<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 24, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
SILICON STORAGE TECHNOLOGY, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
CALIFORNIA 77-0225590
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
</TABLE>
1171 SONORA COURT
SUNNYVALE, CALIFORNIA 94086
(408) 735-9110
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
BING YEH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SILICON STORAGE TECHNOLOGY, INC.
1171 SONORA COURT
SUNNYVALE, CALIFORNIA 94086
(408) 735-9110
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<S> <C>
MARK P. TANOURY, ESQ. WILLIAM M. KELLY, ESQ.
MATTHEW W. SONSINI, ESQ. DAVIS POLK & WARDWELL
COOLEY GODWARD LLP 1600 EL CAMINO REAL
FIVE PALO ALTO SQUARE MENLO PARK, CALIFORNIA 94025
3000 EL CAMINO REAL (650) 752-2000
PALO ALTO, CALIFORNIA 94306
(650) 843-5000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
--------------------------
If the only securities being registered on this form are being offered
pursuant to a dividend or interest reinvestment plans, please check the
following box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is to be a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SHARES TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common stock, no par value, (together with
associated preferred stock purchase rights)... 4,025,000 $54.90625 $220,997,656 $58,344
</TABLE>
(1) Includes 525,000 shares of common stock issuable upon exercise of the
underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee and
calculated in accordance with Rule 457(c) under the Securities Act of 1933
on the basis of the high and low prices of Silicon Storage
Technology, Inc.'s common stock on February 22, 2000 as quoted on the Nasdaq
National Market.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
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<PAGE>
SUBJECT TO COMPLETION, FEBRUARY 24, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING OFFERS TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
3,500,000 Shares
[SST LOGO]
Common Stock
-----------
We are selling 3,500,000 shares of common stock. Our common stock is listed
on The Nasdaq Stock Market's National Market under the symbol "SSTI." On
February 23, 2000, the last reported sale price for our common stock was
$55.1875 per share.
The underwriters have an option to purchase a maximum of 525,000 additional
shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 7.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS
PUBLIC COMMISSIONS TO SST
------------------- ------------------- -------------------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON SALOMON SMITH BARNEY
C.E. UNTERBERG, TOWBIN
FAHNESTOCK & CO. INC.
KAUFMAN BROS., L.P.
The date of this prospectus is , 2000.
<PAGE>
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PROSPECTUS SUMMARY.................... 3
RISK FACTORS.......................... 7
USE OF PROCEEDS....................... 17
UNDERWRITING.......................... 18
NOTICE TO CANADIAN RESIDENTS.......... 20
LEGAL MATTERS......................... 21
EXPERTS............................... 21
</TABLE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
WHERE YOU CAN FIND MORE INFORMATION... 21
INFORMATION INCORPORATED BY
REFERENCE........................... 22
DISCLOSURE REGARDING FORWARD-LOOKING
STATEMENTS.......................... 22
</TABLE>
--------------
YOU SHOULD RELY ONLY ON INFORMATION CONTAINED IN THIS DOCUMENT OR TO WHICH
WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION IN THIS PROSPECTUS CONCERNING US AND THE COMMON STOCK BEING SOLD IN
THIS OFFERING AND THE DOCUMENTS INCORPORATED BY REFERENCE IN THIS PROSPECTUS.
UNLESS OTHERWISE STATED, INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE
UNDERWRITERS' OVER-ALLOTMENT OPTION TO PURCHASE AN ADDITIONAL 525,000 SHARES OF
COMMON STOCK IS NOT EXERCISED. UNLESS THE CONTEXT REQUIRES OTHERWISE, REFERENCES
IN THIS PROSPECTUS TO "WE," "US," "OUR" AND "SST" REFER TO SILICON STORAGE
TECHNOLOGY, INC. AND OUR WHOLLY OWNED SUBSIDIARIES.
SILICON STORAGE TECHNOLOGY, INC.
We are a leading supplier of flash memory semiconductor devices for the
digital consumer, networking, wireless communication and Internet computing
markets. Flash memory is nonvolatile memory that does not lose data when the
power source is removed and is capable of electrically erasing selected blocks
of data. We believe our proprietary flash memory technology, SuperFlash, offers
superior performance to other flash memory solutions. We have three standard
flash memory product families: the small-sector flash family, the multi-purpose
flash family and the many-time programmable flash family. These families allow
us to produce products optimized for cost and functionality to support a broad
range of applications that use nonvolatile memory products. We believe the
benefits of SuperFlash include high reliability, fast write performance, ability
to be scaled to a smaller size and a low-cost manufacturing process.
We offer over 40 products based on our SuperFlash design and manufacturing
process technology. These products include flash memory products, application
specific memory products, flash embedded controllers and mass storage products.
Our memory devices have densities ranging from 256 Kbit to 16 Mbit and are
generally used for the storage of program code. Our flash embedded
microcontrollers support concurrent flash read-while-write operations using
In-Application Programming. We also offer mass storage products that are used
for storing images, music and other data in devices such as digital cameras and
MP3 players.
Our customers include 3Com, Acer, Apple, Compaq, Diamond Multimedia, FIC,
Hyundai, Intel, IBM, LG, Lucent, Motorola, Panasonic, Samsung, Sanyo, Siemens
and Sony. In addition, we have recently added Cisco and Nortel as new customers.
We also license our SuperFlash technology to leading semiconductor companies
including Analog Devices, ATMI, IBM, ISD, Motorola, Samsung, Sanyo, Seiko-Epson
and TSMC to embed in semiconductor devices that integrate flash memory with
other functions on a single chip. Our products are manufactured at leading wafer
foundries and semiconductor manufacturers including Samsung Electronics, Sanyo,
Seiko-Epson, TSMC and UMC. We also work with IBM, Samsung Electronics, Sanyo,
Seiko-Epson and TSMC to develop new technology for manufacturing our products.
