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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NUMBER 0-9653
XICOR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 94-2526781
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1511 BUCKEYE DRIVE
MILPITAS, CALIFORNIA 95035
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 432-8888
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, WITHOUT PAR VALUE
(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 and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock (Common Stock, without par
value) held by non-affiliates of the Registrant was approximately $26,058,000 on
March 25, 1999.
The aggregate number of outstanding shares of Common Stock, without par
value, of the Registrant was 20,209,121 on March 25, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in Parts
II, III and IV of this Form 10-K Report: (1) Registrant's Annual Report to
Shareholders for the fiscal year ended December 31, 1998 and (2) Proxy Statement
for Registrant's 1999 Annual Meeting of Shareholders.
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PART I
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Words such as "anticipate," "believes," "expects,"
"future," "intends," "assuming," "projected" and similar expressions are used to
identify forward-looking statements. Undue reliance should not be placed on
these forward-looking statements, which apply only as of the date of this
report. Actual results could differ materially from those projected in the
forward-looking statements for many reasons, including the risk factors listed
in the "Factors Affecting Future Results" section of "Management's Discussion &
Analysis of Financial Conditions and Results of Operations" which is
incorporated by reference to the registrant's Annual Report to Shareholders for
the fiscal year ended December 31, 1998 in Part II, Item 7. of this report and
the risk factors included in Item 1. below.
ITEM 1. BUSINESS
Xicor, Inc. ("Xicor" or the "Company") designs, develops, manufactures and
markets reprogrammable nonvolatile semiconductor integrated circuits containing
digital, analog and reprogrammable nonvolatile elements. Xicor's devices offer a
comprehensive set of features to its customers. By virtue of their
nonvolatility, Xicor's devices retain their information content when power is
lost or turned off. Reprogramming is accomplished by "writing" over the old data
without a need for first "erasing" the old data. Xicor's devices can be
reprogrammed bit by bit or in larger groups of bits called "words" and "pages"
without being removed from the system and operate from the same power source
used in microcontroller and microprocessor-based systems, or even lower voltages
common in hand-held and portable products. Xicor products are sold in a variety
of packages, including plastic, ceramic and chip scale packages for small
footprint and height.
The combination of reprogrammability and nonvolatility has enabled Xicor's
customers to develop products which have characteristics that can be altered
from a remote location by a technician or on-site by a non-technical user
through a keyboard, or which are automatically self-calibrating, thereby
reducing field service costs. Microcontroller and microprocessor-based products
incorporating Xicor's devices can be customized by either the distributor or the
end user subsequent to the production process. This simplifies production
control, reduces the lead time required for such customization and permits lower
inventory levels to be maintained. Xicor products also offer programmable
security locks enabling system producers to prevent changes to embedded
programs.
Xicor is continuing to apply its electrically reprogrammable memory
technology to develop innovative products combining nonvolatility and in-system
data alterability. More recently, certain Xicor products are also incorporating
analog elements. Xicor products are used by manufacturers of electronic products
throughout the world in a wide range of applications, including
telecommunications, consumer, computer, industrial, automotive and military
products.
INDUSTRY BACKGROUND
Manufacturers have introduced a variety of nonvolatile semiconductor
memories offering different degrees of programming flexibility. Currently
available nonvolatile memory devices include read-only memories ("ROMs"),
programmable read only memories ("PROMs"), electrically programmable read-only
memories ("EPROMs"), electrically erasable programmable ROMs ("EEPROMs"),
nonvolatile random access memories ("NOVRAMs") and Flash Memories. A brief
description of these nonvolatile devices follows:
ROMs and PROMs are one time programmable. ROMs have the data permanently
programmed into the memory during the manufacturing process according to
customer specifications, making necessary long-range planning before introducing
a new product incorporating ROMs. PROMs are programmable one time after
manufacture. However, programming a PROM is complex and in practice is only done
at the factory or by distributors.
EPROMs can be reprogrammed several times. However, reprogramming an EPROM
is a two-step process, erasing the old data by exposing it to ultraviolet light
and then programming the new data into the
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system using voltages higher than 5 volts, the voltage most common in
microprocessor-based products. Since ultraviolet light and an auxiliary power
source are required, the erasure and reprogramming generally are performed
outside the system, thus requiring physical removal of the EPROM from the
printed circuit board.
The development of EEPROMs provided significant programming flexibility.
These nonvolatile memories can be reprogrammed in-system tens of thousands of
times and can be altered one byte or several bytes at a time. EEPROMs are termed
serial or parallel depending on their connection to the system's processor.
Serial EEPROM devices transmit data through a single input-output port while
parallel devices transmit data through multiple ports concurrently.
Devices called Flash memories offer a middle ground in price and features
between EPROMs and EEPROMs. Unlike EPROMs, Flash memories can be reprogrammed
while in a system. However, unlike the more flexible EEPROMs that can be altered
one byte or several bytes at a time, Flash memories can only be altered all at
once or in larger groups of bytes. In nonvolatile reprogrammable memory chips
containing less than 256K bits, the memory cell array takes up less than half of
the chip area and the support circuitry the balance. Accordingly, manufacturers
of Flash memories have focused on parallel interface high density devices where
customers are willing to forgo the ease of use of the full featured EEPROMs for
the lower cost of a Flash memory or where the Flash memory has achieved higher
density due to its smaller memory cell size.
NOVRAMs were developed to combine the versatility and rapid data access of
the RAM with the nonvolatility of the full-featured EEPROM on a single
semiconductor. The complex dual-memory structure of the NOVRAM, while providing
substantially greater functionality than the EEPROM, results in a significantly
greater cost per memory bit.
XICOR PRODUCTS AND APPLICATIONS
Xicor products are grouped in two categories: memory products and analog
products. Memory products include password-secured serial EEPROMs, standard
serial EEPROMs and proprietary serial EEPROMs, as well as parallel-interfaced
EEPROMs. Many of these memory products are used in space-limited hand held
applications. To enhance our customers' ability to further miniaturize their
products, in 1998 Xicor introduced a 128K serial EEPROM encapsulated in an
advanced chip-scale package which has essentially the same footprint and height
as the chip itself. The first customer to take volume shipments in 1998 is using
the device in an advanced model of cellular telephone.
Xicor's emerging analog products group includes potentiometers (XDCPs)
which are digitally controlled. The digital control offers customers computer
control capabilities to achieve analog performance, thus eliminating the manual
adjustment required when using traditional mechanical potentiometers.
Furthermore, the solid state nature of the XDCP eliminates the disadvantages of
the traditional mechanical potentiometer associated with moving parts. XDCPs do
not change when exposed to vibrations, salty or oily environments, and are
adjustable remotely. Complementing XDCPs in this product group is an evolving
product line of system management products offering supervisory chips for
microcontroller-based systems.
MARKETING AND SALES
Xicor's products are sold worldwide for a broad range of applications,
including telecommunications, consumer, computer, industrial, automotive and
military applications. In new applications, particularly for newly introduced
devices, Xicor's products generally require long "design-in" cycles for customer
applications with extensive field application engineering support by Xicor.
Xicor considers close support of its customers' design efforts to be an
important aspect of its marketing strategy.
Xicor markets its products directly from its headquarters in Milpitas,
California and from regional domestic and foreign sales offices. Products are
also marketed domestically through a national network of independent sales
representatives, each of which has been granted an exclusive sales territory,
and through national and regional stocking distributors which also handle
competitive products. Xicor's products are also marketed abroad through an
international network of independent non-exclusive stocking sales representa-
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tives. Generally, sales to distributors and stocking sales representatives are
made under agreements allowing rights of return and price protection on unsold
merchandise. Xicor's policy is to defer recognition of sales and related costs
on such shipments until the products are sold by the distributors and stocking
sales representatives.
As part of a product review conducted during 1998, Xicor recognized the
need for a dedicated and focused sales effort in the growing but complex smart
card market. Consequently, in November 1998, Xicor entered into a strategic
alliance with ATMI, Inc. focused on the selling of Xicor's secure memory ICs by
ATMI into smart card applications. As part of this agreement, ATMI received
certain rights to the product line for smart card applications.
During the years ended December 31, 1998, 1997 and 1996, Xicor's
international sales constituted 46%, 44% and 45%, respectively, of revenues.
Xicor's international sales are generally denominated in US dollars. Due to the
magnitude of its international sales, Xicor is subject to risks common to all
export activities, including currency fluctuations, governmental regulation and
the risk of imposition of tariffs or other trade barriers. Further, export sales
must be licensed by the Office of Export Administration of the US Department of
Commerce.
One distributor accounted for 15% of Xicor's revenues in 1998, 16% in 1997
and 14% in 1996. Distributors are not themselves end users, but rather serve as
a channel of sale to many end users of Xicor's products.
Volume purchase orders received by Xicor do not necessarily result in sales
as they are in most cases, consistent with industry practice, terminable by the
customer without penalty. Consequently, backlog figures are not necessarily
indicative of future sales.
MANUFACTURING
Historically, Xicor manufactured in-house all silicon wafers used to
provide the semiconductor chips for its products. However, the rapidly
escalating capital investments and the increasing need for larger size factories
required to efficiently spread the high level of fixed costs associated with
complex semiconductor manufacturing operations have led to the emergence of
wafer fabrication foundries, enabling many semiconductor companies to outsource
portions or all of their wafer requirements. Xicor has made the decision to also
outsource some of its wafer fabrication. Yamaha Ltd. was selected to become
Xicor's first foundry, and in 1997 Xicor commenced the transfer of its
technology to Yamaha's plant in Kagoshima, Japan. In the third quarter of 1998,
the Kagoshima factory was qualified as an outside foundry for Xicor. Several
customers have qualified Yamaha produced product and Xicor is transferring
additional products to Yamaha to increase volume there. Assuming continuing
successful transfer of products to Yamaha and timely qualification of
Yamaha-manufactured products by Xicor's customers, Xicor expects to start a
significant portion of its total wafers at Yamaha in late 1999. Concurrently,
Xicor is further outsourcing product testing. Chip packaging has been outsourced
from inception.
Wafer fabrication processes are highly complicated, utilize numerous highly
toxic and corrosive chemicals and gases, and require stringent control of many
extremely precise steps, similar to those used in the semiconductor industry for
the production of other large scale integrated circuits. These steps include
complex processes such as microphotolithography, wet chemical and dry plasma
etch, chemical vapor deposition, high temperature diffusion and oxidation, ion
implantation and vacuum metallization, which are applied to silicon wafers to
form several hundred to several thousand devices ("chips") per wafer depending
on the product. Each chip, in turn, contains thousands to millions of individual
transistors and other circuit elements. The sensitivity of the manufacturing
process to dust and other contaminants requires the production process to take
place in a highly controlled, clean environment. Sophisticated
computer-controlled testing equipment is used to test each chip on the wafer to
identify those potentially meeting the desired electrical criteria.
Although the wafer manufacturing process is highly controlled, minute
impurities, difficulties in the process or defects in the masks can cause wafers
to be rejected or a substantial percentage of individual chips to be
non-functional, a problem indigenous to the semiconductor industry. From time to
time Xicor and its
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foundry experience a variety of technical issues in the manufacturing processes
which adversely affect manufacturing yields until they are corrected.
Maintaining and improving manufacturing yields is essential for profitability.
Each chip on the fabricated wafer is tested and the nonfunctional chips are
identified. The wafers are then shipped to subcontractors in Taiwan, Thailand,
South Korea, the Philippines, China or Malaysia, where the wafers are separated
into individual chips. Each functional chip is encapsulated in a plastic or
ceramic package having external leads to which the chip is connected by
extremely fine wires. The packaged chips undergo comprehensive electrical
testing offshore at one of Xicor's independent subcontractors located in Taiwan,
Thailand, South Korea, the Philippines and China. A limited amount of testing is
also performed in Milpitas. Chip-scale packaged products are encapsulated by a
subcontractor based in Israel and tested in Milpitas. In accordance with
industry practice, Xicor provides a limited warranty for its devices against
defects in materials and workmanship for periods ranging from 90 days to one
year.
Reliance on overseas wafer fabrication, assembly and test contractors and
Xicor's maintenance of inventories at contractors' facilities entails certain
political and economic risks, including political instability and expropriation,
currency controls and exchange fluctuations, and changes in tariff and freight
rates. Furthermore, in the event Xicor's overseas wafer fabrication, assembly or
test operations, or air transportation to or from foreign contractors, are
disrupted for any reason, Xicor's operations may be materially adversely
affected.
The principal raw materials utilized in the production process are polished
silicon wafers, ultra-pure metals, chemicals and gases. Encapsulation materials
that enclose the chip and provide the external connecting leads are provided by
the independent assembly contractors or are purchased by Xicor and shipped to
such contractors. Shortages could occur in various essential materials due to
interruption of supply or due to increased demand in the industry. Shortages
have occurred in the Company's history and lead times have been extended in the
industry on occasion without materially adversely affecting the Company.
However, future shortages, if any, could have a material adverse effect on
Xicor's operations.
Cost reduction is an important on-going activity at Xicor since continually
lower selling prices are essential to maintain and improve Xicor's competitive
position. Typically, integrated circuit product cost reduction programs are
designed to minimize defects, simplify testing and reduce the physical size of
the chips. As Xicor reduces the quantity of wafers which are fabricated in its
underutilized factory, the increasing supply of lower cost wafers from the
outside foundry is expected to reduce Xicor's average wafer cost. The expected
benefit of a higher percentage of lower cost products made by the foundry will
be realized only after the first half of 1999 as foundry shipment volume ramps
up.
Compliance with Environmental Regulations
The manufacture of semiconductors requires the use and storage of
substantial amounts of toxic chemicals, solvents and gases. Government
regulations impose various environmental controls on the storage, use and
disposal of such materials. Such regulations have grown more complex and
enforcement more rigorous over time as increasing attention has been focused on
the environmental impact of semiconductor manufacturing operations. While Xicor
to date has not experienced any materially adverse effect on its business from
environmental regulations, changes in such regulations could necessitate the
acquisition of more costly equipment or require more costly procedures or
process changes to be initiated.
RESEARCH AND DEVELOPMENT
Continuing development of more advanced processes and products is essential
to maintain and enhance Xicor's competitive position. Such development
activities are difficult and lengthy. There can be no assurance that any
research and development efforts will be successfully completed or that future
products will be available on a timely basis or achieve market acceptance.
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Research and development activities require an increasing degree of
complexity of design and manufacturing process, and consequently a significant
percentage of revenues is continuously invested in research and development.
During the years ended December 31, 1998, 1997 and 1996, Xicor expended
$17,429,000, $18,475,000 and $15,074,000, respectively, on research and
development.
PATENTS AND LICENSES
Xicor holds numerous United States patents and corresponding foreign
patents covering various circuit designs and the structure of its devices.
Further, additional patent applications for such products are pending in the
United States and abroad. However, patents granted or pending may not provide
Xicor with any meaningful protection. Similar to other semiconductor
manufacturers, Xicor has granted licenses under its patents and may continue to
do so in the future. Xicor believes that, due to the rapidly changing technology
in the semiconductor industry, its future success will be dependent primarily
upon the technical expertise and creative skills of its personnel rather than
patent protection.
As is the case with many companies in the semiconductor industry, it may
become necessary or desirable for Xicor to obtain licenses relating to its
products from others. Xicor has received notices claiming infringement of
patents from several semiconductor manufacturers and other patent holders with
respect to certain aspects of Xicor's processes, devices and equipment use and
these matters are under investigation and review. Although patent holders
typically offer licenses and Xicor has in prior years entered into such license
agreements, there can be no assurance that licenses can be obtained on
acceptable terms or that in all cases the dispute will be resolved without
costly litigation.
COMPETITION
The semiconductor industry is highly competitive and characterized by
steadily declining prices, particularly during periods of industry oversupply.
Numerous companies are currently selling products which compete with those of
Xicor. In addition to price, important elements determining success in
competition include product performance, quality and reliability, delivery
capability, diversity of product line, application support, financial strength
and the ability to respond rapidly to technological innovations. Xicor may be at
a disadvantage in competing with major domestic and foreign concerns that have
significant financial resources, established and diverse product lines,
worldwide vertically integrated production facilities and extensive research and
development staffs. Further, the industry is characterized by rapid
technological change and Xicor will be required to continually develop or have
access to new and improved manufacturing processes and products to remain
competitive.
EMPLOYEES
At December 31, 1998 Xicor had 565 employees. None of the employees are
represented by a labor organization and Xicor considers its employee relations
to be good. Many of Xicor's employees are highly skilled and Xicor's success
will depend in significant part on its ability to attract and retain such
employees in the highly competitive semiconductor industry.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth each executive officer of Xicor, their ages
(as of December 31, 1998) and office with Xicor:
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NAME AGE OFFICE
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<S> <C> <C>
Raphael Klein......................... 55 Chairman of the Board and Chief
Executive Officer
Bruce Gray............................ 48 President and Chief Operating Officer
Joseph Drori.......................... 53 Vice President, Product Definition
Geraldine N. Hench.................... 41 Vice President, Finance and Chief
Financial Officer
Klaus G. Hendig....................... 59 Senior Vice President, Administration
Timothy D. Kanemoto................... 52 Vice President, Product Operations
Michael P. Levis...................... 41 Vice President, Marketing
Daniel L. Lewis....................... 49 Vice President, Worldwide Sales
James McCreary........................ 52 Vice President, Engineering
Ira McLain............................ 55 Vice President, Information Technology
William H. Owen, III.................. 50 Vice President, Technology Development
and Intellectual Properties
</TABLE>
Raphael Klein, Chairman of the Board and Chief Executive Officer. From
August 1987 until January 1998 Mr. Klein was Xicor's President and Chief
Executive Officer. Since January 1998 Mr. Klein has shared the Office of the
President with Mr. Bruce Gray. Mr. Klein is Xicor's Chief Executive Officer with
primary responsibility for finance and administration and shared responsibility
for the direction of the company. Mr. Klein has been a director of the Company
since founding Xicor in August 1978 and its Chairman of the Board since August
1982. Mr. Klein received the degree of Master of Science in Physics from the
Israeli Institute of Technology ("Technion") and is the inventor or co-inventor
of two patented inventions.
