<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. FOR THE TRANSITION PERIOD FROM ________ TO _________.
COMMISSION FILE NUMBER 0-26944
SILICON STORAGE TECHNOLOGY, INC.
(Exact name of Company as specified in its charter)
CALIFORNIA 77-0225590
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1171 SONORA COURT, SUNNYVALE, CA 94086
(Address of principal executive offices) (Zip code)
Company's telephone number, including area code: (408) 735-9110
------------
Indicate by check mark whether the Company (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _.
Number of shares outstanding of the Company's Common Stock, no par value, as of
the latest practicable date, May 1,1996: 22,832,010. Total number of pages in
document: 26. Index to Exhibits is on page 10.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1
<PAGE>
SILICON STORAGE TECHNOLOGY, INC.
FORM 10-Q: QUARTER ENDED MARCH 31, 1996
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Statements of Operations ........3
Condensed Consolidated Balance Sheets ..................4
Condensed Consolidated Statements of Cash Flows ........5
Notes to Condensed Consolidated Financial Statements ...6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings .......................................10
Item 2. Changes in Securities ...................................10
Item 3. Defaults Upon Senior Securities .........................10
Item 4. Submission of Matters to a Vote of Security Holders .....10
Item 5 Other Information ........................................10
Item 6. Exhibits and Reports on Form 8-K ........................10
2
<PAGE>
PART I
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SILICON STORAGE TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three months ended March 31,
---------------------------
1995 1996
---- ----
(unaudited)
Revenues:
Product revenues $2,041 $21,499
License revenues 5 1,524
-------- --------
Net revenues 2,046 23,023
-------- --------
Costs and expenses:
Cost of revenues 1,916 13,152
Research and development 788 1,651
Sales and marketing 237 1,186
General and administrative 215 759
-------- --------
3,156 16,748
-------- --------
Income (loss) from operations (1,110) 6,275
Interest income - 498
Interest expense (55) -
-------- --------
Income (loss) before provision for
income taxes (1,165) 6,773
Provision for income taxes 1 2,574
-------- --------
Net income (loss) ($1,166) $4,199
-------- --------
-------- --------
Net income (loss) per share ($0.12) $0.17
-------- --------
-------- --------
Shares used in per share calculation 10,033 25,180
-------- --------
-------- --------
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
<PAGE>
SILICON STORAGE TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
December 31, March 31,
1995 1996
------------ ----------
(unaudited)
Current assets:
Cash and cash equivalents $48,405 $41,413
Short-term investments - 9,658
Accounts receivable, net of allowance for 7,480 12,649
doubtful accounts of $579 at December 31,
1995 and $721 at March 31, 1996
Inventories 2,483 3,640
Current deferred tax asset 1,930 1,930
Other current assets 605 416
-------- --------
Total current assets 60,903 69,706
Furniture, fixtures, and equipment, net 5,178 5,777
Other assets 322 1,265
-------- --------
Total assets $66,403 $76,748
-------- --------
-------- --------
LIABILITIES
Current liabilities:
Trade accounts payable 3,559 5,350
Accounts payable to related party 4,581 7,015
Accrued expenses 4,678 7,014
Deferred revenue 1,337 905
-------- --------
Total current liabilities 14,155 20,284
-------- --------
Other liabilities 76 88
-------- --------
Total liabilities 14,231 20,372
-------- --------
SHAREHOLDERS' EQUITY
Common stock and deferred stock compensation 53,457 53,462
Retained earnings (accumulated deficit) (1,285) 2,914
-------- --------
Total shareholders' equity 52,172 56,376
-------- --------
Total liabilities and shareholders' equity $66,403 $76,748
-------- --------
-------- --------
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
<PAGE>
SILICON STORAGE TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three months ended March 31,
---------------------------
1995 1996
---- ----
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($1,166) $4,199
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 306 638
Provision for doubtful accounts receivable 43 142
Changes in operating assets and liabilities:
Accounts receivable (178) (5,311)
Inventories (903) (1,157)
Prepaid expenses and other current assets (36) 189
Trade accounts payable/accounts payable to related party 1,505 4,225
Accrued expenses and other liabilities 149 2,348
Deferred revenue (31) (432)
--------- ---------
Net cash provided by (used in) operating activities (311) 4,841
--------- ---------
Cash flows from investing activities:
Acquisition of furniture, fixtures and equipment (920) (1,236)
Purchases of short-term investments - (9,658)
Other 2 (943)
--------- ---------
Net cash provided by (used in) investing activities (918) (11,837)
--------- ---------
Cash flows from financing activities:
Issuance of shares of common stock and other 2,046 4
Change in restricted cash balance 70 -
Repayment of notes payable to bank (70) -
--------- ---------
Net cash provided by (used in) financing activities 2,046 4
--------- ---------
Net increase (decrease) in cash and cash equivalents 817 (6,992)
Cash and cash equivalents at beginning of period 2,751 48,405
--------- ---------
Cash and cash equivalents at end of period $3,568 $41,413
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
<PAGE>
SILICON STORAGE TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed interim consolidated financial statements
include all adjustments, consisting only of normal recurring adjustments and
accruals, that in the opinion of the management of Silicon Storage Technology,
Inc. (the "Company" or "SST") are necessary for a fair presentation of the
Company's financial position as of March 31, 1996 and the results of operations
and cash flows for the three months ended March 31, 1995 and 1996. The
unaudited interim consolidated financial statements should be read in
conjunction with the audited consolidated financial statements of the Company
and the notes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, filed with the Securities and Exchange
Commission.
The year-end balance sheet at December 31, 1995 was derived from audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles.
2. COMPUTATION OF NET INCOME PER SHARE
Net income (loss) per share is computed using the weighted average number of
common and common equivalent shares outstanding during the period. Common
equivalent shares are excluded from the computation if their effect is
antidilutive, except that pursuant to Securities and Exchange Commission Staff
Accounting Bulletin No. 83, all common and common equivalent shares used during
the twelve months preceding the filing date of the Company's initial public
offering have been included in the calculation of the number of shares used to
determine earnings per share as if the shares had been outstanding for all
periods presented using the treasury stock method.