Our objective is to be the leading worldwide supplier of flash memory
devices and intellectual property for program code storage applications. In
addition, we intend to leverage our SuperFlash technology to penetrate the high
density mass storage markets. We intend to achieve our objectives by:
- maintaining a leading position in the program code storage market;
- continuing to enhance our leading flash memory technology;
- introducing new products based on our SuperFlash technology;
- maintaining a leading position in licensing embedded flash technology; and
- penetrating the high density mass storage market.
We were incorporated in 1989 in California. Our principal executive offices
are located at 1171 Sonora Court, Santa Clara, CA 94086, and our telephone
number is (408) 735-9110.
3
<PAGE>
"SuperFlash" and the SST logo are our registered trademarks and
In-Application Programming, SSF, MPF and MTP are our trademarks. This prospectus
also includes trademarks owned by other parties.
CONCURRENT PRIVATE PLACEMENT
Concurrent with this offering, Acer Investment Worldwide Incorporated, an
Acer Group company, has agreed to purchase 168,000 shares of common stock in a
concurrent private placement at the public offering price. Acer's obligation to
purchase the shares will terminate if the registration statement related to this
offering is not declared effective by the Securities and Exchange Commission
prior to July 1, 2000.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered in this offering................ 3,500,000 shares
Common stock offered in the private placement........ 168,000 shares
Common stock outstanding after this offering and the
private placement.................................. 28,614,212 shares
Use of proceeds...................................... Working capital, general corporate purposes,
possible acquisitions of businesses or
technologies and possible production capacity
commitments. See "Use of Proceeds."
Nasdaq National Market Symbol........................ SSTI
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of December 31, 1999, and
excludes:
- 3,206,000 shares subject to options outstanding as of December 31, 1999,
at a weighted average exercise price of $4.226 per share;
- 1,315,000 additional shares that we could issue under our stock option
plans; and
- 649,000 shares that we could issue under our employee stock purchase plan.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net revenues:
Product revenues........................... $38,283 $90,638 $73,796 $ 66,875 $118,242
License revenues........................... 1,245 2,652 1,526 2,536 6,552
------- ------- ------- -------- --------
Total net revenues....................... 39,528 93,290 75,322 69,411 124,794
Cost of revenues............................. 26,360 59,494 62,747 62,703 94,652
------- ------- ------- -------- --------
Gross profit................................. 13,168 33,796 12,575 6,708 30,142
------- ------- ------- -------- --------
Operating expenses:
Research and development................... 4,058 6,948 8,744 14,527 18,199
Sales and marketing........................ 2,455 5,292 6,587 7,290 10,576
General and administrative................. 1,464 3,370 9,479 4,592 3,800
In-process research and development........ -- -- -- -- 2,011
------- ------- ------- -------- --------
Total operating expenses................. 7,977 15,610 24,810 26,409 34,586
------- ------- ------- -------- --------
Income (loss) from operations................ 5,191 18,186 (12,235) (19,701) (4,444)
Interest and other income, net............... 517 1,763 2,146 1,573 730
Interest expense............................. (273) -- -- (31) (214)
------- ------- ------- -------- --------
Income (loss) before provision for (benefit
from) income taxes......................... 5,435 19,949 (10,089) (18,159) (3,928)
Provision for (benefit from) income taxes.... (594) 7,598 (3,165) (571) 88
------- ------- ------- -------- --------
Net income (loss)............................ $ 6,029 $12,351 $(6,924) $(17,588) $ (4,016)
======= ======= ======= ======== ========
Net income (loss) per share--basic........... $ 0.70 $ 0.54 $ (0.30) $ (0.77) $ (0.17)
======= ======= ======= ======== ========
Net income (loss) per share--diluted......... $ 0.32 $ 0.49 $ (0.30) $ (0.77) $ (0.17)
======= ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 1,223 $191,828
Working capital............................................. 25,843 216,448
Total assets................................................ 88,806 279,411
Long-term obligations....................................... 446 446
Total shareholders' equity.................................. $41,015 $231,620
</TABLE>
See Note 1 of the Notes to the Consolidated Financial Statements for an
explanation of the determination of the number of shares used in computing per
share data.
The as adjusted balance sheet data gives effect to the net proceeds from the
sale of 3,500,000 shares of common stock offered by us in this offering at an
assumed public offering price of $55.1875 per share after deducting the
underwriting discounts and commissions and estimated offering expenses. The as
adjusted balance sheet data also gives effect to the net proceeds from the sale
of 168,000 shares in the private placement at the assumed public offering price.
5
<PAGE>
QUARTERLY CONSOLIDATED FINANCIAL DATA
The following table presents our unaudited consolidated statements of
operations data for each of the eight quarters in the period ended December 31,
1999. In our opinion, this information has been presented on the same basis as
the audited consolidated financial statements incorporated by reference in this
prospectus, and all necessary adjustments, consisting only of normal recurring
adjustments, have been included in the amounts stated below to present fairly
the unaudited quarterly results when read in conjunction with the audited
consolidated financial statements and related notes. The operating results for
any quarter should not be relied upon as necessarily indicative of results for
any future period. We expect our quarterly operating results to fluctuate in
future periods due to a variety of reasons, including those discussed in "Risk
Factors."
