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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, 1999
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)
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CALIFORNIA 94-2526781
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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1511 BUCKEYE DRIVE
MILPITAS, CALIFORNIA 95035
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES) (ZIP CODE)
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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 $480,915,000
on March 9, 2000.
The aggregate number of outstanding shares of Common Stock, without par
value, of the Registrant was 21,108,485 on March 9, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant's 2000 Annual Meeting of
Shareholders is incorporated by reference in Part III of this Form 10-K.
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XICOR, INC.
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 9
Item 3. Legal Proceedings........................................... 10
Item 4. Submission of Matters to a Vote of Security Holders......... 10
PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder
Matters..................................................... 10
Item 6. Selected Financial Data..................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of
Operations.................................................. 12
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 20
Item 8. Consolidated Financial Statements and Supplementary Data.... 22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial
Disclosure.................................................. 36
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 37
Item 11. Executive Compensation...................................... 37
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 37
Item 13. Certain Relationships and Related Transactions.............. 37
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 37
Signatures............................................................ 38
Index to Exhibits..................................................... 39
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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," "plans" and similar expressions
are used to identify forward-looking statements. You should not place undue
reliance 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" of the registrant's
Annual Report to Shareholders for the fiscal year ended December 31, 1999
included in Part II, Item 7 of this report and the risk factors included in Item
1 below.
ITEM 1. BUSINESS
OVERVIEW
Xicor, Inc. 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 "bytes", "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 products are grouped in two categories: Memory Products and Mixed
Signal Products. Xicor is continuing to apply its electrically reprogrammable
memory technology to develop innovative products combining nonvolatility and
in-system data alterability. More recently, various Xicor products are also
incorporating analog or mixed signal 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 electronics and military products.
NONVOLATILE MEMORY 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 or ROMs,
programmable read only memories or PROMs, electrically programmable read-only
memories or EPROMs, electrically erasable programmable ROMs or EEPROMs, 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.
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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 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 hundreds 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. As the cost per bit of Flash memory
has come down, the emulation of EEPROM functionality by using software combined
with high density Flash has emerged for certain applications.
XICOR MEMORY PRODUCTS AND APPLICATIONS
Xicor's nonvolatile memory products include:
Serial Interface EEPROMs. Xicor supplies a broad line of serial interface
EEPROMs which include password-secured serial EEPROMs, standard serial EEPROMs
and proprietary serial EEPROMs. Many of these memory products are used in
space-limited hand held applications. To enhance Xicor's customers' ability to
further miniaturize their products, in 1998 Xicor introduced a serial EEPROM
encapsulated in an advanced chip-scale package which has essentially the same
footprint and height of the chip itself.
Parallel Interface EEPROMs. Xicor supplies a broad line of parallel
interface EEPROMs with densities ranging from 64K to 1 megabit. Xicor also
offers an extended temperature version parallel EEPROM that operates to 185
degrees C. Parallel interface EEPROMs are generally used to contain frequently
updated data in communications infrastructure equipment, instrumentation,
transportation and other industrial applications.
XICOR MIXED SIGNAL PRODUCTS AND APPLICATIONS
Xicor's Mixed Signal Product Group combines analog and digital design.
Xicor has three product families within its Mixed Signal business, namely System
Tuning, System Management and Timekeeping and Battery Management. Mixed Signal
products represented approximately 20% of sales in 1997; 22% in 1998; and 26% in
1999.
System Tuning. The System Tuning family, comprised primarily of Digitally
Controlled Potentiometers (XDCP's), is the most established product line in
Xicor's Mixed Signal Product Group. XDCP's are digitally controlled solid state
electronic variable resistors that give the designer and the system more
accuracy and flexibility. Since XDCP's are integrated circuits and are
controlled electronically, greater system reliability can be realized.
Furthermore, XDCP's eliminate the disadvantages of mechanical potentiometers
associated with manual adjustment and moving parts. In 1999 Xicor expanded the
XDCP line with products targeted at the fiber optic market. Additionally, a
product was announced as a replacement for widely used cost sensitive single
turn mechanical potentiometers.
System Management and Timekeeping. Complementing Xicor's System Tuning
family is an evolving line of System Management products offering supervisory
chips for microcontroller based systems. System management products are targeted
for embedded systems that require controlled powerup and orderly,
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predictable powerdown, reliable recovery in the event of system failure and the
capability of knowing the time and date of an event. Products include NOVRAMs,
Central Processing Unit or CPU supervisors and timekeeping products.
Battery Management. Consumers and manufacturers of portable electronic
devices are affected by battery performance. Both the length of time between
battery recharges and the useful life of expensive Lithium Ion batteries are
leading customer satisfaction issues. In the fourth quarter of 1999 Xicor
entered the battery management integrated circuit market with the announcement
of its first battery management product, a smart safety unit chip. The part,
which contributed no revenue in 1999, is targeted at the laptop Personal
Computer or PC market. Xicor plans to expand this product line in 2000.
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
representatives. 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.
Xicor's international sales constituted approximately 56% of sales in 1999;
46% in 1998; and 44% in 1997. Xicor's international sales are generally
denominated in U.S. dollars. Due to the magnitude of its international sales,
Xicor is subject to risks common to all international economic 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 14% of Xicor's sales in 1999; 15% in 1998;
and 16% in 1997. Distributors are not themselves end users, but rather serve as
a channel of sale to many end users of Xicor's products. One OEM customer
represented 11% of sales in 1999.
Customer "design-ins" may not result in volume purchase orders. Further,
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 factories in
order 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.
During 1998 Xicor announced and began to implement a restructuring plan to
change its manufacturing and procurement strategies to significantly increase
outsourcing of wafer fabrication and product testing to overseas subcontractors
and to streamline operations. Xicor's initial foundry, Yamaha Corporation of
Japan, was qualified as an outside foundry for Xicor in the third quarter of
1998. In the second quarter of 1999 Xicor entered into agreements with Sanyo
Electric Co., Ltd. of Japan and ZMD GmbH of Germany to fabricate
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wafers for Xicor. In the second half of 1999, Yamaha produced more than
one-third of Xicor's wafer requirements. In the fourth quarter of 1999, the
first wafers from Sanyo and ZMD GmbH were received by Xicor and passed initial
quality criteria. In December 1999, Xicor's Board of Directors approved Xicor's
plan to become completely fabless and cease in-house wafer fabrication by the
middle of 2000.
Wafer fabrication processes are highly complicated, utilize numerous highly
toxic and corrosive chemicals and gases, and require stringent control of many
extremely precise steps. 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 foundries 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 various countries
including 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 various countries including 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 subcontractors
based in Israel and the United States 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, sort, 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, sort, assembly or test operations, or air transportation to or from
foreign foundries or contractors, were disrupted for any reason, Xicor's
operations could be severely harmed.
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 Xicor's history and lead times have been extended in the
industry on occasion without significantly harming Xicor. However, future
shortages, if any, could severely harm Xicor's operations.
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 maintaining and enhancing Xicor's competitive position. Such development
activities are difficult and lengthy. They may not
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be successfully completed and future products may not be available on a timely
basis or achieve market acceptance.
Research and development activities require a high degree of complexity of
design and manufacturing process, and consequently a significant percentage of
sales is continuously invested in research and development and in the
pre-production engineering activity related to new products and technologies.
Xicor's research and development expenditures were $14,560,000 in 1999;
$17,429,000 in 1998; and $18,475,000 in 1997.
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 with respect to certain aspects
of Xicor's processes and devices and these matters are under investigation and
review. Although patent holders typically offer licenses and Xicor has entered
into such license agreements, licenses may not be obtainable on acceptable terms
and any dispute may not 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 that 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 semiconductor 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, 1999 Xicor had approximately 500 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 and in
Silicon Valley.
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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, 1999) and position with Xicor:
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NAME AGE OFFICE
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Raphael Klein........................ 56 Chairman of the Board and Chief Executive Officer
Bruce Gray........................... 49 President and Chief Operating Officer
Ralph Griffin........................ 42 Vice President, Wafer Operations and Technology
Development
Geraldine N. Hench................... 42 Vice President, Finance and Chief Financial Officer
Klaus G. Hendig...................... 60 Senior Vice President, Administration
Timothy D. Kanemoto.................. 53 Vice President, Product Operations
Michael P. Levis..................... 42 Vice President, Marketing
Daniel L. Lewis...................... 50 Vice President, Worldwide Sales
James McCreary....................... 53 Vice President, Engineering
Ira McLain........................... 56 Vice President, Information Technology
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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, or 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 28 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.
Ralph Griffin, Vice President, Wafer Operations and Technology Development.
Mr. Griffin joined Xicor in December 1996 and became Vice President in 1999. Mr.
Griffin has 19 years of experience in semiconductor manufacturing and
engineering roles. From August 1990 to November 1996, Mr. Griffin worked at
National Semiconductor with the Sematech Program, in research and development
and built a 200mm wafer fabrication plant at National's Santa Clara site. Prior
to 1990, Mr. Griffin held various positions in Process Engineering and Wafer Fab
Management working for Siliconix, Inc, Data General Corp., and Fairchild
Semiconductor. Mr. Griffin received the degrees of Bachelor of Science in
Chemical Engineering from Stanford University and Master of Business
Administration from San Jose State University.
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 of 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 16 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 28 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. from the University of California, Berkeley and is the inventor 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 30
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.
INSURANCE
Xicor presently carries various insurance coverage 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 that
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 plans to cease production at this facility and therefore
does not plan to exercise the renewal options.
Xicor leases a 56,293 square foot facility near its wafer fabrication
facility that houses its product testing and distribution operations and a small
quick-turn assembly line. The lease, which expires June 30, 2000, provides for a
monthly base rental of $92,883. Xicor plans to vacate this facility at the end
of the lease term and is in the process of negotiating a long-term lease for a
30,968 square foot facility adjacent to the facility described below.
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 2010 and provides for an annual base rental of $1,148,508, increasing
3.25% annually, and requires Xicor to pay all real estate taxes,
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utilities and insurance and to maintain the building and premises. Xicor has one
five year renewal option upon the same terms and conditions at the higher of 95%
of the then fair market value or $1,148,508 annually.
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
Xicor's Common Stock trades on the Nasdaq National Market tier of the
Nasdaq Stock Market(SM) under the symbol XICO. The table below sets forth the
high and low sales prices for the Common Stock as reported by Nasdaq for each
calendar quarter.
<TABLE>
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HIGH LOW
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FISCAL YEAR ENDED DECEMBER 31, 1999
First quarter............................................. $ 2 1/8 $1 1/8
Second quarter............................................ 4 3/8 1 9/32
Third quarter............................................. 9 2 13/16
Fourth quarter............................................ 16 9/16 5 5/32
FISCAL YEAR ENDED DECEMBER 31, 1998 HIGH LOW
--- --
First quarter............................................. $ 3 5/8 $2 17/32
Second quarter............................................ 3 1/8 1 11/16
Third quarter............................................. 1 13/16 1
Fourth quarter............................................ 2 7/8 25/32
</TABLE>
There were approximately 1,100 shareholders of record on December 31, 1999.
Xicor has never paid cash dividends and does not anticipate paying any cash
dividends in the foreseeable future.
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<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA
FINANCIAL OPERATING INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Operations Data:
Net sales........................... $114,887 $106,147 $122,453 $123,514 $113,550
Cost of sales....................... 80,474 89,844 84,603 74,303 69,214
-------- -------- -------- -------- --------
Gross profit...................... 34,413 16,303 37,850 49,211 44,336
-------- -------- -------- -------- --------
Operating expenses:
Research and development.......... 14,560 17,429 18,475 15,074 15,270
Selling, general and
administrative................. 22,360 22,634 21,753 20,306 19,474
Restructuring charge.............. 23,719 4,985 -- -- --
-------- -------- -------- -------- --------
60,639 45,048 40,228 35,380 34,744
-------- -------- -------- -------- --------
Income (loss) from operations....... (26,226) (28,745) (2,378) 13,831 9,592
Interest expense.................... (1,407) (1,872) (1,834) (1,421) (605)
Interest income..................... 704 1,086 1,901 2,001 1,584
-------- -------- -------- -------- --------
Income (loss) before income taxes... (26,929) (29,531) (2,311) 14,411 10,571
Provision for income taxes.......... -- -- 220 576 535
-------- -------- -------- -------- --------
Net income (loss)................... $(26,929) $(29,531) $ (2,531) $ 13,835 $ 10,036
======== ======== ======== ======== ========
Net income (loss) per share:
Basic............................. $ (1.32) $ (1.53) $ (0.13) $ 0.74 $ 0.55
======== ======== ======== ======== ========
Diluted........................... $ (1.32) $ (1.53) $ (0.13) $ 0.70 $ 0.53
======== ======== ======== ======== ========
Shares used in per share
calculations:
Basic............................. 20,324 19,262 18,967 18,693 18,216
======== ======== ======== ======== ========
Diluted........................... 20,324 19,262 18,967 19,820 19,031
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital.................. $ 3,573 $ 5,382 $ 28,248 $ 37,134 $ 30,525
Total assets..................... 54,794 78,862 115,261 108,214 79,439
Long-term debt, less current
portion....................... 9,794 13,137 18,974 13,469 5,229
Accumulated deficit.............. (124,556) (97,627) (68,096) (65,565) (79,400)
Shareholders' equity............. 4,449 30,605 56,108 57,957 43,031
</TABLE>
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<PAGE> 12
ITEM 7. 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 22 to 34.
RESULTS OF OPERATIONS
Xicor's sales were $114.9 million in 1999 compared to $106.1 million in
1998 and $122.5 million in 1997. Fiscal 1999 sales increased 8% compared to 1998
primarily due to increased sales of product into wireless communications
applications and increased sales of digitally controlled potentiometer products.
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.
Gross profit as a percentage of sales was 30% in 1999; 15% in 1998; and 31%
in 1997. The gross profit percentage improved in 1999 compared to 1998 due to
product mix, higher average selling prices and a reduction in the overall
average cost of products shipped due to increased outsourcing and cost
reductions at Xicor's in-house manufacturing operations. 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 streamlined 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%.
Research and development expenses were 13% of sales in 1999; 16% in 1998;
and 15% in 1997. Research and development expenses decreased as a percentage of
sales in 1999 compared to 1998 primarily due to lower personnel costs and higher
sales and, to a lesser extent, lower depreciation. Research and development
expenses were relatively consistent as a percentage of sales in 1998 compared to
1997.
Selling, general and administrative expenses represented 19% of sales in
1999; 21% in 1998; and 18% in 1997. Selling, general and administrative expenses
declined as a percentage of sales in 1999 compared to 1998 primarily due to
higher sales. Selling, general and administrative expenses increased in 1998
compared to 1997 due to intensified sales and marketing activities.
During 1998 Xicor began to revise its manufacturing and procurement
strategies to significantly increase outsourcing of wafer fabrication and
product testing to overseas subcontractors and to streamline operations. This
change was in response to continuing market conditions that made it more
economical to outsource manufacturing. 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.
Based on the progress made on the outsourcing program during 1999, in
December 1999 Xicor's Board of Directors decided to close its Milpitas in-house
wafer fabrication facility by mid-2000 and use third party foundries for all of
Xicor's wafer fabrication production. In connection with the closure of this
facility, which is expected to cease production by mid-2000, Xicor recorded a
$23.7 million restructuring charge, consisting of a $16.3 million non-cash
write-down of the wafer fabrication plant assets, $1.5 million for severance
costs relating to a reduction in workforce, fab closure costs of $3.6 million,
idle facilities charges of $0.8 million and equipment lease costs of $1.5
million.