3. INVENTORIES (IN THOUSANDS):
December 31, March 31,
------------ ---------
1995 1996
---- ----
(unaudited)
Raw materials $133 $888
Work in process 1,831 2,667
Finished goods 519 85
------- -------
$2,483 $3,640
------- -------
------- -------
4. LEGAL PROCEEDINGS
On January 3, 1996, Atmel Corporation ("Atmel") sued the Company in the U.S.
District Court for the Northern District of California. Atmel's complaint
alleges that the Company, by making, using and selling devices, is willfully
infringing five U.S. patents owned by, or exclusively licensed to, Atmel.
Regarding each of these five patents, Atmel seeks a judgment that the Company
has infringed the patent, an injunction prohibiting further infringement, treble
the amount of damages caused by the alleged infringement and attorney's fees,
costs and expenses. On February 13, 1996 the Company filed an answer denying
Atmel's allegations and asserting affirmative defenses and counterclaims. There
can be no assurance that the Atmel complaint or other third party assertions
will be resolved without costly litigation or in a manner that is not adverse to
the Company. Accordingly, while the Company has accrued certain amounts for
costs associated with this matter, it is reasonably possible that the ultimate
resolution could result in payments in excess of the amounts accrued in the
accompanying financial statements and/or require royalty payments in the future
which could adversely impact gross margins. No estimate of these possible
payments can be made.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion may be understood more fully by reference to the
condensed consolidated financial statements, notes to the condensed consolidated
financial statements, and management's discussion and analysis contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995, filed
with the Securities and Exchange Commission.
Except for the historical information contained herein, the following discussion
may contain forward-looking statements that involve risks and uncertainties.
The Company's actual results could differ materially from those discussed here.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in this section.
GENERAL
SST ("Silicon Storage Technology, Inc." or the "Company") was incorporated in
California in 1989. The Company is a supplier of Flash memory devices,
addressing the requirements of high volume customers and applications.
Currently, the Company offers medium density devices ranging from 512Kbit to
4Mbit that target a broad range of existing and emerging applications in the
personal computer, communications, multimedia, set-top box, and video game
markets. To date, a substantial majority of the Company's product revenues have
been derived from the sale of 1Mbit memory devices. The substantial majority of
these 1Mbit memory devices are used in personal computers and PC peripheral
products. The Company is developing higher density memory products to address
emerging markets such as digital cameras, voice recorders, video telephones,
memory cards, network adaptor cards, digital cellular phones and printer font
storage.
The Company completed an initial public offering in November, 1995. In
connection with this offering the Company sold 5,010,000 shares of common stock
for net proceeds of $40.9 million.
During the first quarter of 1996, the Company derived approximately 49% of its
net revenues from sales to Taiwan-based PC manufacturers. The Company intends to
diversify its customer base by increasing sales in other geographic areas and
targeting additional high volume applications such as the cellular telephone,
CD-ROM drive, hard disk drive, video game, electronic organizer and set-top box
markets. The Company is increasing the scope of its international sales efforts
and expects that international sales will continue to account for a significant
portion of its product revenues although the percentage may fluctuate from
period to period. Although the Company's international sales are primarily
denominated in U.S. dollars, these sales are subject to a number of risks
associated generally with international sales, including the effect of currency
fluctuations, state-imposed restrictions on the repatriation of funds, import
and export duties and restrictions.
RESULTS OF OPERATIONS: QUARTER ENDED MARCH 31, 1996
The following discussion relates to the financial statements of the Company for
the three months ended March 31, 1996 (current quarter) of the fiscal year
ending December 31, 1996, in comparison to the three months ended March 31, 1995
(comparable quarter of the prior year). In addition, certain comparisons with
the three months ended December 31, 1995 (previous quarter) are provided where
management believes it is useful to the understanding of continuing trends.
Operating results for the three months ended March 31, 1996 are not necessarily
indicative of the results to be achieved for the full fiscal year ending
December 31, 1996.
NET REVENUES. Product revenues were $21.5 million in the current quarter as
compared to $2.0 million for the comparable quarter of the prior year and $16.7
million in the previous quarter due to higher shipment volumes, especially of
the 512Kbit and 1Mbit product lines. License, royalty and development revenues
were $1.5 million for the current quarter as compared to $5,000 in the
comparable quarter for the prior year. Current quarter license revenues include
nonrefundable upfront license and development fees from two third parties. Such
upfront license fees may or may not recur in future quarters.
During the first quarter of 1996, the Company derived approximately 49% of
shipment dollars from sales to Taiwan-based PC manufacturers, as compared to 52%
during the previous quarter. While the Company intends to diversify both the
market application of its products and its customer base, there can be no
assurance that such diversification will occur in the short-term. International
sales accounted for approximately 92% of shipment dollars during the current
quarter, as compared to 90% during the previous quarter. International sales
are anticipated to account for substantially all shipment dollars in the near
term.
7
<PAGE>
COST OF REVENUES. Gross margin was $9.9 million or 43% of net revenues in the
first quarter of 1996 as compared to $130,000 or 6% or net revenues for the
comparable quarter in 1995 and $6.2 million or 37% for the previous quarter.
The overall increase in gross margin from the first quarter of 1995 to the first
quarter of 1996 is primarily a result of significantly increased production
volume which resulted in lower unit costs and a higher mix of license and
royalty revenues. Gross margin in the current quarter increased due to
economies of scale related to higher production volumes and a more favorable mix
of higher margin license and royalty margins. Because the amount of license
revenue recognized, if any, varies greatly from quarter to quarter, similar
increases in gross margin are not assured in future periods. Future
fluctuations in gross margins may occur as a result of changes in the mix
between license revenues and product revenues or the impact of changes in the
product mix.