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Product revenues................ $15,754 $16,422 $17,333 $17,366 $17,793 $20,433 $32,508 $47,508
License revenues................ 611 402 806 717 535 2,558 2,639 820
------- ------- ------- ------- ------- ------- ------- -------
Total net revenues............ 16,365 16,824 18,139 18,083 18,328 22,991 35,147 48,328
Gross profit (loss)............... 1,975 3,418 1,902 (587) 1,349 4,966 9,206 14,621
Income (loss) from operations..... (3,866) (3,513) (5,373) (6,949) (6,788) (3,831) 773 5,402
Net income (loss)................. (2,325) (1,242) (7,273) (6,748) (6,577) (3,630) 448 5,743
Net income (loss) per
share--basic.................... $ (0.10) $ (0.05) $ (0.32) $ (0.29) $ (0.28) $ (0.15) $ 0.02 $ 0.23
Net income (loss) per
share--diluted.................. $ (0.10) $ (0.05) $ (0.32) $ (0.29) $ (0.28) $ (0.15) $ 0.02 $ 0.21
</TABLE>
6
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN
INVESTMENT DECISION. THE RISKS DESCRIBED BELOW ARE NOT THE ONLY RISKS FACING OUR
COMPANY. ADDITIONAL RISKS NOT PRESENTLY KNOWN TO US OR THAT WE CURRENTLY BELIEVE
ARE NOT SERIOUS MAY ALSO IMPAIR OUR BUSINESS AND OUR FINANCIAL CONDITION. OUR
BUSINESS COULD BE HARMED BY ANY OF THESE RISKS. THE TRADING PRICE OF OUR COMMON
STOCK COULD DECLINE AT ANY TIME DUE TO ANY OF THESE RISKS AND YOU MAY LOSE ALL
OR PART OF YOUR INVESTMENT. IN ASSESSING THESE RISKS, YOU SHOULD ALSO REFER TO
THE OTHER INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS,
INCLUDING OUR FINANCIAL STATEMENTS AND RELATED NOTES.
RISKS RELATED TO OUR BUSINESS
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.
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 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 availability, timely deliverability and cost of wafers from our
suppliers;
- competitive pricing pressures and related changes in selling prices;
- fluctuations in manufacturing yields and significant yield losses which
affect our ability to fulfill orders;
- new product announcements and introductions for competing products by us
or our competitors;
- product obsolescence;
- lower of cost or market inventory adjustments;
- unpredictability of changes in demand for, or in the mix of, our products;
- the gain or loss of significant customers;
- market acceptance of products utilizing our SuperFlash technology;
- changes in the channels through which our products are distributed and the
timeliness of receipt of distributor resale information;
- exchange rate fluctuations;
- general economic, political and environmental-related conditions, such as
natural disasters;
- difficulties in forecasting, planning and management of inventory levels;
- unanticipated research and development expenses associated with new
product introductions; and
- the timing of significant orders and of license and royalty revenue.
A downturn in the market for consumer products such as personal computers
and cellular telephones that incorporate our products can also harm our
operating results.
We typically receive and fulfill a majority of our orders within the
quarter, with a substantial portion occurring during the last month of the
quarter. One reason for this is that our products are primarily sold to large
manufacturers, which, typically place orders at or near the end of a quarter. As
a result, we may not learn of revenue shortfalls until late in a quarter and may
not be able to predict
7
<PAGE>
future revenues with accuracy. Additionally, our costs consist of salaries for
personnel and materials that must be ordered several months in advance. These
costs are based in part on our expectations for future revenues and are
relatively fixed in the short term. As a result, any revenue shortfall below
expectations could harm our business.
WE DEPEND ON A LIMITED NUMBER OF FOREIGN FOUNDRIES TO MANUFACTURE OUR PRODUCTS,
AND THESE FOUNDRIES MAY NOT BE ABLE TO SATISFY OUR MANUFACTURING REQUIREMENTS
WHICH COULD CAUSE OUR REVENUES TO DECLINE.
We outsource all of our manufacturing with the exception of limited testing
activities. We currently buy all of our wafers, and sorted die, from a limited
number of suppliers. During 1999, substantially all of our products were
manufactured by two foundries, Sanyo Electric Co., Ltd. in Japan and Taiwan
Semiconductor Manufacturing Co., Ltd., or TSMC, in Taiwan. We anticipate that
these foundries will continue to manufacture the majority of our products in
2000. 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
revenues or higher than anticipated costs of revenues, any of which could
seriously harm our operating results.
Given the current constraints on worldwide semiconductor manufacturing
capacity, our revenues for the next several quarters will largely be determined
by our ability to obtain adequate wafer supplies from our foundries. We are
currently unable to meet all of the demand for our products, and have in the
past failed to meet scheduled shipment dates, due to our inability to obtain a
sufficient supply of wafers and sorted die from our foundries. The foundries
with which we currently have arrangements, together with any additional foundry
at which capacity might be obtained, may not be willing or able to satisfy all
of our manufacturing requirements on a timely basis at favorable prices. In
addition, we have encountered delays in qualifying new products and in ramping
new product production and could experience these delays in the future. We are
also subject to the risks of service disruptions, raw material shortages and
price increases by the foundries. Such disruptions, shortages and price
increases could seriously harm our operating results.
IF WE ARE UNABLE TO INCREASE OUR MANUFACTURING CAPACITY, OUR REVENUES MAY
DECLINE.
In order to grow, we need to increase our present manufacturing capacity.
Events that we have not foreseen could arise which would limit our capacity. In
addition, we have not secured adequate capacity beyond this year. If we cannot
satisfactorily increase our manufacturing capacity, our ability to grow will be
severely impaired and this may harm our operating results.
OUR COST OF REVENUES MAY INCREASE IF WE ARE REQUIRED TO PURCHASE MANUFACTURING
CAPACITY IN THE FUTURE.
To obtain additional manufacturing capacity, we may be required to make
deposits, equipment purchases, loans, 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 if we need substantial capital in order to
secure this capacity and we cannot assure you that we will be able to obtain
such financing.
IF OUR FOUNDRIES FAIL TO ACHIEVE ACCEPTABLE WAFER MANUFACTURING YIELDS, WE WILL
EXPERIENCE HIGHER COSTS OF REVENUES AND REDUCED PRODUCT AVAILABILITY.
