its books, ledgers, reports, correspondence, and other records
solely to the extent they relate to the Collateral provided, further, that
unless an Event of Default has occurred and is continuing, Secured Party must
give Debtor three (03) business days' notice and provided, however, that the
Debtor will have no obligation to disclose to Secured Party any trade secret of
Debtor.
(p) Setoff. Without limiting any other right of Secured Party, whenever
Secured Party has the right to declare any Indebtedness to be immediately due
and payable (whether or not it has so declared), Secured Party is hereby
authorized at any time and from time to time to the fullest extent permitted by
law, to set off and apply against any and all of the Indebtedness, any and all
monies then or thereafter owed to Debtor by Secured Party in any capacity,
whether or not the obligation to pay such monies owed by Secured Party is then
due. Secured Party shall be deemed to have exercised such right of setoff
immediately at the time of such election even though any charge therefor is made
or entered on Secured Party's records subsequent thereto.
(q) Standard of Care: Notice of Claims. Debtor acknowledges and agrees
that Secured Party shall not be liable for any acts or omissions nor for any
error of judgment or mistake of fact or law other than as a sole and direct
result of Secured Party's or its agents gross negligence or willful misconduct.
Debtor shall give Secured Party written notice of any action or inaction by
Secured Party or any agent or attorney of Secured Party that may give rise to a
claim against Secured Party or any agent or attorney of Secured Party or that
may be a defense to payment or performance of any of the Indebtedness for any
reason, including commission of a tort (subject, in any event, to the first
sentence of this paragraph) or violation of any contractual duty or duty implied
by law. Debtor agrees that unless such notice is fully given as promptly as
possible (an in any event within sixty (60) days) after Debtor has knowledge, or
with the exercise of reasonable diligence should have had knowledge, of any such
action or inaction, Debtor shall not assert, ad Debtor shall be deemed to have
waived, any claim or defense arising therefrom.
(r) Indemnity. Debtor shall indemnify, defend and hold Secured Party,
its parent, affiliates, officers, directors, agents, employees, and attorneys
harmless from and against any loss, expense (including reasonable attorneys'
fees and costs), damage or liability arising directly or indirectly out of (i)
any material breach of any representation, warranty or covenant contained in any
Loan Document, (ii) any claim or cause of action that would deny Secured Party
the full benefit or protection of any provision in any Loan Document, or (iii)
the ownership, possession, lease, operation, use,
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<PAGE>
condition, sale, return, or other disposition of the Collateral, except to the
extent the loss, expense, damage or liability arises solely and directly from
Secured Party's or its agents gross negligence or willful misconduct. If after
receipt of any payment of all or any part of the Indebtedness, Secured Party is
for any reason compelled to surrender such payment to any person or entity,
because such payment is determined to be void or voidable as a preference,
impermissible set-off, or a diversion of trust funds, or for any other reason,
the Loan Documents shall continue in full force and effect and Debtor shall be
liable to Secured Party for the amount of such payment surrendered. The
provisions of the preceding sentence shall be and remain effective
notwithstanding any contrary action which may have been taken by Secured Party
in reliance upon such payment, and any such contrary action so taken shall be
without prejudice to Secured Party's rights under this Agreement and shall be
deemed to have been conditioned upon such payment having become final and
irrevocable. Additionally, Debtor shall be liable for all reasonable charges,
costs, expenses and attorneys' fees incurred by Secured Party (including a
reasonable allocation of the compensation, costs and expenses of internal
counsel, based upon time spent): (i) in perfecting, defending or protecting its
security interest in the Collateral, or any part thereof; (ii) in the amendment
or enforcement of the Loan Documents (or the collection of any amounts due under
any Note or other Loan Document after an Event of Default); (iii) in any lawsuit
or other legal proceeding in any way connected with any of the Loan Documents,
including any contract or tort or other actions, any arbitration or other
alternative dispute resolution proceeding, all appeals and judgment enforcement
actions and any bankruptcy proceeding (including any relief from stay and /or
adequate protection motions, cash collateral disputes, assumption/rejection
motions and disputes or objections to any proposed disclosure statement or
reorganization plan) except for those actions arising from the gross negligence
or willful misconduct of Secured Party or its agents. Debtor acknowledges and
agrees that the preceding sentence shall survive and not be merged with any
judgment in connection with any exercise of any right or remedy by Secured Party
provided under this Agreement. The provisions of this paragraph shall survive
the termination of the Agreement and the other Loan Documents.