The Company's agreement with Sanyo provides for wafer price adjustments based on
dollar/yen exchange rate fluctuations. As a result, a strengthening yen could
result in higher cost of revenues. Gross margins may also be affected by cost
reductions, yield fluctuations, wafer costs, changes in product mix, the mix of
sales through distribution channels and competitive pricing pressures.
Average selling prices of Flash memory product are subject to significant
fluctuation due to periodic changes in supply and demand. Declining average
selling prices will adversely affect gross margins unless the Company is able to
offset such declines with reductions in per unit costs or changes in product
mix.
RESEARCH AND DEVELOPMENT. Research and development expenses were $1.7 million
or 7% of net revenues during the first quarter of 1996, as compared to $0.8
million or 39% of net revenues during the comparable quarter of 1995. The
increase in research and development expenses compared to the prior year is
primarily a result of hiring additional personnel, depreciation related to
purchases of additional test equipment, and increased prototyping and product
qualification costs associated with the Company's process and development
efforts. Research and development dollar expenses also increased from the
previous quarter level of $1.5 million or 9% of net revenues primarily due to
costs related to wafer processing and mask expenses for the 2 Mbit product
tape-out and the 32Mbit product development effort.
SALES AND MARKETING. Sales and marketing expenses were $1.2 million or 5% of
net revenues during the first quarter of 1996, as compared to $0.2 million or
12% of net revenues for the comparable quarter in 1995. Sales and marketing
expenses increased primarily due to sales commissions to manufacturers'
representatives, salaries of the Company's sales and marketing personnel and
product literature. Sales and marketing expense was $0.9 million or 5% of net
revenues during the previous quarter ended December 31, 1995. The increase in
expenses since the previous quarter corresponds with increased sales commissions
and headcount additions.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were $0.8
million or 3% of net revenues during the quarter ended March 31, 1996, and $0.2
million or 11% of net revenues during the comparable quarter ended March 31,
1995. The increase is primarily due to the higher headcount, facilities-related
expenses, and costs associated with being a public company. Expenses were $0.6
million or 3% of net revenues during the previous quarter. Growth since the
December 31, 1995 quarter is primarily the result of headcount increases.
INTEREST INCOME. Interest income was $0.5 million or 2% of net revenues during
the first quarter of 1996 compared to no interest income during the comparable
quarter of 1995. Interest income relates primarily to interest earned on net
cash proceeds from the initial public offering in November 1995.
INTEREST EXPENSE. The Company incurred no interest expense during the first
quarter of 1996 and $0.1 million during the first quarter of 1995. Interest
expense declined because the Company repaid all non-trade debt during 1995.
Interest expense during the quarter ended March 31, 1996 is also lower than
interest expense of $7,000 during the previous quarter ended December 31, 1995
because the Company repaid a loan from Quantum Corporation in October, 1995 and
because certain other Company debentures were converted into common stock of the
Company during the Company's initial public offering in November 1995.
PROVISION FOR INCOME TAXES. The Company's effective income tax rate is 38% in
the current quarter, which results in a $2.6 million provision for income taxes,
as compared to $1,000 in the comparable quarter of 1995 due to the Company's net
operating loss position in the comparable quarter of 1995.
8
<PAGE>
NET INCOME PER SHARE. The Company's net income per share for the current quarter
was $.17, compared to a net loss per share of $.12 in the comparable quarter of
the prior year and net income of $.19 per share in the previous quarter. Net
income increased from a loss of $1.2 million in the comparable quarter of the
prior year to $4.2 million of income in the current quarter. Net income in the
previous quarter of $4.2 million included a one-time tax benefit of $2.2 million
from the utilization of the benefit of net operating loss carryforwards. Absent
this one-time benefit, the Company's net income would have been $2.2 million and
net income per share would have been $.10 in the previous quarter.
LIQUIDITY AND CAPITAL RESOURCES
From inception to November 1995, the Company used proceeds from the private sale
of equity securities and convertible debentures and funds generated from
corporate borrowing and internal cash flow to support its operations, acquire
capital equipment and finance inventory and accounts receivable. In November
1995, the Company completed its initial public offering. Cash from the offering
and the subsequent exercise of an over-allotment option by the underwriters
resulted in net proceeds of $40.9 million to the Company.
Principal sources of liquidity at March 31, 1996 consist of $51.1 million of
cash, cash equivalents, and short-term investments. As of March 31, 1996, the
Company had no open lines of credit or non-trade debt. However, the Company may
endeavor to open a line of credit in the future to secure additional working
capital to finance growth in operations. The Company believes that the cash
balances, together with funds expected to be generated from operations will be
sufficient to meet its projected working capital and other cash requirements
through at least the next twelve months. However, there can be no assurance that
events in the future will not require the Company to seek additional capital
sooner or, if so required, that it will be available on terms acceptable to the
Company.
The Company made capital expenditures of approximately $1.2 million during the
current quarter as compared to $.9 million during the comparable quarter of the
prior year and $1.6 in the previous quarter. These expenditures were primarily
for the purchase of test equipment, design and engineering tools, and computer
equipment. Similar levels of capital spending are expected to continue, and may
even increase, during the rest of 1996. In addition, the Company may use its
working capital to secure additional foundry capacity. These expenditures may be
in the form of deposits, equipment purchases, loans or equity investments or
joint ventures in or with wafer fabrication or other companies.
The Company's operating activities provided cash of $4.8 million during the
current quarter, consisting principally of net income of $4.2 million,
depreciation and amortization of $0.6 million and an increase in accounts
payable and other liabilities, partially offset by increases in inventories of
$1.2 million and accounts receivable of $5.3 million.
9
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this section.
On January 3, 1996, Atmel sued the Company in the U.S. District Court for
the Northern District of California. Atmel's complaint alleges that the
Company, by making, using and selling devices, is willfully infringing five U.S.
patents owned by or exclusively licensed to Atmel. Regarding each of these five
patents, Atmel seeks a judgment that the Company has infringed the patent, an
injunction prohibiting further infringement, treble the amount of damages caused
by the alleged infringement and attorney's fees, costs and expenses. On
February 13, 1996 the Company filed an answer denying Atmel's allegations and
asserting affirmative defenses and counterclaims.