The fabrication of our products requires wafers to be produced in a highly
controlled and ultra-clean environment. Semiconductor companies that supply our
wafers sometimes have experienced problems achieving acceptable wafer
manufacturing yields. Semiconductor manufacturing yields are a function of both
our design technology and the foundry's manufacturing process technology. Low
yields
8
<PAGE>
may result from marginal design or manufacturing process drift. Yield problems
may not be identified until the wafers are well into the production process,
which often makes them difficult, time consuming and costly to correct.
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 revenues and reduced
product availability, which would harm our operating results.
IF OUR FOUNDRIES DISCONTINUE THE MANUFACTURING PROCESSES NEEDED TO MEET OUR
DEMANDS, OR FAIL TO UPGRADE THE TECHNOLOGIES NEEDED TO MANUFACTURE OUR PRODUCTS,
WE MAY FACE PRODUCTION DELAYS AND LOWER REVENUES.
Our wafer and product requirements typically represent a small portion of
the total production of the foundries that manufacture our products. As a
result, we are subject to the risk that a foundry will cease production on an
older or lower-volume manufacturing process that it uses to produce our parts.
Additionally, we cannot be certain our foundries will continue to devote
resources to advance the process technologies on which the manufacturing of our
products is based. Each of these events could increase our costs and harm our
ability to deliver our products on time.
OUR DEPENDENCE ON THIRD-PARTY SUBCONTRACTORS TO 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 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;
- potential increases in prices due to capacity shortages and other factors;
and
- potential misappropriation of our intellectual property.
These risks may lead to increased costs, delayed product delivery or loss of
competitive advantage which would harm our profitability and customer
relationships.
OUR GROWTH DEPENDS UPON OUR ABILITY TO COMMERCIALIZE PRODUCTS FOR COMMUNICATIONS
AND CONSUMER ELECTRONICS APPLICATIONS.
In 1998 and 1999, the majority of our revenues came from PC BIOS and PC
peripheral applications. However, communications and consumer electronics
applications are central to our growth strategy. We believe that products for
these applications will encounter intense competition and be highly price
sensitive. While we are currently developing and introducing new products for
these applications, we cannot assure you that these products will reach the
market on time, will satisfactorily address customer needs, will be sold in high
volume, or will be sold at profitable margins.
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
9
<PAGE>
harmed if our revenues 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, 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.
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 in advance of anticipated customer demand.
This advance ordering may result in excess inventory levels or unanticipated
inventory write-downs if expected orders fail to materialize.
BECAUSE OUR FLASH MEMORY PRODUCTS TYPICALLY HAVE LENGTHY SALES CYCLES, WE MAY
EXPERIENCE SUBSTANTIAL DELAYS BETWEEN INCURRING EXPENSES RELATED TO RESEARCH AND
DEVELOPMENT AND THE GENERATION OF REVENUES.
Due to the flash memory product 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,
many of which 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 memory components and have
recently added significant capacity for such production. Our memory products,
which presently account for substantially all of our revenues, compete
principally against products offered by Intel, Advanced Micro Devices, Atmel,
STMicroelectronics, Sanyo, Winbond Electronics and Macronix. If we are
successful in developing our high density products, these products will compete
principally with products offered by Intel, Advanced Micro Devices, Fujitsu,
Sharp, Samsung Semiconductor, SanDisk and Toshiba, as well as any new entrants
to the market.
In addition, we may in the future experience direct competition from our
foundry partners. We have licensed to our foundry partners the right to
fabricate products based on our technology and circuit design, and to sell such
products worldwide, subject to our receipt of royalty payments.
Competition may also come from alternative technologies such as
ferroelectric random access memory, or FRAM, or other developing technologies.
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;
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<PAGE>
- 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 changing needs.
In addition, 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 and ensure compliance with relevant
standards.
We cannot assure you that we will be able to identify new product
opportunities successfully, develop and bring to market new products, achieve
design wins or respond effectively to new technological changes or product
announcements by our competitors. In addition, 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 ADDITIONAL PERSONNEL.
We are highly dependent on Bing Yeh, our President and Chief Executive
Officer, as well as the other principal members of our management and
engineering staff. There is intense competition for qualified personnel in the
semiconductor industry, in particular the highly skilled design, applications
and test engineers involved in the development of flash memory technology.
Competition is especially intense in Silicon Valley, where our corporate
headquarters is 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. Our anticipated growth is expected to place increased
demands on our resources and will likely require the addition of new management
and engineering personnel and the development of additional expertise by
existing management personnel. 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 PROTECT.
We rely on a combination of patent, 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 continue to 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. For example, in 1998, we filed suit against Winbond Electronics
Corporation alleging breach of contract and breach of covenant of good faith and
11
<PAGE>
fair dealing and are seeking an injunction prohibiting Winbond from using any of
our licensed technology. Winbond has responded by denying the claims and
asserting counterclaims.
We own 22 patents in the United States relating to our products and
processes, and have filed for several more. In addition, we hold two patents in
Europe, one patent in Germany and additional foreign patent applications have
been filed in Europe, Japan, Taiwan and Canada. We cannot assure you that any
pending patent application will be granted. Our operating results could be
seriously harmed by the failure 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, WE COULD SUFFER A SIGNIFICANT IMPACT ON OUR BUSINESS AND BE FORCED TO PAY
DAMAGES.
Third parties may 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 which 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.
Over the past three years we were sued both by Atmel Corporation and Intel
Corporation regarding patent infringement issues and by Winbond Electronics
Corporation regarding our contractual relationship with them. Significant
management time and financial resources have been devoted to defending these
lawsuits. We settled with Intel in May 1999 and the Atmel and Winbond litigation
is ongoing.
In addition to the Atmel, Intel and Winbond actions, we receive from time to
time letters or communications from other companies stating that such companies
have patent rights which involve our products. Since the design of all of our
products is based on SuperFlash technology, any legal finding that the use of
our SuperFlash technology infringes the patent of another company would have a
significantly negative effect on our entire product line and operating results.