Bruce Gray, President and Chief Operating Officer. Mr. Gray joined Xicor in
September 1996 as Vice President, Wafer Operations and since January 1998 has
shared the Office of the President with Mr. Raphael Klein. Mr. Gray is Xicor's
President and Chief Operating Officer with principal profit and loss
responsibility and shared responsibility for the direction of the Company. Mr.
Gray has 27 years of experience in the semiconductor industry in engineering,
manufacturing and management. From September 1994 through September 1996, Mr.
Gray served as the Managing Director of the Advanced Technology Group at
National Semiconductor Corporation. From August 1989 through September 1994, Mr.
Gray was the Director of Santa Clara Operations and Services for National
Semiconductor with operational responsibility for four high-volume wafer
fabrication lines. Mr. Gray was also involved in advanced technology development
and wafer foundry activities. Mr. Gray has a Bachelor of Science Degree in
Metallurgy and Materials Science from the Massachusetts Institute of Technology
(MIT) and is the inventor or co-inventor of three patented inventions.
Joseph Drori, Vice President, Product Definition. Mr. Drori has been
employed by Xicor since October 1979 and became a Vice President in June 1988.
Mr. Drori received the degree of Master of Science in Electrical Engineering
from the University of California at Los Angeles and is the inventor or
co-inventor of several patented inventions in the semiconductor field.
Geraldine N. Hench, Vice President, Finance and Chief Financial Officer.
Ms. Hench, a certified public accountant, joined Xicor in November 1987 and
became a Vice President in June 1993 and Xicor's Chief Financial Officer in
January 1998. Ms. Hench received the degree of Bachelor of Science in Accounting
from Santa Clara University and the degree of Master's in Business
Administration from St. Mary's College.
Klaus G. Hendig, Senior Vice President, Administration. Mr. Hendig, a
certified public accountant, has been employed by Xicor since February 1981 and
became a Vice President in January 1983. Mr. Hendig served as Xicor's Chief
Financial Officer from September 1987 until January 1998. Mr. Hendig received
the degree of Bachelor of Science in Accounting and Finance from San Jose State
University.
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Timothy D. Kanemoto, Vice President, Product Operations. Mr. Kanemoto
joined Xicor in January 1990, and became a Vice President in June 1994. He
received the Degree of Bachelor of Science in Business Administration from
California State University, Hayward.
Michael P. Levis, Vice President, Marketing. Mr. Levis joined Xicor in
January 1998 as Vice President, Marketing. Mr. Levis has 15 years of experience
in marketing and business development. From 1996 through 1997, Mr. Levis served
as General Partner at ASCII of America, a venture capital firm. From 1993
through 1996, Mr. Levis was the Vice President of Marketing at Crosspoint
Solutions, Inc., a semiconductor company. Prior to 1993 Mr. Levis held various
marketing and business development positions at Crosspoint Solutions, Inc.,
Samsung Semiconductors and Zilog, Inc. Mr. Levis received the degree of Bachelor
of Science in Electrical Engineering from Purdue and the degree of Master of
Science in Electrical Engineering from Stanford University.
Daniel L. Lewis, Vice President, Worldwide Sales. Mr. Lewis joined Xicor in
May 1998 as Vice President, Worldwide Sales. Mr. Lewis has 27 years of
experience in various sales and marketing roles. From June 1991 through April
1998, Mr. Lewis was Vice President of Sales at Integrated Device Technology,
Inc. Mr. Lewis received the degree of Bachelor of Science in Electrical
Engineering from the University of Michigan.
James McCreary, Vice President, Engineering. Mr. McCreary joined Xicor in
October 1998 as Vice President, Engineering. From 1996 through 1998 Mr. McCreary
was involved in private business ventures. In 1983 Mr. McCreary co-founded Micro
Linear Corp. where he was Vice President of Engineering from 1983 through 1995.
Mr. McCreary received the degrees of Master of Science in Electrical Engineering
and Ph.D. at the University of California, Berkeley and is the author of several
patents.
Ira McLain, Vice President, Information Technology. Mr. McLain joined Xicor
in May 1998 as Vice President, Information Technology (IT). Mr. McLain has 29
years of IT experience with National Semiconductor (NSC), Fairchild
Semiconductor and Schlumberger. From 1987 to 1998, Mr. McLain was an IT Director
with NSC. Mr. McLain received a Bachelor of Arts degree from Lamar University.
William H. Owen, III, Vice President, Technology Development and
Intellectual Properties. Mr. Owen, one of Xicor's founders, joined Xicor in
October 1978, shortly after its formation to aid in the development of its
advanced memory devices, with principal responsibility for circuit design. Mr.
Owen is presently involved in process development and patent activities. Mr.
Owen received the degree of Master of Science in Electrical Engineering from the
University of Wisconsin and is the inventor or co-inventor of several patented
inventions in the semiconductor field.
INSURANCE
Xicor presently carries various insurance coverages including property
damage, business interruption and general liability including certain product
liability coverage. Xicor has been unable to obtain pollution and earthquake
insurance at reasonable costs and limits.
ITEM 2. PROPERTIES
Xicor leases a 43,834 square foot facility in Milpitas, California which
contains Xicor's silicon wafer fabrication and process technology development
operations. The lease, which expires in 2001, provides for an annual base rental
of $626,145 and requires Xicor to pay all real estate taxes, utilities and
insurance and to maintain the building and premises. Xicor has two successive
five-year renewal options upon the same terms and conditions at increased rental
rates based on the consumer price index, not to exceed 15% for the prior
five-year period.
Xicor leases a 55,767 square foot facility near its wafer fabrication
facility which houses its product testing and distribution operations and a
small quick-turn assembly line. The lease, which expires in 1999, provides for
an annual base rental of $401,520. Xicor has a five-year renewal option upon the
same terms and conditions, except that the rental will be 95% of the then market
rental rate in the industrial park where the property is located.
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Xicor leases a 73,622 square foot facility adjacent to its existing wafer
fabrication facility. This facility houses Xicor's design, research and
development and reliability operations and executive, marketing and
administrative offices and also serves as Xicor's main stockroom. This lease
expires in 2000 and provides for an annual base rental of $1,285,776 and
requires Xicor to pay all real estate taxes, utilities and insurance and to
maintain the building and premises. Xicor has three successive five-year renewal
options upon the same terms and conditions at increased rental rates based on
the consumer price index, not to exceed 15% for the prior five-year period.
Xicor believes that its existing facilities should be adequate for its
needs in the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
Xicor is not a party, nor is its property subject, to any material pending
legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated by reference to page
16 of the Company's 1998 Annual Report to Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the five years ended December 31, 1998,
which appears on page 7 of the Company's 1998 Annual Report to Shareholders, is
incorporated by reference in this Annual Report on Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item is incorporated by reference to pages
4 to 6 of the Company's 1998 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, together with the report thereon of
PricewaterhouseCoopers LLP dated January 27, 1999, appearing on pages 8 to 15
and the unaudited financial information by quarter appearing on page 16 of the
Company's 1998 Annual Report to Shareholders, are incorporated by reference in
this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
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With the exception of the information incorporated in Items 5, 6, 7, 8 and
14 of Parts II and IV of this Form 10-K, the Company's 1998 Annual Report to
Shareholders is not to be deemed filed as a part of this Annual Report on Form
10-K.
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PART III
Certain information required by Part III is omitted from this Report in
that the Registrant will file a definitive proxy statement pursuant to
Regulation 14A (the "Proxy Statement") not later than 120 days after the end of
the fiscal year covered by this Report, and certain information included therein
is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information concerning the Company's directors and executive
officers required by this Item is incorporated by reference to the information
contained in the sections captioned "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's Proxy Statement.
The information concerning the Company's executive officers required by
this Item is included in Part I hereof under the caption "Executive Officers of
the Registrant".
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
information contained in the section captioned "Executive Compensation" in the
Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
information contained in the section captioned "Security Ownership of Certain
Beneficial Owners and Management" in the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
information contained in the section captioned "Election of Directors" in the
Company's Proxy Statement.
9
<PAGE> 11
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
(1) Financial Statements. The following Consolidated Financial Statements
of Xicor, Inc. and the Report of Independent Accountants are
incorporated by reference from the indicated pages of the Company's
1998 Annual Report to Shareholders:
<TABLE>
<CAPTION>
PAGE IN
ANNUAL
REPORT
-------
<S> <C>
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 1998............... 9
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... 8
Consolidated Statements of Shareholders' Equity for each of
the three years in the period ended December 31, 1998..... 9
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1998............... 10
Notes to Consolidated Financial Statements.................. 11-15
Report of Independent Accountants........................... 15
</TABLE>
(2) Financial Statement Schedule.
All schedules have been omitted since the required information is not
applicable, not significant or because the information required is
included in the consolidated financial statements or notes thereto.
(3) Exhibits. The exhibits listed in the accompanying Index to Exhibits are
filed or incorporated by reference as part of this Annual Report.
(b) Reports on Form 8-K
None.
10
<PAGE> 12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Milpitas, State of California, on the 26th day of March 1999.
XICOR, INC.
Registrant
By /s/ RAPHAEL KLEIN
------------------------------------
Raphael Klein
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Raphael Klein and Klaus G. Hendig, and
each of them, jointly and severally, his attorneys-in-fact, each with the power
of substitution, for him in any and all capacities, to sign any and all
amendments to this Report on Form 10-K and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RAPHAEL KLEIN Chairman of the Board and Chief March 26, 1999
- ----------------------------------------------------- Executive Officer (Principal
(Raphael Klein) Executive Officer)
/s/ BRUCE GRAY President, Chief Operating March 26, 1999
- ----------------------------------------------------- Officer and Director
(Bruce Gray)
/s/ JULIUS BLANK Director March 26, 1999
- -----------------------------------------------------
(Julius Blank)
/s/ ANDREW W. ELDER Director March 26, 1999
- -----------------------------------------------------
(Andrew W. Elder)
/s/ GERALDINE N. HENCH Vice President, Finance and March 26, 1999
- ----------------------------------------------------- Chief Financial Officer
(Geraldine N. Hench) (Principal Financial Officer
and Principal Accounting
Officer)
</TABLE>
11
<PAGE> 13
XICOR, INC.
INDEX TO EXHIBITS
ITEM 14(A)3.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
3.1 Amended and Restated Articles of Incorporation dated
December 9, 1987 filed as Exhibit 3.1 with Form 10-K for the
year ended December 31, 1987, is hereby incorporated by
reference.
3.2 By-laws, as amended to date, filed as Exhibit 3.2 with Form
10-K for the year ended December 31, 1987, is hereby
incorporated by reference.
3.2A Certificate of Amendment of By-Laws effective as of January
28, 1998 is filed herewith as Exhibit 3.2A.
10.1 Non-Qualified (Non-Incentive) and Incentive Stock Option
Plan as amended as of December 31, 1987 filed as Exhibit
10.1 with Form 10-K for the year ended December 31, 1987, is
hereby incorporated by reference.
10.1A Amended and Restated Xicor, Inc. 1990 Incentive and
Non-incentive Stock Option Plan filed as Exhibit 10.1A with
Form 10-K for the year ended December 31, 1995, is hereby
incorporated by reference.
10.2 Lease dated July 2, 1980, Exhibit 13-E of the Exhibits filed
with Form S-1 Registration Statement, File No. 2-69109, is
hereby incorporated by reference.
10.2A Amendment to lease dated July 2, 1980 filed as Exhibit 10.2A
with Form 10-K for the year ended December 31, 1990, is
hereby incorporated by reference.
10.3 Lease dated November 23, 1983, Exhibit 1 of the Exhibits
filed with Form 10-K for the year ended December 31, 1983,
is hereby incorporated by reference.
10.3A Amendment to lease dated November 23, 1983 filed as Exhibit
10.3A with Form 10-K for the year ended December 31, 1990,
is hereby incorporated by reference.
10.4 Lease dated February 15, 1984, Exhibit 10(v) of the Exhibits
filed with Form 10-K for the year ended December 31, 1984,
is hereby incorporated by reference.
10.4A Amendment to lease dated February 15, 1984 filed as Exhibit
10.4A with Form 10-K for the year ended December 31, 1994,
is herein incorporated by reference.
10.6 Form of Indemnification Agreement entered into between
Xicor, Inc. and each of its Officers and Directors filed as
Exhibit 10.6A with Form 10-Q for the quarterly period ended
June 30, 1996, is hereby incorporated by reference.
10.7 Lingsen-Xicor Dedicated Production Agreement dated September
21, 1988 as amended on March 11, 1989, April 14, 1989 and
September 8, 1989 filed as Exhibit 10.8 with Form 10-K for
the year ended December 31, 1989, is hereby incorporated by
reference.
10.8 Loan and Security Agreement dated March 10, 1993 with
CoastFed Business Credit Corporation filed as Exhibit 10.8
with Form 10-K for the year ended December 31, 1992, is
hereby incorporated by reference.
10.9 Xicor, Inc. 1995 Director Option Plan filed as Exhibit 10.9
with Form 10-K for the year ended December 31, 1995, is
hereby incorporated by reference.
10.10* Xicor-Yamaha Semiconductor Manufacturing Foundry Agreement
dated February 6, 1997 is filed herewith as Exhibit 10.10.
10.11 Xicor, Inc. 1998 Employee Stock Purchase Plan is filed
herewith as Exhibit 10.11.
10.12 Xicor, Inc. 1998 Nonstatutory Stock Option Plan is filed
herewith as Exhibit 10.12.
13.1 Pertinent pages of the 1998 Annual Report to Shareholders
(to be deemed filed only to the extent required by the
instructions to exhibits for reports on Form 10-K).
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
21. List of Subsidiaries.
23. Consent of PricewaterhouseCoopers LLP.
24. Powers of Attorney (included on the signature pages hereof).
27. Financial Data Schedule.
</TABLE>
- ---------------
* Confidential treatment of certain portions has been requested.
13
<PAGE> 1
EXHIBIT 3.2A
CERTIFICATE OF AMENDMENT OF BYLAWS
OF
XICOR, INC.
Effective as of January 28, 1998
The undersigned, being the Secretary of Xicor, Inc. hereby certifies
that: (I) effective as of the date set forth above, pursuant to resolutions by
the Board of Directors dated January 28, 1998, Article II of the Bylaws of
Xicor, Inc. was amended as follows: the former Section 6 and Section 7 were
deleted and replaced by Section 6, Section 7 and Section 8 and Section 9 set
forth below, and the former Section 8, Section 9 and Section 10, respectively,
were renumbered Section 10, Section 11 and Section 12, respectively, and (ii)
the new Section 6, Section 7, Section 8 and Section 9 shall read as follows:
"Section 6 Chairman of the Board
The chairman of the board, if there shall be such an officer,
shall, if present, preside at meetings of the board of directors and exercise
such other powers and perform such other duties as may from time to time be
assigned to him by the board of directors or as may be prescribed by these
bylaws. If there is no chairman of the board, then the chief executive officer
of the corporation shall have the powers and duties prescribed herein.
Section 7 Office of the President
The office of the president shall consist of the corporation's
chief executive officer and chief operating officer, shall report directly to
the Board of Directors and shall jointly share the responsibilities vested in
the office of president under the California Corporations Code according to the
division set forth in Section 8 and Section 9 below.
Section 8. Chief Executive Officer
Subject to such supervisory powers, if any, as may be given by
the board of directors to the chairman of the board, if there be such an
officer, the chief executive officer of the corporation shall, subject always to
the control of the board of directors, have general supervision, oversight,
direction and control of the business of the corporation, as well as such other
responsibilities as are delegated to him or her by the Board of Directors. He or
she shall preside at all meetings of the shareholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors.
Section 9 Chief Operating Officer
Subject to such supervisory powers, if any, as may be given by
the board of directors to the chairman of the board or the chief executive
officer, if there be either such officer, the chief operating officer of the
corporation shall, subject always to the control of the board of directors, have
general responsibility for managing the operations of the corporation, as well
as such other responsibilities as are delegated to him or her by the Board of
Directors."
/s/ JULIUS BLANK
---------------------------------------
Julius Blank, Secretary
<PAGE> 1
EXHIBIT 10.10
CONFIDENTIAL TREATMENT REQUESTED
- ----------------------------------------
* Portions denoted with an asterisk
have been omitted and filed
separately with the Securities and
Exchange Commission pursuant to a
request for confidential treatment.
- ----------------------------------------
XICOR - YAMAHA
SEMICONDUCTOR MANUFACTURING FOUNDRY AGREEMENT
This Agreement is made and entered into this 6th day of February 1997 by and
between Xicor, Inc., a corporation established and existing under the laws of
California, USA and having its principal office at 1511 Buckeye Drive, Milpitas,
CA 95035 USA (hereinafter called "Xicor"); and Yamaha Corporation, a corporation
established and existing under the laws of Japan and having its principal office
at 203 Matsunokijima, Toyooka-mura Iwata-gun, Shizuoka-ken, Japan Japan
(hereinafter called "Yamaha").
WHEREAS XICOR, designs and markets integrated circuit products, and desires to
obtain an additional manufacturing source for certain of its products, and
WHEREAS YAMAHA, manufactures integrated circuits designed and marketed by other
parties and possesses wafer fabrication facilities suitable for manufacturing
the Xicor products, and
WHEREAS XICOR, desires to entrust Yamaha with the manufacture of certain
integrated circuit products; and
WHEREAS YAMAHA, desires to manufacture and supply these products to Xicor and is
willing to undertake to manufacture such products with technical assistance and
cooperation from Xicor, and to deliver such Product to Xicor.