At the present time, there is no other pending litigation or proceeding
involving a director, officer, employee or other agent of the Company in which
indemnification would be required or permitted. The Company is not aware of any
threatened litigation or proceeding which may result in a claim for such
indemnification.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM. 6 EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS. The Company hereby incorporates by reference all exhibits filed
in connection with Form 10-K for the year ended December 31, 1995.
EXHIBIT NUMBER DESCRIPTION
10.15 License and Development Agreement with Seiko-Epson
11.1 Statement Regarding Computation of Net Income (Loss) Per
Share
(b) Reports on Form 8-K filed during the quarter ended March 31, 1996: File No.
0-26944 dated January 17, 1996.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Company has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Sunnyvale, County of Santa Clara, State of
California, on the 3rd day of May, 1996.
SILICON STORAGE TECHNOLOGY, INC.
By: /s/ BING YEH
---------------------------------
Bing Yeh
President and Chief Executive Officer
/s/ MICHAEL J. PRAISNER
---------------------------------
Michael J. Praisner
Principal Financial and Accounting
Officer
11
<PAGE>
Exhibit 10.15
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
LICENSE AGREEMENT
This License Agreement ("Agreement") effective March 31, 1996, ("Effective
Date") is entered into between Seiko Epson, Corporation having its principal
place of business at 3-3-5 Owa, Suwa-Shi, Nagano-Ken, 392 Japan ("SEC") and
Silicon Storage Technology, Inc. of 1171 Sonora Court, Sunnyvale, CA. 94086
("SST").
Whereas, SST has designed and developed or will design and develop
certain SST Technology (as defined hereinafter) relating to Flash EEPROM,
including Flash EEPROM cells, Flash EEPROM memory circuits, and methods of
operation and manufacturing therefor;
Whereas, SST is the owner of all Intellectual Property Rights (as
defined hereinafter) in said SST Technology; and
Whereas, SST and SEC now desire to formalize their agreement;
THEREFORE, in consideration of mutual covenants and premises contained
herein, the parties hereto agree as follows:
ARTICLE I - DEFINITIONS
1.0 "Subsidiary" shall mean a corporation, partnership or other business
enterprise, more than fifty percent (50%) of the ownership of which is
owned or controlled, directly or indirectly, by SST or SEC.
1.1 "SEC Group" shall mean SEC and it Subsidiaries.
1.2 "SuperFlash I Technology" shall mean the proprietary SST cell design,
process architecture, and design rules owned by SST and used by SST since
1993 until replaced by the next generation process architecture for the
production of SST's EEPROM products as specified in the 1995 SST Data
Book, covering shrink processes which enable a minimum feature size on the
wafer of no less than 0.6 microns. The original design rule was created
based on a 1.2 micron rule. A cost reduction path has been achieved
through direct linear shrink of the database with minor design rule
adjustment; instead of re-layout of the circuit schematics. In the past
two years, SST has placed 89% and 80% shrinks into volume production. SST
has also demonstrated the 70% and 60% shrink processes and is in the process
of establishing the 70% shrink as a volume manufacturing process.
1.3 "SuperFlash II Technology" shall mean the second generation proprietary SST
cell design, process architecture, and design rules currently under
development by SST for the future
-1-
<PAGE>
production of SST's EEPROM products. The original design rule was created
based on a 0.6 micron rule. A cost reduction path will be accomplished
through direct linear shrink of the database with minor design rule
adjustment. SST has demonstrated the 90% and 85% shrink processes and is in
the process of establishing the 90% shrink as a volume manufacturing process
at one of its wafer foundry partners.
1.4 "SuperFlash III Technology" shall mean the third generation proprietary SST
cell design, process architecture, and design rules to be developed by SST
for the future production of SST's 0.35 micron EEPROM products.
1.5 "SST Technology" shall mean SuperFlash I Technology, SuperFlash II
Technology, and SuperFlash III Technology, and future generations of SST
proprietary EEPROM technology that are owned and controlled by SST.
1.6 "SEC Improvement" shall mean patents, mask work rights, and all other
technical developments in incremental improvements or modifications made to
the SST Technology by SEC Group, after the effective date of this
Agreement, in the nature of evolution of product designs and manufacturing
process, that incorporate elements of the SST Technology. SEC Improvement
excludes SEC's original technologies developed by SEC independently of SST
Technology.
1.7 "SST Improvements" shall mean patents, mask work rights, and all other
technical developments in incremental improvements or modifications made to
the SST Technology by SST, after the effective date of this Agreement, in
the nature of evolution of product designs and manufacturing process, that
incorporate elements of the SST Technology.
1.8 "Improvements" shall mean SEC Improvement and SST Improvement.
1.9 "Product Wafer" shall mean an unsorted wafer of products manufactured for
SST, by SEC Group based upon the SST Technology.
1.10 "SEC" Product" shall mean a product which was made and sold by SEC Group
under SEC's trade name and was designed by SEC Group or designed for SEC
Group by a third party under a non-disclosure agreement with SEC Group to
keep the SST Technology confidential and incorporate substantial elements
of the SST Technology. The product shall not include memory only products,
i.e. the sole purpose or function of which is for the storage and retrieval
of data or information and used as a standalone memory product.
1.11 "SST Intellectual Property Rights" shall mean all patents, copyrights, mask
work rights, and trade secrets subsisting in
-2-
<PAGE>
or covering the SST Technology, which are owned by SST or to which SST has
the right to grant the rights and license granted herein, now or hereafter
during the term of this Agreement. SST Intellectual Property Rights
include, but is not limited to, patents covering Flash EEPROM cells and
memory circuits, and methods of operation and manufacturing therefor, mask
work rights in the layout of the Flash EEPROM cells and memory circuits,
copyrights in the net list, and confidential information in cell design
layout, design rules, and process flow and architecture.