Furthermore, if such a finding were made, there can be no assurance that we
could license the other company's technology on commercially reasonable terms or
that we could successfully operate without such technology. Moreover, if we are
found to infringe, we could be required to pay damages to the owner of the
protected technology and could be prohibited from making, using, selling, or
importing into the United States any products that infringe the protected
technology. In addition, the management attention consumed by and legal cost
associated with any litigation could have a negative effect on our operating
results.
PUBLIC ANNOUNCEMENTS MAY HURT OUR STOCK PRICE. During the course of
lawsuits there may be public announcements of the results of hearings, motions,
and other interim proceedings or developments in the litigation. If securities
analysts or investors perceive these results to be negative, it could have a
substantial negative effect on the trading price of our stock.
OUR LITIGATION MAY BE EXPENSIVE, MAY BE PROTRACTED AND CONFIDENTIAL
INFORMATION MAY BE COMPROMISED. Whether or not we are successful in our lawsuits
with Winbond and Atmel, we expect this litigation to consume substantial amounts
of our financial and managerial resources. At any time Winbond or Atmel may file
additional claims against us, which could increase the risk, expense and
duration of the litigation. Further, because of the substantial amount of
discovery required in connection with this type of litigation, there is a risk
that some of our confidential information could be compromised by disclosure.
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<PAGE>
OUR BUSINESS MAY SUFFER DUE TO RISKS ASSOCIATED WITH INTERNATIONAL SALES AND
OPERATIONS.
During 1997, 1998, and 1999, our export product and licensing revenues
accounted for approximately 87%, 93%, and 86% of our net revenues, respectively.
Our international business activities are subject to a number of risks, each 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;
- reliance on third parties to distribute our products;
- longer accounts receivable payment cycles;
- potentially adverse tax consequences;
- limits on repatriation of earnings; and
- burdens of complying with a wide variety of foreign laws.
We derived 81% of our product revenue from Asia during 1999. Additionally,
our major wafer suppliers and assembly and packaging subcontractors are all
located in Asia. Any kind of economic, political or environmental instability in
this region of the world can have a severe negative impact on our operating
results due to the large concentration of our production and sales activities in
this region. For example, during 1997 and 1998, several Asian countries where we
do business, such as Japan, Taiwan and Korea, experienced severe currency
fluctuation and economic deflation, which negatively impacted our total revenues
and also negatively impacted our ability to collect payments from these
customers. During this period, the lack of capital in the financial sectors of
these countries made it difficult for our customers to open letters of credit or
other financial instruments that are guaranteed by foreign banks. Finally, the
economic situation in this period exacerbated a decline in selling prices for
our products as our competitors reduced product prices to generate needed cash.
It should be also be noted that we are greatly impacted by the political,
economic and military conditions in Taiwan. Taiwan and China are continuously
engaged in political disputes and both countries have recently conducted
military exercises in or near the other's territorial waters and airspace. Such
disputes may continue and even escalate, resulting in an economic embargo, a
disruption in shipping or even military hostilities. This could severely harm
our business by interrupting or delaying production or shipment of our products.
Any kind of activity of this nature or even rumors of such activity could
severely negatively impact our operations, revenues, operating results, and
stock price.
BECAUSE A SMALL NUMBER OF CUSTOMERS HAVE ACCOUNTED FOR, AND ARE LIKELY TO
CONTINUE TO ACCOUNT FOR, A SUBSTANTIAL PORTION OF OUR REVENUES, OUR REVENUES
COULD DECLINE DUE TO THE LOSS OF ONE OF THESE CUSTOMERS.
More than half of our revenues come from a small number of customers. For
example, product sales to our top 10 customers accounted for approximately 62%,
66%, and 57%, respectively, of our product revenues for 1997, 1998, and 1999.
One customer accounted for 16% and 15% of product sales in 1997 and 1998.
Another customer accounted for 11% and 12% of product sales in 1998 and 1999. If
we were to lose any of these customers or experience any substantial reduction
in orders from these customers, our revenues and operating results would suffer.
In addition, the composition of our major customer base changes from year to
year as the market demand for our customers' products change.
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WE DO NOT HAVE 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 by one of our major customers
would likely 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 SUPPLIERS, WE WOULD BE UNABLE TO MANUFACTURE OUR PRODUCTS FOR A
SUBSTANTIAL AMOUNT OF TIME AND WE WOULD EXPERIENCE LOST REVENUES.
Our corporate headquarters are located in California near major earthquake
faults. In addition, some of our 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 suppliers, like the one that occurred in
Taiwan in September 1999, could disrupt the operations of those suppliers, which
could limit the supply of our products and harm our business.
IF WE DID NOT ADEQUATELY PREPARE FOR THE TRANSITION TO YEAR 2000, OUR BUSINESS
COULD BE HARMED.
We have executed a plan designed to make our computer systems, applications,
computer and manufacturing equipment and facilities year 2000 compliant. To
date, none of our systems, applications, equipment or facilities have
experienced any difficulties from the transition to year 2000. However, it is
possible that significant difficulties could be discovered or could arise. We
cannot guarantee that our year 2000 readiness plan has been successfully
implemented, and actual results could still differ substantially from our plan.
In addition, we have communicated with our critical suppliers to determine the
extent to which we may be vulnerable to such parties' failure to resolve their
own year 2000 issues. Where practicable, we have attempted to mitigate our risks
with respect to the failure of these entities to be year 2000 compliant. The
effect, if any, on our results of operations from any failure of such parties to
be year 2000 compliant cannot yet be determined.
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 Foothill Capital Credit Corporation to provide up to $50 million
of additional capital to support potential on-going working capital
requirements. As of December 31, 1999, we had borrowed $19.3 million under this
facility. We anticipate that we will continue to borrow under this credit
facility for 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.