NOW, THEREFORE, in consideration of the above premises and the mutual covenants
herein contained, the parties hereto agree as follows:
1.0 DEFINITIONS:
1.1 "Wafer[s]" shall mean 150 mm epitaxial silicon wafers carrying dice
designed by Xicor and built by Yamaha according to Xicor's C5 process
flow, or a generally similar process flow, through pad mask and
parametric test that meet the Specifications as per Appendix C.
1.2 "Device[s]" shall mean individual die of Xicor designed integrated
circuits in Wafer form.
1.3 "Specifications" shall mean the parametric, electrical, reliability,
quality, yield and endurance specifications for each Wafer and Device
type as set forth in Appendix C.
1.4 "Good Device[s]" shall mean individual Devices that meet the
Specifications.
1
<PAGE> 2
CONFIDENTIAL TREATMENT REQUESTED
1.5 "Yamaha Process" shall mean the Yamaha's process, and/or such other
processes or successor processes, qualified by Xicor in accordance with
Appendix D, or as modified and approved thereafter in accordance with
Paragraph 3.9 of this Agreement, that produce Wafers and Devices that
meet the Specifications.
1.6 "Design[s]" shall mean all Xicor integrated circuit designs for
systems, circuits and pattern layouts concerning the Wafers and Devices
contained thereon.
1.7 "Proprietary Information" shall mean (i) this Agreement, including
all appendixes, exhibits, attachments and any technical specifications,
prices, schedules, specifications and the like negotiated in
implementation of this Agreement, and (ii) any information including,
but not limited to, technical information, database tapes,
specifications, test tapes, masks and supporting documentation provided
either orally, in writing or in machine readable format and masks or
reticles generated by or for Yamaha using Xicor's database tapes,
provided that all such information is marked "Confidential" or
similarly, or, if oral, identified as proprietary within 30 days
following the time of disclosure. Notwithstanding the foregoing,
Proprietary Information does not include information generally available
to the public, information independently developed or known by the
receiving Party without reference to information disclosed hereunder,
provided that the receiving Party can demonstrate such independent
development or knowledge by substantial documentation, information
rightfully received from a third party without confidentiality
obligations, information authorized in writing for release by the
disclosing Party hereunder, or information required to be disclosed
pursuant to law or governmental regulation provided that the disclosing
Party gives reasonable notice to the other party prior to any such
disclosure.
1.8 "Yield" shall mean the number of good Devices to the total Devices
on a particular Wafer.
1.9 "Substrates" shall mean 150 mm silicon epitaxial substrates as per
the specification in Appendix C.
1.10 "Effective Date" shall mean the date of Japanese governmental
approval of this Agreement pursuant to Japanese laws and regulation in
effect on the date this Agreement is executed. If such approval is not
obtained within 30 days following execution, Xicor shall have the right
to terminate this Agreement by notice to Yamaha. Yamaha will make all
filings necessary for such approval within ten (10) business days
following execution of this Agreement.
1.11 "Forecast" shall mean a six (6) month rolling forecast of Xicor's
delivery requirements for Wafers and/or Devices by Device type.
1.12 "Order[s]" shall mean Xicor purchase orders or purchase order
releases for specific Wafer and/or Device types, quantities and delivery
dates.
2
<PAGE> 3
CONFIDENTIAL TREATMENT REQUESTED
1.13 "Risk Starts" shall mean any Wafers and/or Devices ordered by Xicor
prior to full and complete qualification of Yamaha's process per
Appendix D.
1.14 "Process Change" shall mean any change in process chemicals, gases,
chemical or physical structures or impurities embedded in the silicon or
in layers above silicon, cross-sections, surface properties, physical or
chemical environment which the wafer encounter during processing or
storage, photolithographic and electrically charged processes and any
other change which could impact the yield, quality, reliability,
performance, physical structure and /or appearance of Wafers and/or
Devices.
2.0 PRODUCTION:
2.1 Yamaha agrees to manufacture and supply to Xicor Wafers and/or
Devices as described in this Agreement and Xicor agrees to purchase from
Yamaha, the Wafers and/or Devices under the terms and conditions set
forth herein.
2.2 Yamaha hereby assumes responsibility for the manufacture of Wafers
and/or Devices based on the Designs, and manufactured to the
Specifications, utilizing the Yamaha Process. Yamaha will produce Wafers
and/or Devices to fill Xicor's orders, as further outlined below.
2.3 Orders shall be provided by Xicor to Yamaha as follows:
2.3.1 Within thirty (30) days of successful qualification of the
Yamaha Process, Wafers and Devices produced therein, and
specifically conditioned upon successful agreement by the parties
to Lead-Times, Pricing, Specifications, and Monitoring Criteria
contained in Appendixes A, B, C and D respectively, Xicor shall
provide Orders to Yamaha for Wafers and/or Devices. Orders placed
by Xicor will be open purchase orders or releases for fixed
quantities of Wafers and/or Devices based upon the Xicor
forecast. Yamaha shall use its best efforts to fulfill said
Orders within the lead times outlined in Appendix A.
2.3.2 On the twentieth (20th) day of each month Xicor will
provide Yamaha a Forecast. The first two months of the Forecast
shall be firm and supported by released Orders. All subsequent
months shall be for planning purposes only and in no way
represent a firm commitment to purchase Wafers and/or Devices by
Xicor.
2.4 Defective Wafers and Devices: When a Wafer manufactured by Yamaha
fails to meet the Yield Specifications, or a Device manufactured by
Yamaha fails meet the Device Specifications, Xicor and Yamaha will work
together to investigate and determine the root cause of the defect. The
party which is found to be responsible for causing such failures will,
at its own cost and responsibility, remove such cause or causes with
3
<PAGE> 4
CONFIDENTIAL TREATMENT REQUESTED
minimum delay. If the root cause of the defect can not be determined the
parties agree to act in good faith to reach an equitable resolution
acceptable to both parties.
2.5 Partial Shipments. Xicor will accept deliveries of Wafers or Devices
made in timely installments from Yamaha. Any partial shipments will be
invoiced as made, and payments therefor are subject to the terms of
payment noted below.
2.6 Quantity Variance. If the monthly quantity shipped by Yamaha of each
Wafer and/or Device ordered by Xicor is within +/- 5 percent of the
quantity ordered, such quantity shall constitute compliance with Xicor's
order. Over shipments may be accepted at Xicor's discretion, in which
case the respective quantity of such over shipment may be subtracted
from the following months' quantity. Any under shipment may, at Xicor's
discretion, be added to the following months Order.
2.7 Modifications. If Xicor determines that modifications to the
Specifications are required, including modifications to mask tooling,
process or testing, Yamaha agrees to make such modifications within a
reasonable period of time after notification in writing by Xicor. The
parties will negotiate adjustment to price and delivery schedule as well
as charges for retooling costs if warranted by such modifications.
2.8 Substitutions. Xicor may, at Xicor's sole discretion, add or
substitute Wafer and/or Device types as long as the Wafer and/or Device
type utilizes the same or similar Yamaha Process approved by Xicor and
Yamaha for existing production, provided that the agreed upon quantities
of Wafers and/or Devices required by Xicor do not exceed those
determined pursuant to Paragraph 2.3 and 2.6 except with the consent of
Yamaha. Such Wafer and/or Device types are those which can be
manufactured using the same process and in accordance with the same
qualification plan as Wafers and/or Devices currently manufactured by
Yamaha under this Agreement.
2.9 Parametric Failure. If a Devices fails to meet the agreed upon
Parametric Specifications, and in Xicor's reasonable opinion such
failure appears material, Xicor may request Yamaha to stop production.
If Yamaha is unable to correct such failures within a reasonable time,
Xicor may cancel such particular Orders at no charge to Xicor. Xicor
will notify Yamaha in writing of its intention to suspend or cancel such
Orders and will include any substantiating data.
2.10 Reports and Reviews: Yamaha shall provide Xicor with a weekly
delivery report. Yamaha will strive to develop a system in 1997 that
will be capable of weekly updating of wafer fabrication work in process
for each Wafer and/or Device type. The details and format of such
Reports shall be as agreed upon by the parties. To enable Xicor to track
process control, Yamaha shall also strive to provide daily status and
weekly data summarizing the DC parametric measurements for Yamaha
Process. Yamaha shall strive to provide continuous modem access to the
computer database maintained by Yamaha for purposes of these Reports. In
addition, the parties agree to meet quarterly or as frequently as
necessary to discuss and resolve issues that may, from time to time,
arise
4
<PAGE> 5
CONFIDENTIAL TREATMENT REQUESTED
and to review Yamaha performance. Yamaha also agrees to provide Xicor
with such data and/or reports required by Xicor to enable Xicor to
maintain their qualification to ISO9001 and QS 9000 quality standards.
2.11 Order Cancellation.
2.11.1 If Xicor fails to make any payment hereunder when due or
fails to accept any material quantity of Wafers and/or Devices
properly furnished hereunder, and such default is not cured
within thirty (30) days after Yamaha gives Xicor written notice
thereof, Yamaha may decline to make further shipments and/or may
terminate Xicor's Orders without affecting any other rights or
remedies available to Yamaha. If Yamaha continues to make
shipments after such default, Yamaha's actions shall not
constitute a waiver nor affect Yamaha's remedies for such
default.
2.11.2 If Xicor cancels an Order that is firm pursuant to Section
2.3.2, Xicor shall pay in full and complete satisfaction of any
claim arising therefrom, a cancellation charge per Wafer equal
to:
(number of mask steps completed)
------------------------------------ x (Wafer price)
(total number of mask steps)
Notwithstanding the above, if the parties mutually agree to
reschedule the Order, no claim shall arise unless the Order as
rescheduled is canceled. Claims for the canceling of rescheduled
Orders shall also be governed as set forth above on the date of
cancellation.
2.11.3 Xicor may cancel any Order in whole or in part if Yamaha
fails to deliver Wafers and/or Devices as covered by such Order
placed hereunder by Xicor, which failure is not corrected within
sixty (60) days after written notice thereof. If such failure is
not corrected within the above sixty-day period and is not
excused pursuant to Paragraph 19.0, Xicor shall have the right to
procure substitute goods ("cover") as provided by the California
Uniform Commercial Code, Section 2712. The foregoing shall not
affect any other right or remedy available to Xicor. If Xicor
continues to maintain or place Orders after such default, Xicor's
actions shall not constitute a waiver nor affect Xicor's remedies
for such default.
3.0 PROCESS TECHNOLOGY:
3.1 Xicor will provide to Yamaha the Xicor C5 process flow, process
parameters, design rules and other relevant information to enable Wafers
and Devices to be manufactured by Yamaha. It is understood that the
information listed above is the
5
<PAGE> 6
CONFIDENTIAL TREATMENT REQUESTED
Proprietary Information of Xicor and will remain the sole property of
Xicor. Nothing in this Agreement grants or authorizes Yamaha to use this
Proprietary Information for any other purpose other than those
specifically authorized by this Agreement.
3.2 Yamaha will run the Yamaha Process pursuant to this Agreement, or
any process which is based on the Yamaha Process, for the purpose of
manufacturing Wafers and/or Devices exclusively for Xicor. All Wafers
and Devices produced by Yamaha shall meet the Specifications as per
Appendix C.
3.3 Yamaha will either (i) provide Xicor with a list of Yamaha's
acceptable mask vendors, to which, Xicor will select and provide one
mask vendors, as mutually agreed, with Device database tapes in GDS II
format, or (ii) Xicor will provide Yamaha with Device database tapes in
GDS II format and Yamaha may procure masks locally All such database
tapes, whether or not marked as confidential as per paragraph 1.7,
constitute confidential Proprietary Information of the highest level. No
such database tapes will be provided to any third party mask vendor or
to Yamaha unless and until a written agreement by the mask vendor is
executed protecting Xicor Proprietary Information from unauthorized
disclosure. Yamaha will provide the mask vendor with mask alignment and
test structure database, and oversee merging of device and mask
alignment databases by the mask vendor. Xicor will bear the cost of
original mask sets, subject to its advance approval of the cost. The
cost of subsequent mask layers or sets that are required due to use,
abuse or other damage by Yamaha will be the responsibility of Yamaha.
The cost of reticle changes required due to process or design changes
requested by Xicor will be the responsibility of Xicor. The cost for
reticle changes requested by Yamaha for process improvement or yield
enhancements shall be the responsibility of Yamaha. Upon termination of
this Agreement all mask sets shall be destroyed.
3.4 After Yamaha has provided Xicor with sufficient Wafers and Devices
for qualification, but prior to completion of full qualification, Xicor
may request that Yamaha provide a mutually agreed quantity of Risk
Starts. Yamaha will provide these Risk Starts to Xicor at the prices
determined pursuant to Appendix B.
3.5 During the production of Risk Starts per Paragraph 3.4, Xicor may
stop production of Wafers and/or Devices by giving notice to Yamaha.
Upon receipt of such notice, Yamaha will stop production following
completion of the process steps at which Wafers and/or Devices reside at
the time of notification. Xicor agrees to pay Yamaha for all Wafers
and/or Devices started prior to Yamaha receiving such notice. Prices for
such Wafers or Devices will be equitably prorated based on the last
stage of production completed as per Paragraph 2.11.2.
3.6 For Yamaha to become qualified, Wafers and/or Devices delivered for
qualification must meet all agreed Specifications per Appendix C. When
Wafers and/or Devices made by Yamaha successfully complete
qualification, then upon written notice from Xicor of successful
completion, Yamaha will proceed, as soon as possible after
6
<PAGE> 7
CONFIDENTIAL TREATMENT REQUESTED
receipt of such notice, to manufacture and deliver Wafers and/or Devices
ordered by Xicor in accordance with Paragraph 2.3.
3.7 Prior to qualification, Yamaha and Xicor must agree upon
Specifications to be contained in Appendix C. If, in the reasonable
opinion of Xicor, such agreement on Specifications can not be reached,
Xicor may cancel or terminated this Agreement without any further
obligation to Yamaha whatsoever. Yamaha specifically agrees that it will
not modify Specifications in any way without the prior written consent
of Xicor.
3.8 Xicor shall conduct the qualification as per Appendix D and report
the result of such testing to Yamaha.
3.9 Process Change shall be handled in the following manner:
3.9.1 Prior to any Process Change which Yamaha desires to make in
the manufacturing process, Yamaha agrees to notify Xicor in
writing of each such proposed Process Change at least ninety (90)
days in advance of the desired implementation of such Process
Change. Such notice shall contain the following:
3.9.1.1 intent of the proposed Process Change.
3.9.1.2 detailed description of the proposed Process
Change.
3.9.1.3 the reason for the proposed Process Change.
3.9.1.4 the results of controlled experiments done to
support the proposed Process Change.
3.9.1.5 detailed and comprehensive analysis of potential
failure modes and their effects.
3.9.1.6 monitoring in place to verify the intended
improvements and to identify, as early as possible, any
unintended consequences of the proposed Process Change.
3.9.1.7 containment plan in case the proposed Process
Change produces undesired effects.
3.9.1.8 detailed plan for the implementation of the
proposed Process Change and labeling of affected Wafers
and/or Devices.
3.9.2 Xicor reserves the right to approve or reject any proposed
Process Change that, in Xicor's sole opinion, will materially
affect the form, fit, or function of the Device or Wafer or
reduce the yield, reliability, or quality thereof. Xicor agrees
to provide written notification of approval or disapproval of any
proposed Process
7
<PAGE> 8
CONFIDENTIAL TREATMENT REQUESTED
Change within sixty (60) days of receipt of such proposed Process
Change request from Yamaha. In no case will Yamaha implement a
Process Change without Xicor's prior written approval.
3.9.3 Notwithstanding the provisions of Paragraph 3.9.2 above, if
an emergency situation warrants a temporary Process Change,
Yamaha hereby agrees to notify Xicor within twenty-four (24)
hours of identification of the emergency situation. Yamaha shall
provide to Xicor, via fax, details relating to the emergency
situation including problem identification, proposed emergency
Process Change, expected results, expected duration of
effectivity and probable ramifications if said emergency Process
Change is not approved. Xicor shall provide approval/disapproval,
via fax, within forty-eight (48) hours of receipt of Yamaha
notification. Unless said emergency Process Change is approved by
Xicor as a permanent Process Change, the process will, within the
specified time authorization in the emergency process change
notification, but in no case greater than one (1) week, revert
back to the original process which was in effect prior to the
emergency Process Change.
4.0 FORECAST AND COMMITMENT:
4.1 On the twentieth (20th) day of each calendar month, Xicor shall
provide to Yamaha a Forecast per Paragraph 2.3.2. The Forecast shall be
used by Xicor to advise Yamaha of the Wafer and/or Device volumes
required by Xicor. The first two months of the each Forecast will be
detailed by week. The remaining months will be detailed by month. Yamaha
will provide Xicor with a response in the form of a confirmation in
writing to each Forecast by the last working day of each calendar month.
The response shall contain a commitment schedule for all Wafers and/or
Devices for the first two month periods.
4.2 Upon receipt of the commitment schedule, Xicor shall either accept
or reject the response within three (3) working days. If the committed
Wafer and/or Device quantities are acceptable to Xicor, Xicor will
provide Yamaha with Orders to support the agreed upon Wafers and/or
Devices. If the committed Wafer and/or Device quantities are
unacceptable to Xicor, both parties agree to negotiate in good faith
until an acceptable resolution is reached. The production schedule
agreed to by the parties, based on the Forecast and Yamaha's response,
shall be dated, in written form, signed by the parties and shall
represent a binding commitment for all firm Orders. Signature by
facsimile is acceptable as proof of execution.
4.3 Each Order shall obligate Xicor to purchase the Wafers and/or
Devices per Order. Xicor also agrees to limit the extent of change to
each subsequent Forecast for future months based on the parties previous
month's Orders as follows: not more than 30% for the third month, 50%
for the fourth month, 75% for the fifth month and 90% for the sixth
month.