1.12 "Licensee Product" shall mean a product which was designed by an SST
Licensee, and made and sold by SEC Group to that SST Licensee, under that
SST Licensee's brand name or trademark, pursuant to a manufacturing
agreement between SEC and SST's Licensee based upon the SuperFlash I
Technology and SST Improvement.
1.13 "Mass Production" of the first SEC Product shall mean production of the
first SEC Product in excess of forty-eight (48) wafers per month.
1.14 "SST Licensee" shall mean a licensee of SST, under SST Technology, having
the right to design products using SST Technology. Provided there is no
contractual obligation prohibiting disclosure, SST will identify to SEC
all of SST Licensees.
ARTICLE II - LICENSE GRANT
2.0 Subject to the payment of the license fee as set forth in Paragraph 3.0
hereof and the royalty provisions of paragraph 3.1 and 3.2, SST hereby
grants SEC Group under SST Intellectual Property Rights, during the term of
this Agreement:
a) a non-exclusive, personal, non-transferrable, license, without the
right to grant sublicenses, to use the SuperFlash I Technology to
manufacture Product Wafers for SST and to sell same to SST under the
terms of a separate manufacturing agreement, executed even date
herewith.
b) upon the accomplishment of first commercial delivery of Product Wafers
to SST, a non-exclusive, personal, non-transferrable, license, without
the right to grant sublicenses, to design, manufacture, without the
right to have manufactured, use or sell SEC Products based upon the
SuperFlash I Technology;
c) upon the accomplishment of first commercial delivery of Product Wafers
to SST, a non-exclusive, personal, non-transferrable, license, without
the right to grant
-3-
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
sublicenses to design, manufacture, without the right to have
manufactured, use or sell Licensee Products.
2.1 The license granted in paragraph 2.0 (a-c) is subject to the following
restrictions:
a) the license is only for the right to design, manufacture, without the
right to have manufactured, use or sell Product Wafers, SEC Products
or Licensee Products, (as the case may be) based upon the SuperFlash I
Technology with or without Improvements, having a minimum feature size
on the wafer of no less than 0.6 microns.
b) SEC shall limit the wafer allocation for the usage under paragraph 2.0
(b) and (c) to [ * ] of the total flash wafer capacity if
SEC cannot supply up to at least [ * ] of Product Wafers
to SST based upon commitment to SST.
c) The number of EEPROM memory cells on each SEC Product shall not exceed
one million (1,000,000) unless SEC can provide sufficient proof that
the subject SEC Product will not compete with SST and written consent
is obtained from SST. SST shall not unreasonably withhold such
written consent.
d) SEC Group shall mark all SEC Products, including data sheets, product
brochures and promotion material therefor, at a prominent location,
with "This product incorporates technology licensed from Silicon
Storage Technology, Inc.", having a font size and layout determined
solely by the SEC Group, but is otherwise readable with a naked eye of
a typical person. Upon a request from SEC to waive or modify this
notice, SST and SEC will jointly undertake a review of the
practicality of such a notice.
2.2 Subject to SEC having paid the license fee as set forth in Paragraph 3.0
hereof and the royalty provisions of paragraph 3.1 and 3.2, SST hereby
grants SEC Group under SST Improvements, for the life of SST Improvements,
a license and right to design, to make (without the right to have made), to
use or sell, Product Wafers, SEC Products or Licensee Products, under the
terms and conditions of paragraph 2.0 and 2.1 hereof, without additional
license fee or royalty obligation. SEC agrees to grant to SST, a paid
up, royalty free, non-exclusive, unrestricted, license and right, including
the right to grant sublicenses, to design, make, have made, use or sell any
product incorporating any SEC Improvement, for the life of the SEC
Improvements.
-4-
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
ARTICLE III - LICENSE FEE & ROYALTY
3.0 In consideration of the license granted under paragraph 2.0 hereof, SEC
agrees to pay, in U.S. currency to SST, upon execution of this Agreement, a
non-refundable license fee of [ * ]. The parties
agree that a ten percent (10%) withholding tax is imposed in such license
fee and payment of royalties as defined in paragraph 3.1 and that such
withholding tax is included in the license fee as defined in this paragraph
and in paragraph 3.1. SEC agrees to provide SST with certificate of such
withholding tax payment in Japan in order that SST may claim such tax
payment in Japan to the U.S. tax authorities.
3.1 For each SEC Product manufactured and sold by SEC Group, SEC shall pay SST
a royalty in accordance with the following:
a) For all SEC Products sold by the SEC Group, SEC shall pay [ * ]
of the Ex-Factory-Price of SEC Products. In the event the SEC
Products are included in a system product, then the royalty shall be
[ * ] of the fair market value of the SEC Products.
b) Commencing with one year after the date of the first Mass Production
of the first SEC Product, and for one year thereafter, for all SEC
Products sold by the SEC Group, SEC shall pay [ * ] of the
Ex-Factory-Price of SEC Products. In the event the SEC Products are
included in a system product, then the royalty shall be [ * ]
of the fair market value of the SEC products.
c) Commencing with two years after the date of the first Mass Production
of the first SEC Product, and thereafter, for all SEC Products sold by
the SEC Group, SEC shall pay [ * ] of the Ex-Factory-Price
of SEC Products. In the event the SEC Products are included in a
system product, then the royalty shall be [ * ] of the
fair market value of the SEC Products.
d) In the event the ratio (of total area occupied by one SST memory cell
multiplied by the number of cells used in the SEC Product divided by
the total chip area excluding bonding pads) for the SEC Product is
less than [ * ], then the royalty rate for such SEC
Product shall be one half of the amount set forth in paragraphs 3.1
(a-c), as the case may be.
e) Fair Market Value of SEC Products as referred to in paragraphs 3.1(a)
through (c) shall be determined as follows:
(i) SEC's ex-factory price of the identical product sold
-5-
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
by SEC without being incorporated into a system product; (ii) If (i)
does not exist, then the sales price of a similar product sold by a
third party;
(iii) If (ii) does not exist, then the sales price of a similar
product sold by SEC.