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WE DEPEND ON MANUFACTURERS' REPRESENTATIVES AND DISTRIBUTORS TO GENERATE A
MAJORITY OF OUR REVENUES.
We rely on manufacturers' representatives and distributors to sell our
products and these entities could discontinue selling our products at any time.
Two of our manufacturers' representatives are responsible for substantially all
of our sales in Taiwan, which accounted for 28% of our product revenues during
1999. One manufacturers' representative accounted for substantially all of our
sales in China, including Hong Kong, during 1999, which accounted for 24% of our
total 1999 product revenues. The loss of any of these manufacturers'
representatives, or any other significant manufacturers' representative or
distributor could seriously harm our operating results by impairing our ability
to sell our products.
OUR GROWTH CONTINUES TO PLACE A SIGNIFICANT STRAIN ON OUR MANAGEMENT SYSTEMS AND
RESOURCES AND IF WE FAIL TO MANAGE OUR GROWTH, OUR ABILITY TO MARKET AND SELL
OUR PRODUCTS AND DEVELOP NEW PRODUCTS MAY BE HARMED.
Our business is experiencing rapid growth which has strained our internal
systems and will require us to continuously develop sophisticated information
management systems in order to manage the business effectively. We expect to
complete the implementation of an Oracle enterprise resource planning and
management system for our operations during the first quarter of 2000. We also
plan to implement a supply-chain management system and a vendor electronic data
interface system during this year. There is no guarantee that we will be able to
implement these new systems in a timely fashion, that in themselves they will be
adequate to address our expected growth, or that management will be able to
foresee in a timely manner other infrastructure needs before they arise. Our
success depends on the ability of our executive officers to effectively manage
our growth. If we are unable to manage our growth effectively, our results of
operations will be seriously harmed. If we fail to successfully implement the
Oracle enterprise resource planning and management system, our business may
suffer severe inefficiencies that may adversely impact the results of our
operations.
RISKS RELATED TO OUR INDUSTRY
OUR SUCCESS IS DEPENDENT ON THE GROWTH AND STRENGTH OF THE FLASH MEMORY MARKET.
All of our products, as well as all new products currently under design, are
stand-alone flash memory devices or devices embedded with flash memory. A memory
technology other than SuperFlash may be adopted as an industry standard. Our
competitors are generally in a better financial and marketing position than we
are from which to influence industry acceptance of a particular memory
technology. In particular, a primary source of competition may come from
alternative technologies such as FRAM devices if such technology is
commercialized for higher density applications. To the extent our competitors
are able to promote a technology other than SuperFlash as an industry standard,
our business will be seriously harmed.
THE SELLING PRICES FOR OUR PRODUCTS ARE EXTREMELY VOLATILE AND HAVE HISTORICALLY
DECLINED. 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 business could be harmed by industry-wide fluctuations
in the future. The flash memory products portion of the semiconductor industry,
from which we derived substantially all of our revenues in 1998, continued to
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suffer from excess capacity in 1998, which resulted in greater than normal price
declines in our markets, which unfavorably impacted our revenues, gross margins
and profitability. While these conditions improved in 1999, if they were to
resume our growth and operating results would be harmed.
THERE IS SEASONALITY IN OUR BUSINESS AND IF WE FAIL TO CONTINUE TO INTRODUCE NEW
PRODUCTS THIS SEASONALITY MAY BECOME MORE PRONOUNCED.
Sales of our products in the consumer electronics applications market are
subject to seasonality. As a result, sales of these products are impacted by
seasonal purchasing patterns with higher sales generally occurring in the second
half of each year. In 1998 and 1999 this seasonality was partially offset by the
introduction of new products as we continued to diversify our product offerings.
If we fail to continue to introduce new products, our business may suffer and
the seasonality of a portion of our sales may become more pronounced.
RISKS RELATED TO THIS OFFERING
WE EXPECT THE PRICE OF OUR COMMON STOCK TO BE HIGHLY VOLATILE AND YOU MAY LOSE
ALL OR PART OF YOUR INVESTMENT.
Our common stock is quoted for trading on The Nasdaq Stock Market's National
Market. The market price for our common stock may continue to be highly volatile
for a number of reasons including:
- fluctuations in our quarterly or yearly operating results;
- our status as a technology company;
- the rapid pace of technological change;
- the uncertainty of our business transactions;
- the contents of news, security analyst reports or other information
forums;
- changes in earnings estimates by analysts;
- market conditions in the industry;
- announcements by competitors;
- the status of our litigation;
- regulatory actions;
- general economic conditions; and
- broad market trends unrelated to our performance.
In addition, stock prices for many technology companies fluctuate widely for
reasons which may be unrelated to operating results. These fluctuations, as well
as general economic, market and political conditions such as recessions or
military conflicts, may significantly and negatively affect the market price of
our common stock.
WE HAVE IMPLEMENTED SOME ANTI-TAKEOVER PROVISIONS, INCLUDING A SHAREHOLDER
RIGHTS PLAN, THAT MAY PREVENT OR DELAY AN ACQUISITION OF US THAT MIGHT BE
BENEFICIAL TO OUR SHAREHOLDERS.
Provisions of our amended and restated articles of incorporation and bylaws,
as well as provisions of California law, could make it more difficult for a
third party to acquire us, even if doing so would be beneficial to our
shareholders. These provisions include:
- the ability of our board of directors to issue without shareholder
approval "blank check" preferred stock to increase the number of
outstanding shares and thwart a takeover attempt;
- limitations on who may call special meetings of shareholders;
- prohibitions of stockholder action by written consent, thereby requiring
all shareholder actions to be taken at a meeting of our stockholders; and
- advance notice requirements for nominations for election to the board of
directors or for proposing matters that can be acted upon by stockholders
at stockholder meetings.