(s) Complete Information. No representation or warranty made by Debtor
in any Loan Document and no other document or statement furnished to Secured
Party by or on behalf of Debtor contains any material misstatement of a material
fact or omits to state any material fact necessary in order to make the
statements contained therein not misleading. Except as expressly set for the in
the Schedules, there is no fact known to Debtor that Debtor reasonably believes
will or could have a materially adverse affect on the business, operation,
condition (financial or otherwise), performance, properties or prospects of
Debtor or Debtor's ability to timely pay all of the Indebtedness and perform all
of its other obligations contained in or secured by this Agreement. Each
representation and warranty made by Debtor in this Agreement shall be deemed to
have been made as of the date of this Agreement shall and as of the date of each
advance of funds under a Note.
(t) Collateral Documentation. Debtor shall deliver to Secured Party
prior to any advance or loan, satisfactory documentation regarding the
Collateral to be financed, including such invoices, canceled checks evidencing
payments, or other documentation as may be reasonably requested by Secured
Party. Additionally, Debtor represents to Secured Party as of the Effective Date
that Debtor's business and financial information is as has been represented and
there has been no material change in Debtor's business, financial condition, or
operations.
3. Prepayment. Debtor shall not have the right to prepay the Promissory Note
prior to March 28, 1997. Thereafter, Debtor may, at its sole discretion,
terminate its obligation under the Promissory Note and this Agreement at any
time by paying to Secured Party all accrued and unpaid interest thereon to the
date of such prepayment, and any and all other sums then due under any of the
Loan Documents, and an amount equal to the greater of (a) the present value of
the all remaining installments of principal and interest due under the
Promissory Note ("Prepayment") discounted at a rate equal to the yield to
maturity as of two business days prior to the date of the Prepayment of United
States Treasury Securities with a final maturity equal to the remaining term
hereof of the Promissory Note, as published in the Wall Street Journal, plus
three hundred (300) basis points or, (b), the remaining principal balance of the
Promissory Note as set forth on Exhibit A thereto.
4. Events of Default. If any one of the following events (each of which is
herein called an "Event of Default") shall occur: (a) Debtor fails to pay any
part of the Indebtedness within ten (10) calendar days of its due date, or (b)
any warranty or representation of Debtor in any Loan Document is materially
untrue, materially misleading or materially inaccurate as of the Effective Date,
or (c) Debtor or any Guarantor breaches or defaults in the performance of any
other agreement or covenant under any Loan Document, or (d) Debtor or any
Guarantor breaches or defaults in the payment or performance of any debt or
other obligation owed by it to Secured Party or any affiliate of Secured Party,
or (e) Debtor breaches or defaults in the payment or performance of any debt or
other obligation, whether now or hereafter existing, with an outstanding
principal balance in excess of One Million and 00/100 Dollars ($1,000,000.00),
and the
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<PAGE>
same is subsequently accelerated, or (f) there shall be a change in the
beneficial ownership and control, directly or indirectly, of the majority of the
outstanding voting securities or other interests entitled (without regard to the
occurrence of any contingency ) to elect or appoint members of the board of
directors or other managing body of Debtor or any Guarantor (a "change of
control"), where such change in control brings forth a material adverse change
in the creditworthiness of Debtor in the sole opinion of Secured Party or there
is any merger, consolidation, dissolution, liquidation, winding up or sale or
other transfer of all or substantially all of the assets of Debtor or any
Guarantor pursuant of which there is a change of control or cessation of Debtor
or the Guarantor or the business of either, or (g) Debtor or any Guarantor shall
file a voluntary petition in bankruptcy, shall apply for or permit the
appointment by consent or acquiescence of a receiver, conservator,
administrator, custodian or trustee for itself or all or a substantial part of
its property, shall make an assignment for the benefit of creditors or shall be
unable, fail or admit in writing its inability to pay its debts generally as
such debts become due, or (h)there shall have been filed against Debtor or any
Guarantor an involuntary petition in bankruptcy or Debtor or any Guarantor shall
suffer or permit the involuntary appointment of a receiver, conservator,
administrator, custodian or trustee for all or a substantial part of its
property or the issuance of a warrant of attachment, diligence, execution or
similar process against all or any substantial part of its property; unless, in
each case, such petition, appointment or process is fully bonded against,
vacated or dismissed within forty-five (45) days from its effective date, but
not later than ten (10) days prior to any proposed disposition of any assets
pursuant to any such proceeding, or (i) if there is a material adverse change in
the business or financial condition or prospects of Debtor that causes Secured
Party to reasonably believe that Debtor will be unable to repay any one or more
of the remaining installments of the Promissory Note when such installments are
due, then, and in any such event, Secured Party shall have the right to exercise
any one or more of the remedies hereinafter provided.