3.2 For each Licensee Product, SEC shall pay SST a royalty in the amount of
[ * ] of the sales price charged by SEC to SST Licensee.
ARTICLE IV - ROYALTY PAYMENTS AND REPORTS
4.0 Any royalty due SST in accordance with the royalty specified in paragraphs
3.1 and 3.2 of this Agreement shall be due and payable within sixty (60)
days of the close of the calendar quarter in which SEC Products or products
for SST Licensees are sold by SEC Group. If SEC Products are sold in
currencies other than U.S. dollars, SEC shall convert the value of such SEC
Products to U.S. Dollar value and calculate the royalty in U.S. Dollars
using exchange rate as of the end of the relevant calendar quarter.
4.1 SEC shall provide SST with a written report, under oath, within sixty (60)
days of the close of each calendar quarter at which SEC Products or
products for SST Licensees are sold by SEC Group, setting forth the total
number of SEC Products or products for SST Licensees are sold by SEC Group,
during the preceding quarter and any royalties are due SST under the
provisions of paragraph 3.1 and 3.2 as the case may be. In the event a
royalty payment is due SST, SEC shall provide the total amount of royalties
then due SST with such written report.
4.2 In the event that any sum of money owed to SST as royalties hereunder is
not paid when due, then the unpaid amount shall bear interest, compounded
monthly, at an annual rate of the published prime rate of the Bank of
America N.T. & S.A., San Francisco, California, U.S.A., on the day such
payment was due, or at the highest annual rate permitted by law, whichever
is lower, until paid.
ARTICLE V - RECORDS, BOOKS OF ACCOUNT AND EXAMINATION
5.0 SEC agrees to keep regular books of account of the number of SEC Products
or products for SST Licensees are sold by SEC Group. Such books of account
shall be opened at all reasonable business hours for inspection by SST or
its duly authorized representatives, upon reasonable notice given to SEC.
SST shall further have the right, at its own expense, to have all such
royalty statements verified by an independent
-6-
<PAGE>
Certified Public Accountant. In the event the audit discloses a
discrepancy of more than five percent (5%) between the actual amount and
the reported amount, SEC agrees to reimburse SST for the cost of the audit.
ARTICLE VI - MANAGEMENT REVIEW AND TECHNOLOGY TRANSFER
6.0 In consideration of the license grant set forth in paragraph 2.0, SEC shall
be the primary party responsible for bringing the SuperFlash I Technology
operational at SEC wafer fabrication facilities. SST shall assist in such
process establishment by providing detail documentation and on-site
consultation. SEC shall bear all cost associated with material and wafer
qualification for establishing the process. SST shall bear all cost of the
mask set used in Product Wafers and shall be the primary party responsible
for evaluating and characterizing engineering wafers and shall be
responsible for product qualifications. The parties agree that the costs
will be generally divided as follows:
Process Dev. Stage Mass Prod. Stage
mask SEC SST
pilot wafer SEC SST
sorting (1) SST
evaluation (1) SST
(1) if SEC performs the act, it will not bill SST; if SST performs the act, it
will not bill SEC.
6.1 Within thirty (30) days after the execution of this Agreement, SST will
have provided to SEC with documents describing the process flow, design
rules, and existing characterization data on the SuperFlash I Technology,
the list of which is attached as Exhibit A. SEC shall have the right to
make five (5) additional copies of the documentation provided by SST. SEC
and SST shall cooperate to establish the SuperFlash I Technology in SEC's
fab facility as soon as possible, using SST's existing 1 Mbit Page-Mode
EEPROM (29EE010) product design as the first Product Wafer. Both parties
shall make best efforts to enable SEC to start providing SST with
production volumes of 29EE010, three (3) months after the execution of this
agreement. SST will provide the necessary technical assistance. SST
employees shall have access to the wafer fab clean room to speed up the
process establishment, and to ensure the success of the technology
transfer. Any such SST employee on the premises of the SEC facility shall
obey the same rules and regulations as any other third party employee at
the same facility.
6.2 SEC and SST shall schedule management review meetings at least twice a year
to assess the progress of the relationship, deal with unresolved problems
and develop strategic plans for
-7-
<PAGE>
continued joint effort.
ARTICLE VII - TERM AND TERMINATION
7.0 Except as provided for in paragraph 7.1 of this Article VII, the term of
the license granted under this Agreement shall commence on the Effective
Date of this Agreement and shall terminate seventeen (17) years thereafter.
7.1 (a) Either party shall have the right to terminate this agreement upon:
(i) the insolvency or voluntary or involuntary bankruptcy of the other
party; or (ii) the appointment of any receiver, trustee or custodian for
all or a substantial part of the assets of the other party, with such
appointment not dismissed within ninety days; or (iii) the voluntary or
involuntary dissolution of the other party.
(b) Because of the special nature of this Agreement in that as a
substantial part of the consideration, SST and SEC's affiliated company,
S-MOS Systems, Inc., have entered into a separate Manufacturing Agreement,
dated even date herewith, if either party shall fail to observe or perform
any covenant of this Agreement or of the Manufacturing Agreement, or shall
commit any breach of any covenant or agreement contained herein or in the
Manufacturing Agreement, or violate any of its obligations (the "breach
party"), the non-breaching party may give notice in writing to the
breaching party, specifying the same in reasonable detail, and if the
breaching party shall not within thirty (30) days cure, correct or make
good the same to the non-breaching party's reasonable satisfaction, then
the non-breaching party may, at its option, give ten (10) days notice to
the breaching party and thereby terminate this Agreement.
7.2 The termination of this Agreement, by expiration or otherwise, shall not
release either party form any of its obligations or liabilities theretofore
incurred, or rescind or give rise to any rights to rescind, anything done
or any payment made or other consideration given theretofore under this
Agreement. No failure or delay on the part of either party in exercising
its right to terminate for any one or more default shall be construed to
prejudice its rights of termination for such or for any other or subsequent
default.