In May 1999, our board of directors adopted a share purchase rights plan,
commonly referred to as a "poison pill." In addition, the terms of our stock
option plan may discourage, delay or prevent a change in our control.
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<PAGE>
USE OF PROCEEDS
The net proceeds we will receive from the sale of 3,500,000 shares of common
stock offered by us will be approximately $181.3 million, or $208.7 million if
the underwriters' over-allotment option is exercised in full, assuming a public
offering price of $55.1875 and after deducting the underwriting discounts and
commissions and estimated offering expenses. In addition, we will receive
approximately $9.3 million from the sale of 168,000 shares in the private
placement at the assumed public offering price.
We intend to use the proceeds of this offering primarily for working capital
and general corporate purposes. In addition, we may use a portion of the net
proceeds to acquire businesses or technologies. We are currently investigating
arrangements with major wafer manufacturers that could provide us with long-term
production capacity commitments to enable us to grow our business. Such
arrangements would likely involve a substantial capital commitment by us. No
agreements or understandings are presently in effect with respect to such
transactions. Pending such uses, we expect to invest the net proceeds in
short-term, interest-bearing, investment grade securities.
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<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, Salomon Smith
Barney Inc., C.E. Unterberg, Towbin, Fahnestock & Co. Inc., and Kaufman Bros.,
L.P. are acting as representatives, the following respective numbers of shares
of common stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Salomon Smith Barney Inc....................................
C.E. Unterberg, Towbin......................................
Fahnestock & Co. Inc........................................
Kaufman Bros., L.P..........................................
---------
Total..................................................... 3,500,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted the underwriters a 30-day option to purchase up to 525,000
additional shares at the public offering price less the underwriting discounts
and commissions. The option may be exercised only to cover any over-allotments
of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the public offering, the public offering
price and concession and discount to broker/dealer may be changed by the
representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------------------------- -------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts and commissions
payable by SST....................... $ $ $ $
Expenses payable by SST................ $ $ $ $
</TABLE>
We, our directors and our executive officers have agreed that we and they
will not offer, sell, contract to sell, pledge or otherwise dispose of, directly
or indirectly, or file with the Commission a registration statement under the
Securities Act relating to, any additional shares of our common stock or
securities convertible into or exchangeable or exercisable for any of our common
stock, or publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without the prior written consent of Credit Suisse First
Boston Corporation for a period of 90 days after the date of this prospectus,
except that we can issue shares pursuant to the exercise of employee stock
options outstanding on the date hereof and that each of our officers and
directors may sell up to 10,000 of their shares without consent.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act or contribute to payments which the underwriters may be required
to make in that respect.
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Our common stock is traded on The Nasdaq National Market under the symbol
"SSTI."
The representatives on behalf of the underwriters may engage in
over-allotment, stabilizing transactions, syndicate covering transactions,
penalty bids and "passive" market making in accordance with Regulation M under
the Securities Exchange Act of 1934.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member are purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
- In "passive" market making, market makers in the securities who are
underwriters or prospective underwriters may, subject to certain
limitations, make bids for or purchases of the securities until the time,
if any, at which a stabilizing bid is made.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on The
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
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NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATION OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions".
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the SECURITIES ACT (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. This report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
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LEGAL MATTERS
The validity of the shares of common stock being sold in this offering and
other legal matters relating to the offering will be passed upon for us by
Cooley Godward LLP, Palo Alto, California. The underwriters have been
represented by Davis Polk & Wardwell, Menlo Park, California.
EXPERTS
The financial statements and the related financial statement schedule
incorporated in this Prospectus by reference to the Annual Report on Form 10-K
for the year ended December 31, 1999, have been so incorporated in reliance on
the reports of PricewaterhouseCoopers LLP, independent accountants, given on the
aurthority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement, which term shall include any amendment to the registration statement,
on Form S-3 under the Securities Act of 1933 with respect to the shares of
common stock offered by our company. This prospectus, which constitutes a part
of the registration statement, does not contain all of the information set forth
in the Registration Statement, some items of which are contained in exhibits to
the registration statement as permitted by the rules and regulations of the
Commission. We file proxy statements and annual, quarterly and special reports
and other information with the SEC. You can inspect and copy the registration
statement as well as the reports, proxy statements and other information we have
filed with the SEC may be inspected without charge at the public reference
facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and the Commission's regional offices located at the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048, and copies of all or any part of the registration statement may be
obtained from the Securities and Exchange Commission upon the payment of fees
prescribed by it. The Securities and Exchange Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding companies that file electronically with it. Our
common stock is listed on the Nasdaq National Market, and you may also inspect
copies of these reports, proxy statements and other information at the offices
of The Nasdaq Stock Market, 1735 K Street, N.W., Washington DC 20006.
21
<PAGE>
INFORMATION INCORPORATED BY REFERENCE
The Commission allows us to "incorporate by reference" our publicly filed
documents into this prospectus, which means that we can disclose important
information to you by referring you to those documents. The information included
in those documents is considered part of this prospectus. Information in this
prospectus supersedes information incorporated by reference that we filed with
the Commission prior to the date of this prospectus, while information that we
later file with the Commission will automatically update and supersede this
information. We incorporate by reference the documents listed below and any
future filings we will make with the Commission under Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934:
The following documents filed with the SEC are incorporated by reference in
this prospectus:
1. Our Annual Report on Form 10-K for the year ended December 31, 1999.
2. All other filings pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act since the end of the fiscal year covered by the
annual report referred to in (1) above.
3. The description of our common stock in our registration statement on
Form 8-A filed with the Commision on October 5, 1995, including any
amendments or reports filed for the purpose of updating such description.
4. All of the filings pursuant to the Securities Exchange Act after the
date of filing of the original registration statement and prior to the
effectiveness of the Registration Statement.