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<PAGE> 13
The fabrication facility closure plans provide for production to cease at
the facility by mid-2000 and closure and decommissioning activities to be
conducted over the succeeding nine months. Xicor is currently pursuing the sale
of the Milpitas manufacturing operations and at this time believes the most
likely outcome would be a piecemeal sale of the equipment. Xicor expects that
the majority of expenditures relating to the closure and decommissioning of the
facility will be incurred during the second half of 2000 and are expected to be
funded from working capital. Xicor expects annual savings compared to 1999 of
approximately $20 million in production costs, which are currently recorded as
cost of sales, as a result of the closure of the facility. Of this amount,
annual savings of approximately $8 million related to reduced depreciation
expense will begin to be realized in the first quarter of 2000. The balance of
the estimated savings which relate principally to lower personnel and
manufacturing support costs are expected to be fully realized after the closure
of the facility. The estimated savings are expected to be partially offset by
the cost of wafers purchased from the third-party foundries.
Interest expense decreased in 1999 compared to 1998 due to normal principal
payments of outstanding lease debt. 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 income decreased in both 1999 and 1998 compared to the prior year
due to a decrease in the average balance invested and in 1998, to a lesser
extent, lower interest rates.
No taxes were provided in 1999 and 1998 due to the net loss. The provision
for income taxes for 1997 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 $54.5 million at
the end of 1999 remain fully reserved because of the uncertainty regarding the
ultimate realization of these assets.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, Xicor had $22.2 million in cash and cash equivalents.
Corresponding balances at the end of 1998 and 1997 were $17.9 million and $32.5
million, respectively. In 1999 Xicor generated $12.7 million of cash from
operating activities and used $7.5 million to repay long-term obligations and
$1.6 million for equipment purchases. Additionally $0.7 million of cash was
generated from employee stock plans. 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 received $4 million from the sale of unregistered common stock to
ATMI, Inc.
During 2000 Xicor expects to use cash to fund costs associated with the
planned closure of the wafer fabrication plant, to repay long-term obligations
and purchase equipment and software. Capital expenditures for 2000 are currently
planned at approximately $5 million and are primarily related to product design,
information technology and product testing. At December 31, 1999, Xicor had
entered into commitments for equipment purchases aggregating less than $0.5
million.
Xicor has a line of credit agreement with a financial institution that
expires March 31, 2001, 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, 1999, 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. At December
31, 1999, $1.7 million of the line of credit was reserved to secure a standby
letter 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
13
<PAGE> 14
to those instruments as well as other hedging activities, and is effective for
fiscal years beginning after June 15, 2000, as amended by SFAS No. 137. Xicor
believes that adoption of this pronouncement will not have a material impact on
its financial position and results of operations. In December 1999, the
Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") 101,
"Revenue Recognition," which outlines the basic criteria that must be met to
recognize revenue and provides guidance for presentation of revenue and for
disclosure related to revenue recognition policies in financial statements filed
with the Securities and Exchange Commission. Xicor believes that adopting SAB
101 will not have a material impact on its financial position and results of
operations.
"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 expected annual savings
from Xicor's plan to close its Milpitas in-house wafer fabrication facility by
mid-2000 and use third party foundries for all of Xicor's wafer fabrication
production, the plans to manufacture wafers at our wafer fabrication plant
during the first half of 2000 to produce sufficient inventory levels of certain
products to prevent delays in meeting customer demands as the foundries ramp up
the production of our products, the belief at this time that the most likely
outcome of the currently pursued sale of the Milpitas manufacturing operations
would be a piecemeal sale of the equipment, plans to expand the battery
management product line in 2000, and the expectation that sufficient cash,
working capital, and credit will be available to fund fiscal year 2000
operations, including costs associated with the planned closure of the wafer
fabrication plant, repayment of long-term obligations and the purchase of
equipment and software. 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 actual results to differ
materially include the following; general economic conditions and conditions
specific to the semiconductor industry; fluctuations in customer demand,
including loss of key customers, order cancellations or reduced bookings;
competitive factors such as pricing pressures on existing products and the
timing and market acceptance of new product introductions (both by Xicor and its
competitors); Xicor's ability to have available an appropriate amount of low
cost foundry production capacity in a timely manner; our foundry partners'
timely ability to successfully manufacture products for Xicor using Xicor's
proprietary technology; any disruptions of our foundry relationships;
manufacturing efficiencies; the ability to continue effective cost reductions;
currency fluctuations; the timely development and introduction of new products
and submicron processes, 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 this Annual Report on 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 that may be made as a result of events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
FACTORS AFFECTING FUTURE RESULTS
OUR OPERATING RESULTS FLUCTUATE SIGNIFICANTLY, AND AN UNANTICIPATED DECLINE IN
REVENUE MAY DISAPPOINT SECURITIES ANALYSTS OR INVESTORS AND RESULT IN A DECLINE
IN OUR STOCK PRICE. THE RISKS DESCRIBED BELOW ARE NOT THE ONLY ONES FACING OUR
COMPANY. ADDITIONAL RISKS NOT PRESENTLY KNOWN TO US OR THAT WE CURRENTLY BELIEVE
ARE NOT MATERIAL MAY ALSO IMPAIR OUR BUSINESS OPERATIONS.
Our recent growth rate may not be sustainable and you should not use our
past financial performance to predict future operating results. We have incurred
net losses for the past three fiscal years. Our recent
14
<PAGE> 15
quarterly and annual operating results have fluctuated, and will continue to
fluctuate, due to the following factors, all of which are difficult to forecast
and many of which are out of our control:
- the cyclical nature of both the semiconductor industry and the markets
addressed by our products;
- competitive pricing pressures and related changes in selling prices;
- new product announcements and introductions for competing products by us
or our competitors;
- market acceptance and subsequent design in of new products;
- unpredictability of changes in demand for, or in the mix of, our
products;
- the timing of significant orders including the fact that the sales level
in any specific quarter depends significantly on orders received during
that quarter;
- the gain or loss of significant customers;
- the availability, timely deliverability and cost of wafers and other
materials from our suppliers;
- fluctuations in manufacturing yields and significant yield losses which
affect our ability to fulfill orders;
- product obsolescence;
- lower of cost or market inventory adjustments;
- changes in the channels through which our products are distributed;
- exchange rate fluctuations;
- general economic, political and environmental-related conditions, such as
natural disasters;
- difficulties in forecasting, planning and management of inventory levels;
and
- unanticipated research and development expenses associated with new
product introductions.
WE ARE IN THE PROCESS OF SHIFTING OUR MANUFACTURING STRATEGY TO A FABLESS
BUSINESS MODEL AND WILL DEPEND ON A LIMITED NUMBER OF FOREIGN FOUNDRIES TO
MANUFACTURE OUR PRODUCTS. THESE FOUNDRIES MAY NOT BE ABLE TO SATISFY OUR
MANUFACTURING REQUIREMENTS, WHICH COULD CAUSE OUR SALES TO DECLINE.
We plan to outsource all of our manufacturing by the second half of 2000
with the exception of limited testing activities. During 1999, substantially all
of our wafers were manufactured at our wafer fabrication plant in Milpitas,
California or Yamaha Corporation in Japan. During 2000 we plan to close our
wafer fabrication plant in Milpitas and ramp up manufacturing at two additional
wafer foundries, Sanyo in Japan and ZMD in Germany. If these suppliers fail to
satisfy our requirements on a timely basis and at competitive prices we could
suffer manufacturing delays, a possible loss of sales and higher than
anticipated costs of sales, any of which could seriously harm our operating
results.
WE COULD EXPERIENCE PROBLEMS IN THE MANUFACTURING PROCESS AT OUR WAFER
FABRICATION PLANT PRIOR TO CLOSURE WHICH WOULD IMPACT THE SUPPLY OF VARIOUS
PRODUCTS, INCLUDING THOSE BUILT ON AN OLD PROCESS WHICH WILL NOT BE INSTALLED AT
THE FOUNDRIES, WHICH WE PLAN TO MANUFACTURE AND CAUSE OUR SALES TO DECLINE AND
COSTS TO INCREASE.
During the first half of 2000, we plan to manufacture wafers at our wafer
fabrication plant in Milpitas, California to produce sufficient inventory levels
of certain products to prevent delays in meeting customer demands as the
foundries ramp up the production of our products. Manufacturing problems during
the final months of operations of the facility would reduce yields and increase
costs. Due to the complex nature of the manufacturing process, some
manufacturing problems may not be detected until the products are near
completion. Significant yield loss could affect our ability to fulfill orders
and result in reduced sales and gross margins.
15
<PAGE> 16
OUR COST OF SALES MAY INCREASE IF WE ARE REQUIRED TO PURCHASE ADDITIONAL
MANUFACTURING CAPACITY IN THE FUTURE.
To obtain additional manufacturing capacity, we may be required to make
deposits, equipment purchases, loans, enter into joint ventures, equity
investments or technology licenses in or with wafer fabrication companies. These
transactions could involve a commitment of substantial amounts of our capital
and technology licenses in return for production capacity. We may be required to
seek additional debt or equity financing in order to secure this capacity and we
may not be able to obtain such financing.
IF OUR FOUNDRIES FAIL TO ACHIEVE ACCEPTABLE WAFER MANUFACTURING YIELDS, WE WILL
EXPERIENCE HIGHER COSTS OF SALES AND REDUCED PRODUCT AVAILABILITY.
The fabrication of our products requires wafers to be produced in a highly
controlled and ultra-clean environment. Semiconductor foundries that supply our
wafers have at times experienced problems achieving acceptable wafer
manufacturing yields. Semiconductor manufacturing yields are a function of both
design technology and manufacturing process technology. Low yields may result
from marginal designs or manufacturing process drifts. Yield problems may not be
identified until the wafers are well into the production process, which often
makes these problems difficult, time consuming and costly to correct or replace.
Furthermore, we rely on independent foreign foundries for our wafers which
increases the effort and time required to identify, communicate and resolve
manufacturing yield problems. If our foundries fail to achieve acceptable
manufacturing yields, we will experience higher costs of sales and reduced
product availability, which would harm our operating results.
OUR DEPENDENCE ON THIRD-PARTY SUBCONTRACTORS TO SORT, ASSEMBLE AND TEST OUR
PRODUCTS SUBJECTS US TO A NUMBER OF RISKS, INCLUDING AN INADEQUATE SUPPLY OF
PRODUCTS AND HIGHER COSTS OF MATERIALS.
We depend on independent subcontractors to sort, assemble and test our
products. Our reliance on these subcontractors involves the following
significant risks:
- reduced control over delivery schedules and quality;
- the potential lack of adequate capacity during periods of strong demand;
- difficulties selecting and integrating new subcontractors;
- limited warranties on products supplied to us; and
- potential increases in prices due to capacity shortages and other
factors;
These risks may lead to increased costs, delayed product delivery or loss
of competitive advantage, which would harm our profitability and customer
relationships.
OUR OPERATING EXPENSES ARE RELATIVELY FIXED, AND WE ORDER MATERIALS IN ADVANCE
OF ANTICIPATED CUSTOMER DEMAND. THEREFORE, WE HAVE LIMITED ABILITY TO REDUCE
EXPENSES QUICKLY IN RESPONSE TO ANY REVENUE SHORTFALLS.
Our operating expenses are relatively fixed, and we therefore have limited
ability to reduce expenses quickly in response to any revenue shortfalls.
Consequently, our operating results will be harmed if our sales do not meet our
revenue projections. We may experience revenue shortfalls for the following
reasons:
- significant pricing pressures that occur because of declines in selling
prices over the life of a product;
- sudden shortages of raw materials or fabrication, sort, test or assembly
capacity constraints that lead our suppliers to allocate available
supplies or capacity to other customers which, in turn, harm our ability
to meet our sales obligations; and
- the reduction, rescheduling or cancellation of customer orders.
16
<PAGE> 17
In addition, we typically plan our production and inventory levels based on
internal forecasts of customer demand, which are highly unpredictable and can
fluctuate substantially. From time to time, in response to anticipated long lead
times to obtain inventory and materials from our outside suppliers and
foundries, we may order materials and produce finished products in advance of
anticipated customer demand. This advance ordering and production may result in
excess inventory levels or unanticipated inventory write-downs if expected
orders fail to materialize.
BECAUSE OUR PRODUCTS TYPICALLY HAVE LENGTHY SALES CYCLES, WE MAY EXPERIENCE
SUBSTANTIAL DELAYS BETWEEN INCURRING EXPENSES RELATED TO RESEARCH AND
DEVELOPMENT AND THE GENERATION OF SALES.
Due to the length of the product design-in cycle we usually require more
than nine months to realize volume shipments after we first contact a customer.
We first work with customers to achieve a design win, which may take three
months or longer. Our customers then complete the design, testing and evaluation
process and begin to ramp up production, a period which typically lasts an
additional six months or longer. As a result, a significant period of time may
elapse between our research and development efforts and our realization of
revenue, if any, from volume purchasing of our products by our customers.
WE FACE INTENSE COMPETITION FROM COMPANIES WITH SIGNIFICANTLY GREATER FINANCIAL,
TECHNICAL AND MARKETING RESOURCES THAT COULD ADVERSELY AFFECT OUR ABILITY TO
INCREASE SALES OF OUR PRODUCTS.
We compete with major domestic and international semiconductor companies
such as Atmel Corporation, ST Microelectronics, Dallas Semiconductor, Maxim and
Texas Instruments, all of whom have substantially greater financial, technical,
marketing, distribution, and other resources than we do. Many of our competitors
have their own facilities for the production of semiconductor components and
have recently added significant capacity for such production. In addition, we
may in the future experience direct competition from our foundry partners. Some
of our foundry partners have the right to fabricate certain products based on
our process technology and co-developed circuit design, and to sell such
products worldwide.
OUR MARKETS ARE SUBJECT TO RAPID TECHNOLOGICAL CHANGE AND, THEREFORE, OUR
SUCCESS DEPENDS ON OUR ABILITY TO DEVELOP AND INTRODUCE NEW PRODUCTS.
The markets for our products are characterized by:
- rapidly changing technologies;
- evolving and competing industry standards;
- changing customer needs;
- frequent new product introductions and enhancements;
- increased integration with other functions; and
- rapid product obsolescence.
To develop new products for our target markets, we must develop, gain
access to and use leading technologies in a cost-effective and timely manner and
continue to expand our technical and design expertise. In addition, we must have
our products designed into our customers' future products and maintain close
working relationships with key customers in order to develop new products that
meet their rapidly changing needs.
Products for communications applications are based on continually evolving
industry standards. Our ability to compete will depend on our ability to
identify and ensure compliance with these industry standards. As a result, we
could be required to invest significant time and effort and incur significant
expense to redesign our products to ensure compliance with relevant standards.
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<PAGE> 18
We cannot assure you that we will be able to identify new product
opportunities successfully, develop and bring to market new products at
competitive costs, achieve design wins or respond effectively to new
technological changes or product announcements by our competitors. Furthermore,
we may not be successful in developing or using new technologies or in
developing new products or product enhancements that achieve market acceptance.
Our pursuit of necessary technological advances may require substantial time and
expense. Failure in any of these areas could harm our operating results.
OUR FUTURE SUCCESS DEPENDS IN PART ON THE CONTINUED SERVICE OF OUR KEY DESIGN,
ENGINEERING, SALES, MARKETING AND EXECUTIVE PERSONNEL AND OUR ABILITY TO
IDENTIFY, RECRUIT AND RETAIN PERSONNEL.
There is intense competition for qualified personnel in the semiconductor
industry, in particular for the highly skilled engineers involved in the
development of our products. Competition is especially intense in Silicon
Valley, where our design, research and development, and corporate headquarters
are located. We may not be able to continue to attract and retain engineers or
other qualified personnel necessary for the development of our business or to
replace engineers or other qualified personnel who may leave our employ in the
future. The failure to recruit and retain key design engineers or other
technical and management personnel could harm our business.
OUR ABILITY TO COMPETE SUCCESSFULLY WILL DEPEND, IN PART, ON OUR ABILITY TO
PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, WHICH WE MAY NOT BE ABLE TO DO
SUCCESSFULLY.
We rely on a combination of patents, trade secrets, copyright and mask work
production laws and rights, nondisclosure agreements and other contractual
provisions and technical measures to protect our intellectual property rights.