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CONFIDENTIAL TREATMENT REQUESTED
4.4 Yamaha will provide Xicor with actual weekly Wafer and/or Device
completion's and weekly Wafer and/or Device shipment reports to be
received at Xicor no later than 12:00 noon on the Monday for the
previous weeks Wafer and/or Device activity.
4.5 In case Yields drop below the minimum Yield rate as per Appendix C,
Yamaha will use all reasonable efforts to expeditiously make up for the
missing Wafer and/or Device deliveries.
5.0 YIELD, RELIABILITY AND QUALITY:
5.1 Xicor shall have the right to test, monitor or sample any and all
Wafers and Devices to ensure adherence to the Specifications contained
in Appendix C. Any Wafer or Device failing to meet such Specifications
may be returned to Yamaha in accordance with the procedure outlined
below in Paragraph 5.2. In addition, and in the sole discretion of
Xicor, Xicor may stop any or all further shipments of Wafer and/or
Devices until such time as Yamaha can successfully demonstrated to
Xicor, and in Xicor's sole determination, the root cause creating the
non-adherence has been eliminated and all further Wafers and/or Devices
shipped will meet the Specifications.
5.2 Xicor shall conduct an analysis of any Wafers and/or Devices that
fail to meet the Specifications contained in Appendix C. If the results
of the failure analysis indicate to Xicor that the cause of such failure
was the responsibility of Yamaha, then Xicor shall provide Yamaha with
written notification of the failure and a copy of the failure analysis
report. Upon completion of Yamaha's internal investigation, but no later
than thirty (30) days after receipt of written notification, Yamaha
shall provide Xicor with a Return Material Authorization (RMA) and Xicor
may return the failed Wafers and/or Devices to Yamaha. All costs
associated with the return of such defective Wafers or Devices,
including but not limited to transportation, customs, duties or any
other such cost, shall be the sole responsibility of Yamaha. Failure to
return or give written notice of rejection of the Wafers or Devices
within one (1) year after receipt of the Wafers or Devices by Xicor
shall be considered to be an acceptance of the Wafers or Devices by
Xicor. If Xicor does not follow the above outlined procedure, then the
return period of failed Wafers and/or Devises is limited to three (3)
months from the date of receipt of the Wafers and/or Devises by Xicor.
5.3 The parties agree that the prices identified in Appendix B are
specifically predicated upon (i) if Wafers are procured, then by the
expected average Wafer/Device Yield by Device type contained in Appendix
C, and (ii) if Devices are procured, then by the quantity of Good
Devices delivered to Xicor.
5.3.1 The price per Wafer (Appendix B) is based on an agreed upon
Yield per Device type contained in Appendix C. Should the actual
average Yield, as reported for all Wafers of the same Device type
and delivered during any
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<PAGE> 10
CONFIDENTIAL TREATMENT REQUESTED
particular Xicor accounting period exceed 5% or drop below 5% of
the Yield per Appendix C, the price per Wafer will be adjusted
upward or downward as per the formula in Appendix B.
5.3.2 The price per Device (Appendix B) are based solely on a per
Good Device basis.
6.0 PRICES, PAYMENTS AND TAXES:
6.1 All prices, payments or charges pursuant to this Agreement shall be
made in US dollars. Prices will be negotiated annually and will take
into consideration any material fluctuations in the currency exchange
rate that may have occurred. Agreed upon prices for Wafers and/or
Devices, and any other items requiring payment, shall be listed in
Appendix B. It is the expectation of Xicor that prices for Wafers and
Devices using a given Process will decrease from year to year.
6.2 All prices are FOB Narrita Airport. Yamaha shall be responsibile for
transportation charge from Yamaha Semiconductor to Narrita Airport and
for Japanese Customs clearance. Title to Wafers and/or Devices shall
transfer to Xicor upon release from Japanese Customs to the Xicor
designated freight forwarder in Japan. Yamaha shall be responsible for
all freight charges prior to transfer of title.Xicor agrees to supply
Yamaha with an appropriate tax exemption certificate if appropriate.
6.3 Payment terms shall be net forty-five (45) days from receipt of a
valid invoice by Xicor. Yamaha shall not send such invoices until Yamaha
has shipped to Xicor the associated Wafers and/or Devices.
6.4 Xicor shall have the right to either; (a) offset the cost on any
future invoice, or (b) obtain a credit from Yamaha for any Wafer and/or
Device returned to Yamaha under Paragraph 5.1 which has previously been
invoiced and paid by Xicor.
6.5 Each party shall be solely responsible for any and all taxes, levies
or any other type of charges imposed upon them by their respective
sovereign governments.
6.6 During the course of this Agreement each party shall bear its own
costs and expenses. Expenses shall mean such expenses as engineering
materials, Fab costs, transportation and hotel expenses associated with
travel and any other expenses required by the parties to meet their
obligations under this Agreement.
7.0 ON-SITE INSPECTION: Xicor representatives shall be allowed to visit and tour
Yamaha's fabrication and electrical test facilities during normal working hours
upon reasonable notice to Yamaha. Yamaha shall keep electrical test records,
process run cards, equipment usage
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CONFIDENTIAL TREATMENT REQUESTED
status and Q/A results concerning the Wafers and Devices for three (3) years
after such data is issued, and Xicor representatives shall be entitled to review
such materials during such visits.
8.0 PROPRIETARY INFORMATION:
8.1 Both Yamaha and Xicor agree that Proprietary Information of the
other will remain the property of the disclosing party and will be used
by them solely for the purpose of manufacturing Wafers and/or Devices
hereunder. Such Proprietary Information shall be maintained by each
party in confidence and to a degree equal to or higher than the parties
maintain their own proprietary information of a similar nature. The
parties agree that they will not disclose any Propriety Information to
any third party without the prior written permission of the disclosing
party and further agree that such Propriety Information will not be
maintained on any internal computer network that is unsecured and can be
accessed via the internet or any other outside computing system. The
parties agree that all of their respective employees and consultants
shall be subject to non-disclosure agreements no less protective of
Proprietary Information than the provisions of this Agreement prior to
such employees and consultants being allowed access to Proprietary
Information.
8.2 Upon termination or expiration of this Agreement for whatever
reason, the receiving Party must (i) return to the other Party the
original and all copies of any Proprietary Information of the disclosing
Party, or (ii) destroy the originals and all copies of any Proprietary
Information and provide certification of such destruction to the
disclosing party, and (iii) at the disclosing Party's request, have one
of its officers certify in writing that it will not make any further
disclosure or use of such Proprietary Information and specifically will
not manufacture or have manufactured for it any product incorporating
such Proprietary Information.
8.3 These confidentiality provisions as to any item of Proprietary
Information shall survive the termination of this Agreement for a period
of five (5) years from the date of termination of this Agreement.
8.4 If Yamaha develops any process modifications or new processes as a
result of this relationship with Xicor, and such process modifications
or new processes are useable by Xicor, Xicor shall have the right to
incorporate such process modifications or new processes in its C5
process. The parties further agree that if such process modifications or
new processes are patentable, and both parties wish to pursue such
patent, the parties shall equally share the cost of filing such patent,
whether in the United States or Japan, and the parties shall become
co-owners of such patents. If only one parties wishes to pursue such
patent, then the pursuing party shall bear all costs and the
non-pursuing party shall be granted a non-exclusive, royalty free
license for such patent.
9.0 WARRANTY and ACCEPTANCE:
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CONFIDENTIAL TREATMENT REQUESTED
9.1 Yamaha warrants that Wafers and/or Devices delivered hereunder will
meet the mutually agreed Specifications and shall be free from defects
in material and workmanship under normal use and service for a period of
one (1) year from the date of receipt from Yamaha's facility. If, during
such one year period (i) Yamaha is notified with reasonable promptness
in writing upon discovery of any defect in the Wafers and/or Devices,
including a reasonably detailed description of such defect; (ii) and
when physically available such Wafers and/or Devices are returned to
Yamaha's facility, transportation prepaid; and (iii) Yamaha's reasonable
examination of such Wafers and/or Devices discloses that such Wafers
and/or Devices are defective and such defects are not caused by
accident, abuse, misuse, neglect, improper installation, repair or
alteration not authorized by Xicor, improper testing or use contrary to
any reasonable instructions issued by Xicor, then within a reasonable
time Yamaha shall, as mutually agreed, either repair, replace, or credit
Xicor for such Wafers and/or Devices. Yamaha shall reimburse Xicor for
the return transportation charges paid by Xicor for such Wafers and/or
Devices. Yamaha shall return any Wafers and/or Devices repaired or
replaced under this warranty to Xicor transportation prepaid. If
replacement of any Wafer and/or Device is not practical, then Yamaha
shall issue a credit to Xicor for the price paid by Xicor for the
defective Wafers. The performance of this warranty does not extend the
warranty period applicable to the Wafers and/or Devices originally
delivered.
9.2 Yamaha shall immediately advise Xicor whenever Yamaha has reason to
believe that Wafer and/or Devices may not conform to the applicable
Specifications.
10.0 NON-COMPETITION: Yamaha agrees that Yamaha will not compete with Xicor with
products or semiconductor devices similar in nature to those sold by Xicor. In
addition, Yamaha specifically agrees that it will not at any time use for its
own purposes, or any other purpose other than those specified by this Agreement,
any Xicor Proprietary Information, know-how of Xicor's, or the Xicor C5 process
technology unless specifically evidenced by a separate technology licensing
agreement properly executed by Xicor.
11.0 INDEMNIFICATION:
11.1 Each party (the "Indemnifying Party") agrees, at its own expense,
to defend or at its option to settle, any claim, suit or proceeding
brought against the other party (the "Indemnified Party") or its
customers on the issue of infringement of any United States or other
country patent, copyright, trade secret, trademark, or other
intellectual property right with respect to Xicor, the design of the
Wafer, Device or the C5 wafer process technology to the extent
contributed by Xicor, or, as to Yamaha, the wafer process to the extent
contributed by Yamaha, subject to the limitations hereinafter set forth.
The Indemnifying Party shall have sole control of any such action or
settlement negotiations, and the Indemnifying Party agrees to pay,
subject to the limitations hereinafter set forth, any final judgment or
settlement entered against the Indemnified Party or its customer on
12
<PAGE> 13
CONFIDENTIAL TREATMENT REQUESTED
such issues in any such suit or proceeding defended by the Indemnifying
Party. The Indemnified Party agrees that the Indemnifying Party shall be
relieved of the foregoing obligations unless the Indemnified Party or
its customers notify the Indemnifying Party promptly in writing of such
claim, suit or proceeding and give the Indemnifying Party authority to
proceed as contemplated herein, and, at the Indemnifying Party's expense
(except for the value of the time of the Indemnified Party's employees),
gives the Indemnifying Party proper and full information and assistance
to settle and/or defend any such claim, suit or proceeding. The
Indemnifying Party shall not be liable for any costs or expenses
incurred by the Indemnified Party without its prior written
authorization.
11.2 The foregoing provisions of this Article state the entire liability
and obligations of the Indemnifying Party and the exclusive remedy of
the Indemnified Party, with respect to any alleged infringement of
patent, copyright, trade secret, trademark or other intellectual
property right by the Wafer, process, or any part thereof.
12.0 TERM:
12.1 This Agreement shall come into force on the Effective Date and
shall remain in force for a period of five (5) years from the Effective
Date, unless terminated earlier in accordance with Paragraph 16 below.
12.2 This Agreement may be renewed for an additional period under terms
and conditions agreeable to both parties hereof.
13.0 EXPORT CONTROLS: Yamaha will not export, re-export, transship, or transmit,
directly or indirectly, (collectively "Export"), any data, designs, programs,
hardware, or technical information of any kind acquired hereunder, or any direct
product thereof to any country to which such Export is limited, or prohibited by
the United States Government or any law, regulation, agency or executive
thereof, including without limitation, the Export Administration Regulations of
the US Department of Commerce. This Agreement is subject to compliance with all
applicable export and import laws and regulations and the parties agree to
cooperate in complying therewith. Yamaha agrees to indemnify Xicor for any fees,
fines or penalties imposed on Xicor by the United States Government as a result
of Yamaha's breach or violation of this provision. Xicor shall provide Yamaha
with information regarding the Export Administration Regulations of the U.S.
Department of Commerce.
14.0 PUBLICITY: No public announcement concerning this Agreement shall be made
by either party hereto without the prior written consent of the other which
shall not be unreasonably withheld. It is understood that Xicor may have
obligations under financial and United States Security and Exchange regulations
to publicly announce this Agreement.
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CONFIDENTIAL TREATMENT REQUESTED
15.0 NON-DISCLOSURE OF TERMS AND CONDITIONS: Neither party shall, without first
obtaining the written consent of the other party, disclose the terms, conditions
or subject matter of this Agreement, unless, in the good faith judgment of the
disclosing party, such disclosure is; (I) in response to a valid court order, in
which case the party making the disclosure pursuant to the valid court order
shall first have informed the other party and made reasonable efforts to obtain
a protective order requiring that the information or document so disclosed be
used only for the purpose for which the order was issued, or (ii) as may be
otherwise required by law, rules or government regulations or other governmental
body of the United States, Japan or any political subdivisions thereof; provided
that the disclosing party requests confidential treatment by the appropriate
governmental agency, or (iii) necessary to establish the parties rights under
this Agreement.
16.0 TERMINATION:
16.1 Either party may terminate this Agreement for default of any of the
terms and conditions of this Agreement by the other party, providing
proper notice of default is given and the defaulting party is provided
with sixty (60) days after receipt of the notice to correct the
defaulting condition.
16.2 The parties agree that each party shall have the right to terminate
this Agreement by giving written notice of termination to the other
party at any time on or after the filing by the other party of a
petition in bankruptcy or insolvency.
17.0. SURVIVAL OF PROVISIONS: The provisions of Paragraphs 8, 9, 10, 11, 13, 14,
15, 17, 23, 24, 25, 26, 27, 28, and 29 shall survive the termination or
expiration of this Agreement.
18.0. SEVERABILITY: If any provision of this Agreement, or the application
hereof to any situation or circumstance, shall be invalid or unenforceable, the
remainder of this Agreement or the application of such provision to situations
or circumstances other than those as to which it is invalid or unenforceable,
shall be intact; and each remaining provision of this Agreement shall be valid
and enforceable to the fullest extent permitted by applicable law. In the event
of such partial invalidity the parties shall seek in good faith to agree on
replacing any such legally invalid provisions with provisions, which, in effect,
will, from an economic viewpoint, most nearly and fairly approach the effect of
the invalid provision.
19.0. FORCE MAJEURE:Neither of the parties shall be liable in any manner for
failure or delay in the fulfillment of all or any part of this Agreement
directly or indirectly owing to Acts of God, governmental orders or
restrictions, war, threat of war, war-like conditions, hostilities, sanctions,
mobilization, blockade, embargo, detention, revolution, riot, looting, strike,
lockout, plague, fire, flood, earthquake or any other cause or other
circumstances beyond the affected party's control. Each of the parties shall
take all reasonable steps to minimize the effect of force majeure upon it until
such effect of force majeure has abated. Notice of any occurrence of force
majeure affecting either party shall be given to the other party as soon as
possible together with evidence thereof and the expected duration of the period
for which performance hereunder shall be delayed.
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CONFIDENTIAL TREATMENT REQUESTED
20.0. ASSIGNMENT OR TRANSFER: This Agreement, and all rights and obligations
hereunder, shall not be assigned by a party hereto to any third party or parties
without a prior written consent of the others party hereto; provided, however,
that no such prior written consent shall be required for any assignment of this
Agreement in its entirety by one of the parties to a successor-in-interest of
such party as a result of any merger or consolidation involving such party or a
sale by such party of substantially all of its assets, provided, that such
successor shall promptly agree in writing to be bound by all of the terms and
conditions of this Agreement, or any modifications hereof.
21.0. RELATIONSHIP OF THE PARTIES:The parties to this Agreement have the
relationship of independent contractors. Nothing herein shall be construed to
create any form of agency relationship or to authorize either party to bind the
other in any matter.
22.0 NOTICES: Any notices hereunder shall be given in writing by registered or
certified mail at the respective addresses listed below or at another address
which is specified by written notice.
If to Xicor: If to Yamaha:
Xicor, Inc. Yamaha Corporation Semiconductor Division
1511 Buckeye Drive 203 Matsunokijima, Toyooka-mura Iwata-gun,
Milpitas, CA 95035, USA Shizuoka-ken, 438-01, Japan
Attn: Director of Contracts Attn: General Manager
23.0 LANGUAGE: This Agreement is in the English language only, which language
shall be controlling for all purposes. All proceedings related to the
performance, enforcement, interpretation, termination or breach of this
Agreement, and all evidence presented therein, shall be in English.
24.0 GOVERNING LAW:This Agreement shall be governed by the laws of the State of
California, except for the resolutions of disputes as provided in Paragraph 25.0
hereof.
25.0 DISPUTE RESOLUTION: In the event of any dispute, claim or question arising
out of this Agreement or breach hereof, the parties hereto shall use their best
efforts to settle such dispute, claim, question or difference. To this effect
they shall mutually consult and negotiate in good faith and understanding to
reach a just and equitable solution with sincerity. In the event that the
dispute, controversy or difference is not so settled in the above manner within
three (3) months, then the matter shall be finally settled by arbitration (i) if
Yamaha demands arbitration, it shall be in Santa Clara, California, in
accordance with the Rules of Conciliation and Arbitration of the International
Chamber of Commerce and under the laws of California, without reference to
conflict of laws principles, or (ii) if Xicor demands arbitration, it shall be
in Tokyo, Japan, in accordance with the Rules of Conciliation and Arbitration of
the Japan Commercial Arbitration Association and under the laws of Japan. In any
such arbitration, Xicor will appoint
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CONFIDENTIAL TREATMENT REQUESTED
one arbitrator, Yamaha will appoint one arbitrator, and the two arbitrators
appointed will select a third arbitrator. Either party hereto may object to any
arbitrator who is an employee of or affiliated with any competitor of either
party hereto. The decision of the three arbitrators shall be final and binding
and may be entered as a judgment by a court of competent jurisdiction. Each side
shall bear half the cost of the arbitration.