5. Remedies. If an Event of Default shall occur and is continuing, in addition
to all rights and remedies of a secured party under the Uniform Commercial Code,
Secured Party may, at its option, at any time (a) declare the entire unpaid
Indebtedness to be immediately due and payable; (b) without demand or legal
process, enter into the premises where the Collateral may be found and take
possession of and remove the Collateral, all without charge to or liability on
the part of Secured Party; or (c) require Debtor to assemble the Collateral,
render it unusable, and crate, pack, ship, and deliver the Collateral to Secured
Party in such manner and at such place as Secured Party may require, all at
Debtor's sole cost and expense. DEBTOR HEREBY EXPRESSLY WAIVES ITS RIGHTS, IF
ANY, TO (1) PRIOR NOTICE OF REPOSSESSION AND (2) A JUDICIAL OR ADMINISTRATIVE
HEARING PRIOR TO SUCH REPOSSESSION. Secured Party may, at its option, ship,
store and repair the Collateral so removed and sell any or all of it at a public
or private sale or sales. Unless the Collateral is perishable or threatens to
decline speedily in value or is of a type customarily sold on a recognized
market, Secured Party will give Debtor reasonable notice of the time and place
of any public sale thereof or of the time after which any private sale or any
other intended disposition thereof is to be made, it being understood and agreed
that Secured Party may be a buyer at any such sale and Debtor may not, either
directly or indirectly, be a buyer at any such sale. The requirements, if any,
for reasonable notice will be net if such notice is mailed postage prepaid to
Debtor at its address shown above, at least ten (10) days before the time of
sale or disposition. In accordance with Section 2(r), Debtor shall also be
liable for and shall upon demand pay to Secured Party all reasonable expenses
incurred by Secured Party in connection with the undertaking or enforcement by
Secured Party of any of its rights or remedies hereunder or at law, all of which
costs and expenses shall be additional Indebtedness hereby secured. After any
such sale or disposition, Debtor shall be liable for any deficiency of the
Indebtedness remaining unpaid, with interest thereon at the rate set forth in
related Notes.
6. Cumulative Remedies. All remedies of Secured Party hereunder are cumulative,
are in addition to any other remedies provided for by law or in equity and may,
to the extent permitted by law, be exercised concurrently or separately, and the
exercise of any one remedy shall not be deemed an election of such remedy or to
preclude the exercise of any other remedy. No failure on the part of Secured
Party to exercise, and no delay in exercising any right or remedy, shall operate
as a waiver thereof or in any way modify or be deemed to modify the terms of
this Agreement or any other Loan Document or the Indebtedness, nor shall any
single or partial exercise by Secured Party of any right or remedy preclude any
other or further exercise of the same or any other right or remedy.
7. Assignment. Secured Party may transfer or assign all or any part of the
Indebtedness and the Loan Documents without releasing Debtor or the Collateral,
and upon such transfer or assignment the assignee or holder shall be entitled to
all the rights, powers, privileges and remedies of Secured Party to the extent
assigned or transferred. The obligations of Debtor shall not be subject, as
against any such assignee or transferee, to any defense, set-off, or
counter-claim available to Debtor against Secured Party and any such defense,
set-off, or counter-claim may be asserted only against Secured Party.