Policing unauthorized use of our products, however, is difficult, especially in
foreign countries. Litigation may be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets, to determine the
validity and scope of the proprietary rights of others, or to defend against
claims of infringement or invalidity. Litigation could result in substantial
costs and diversion of resources and could harm our business, operating results
and financial condition regardless of the outcome of the litigation.
We hold 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 us with
any meaningful protection. Our operating results could be seriously harmed by
the failure to be able to protect our intellectual property.
IF WE ARE ACCUSED OF INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHER
PARTIES, WE MAY BECOME SUBJECT TO TIME-CONSUMING AND COSTLY LITIGATION. IF WE
LOSE OR SETTLE CLAIMS, WE COULD SUFFER A SIGNIFICANT IMPACT ON OUR BUSINESS AND
BE FORCED TO PAY DAMAGES.
Third parties have and may continue to assert that our products infringe
their proprietary rights, or may assert claims for indemnification resulting
from infringement claims against us. Any such claims may cause us to delay or
cancel shipment of our products or pay damages that could seriously harm our
business, financial condition and results of operations. In addition,
irrespective of the validity or the successful assertion of such claims, we
could incur significant costs in defending against such claims.
We have received notices claiming infringement of patents from several
semiconductor manufacturers with respect to certain aspects of our processes and
devices and these matters are under investigation and review. Although patent
holders typically offer licenses and we have entered into such license
agreements, we may not be able to obtain licenses on acceptable terms, and
disputes may not be resolved without costly litigation.
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<PAGE> 19
OUR BUSINESS MAY SUFFER DUE TO RISKS ASSOCIATED WITH INTERNATIONAL SALES AND
OPERATIONS.
Our international sales accounted for approximately 56% of sales in 1999;
46% in 1998; and 44% in 1997. Our international business activities are subject
to a number of risks, any of which could impose unexpected costs on us that
would have an adverse effect on our operating results. These risks include:
- difficulties in complying with regulatory requirements and standards;
- tariffs and other trade barriers;
- costs and risks of localizing products for foreign countries;
- severe currency fluctuation and economic deflation;
- reliance on third parties to distribute our products;
- longer accounts receivable payment cycles;
- potentially adverse tax consequences; and
- burdens of complying with a wide variety of foreign laws.
BECAUSE A SMALL NUMBER OF CUSTOMERS HAVE ACCOUNTED FOR A SUBSTANTIAL PORTION OF
OUR SALES, OUR SALES COULD DECLINE SIGNIFICANTLY DUE TO THE LOSS OF ONE OF THESE
CUSTOMERS.
During 1999, 25% of our sales came from two customers. One distributor
accounted for 14% of our sales and one OEM customer accounted for 11% of our
sales. Distributors are not themselves end users, but rather serve as a channel
of sale to many end users of our products. If we were to lose either of these
customers or experience any substantial reduction in orders from these
customers, our sales and operating results could suffer. In addition, the
composition of our major customer base changes from year to year as the market
demand for our customers' products change.
WE DO NOT TYPICALLY ENTER INTO LONG-TERM CONTRACTS WITH OUR CUSTOMERS AND THE
LOSS OF A MAJOR CUSTOMER COULD SERIOUSLY HARM OUR BUSINESS.
We do not typically enter into long-term contracts with our customers, and
we cannot be certain as to future order levels from our customers. When we do
enter into a long-term contract, the contract is generally terminable at the
convenience of the customer. An early termination or delay in shipments by one
of our major customers would harm our financial results as it is unlikely that
we would be able to rapidly replace that revenue source.
OUR BACKLOG MAY NOT RESULT IN FUTURE REVENUE, WHICH WOULD SERIOUSLY HARM OUR
BUSINESS.
Due to possible customer changes in delivery schedules and cancellations of
orders, our backlog at any particular date is not necessarily indicative of
actual sales for any succeeding period. A reduction of backlog during any
particular period, or the failure of our backlog to result in future revenue,
could harm our business.
IF AN EARTHQUAKE OR OTHER NATURAL DISASTER STRIKES OUR MANUFACTURING FACILITY OR
THOSE OF OUR FOUNDRIES OR OTHER MANUFACTURING SUBCONTRACTORS, WE WOULD BE UNABLE
TO MANUFACTURE OUR PRODUCTS FOR A SUBSTANTIAL AMOUNT OF TIME AND WE WOULD
EXPERIENCE LOST SALES.
Our corporate headquarters are located in California near major earthquake
faults. In addition, some of our foundries and suppliers are located near fault
lines. In the event of a major earthquake or other natural disaster near our
headquarters, our operations could be harmed. Similarly, a major earthquake or
other natural disaster near one or more of our major manufacturing
subcontractors could disrupt the operations of those subcontractors, which could
limit the supply of our products and harm our business. Xicor has been unable to
obtain earthquake insurance at reasonable costs and limits.
19
<PAGE> 20
IF WE DID NOT ADEQUATELY PREPARE FOR THE TRANSITION TO THE YEAR 2000, OUR
BUSINESS COULD BE HARMED.
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. Xicor completed all Year 2000
readiness work and to date has not experienced disruption in its business
related to the Year 2000 Issue. However, Xicor cannot provide any assurance that
no Year 2000 issues will impact its IT and non-IT systems or other aspects of
its business in the future. Xicor's key suppliers have not experienced major
disruptions in their businesses related to the Year 2000 issue. However, Xicor
cannot provide any assurance that no Year 2000 issue will affect our suppliers
in the future.
WE MAY REQUIRE ADDITIONAL CAPITAL IN ORDER TO BRING NEW PRODUCTS TO MARKET, AND
THE ISSUANCE OF NEW EQUITY SECURITIES WILL DILUTE YOUR INVESTMENT IN OUR COMMON
STOCK.
To implement our strategy of diversified product offerings, we need to
bring new products to market. Bringing new products to market and ramping up
production requires significant working capital. We have in place a credit
agreement with Coast Business Credit Corporation to provide up to $7.5 million
of additional capital to support potential ongoing working capital requirements.
We may need to borrow under this credit facility at some time. We may also sell
additional shares of our stock or seek additional borrowings or outside capital
infusions. We cannot assure you that such financing options will be available on
terms acceptable to us, if at all. In addition, if we issue shares of our common
stock, our shareholders will experience dilution with respect to their
investment.
WE DEPEND ON MANUFACTURERS' REPRESENTATIVES AND DISTRIBUTORS TO GENERATE A
MAJORITY OF OUR SALES.
We rely on manufacturers' representatives and distributors to sell our
products and these entities could discontinue selling our products at any time.
The loss of any significant manufacturers' representative or distributor could
seriously harm our operating results by impairing our ability to sell our
products.
THE SELLING PRICES FOR OUR PRODUCTS ARE VOLATILE AND HAVE HISTORICALLY DECLINED
OVER THE LIFE OF A PRODUCT. IN ADDITION, THE CYCLICAL NATURE OF THE
SEMICONDUCTOR INDUSTRY COULD CREATE FLUCTUATIONS IN OUR OPERATING RESULTS, AS WE
EXPERIENCED IN 1997 AND 1998.
The semiconductor industry has historically been cyclical, characterized by
wide fluctuations in product supply and demand. From time to time, the industry
has also experienced significant downturns, often in connection with, or in
anticipation of, maturing product cycles and declines in general economic
conditions. Downturns of this type occurred in 1997 and 1998. These downturns
have been characterized by diminished product demand, production over-capacity
and accelerated decline of average selling prices, and in some cases have lasted
for more than a year. Our continued success depends in large part on the
continued growth of various electronics industries that use semiconductors,
including manufacturers of computers, telecommunications equipment, automotive
electronics, industrial controls, consumer electronics, data networking and
military equipment, and a better supply and demand balance within the industry.
Our business could be harmed in the future by cyclical conditions in the
semiconductor industry or by slower growth in any of the markets served by our
customer products.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Xicor does not use derivative financial instruments in its investment
portfolio. 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. Due to the short duration and
conservative nature of Xicor's investment portfolio a movement of 10% by market
interest rates would not have a material impact on Xicor's operating results and
the total value of the portfolio over the next fiscal year.
20
<PAGE> 21
Xicor is exposed to risks associated with foreign exchange rate
fluctuations due to our international manufacturing and sales activities. Xicor
generally has not hedged currency exposures. These exposures may change over
time as business practices evolve and could negatively impact our operating
results and financial condition. All of our sales are denominated in U.S.
dollars. An increase in the value of the U.S. dollar relative to foreign
currencies could make our products more expensive and therefore reduce the
demand for our products. Such a decline in the demand could reduce sales and/or
result in operating losses.
21
<PAGE> 22
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
XICOR, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
--------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 22,233 $ 17,881
Accounts receivable....................................... 8,508 8,835
Inventories............................................... 13,003 12,770
Prepaid expenses and other current assets................. 380 1,016
--------- --------
Total current assets.............................. 44,124 40,502
Property, plant and equipment, at cost less accumulated
depreciation.............................................. 8,835 38,074
Other assets................................................ 1,835 286
--------- --------
Total assets................................................ $ 54,794 $ 78,862
========= ========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current liabilities:
Accounts payable.......................................... $ 8,018 $ 9,279
Accrued expenses.......................................... 14,343 9,504
Deferred income on shipments to distributors.............. 12,828 9,121
Current portion of long-term obligations.................. 5,362 7,216
--------- --------
Total current liabilities......................... 40,551 35,120
Long-term obligations....................................... 9,794 13,137
--------- --------
Total liabilities........................................... 50,345 48,257
--------- --------
Commitments and contingencies (Notes 4 and 9)
Shareholders' equity:
Preferred stock; 5,000 shares authorized; none issued or
outstanding............................................ -- --
Common stock; 75,000 shares authorized; 20,595 and 20,134
shares issued and outstanding.......................... 129,005 128,232
Accumulated deficit....................................... (124,556) (97,627)
--------- --------
Total shareholders' equity.................................. 4,449 30,605
--------- --------
Total liabilities and shareholders' equity.................. $ 54,794 $ 78,862
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 23
XICOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales.................................................. $114,887 $106,147 $122,453
Cost of sales.............................................. 80,474 89,844 84,603
-------- -------- --------
Gross profit............................................. 34,413 16,303 37,850
-------- -------- --------
Operating expenses:
Research and development................................. 14,560 17,429 18,475
Selling, general and administrative...................... 22,360 22,634 21,753
Restructuring charge..................................... 23,719 4,985 --
-------- -------- --------
60,639 45,048 40,228
-------- -------- --------
Income (loss) from operations.............................. (26,226) (28,745) (2,378)
Interest expense........................................... (1,407) (1,872) (1,834)
Interest income............................................ 704 1,086 1,901
-------- -------- --------
Income (loss) before income taxes.......................... (26,929) (29,531) (2,311)
Provision for income taxes................................. -- -- 220
-------- -------- --------
Net income (loss).......................................... $(26,929) $(29,531) $ (2,531)
======== ======== ========
Net income (loss) per share:
Basic.................................................... $ (1.32) $ (1.53) $ (0.13)
======== ======== ========
Diluted.................................................. $ (1.32) $ (1.53) $ (0.13)
======== ======== ========
Shares used in per share calculation:
Basic.................................................... 20,324 19,262 18,967
======== ======== ========
Diluted.................................................. 20,324 19,262 18,967
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 24
XICOR, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------ ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
------ -------- ----------- --------
<S> <C> <C> <C> <C>
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
Issuance of shares under employee stock plans
and other..................................... 461 773 -- 773
Net loss........................................ -- -- (26,929) (26,929)
------ -------- --------- --------
Balance at December 31, 1999.................... 20,595 $129,005 $(124,556) $ 4,449
====== ======== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 25
XICOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $(26,929) $(29,531) $ (2,531)
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation.......................................... 13,235 12,521 11,380
Non-cash restructuring charge......................... 16,338 2,358 --
Changes in assets and liabilities:
Accounts receivable................................. 327 2,168 608
Inventories......................................... (233) 11,163 (4,579)
Prepaid expenses and other current assets........... 636 (3) 371
Other assets........................................ 5 (80) 94
Accounts payable and accrued expenses............... 3,578 (946) 2,534
Deferred income on shipments to distributors........ 3,707 (4,792) 188
Long-term obligations............................... 1,993 -- --
-------- -------- --------
Net cash provided by (used in) operating activities........ 12,657 (7,142) 8,065
-------- -------- --------
Cash flows from investing activities:
Investments in plant and equipment, net.................. (1,555) (4,872) (11,761)
Purchases of short-term investments...................... -- (4,356) (28,395)
Maturities of short-term investments..................... -- 15,728 38,182
-------- -------- --------
Net cash provided by (used in) investing activities........ (1,555) 6,500 (1,974)
-------- -------- --------
Cash flows from financing activities:
Repayments of long-term obligations...................... (7,523) (6,611) (6,081)
Proceeds from sale of common stock, net of issuance
costs:
To private investor................................... -- 3,973 --
To employees and others............................... 773 55 682
-------- -------- --------
Net cash used in financing activities...................... (6,750) (2,583) (5,399)
-------- -------- --------
Increase (decrease) in cash and cash equivalents........... 4,352 (3,225) 692
Cash and cash equivalents at beginning of year............. 17,881 21,106 20,414
-------- -------- --------
Cash and cash equivalents at end of year................... $ 22,233 $ 17,881 $ 21,106
======== ======== ========
Supplemental information:
Cash paid (refunded) during the year for:
Interest expense......................................... $ 1,472 $ 1,939 $ 1,713
Income taxes............................................. 100 (113) 415
Equipment acquired pursuant to long-term obligations....... 333 1,453 12,255
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 26
XICOR, INC.
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 distributor accounted for 14% of sales in 1999; 15%
in 1998; and 16% in 1997. One OEM customer represented 11% of sales in 1999.
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,
-----------------------
1999 1998 1997
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
United States......................................... $ 51 $ 57 $ 68
Korea................................................. 18 9 6
Japan................................................. 15 11 18
Other foreign countries............................... 31 29 30
---- ---- ----
$115 $106 $122
==== ==== ====
</TABLE>
Xicor has adopted generally accepted accounting principles that are
customary 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 years 1999 and 1997 each consisted of 52 weeks; 1998
consisted of 53 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 maturities 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 that 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.
26
<PAGE> 27
XICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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. Xicor reviews
long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
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 distributors sell the
merchandise. 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.
The same net income (loss) amounts were used for Basic Earnings Per Share
(EPS) and Diluted EPS for the three years ended December 31, 1999. For the years
ended December 31, 1999, 1998 and 1997, the number of shares used in the
calculations of both EPS amounts were the same since stock options aggregating
3,259,000 at a weighted average price of $3.02 per share, 2,576,000 at a
weighted average price of $2.36 per share and 1,999,000 at a weighted average
price of $5.16 per share, respectively, were excluded as they were antidilutive.
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 6.
27
<PAGE> 28
XICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEGMENT REPORTING
In 1998, Xicor adopted Statement of Financial Accounting Standards No. 131
("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information." SFAS 131 supersedes SFAS 14, "Financial Reporting for Segments of
a Business Enterprise", replacing the "Industry Segment" approach with the
"Management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of Xicor's reportable segments. SFAS 131
also requires disclosures about products and services, geographic areas, and
major customers. Xicor operates in one industry segment comprising the design,
development, manufacture and sale of integrated circuits.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities, and is effective for
fiscal years beginning after June 15, 2000, as amended by SFAS No. 137. We
believe that adoption of this pronouncement will not have a material impact on
our financial position and results of operations. In December 1999, the
Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") 101,
"Revenue Recognition," which outlines the basic criteria that must be met to
recognize revenue and provides guidance for presentation of revenue and for
disclosure related to revenue recognition policies in financial statements filed
with the Securities and Exchange Commission. We believe that adopting SAB 101
will not have a material impact on our financial position and results of
operations.