26.0 TITLES:The titles of all Paragraphs contained in this Agreement are for
interpretation convenience and reference only and shall not in any way affect
the interpretation hereof.
27.0 ENTIRE AGREEMENT: This Agreement supersedes all documents or arrangements
in respect to the subject matter hereof, including any Letter of Intent
previously concluded by the parties, and evidences the entire Agreement of the
parties hereto. This Agreement cannot be changed, modified or supplemented
except in writing signed by the duly authorized officer or representative of
each of the parties hereto.
28.0 THIS AGREEMENT CONTROLS: The terms and conditions of this Agreement shall
control all sales of Wafers and/or Devices hereunder, and any additional or
different terms or conditions in either party's purchase order, Orders,
responses to Orders, acknowledgment, or similar document shall be of no effect.
29.0 GOVERNMENT APPROVALS: Yamaha represents and warrants that no consent or
approval of any governmental authority is required in connection with the valid
execution and performance of this Agreement except as set forth in Paragraph
1.10. Yamaha will be responsible for timely filings of this Agreement with all
necessary Japanese government agencies.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate, each of which shall be considered as an original, by their
respective duly authorized representatives as of the date first above written.
XICOR, INC. YAMAHA CORPORATION
BY: /s/ Raphael Klein BY: /s/ K. Ishimura
---------------------------- ---------------------------------
TITLE: President TITLE: Senior Managing Director
---------------------------- ---------------------------------
DATE: February 6, 1997 DATE: February 5, 1997
---------------------------- ---------------------------------
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CONFIDENTIAL TREATMENT REQUESTED
APPENDIX A
LEAD-TIMES
C5 CYCLE TIME
Mean cycle time (a.k.a. TAT): The Mean Cycle Time for product processing
and distribution shall be * for the C5.6 products. The statistical
representation of this is shown below:
MEAN TAT + 2 SIGMA <= *.
This would correspond to some * % of the wafers to be shipped from
e-test to Xicor for sorting in the 6 month period.
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CONFIDENTIAL TREATMENT REQUESTED
APPENDIX B
PRICING
B1: Wafer Pricing: (including raw wafer costs)
C5.6 TECHNOLOGY: (YKS as P11) = $* per wafer
o 256K Xicor product in Table 1 belongs to this technology class.
C5.63 TECHNOLOGY: (YKS as P12) = $* per wafer.
o All the other products shown in Table 1 belong to this technology.
B2: WAFER PRICE CALCULATIONS:
TIMING: Once every 6 months. These calculations are inspired by two
things:
1. Yield improvements made by YKS are to be awarded with better
wafer price,
2. Yield improvements made are to be shared by the two
companies.
CALCULATION: Every 6 months, Xicor will calculate the actual yield
percentage and compares to the target as set forth in Table 1.
Table 1: Starting "target" wafer sort yield percentages for Xicor
products to be used for price calculations.
<TABLE>
<CAPTION>
Density Wafer Sort Yield Percentages
------- ----------------------------
<S> <C>
64K *%
32K *%
16K *%
256K *%
</TABLE>
o If the average wafer yield percentage of the total number of
wafers shipped in the previous 6 months is on target, the
wafer price for the next 6 months stay the same.
o If the actual wafer yield percentage is different than the
target values, the difference will be shared by Xicor and
Yamaha and a new wafer price will be established for the next
6 month period based on the following example:
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CONFIDENTIAL TREATMENT REQUESTED
Appendix B (con't)
Table 2: Examples of wafer price calculations for a 256K Xicor part foundered by
YKS.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
# OF WFRS AVAILABLE DIE ACTUAL % TOTAL AVAILABLE TOTAL PURCHASE ACTUAL DIE WAFER PRICE FOR
PER WAFER DIE AMOUNT ($) PRICE ($/DIE) FOR NEXT 6 MO.S
<S> <C> <C> <C> <C> <C> <C> <C>
(*) (*) (*) (*) $400,000 (*) (*)
(*) (*) (*) (*) $400,000 (*) (*) (*)
(*) (*) (*) (*) $400,000 (*) (*) (*)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
o This formula is to remain in effect starting in 1998, continuing in 1999,
and finishing at the end of 2000.
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CONFIDENTIAL TREATMENT REQUESTED
APPENDIX C
SPECIFICATIONS
C1: Wafer Specifications: Xicor specification number 00-W-0007
C2: Device Specifications: Xicor specification number 020512 (E Test limits)
C3: Quality and Reliability Specifications: Xicor specifications numbers:
06020110, 06020101, 06020311 and 06020324.
C4: Wafer Yield: Yield targets are established in Table 1, Appendix B. Any Wafer
yielding less than -3 sigma from the demonstrated six month wafer sort yield
average will be scrapped.
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CONFIDENTIAL TREATMENT REQUESTED
APPENDIX D
WAFER FOUNDRY QUALIFICATION AND MONITORING
Xicor Specification number 06020116
<PAGE> 1
EXHIBIT 10.11
XICOR, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1998 Employee Stock
Purchase Plan of Xicor, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Xicor, Inc. and any Designated
Subsidiary of the Company.
(e) "Compensation" shall mean all base salary or wages,
overtime pay, shift premium and commissions, but shall exclude bonuses, profit
sharing, income arising from the acquisition or disposition of common stock,
lump sum payments of accrued combined time off and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary which
has been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an employee of
the Company.
(h) "Enrollment Date" shall mean the first day of each
Offering Period.
(i) "Exercise Date" shall mean the last day of each Purchase
Period.
(j) "Fair Market Value" shall mean, as of any date, the value
of Common Stock determined as follows:
(1) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price
1
<PAGE> 2
for such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or system for the last market trading day on the date of such
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable; or
(2) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable; or
(3) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board.
(k) "Offering Periods" shall mean the periods of approximately
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after May 1st and
November 1st of each year and terminating on the last Trading Day in the periods
ending twenty-four months later. The duration and timing of Offering Periods may
be changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean 85% of the Fair Market Value
of a share of Common Stock on the Enrollment Date or on the Exercise Date,
whichever is lower; provided however, that, in the event (i) the Company's
shareholders approve an increase in the number of shares available for issuance
under the Plan (the "New Shares"), (ii) all or a portion of the New Shares are
to be issued with respect to one or more Offering Periods that are underway at
the time of such shareholder approval, and (iii) the Fair Market Value of a
share of Common Stock on the date of such approval (the "Authorization Date
FMV") is higher than the Fair Market Value on the Enrollment Date for any such
Offering Period, the Purchase Price with respect to the New Shares shall be 85%
of the Authorization Date FMV or the Fair Market Value of a share of Common
Stock on the Exercise Date, whichever is lower.
(n) "Purchase Period" shall mean the approximately six month
period commencing after one Exercise Date and ending with the next Exercise
Date, except that the first Purchase Period of any Offering Period shall
commence on the Enrollment Date and end with the next Exercise Date.
(o) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or
foreign, of which not less than 50% of the voting shares are held by the Company
or a Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
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<PAGE> 3
(q) "Trading Day" shall mean a day on which national stock
exchanges are open for trading.
3. Eligibility.
(a) Any Employee who shall be employed by the Company on a
given Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) to
the extent that, immediately after the grant, such Employee (or any other person
whose stock would be attributed to such Employee pursuant to Section 424(d) of
the Code) would own capital stock of the Company and/or hold outstanding options
to purchase such stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of the capital stock of the
Company or of any Subsidiary, or (ii) to the extent that his or her rights to
purchase stock under all employee stock purchase plans of the Company and its
subsidiaries accrues at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the fair market value of the shares at
the time such option is granted) for each calendar year in which such option is
outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 1st and November 1st each year, or on such other
date as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof. The Board shall have the power to change the
timing and duration of Offering Periods (including the commencement dates
thereof) without shareholder approval if such change is announced at least five
(5) days prior to the scheduled beginning of the first Offering Period to be
affected thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan
by completing a subscription agreement authorizing payroll deductions in the
form of Exhibit A to this Plan and filing it with the Company's Human Resources
Office at least five (5) business days prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first pay date following the Enrollment Date and shall end on the last pay date
in the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
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<PAGE> 4
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding ten percent (10%) of the
Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in
the Plan as provided in Section 10 hereof, or may increase or decrease the rate
of his or her payroll deductions during the Offering Period by completing or
filing with the Company a new subscription agreement authorizing a change in
payroll deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement, unless the
Company elects to process a given change in participation more quickly. A
participant's subscription agreement shall remain in effect for successive
Offering Periods unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and the limits of Section 3(b) and
Section 7 hereof, a participant's payroll deductions may be decreased to zero
percent (0%) at any time during a Purchase Period to comply with such limits.
Payroll deductions shall recommence at the rate provided in such participant's
subscription agreement at the beginning of the first Purchase Period commencing
at a time when the limits of the preceding sentence no longer apply to the
participant, which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part,
or at the time some or all of the Company's Common Stock issued under the Plan
is disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than 250
shares of the Company's Common Stock
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<PAGE> 5
(subject to any adjustment pursuant to Section 19), and provided further that
such purchase shall be subject to the limitations set forth in Sections 3(b) and
12 hereof. The Board may, for future Offering Periods, increase or decrease, in
its absolute discretion, the maximum number of shares of the Company's Common
Stock an Employee may purchase during each Purchase Period of such Offering
Period. Exercise of the option shall occur as provided in Section 8 hereof,
unless the participant has withdrawn pursuant to Section 10 hereof. The option
shall expire on the last day of the Offering Period.
8. Exercise of Option.
(a) Unless a participant withdraws from the Plan as provided
in Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date,
the number of shares with respect to which options are to be exercised may
exceed (i) the number of shares of Common Stock that were available for sale
under the Plan on the Enrollment Date of the applicable Offering Period, or (ii)
the number of shares available for sale under the Plan on such Exercise Date,
the Board may in its sole discretion (x) provide that the Company shall make a
pro rata allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make a pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Enrollment Date.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall, in its discretion, either
(i) arrange the delivery to each participant, as appropriate, of a certificate
representing the shares purchased upon exercise of his or her option, or (ii)
credit the shares purchased to an account for the participant's benefit with a
brokerage firm selected by the Board to hold the shares in street name. Shares
credited to a brokerage account may
5
<PAGE> 6
not be taken out of such account until the date two (2) years after the
Enrollment Date, except upon sale.
10. Withdrawal.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time up to five (5) business days before
the end of the Purchase Period by giving written notice to the Company in the
form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall
not have any effect upon his or her eligibility to participate in any similar
plan which may hereafter be adopted by the Company or in succeeding Offering
Periods under this Plan.
11. Termination of Employment.
Upon a participant's ceasing to be an Employee, for any
reason, he or she shall be deemed to have elected to withdraw from the Plan and
the payroll deductions credited to such participant's account during the
Offering Period but not yet used to exercise the option shall be returned to
such participant or, in the case of his or her death, to the person or persons
entitled thereto under Section 15 hereof, and such participant's option shall be
automatically terminated. The preceding sentence notwithstanding, a participant
who receives payment in lieu of notice of termination of employment shall be
treated as continuing to be an Employee for the participant's customary number
of hours per week of employment during the period in which the participant is
subject to such payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) Subject to adjustment upon changes in capitalization of
the Company as provided in Section 19 hereof, the maximum number of shares of
the Company's Common Stock which may be issued under the Plan shall be 380,000
shares, plus an annual increase to be added on November 1 of each year
(commencing November 1, 1999) equal to the lesser of (i) the number of Shares
needed to restore the maximum number of shares of the Company's Common Stock
which may be issued under the Plan to 380,000 Shares, or (ii) a lesser amount
determined by the Board.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
6
<PAGE> 7
(c) Shares to be delivered to a participant under the Plan
shall be registered in the name of the participant.
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares and cash. In addition, a participant
may file a written designation of a beneficiary who is to receive any cash from
the participant's account under the Plan in the event of such participant's
death prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements
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<PAGE> 8
shall set forth the amounts of payroll deductions, the Purchase Price, the
number of shares purchased and the remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action
by the shareholders of the Company, the Reserves, the maximum number of shares
each participant may purchase each Purchase Period (pursuant to Section 7), as
well as the price per share and the number of shares of Common Stock covered by
each option under the Plan which has not yet been exercised shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration". Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, each outstanding option shall be
assumed or an equivalent option substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the option, any
Purchase Periods then in progress shall be shortened by setting a new Exercise
Date (the "New Exercise Date") and any Offering Periods then in progress shall
end on the New Exercise Date. The New Exercise Date shall be before the date of
the Company's proposed sale or merger. The Board shall notify each participant
in writing, at least ten (10) business days prior to the New Exercise Date, that
the Exercise Date for the participant's option has been changed to the New
Exercise Date and that the participant's option shall be exercised automatically
on the New Exercise Date, unless prior to such date the participant has
withdrawn from the Offering Period as provided in Section 10 hereof.
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<PAGE> 9
20. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and
for any reason terminate or amend the Plan. Except as provided in Section 19
hereof, no such termination or amendment can affect options previously granted,
provided that an Offering Period may be terminated by the Board on any Exercise
Date if the Board determines that the termination of the Offering Period is in
the best interests of the Company and its shareholders. Except as provided in
Section 19 hereof, no amendment may make any change in any option theretofore
granted which adversely affects the rights of any participant. To the extent
necessary and desirable to comply with Section 423 of the Code (or any successor
rule or provision or any other applicable law, regulation or stock exchange
rule), the Company shall obtain shareholder approval in such a manner and to
such a degree as required.
(b) Without shareholder consent and without regard to whether
any participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
21. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
9
<PAGE> 10
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
permitted by any applicable laws, regulations, or stock exchange rules, if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
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<PAGE> 11
EXHIBIT A
XICOR, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date:____________*
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
- -----------------
1. ________ hereby elects to participate in the Xicor, Inc. 1998 Employee
Stock Purchase Plan (the "Employee Stock Purchase Plan") and
subscribes to purchase shares of the Company's Common Stock in
accordance with this Subscription Agreement and the Employee Stock
Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (from 0 to 10%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise
my option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Plan.
5. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after
the Exercise Date, I will be treated for federal income tax purposes as
having received ordinary income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares at
the time such shares were purchased by me over the price which I paid
for the shares. I hereby agree to notify the Company in writing within
30 days after the date of any disposition of my shares and I will make
adequate provision for Federal, state or other tax withholding
obligations, if any, which arise upon the
- -----------------
* First Trading Day on or after May 1 or November 1, as applicable
<PAGE> 12
disposition of the Common Stock. The Company may, but will not be
obligated to, withhold from my compensation the amount necessary to
meet any applicable withholding obligation including any withholding
necessary to make available to the Company any tax deductions or
benefits attributable to sale or early disposition of Common Stock by
me. If I dispose of such shares at any time after the expiration of the
2-year and 1-year holding periods, I understand that I will be treated
for federal income tax purposes as having received income only at the
time of such disposition, and that such income will be taxed as
ordinary income only to the extent of an amount equal to the lesser of
(1) the excess of the fair market value of the shares at the time of
such disposition over the purchase price which I paid for the shares,
or (2) 15% of the fair market value of the shares on the first day of
the Offering Period. The remainder of the gain, if any, recognized on
such disposition will be taxed as capital gain.
6. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent
upon my eligibility to participate in the Employee Stock Purchase Plan.
7. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)
--------------------------------------------------
(First) (Middle) (Last)
--------------------------- -------------------------------------
(Relationship)
-------------------------------------
-------------------------------------
(Address)
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<PAGE> 13
Employee's Social
Security Number:
-------------------------------------
Employee's Address:
-------------------------------------
-------------------------------------
-------------------------------------
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:
--------------------------- -------------------------------------
Signature of Employee
-------------------------------------
Spouse's Signature
(If beneficiary other than spouse)
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<PAGE> 14
EXHIBIT B
XICOR, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Xicor, Inc.
1998 Employee Stock Purchase Plan which began on ____________, ______ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
---------------------------------------
---------------------------------------
---------------------------------------
Signature:
---------------------------------------
Date:
---------------------------------
<PAGE> 1
EXHIBIT 10.12
XICOR, INC.
1998 NONSTATUTORY STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Nonstatutory Stock Option
Plan are:
- to attract and retain the best available personnel for positions of
substantial responsibility,
- to provide additional incentive to Employees and Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan will be Nonstatutory Stock Options.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options are, or will be, granted under
the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means Xicor, Inc., a California corporation.
(h) "Consultant" means any person, including an advisor, engaged
by the Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
(j) "Disability" means total and permanent disability as defined
in Section 22(e)(3) of the Code.
<PAGE> 2
(k) "Employee" means any person, excluding Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any leave
of absence approved by the Company, (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor, or
(iii) a Service Provider whose service with the Company is terminated, but
recommences within ninety (90) days of the date of such termination. Neither
service as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the last market trading day prior
to the day of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Notice of Grant" means a written or electronic notice
evidencing certain terms and conditions of an individual Option grant. The
Notice of Grant is part of the Option Agreement.
(o) "Officer" means a person who is an executive or non-executive
officer of the Company as designated by the Board.
(p) "Option" means a nonstatutory stock option granted pursuant
to the Plan, that is not intended to qualify as an incentive stock option within
the meaning of Section 422 of the Code and the regulations promulgated
thereunder.
(q) "Option Agreement" means an agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
The Option Agreement is subject to the terms and conditions of the Plan.
(r) "Option Exchange Program" means a program whereby outstanding
options are surrendered in exchange for options with a lower exercise price.
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<PAGE> 3
(s) "Optioned Stock" means the Common Stock subject to an Option.
(t) "Optionee" means the holder of an outstanding Option granted
under the Plan.