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<PAGE>
8. Time is of the Essence. Time and manner of performance by Debtor of its
duties and obligations under the Loan Documents is of the essence. If any Event
of Default has occurred and is continuing and if Debtor shall fail to comply
with any provision of any of the Loan Documents, Secured Party shall have the
right, but shall not be obligated, to take action to address such
non-compliance, in whole or in part, and all reasonable moneys spent and
expenses and obligations incurred or assumed by Secured Party shall be paid by
Debtor upon demand and shall be added to the Indebtedness. Any such action by
Secured Party shall not constitute a waiver of Debtor's default.
9. Enforcement. This Agreement shall be governed by and construed in accordance
with the internal laws and decisions of the State of Illinois, Cook County,
without regard to principles of conflicts of law. At Secured Party's election
and without limiting Secured Party's right to commence an action in any other
jurisdiction, Debtor hereby submits to the exclusive jurisdiction and venue of
any court (federal, state or local) having situs within the State of Illinois,
expressly waives personal service of process and consents to service by
certified mail, postage prepaid, directed to the last known address of Debtor,
which service shall be deemed completed within ten (10) days after the date of
mailing thereof.
10. Further Assurance; Notice. Debtor shall, at its expense, do execute and
deliver such further acts and documents as Secured Party may from time to time
reasonably require to assure and confirm the rights created or intended to be
created hereunder, to carry out the intention or facilitate the performance of
the terms of the Loan Documents or to assure the validity, perfection, priority
or enforceability of any security interest created hereunder. Debtor agrees to
execute any instrument or instruments reasonably necessary or expedient for
filing, recording, perfecting, notifying, foreclosing, and/or liquidating of
Secured Party's interest in the Collateral upon request of, and as determined
by, Secured Party, and Debtor hereby specifically authorizes Secured Party to
prepare and file Uniform Commercial Code financing statements and other
documents relating to the Collateral only and to execute same for and on behalf
of Debtor as Debtor's attorney-in-fact, irrevocably and coupled with an
interest, for such purposes but only for such purposes. All notices required or
otherwise given by either party shall be in writing and shall be delivered by
hand, by registered or certified first class United States mail, return receipt
requested, or by overnight courier to the other party at its address stated
herein or at such other address as the other party may from time to time
designate by written notice. All notices shall be deemed given when received,
when delivery is refused or when the returned for failure to be called for.
11. Waiver of Jury Trial. Debtor and Secured Party hereby Waive their respective
rights to a jury trial of any claim or cause of action based upon or arising in
connection with any of the Loan Documents. This waiver is informed and freely
made. Debtor and Secured Party acknowledge that this waiver is a material
inducement to enter into a business relationship, that each has already relied
on the waiver in entering into the Loan Documents, and that each will continue
to rely on the waiver in their related future dealings. Debtor and Secured Party
further warrant and represent that each has reviewed this waiver with its legal
counsel and that each knowingly and voluntarily waives its jury trial rights
following consultation with legal counsel.
12. Complete Agreement. The Loan Documents are intended by Debtor and Secured
Party to be the final, complete, and exclusive expression of the agreement
between them. The Loan Documents may not be altered, modified or terminated in
any manner except by a writing duly signed by the parties thereto. Debtor and
Secured Party intend the Loan Documents to be valid and binding and no
provisions hereof and thereof which may be deemed unenforceable shall in any way
invalidate any other provisions of the Loan Documents, all of which shall remain
in full force and effect. The Loan Documents shall be binding upon the
respective successors, legal representatives, and assigns of the parties. The
singular shall include the plural, the plural shall include the singular, and
the use of any gender shall be applicable to all genders. The use in any of the
Loan Documents of the word "including," or word of similar import, when
following any general term, statement or matter shall not be construed to limit
such term, statement or matter to any specific item or matters, whether or not
language of nonlimitation, such as "without limitation" or "but not limited to,"
or words of similar import, are used with reference thereto, but rather shall be
deemed to refer to all other items or matters that could reasonably fall within
the broadest possible scope of such term, statement or matter. The Schedules on
the following page[s] are incorporated herein by this reference and made a part
hereof. Sections and subsections headings are included for convenience of
reference only and shall not be given any substantive effect.
IN WITNESS WHEREOF, Secured Party and Debtor have each signed this Agreement as
of the day and year first above written.