NOTE 2 -- RESTRUCTURING
During 1998 Xicor began 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 outside contractors and $2.6
million for severance costs relating to a 38% reduction in workforce primarily
in manufacturing and related support groups and to a lesser extent in the
selling, administrative and engineering functions. Equipment with a net book
value of $2.8 million was written down to its estimated net realizable value of
$0.4 million.
Throughout 1999, products manufactured by the outside foundry comprised an
increasing proportion of Xicor's production and during the fourth quarter of
1999, two other foundries successfully produced initial wafers based on
specifications provided by Xicor. Since Xicor now had multiple third-party
locations able to produce its products, at significantly lower unit costs than
the Milpitas in-house facility, Xicor decided to close its Milpitas in-house
wafer fabrication facility and use third party foundries for all of Xicor's
wafer fabrication production. The decision to close the Milpitas facility was
approved by Xicor's Board of Directors in December 1999 and the production at
the Milpitas facility is expected to cease by mid-2000.
The decision to close the Milpitas facility and the streamlining of
operations resulted in the recording of a restructuring charge of $23.7 million.
The restructuring charge relating to the write down of the carrying value of
Xicor's fabrication equipment to its estimated fair value less costs to sell was
$16.3 million. The cost and accumulated depreciation of fabrication equipment
prior to the write down was $89.1 million and $71.2 million, respectively. The
fair value of the fabrication equipment, based on third party estimates of fair
value less costs to sell, was estimated to be $1.6 million and has been recorded
as "other assets". Xicor is currently pursuing the sale of the Milpitas
manufacturing operations and at this time believes the most likely outcome would
be a piecemeal sale of the equipment. Given the current conditions in the used
semiconductor
28
<PAGE> 29
XICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
equipment market, Xicor is unable to predict the time needed to dispose of the
equipment held for sale. Severance costs of $1.5 million were accrued during the
year ended December 31, 1999. Costs associated with the closure of the fab
totaling $3.6 million have been accrued. Fab closure costs include
decommissioning and clean up costs, environmental closure costs and equipment
decontamination and removal costs. The restructuring charge also includes a
charge for idle facilities of $0.8 million and equipment lease costs of $1.5
million. Severance costs of $2.4 million are accrued at December 31, 1999 for
planned reductions in workforce of approximately 200 employees, primarily in
manufacturing and related support groups. A substantial proportion of the
reductions are planned to occur primarily in the second half of 2000.
The following table sets forth Xicor's activity for the restructuring
accrual and charges taken against the accrual and the remaining restructuring
accrual balance at December 31, 1999:
<TABLE>
<CAPTION>
RESTRUCTURING ACCRUAL
---------------------------------------------------
YEAR ENDED
DECEMBER 31, 1999
DECEMBER 31, ------------------- DECEMBER 31,
1998 EXPENSE UTILIZED 1999
------------ ------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fab closure costs............................... $ -- $3,555 $ -- $3,555
Employee severance and other.................... 1,350 1,464 449 2,365
Equipment lease costs........................... -- 1,484 - 1,484
Idle facilities charge.......................... -- 878 -- 878
------ ------ ---- ------
$1,350 $7,381 $449 8,282
====== ====== ====
Less: long-term obligations..................... (1,993)
------
$6,289
======
</TABLE>
NOTE 3 -- BALANCE SHEET COMPONENTS:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Inventories:
Raw materials and supplies................................ $ 1,061 $ 1,450
Work in process........................................... 7,419 7,036
Finished goods............................................ 4,523 4,284
-------- ---------
$ 13,003 $ 12,770
======== =========
Property, plant and equipment:
Leasehold improvements.................................... $ 2,582 $ 17,674
Equipment................................................. 42,485 124,371
Furniture and fixtures.................................... 1,343 1,881
Construction in progress.................................. 1,223 1,501
-------- ---------
47,633 145,427
Accumulated depreciation.................................. (38,798) (107,353)
-------- ---------
$ 8,835 $ 38,074
======== =========
Accrued expenses:
Accrued wages and employee benefits....................... $ 3,907 $ 2,688
Accrued restructuring liabilities......................... 6,289 1,350
Other accrued expenses.................................... 4,147 5,466
-------- ---------
$ 14,343 $ 9,504
======== =========
</TABLE>
29
<PAGE> 30
XICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1999 and 1998 are presented net of an
allowance for doubtful accounts of $0.5 million.
NOTE 4 -- LEASE COMMITMENTS:
Xicor leases its facilities and certain equipment under non-cancelable
lease agreements. Xicor's major facility lease expires in 2010 and provides for
a five-year renewal option. The base rental increases 3.25% annually. Equipment
leases are for terms of four to six years and require Xicor to pay property
taxes, insurance and maintenance and repair costs.
Leases that 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) is removed from the
accounts. Assets recorded under capital leases were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
------- --------
(IN THOUSANDS)
<S> <C> <C>
Equipment................................................... $ 4,435 $ 33,045
Less: accumulated depreciation.............................. (2,465) (13,933)
------- --------
$ 1,970 $ 19,112
======= ========
</TABLE>
Minimum future lease payments under non-cancelable leases as of December
31, 1999 including $1,993,000 of future payments related to idle equipment and
facilities were as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
Years: (IN THOUSANDS)
<S> <C> <C>
2000........................................................ $ 6,199 $ 2,750
2001........................................................ 5,423 1,284
2002........................................................ 3,718 1,300
2003........................................................ 1,438 1,283
2004........................................................ -- 1,305
2005 - 2010................................................. -- 7,191
------- -------
Total minimum lease payments................................ 16,778 $15,113
=======
Less amount representing interest........................... (1,622)
-------
Present value of minimum lease payments..................... 15,156
Less current portion........................................ (5,362)
-------
Long-term lease obligation.................................. $ 9,794
=======
</TABLE>
Total rental expense under operating leases was as follows (including
month-to-month rentals): 1999 -- $4.6 million, 1998 -- $4.7 million,
1997 -- $4.5 million.
NOTE 5 -- LINE OF CREDIT AGREEMENT:
Xicor has a line of credit agreement with a financial institution that
expires on March 31, 2001 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 facility is secured by all the assets of Xicor. The agreement
contains restrictions that, among other things,
30
<PAGE> 31
XICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
preclude the payment of dividends, stock repurchases and the sale of assets
other than in the normal course of business. At December 31, 1999, there were no
borrowings outstanding under this line of credit and $1.7 million of the line of
credit was reserved to secure a standby letter of credit.
NOTE 6 -- COMMON STOCK:
OPTION PLANS
Xicor has two stock option plans for its employees, the 1990 Plan and the
1998 Plan that 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 3,450,000, 1,250,000
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>
AVERAGE
NUMBER OPTION PRICE
OF SHARES PER SHARE
---------- ------------
(IN
THOUSANDS)
<S> <C> <C>
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
Granted..................................................... 1,488 3.85
Exercised................................................... (310) 1.90
Canceled.................................................... (495) 2.79
------
Outstanding at December 31, 1999............................ 3,259 3.02
======
</TABLE>
In February 1998, substantially all outstanding options held by employees
under the 1990 Plan 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 were 681,500 at December
31, 1999; 426,400 at December 31, 1998; and 827,000 at December 31, 1997. At
December 31, 1999, 3,940,125 shares of common
31
<PAGE> 32
XICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
stock were reserved for issuance upon exercise of stock options. Options
outstanding at December 31, 1999 and related weighted average price and life
information follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
RANGE OF -------------------------------- OPTIONS EXERCISABLE
EXERCISE REMAINING --------------------
PRICES SHARES PRICE LIFE (YEARS) SHARES PRICE
- -------------- --------- ----- ------------ ---------- -------
<S> <C> <C> <C> <C> <C>
$0.69 - $ 0.78.. 164,000 $0.78 8.6 43,000 $ 0.77
$1.09 - $ 1.62.. 1,015,000 $1.49 8.3 174,000 $ 1.41
$1.87 - $ 2.75.. 1,175,000 $2.66 6.5 777,000 $ 2.65
$3.44 - $ 3.81.. 264,000 $3.74 8.7 50,000 $ 3.44
$5.44 - $ 7.50.. 558,000 $5.90 9.7 7,000 $ 5.44
$9.00 - $11.50.. 83,000 $9.48 9.3 11,000 $11.50
--------- ----- --- --------- ------
$0.69 - $11.50.. 3,259,000 $3.02 8.0 1,062,000 $ 2.52
========= ===== === ========= ======
</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 $2.16, $0.79, and $3.59 for the three years ended December 31, 1999.
The estimated stock-based compensation cost calculated using the assumptions
indicated totaled $954,000 in 1999; $2,103,000 in 1998; and $1,364,000 in 1997.
The following weighted average assumptions are included in the estimated
fair value grant date calculation of Xicor's stock options:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Expected life (years).............................. 5 5 5
Interest rate...................................... 5.71% 5.31% 5.99%
Volatility......................................... 78% 70% 70%
Dividend yield..................................... 0% 0% 0%
</TABLE>
STOCK PURCHASE PLAN
In 1998, Xicor implemented an Employee Stock Purchase Plan ("ESPP"), which
allows eligible employees to purchase shares of common stock through payroll
deductions. The ESPP consists of consecutive 24-month Offering Periods composed
of four 6-month Purchase Periods. The shares can be purchased at the lower of
85% of the fair market value of the common stock at the date of commencement of
a two-year Offering Period or at the last day of each 6-month Purchase Period.
Purchases are limited to the lesser of 10% of the employee's compensation or
$25,000 per year and may not exceed 500 shares during each 6-month Offering
Period. At December 31, 1999, 486,000 shares had been reserved for issuance
under the ESPP. During 1999, 106,000 shares were issued under the ESPP.
The fair value of purchase rights granted under the ESPP at grant date was
estimated using the Black-Scholes model. The weighted average grant date fair
value of purchase rights granted under the ESPP during the year ended December
31, 1999 was $52,000.
The following weighted average assumptions are included in the estimated
fair value grant date calculation of Xicor's ESPP:
<TABLE>
<CAPTION>
1999
-----
<S> <C>
Expected life (years)................................ 0.5
Interest rate........................................ 4.54%
Volatility........................................... 78%
Dividend yield....................................... 0%
</TABLE>
32
<PAGE> 33
XICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PRO FORMA NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE
The pro forma net income (loss) resulting from the increased compensation
costs for awards granted under the stock option and employee stock purchase
plans was ($27,935,000) or ($1.37) per share in 1999; ($31,634,000) or ($1.64)
per share in 1998; and ($3,895,000) or $(0.21) per share in 1997.
ISSUANCE OF SHARES TO PRIVATE INVESTOR
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. For the year ended December 31, 1999 sales to Emosyn were less than
one percent of sales.
NOTE 7 -- 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
sales and restructuring charges and credits, is distributed to employees. The
exact percentage to be distributed is determined by a Committee of the Board of
Directors. Profit sharing bonuses relating to 1999 and 1997 totaled $0.2 million
and $0.3 million, respectively. No profit sharing bonuses were paid relating to
1998.
NOTE 8 -- INCOME TAXES:
The income tax provision consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Federal................................................ $-- $-- $ 45
State.................................................. -- -- 25
Foreign................................................ -- -- 150
--- --- ----
$-- $-- $220
=== === ====
</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,
-----------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Federal statutory rate.............................. (35.0)% (35.0)% (35.0)%
Operating losses with no current benefit............ 35.0 35.0 35.0
Foreign, alternative minimum and other taxes........ -- -- 9.5
----- ----- -----
0.0% 0.0% 9.5%
===== ===== =====
</TABLE>
33
<PAGE> 34
XICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Federal and state loss and credit carryforwards...... $ 27,189 $ 26,894
Capitalized research and development................. 6,084 4,778
Inventory reserves and basis difference.............. 5,869 6,577
Deferred income on shipments to distributors......... 3,119 873
Restructuring........................................ 10,088 1,460
Depreciation......................................... 3,174 3,293
Other................................................ 1,943 3,076
-------- --------
57,466 46,951
Deferred tax liabilities............................... (2,958) (2,266)
Deferred tax assets valuation allowance................ (54,508) (44,685)
-------- --------
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, 1999, Xicor had Federal tax net operating loss
carryforwards and general business credit carryforwards of approximately $61
million and $2.1 million, respectively. These carryforwards expire in varying
amounts from 2000 through 2014. 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, 1999, Xicor also had California state tax net
operating loss and credit carryforwards of approximately $4 million and $3.5
million, respectively. These carryforwards expire in varying amounts from 2002
to 2007. Availability of the net operating loss and credit carryforwards may
potentially be reduced in the event of certain substantial changes in equity
ownership.
NOTE 9 -- 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.
34
<PAGE> 35
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, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. 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 auditing standards generally
accepted in the United States 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
- ------------------------------------------------------
PricewaterhouseCoopers LLP
San Jose, California
January 24, 2000
35
<PAGE> 36
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, 1999 and 1998:
<TABLE>
<CAPTION>
1999
----------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales........................................... $25,656 $28,751 $29,542 $30,938
Cost of sales....................................... 21,001 21,305 18,840 19,328
Research and development............................ 3,559 3,683 3,581 3,737
Selling, general and administrative................. 5,262 5,553 5,864 5,681
Restructuring charge................................ -- -- -- 23,719
Net income (loss)(2)................................ (4,397) (1,993) 1,074 (21,613)
Net income (loss) per share:
Basic............................................. (0.22) (0.10) 0.05 (1.05)
Diluted........................................... (0.22) (0.10) 0.05 (1.05)
Shares used in per share calculations:
Basic............................................. 20,173 20,257 20,364 20,500
Diluted........................................... 20,173 20,257 22,141 20,500
</TABLE>
<TABLE>
<CAPTION>
1998
------------------------------------------
FIRST SECOND THIRD FOURTH(1)
------- ------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<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
</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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
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.
36
<PAGE> 37
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information concerning Xicor'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 Xicor's Proxy Statement.
The information concerning Xicor'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
Xicor'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 Xicor'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
Xicor's Proxy Statement.
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:
<TABLE>
<S> <C> <C>
(1) FINANCIAL STATEMENTS. PAGE
-------
Consolidated Balance Sheets as of December 31, 1999 and
1998........................................................ 22
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 1999................. 23
Consolidated Statements of Shareholders' Equity for each of
the three years in the period ended December 31, 1999....... 24
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1999................. 25
Notes to Consolidated Financial Statements.................. 26 - 34
Report of Independent Accountants........................... 35
</TABLE>
(2) FINANCIAL STATEMENT SCHEDULES.
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.
37
<PAGE> 38
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 10th day of March 2000.
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> <C> <S>
/s/ RAPHAEL KLEIN Chairman of the Board and Chief March 10, 2000
- ----------------------------------------------------- Executive Officer
(Raphael Klein) (Principal Executive Officer)
/s/ BRUCE GRAY President, Chief Operating March 10, 2000
- ----------------------------------------------------- Officer and Director
(Bruce Gray)
/s/ JULIUS BLANK Director March 10, 2000
- -----------------------------------------------------
(Julius Blank)
/s/ ANDREW W. ELDER Director March 10, 2000
- -----------------------------------------------------
(Andrew W. Elder)
/s/ GEOFFREY WINKLER Director March 10, 2000
- -----------------------------------------------------
(Geoffrey Winkler)
/s/ GERALDINE N. HENCH Vice President, Finance and March 10, 2000
- ----------------------------------------------------- Chief Financial Officer
(Geraldine N. Hench) (Principal Financial Officer
and Principal Accounting
Officer)
</TABLE>
38
<PAGE> 39
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 filed as Exhibit 3.2A with Form 10-K for the year
ended December 31, 1998, is hereby incorporated by
reference.
3.2B Certificate of Amendment of By-Laws effective as of June 4,
1999 is filed herewith as Exhibit 3.2B.
10.1 Xicor, Inc. 1990 Incentive and Non-incentive Stock Option
Plan (As Amended and Restated March 15, 1999) filed as
Exhibit 4.2 with Form S-8 Registration Statement Number
333-83563 on July 23, 1999, 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.
10.3B Amendment to lease dated November 23, 1983 is filed herewith
as Exhibit 10.3B.