(u) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(v) "Plan" means this 1998 Nonstatutory Stock Option Plan.
(w) "RIF" means a termination of an Optionee's status as a
Service Provider resulting from a work force reduction or job elimination.
(x) "Service Provider" means an Employee or Consultant, excluding
an Officer or Director.
(y) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(z) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 250,000 Shares. The Shares may be authorized, but unissued, or
reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated).
4. Administration of the Plan.
(a) Administration. The Plan shall be administered by (i) the
Board or (ii) a Committee, which committee shall be constituted to satisfy
Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value of the Common
Stock;
(ii) to select the Service Providers to whom Options
may be granted hereunder;
(iii) to determine whether and to what extent Options
are granted hereunder;
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<PAGE> 4
(iv) to determine the number of shares of Common Stock
to be covered by each Option granted hereunder;
(v) to approve forms of agreement for use under the
Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder. Such
terms and conditions include, but are not limited to, the exercise price, the
time or times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vii) to reduce the exercise price of any Option to
the then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted;
(viii) to institute an Option Exchange Program;
(ix) to construe and interpret the terms of the Plan
and awards granted pursuant to the Plan;
(x) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;
(xi) to modify or amend each Option (subject to
Section 14(b) of the Plan), including the discretionary authority to extend the
post-termination exercisability period of Options longer than is otherwise
provided for in the Plan;
(xii) to authorize any person to execute on behalf of
the Company any instrument required to effect the grant of an Option previously
granted by the Administrator;
(xiii) to determine the terms and restrictions
applicable to Options;
(xiv) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option that number of Shares having a Fair Market
Value equal to the amount required to be withheld. 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. All elections by an Optionee to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable; and
(xv) to make all other determinations deemed necessary
or advisable for administering the Plan.
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<PAGE> 5
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options.
5. Eligibility. Options may be granted to Service Providers; provided,
however, that notwithstanding anything to the contrary contained in the Plan,
Options may not be granted to Officers and Directors.
6. Limitation. Neither the Plan nor any Option shall confer upon an
Optionee any right with respect to continuing the Optionee's relationship as a
Service Provider with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such relationship at any
time, with or without cause.
7. Term of Plan. The Plan shall become effective upon its adoption by
the Board. It shall continue in effect for ten (10) years, unless sooner
terminated under Section 14 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
Agreement.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares
to be issued pursuant to exercise of an Option shall be determined by the
Administrator.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. Such consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six months on the date of surrender, and (B) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised;
(v) consideration received by the Company under a
cashless exercise program implemented by the Company in connection with the
Plan;
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<PAGE> 6
(vi) a reduction in the amount of any Company
liability to the Optionee, including any liability attributable to the
Optionee's participation in any Company-sponsored deferred compensation program
or arrangement;
(vii) such other consideration and method of payment
for the issuance of Shares to the extent permitted by Applicable Laws; or
(viii) any combination of the foregoing methods of
payment.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. An Option may not be exercised for a fraction of
a Share.
An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with the
Option Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.
Exercising an Option in any manner shall decrease the
number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death,
Disability or as a result of a RIF, the Optionee may exercise his or her Option,
but only within such period of time as is specified in the Option Agreement, and
only to the extent that the Option is vested on the date of termination (but in
no event later than the expiration of the term of such Option as set forth in
the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for three (3) months following
the Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
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<PAGE> 7
(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option
Agreement, to the extent the Option is vested on the date of termination (but in
no event later than the expiration of the term of such Option as set forth in
the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months following
the Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement (but in no event later than the expiration of the term
of such Option as set forth in the Option Agreement), by the Optionee's estate
or by a person who acquires the right to exercise the Option by bequest or
inheritance, but only to the extent that the Option is vested on the date of
death. In the absence of a specified time in the Option Agreement, the Option
shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to his or
her entire Option, the Shares covered by the unvested portion of the Option
shall immediately revert to the Plan. The Option may be exercised by the
executor or administrator of the Optionee's estate or, if none, by the person(s)
entitled to exercise the Option under the Optionee's will or the laws of descent
or distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) Reduction in Force. If the Optionee ceases to be a Service
Provider as a result of a RIF, the Optionee may exercise his or her Option
within such period of time as is specified in the Option Agreement, to the
extent the Option is vested on the date of termination (but in no event later
than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(f) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. Non-Transferability of Options. Unless determined otherwise by the
Administrator, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee. If the Administrator makes
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<PAGE> 8
an Option transferable, such Option shall contain such additional terms and
conditions as the Administrator deems appropriate.
12. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option will terminate immediately prior to the consummation of such proposed
action.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option shall be assumed or an equivalent option
or right substituted by the successor corporation or a Parent or Subsidiary of
the successor corporation. In the event that the successor corporation refuses
to assume or substitute for the Option, the Optionee shall fully vest in and
have the right to exercise the Option as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an Option
becomes fully vested and exercisable in lieu of assumption or substitution in
the event of a merger or sale of assets, the Administrator shall notify the
Optionee in writing or electronically that the Option shall be fully vested and
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option shall terminate upon the expiration of such period. For the purposes
of this paragraph, the Option shall be considered assumed if, following the
merger or sale of assets, the option or right confers the right to purchase or
receive, for each Share of Optioned Stock, immediately prior to
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<PAGE> 9
the merger or sale of assets, the consideration (whether stock, cash, or other
securities or property) received in the merger or sale of assets by holders of
Common Stock for each Share held on the effective date of the transaction (and
if holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding Shares); provided,
however, that if such consideration received in the merger or sale of assets is
not solely common stock of the successor corporation or its Parent, the
Administrator may, with the consent of the successor corporation, provide for
the consideration to be received upon the exercise of the Option, for each Share
of Optioned Stock to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
13. Date of Grant. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to options granted under the
Plan prior to the date of such termination.
15. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares shall comply with Applicable Laws and shall
be further subject to the approval of counsel for the Company with respect to
such compliance.
16. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
17. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
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<PAGE> 10
XICOR, INC.
1998 NONSTATUTORY STOCK OPTION AGREEMENT
I. NOTICE OF STOCK OPTION GRANT
(OPTIONEE NAME)
You have been granted a Nonstatutory Stock Option to purchase Common
Stock of Xicor, Inc., (the "Company"), subject to the terms and conditions of
the 1998 Nonstatutory Stock Option Plan (the "Plan") and this Agreement, as
follows:
Date of Grant
------------------------------------
Vesting Commencement Date
------------------------------------
Exercise Price per Share $
------------------------------------
Total Number of Shares Underlying
Options Granted
------------------------------------
Expiration Date
------------------------------------
Vesting Schedule:
This Option may be exercised, in whole or in part, in accordance with the
following schedule:
25% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date, and 25% of the Shares subject to the Option shall
vest on each anniversary of the Vesting Commencement Date, subject to the
Optionee continuing to be a Service Provider on such dates.
Termination Period:
This Option may be exercised for three (3) months after Optionee ceases
to be a Service Provider; provided, however, that upon death, Disability or
termination as a result of a RIF, of the Optionee, this Option may be exercised
for one year after the date of such termination. In no event shall this Option
be exercised later than the Expiration Date as provided above.
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<PAGE> 11
II. AGREEMENT
1. Grant of Option. The Board hereby grants to the Optionee named in the
Notice of Grant attached as Part I of this Agreement the Option to purchase the
number of Shares, as set forth in the Notice of Grant, at the exercise price per
share set forth in the Notice of Grant (the "Exercise Price"), subject to the
terms and conditions of the Plan and this Agreement.
2. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its term
in accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of
an exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company. The
Exercise Notice shall be completed by the Optionee and delivered to the
Corporate Controller of the Company. The Exercise Notice shall be accompanied by
payment of the aggregate Exercise Price as to all Exercised Shares. This Option
shall be deemed to be exercised upon receipt by the Company of such fully
executed Exercise Notice accompanied by such aggregate Exercise Price.
(c) Legal Compliance. No Shares shall be issued pursuant to the exercise
of this Option unless such issuance and exercise complies with Applicable Laws.
Assuming such compliance, for income tax purposes the Exercised Shares shall be
considered transferred to the Optionee on the date the Option is exercised with
respect to such Exercised Shares.
3. Method of Payment. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash; or
(b) check; or
(c) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price.
4. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The terms
of the Plan and this Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
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<PAGE> 12
5. Term of Option. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. Tax Consequences. Some of the federal tax consequences relating to
this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
7. Exercising the Option. The Optionee may incur regular federal income
tax liability upon exercise of a Nonstatutory Stock Option (an "NSO"). The
Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Exercised Shares on the date of exercise over their aggregate Exercise
Price. If the Optionee is an Employee or a former Employee, the Company will be
required to withhold from his or her compensation or collect from Optionee and
pay to the applicable taxing authorities an amount in cash equal to a percentage
of this compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
8. Disposition of Shares. If the Optionee holds NSO Shares for at least
one year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.
9. Entire Agreement; Governing Law. The Plan is incorporated herein by
reference. The Plan and this Agreement constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws, but not
the choice of law rules, of California.
10. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.
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<PAGE> 13
By your signature and the signature of the Company's representative below, you
and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Agreement. Optionee has reviewed the
Plan and this Agreement in their entirety, has had an opportunity to obtain the
advice of counsel prior to executing this Agreement and fully understands all
provisions of the Plan and this Agreement. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board upon
any questions relating to the Plan and this Agreement. Optionee further agrees
to notify the Company upon any change in the residence address indicated below.
OPTIONEE Xicor, Inc.
- ------------------------------- -----------------------------------
Signature By
- ------------------------------- -----------------------------------
Print Name Title
- -------------------------------
Residence Address
- -------------------------------
4
<PAGE> 14
EXHIBIT A
XICOR, INC.
1998 NONSTATUTORY STOCK OPTION AGREEMENT
EXERCISE NOTICE
Xicor, Inc.
1511 Buckeye Drive
Milpitas, CA 95035
Attention: Corporate Controller
1. Exercise of Option. Effective as of today, ________________, the
undersigned ("Optionee"), a Service Provider of Xicor, Inc. (the "Company"),
hereby elects to purchase ______________ shares (the "Shares") of the Common
Stock of the Company under and pursuant to the 1998 Nonstatutory Stock Option
Plan (the "Plan") and the Stock Option Agreement (the "Option Agreement") dated
____________________. The purchase price for the Shares shall be $ ______, as
required by the Option Agreement.
2. Delivery of Payment. Optionee herewith delivers to the Company the
full purchase price for the Shares, plus any federal or state taxes required to
be withheld.
3. Representations of Optionee. Optionee acknowledges that Optionee has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 12 of the
Plan.
5. Tax Consultation. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
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<PAGE> 15
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Optionee with respect to the subject matter
hereof, and may not be modified adversely to the Optionee's interest except by
means of a writing signed by the Company and Optionee. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
California.
Submitted by: Accepted by:
- ------------------------------- -----------------------------------
Signature By
- ------------------------------- -----------------------------------
Print Name Its
Address: Address:
- ------------------------------- 1511 Buckeye Drive
Milpitas, CA 95035
- -------------------------------
- -------------------------------
-----------------------------------
Date Received
2
<PAGE> 1
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing on pages 8 to 15.
RESULTS OF OPERATIONS
Xicor's sales were $106.1 million in 1998 compared to $122.5 million in 1997 and
$123.5 million in 1996. Fiscal year 1998 presented Xicor with a major challenge
as sales declined sharply from 1997, primarily due to the global slowdown in
demand that resulted from the Asian economic crisis. The substantial excess
global capacity in the industry caused a severe erosion of memory chip prices,
which also contributed to the decline in Xicor's sales. Sales in 1997 were
essentially flat compared to 1996 as order levels did not increase sufficiently
to offset lower average selling prices.
Gross profit as a percentage of sales was 15% in 1998, 31% in 1997 and 40% in
1996. The decline in the 1998 gross profit percentage compared to 1997 was
primarily due to lower average selling prices as a result of competitive price
pressures, Xicor's increased manufacturing cost level associated with increased
production capacity and upgrading of the wafer fabrication operations during
1996 and 1997 and decreased factory utilization. During 1998 Xicor substantially
reduced the production volume in its factory in response to ongoing weak
business conditions. Unfavorable overhead variances that resulted from the fixed
nature of certain manufacturing costs and the smaller number of units in
production were expensed. Additionally, in the second quarter of 1998, Xicor
wrote down inventories by $2.2 million to cover declining sales prices and
inventories of certain devices that were discontinued as Xicor streamlines its
product portfolio.
In 1997 as a result of the economic crisis in Asia and declining global sales
prices due to intense competition, Xicor established reserves of $6.2 million
for inventories built for certain Asian customers and to write down inventory
values due to lower expected selling prices. Excluding the inventory write down,
1997 gross profit as a percentage of sales was 36% compared to 40% in 1996. This
decline in the gross profit percentage in 1997 was primarily due to lower
average selling prices as a result of competitive price pressures and Xicor's
increased manufacturing cost level associated with increased production capacity
and upgrading of the wafer fabrication operations, partially offset by increased
manufacturing volumes and efficiencies.
Research and development expenses were 16% of sales in 1998, 15% in 1997 and
12% in 1996. Research and development expenses were relatively consistent as a
percentage of sales in 1998 compared to 1997. Research and development spending
in 1997 increased 23% over 1996 primarily due to an increase in the number of
new products under development and increases in advanced submicron manufacturing
process technology development efforts.
Selling, general and administrative expenses represented 21% of sales in
1998, 18% in 1997 and 16% in 1996. Selling, general and administrative expenses
increased in 1998 compared to 1997 due to intensified sales and marketing
activities. Expenses increased in 1997 compared to 1996 primarily due to
increased sales promotion activities and costs related to the realignment of
Xicor's sales organization.
During 1998 Xicor announced and began to implement a restructuring plan to
revise its manufacturing and procurement strategies to significantly increase
outsourcing of wafer fabrication and product testing to overseas subcontractors
and to streamline operations. Accordingly, Xicor recorded $5 million in
restructuring charges in 1998, consisting of $2.4 million of equipment
write-offs due to the shifting of activity to an outside wafer foundry and $2.6
million for severance costs relating to a reduction in workforce. Xicor expects
annual savings of approximately $0.8 million as a result of the equipment
write-offs. Payroll savings are estimated at $13 million annually upon
completion of the restructuring activities in 2000. However, such savings are
expected to be partially offset by additional spending associated with
outsourcing and increased selling and marketing efforts.
To control total wafer fabrication costs, Xicor plans to limit 1999 wafer
output at its in-house plant by operating at about a third of its full capacity.
The burden on the income statement by the underutilized wafer fabrication plant
will thus continue in 1999 but is expected to be to a lesser extent than in 1998
due to the cost reduction measures already taken and those planned for 1999, and
increasing the supply of lower cost wafers from the outside foundry. However,
the expected benefit of a higher percentage of lower cost products made by the
foundry will be realized only after the first half of this year as shipment
volume ramps up.
At the beginning of 1999 Xicor raised prices on most of its memory products.
While 1999 started with stronger product demand, there is a revenue risk
associated with any price increase. Therefore, it is too early to project the
impact of the price increase on 1999 sales. However, if 1999 sales stay level
with 1998, the bottom line is expected to improve.
Interest expense was relatively level in 1998 compared to 1997 due to normal
monthly pay downs of debt, offset by additional interest expense associated with
1998 equipment financing of $1.5 million and 1997 equipment financing of $12.3
million. Interest expense increased in 1997 compared to 1996 due to the
financing of the 1997 capital equipment acquisitions.
4
<PAGE> 2
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Interest income decreased in both 1998 and 1997 compared to the prior year
due to a decrease in the average balance invested and in 1998, to a lesser
extent, lower interest rates. Interest income is expected to decrease in 1999
principally due to the utilization of funds for operating activities, normal
debt repayments and equipment purchases.
No taxes were provided in 1998 due to the net loss. The provision for income
taxes for 1997 and 1996 consisted primarily of federal and state minimum taxes,
which resulted from limitations on the use of net operating loss carryforwards,
and foreign taxes. Net deferred tax assets of $44.7 million at the end of 1998
remain fully reserved because of the uncertainty regarding the ultimate
realization of these assets.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, Xicor had $17.9 million in cash, cash equivalents and
short-term investments. Corresponding balances at the end of 1997 and 1996 were
$32.5 million and $41.6 million, respectively. In 1998 Xicor used $7.1 million
of cash for operating activities primarily due to the operating loss, $4.9
million for capital asset purchases and $6.6 million to repay long-term
obligations. During 1998 Xicor generated $4 million from the sale of
unregistered common stock to ATMI, Inc. in conjunction with a strategic alliance
focused on the selling of Xicor's secure memory ICs by ATMI into smart card
applications. During 1997, Xicor generated $8.1 million of cash from operating
activities and $0.7 million from the exercise of employee stock options while
using $11.8 million for capital asset purchases and $6.1 million to repay
long-term debt, resulting in a $9.1 million net decrease in Xicor's cash and
short-term investment position.
During 1999 Xicor expects to use cash to fund operating activities, repay
long-term obligations and purchase equipment. Capital expenditures for 1999 are
currently planned at approximately $2 million. At December 31, 1998, Xicor had
entered into commitments for equipment purchases aggregating less than $.5
million.
Xicor has a line of credit agreement with a financial institution that
expires March 31, 2000, provides for borrowings of up to $7.5 million against
eligible accounts receivable and is secured by all of Xicor's assets. Interest
on borrowings is charged at the prime lending rate plus 2% and is payable
monthly. At December 31, 1998, the entire $7.5 million was available to Xicor
based on the eligible accounts receivable balances and the borrowing formulas.