ARTICLE VIII - INTELLECTUAL PROPERTY INDEMNIFICATION
8.0 SST warrants that the SST Technology does not infringe any third party's
patents or other intellectual property rights, exclusive of trademark or
trade dress rights, and will indemnify SEC against any and all legal
actions, costs and
-8-
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
damages suffered by SEC, holding SEC harmless, provided SST has been given
prompt notice, reasonable assistance, and control of the legal action.
Should SEC's business (including the wafer foundry business, based on the
SST Technology) be suspended due to a breach of the foregoing warranty, SST
shall procure, on its own responsibility and costs, sufficient rights for
SEC to continue business using the SST Technology. The total
indemnification under this section 8.0 shall not exceed US $3.0 million.
With respect to [ *
] SST agrees to indemnify SEC up to US $5.0 million. [ *
].
8.1 In the event any claim is brought against SEC for infringement of any
patents or other intellectual property rights, exclusive of trademark or
trade dress rights, by any third party, any settlement between SST and the
third party will be subject to approval by SEC, with such approval not
unreasonably withheld.
ARTICLE IX - DISCLAIMER OF PARTNERSHIP
9.0 This Agreement shall not be construed as creating a partnership between the
parties hereto or to create any other form of legal association which would
impose liability upon one party for the act or the failure to act of the
other party.
ARTICLE X - MISCELLANEOUS
10.0 ENTIRE AGREEMENT, MODIFICATIONS, WAIVERS. This Agreement sets forth the
entire understanding between the parties hereto concerning the subject
matter hereof and supersedes all prior understandings in connection
therewith. No modification or alteration shall be binding unless executed
in writing by the parties. No waiver of any provision of this Agreement
shall be deemed or construed a waiver of any other provision hereof
(whether or not similar) nor shall a waiver be construed a continuing
waiver unless expressly so stated.
10.1 NOTICE. Any notice required or permitted to be given under this Agreement
shall be in writing and either delivered personally or deposited in the
mail, postage prepaid, registered or certified, return receipt requested,
addressed to the parties at the address appearing on the first page of this
Agreement, and shall be deemed given on the date of personal delivery or
three (3) days after the date of mailing except in the event of postal
disruption, in which event notice shall be deemed given when received.
-9-
<PAGE>
10.2 REMEDY IS NOT EXCLUSIVE. No remedy conferred by any of the specific
provisions of this Agreement is intended to be exclusive of any other
remedy, and each and every remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing
at law or in equity or by statute or otherwise. The election of any one or
more remedies by either party shall not constitute a waiver of the right to
pursue other available remedies.
10.3 COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
10.4 CAPTIONS AND PARAGRAPH HEADINGS. Captions and paragraph headings used
herein are for convenience only and are not a part of this Agreement and
shall not be used in construing it.
10.5 GOVERNING LAW. The provisions of this Agreement shall be governed by and
interpreted in accordance with the laws of California.
10.6 INVALIDITY. If any clause or provision of this Agreement is declared
illegal, invalid or unenforceable under present or future laws effective
during the term hereof, it is the intention of the parties hereto that the
remainder of this Agreement shall not be affected hereby and shall remain
in force and effect.
10.7 EQUITABLE REMEDY. The parties understand and acknowledge the violation of
the respective covenants and agreements contained herein may cause the
other irreparable harm and damage, which may not be recover at law, and
each agrees that the other's remedies for a breach hereof may be in equity
by way of injunctive relief, as well as for damages and any other relief
available to the non-breaching party, whether in law or in equity.
10.8 CONSENT AND/OR APPROVAL. Wherever the consent or approval on the part of
either party to this Agreement is required, such consent or approval will
not be unreasonably withheld.
10.9 SUCCESSORS AND ASSIGNS. Neither party may assign its rights or delegate
its duties under this Agreement either in whole or in part without the
prior written consent of the other party. Any attempted assignment or
delegation without such consent will be deemed null and void.
10.10 WARRANTY.
(a) Except as set forth paragraph 8.0, hereof, nothing contained in this
Agreement shall be construed as
(i) a warranty or representation by SST as to the
-10-
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
validity or scope of the SST Intellectual Property Rights, licensed
hereunder; or
(ii) a warranty or representation that any manufacturing, sale, lease,
use or otherwise disposition of Licensed Product hereunder will be
free from infringement of patents of third parties other than those in
the SST Intellectual Property Rights, licensed hereunder; or
(iii) an agreement to bring or prosecute actions or suits against
third parties for infringement; or
(iv) conferring any right to use advertising, publicity, or otherwise
any trademark, tradename or name, or any contraction, abbreviation or
simulation thereof, of either party; or
(v) conferring by implication, estoppel, or otherwise, upon SEC, any
license or other right, except the licenses and rights expressly
granted hereunder.
(b) Notwithstanding the foregoing, SST:
(i) shall have the right to advertise or promote the fact that SEC is
a licensee.
(ii) represents and warrants
a) it has all intellectual property rights in the licensed
technology necessary to license SEC;
b) it has the right to grant the license and rights granted in
paragraphs 2.0 - 2.3;
c) is unaware of any pending or threatened lawsuit involving
intellectual property to be utilized in the performance of this
Agreement, other than the Atmel lawsuit; and
d) the licensed technology under Article II, when used by SEC in
accordance with SST instructions, can produce products meeting
the specifications contained in the SST Data Book 1995.
10.11 LIMITATION IN LIABILITY. Neither party shall be liable to the other
for any incidental, indirect or consequential damages arising out of
or in connection with this Agreement. In no event shall either party
be liable to the other for cumulative damages greater than [ *
]
Furthermore, SEC agrees to hold SST harmless from any cause of action
arising out of, as a result of, or in connection with, any dispute
between SEC and SST's licensee, using SEC as a foundry.