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.
10.8A Fourth Amendment to Loan Documents and Letter of Credit
Collateral Agreement filed as Exhibit 10.8A with Form 10-Q
for the quarterly period ended July 4, 1999, 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 as filed as Exhibit 10.10 with Form
10-K for the year ended December 31, 1998, is hereby
incorporated by reference.
10.11 Xicor, Inc. 1998 Employee Stock Purchase Plan as filed as
Exhibit 10.11 with Form 10-K for the year ended December 31,
1998 is hereby incorporated by reference.
</TABLE>
39
<PAGE> 40
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.12 Xicor, Inc. 1998 Nonstatutory Stock Option Plan as filed as
Exhibit 10.12 with Form 10-K for the year ended December 31,
1998 is hereby incorporated by reference.
10.13 ** Foundry Agreement by and between Xicor, Inc. and Zentrum
Mikroelektronic Dresden GmbH dated April 8, 1999 is filed
herewith as Exhibit 10.13.
10.14 ** Xicor - Sanyo Semiconductor Manufacturing Foundry Agreement
dated May 1, 1999 is filed herewith as Exhibit 10.14
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 has been granted as to certain portions of this
Exhibit.
** Confidential treatment of certain portions has been requested.
40
<PAGE> 1
Exhibit 3.2B
CERTIFICATE OF AMENDMENT OF BYLAWS
OF
XICOR, INC.
Effective as of June 4, 1999
The undersigned, being the Secretary of Xicor, Inc., hereby certifies
that: effective as of the date set forth above, pursuant to the affirmative vote
of the holders of a majority of the outstanding shares entitled to vote,
effective as of June 4, 1999, Article I of the Bylaws of Xicor, Inc. was amended
as follows: the former Section 2 was deleted and replaced by Section 2 as set
forth below:
"Section 2. Number and Qualification
The authorized number of directors of the corporation shall be no less
than four (4) nor more than seven (7), with the exact number of directors to be
fixed within the limits specified by approval of the Board of Directors or
Shareholders.
This number may be changed by amendment to the Articles of Incorporation
or by an amendment to this Section 2, ARTICLE I, of these Bylaws, adopted by the
vote or written assent of the Stockholders entitled to exercise majority voting
power as provided in Sec. 212."
/S/ JULIUS BLANK
-------------------------------
Julius Blank, Secretary
<PAGE> 1
Exhibit 10.3B
FOURTH AMENDMENT TO LEASE
This Fourth Amendment to Lease ("Fourth Amendment"), dated as of January
7, 2000, is entered into by and between Callahan-Pentz Properties, Sycamore
Four, a California general partnership ("Landlord") and Xicor, Inc., a
California corporation ("Tenant").
RECITALS
A. Landlord and Tenant entered into a Build to Suit Lease dated November
23, 1983, as amended by an Amendment to Lease dated May 23, 1986, a Second
Amendment to Build to Suit Lease dated January 25, 1988, and a Third Amendment
to Build to Suit Lease dated April 9, 1990 (collectively, the "Lease") for the
premises commonly known as 1511 Buckeye Drive, Milpitas, California (the
"Premises").
B. The term of the Lease is scheduled to expire on January 6, 2000.
C. Landlord and Tenant now desire to extend the term of the Lease for a
period of ten (10) years on the terms and conditions set forth herein.
AGREEMENT
In consideration of the mutual covenants set forth herein and other
valuable consideration, Landlord and Tenant agree to amend the Lease as follows:
1. Term. Paragraph 6.A. of the Lease is amended to extend the Term of
the Lease for a period of ten (10) years, commencing January 7, 2000 and ending
January 6, 2010.
2. Rent. Effective January 7, 2000, the first sentence of Paragraph
5.A.(i) of the Lease is deleted and replaced with the following:
Tenant shall pay to Landlord the Monthly Rent, in accordance with the
schedule set forth below, in advance, upon the first day of each
calendar month of Term at the address of Landlord set forth herein,
or at such other place designated by Landlord, without prior demand
and without deduction, offset or counterclaim:
<TABLE>
<CAPTION>
Months of Term Net Monthly Rent
--------------------- -----------------
<S> <C>
Jan 7, 00 - Jan 6, 01 $ 95,709.00/month
Jan 7, 01 - Jan 6, 02 $ 98,820.00/month
Jan 7, 02 - Jan 6, 03 $102,032.00/month
Jan 7, 03 - Jan 6, 04 $105,348.00/month
Jan 7, 04 - Jan 6, 05 $108,772.00/month
Jan 7, 05 - Jan 6, 06 $112,307.00/month
Jan 7, 06 - Jan 6, 07 $115,957.00/month
Jan 7, 07 - Jan 6, 08 $119,726.00/month
Jan 7, 08 - Jan 6, 09 $123,617.00/month
Jan 7, 09 - Jan 6, 10 $127,635.00/month
</TABLE>
Paragraph 5.A.(ii) of the Lease is deleted in its entirety.
3. Options to Extend. Paragraph 7.A. of the Lease is deleted and
replaced with the following:
<PAGE> 2
A. Option Period. Provided that Tenant is not in default
hereunder, either at the time of exercise or at the time
the extended Term commences, Tenant shall have the
option to extend the Term of the Lease for one (1)
additional period of five (5) years ("Option Period") on
the same terms, covenants and conditions provided
herein, except that upon such renewal the Monthly Rent
due hereunder shall be the greater of (i) $95,709.00 per
month and (ii) ninety-five percent (95%) of the then
fair market rental value of the Premises, determined
pursuant to Paragraph 7.B. If Tenant elects to exercise
the option, it shall do so by giving Landlord written
notice ("Option Notice") at least one hundred eighty
(180) days but not more than two hundred ten (210) days
prior to the expiration of the Term of this Lease.
Paragraph 7.B. of the Lease is deleted and replaced with the following:
A. Option Period Monthly Rent. The Monthly Rent for the Option
Period shall be determined as follows:
(i) The parties shall have fifteen (15) days after Landlord
receives the Option Notice within which to agree on the Monthly Rent for
the Option Period. If the parties agree on the Monthly Rent for the
Option Period within fifteen (15) days, they shall immediately execute
an amendment to this Lease stating the Monthly Rent for the Option
Period. If the parties are unable to agree on the Monthly Rent within
fifteen (15) days, then, the initial Monthly Rent for the Option Period
shall be the greater of (A) $95,709.00 per month and (B) ninety-five
percent (95%) of the then current fair market rental value of the
Premises as determined in accordance with Paragraph 7.B.(iii). The
initial Monthly Rent shall be subject to such periodic increases in
Monthly Rent as are then customary, in both amount or percentage amounts
and frequency, for leases similar to this Lease taking into
consideration the same items considered in determining the then fair
market rental value of the Premises, but in no event less than three and
25/100ths percent (3.25%) per annum.
(ii) The "then fair market rental value of the Premises" shall
be defined to mean the fair market rental value of the Premises as of
the commencement of the Option Period, taking into consideration the
uses permitted under this Lease, the quality, size, design and location
of the Premises, and the rent for comparable buildings located in Oak
Creek Business Park.
(iii) Within seven (7) days after the expiration of the fifteen
(15) day period set forth in Paragraph 7.B.(i), each party, at its cost
and by giving notice to the other party, shall appoint a real estate
appraiser with at least five (5) years' full-time commercial appraisal
experience in the area in which the Premises are located to appraise and
set the Monthly Rent. If a party does not appoint an appraiser within
ten (10) days after the other party has given notice of the name of its
appraiser, the single appraiser appointed shall be the sole appraiser
and shall set the Monthly Rent. If the two (2) appraisers are appointed
by the parties as stated in this paragraph, they shall meet promptly and
attempt to set the Monthly Rent. If they are unable to agree within
thirty (30) days after the second appraiser has been appointed, they
shall attempt to elect a third appraiser meeting the qualifications
stated in this paragraph within ten (10) days after the last day the two
(2) appraisers are given to set the Monthly Rent. If they are unable to
agree on the third appraiser, either of the parties to this Lease, by
giving ten (10) days' notice to the other party, can apply to the then
Presiding Judge of the Santa Clara County Superior Court, for the
selection of a third appraiser who meets the qualifications stated in
this paragraph. Each of the parties shall bear one-half (1/2) of the
cost of appointing the third appraiser and of paying the third
appraiser's fee. The third appraiser, however selected, shall be a
person who has not previously acted in any capacity for either party.
Within thirty (30) days after the selection of the third
appraiser, a majority of the appraisers shall set the Monthly Rent. If a
majority of the appraisers are unable to set the Monthly Rent within the
stipulated period of time, the three (3) appraisals shall be added
together and their total divided by three (3); the resulting quotient
shall be the Monthly Rent. If, however, the low
<PAGE> 3
appraisal and/or the high appraisal are/is more than ten percent (10%)
lower and/or higher than the middle appraisal, the low appraisal and/or
the high appraisal shall be disregarded. If only one appraisal is
disregarded, the remaining two (2) appraisals shall be added together
and their total divided by two (2); the resulting quotient shall be the
Monthly Rent. If both the low appraisal and the high appraisal are
disregarded as stated in this paragraph, then only the middle appraisal
shall be used as the result of the appraisal. After the Monthly Rent has
been set, the appraisers shall immediately notify the parties and the
parties shall amend this Lease to set forth the Monthly Rent for the
Option Period.
Except as set forth in this Fourth Amendment, the Lease is unmodified
and in full force and effect.
LANDLORD TENANT
Callahan-Pentz Properties, Xicor, Inc., a California corporation
Sycamore Four,
a California general partnership
By: /S/ George B. Pentz By: /S/ Klaus G. Hendig
------------------------------- -------------------------------
George B. Pentz,
Managing General Partner Its: Vice President
-------------------------------
<PAGE> 1
CONFIDENTIAL TREATMENT REQUESTED
Exhibit 10.13
- ----------------------------------------
*Portions denoted with an asterisk have
been omitted and filed separately with
the Securities and Exchange Commission
pursuant to a request for confidential
treatment.
- ----------------------------------------
FOUNDRY AGREEMENT
THIS FOUNDRY AGREEMENT (the "Agreement") is made as of April 8, 1999. (the
"Effective Date") by and between Xicor Inc., a California corporation, having
its principal place of business at 1511 Buckeye Dr., Milpitas, CA 95035
("Xicor") and Zentrum Mikroelektronik Dresden GmbH, a corporation organized
under the laws of Germany, having its principal place of business at GrenzstraBe
28, 01109 Dresden, Germany ("ZMD"), with reference to the following facts:
A. Xicor desires to have certain products of its design manufactured by
ZMD for sale to Xicor.
B. ZMD has the capability of manufacturing such products and desires to
do so for sale to Xicor.
C. Such products will be manufactured in a facility owned by ZMD and
located at its principal place of business.
D. Xicor may also in the future desire to transfer further production to
the ZMD facility.
NOW, THEREFORE, in consideration of the foregoing and the covenants contained
below, the parties agree as follows:
1. DEFINITIONS:
1.1 "Products" shall mean fully processed silicon wafers containing
finished die of Xicor's integrated circuit products.
1.2 "Update" shall mean changes to a Product that result in a new
version of the Product with improved performance, reduced size and/or
minor changes in functionality over previous versions of the Product.
1.3 "Production" shall mean the manufacturing of Products using a
qualified Process. Milestones for Production operations are set forth in
Exhibit 1.3 attached hereto and made a part hereof.
1.4"Process" shall mean the wafer manufacturing process used for
manufacturing of the Products.
2. MANUFACTURING:
2.1 Initial Focus: The initial Production focus shall be Xicor's DCP
product lines and processes, specifically the C5.64 and C5.67 Processes.
2.2 Foundry: ZMD owns a wafer fabrication facility (the "ZMD Fab")
located at its principal place of business in Dresden, Germany that will
be suitable for the purposes of this Agreement.
2.3 Qualification of ZMD Fab: Qualification of the ZMD Fab will occur
upon completion of the quality & reliability requirements set forth in
Exhibit 6.1
2.4 Manufacturing: Upon Xicor's orders therefor and subject to
qualification pursuant to section 6 below, ZMD agrees to manufacture and
sell Products, and Xicor agrees to purchase such Products from ZMD, on
the terms and conditions set forth herein. The parties agree that the
first Products to be manufactured hereunder shall be Xicor's DCP
products on Xicor's C5.64 and C5.67 Processes with such additional
Products or Processes as may from time to time be agreed to by the
parties. If other Products or Processes are added, the appropriate
Exhibits specific to the additional Products and Processes must be
included. ZMD agrees to provide Xicor with appropriate documentation of
the manufacturing Processes , which will include wafer and lot
identification and traceability.
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CONFIDENTIAL TREATMENT REQUESTED
2.5 Deliverables by Xicor: With respect to each Product that Xicor
requires ZMD to manufacture hereunder, Xicor shall provide all necessary
technical information. Such information is set forth in Exhibit 2.5
attached hereto and made a part hereof.
2.6 Mask Sets: Xicor shall provide to ZMD at Xicor's expense, all masks
and GDS-II data required to enable ZMD to manufacture the Products
hereunder. Xicor shall provide all information necessary for using
Xicor's masks for manufacturing at ZMD. ZMD shall provide Xicor with the
final sizing tables for approval by Xicor. If under any circumstances a
mask or mask set is lost or broken by ZMD, ZMD shall pay for the
replacement mask or mask set. Additional mask sets required by ZMD for
manufacturing purposes shall be at ZMD's expense.
3. PRICE AND PAYMENT TERMS:
3.1 Price: Xicor shall purchase the Products manufactured under this
Agreement at the prices and on the payment terms set forth in Exhibit
3.1 attached hereto and made a part hereof. Payment terms, shipping
terms and obligation for taxes will be agreed to in Exhibit 3.1.
3.2 Yield: The parties agree that ZMD's initial target yield for each
Product ("Initial Target Yield") shall be as set forth in Exhibit 3.2
attached hereto and made a part hereof. The Initial Target Yields will
increase in accordance with Exhibit 3.2, subject to renegotiations as
provided in Exhibit 3.2.
4. WAFER PROBE: ZMD shall perform wafer probe which shall be 100% electrical
test at wafer sort as soon as practicable. The applicable data sheet and test
requirements are set forth in Exhibit 4 attached hereto and made a part hereof.
Prices for wafer probe shall be listed in Exhibit 3.1.
5. FORECAST AND ORDERS:
5.1 Six Month Rolling Forecast: During the term of this Agreement, Xicor
shall provide to ZMD a 24 weeks rolling forecast setting forth its
estimated requirements for wafer starts by week for Products. ZMD will
review the forecast and will respond within one week. ZMD agrees to use
its reasonable best efforts to meet all commitments for the period of
the forecast unless otherwise agreed to by both ZMD and Xicor. The first
12 weeks of the forecast will be "firm" for 125 mm wafer starts. ZMD
agrees that in exceptional cases, it will negotiate Xicor requested
push-outs and cancellations of the firm backlog with Xicor.
5.2 Orders: A "blanket" purchase order shall be initiated by Xicor and
maintained on an ongoing basis. All releases issued by Xicor against the
blanket purchase order shall state unit quantities, unit descriptions,
unit prices, requested delivery dates, and shipping instructions.
Provided that the release is consistent with the forecast provided to
ZMD under section 5.1 hereof, the cycle times under section 5.3(c)
hereof, and the other terms and conditions hereof, ZMD shall accept the
order. ZMD shall acknowledge on Monday morning (Germany time) of each
week its acceptance of the "queued" loaded schedule.
5.3 Lots: Xicor shall order Products as specified below:
(a) Engineering Lots: Xicor may order engineering lots where
Xicor seeks the qualification of an Update or a Product not
previously manufactured by ZMD, to seek or otherwise improve
functionality and yield, or to make any other engineering
changes. For purposes of this Agreement, an engineering lot shall
contain at least six wafers. It shall be Xicor's responsibility
to inform and provide ZMD with the specifications for the
engineering changes to be made to an engineering lot before
manufacturing begins. Specifications shall be attached to, or
referenced by Xicor's purchase order. Any change to the
specifications shall
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<PAGE> 3
CONFIDENTIAL TREATMENT REQUESTED
be documented by Xicor to ZMD. The price for engineering lots are
described in Exhibit 3.1. II.