To date, no amounts have been borrowed under this line of credit. Management
believes that currently available cash and the existing line of credit facility
will be adequate to support Xicor's operations for the next twelve months.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This Annual Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including statements regarding reduction of product costs
and expected annual savings resulting from restructuring of manufacturing
operations, including the outsourcing of wafer fabrication to an external wafer
foundry and product testing to overseas subcontractors, the plan to run a
substantial portion of lower cost wafer starts at the outside foundry, the
continuation of wafer fab underutilization in 1999 although at a lesser extent
than in 1998 due to cost reduction measures taken in late 1998 and planned for
1999 and the realization in the second half of 1999 of the benefits of lower
cost products manufactured at Yamaha, the current assumption of level 1999 sales
compared to 1998 but with an improved bottom line, the revenue risk associated
with product price increases and the expectation that sufficient cash will be
available to fund operating activities, repay long term debt and purchase
equipment. Except for historical information, the matters discussed in this
Annual Report are forward-looking statements that are subject to certain risks
and uncertainties that could cause the actual results to differ materially from
those projected. Factors that could cause Xicor's actual results to differ
materially include the following: general economic conditions and conditions
specific to the semiconductor industry, fluctuations in customer demand,
competitive factors such as pricing pressures on existing products and the
timing and market acceptance of new product introductions, Xicor's ability to
have available an appropriate amount of low cost foundry production capacity in
a timely manner, manufacturing efficiencies, the ability to continue effective
cost reductions, the timely development of new products and submicron processes,
the ability of Xicor, its customers, vendors and subcontractors to make their
systems Year 2000 compliant, and the risk factors listed from time to time in
Xicor's SEC reports, including but not limited to the "Factors Affecting Future
Results" section following and Part I, Item 1. of the Form 10-K. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. Xicor undertakes no obligation to publicly
release or otherwise disclose the result of any revision to these
forward-looking statements which may be made as a result of events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
5
<PAGE> 3
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
FACTORS AFFECTING FUTURE RESULTS
The semiconductor industry is highly competitive and characterized by rapidly
changing technology and steadily declining product prices. The current business
climate has and will continue to result in significant underutilization of
Xicor's wafer fabrication factory, which will adversely affect Xicor's business
and results of operations. Xicor's results of operations are affected by a wide
variety of factors, including general economic conditions and conditions
specific to the semiconductor industry, decreases in average selling price over
the life of any particular product, the timing of new product introductions
(both by Xicor and competitors), availability of new manufacturing technologies,
the ability to secure intellectual property rights in a rapidly evolving market
and the ability to have an appropriate amount of production capacity in a timely
manner. The sales level in any specific quarter is also a function of orders
received during that quarter, as customers continue to shorten lead times for
purchase commitments. Consistent with industry practice, customer orders are
generally subject to cancellation by the customer without penalty. Xicor may be
at a disadvantage in competing with major domestic and foreign concerns that
have significant financial resources, established and diverse product lines,
worldwide vertically integrated production facilities and extensive research and
development capabilities.
The semiconductor industry is also characterized by substantial capital and
research and development investment for products and processes. The rapid rate
of technological change within the industry requires Xicor to continually
develop new and improved products and processes to maintain its competitive
position. Xicor expects to continue to invest in the research and development of
new products and manufacturing processes during 1999, although there can be no
assurances that such research and development efforts or new products will be
successful.
Xicor uses a significant number of computer software programs and operating
systems and intelligent hardware devices in its internal operations, including
information technology (IT) systems and non-IT systems used in the design,
manufacture and marketing of company products. These items are considered to be
Year 2000 "objects" and to the extent that these objects are unable to correctly
recognize and process date dependent information beyond the year 1999, some
level of modification or replacement is necessary.
Xicor's Year 2000 Compliance Program addresses Xicor IT and non-IT systems,
Xicor products, key suppliers and key customers. The compliance program consists
of five phases: Planning, Assessment, Renovation, Validation and Implementation.
At the end of 1998, Xicor had largely completed the Assessment phase with
respect to its internal operations and is in the Renovation phase. Company
actions have and continue to include replacing certain systems, while modifying
others. Xicor plans to have all critical objects that would prevent Xicor from
meeting its customer commitments completed by mid-1999. Xicor believes its
products are Year 2000 compliant. Xicor is also actively working with key
suppliers of products and services to determine that the suppliers' operations
and the products and services they provide are Year 2000 compliant. Xicor also
intends to develop a contingency plan. Based on currently available information,
the incremental costs associated with these efforts are expected to be less than
$1.0 million, a portion of which relates to the purchase of software and
hardware and will be capitalized. Most of these costs are expected to be
incurred in 1999.
Year 2000 compliance issues could have a significant impact on Xicor's
operations and its financial results if modifications cannot be completed in a
timely manner; unforeseen needs or problems arise; or, if the systems operated
by Xicor's customers, vendors or subcontractors are not Year 2000 compliant.
Xicor has an investment portfolio of fixed income securities that are
classified as "held to maturity securities." These securities, like all fixed
income instruments, are subject to interest rate risk and will fall in value if
market interest rates increase. Xicor attempts to limit this exposure by
investing primarily in short-term securities. In view of the nature and mix of
Xicor's total portfolio a movement of 10% by market interest rates would not
have a material impact on the total value of the portfolio at December 31, 1998.
From time-to-time Xicor makes certain capital equipment or other purchases
denominated in foreign currencies. As a result, Xicor's cash flows and earnings
are exposed to fluctuations in interest rates and foreign currency exchange
rates. Xicor attempts to limit these exposures through operational strategies
and generally has not hedged currency exposures.
Due to the foregoing and other factors, past results are a much less reliable
predictor of the future than is the case in many older, more stable and less
dynamic industries. In addition, the securities of many high technology
companies, including Xicor, have historically been subject to extensive price
and volume fluctuations that may adversely affect the market price of their
common stock.
6
<PAGE> 4
- --------------------------------------------------------------------------------
FINANCIAL OPERATING INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts) 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Net sales $ 106,147 $ 122,453 $ 123,514 $ 113,550 $ 103,386
Cost of sales 89,844 84,603 74,303 69,214 68,056
- -----------------------------------------------------------------------------------------------------------------------
Gross profit 16,303 37,850 49,211 44,336 35,330
- -----------------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 17,429 18,475 15,074 15,270 14,085
Selling, general and administrative 22,634 21,753 20,306 19,474 18,779
Restructuring charge 4,985 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
45,048 40,228 35,380 34,744 32,864
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) from operations (28,745) (2,378) 13,831 9,592 2,466
Interest expense (1,872) (1,834) (1,421) (605) (618)
Interest income 1,086 1,901 2,001 1,584 580
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (29,531) (2,311) 14,411 10,571 2,428
Provision for income taxes -- 220 576 535 129
- -----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (29,531) $ (2,531) $ 13,835 $ 10,036 $ 2,299
=======================================================================================================================
Net income (loss) per share:
Basic $ (1.53) $ (0.13) $ 0.74 $ 0.55 $ 0.13
=======================================================================================================================
Diluted $ (1.53) $ (0.13) $ 0.70 $ 0.53 $ 0.13
=======================================================================================================================
Shares used in per share calculations:
Basic 19,262 18,967 18,693 18,216 18,004
=======================================================================================================================
Diluted 19,262 18,967 19,820 19,031 18,364
=======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 5,382 $ 28,248 $ 37,134 $ 30,525 $ 19,831
Total assets 78,862 115,261 108,214 79,439 63,283
Long-term debt 13,137 18,974 13,469 5,229 4,186
Accumulated deficit (97,627) (68,096) (65,565) (79,400) (89,436)
Shareholders' equity 30,605 56,108 57,957 43,031 31,384
========================================================================================================
</TABLE>
7
<PAGE> 5
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
- ----------------------------------------------------------------------------------------------------------------
(In thousands) 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,881 $ 21,106
Short-term investments -- 11,372
Accounts receivable 8,835 11,003
Inventories 12,770 23,933
Prepaid expenses and other current assets 1,016 1,013
- ----------------------------------------------------------------------------------------------------------------
Total current assets 40,502 68,427
Property, plant and equipment, at cost less accumulated depreciation 38,074 46,628
Other assets 286 206
- ----------------------------------------------------------------------------------------------------------------
$ 78,862 $ 115,261
- ----------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,279 $ 11,596
Accrued expenses 9,504 8,133
Deferred income on shipments to distributors 9,121 13,913
Current portion of long-term obligations 7,216 6,537
- ----------------------------------------------------------------------------------------------------------------
Total current liabilities 35,120 40,179
- ----------------------------------------------------------------------------------------------------------------
Long-term obligations 13,137 18,974
- ----------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity:
Preferred stock; 5,000 shares authorized -- --
Common stock; 75,000 shares authorized; 20,134 and 19,092 shares outstanding 128,232 124,204
Accumulated deficit (97,627) (68,096)
- ----------------------------------------------------------------------------------------------------------------
30,605 56,108
- ----------------------------------------------------------------------------------------------------------------
$ 78,862 $ 115,261
================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE> 6
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----------------------------------------
Year Ended December 31,
- ---------------------------------------------------------------------------------------
(In thousands, except per share amounts) 1998 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 106,147 $ 122,453 $ 123,514
Cost of sales 89,844 84,603 74,303
- ---------------------------------------------------------------------------------------
Gross profit 16,303 37,850 49,211
- ---------------------------------------------------------------------------------------
Operating expenses:
Research and development 17,429 18,475 15,074
Selling, general and administrative 22,634 21,753 20,306
Restructuring charge 4,985 -- --
- ---------------------------------------------------------------------------------------
45,048 40,228 35,380
- ---------------------------------------------------------------------------------------
Income (loss) from operations (28,745) (2,378) 13,831
Interest expense (1,872) (1,834) (1,421)
Interest income 1,086 1,901 2,001
- ---------------------------------------------------------------------------------------
Income (loss) before income taxes (29,531) (2,311) 14,411
Provision for income taxes -- 220 576
- ---------------------------------------------------------------------------------------
Net income (loss) $ (29,531) $ (2,531) $ 13,835
=======================================================================================
Net income (loss) per share:
Basic $ (1.53) $ (0.13) $ 0.74
=======================================================================================
Diluted $ (1.53) $ (0.13) $ 0.70
=======================================================================================
Shares used in per share calculation:
Basic 19,262 18,967 18,693
=======================================================================================
Diluted 19,262 18,967 19,820
=======================================================================================
</TABLE>
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
-------------------- Accumulated
(In thousands) Shares Amount Deficit Total
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 18,524 $122,431 $(79,400) $ 43,031
Exercise of stock options 349 1,091 -- 1,091
Net income -- -- 13,835 13,835
- ---------------------------------------------------------------------------------------
Balance at December 31, 1996 18,873 123,522 (65,565) 57,957
Exercise of stock options 219 682 -- 682
Net loss -- -- (2,531) (2,531)
- ---------------------------------------------------------------------------------------
Balance at December 31, 1997 19,092 124,204 (68,096) 56,108
Issuance of shares:
Private investor 1,000 3,973 -- 3,973
Exercise of stock options 42 55 -- 55
Net loss -- -- (29,531) (29,531)
- ---------------------------------------------------------------------------------------
Balance at December 31, 1998 20,134 $128,232 $(97,627) $ 30,605
=======================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE> 7
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
(In thousands) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(29,531) $ (2,531) $ 13,835
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation and amortization 12,521 11,380 8,220
Non-cash restructuring charge 2,358 -- --
Changes in assets and liabilities:
Accounts receivable 2,168 608 1,819
Inventories 11,163 (4,579) (7,377)
Prepaid expenses and other current assets (3) 371 (482)
Other assets (80) 94 66
Accounts payable and accrued expenses (946) 2,534 2,893
Deferred income on shipments to distributors (4,792) 188 331
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities (7,142) 8,065 19,305
- ---------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Investments in plant and equipment, net (4,872) (11,761) (8,977)
Purchases of short-term investments (4,356) (28,395) (46,856)
Maturities of short-term investments 15,728 38,182 43,833
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities 6,500 (1,974) (12,000)
- ---------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayments of long-term obligations (6,611) (6,081) (5,241)
Proceeds from sale of common stock, net of issuance costs:
To private investor 3,973 -- --
To employees 55 682 1,091
- ---------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (2,583) (5,399) (4,150)
Increase (decrease) in cash and cash equivalents (3,225) 692 3,155
Cash and cash equivalents at beginning of year 21,106 20,414 17,259
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 17,881 $ 21,106 $ 20,414
===============================================================================================================
Supplemental information:
Cash paid (refunded) during the year for:
Interest expense $ 1,939 $ 1,713 $ 1,421
Income taxes (113) 415 682
Equipment acquired pursuant to long-term obligations 1,453 12,255 15,866
===============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE> 8
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. THE COMPANY AND ITS SIGNIFICANT
ACCOUNTING POLICIES:
Xicor, Inc. (Xicor) develops, manufactures and sells semiconductor memory
devices. Xicor operates in one reportable segment based on the company's
internal organization. One customer accounted for 15% of sales in 1998, 16% in
1997 and 14% in 1996. Sales are attributed to geographic areas based on the
location to which the product is shipped. Sales by country are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
(In millions) 1998 1997 1996
- --------------------------------------------------------
<S> <C> <C> <C>
United States $ 57 $ 68 $ 68
Japan 11 18 27
Other foreign countries 38 36 29
- --------------------------------------------------------
$ 106 $ 122 $ 124
========================================================
</TABLE>
Xicor has adopted accounting practices which are generally accepted in the
industry in which it operates. Following are Xicor's significant accounting
policies:
FISCAL YEAR. Xicor's fiscal year ends on the Sunday nearest December 31. For
purposes of financial statement presentation, each fiscal year is deemed to have
ended on December 31. Fiscal year 1998 consisted of 53 weeks. Fiscal years 1997
and 1996 each consisted of 52 weeks.
BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of Xicor and its wholly-owned subsidiaries. Significant intercompany
accounts and transactions have been eliminated.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS. Cash equivalents and short-term
investments consist principally of United States Government Treasury Bills and
certificates of deposit. Highly liquid investments with a maturity of three
months or less at the time of purchase are considered cash equivalents. All
investments are classified as "held-to-maturity securities" and are valued at
amortized cost, which approximates fair market value.
CONCENTRATIONS OF CREDIT RISK. Financial instruments which potentially subject
Xicor to concentrations of credit risk consist principally of cash equivalents
and short-term investments and accounts receivable. Xicor invests primarily in
United States Government Treasury Bills and certificates of deposit and places
its investments with high-credit-quality financial institutions. Xicor's
accounts receivable are derived from sales to original equipment manufacturers
and distributors serving a variety of industries located primarily in the United
States, Europe and the Far East. Xicor performs ongoing credit evaluations of
its customers and to date has not experienced any material losses.
FAIR VALUE OF FINANCIAL INSTRUMENTS. Xicor measures its financial assets and
liabilities in accordance with generally accepted accounting principles. For
financial instruments, including cash and cash equivalents, short-term
investments, accounts receivable, accounts payable and accrued expenses, the
carrying amounts approximate fair value due to their short maturities. The
amounts shown for long-term obligations also approximate fair value.
INVENTORIES. Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out basis for raw materials and supplies,
and a standard cost basis (which approximates first-in, first-out) for work in
process and finished goods.
PROPERTY AND EQUIPMENT. Depreciation for financial reporting purposes is
computed using the straight-line method and the assets' estimated useful lives,
principally five years. Amortization of leasehold improvements is computed over
the shorter of the remaining terms of the leases or the estimated useful lives
of the improvements. Construction in progress consists of leasehold improvements
not completed and equipment received but not yet placed in service.
REVENUE RECOGNITION. Certain of Xicor's sales are made to distributors under
agreements allowing rights of return and price protection on unsold merchandise.
Because of frequent sales price reductions and rapid technological obsolescence
in the industry, Xicor defers recognition of such sales until the merchandise is
sold by the distributors. Amounts billed to the distributors are included as
accounts receivable and the related gross profit is deferred and reflected as a
current liability until the merchandise is sold by the distributors. Revenue
from all other product sales is recognized upon shipment.
NET INCOME (LOSS) PER SHARE. Basic net income (loss) per share is computed using
the weighted average number of common shares outstanding. Diluted net income
(loss) per share is computed using the weighted average number of common shares
and all dilutive potential common shares outstanding.
ACCOUNTING FOR STOCK OPTIONS. In accordance with Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation," Xicor applies Accounting Principles Board Opinion No. 25 for
purposes of accounting for employee stock options. Because the exercise prices
of Xicor's employee stock options equal the market price of the underlying stock
on the date of grant, no compensation expense is recognized in the financial
statements. Xicor provides additional pro forma disclosures as required under
SFAS 123 in Note 5.
NEW ACCOUNTING PRONOUNCEMENT. In June, 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standard No. 133 (SFAS 133),
"Accounting for Derivative Instruments and Hedging Activities", which
establishes standards for accounting and reporting on derivative instruments for
periods beginning after June 15, 1999. SFAS 133 requires that all derivative
instruments be recognized in the
11
<PAGE> 9
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
balance sheet as either assets or liabilities and measured at fair value.
It also requires current recognition in earnings of changes in the fair value of
derivative instruments depending on the intended use of the derivative and the
resulting designation. Xicor is evaluating the effects of the new standard.
NOTE 2. FINANCIAL STATEMENT COMPONENTS:
Balance Sheet
<TABLE>
<CAPTION>
December 31,
---------------------------
(In thousands) 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C>
Inventories:
Raw materials and supplies $ 1,450 $ 4,229
Work in process 7,036 13,012
Finished goods 4,284 6,692
- ---------------------------------------------------------------------------
$ 12,770 $ 23,933
===========================================================================
Property, plant and equipment:
Leasehold improvements $ 17,674 $ 17,518
Equipment 124,371 116,349
Furniture and fixtures 1,881 1,817
Construction in progress 1,501 8,104
- ---------------------------------------------------------------------------
145,427 143,788
Accumulated depreciation (107,353) (97,160)
- ---------------------------------------------------------------------------
$ 38,074 $ 46,628
===========================================================================
Accrued expenses:
Accrued wages and employee benefits $ 4,038 $ 3,984
Other accrued expenses 5,466 4,149
- ---------------------------------------------------------------------------
$ 9,504 $ 8,133
===========================================================================
</TABLE>
ACCOUNTS RECEIVABLE. Accounts receivable at December 31, 1998 and 1997 are
presented net of an allowance for doubtful accounts of $0.5 million.