10.12 EXPORT CONTROL. SEC agrees to comply with all laws relating to export
control with regard to all goods and information transferred by SST to
SEC hereunder, including but not limited to the information
transferred pursuant to paragraph 6.1 hereof, and agrees to hold SST
harmless and indemnify it from any breach thereof. SST
-11-
<PAGE>
agrees to comply with all laws relating to export control with regard
to all goods and information transferred by SEC to SST hereunder,
including but not limited to the information relating to the SEC
Improvement and agrees to hold SEC harmless and indemnify it from any
breach thereof.
10.13 CONFIDENTIALITY. During the term of this Agreement, the parties may
be disclosing Confidential Information to each other. Each party
agrees to treat Confidential Information received from the other by
using the same degree of care, but no less than a reasonable degree of
care, to prevent the unauthorized use, disclosure, dissemination, or
publication of the Confidential Information as the Recipient uses to
protect its own Confidential Information and further agrees not to
disclose such Confidential Information to a third party without the
prior written consent from the disclosing party. Upon written
request of the disclosing party, Recipient will return or destroy
any and all documents, including electronic media, and all copies
thereof, which are in the possession or control of Recipient.
Recipient shall have a duty to protect only that Confidential
Information which: (a) is disclosed in writing and marked as
confidential at the time of disclosure; or (b) is disclosed in any
other manner, is identified as confidential at the time of disclosure,
and is further identified as confidential in a written memorandum
delivered to the Recipient within thirty (30) days of the disclosure.
The foregoing limitations on disclosure and non-authorized use do
not apply to Confidential Information which: (a) was known to the
recipient prior to the disclosure hereunder; (b) was received from a
third party not under an obligation of confidence to recipient; (c)
is in the public domain at the time of disclosure hereunder or
subsequently entered the public domain without the fault of the
recipient; (d) has been independently developed by an employee of
recipient that has not had access directly or indirectly to such
Confidential Information, and recipient can substantiate any claim
of independent development by written evidence; or (e) is required
to be disclosed by law.
Unless otherwise agreed to in writing, neither party shall have any
obligation of secrecy under this Agreement after the fifth
anniversary of the termination or expiration of this Agreement.
10.14 SURVIVING TERMINATION. The termination of this Agreement
-12-
<PAGE>
for breach or otherwise, shall not terminate the obligations of the
parties with respect to the obligation to pay the license fee of
Article II and Royalties of Article II, and the Confidentiality
provision of paragraph 10.13, and Articles 8 and 10.10.
10.15 FORCE MAJEURE. Neither party shall be liable for default or delay
caused by any occurrence beyond its reasonable control, including but
not limited to, fires, accidents, and acts of God.
ARTICLE XI - ARBITRATION
11.0 In the event of any dispute, claim or question arising out of this
Agreement or breach hereof, the parties hereto shall use their best
endeavors 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. If no solution is
reached, then upon written notice by the claiming party the differences
shall be settled by arbitration by three arbitrators, with one selected by
each of the parties, and the third selected by the two arbitrators. The
arbitrator shall comply and be conducted in accordance with the then
prevailing Commercial Arbitration Rules of American Arbitration
Association, and the decision of the arbitrators shall be final and binding
and may be entered as a judgment by the court of competent jurisdiction.
Each side shall bear the cost of the arbitration.
Any arbitration proceeding intended to resolve any controversy between the
parties to this Agreement shall take place at Hawaii.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
Silicon Storage Technology, Inc.
"SST"
DATED: March 31, 1996 BY: /s/ Bing Yeh
----------------------------- --------------------------------
Bing Yeh, President and CEO
Seiko Epson Corporation
"SEC"
DATED: March 31, 1996 BY: /s/ Nobuo Hashizume
----------------------------- --------------------------------
Nobuo Hashizume, Director
Corporate General Manager
Semiconductor Operations Div.
-13-
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT A
<PAGE>
EXHIBIT 11.1
SILICON STORAGE TECHNOLOGY, INC.
STATEMENT REGARDING COMPUTATION OF NET INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRIMARY BASIS:
THREE MONTHS ENDED MARCH 31,
----------------------------
1995 1996
---- ----
<S> <C> <C>
Weighted average shares of common stock 6,475 22.800
Weighted average shares of common stock obtainable on exercise of
options and warrants and upon conversion of convertible
preferred stock - 2,380
SAB 83 3,558 -
--------- -------
Shares used in per share calculation 10,033 25,180
--------- -------
Net income (loss) ($1,166) $4,199
--------- -------
Net income (loss) per share ($0.12) $0.17
--------- -------
--------- -------
<CAPTION>
FULLY DILUTED BASIS:
THREE MONTHS ENDED MARCH 31,
----------------------------
1995 1996
---- ----
<S> <C> <C>
Weighted average shares of common stock 6,475 22,800
Weighted average shares of common stock obtainable on exercise of
options and warrants and upon conversion of convertible
preferred stock - 2,382
SAB 83 3,558 -
--------- -------
Shares used in per share calculation 10,033 25,182
--------- -------
Net income (loss) ($1,166) $4,199
--------- -------
Net income (loss) per share ($0.12) $0.17
--------- -------
--------- -------
</TABLE>
Net income (loss) per share is presented under the primary basis as the effect
of dilution under the fully diluted basis is not material.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 41,413
<SECURITIES> 9,658
<RECEIVABLES> 12,649
<ALLOWANCES> 721
<INVENTORY> 3,640
<CURRENT-ASSETS> 69,706
<PP&E> 9,976
<DEPRECIATION> 4,199
<TOTAL-ASSETS> 76,748
<CURRENT-LIABILITIES> 20,284
<BONDS> 0
0
0
<COMMON> 53,462
<OTHER-SE> 2,914
<TOTAL-LIABILITY-AND-EQUITY> 76,748
<SALES> 21,499
<TOTAL-REVENUES> 23,023
<CGS> 13,152
<TOTAL-COSTS> 16,748
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,773
<INCOME-TAX> 2,574
<INCOME-CONTINUING> 4,199
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,199
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