(b) Production Lots: Xicor shall order a Product by lot quantity.
The normal wafer lot shall contain 25 wafers.
(c) Production Cycle Times: The target cycle time for ZMD for
each Product manufactured hereunder shall be as per Exhibit 5.3.
5.4 Process Termination: Xicor shall provide ZMD with at least twelve
(12) months notice - but not sooner than Dec. 31st, 2000 -of the date on
which Xicor will no longer schedule wafer starts on an existing process
used to manufacture Products.
5.5 Delays: Subject to section 13.12, Xicor shall have the right to
cancel any order, in whole or in part, when delivery is not made within
four (4) weeks of the agreed date. Cancellation will be Xicor's sole
remedy in this case. In the case of late delivery of certain high volume
Products, the parties may mutually agree to extend said delivery date
for an additional 4 weeks.
6. QUALIFICATION AND QUALITY CONTROL:
6.1 Qualification: Products to be manufactured and the manufacturing
processes to be used under this Agreement are subject to qualification
by Xicor and ZMD pursuant to qualification criteria and procedures set
forth in Exhibit 6.1 attached hereto and made a part hereof
("Qualification"). The parties agree to use their best efforts to
complete any Qualification required in this section 6.1 and under
section 6.2 hereof as soon as possible. ZMD may not ship production
wafers to Xicor until ZMD has a Quality Plan approved by the Xicor
Quality Organization and has been formally audited by Xicor unless
specifically authorized to do so by Xicor.
6.2 Changes:
(a) ZMD Process Changes: After Qualification of a Product, ZMD
may not make any process change without prior written consent
from Xicor. Any such change must be in accordance with Exhibit
6.2 attached hereto and made a part hereof and will be subject to
qualification according to the applicable criteria and procedures
set forth in Exhibit 6.1.
(b) Xicor Process Changes: If Xicor desires ZMD to make a process
change, Xicor shall notify ZMD in writing thereof. ZMD will not
implement or act on any verbal change instructions. Upon receipt
of such written instructions, ZMD will review the proposed change
and provide to Xicor a written evaluation stating the cost and
schedule to implement the same. The parties will then mutually
agree on the terms and conditions of the implementation of such
change. All changes agreed to by ZMD and Xicor shall be reflected
in an update to the ZMD documentation of the baseline
manufacturing process.
6.3 Rework: ZMD may perform rework on wafers only to the extent that it
has been authorized and approved by Xicor as set forth in Exhibit 6.3
attached hereto and made a part hereof.
6.4 Life Test and Reliability Monitors: Xicor may, at its option, from
time to time, utilize life test and other agreed upon reliability
monitors with respect to the Products manufactured by ZMD hereunder.
These monitors, as per Exhibit 6.4 attached hereto and made a part
hereof, will be established as soon as practicable. Commencing ninety
(90) days after ZMD has begun manufacturing production lots of each
Product, if these tests indicate that ZMD's manufacturing facility is
not being maintained within required manufacturing parameters, the
parties agree to confer with respect thereto, and ZMD agrees to take all
reasonable measures to promptly correct any such problems.
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<PAGE> 4
CONFIDENTIAL TREATMENT REQUESTED
6.5 Manufacturing and Quality Audits: Xicor may, at its option, but no
more often than two times in any calendar year, conduct a manufacturing
and quality audit of the ZMD Fab. These audits will be conducted during
normal business hours. Xicor agrees to provide ZMD reasonable prior
notice of its intention to conduct such audit. ZMD agrees to cooperate
fully with Xicor during the audit, to give Xicor auditing personnel
access to the ZMD Fab, and to provide whatever documents and other
information regarding the operation of the ZMD Fab in connection with
this Agreement that they may reasonably request. ZMD shall not allow
Xicor and its auditing personnel access to ZMD's other customers' data.
Disclosure of Confidential Information (as hereinafter defined) of ZMD
shall be subject to section 11.1 hereof. Each party shall pay its own
expenses actually incurred due to any such audits.
6.6 Manufacturing Control Plan: ZMD shall develop and maintain a
manufacturing control plan to identify the critical processes and
implement SPC (Statistical Process Control) to monitor and control such
critical processes. The critical processes will include, but not be
limited to, facilities, environment, DI water and chemical purity, which
ZMD shall monitor constantly to ensure consistent Product quality and
reliability. These critical processes are set forth in Exhibit 6.6
attached hereto and made a part hereof. ZMD shall provide monthly
SPC/Cpk data for all critical processes as applicable. For all Cpks less
than 1.67, ZMD shall provide an action plan to achieve at least 1.67 as
soon as practicable, but the eventual Cpk goal for ZMD shall be 2.0. For
manufacturing processes with Cpk less than 1.0, ZMD shall develop a
"containment" plan. ZMD will also install and maintain appropriate Y2k
compliant systems to enable it to provide Xicor with WIP status for all
lots at all times.
6.7 ISO 9000 Requirements: Quality systems defined by ISO 9000 shall be
used as a part of manufacturing the Products hereunder. If any Xicor
customers so require, QS-9000 certification shall also be required. In
both cases, certification from an approved registrar shall be required.
7. OTHER TERMS AND CONDITIONS.
7.1 Controlling Document: The terms and conditions of this Agreement
shall control all sales of Products hereunder, and any additional or
different terms of conditions in either party's purchase order,
acknowledgment, or similar document shall be of no effect.
7.2 Delivery and Lead Time: ZMD shall deliver Products on the delivery
dates specified in the purchase order releases placed in accordance with
section 5. The shipping window will be -5 to +5 days.
7.3 Shipping Documentation: All Products delivered pursuant to the terms
of this Agreement shall be suitably packaged, marked and otherwise
prepared in accordance with normal commercial practice while maintaining
the safety of the Products. The Products shall be shipped as specified
in Xicor's purchase order, and delivered to Xicor. Shipping and packing
documents from ZMD shall include the Xicor Purchase Order and release
number under which the contracted services shall be performed. Shipping
documents shall include the following: 1) Product(s) being ordered,
including Xicor Part Number; 2) Manufacturing Lot Number; 3) Quantity of
Products; 4) Delivery Instructions, including designated carrier, if
any; 5) Quantity of good die per wafer; and 6) yield, process, and/or
parametric information as may be required under the terms of this
Agreement, the exhibits hereto or the applicable purchase order.
Shipping documents are set forth in Exhibit 7.3 attached hereto and made
a part hereof.
7.4 Inspection and Acceptance: Product lots delivered by ZMD shall meet
the quality requirements of Xicor and may be inspected and tested for
verification. Quality requirements are defined in Exhibit 7.4 attached
hereto and made a part hereof. Wafers and lots will be identifiable and
traceable under the documentation provided under section 2.4 hereof. In
the event any lot or wafer fails to meet the quality requirements of
said Exhibit 7.4, Xicor shall have the right to reject such lot or wafer
within thirty (30) days after invoice date and returns it to ZMD for
replacement, provided that replacement is commercially reasonable.
Replacement will be Xicor's exclusive remedy in this case. If
replacement
4
<PAGE> 5
CONFIDENTIAL TREATMENT REQUESTED
is not commercially reasonable, Xicor may cancel that portion of the
relevant purchase order relating to the defective wafers.
7.5 Warranty:
(a) ZMD warrants to Xicor that from the date of delivery and for
a period of 12 months thereafter, each Product will
satisfactorily pass the acceptance criteria identified in Exhibit
7.4 attached hereto and shall be free from defects in material
and workmanship under normal use and service. This warranty does
not cover any failure resulting from (i) assembly not performed
by ZMD, or (ii) misuse, abuse, abnormal conditions or shipment
damage. This warranty is personal to Xicor and not transferable.
(b) THE WARRANTY CONTAINED IN SECTION 7.5(a) IS THE ONLY WARRANTY
GIVEN BY ZMD AND ZMD EXPRESSLY DISCLAIMS ALL OTHER WARRANTIES,
WHETHER EXPRESS, IMPLIED, OR STATUTORY, INCLUDING, WITHOUT
LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND OF
FITNESS FOR A PARTICULAR PURPOSE, ANY WARRANTY OF
NON-INFRINGEMENT, AND ANY WARRANTY THAT MAY ARISE BY REASON OF
USAGE OF TRADE, CUSTOM OR COURSE OF DEALING, AND XICOR HEREBY
EXPRESSLY WAIVES ANY AND ALL SUCH WARRANTIES.
(c) Xicor's exclusive remedy, and ZMD's exclusive obligation and
liability, with respect to any Product that does not conform to
the express warranty set forth in Section 7.5(a) hereof, shall be
to perform failure analysis and to replace (or repair if
applicable) such Product, without charge, and deliver it to
Xicor; provided, however, that in each such case, repair or
replacement is commercially reasonable. If such remedy is not
commercially reasonable, ZMD shall refund to Xicor the amount
paid for such Product. Upon discovering such defect, Xicor shall
promptly return the affected Products to ZMD, adequately
packaged, within the warranty period at Xicor's expense with a
detailed statement of the defect. Xicor shall obtain a return
material authorization (RMA) number and show it on the packaging.
Any replacement Product shall also be warranted for a period of
12 months from delivery. If ZMD's examination of the Products
returned by Xicor does not disclose any warranty defect, Xicor
agrees to pay ZMD's applicable charges for unpacking, testing and
re-packing the Products for reshipment to Xicor. If ZMD's testing
does disclose a warranty defect, ZMD will reimburse the return
shipping charges paid by Xicor for such Products.
8. LIMITATION OF LIABILITY.
8.1 Under no circumstances shall ZMD be liable for the costs of
procurement of substitute goods or services or for any special,
indirect, incidental or consequential damages of any kind or nature
whatsoever, arising out of or in any way related to this Agreement, the
Products or the use or inability to use any Products, including, without
limitation, lost goodwill, lost profits, work stoppage or impairment of
other goods, and whether arising out of breach of warranty, breach of
contract, tort (including negligence), strict liability or otherwise,
even if advised of the possibility of such damage or if such damage
could have been reasonably foreseen, and notwithstanding any failure of
essential purpose of any exclusive remedy provided herein.
8.2 In no event shall ZMD's total liability relating to or in connection
with any Products or this Agreement, whether based on contract,
warranty, tort (including negligence), strict liability or otherwise,
exceed the actual amount paid to ZMD by Xicor hereunder.
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<PAGE> 6
CONFIDENTIAL TREATMENT REQUESTED
9. INDEMNITY.
9.1 ZMD shall not be held responsible and Xicor shall defend, indemnify
and hold harmless ZMD and its United States subsidiary from and against
any and all claims, demands, liabilities, damages, costs and expenses,
including, without limitation, reasonable attorneys' fees and other
legal and expert expenses, arising out of or relating to any actual or
alleged infringement upon any patent right, copyrights or mask work
right of any third party by any Product manufactured by ZMD for Xicor
hereunder or by any process, material or technology provided to ZMD by
Xicor hereunder for the manufacture of the Products. ZMD will give to
Xicor written notice of any claim for which Xicor is providing
indemnification hereunder. Xicor will have (i) the right to assume, in a
prompt fashion, sole control of the defense or settlement of such claim
(provided that Xicor cannot commit ZMD to the payment of any sums in
settlement or otherwise), and (ii) the right to receive reasonable
assistance from ZMD, at Xicor's request and expense. ZMD may, at its
expense, participate in such defense with counsel of its own choice.
9.2 Xicor shall not be held responsible and ZMD shall defend, indemnify
and hold harmless Xicor from and against any and all claims, demands,
liabilities, damages, costs and expenses, including, without limitation,
reasonable attorneys' fees and other legal and expert expenses, arising
out of or relating to any actual or alleged infringement upon any patent
right, copyrights or mask work right of any third party by any process,
material or technology used by ZMD in the performance of its obligations
hereunder other than any process, material or technology provided to ZMD
by Xicor hereunder for the manufacture of the Products. Xicor will give
to ZMD written notice of any claim for which ZMD is providing
indemnification hereunder. ZMD will have (i) the right to assume, in a
prompt fashion, sole control of the defense or settlement of such claim
(provided that ZMD cannot commit Xicor to the payment of any sums in
settlement or otherwise), and (ii) the right to receive reasonable
assistance from Xicor, at ZMD's request and expense. Xicor may, at its
expense, participate in such defense with counsel of its own choice.
9.3 THE FOREGOING STATES THE ENTIRE LIABILITY OF EITHER PARTY AND ITS
AFFILIATES, AND THE SOLE AND EXCLUSIVE REMEDY OF THE OTHER PARTY AND ITS
AFFILIATES, WITH RESPECT TO INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS
BY ANY PRODUCTS OR PROCESSES OF SUCH PARTY.
10. TECHNOLOGY OWNERSHIP AND NON-COMPETITION: Xicor shall retain ownership of
all designs, process technology and other information and materials provided to
ZMD for purposes of manufacturing Products. Xicor authorizes ZMD to use such
proprietary information supplied by Xicor under this Agreement only for the
purpose of manufacturing Products for sale to Xicor in accordance with the terms
of this Agreement. ZMD agrees that ZMD will not directly compete with Xicor with
products or semiconductor devices similar in nature and competitive to those
Xicor Products listed in Exhibit 10.0 during the term of this agreement and one
year after termination of the agreement (see Exhibit 10 for additional details).
11. CONFIDENTIALITY.
11.1 Confidential Information:
(a) As used in this section 11.1, the term "Confidential
Information" shall mean any information disclosed by one party to
the other pursuant to this Agreement which is in written,
graphic, machine-readable or other tangible form and is marked
"Confidential," "Proprietary" or in some other manner to indicate
its confidential nature. Confidential Information may also
include oral information disclosed by one party to the other
pursuant to this Agreement, provided that such information is
designated as confidential at the time of disclosure and reduced
to a written summary by the disclosing party within thirty (30)
days after its oral disclosure, which is marked in a manner to
indicate its confidential nature and delivered to the receiving
party. Notwithstanding any failure to so identify it, however,
all (i) technical materials, process technology and other
information provided by Xicor to ZMD to enable or assist ZMD in
manufacturing Products and (ii) ZMD processes that a Xicor
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<PAGE> 7
CONFIDENTIAL TREATMENT REQUESTED
employee may observe as part of an audit or similar procedure,
shall be deemed "Confidential Information" hereunder.
(b) Each party shall treat as confidential all Confidential
Information of the other party, shall not use such Confidential
Information except as expressly set forth herein or otherwise
authorized in writing, shall implement reasonable procedures to
prohibit the disclosure, unauthorized duplication, misuse, or
removal of the other party's Confidential Information and shall
not disclose such Confidential Information to any third party
except as obligations of such party under this Agreement, and
subject to confidentiality obligations at least as protective as
those set forth herein. Without limiting the foregoing, each of
the parties shall use at least the same procedures and degree of
care which it uses to prevent the disclosure of its own
confidential information of like importance to prevent the
disclosure of Confidential Information disclosed to it by the
other party under this Agreement, but in no event less than
reasonable care.
(c) Notwithstanding the above, neither party shall have liability
to the other with regard to any Confidential Information of the
other which:
(i) was generally known and available in the public domain
at the time it was disclosed or becomes generally known
and available in the public domain through no fault of the
receiver;
(ii) was known to the receiver at the time of disclosure
as shown by the files of the receiver in existence at the
time of disclosure;
(iii) is disclosed with the prior written approval of the
discloser;
(iv) was independently developed by the receiver without
any use of the Confidential Information and by employees
or other agents of the receiver who have not been exposed
to the Confidential Information, provided that the
receiver can demonstrate such independent development by
documented evidence prepared contemporaneously with such
independent development;
(v) becomes known to the receiver from a source other than
the discloser without breach of this Agreement by the
receiver and otherwise not in violation of the discloser's
rights; or
(vi) is disclosed pursuant to the order or requirement of
a court, administrative agency, or other governmental
body, provided that the receiver shall provide prompt,
advance notice thereof to enable the discloser to seek a
protective order or otherwise prevent such disclosure.