-10
<PAGE>
Matrix Funding Corporation Alliance Semiconductor Corporation,
a Utah corporation a Delaware corporation
By: /s/ David A. DiCesaris By: /s/ N.D. Reddy
`
Name: David A. DiCesaris Name: N.D. Reddy
Title: Vice President Title: President
-11-
<PAGE>
SCHEDULE
Description of Collateral
Description of Collateral (Full description including make, model and serial
number):
Per the Attached Schedule "A" of one page(s), which by reference to is made a
part hereof.
Place where Collateral is to be kept:
Other liens, encumbrances or security interests to which Collateral is or may be
subject, if any:
Other Collateral
If Collateral is attached or to be attached to real estate, set forth:
Address of Real Estate (Including County, block number, lot number,
etc.):
Record Owner of Real Estate (Name and Address):
If the real estate at which the Collateral is to be kept is leased:
Name and Address of Lessor of Real Estate
/s/ NDR
Initials
-0-
<PAGE>
<TABLE>
SCHEDULE A
Alliance Semiconductor Corporation
<CAPTION>
Company Equipments Quantity Date Acquisition Location Serial No.
Cost
<S> <C> <C> <C> <C> <C> <C>
Mosaid MS348001 memory tester 1 8/3/95 $293,607 USA 3351
Systems MS348001 memory tester 1 8/22/95 $263,372 USA 3352
MS348001 memory tester 1 8/22/95 $263,372 USA 3353
MS348001 memory tester 1 2/16/96 $258,831 USA 3355
MS348001 memory tester 1 4/11/96 $293,134 USA 3402
(testers include APET.DPET.PGEN.CSM 18M)
Advant T5382A - 1 channel 1 10/1/95 $1,669,910 USA ALI1
HP HP9000 Workstation, monitor, 64MB RAM, 3/1/96 $35,150 USA 3352E79751
2GB HP DAT Systems backup solution, JP01155112
Powerwise Application test package 1 3/1/96 $5,388 USA
4062F Semiconductor Parametric test system 1 3/7/96 JP10800128
48-pin matrix with 12 pin boards 1 3/7/96 JP10800132
4142B Modular DC Source/Monitor 1 3/7/96 3121J03079
41421B 100v/100mA SMU 4 3/7/96 1.2751J16365
2.2751J16366
3.2751J16364
4.2751J16363
HP8110A with two output channels 2 3/7/96 JP10800128
IC-MS Test Manager, serial #3518A00699 1 3/7/96 3518A00699
(Cost for above items) $228,385 USA
Silicon 2080 - Wafer prober 1 9/1/95 $119,603 USA WP95035935
Valley
Test
& Repair
Novtek NTS1200 1 3/29/96 $180,313 USA 1200-002
Metron Tec SMI 9800 high performance FIB system 1 3/1/96 $598,994 USA AH0101054
Quicktum SR 5002 System Realizer 1 5/31/96 $601,676 USA M3000
-------------
$4,811,735
-------------
-0-
</TABLE>
N. DAMODAR REDDY
June 23, 1997
Mr. Robert H. C. Tsao
Chairman, United Microelectronics Corporation
No. 13, Innovation Rd. 1
Science-Based Industrial Park
Hsin-Chu City, Taiwan, R.O.C.
Dear Bob:
United Microelectronics Corporation ("UMC") has informed
Alliance Semiconductor Corporation ("Alliance") that payment of the second
installment of Alliance's purchase of stock of United Silicon, Inc. ("USI") is
due by July 7, 1997. Alliance understands that this payment will be in the
amount of approximately NTD 187.5 million, for 18.75 million shares of USI
stock, at a per share price of NTD 10 per share.
Alliance proposes that UMC make the above NTD 187.5 million
payment, and extend Alliance an option to purchase from UMC up to the 18.75
million shares of USI stock, on the following terms:
(i) The purchase price under these options will be at a per
share price, with the price per share being equal to NTD 10 plus
interest calculated at a cumulative rate of 8.5% per annum (with
interest accruing from July 7, 1997 to the closing date(s) of the
purchase of the shares subject to the options). Alliance shall pay the
purchase price in U.S. dollars, with the exchange rate calculated as of
the day of payment.