We will furnish without charge to you, on written or oral request, a copy of
any or all of the documents incorporated by reference, other than exhibits to
those documents. You should direct any requests for documents to Investor
Relations, 1171 Sonora Court, Sunnyvale, California 94086,
telephone:(408) 735-9110.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the documents that we incorporate by reference,
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.
Any statements about our expectations, beliefs, plans, objectives, assumptions
or future events or performance are not historical facts and may be
forward-looking. These statements are often, but not always, made through the
use of words or phrases such as "anticipate," "estimate," "plans," "projects,"
"continuing," "ongoing," "expects," "management believes," "we believe," "we
intend" and similar words or phrases. Accordingly, these statements involve
estimates, assumptions and uncertainties which could cause actual results to
differ materially from those expressed in them. Any forward-looking statements
are qualified in their entirety by reference to the factors discussed throughout
this prospectus.
Because the risk factors in this prospectus could cause actual results or
outcomes to differ materially from those expressed in any forward-looking
statements made by us, you should not place undue reliance on any such
forward-looking statements. Further, any forward-looking statement speaks only
as of the date on which it is made, and we undertake no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time, and it is not
possible for us to predict which will arise. In addition, we cannot assess the
impact of each factor on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
22
<PAGE>
[SST LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of the common stock being registered hereby. All amounts are estimates
except the Securities and Exchange Commission registration fee and the NASD
filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 58,344
NASD filing fee............................................. 22,600
Nasdaq National Market additional listing fee............... 17,500
Accounting fees and expenses................................ 250,000
Legal fees and expenses..................................... 650,000
Printing and engraving...................................... 150,000
Blue sky fees and expenses.................................. 5,000
Transfer agent fees and expenses............................ 15,000
Miscellaneous............................................... 31,556
----------
Total..................................................... $1,200,000
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 317 of the California Corporations Code allows for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities, including reimbursement for expenses incurred, arising under the
Securities Act of 1933, as amended. Article V of our articles of incorporation
and Article X of our bylaws provide for indemnification of our directors,
officers, employees and other agents to the extent and under the circumstances
permitted by the California Corporations Code. Our articles of incorporation
further provides that we must indemnify our directors and executive officers and
may indemnify our other officers and employees and agents to the fullest extent
permitted by California law. We believe that indemnification under our articles
of incorporation covers negligence and gross negligence on the part of
indemnified parties.
We have entered into indemnification agreements with each of our directors
and officers. These agreements, among other things, require us to indemnify each
director and officer for certain expenses including attorneys' fees, judgments,
fines and settlement amounts incurred by any such person in any action or
proceeding, including any action by or in the right of SST, arising out of
person's services as our director or officer, any subsidiary of ours or any
other company or enterprise to which the person provides services at our
request.
The Underwriting Agreement (Exhibit 1.1) will provide for indemnification by
the underwriters of SST, our directors, our officers who sign the Registration
Statement, and our controlling persons for some liabilities, including
liabilities arising under the Securities Act.
II-1
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- ------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
5.1* Opinion of Cooley Godward LLP.
23.1 Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.1* Consent of Cooley Godward LLP.
24.1 Power of Attorney. See signature page.
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities
Act, the information omitted from the form of this prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) That for purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 15
of this Registration Statement or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act of 1933, and will be
governed by the final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-3 and has duly caused this Registration Statement on
Form S-3 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Sunnyvale, State of California, on February 24, 2000.
<TABLE>
<S> <C> <C>
SILICON STORAGE TECHNOLOGY, INC.
By: /s/ BING YEH
-----------------------------------------
Bing Yeh
President and Chief Executive Officer
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Bing Yeh and Jeffrey L. Garon, and each of
them, his true and lawful agent, proxy and attorney-in-fact, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to (i) act on, sign and file with the Securities and
Exchange Commission any and all amendments (including post-effective amendments)
to this registration statement together with all schedules and exhibits thereto
and any subsequent registration statement filed pursuant to Rule 462(b) under
the Securities Act of 1933, as amended, together with all schedules and exhibits
thereto, (ii) act on, sign and file such certificates, instruments, agreements
and other documents as may be necessary or appropriate in connection therewith,
(iii) act on and file any supplement to any prospectus included in this
registration statement or any such amendment or any subsequent registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, and (iv) take any and all actions which may be necessary or appropriate
to be done, as fully for all intents and purposes as he or she might or could do
in person, hereby approving, ratifying and confirming all that such agent, proxy
and attorney-in-fact or any of his substitutes may lawfully do or cause to be
done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ BING YEH President, Chief Executive February 24, 2000
- -------------------------------------- Officer and Director (PRINCIPAL
Bing Yeh EXECUTIVE OFFICER)
/s/ JEFFREY L. GARON Vice President Finance & February 24, 2000
- -------------------------------------- Administration, Chief Financial
Jeffrey L. Garon Officer and Secretary
(PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
/s/ YAW WEN HU Senior Vice President, Operations February 24, 2000
- -------------------------------------- and Process Development and
Yaw Wen Hu Director
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ TSUYOSHI TAIRA Director February 24, 2000
- --------------------------------------
Tsuyoshi Taira
/s/ RONALD CHWANG Director February 24, 2000
- --------------------------------------
Ronald Chwang
/s/ YASUSHI CHIKAGAMI Director February 24, 2000
- --------------------------------------
Yasushi Chikagami
</TABLE>
II-4
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- ------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
5.1* Opinion of Cooley Godward LLP.
23.1 Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.1* Consent of Cooley Godward LLP.
24.1 Power of Attorney. See signature page.
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report dated January 17, 2000, except for Note 4,
which is as of February 24, 2000, relating to the financial statements, which
appears in Silicon Storage Technology, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1999. We also consent to the incorporation by reference
of our report dated January 17, 2000 relating to the financial statement
schedule, which appears in such Annual Report on Form 10-K. We also consent to
the reference to us under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, California
February 24, 2000