(d) "Residual Information" means information in non-tangible form
that is or may be retained by persons who have had access to the
Confidential Information of a party, including ideas, concepts,
know-how or techniques contained therein. However, Residual
Information shall not include (i) information which the employee
knows, constitutes the Confidential Information of the other
party hereunder, or (ii) information that is purposefully
committed to memory by the employee for purposes of
misappropriation. The parties acknowledge and agree that they and
their respective employees may utilize for any purpose any
Residual Information resulting from using or having access to
Confidential Information. However, the non-disclosure obligations
of this section 11 shall continue to apply to such Residual
Information.
(e) Each party shall obtain the execution of proprietary
non-disclosure agreements with its employees, agents and
consultants having access to Confidential Information of the
other
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CONFIDENTIAL TREATMENT REQUESTED
party, and shall diligently enforce such agreements, or shall be
responsible for the actions of such employees, agents and
consultants in this respect.
(f) If either party breaches any of its obligations with respect
to confidentiality and unauthorized use of Confidential
Information hereunder, the other party shall be entitled to
equitable relief to protect its interest therein, including but
not limited to injunctive relief, as well as money damages.
11.2 Publicity: All publicity regarding the announcement of this
Agreement shall be coordinated by both parties. Neither party shall
disclose the terms of this Agreement without the prior written approval
of the other party, except as required as a matter of law.
12. TERM AND TERMINATION.
12.1 Term: This Agreement shall begin on the date noted above and shall
remain in effect for five years from such date, unless otherwise
terminated earlier as provided below. This Agreement may be extended for
successive periods of two years beyond such time by the written consent
of both parties.
12.2 Termination for Breach: If either party breaches any material term
of condition of this Agreement and fails to cure that breach within
thirty (30) days, or fails to cure such breach within a reasonable
period of time if such breach can not reasonable be cured within the
said thirty (30) day period, after receiving written notice of the
breach, the other party shall have the right to terminate this
Agreement, on written notice, at any time after the end of such thirty
(30) day period or after such reasonable period if such breach could not
reasonable be cured within the said thirty (30) day period.
12.3 Termination for Insolvency: If either party becomes the subject of
a voluntary or involuntary petition in bankruptcy or of any proceeding
relating to insolvency, receivership, liquidation, or composition for
the benefit of creditors, if that petition or proceeding is not
dismissed with prejudice within sixty (60) days after filing, the other
party may terminate this Agreement on thirty (30) days' notice.
12.4 Return of Materials: Upon termination or expiration of this
Agreement, ZMD shall return to Xicor all information, process technology
and other items supplied to it under this Agreement.
12.5 Survival of Provisions: The rights and obligations of the parties
pursuant to sections 3.1, 5.5, 7.2, 7.3, 7.4, 7.5, 8, 9, 10, 11, 12.6
and 13.2 shall survive the termination of this Agreement (as well as
other provisions of this Agreement to the extent contemplated by section
12.6 hereof).
12.6 Effects of Termination: Except as and for the time period provided
herein, upon the effective date of termination, ZMD shall cease
manufacturing the Products. Xicor shall purchase, pay for and take
delivery of Products in accordance paragraph 5.1. In addition, unless
the parties agree otherwise (including agreement on appropriate payment
to ZMD), Xicor shall take delivery of and pay, pursuant to the terms of
this Agreement, for all Products affected by such termination, which at
the time of the receipt of the applicable notice of termination are
subject to purchase orders of Xicor that have been accepted by ZMD. Such
addition delivery and payment includes the "die bank" and all in-process
inventory in accordance with section 5.4 hereof and ZMD will either
manufacture, complete and deliver such Products to Xicor in accordance
with the provisions hereof, which may be after the effective date of
termination, or, if requested by Xicor, Xicor may elect to compensate
ZMD based on the percentage of mask layers completed.
13. MISCELLANEOUS.
13.1 Governing Law: This Agreement shall be governed by and interpreted
in accordance with the laws of the State of California without reference
to conflict of laws principles.
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CONFIDENTIAL TREATMENT REQUESTED
13.2 Arbitration: Any dispute or claim arising out of or in connection
with this Agreement shall be finally settled by binding arbitration in
the English language. If Xicor institutes the proceedings, they shall be
held in Dresden, Germany under the rules of arbitration of the
International Chamber of Commerce by one arbitrator appointed in
accordance with said rules. If ZMD institutes the proceedings, they
shall be held in San Francisco, California under the rules of
arbitration of the American Arbitration Association by one arbitrator
appointed in accordance with said rules. Judgment on the award rendered
by the arbitrator may be entered in any court having jurisdiction
thereof. Notwithstanding the foregoing, (i) the parties may apply to any
court of competent jurisdiction for injunctive relief without breach of
this arbitration provision, and (ii) collection matters shall
specifically be excluded from this arbitration provision.
13.3 Assignment: Neither party may assign or delegate this Agreement or
any of its licenses, rights or duties under this Agreement without the
prior written consent of the other, except either party may assign this
Agreement to a person or entity into which it has merged or which has
otherwise succeeded to all or substantially all of its business and
assets, and which has assumed in writing or by operation of law its
obligations under this Agreement.
13.4 Authority: Each party represents that all corporate action
necessary for the authorization, execution and delivery of this
Agreement by such party and the performance of its obligations hereunder
has been taken.
13.5 Export Controls: The parties agree that no technical information
disclosed by one party to the other party under this Agreement or any
direct product of such technical information is intended to or will be
exported or re-exported, directly or indirectly, to any destination
restricted or prohibited by applicable law without necessary
authorization by the appropriate government authorities.
13.6 Notices: All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed or otherwise delivered
by hand, by messenger or by telecommunication, addressed to the
addresses first set forth above or at such other address furnished with
a notice in the manner set forth herein. Such notices shall be deemed to
have been served when delivered or, if delivery is not accomplished by
reason of some fault of the addressee, when tendered.
13.7 Partial Invalidity: If any paragraph, provision, or clause thereof
in this Agreement shall be found or be held to be invalid or
unenforceable in any jurisdiction in which this Agreement is being
performed, the remainder of this Agreement shall be valid and
enforceable and the parties shall negotiate, in good faith a substitute,
valid and enforceable provision which most nearly effects the parties'
intent in entering into this Agreement.
13.8 Counterparts: This Agreement may by executed in two (2) or more
counterparts, all of which, taken together, shall be regarded as one and
the same instrument.
13.9 Waiver: The failure of either party to enforce at any time the
provisions of this Agreement shall in no way be constituted to be a
present or future waiver of such provisions, nor in any way affect the
validity of either party to enforce each and every such provision
thereafter.
13.10 Entire Agreement: The terms and conditions herein contained
constitute the entire agreement between the parties and supersede all
previous agreements and understandings, whether oral or written, between
the parties hereto with respect to the subject matter hereof and no
agreement or understanding varying or extending the same shall be
binding upon either party hereto unless in a written document signed by
the party to be bound thereby.
13.11 Section Headings: The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
13.12 Force Majeure: Neither party shall be liable or responsible for
any defaults or delays in performance due to strikes, riots, acts of
God, shortages of lab or materials, war, governmental laws,
9
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CONFIDENTIAL TREATMENT REQUESTED
regulations or restrictions or any other cause of any kind whatsoever
that is beyond the reasonable control of the party whose performance has
been delayed.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by duly authorized officers or representatives as of the date first above
written.
XICOR INC. ZMD GMBH
By /s/ Bruce Gray By /s/ W. Nolde /s/ Detlef Golla
---------------------------------- --------------- -----------------
Bruce Gray Dr. Wolfgang Nolde Detlef Golla
President and Chief Operating Officer Geschaftsfuhrer Geschaftsfuhrer
April 8, 1999 April 8, 1999
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CONFIDENTIAL TREATMENT REQUESTED
LIST OF EXHIBITS
<TABLE>
<CAPTION>
Number Title
<S> <C>
1.3. Milestones for Process Qualification and
Production Operation
2.3 Facility Qualification
2.5 Xicor Deliverables
3.1 Prices
3.2 Initial Target Yields
4 Wafer Probe Documentation
5.3 Production Cycle Times
6.1 Process Qualification Criteria and Procedures
6.2 Product and Process Change Control
6.3 Specifications for Wafer Rework
6.4 Life Test and Reliability Monitors
6.6 Critical Processes
7.3 Shipping Documents
7.4 Quality Requirements
10.0 Products for Non-competition clause
</TABLE>
11
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CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 1.3
Milestones for Process Qualification and Production Operation
See attached project plan.
12
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CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 2.3
Facility Qualification:
Verification per ISO 9001 criteria and QS9000 qualification shall be
completed prior to the beginning of Risk Production Starts.
13
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CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 2.5
Xicor Deliverables
- Process Flow
- Lot Traveller
- Process Recipes
- Critical Monitor Data
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CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 3.1
I. Non-recurring Expenses
Non-recurring expenses will be a total of $ * to be paid at 3 intervals:
A. 1st payment of $ * to be paid 30 days after the signing of the
Agreement by both parties .
B. 2nd payment of $ * to be paid at the start of the 1st qualification
lot as called for in the Process Qualification Milestones shown in
EXHIBIT 1.3.
C. 3rd and final payment of $ * to be paid at the beginning of RISK
production again as called for in the Process Qualification Milestones
shown in EXHIBIT 1.3.
II. Engineering Wafer cost $ * / Wafer
(Minimum Wafer Quantity is 6 wafers / Engineering Lot)
III. Payment and Shipping Terms:
A. Payment Terms--Payment terms are net 60 days from date of invoice
after the delivery of PCM tested wafers or 30 days from date of invoice
after the delivery of die sorted wafers.
B. Exchange Rate--All wafer/die prices set forth in this Agreement are
based on an exchange rate of 1.70DM = $U.S. $1. If the average exchange
rate for the previous six months is less than 1.60DM = $U.S. $1 or
exceeds 1.80DM = $U.S. $1, the parties will review the wafer/die as soon
as practicable to renegotiate prices. The exchange rate is defined as
the New York foreign exchange mid-range rates applying to trading among
banks in amounts of $1 million and more, as published in the Wall Street
Journal.
C. Shipping Terms--Shipping, delivery and pricing terms are set FCA
Dresden according Incoterms. Xicor will advise ZMD of its choice of
freight carrier.
D. Taxes and Duties -- The prices and fees do not include sales, use,
transfer, property, ad valorem, excise, privilege or value added taxes,
import duties, export duties or other custom duties or tariffs or any
other taxes, duties or charges not based on ZMD's net income, all of
which shall be paid by Xicor. Xicor agrees to promptly pay, or reimburse
ZMD for, the amount of such tax or charge and all reasonable attorneys'
fees and other costs and expenses incurred by ZMD in connection
therewith, and the amount of any fine or penalty assessed against ZMD in
connection therewith. Where applicable, Xicor will provide ZMD with
exemption certificate(s) in form and substance satisfactory to the
relevant taxing or governmental authorities.
IV. Wafer Prices (per 5" wafer)
A1: Wafer Pricing: (includes raw wafer costs)
C5.6 Wafers = Per following table (based on cumulative wafer
volume)
A.2.: C7 Technology: = to be defined separately
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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CONFIDENTIAL TREATMENT REQUESTED
<TABLE>
<CAPTION>
CUMULATIVE VOLUME WAFER PRICE (C5.6 @ * layers)
<S> <C>
up to * wafers $ * /wafer
* to * wafers $ * /wafer
* to * wafers $ * /wafer
</TABLE>
- For wafer volumes in excess of * , lower prices to be negotiated
- Wafer prices will be adjusted to the final production layer amount
with the following scheme
Production Wafer Price = (Wafer price as listed above / * ) *
Final production layer amount
Example: $ * = $ * x * / *
Timing: Once every 6 months. These calculations are inspired by
two things:
*
Calculation: Every 6 months, Xicor will calculate the actual die
sort yield percentages and compare them to the actual die sort
yield established in the first month following the initial 6
month period. This die sort yield percentage shall become the
target die sort yield, but in no case shall target die sort yield
be less than the actual established die sort yield at Xicor.
*
*
SCRAP CRITERIA
If the individual wafer sort yield falls below the mean-3sigma
distribution demonstrated for the 6 month interval, then, that
wafer is scrapped and returned back to ZMD for full credit.
A3: Device Pricing
To be defined separately.
A4: Die Test Pricing
To be defined separately.
V. Volume Expectations
The pricing provided for herein is based on an assumed volume of - *
wafers per month. If the actual wafer volumes differ significantly from
this assumption, the parties agree to meet as soon as practicable to
renegotiate pricing.
VI. Equipment
Xicor shall provide ZMD with the manufacturing equipment for production
of the Xicor technologies at ZMD on request by ZMD as follows:
. *
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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CONFIDENTIAL TREATMENT REQUESTED
. *
Specific details will be mutually determined in a separate MOU.
As incremental wafer requirements occur similar arrangements for
additional equipment will be agreed upon.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 3.2
Initial Target Yields
<TABLE>
<CAPTION>
Technology 1st 6 months Die Sort Yield
---------- ---------------------------
<S> <C>
C5.6 * %
</TABLE>
This average yield is limited to die sizes not larger than
12mm(squared). For die sizes larger than this size the die sort yield shall be
agreed upon before volume production.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 4
Wafer Probe Documentation
To be provided during technology transfer.
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CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 5.3
Production Cycle Times:
Production Cycle Times shall be less than or equal to * days per mask
layer.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 6.1
Process Qualification Criteria and Procedures
- The quality and reliability specifications are defined in detail in
the following Xicor specifications: 06020110, 06020101, 06020311, and
06020324.
- ZMD shall provide Xicor with the following PQC for the required
processes:
- Gate Oxide integrity (Bvox and Qbd)
- Hot carrier
- Electromigration
- Stress Migration
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CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 6.2
Product and Process Change Control
Product and process control changes are defined in the Xicor
specification 100213.
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CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 6.3
Specifications for Wafer Rework
Xicor authorizes ZMD for the following reworks on Xicor products:
- Photoresist rework
All other rework not listed in this attachment is not authorized and requires
written approval by Xicor on either case-by-case base or an amendment to this
exhibit.
23
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CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 6.4
Life Test and Reliability Monitors
The quality and reliability specifications are defined in detail in the
following Xicor specifications:
06020110, 06020101, 06020311, and 06020324.
24
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CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 6.6
Critical Processes
Critical Processes defined by Xicor:
- *
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
25
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CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 7.3
Shipping Documents
To be generated later in conjunction with ZMD's capabilities and United
States and/or German Import/Export regulations..