(ii) Alliance may exercise these options with at least fifteen
days advance written notice to UMC given on or before December 16,
1997, 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, 1997 (Taiwan, R.O.C. time).
(iii) Subject to the terms of this letter agreement (the
"Agreement"), Alliance can exercise its option all at once, or in
installments, and thus, with at least fifteen days' advance written
notice to UMC, can select its closing date(s) at times it finds
convenient, so long as the last such date occurs on or before December
31, 1997.
The parties also agree that other than the option to acquire
18.75 million shares of USI, Alliance has no other agreement, understanding
and/or rights from or with UMC and/or USI with respect to any purchase of
additional shares of USI which would have the effect, in the event Alliance
exercises the above option, of increasing Alliance's ownership in USI to more
than 5%, and/or, in the event Alliance does not exercise the above option, of
increasing Alliance's ownership in USI to more than its now-current holdings of
37.5 million shares of USI.
<PAGE>
Robert H. C. Tsao
June 23, 1997
Page 2
The parties further agree that (a) this Agreement may be
executed in counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument; and (b) the terms
of Article 9 of the Foundry Venture Agreement dated as of September 29, 1995 by
and among Alliance and UMC are incorporated by reference as if set forth fully
herein, in each case with this Agreement deemed to be one of the Venture
Agreements.
We are pleased with the history of cooperation in these
matters shown by the parties, and request that you confirm the above agreement
in the space provided below.
Very truly yours,
/s/ N. D. Reddy
N. Damodar Reddy
President
Agreed on behalf of United Microelectronics Corporation
By: /s/ R. Tsao
-----------------
Name: Robert H. C. Tsao
Title: Chairman
Exhibit 11.01
ALLIANCE SEMICONDUCTOR CORPORATION
COMPUTATION OF NET INCOME (LOSS)PER SHARE
AND COMMON EQUIVALENT SHARES
Year Ended March 31,
1997 1996 1995
-------- ------- -------
(in thousands, except per
share data)
Net income (loss) $(16,671) $10,719 $23,891
======== ======= =======
Weighted average number of common shares
outstanding during the year 38,653 37,900 30,611
Weighted-average common stock
equivalents (calculated using the
"treasury stock" method)
representing shares issuable
upon exercise of employee stock
options -- 2,733 3,948
-------- ------- -------
Weighted-average common shares and equivalents
38,653 40,633 34,559
======== ======= =======
Net income (loss) per share $ (0.43) $ 0.26 $ 0.69
======== ======= =======
Exhibit 21.01
ALLIANCE SEMICONDUCTOR CORPORATION
Subsidiaries of Registrant
Name of Subsidiary Jurisdiction or State of Incorporation
- ------------------ --------------------------------------
Nimbus Technology, Inc. California
Alliance Semiconductor International
Corporation Cayman Islands
Alliance Semiconductor International
Corporation Delaware
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-98402, No. 33-74830 and No. 333-13461) of Alliance
Semiconductor Corporation of our report dated April 23, 1997 appearing in this
Annual Report on Form 10-K. We also consent to the incorporation by reference of
our report on the Financial Statement Schedule, which appears in this Form 10-K.
PRICE WATERHOUSE LLP
San Jose, California
June 23, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements for the year ended March 29, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-29-1997
<PERIOD-START> MAR-31-1996
<PERIOD-END> MAR-29-1997
<CASH> 22,489
<SECURITIES> 0
<RECEIVABLES> 17,477
<ALLOWANCES> 650
<INVENTORY> 29,535
<CURRENT-ASSETS> 102,971
<PP&E> 16,957
<DEPRECIATION> 5,605
<TOTAL-ASSETS> 232,569
<CURRENT-LIABILITIES> 24,971
<BONDS> 2,219
0
0
<COMMON> 390
<OTHER-SE> 204,287
<TOTAL-LIABILITY-AND-EQUITY> 232,569
<SALES> 82,572
<TOTAL-REVENUES> 82,572
<CGS> 84,630
<TOTAL-COSTS> 84,630
<OTHER-EXPENSES> 15,012
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (25,661)
<INCOME-TAX> (8,990)
<INCOME-CONTINUING> (16,671)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,671)
<EPS-PRIMARY> (0.43)
<EPS-DILUTED> (0.43)
</TABLE>