STATEMENT OF OPERATIONS. During 1998 Xicor announced and began to implement a
restructuring plan to revise its manufacturing and procurement strategies to
significantly increase outsourcing of wafer fabrication and product testing to
overseas subcontractors and to streamline operations. Accordingly, Xicor
recorded $5 million in restructuring charges in 1998, consisting of $2.4 million
of equipment write-offs associated with equipment not in service due to the
shifting of activity to an outside wafer foundry and $2.6 million for severance
costs relating to a 38% reduction in workforce. Equipment with a net book value
of $2.8 million was written down to its estimated net realizable value of $0.4
million. Given the current oversupply conditions in the used semiconductor
equipment market, Xicor is unable to predict the time needed to dispose of the
equipment held for sale and accordingly has included such equipment in property,
plant and equipment. The workforce reductions are primarily in manufacturing and
related support groups and to a lesser extent in the selling, administrative and
engineering functions. At December 31, 1998, $1.2 million of the severance costs
had been paid, with the $1.4 million balance expected to be paid by 2000.
NOTE 3. LEASE COMMITMENTS:
Xicor leases its facilities and certain equipment under non-cancelable lease
agreements. Xicor's major facilities leases expire at various dates through 2001
and provide for renewal options to extend the leases for up to 15 years. These
leases provide for increased rental rates, generally based on the Consumer Price
Index with specified limitations during the renewal periods. Equipment leases
are for terms of four to six years and require Xicor to pay property taxes,
insurance and maintenance and repair costs.
Leases which meet certain specific criteria are considered capital leases
and, accordingly, are accounted for as the acquisition of an asset and the
incurrence of a liability. Upon expiration of the related lease, the then fully
depreciated asset (and the related accumulated depreciation) are removed from
the accounts. Assets recorded under capital leases were as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
(In thousands) 1998 1997
- ---------------------------------------------------------
<S> <C> <C>
Equipment $ 33,045 $ 33,645
Accumulated depreciation (13,933) (8,278)
- ---------------------------------------------------------
$ 19,112 $ 25,367
=========================================================
</TABLE>
Minimum future lease payments under non-cancelable leases as of December 31,
1998 were as follows:
<TABLE>
<CAPTION>
Capital Operating
(In thousands) Leases Leases
- ------------------------------------------------------------------------
<S> <C> <C>
Years:
1999 $ 8,750 $ 4,069
2000 5,106 1,881
2001 4,308 1,085
2002 3,717 119
2003 1,438 7
- ------------------------------------------------------------------------
Total minimum lease payments 23,319 $ 7,161
========
Less amount representing interest (2,966)
- -------------------------------------------------------
Present value of minimum lease payments 20,353
Less current portion (7,216)
- -------------------------------------------------------
Long-term lease obligation $ 13,137
=======================================================
</TABLE>
Total rental expense under non-capitalized leases was as follows (including
month-to-month rentals): 1998--$4.7 million, 1997--$4.5 million, 1996--$3.7
million.
NOTE 4. LINE OF CREDIT AGREEMENT:
Xicor has a line of credit agreement with a financial institution which expires
on March 31, 2000 and provides for borrowings of up to 80% of eligible accounts
receivable, not to exceed $7.5 million. Interest is charged at the prime lending
rate plus 2%, with a minimum rate of 8%, and is payable monthly. This credit
facil-
12
<PAGE> 10
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
ity is secured by all the assets of Xicor. The agreement contains restrictions
which, among other things, preclude the payment of dividends, stock repurchases
and the sale of assets other than in the normal course of business. At December
31, 1998, there were no borrowings outstanding under this line of credit.
NOTE 5. COMMON STOCK:
OPTION PLANS. Xicor has two stock option plans for its employees, the 1990 Plan
and the 1998 Plan which excludes officers of the company. The 1995 Director
Option Plan provides for an initial grant of 20,000 options to each of the
Company's directors and automatic annual grants of 5,000 options thereafter. The
total number of shares of common stock authorized for issuance under the 1990
Employee Plan, the 1998 Employee Plan and the 1995 Director Plan are 3,200,000,
250,000 and 200,000, respectively.
Options under all plans generally are exercisable in 25% annual increments
and expire no later than ten years from date of grant. All outstanding options
were granted at 100% of the fair market value of the stock at the date of grant.
The following table summarizes the option activity under all plans.
<TABLE>
<CAPTION>
Number Average
of Shares Option Price
(In thousands) Per Share
- ---------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1995 1,683 3.29
Granted 734 7.02
Exercised (349) 3.12
Canceled (115) 5.15
- ------------------------------------------------
Outstanding at December 31, 1996 1,953 4.61
Granted 463 6.80
Exercised (219) 3.12
Canceled (198) 5.82
- ------------------------------------------------
Outstanding at December 31, 1997 1,999 5.16
Granted 2,203 2.31
Exercised (42) 1.28
Canceled (1,584) 5.86
- ------------------------------------------------
Outstanding at December 31, 1998 2,576 2.36
================================================
</TABLE>
In February 1998, substantially all outstanding options held by employees
with a share price in excess of $2.75 per share were repriced to $2.75 per
share, the fair market value as of the date of the repricing. A total of
1,217,950 options were repriced and are included in the grant and cancellation
activity for 1998.
The number of stock options available for grant as of December 31, 1998, 1997
and 1996 were 426,400, 827,000, and 1,124,950, respectively. At December 31,
1998, 3,001,950 shares of common stock were reserved for issuance upon exercise
of stock options. Options outstanding at December 31, 1998 and related weighted
average price and life information follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- ---------------------
Range of Remaining
Exercise Prices Shares Price Life (years) Shares Price
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.69-$ 0.78 186,500 $ 0.78 9.5 6,500 $ 0.69
$ 1.09-$ 1.62 664,900 $ 1.37 6.5 270,400 $ 1.36
$ 1.87-$ 2.75 1,582,900 $ 2.65 7.3 719,476 $ 2.63
$ 3.44-$ 4.00 61,250 $ 3.45 6.2 41,250 $ 3.46
$ 5.44-$ 7.25 60,000 $ 6.23 7.8 20,000 $ 6.17
$11.50-$11.50 20,000 $11.50 7.3 10,000 $11.50
- ------------------------------------------------------------------------------------
$ 0.69-$11.50 2,575,550 $ 2.36 7.3 1,067,626 $ 2.47
====================================================================================
</TABLE>
The fair value of options at date of grant was estimated using the
Black-Scholes model. The weighted average grant date fair value of options
granted was $0.79, $3.59 and $3.68 for the three years ended December 31, 1998.
The estimated stock-based compensation cost calculated using the assumptions
indicated totaled $2,103,000, $1,364,000 and $1,487,000 for the three years in
the period ended December 31, 1998. The pro forma net income (loss) resulting
from the increased compensation cost was ($31,634,000) or ($1.64), ($3,895,000)
or ($0.21) per share, and $12,348,000 or $0.63 per share per share for the three
years ended December 31, 1998. The effect of stock-based compensation on net
income (loss) for the three years ended December 31, 1998 may not be
representative of the effect on pro forma net income (loss) in future years
because compensation expense related to grants made prior to 1995 is not
considered.
The following weighted average assumptions are included in the estimated fair
value grant date calculation of Xicor's stock options:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------
<S> <C> <C> <C>
Expected life (years) 5 5 5
Interest rate 5.31% 5.99% 5.55%
Volatility 70% 70% 70%
Dividend yield 0% 0% 0%
</TABLE>
STOCK PURCHASE PLAN. In May 1998, the shareholders of Xicor approved an employee
stock purchase plan. The plan permits eligible employees to purchase shares of
common stock through payroll deductions, not to exceed 10% of the employee's
compensation, at 85% of the lesser of the fair market value of such shares at
the beginning of a 24-month offering period or the end of each six-month segment
within such offering period. Common stock purchases under this plan are limited
to 250 shares per employee in each six-month segment. At December 31, 1998, 3.8
million shares of common stock were reserved for issuance under this plan. The
first six-month segment commenced November 2, 1998 and purchases of common stock
under this plan will begin in 1999.
13
<PAGE> 11
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. EMPLOYEE INCENTIVE CASH BONUS
PROFIT SHARING PROGRAM:
Xicor has an Employee Incentive Cash Bonus Profit Sharing Program (the
"Program"). Under the Program, twice a year (two profit sharing periods) 5% to
15% of Xicor's consolidated operating income, excluding certain non-product
revenues, is distributed to employees. The exact percentage to be distributed is
determined by a Committee of the Board of Directors; however, in no event may
the distribution result in a net loss after taxes to Xicor for any profit
sharing period. Profit sharing bonuses relating to 1997 and 1996 totaled $0.3
million and $1.2 million, respectively. No profit sharing bonuses were paid
relating to 1998.
NOTE 7. INCOME TAXES:
The income tax provision consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
(In thousands) 1998 1997 1996
- -----------------------------------------------------
<S> <C> <C> <C>
Federal $ -- $ 45 $ 322
State -- 25 192
Foreign -- 150 62
- -----------------------------------------------------
$ -- $ 220 $ 576
=====================================================
</TABLE>
The reconciliation between the amount computed by applying the U.S. Federal
statutory rate and the reported tax expense is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate (35.0%) (35.0%) 35.0%
Operating losses with
no current benefit 35.0 35.0 --
Utilization of previously reserved
net operating losses -- -- (24.4)
Foreign, alternative minimum
and other taxes -- 9.5 (6.6)
- --------------------------------------------------------------------------------
0.0% 9.5% 4.0%
================================================================================
</TABLE>
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
(In thousands) 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Federal and state loss and credit
carryforwards $ 26,894 $ 16,700
Capitalized research and development 4,778 3,966
Inventory reserves and basis
differences 6,577 8,060
Deferred income on shipments
to distributors 873 995
Restructuring 1,460 --
Depreciation 3,293 3,003
Other 3,076 2,860
- ------------------------------------------------------------------------
46,951 35,584
Deferred tax liabilities (2,266) (1,732)
Deferred tax assets valuation
allowance (44,685) (33,852)
- ------------------------------------------------------------------------
Net deferred taxes $ -- $ --
========================================================================
</TABLE>
The deferred tax assets valuation allowance is attributed to U.S. Federal and
state deferred tax assets. Management believes sufficient uncertainty exists
regarding the realizability of the net deferred tax assets such that a full
valuation allowance is required.
At December 31, 1998, Xicor had Federal tax net operating loss carryforwards
and general business credit carryforwards of approximately $58 million and $2.8
million, respectively. These carryforwards expire in varying amounts from 1999
through 2013. The net operating loss carryforward includes approximately $7
million resulting from employee exercises of non-incentive stock options, the
tax benefit of which, when realized, will be accounted for as an addition to
common stock rather than as a reduction of the provision for income taxes. At
December 31, 1998, Xicor also had California state tax net operating loss and
credit carryforwards of approximately $8 million and $3.3 million, respectively.
These carryforwards expire in varying amounts from 2002 to 2006. Availability of
the net operating loss and credit carryforwards may potentially be reduced in
the event of certain substantial changes in equity ownership.
NOTE 8. RELATED PARTY:
In November 1998 Xicor and Advanced Technology Materials, Inc. (ATMI) entered
into a strategic alliance focused on integrated circuit (IC) sales into smart
card applications. ATMI, through its Emosyn division, has the right to become
Xicor's exclusive sales channel for Xicor secure memory IC products in chip or
module form to customers for use in smart card applications. Xicor will continue
to sell these products worldwide to all customer applications other than smart
cards. Additionally, Xicor and Emosyn will jointly define future IC products
suitable for the smart card industry, to be manufactured by Xicor and sold by
Emosyn. As part of this agreement. ATMI purchased from Xicor 1,000,000
unregistered shares of Xicor common stock at $4.00 per share, for which it has
certain registration rights. Also, after achieving agreed upon goals, but not
before the end of Year 2001, ATMI may purchase the rights to Xicor's Security IC
product line for use only in smart card applications. The purchase price will be
determined by an agreed upon formula. Following the purchase, Xicor will
continue to supply such chips to Emosyn, and will also continue to sell its
security products using its distribution channels to all applications other than
smart cards.
14
<PAGE> 12
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. EARNINGS PER SHARE:
The same net income (loss) amounts were used for Basic Earnings Per Share (EPS)
and Diluted EPS for the three years ended December 31, 1998. For the years ended
December 31, 1998 and 1997, the number of shares used in the calculations of
both EPS amounts were the same since stock options aggregating 2,576,000 and
1,999,000, respectively, were excluded as they were antidilutive. Common stock
equivalents of 1,127,000 were the only reconciling items between the number of
shares used to calculated Basic EPS and Diluted EPS for the year ended December
31, 1996.
NOTE 10. CONTINGENCIES:
In the normal course of business, Xicor receives and makes inquiries with regard
to possible patent infringement. Where deemed advisable, Xicor may seek to enter
into or extend licenses or negotiate settlements. Outcomes of such negotiations
may not be determinable at any one point in time; however, management currently
does not believe that such licenses or settlements will materially affect
Xicor's financial position or results of operations.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Xicor, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Xicor, Inc.
and its subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, 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/ PricewaterhouseCoopers LLP
- --------------------------------
San Jose, California
January 27, 1999
15
<PAGE> 13
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION BY QUARTER (UNAUDITED)
- --------------------------------------------------------------------------------
The following table sets forth unaudited financial information for each
quarterly reporting period in the fiscal years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998
- ---------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts) First Second Third Fourth(1)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 27,746 $ 26,787 $ 24,695 $ 26,919
Cost of sales 19,892 25,521 21,479 22,952
Research and development 4,566 4,628 4,304 3,931
Selling, general and administrative 5,498 5,620 5,448 6,068
Restructuring charge -- -- 1,267 3,718
Net income (loss)(2) (2,354) (9,184) (8,038) (9,955)
Net income (loss) per share:
Basic (0.12) (0.48) (0.42) (0.51)
Diluted (0.12) (0.48) (0.42) (0.51)
Shares used in per share calculations:
Basic 19,095 19,108 19,123 19,689
Diluted 19,095 19,108 19,123 19,689
Common Stock Market price range(3):
High 3 5/8 3 1/8 1 13/16 2 7/8
Low 2 17/32 1 11/16 1 25/32
=========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1997
- ---------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts) First Second Third Fourth(1)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 29,513 $ 31,970 $ 29,566 $ 31,404
Cost of sales 17,718 19,827 18,935 28,123
Research and development 4,613 4,598 4,425 4,839
Selling, general and administrative 5,158 5,401 5,252 5,942
Net income (loss)(2) 2,010 2,067 919 (7,527)
Net income per share:
Basic 0.11 0.11 0.05 (0.39)
Diluted 0.10 0.11 0.05 (0.39)
Shares used in per share calculations:
Basic 18,888 18,910 18,985 19,084
Diluted 19,683 19,510 19,731 19,084
Common Stock Market price range(3):
High 10 1/2 7 1/8 9 3/8 7 1/2
Low 6 5/8 5 1/8 5 11/16 2 11/16
=========================================================================================================
</TABLE>
(1) All quarters consist of 13 weeks except for the fourth quarter of 1998 which
consists of 14 weeks.
(2) See Management's Discussion and Analysis of Financial Condition and Results
of Operations for factors contributing to the losses.
(3) Xicor's Common Stock trades on the Nasdaq National Market tier of the Nasdaq
Stock Market(SM) under the symbol XICO. The above table sets forth the high
and low sales prices for the Common Stock as reported by Nasdaq for each
calendar quarter. There were approximately 1,400 shareholders of record on
December 31, 1998. Xicor has never paid dividends and does not anticipate
paying any dividends in the foreseeable future.
16
<PAGE> 1
EXHIBIT 21
XICOR, INC.
LIST OF SUBSIDIARIES(1)
<TABLE>
<CAPTION>
STATE OR
OTHER JURISDICTION
NAME OF INCORPORATION
---- ------------------
<S> <C>
Xicor GmbH Germany
Xicor Hong Kong Limited Hong Kong
Xicor Japan K.K. Japan
Xicor Korea, Ltd. Korea
Xicor Limited United Kingdom
</TABLE>
(1) All subsidiaries are wholly-owned.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-17806, 33-39627, 33-46687, 33-81986, 33-60947,
333-08597, and 333-59509) of Xicor, Inc. of our report dated January 27, 1999,
appearing on page 15 of the 1998 Annual Report to Shareholders which is
incorporated in this Annual Report on Form 10-K.
PRICEWATERHOUSECOOPERS LLP
San Jose, California
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> JAN-03-1999
<CASH> 17,881,000
<SECURITIES> 0
<RECEIVABLES> 9,335,000
<ALLOWANCES> 500,000
<INVENTORY> 12,770,000
<CURRENT-ASSETS> 40,502,000
<PP&E> 145,427,000
<DEPRECIATION> 107,353,000
<TOTAL-ASSETS> 78,862,000
<CURRENT-LIABILITIES> 35,120,000
<BONDS> 0
0
0
<COMMON> 128,232,00
<OTHER-SE> (97,627,000)
<TOTAL-LIABILITY-AND-EQUITY> 78,862,000
<SALES> 106,147,000
<TOTAL-REVENUES> 106,147,000
<CGS> 89,844,000
<TOTAL-COSTS> 89,844,000
<OTHER-EXPENSES> 17,429,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,872,000
<INCOME-PRETAX> (29,531,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (29,531,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29,531,000)
<EPS-PRIMARY> (1.53)
<EPS-DILUTED> (1.53)
</TABLE>