26
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CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 7.4
Quality Requirements
Quality requirements
- Monthly reporting of Cp and Cpk values for critical process
steps
- Process Control Plan
- Failure Mode Effects Analysis (FMEA) procedure established in
factory for process changes
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CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 10
Products from Non-competition clause
ZMD explicitly is permitted to sell the following products and product families:
ZMD . nvSRAM products U63xxx
. SRAM products U62xxx
. DRAM products U61xxx
. Digitrim ZM534
. Ldreg ZM884
. Scope IC ZM407
. ASIC developments and Foundry Services according
ZMD customer specifications even if competitive
or similar to those manufactured by ZMD for Xicor
ZMD explicitly is NOT permitted to sell the following products and product
families:
1. E2 Micro-Peripherals:
- System Controller
X5114
- Microcontroller Supervisors with EEPROM
X25043 X25045 X25163 X25164 X25165
X25166 X25168 X25169 X25323 X25324
X25325 X25326 X25328 X25329 X25383
X25385 X25643 X25644 X25645 X25646
X25648 X25649
1. Parallel EEPROM's:
- Universal WordWide x8, x16, x32
XM28C010P XM28C020P XM2064P
- Universal ByteWide
X2804C X2816C X28C64/HC64 X28VC256 X28C256/HC256
X28C512 X28LC512 X28HT512 X28C010 X28HT010
XM28C010 XM28C020 XM28C040 XM28C080
1. Micro Port Saver (MPS) EEPROM
X84041 X84161 X84641 X84129
2. Serial
- NOVRAM
X24C44 X24C45 X25401
- EEPROM
X24C00 X24C01 X24C01A X24C02 X24C04
X24C08 X24C16 X24001 X24012 X24022
X24042 X24128 X24164 X24165 X24320
X24321 X24325 X24640 X24641 X24645
X25C02 X25020 X25040 X25057 X25080
X25097 X25128 X25138 X25160 X25320
X25330 X25383 X25385 X25640 X25642
X25650
- Serial Flash
28
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CONFIDENTIAL TREATMENT REQUESTED
X24F016 X24F032 X24F064 X24F128 X25F008
X25F016 X25F032 X25064 X25F128 X25F047
X25F087
1. Parallel NOVRAMs
X20C04 X20C05 X20C16 X20C17 XM20C64
X22C10 X22C12
2. Digitally Controlled Potentiometers
- Quad 64 Tap DCP
X9241Y X9241W X9241U X9241M X9400W
X9408W X9410W X9418W X9448W
- 32 Tap DCP
X9313Z X9313W X9313U X9313T X9314W
X9315Z X9315W X9316Z X9316W
- Dual 64 Tap DCP
X9221Y X92221W X9221U X9410W X9418W
- 100 Tap DCP
X9C102 X9C103 X9C503 X9C104 X9312Z
X9312W X9312U X9312T
- 32 Tap PushPOTs
X9511Z X9511W X95514W
1. Smart Card Modules
X76F041 X76F100 X76F101 X76F128 X76F640
X24026 X24165 X24325 X24645 X25320
X25650
2. Secure Serial Flash
X76F041 X76F100 X76F101 X76F128 X76F640
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CONFIDENTIAL TREATMENT REQUESTED
Exhibit 10.14
*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 - SANYO
SEMICONDUCTOR MANUFACTURING FOUNDRY AGREEMENT
This Agreement is made and entered into this 1st day of May 1999 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 Sanyo Corporation, a corporation
established and existing under the laws of Japan and having its principal office
at 5-2, 2chome, Keighan-Hendori, Moriguchi, Osaka, Japan (hereinafter called
"Sanyo").
WHEREAS XICOR, designs and markets integrated circuit products, and desires to
obtain an additional manufacturing source for certain of its products, and
WHEREAS SANYO, 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 Sanyo with the manufacture of certain
integrated circuit products; and
WHEREAS SANYO, 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 Sanyo according to Xicor's C5 (1.2um
process) or C7 (0.6um process) process flows, 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.
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CONFIDENTIAL TREATMENT REQUESTED
1.5 "Sanyo Process" shall mean the Sanyo 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 Sanyo 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 Sanyo. Sanyo 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.
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CONFIDENTIAL TREATMENT REQUESTED
1.13 "Risk Starts" shall mean any Wafers and/or Devices ordered by Xicor
prior to full and complete qualification of Sanyo'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 Sanyo agrees to manufacture and supply to Xicor Wafers and/or
Devices as described in this Agreement and Xicor agrees to purchase from
Sanyo, the Wafers and/or Devices under the terms and conditions set
forth herein.
2.2 Sanyo hereby assumes responsibility for the manufacture of Wafers
and/or Devices based on the Designs, and manufactured to the
Specifications, utilizing the Sanyo Process. Sanyo will produce Wafers
and/or Devices to fill Xicor's orders, as further outlined below.
2.3 Orders shall be provided by Xicor to Sanyo as follows:
2.3.1 Within thirty (30) days of successful qualification of the
Sanyo 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 Sanyo 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. Sanyo 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 Sanyo 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 Sanyo
fails to meet the Yield Specifications, or a Device manufactured by
Sanyo fails meet the Device Specifications, Xicor and Sanyo 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
minimum delay.
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CONFIDENTIAL TREATMENT REQUESTED
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 Sanyo. 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 Sanyo 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, Sanyo agrees to investigate 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 Sanyo Process approved by Xicor and
Sanyo 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
Sanyo. 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
Sanyo 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 Sanyo to stop production. If
Sanyo is unable to correct such failures within a reasonable time, Xicor
may cancel such particular Orders at no charge to Xicor. Xicor will
notify Sanyo in writing of its intention to suspend or cancel such
Orders and will include any substantiating data.
2.10 Reports and Reviews: Sanyo shall provide Xicor with a weekly
delivery report. Sanyo will provide a system in 1999 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, Sanyo shall also provide weekly status and data summarizing the
DC parametric measurements for Sanyo Process. 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 and to review Sanyo
performance. Sanyo also agrees to provide Xicor with such data
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CONFIDENTIAL TREATMENT REQUESTED
and/or reports required by Xicor to enable Xicor to maintain their
qualification to ISO9001 and QS 9000 quality standards. Sanyo shall
ensure that the computer system is Y2K compliant.
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 Sanyo gives Xicor written notice
thereof, Sanyo may decline to make further shipments and/or may
terminate Xicor's Orders without affecting any other rights or
remedies available to Sanyo. If Sanyo continues to make shipments
after such default, Sanyo's actions shall not constitute a waiver
nor affect Sanyo'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 Sanyo
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 Sanyo the Xicor C5 and C7 process flows,
process parameters, design rules and other relevant information to
enable Wafers and Devices to be manufactured by Sanyo. It is understood
that the information listed above is the Proprietary Information of
Xicor and will remain the sole property of Xicor. Nothing in
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CONFIDENTIAL TREATMENT REQUESTED
this Agreement grants or authorizes Sanyo to use this Proprietary
Information for any other purpose other than those specifically
authorized by this Agreement.
3.2 Sanyo will run the Sanyo Process pursuant to this Agreement, or any
process which is based on the Sanyo Process, for the purpose of
manufacturing Wafers and/or Devices exclusively for Xicor. All Wafers
and Devices produced by Sanyo shall meet the Specifications as per
Appendix C.
3.3 Sanyo will either (i) provide Xicor with a list of Sanyo'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 Sanyo with Device database tapes in
GDS II format and Sanyo 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 Sanyo unless and until a written agreement by the mask vendor is
executed protecting Xicor Proprietary Information from unauthorized
disclosure. Sanyo 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 Sanyo will be the responsibility of Sanyo. 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 Sanyo for process improvement or yield
enhancements shall be the responsibility of Sanyo. Upon termination of
this Agreement all mask sets shall be destroyed.
3.4 After Sanyo has provided Xicor with sufficient Wafers and Devices
for qualification, but prior to completion of full qualification, Xicor
may request that Sanyo provide a mutually agreed quantity of Risk
Starts. Sanyo 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 Sanyo. Upon
receipt of such notice, Sanyo 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 Sanyo for all Wafers and/or Devices
started prior to Sanyo 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 Sanyo 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 Sanyo successfully complete qualification,
then upon written notice from Xicor of successful completion, Sanyo will
proceed, as soon as possible after receipt of such notice, to
manufacture and deliver Wafers and/or Devices ordered by Xicor in
accordance with Paragraph 2.3.
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CONFIDENTIAL TREATMENT REQUESTED
3.7 Prior to qualification, Sanyo 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 Sanyo whatsoever. Sanyo 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 Sanyo.
3.9 Process Change shall be handled in the following manner:
3.9.1 Prior to any Process Change which Sanyo desires to make in
the manufacturing process, Sanyo agrees to notify Xicor in
writing of each such proposed Process Change, and to get Xicor's
approval 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 Change within sixty (60) days of receipt of such
proposed Process Change request from Sanyo. In no case will Sanyo
implement a Process Change without Xicor's
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CONFIDENTIAL TREATMENT REQUESTED
prior written approval. Notwithstanding the foregoing, the
process changes in ion implantation dose and energy, oxide,
thickness of film except the tunneling oxide less than +/- 5% of
default values does not require Xicor's approval, prior to
implementing the changes.
3.9.3 Notwithstanding the provisions of Paragraph 3.9.2 above, if
an emergency situation warrants a temporary Process Change, Sanyo
hereby agrees to notify Xicor within twenty-four (24) hours of
identification of the emergency situation. Sanyo 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 Sanyo 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 Sanyo a Forecast per Paragraph 2.3.2. The Forecast shall be
used by Xicor to advise Sanyo 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. Sanyo
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 Sanyo 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 Sanyo'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 Sanyo 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,
Sanyo 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 Sanyo 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 Sanyo 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 Sanyo, then Xicor shall provide Sanyo with
written notification of the failure and a copy of the failure analysis
report. Upon completion of Sanyo's internal investigation, but no later
than thirty (30) days after receipt of written notification, Sanyo shall
provide Xicor with a Return Material Authorization (RMA) and Xicor may
return the failed Wafers and/or Devices to Sanyo. 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 Sanyo. 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.
6.2 All prices are FCA San Francisco Airport. Sanyo shall be responsible
for transportation charge from Sanyo Semiconductor to San Francisco
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. Sanyo shall be
responsible for all freight charges prior to transfer of title. Xicor
agrees to supply Sanyo with an appropriate tax exemption certificate if
appropriate.
6.3 Payment terms shall be net sixty (60) days from receipt of a valid
invoice by Xicor. Sanyo shall not send such invoices until Sanyo 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 Sanyo for any Wafer and/or
Device returned to Sanyo 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
Sanyo's fabrication and electrical test facilities during normal working hours
upon reasonable notice to Sanyo. Sanyo 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 Sanyo 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 Sanyo 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 or C7
processes. The parties further agree that if such process modifications
or new processes developed by Sanyo or Xicor 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.
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CONFIDENTIAL TREATMENT REQUESTED
9.0 WARRANTY and ACCEPTANCE:
9.1 Sanyo 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 Sanyo's facility. If, during
such one year period (i) Sanyo 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
Sanyo's facility, transportation prepaid; and (iii) Sanyo'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 Sanyo shall, as mutually agreed, either repair, replace, or credit
Xicor for such Wafers and/or Devices. Sanyo shall reimburse Xicor for
the return transportation charges paid by Xicor for such Wafers and/or
Devices. Sanyo 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 Sanyo
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 Sanyo shall immediately advise Xicor whenever Sanyo has reason to
believe that Wafer and/or Devices may not conform to the applicable
Specifications.
9.3 Both parties agree that the foregoing states the entire liability
and obligations of Sanyo and the exclusive remedy of Xicor for breach of
the provisions of this Article 9.
10.0 NON-COMPETITION: Sanyo agrees that Sanyo will not compete with Xicor with
products or semiconductor devices similar in nature to those sold by Xicor with
the exception of those products listed in Appendix E. Sanyo 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 or C7 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 Sanyo, the wafer process to the
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CONFIDENTIAL TREATMENT REQUESTED
extent contributed by Sanyo, 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 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: Sanyo 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. Sanyo agrees to indemnify Xicor for any fees,
fines or penalties imposed on Xicor by the United States Government as a result
of Sanyo's breach or violation of this provision. Xicor shall provide Sanyo 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
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CONFIDENTIAL TREATMENT REQUESTED
withheld. It is understood that Xicor may have obligations under financial and
United States Security and Exchange regulations to publicly announce this
Agreement.
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
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CONFIDENTIAL TREATMENT REQUESTED
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.
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 Sanyo:
Xicor, Inc. Sanyo Corporation
1511 Buckeye Drive __________________________________
Milpitas, CA 95035, USA __________________________________
Attn: Director of Contracts Attn: ______________________________
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
Sanyo demands arbitration, it
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CONFIDENTIAL TREATMENT REQUESTED
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 one arbitrator, Sanyo 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: Sanyo 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. Sanyo 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. SANYO CORPORATION
BY: /s/ BRUCE GRAY BY: /s/ YUKINORI KUWANO
TITLE: PRESIDENT, CHIEF OPERATING TITLE: PRESIDENT, SEMICONDUCTOR
OFFICER COMPANY
16
<PAGE> 17
CONFIDENTIAL TREATMENT REQUESTED
DATE: MAY 1, 1999 DATE: 1 MAY 1999
17
<PAGE> 18
CONFIDENTIAL TREATMENT REQUESTED
APPENDIX A
LEAD-TIMES
C5/C7 Cycle Time:
Total C5 Cycle Time = * + * Sigma must be less than or equal to * days.
Total C7 Cycle Time = * + * Sigma must be less than or equal to * days.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
18
<PAGE> 19
CONFIDENTIAL TREATMENT REQUESTED
APPENDIX B
PRICING
B1: Wafer Pricing: (including raw wafer costs)
C5 TECHNOLOGY: = $ * per unsorted wafer
C7 TECHNOLOGY: = (to be defined separately)
B2: WAFER PRICE CALCULATIONS:
TIMING: Once every 6 months. These calculations are inspired by two
things:
1. *
2. *
CALCULATION: Every 6 months, Xicor will calculate the actual yield
percentage and compare the actual yield percentage 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.
Density Wafer Sort Yield Percentages
--------------------------------------------
64K * %
32K * %
16K * %
256K * %
- 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.
- If the actual wafer yield percentage is different than the
target values, the difference will be shared by Xicor and
Sanyo and a new wafer price will be established for the next 6
month period.
B3: Device Pricing: (to be defined separately in conjunction with wafer sort
costs)
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
19
<PAGE> 20
CONFIDENTIAL TREATMENT REQUESTED
APPENDIX C
SPECIFICATIONS
C1: Wafer Specifications: Xicor specification number 00-W-0007 (C5)
C2: Device Specifications: Xicor specification number 020512 (C5 E-test limits)
C3: Quality and Reliability Specifications: Xicor specification numbers:
06020110, 06020101, 06020311 and 06020324.
C4: Wafer Yield: Yield targets are established in Table 1, Appendix B. Any wafer
yielding less than minus 3 sigma from the demonstrated six month wafer sort
yield average will be scrapped.
20
<PAGE> 21
CONFIDENTIAL TREATMENT REQUESTED
APPENDIX D
PROCESS, WAFER AND DEVICE QUALIFICATION & MONITORING CRITERIA
Xicor specification number 06020116.
21
<PAGE> 22
CONFIDENTIAL TREATMENT REQUESTED
APPENDIX E
NON-COMPETITION EXCLUSIONS
The following Sanyo Products/Product Families are specifically excluded from the
provisions of paragraph 10.0:
EEPROM/Flash Memories;
#1:LE28C*** series (512k, 1meg), parallel
#2:LE28F*** series (512k, 1meg), parallel
#3:LexxF*** series (512k, 1meg), serial
22
<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
Xicor, Inc. International Holding Company Delaware
</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, 333-59509, 333-83563 and 333-95589) of Xicor, Inc. of our report
dated January 24, 2000, relating to the financial statements, which appears in
this Annual Report on Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
San Jose, California
March 10, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-START> JAN-04-1999
<PERIOD-END> JAN-02-2000
<CASH> 22,233,000
<SECURITIES> 0
<RECEIVABLES> 9,008,000
<ALLOWANCES> 500,000
<INVENTORY> 13,003,000
<CURRENT-ASSETS> 44,124,000
<PP&E> 47,633,000
<DEPRECIATION> 38,798,000
<TOTAL-ASSETS> 54,794,000
<CURRENT-LIABILITIES> 40,551,000
<BONDS> 0
0
0
<COMMON> 129,005,000
<OTHER-SE> (124,556,000)
<TOTAL-LIABILITY-AND-EQUITY> 54,794,000
<SALES> 114,887,000
<TOTAL-REVENUES> 114,887,000
<CGS> 80,474,000
<TOTAL-COSTS> 80,474,000
<OTHER-EXPENSES> 14,560,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,407,000
<INCOME-PRETAX> (26,929,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (26,929,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,929,000)
<EPS-BASIC> (1.32)
<EPS-DILUTED> (1.32)
</TABLE>
